[G.R. No. 160544.
February 21, 2005] In a decision dated June 22, 2001, the trial court rendered judgment for
TRIPLE-V vs. FILIPINO MERCHANTS
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court
dated FEB 21 2005.
G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino Merchants
Insurance Company, Inc.)
Assailed in this petition for review on certiorari is the
decision[1]cralaw dated October 21, 2003 of the Court of Appeals in
CA-G.R. CV No. 71223, affirming an earlier decision of the Regional
Trial Court at Makati City, Branch 148, in its Civil Case No. 98-838,
an action for damages thereat filed by respondent Filipino Merchants
Insurance, Company, Inc., against the herein petitioner, Triple-V
Food Services, Inc.
On March 2, 1997, at around 2:15 o'clock in the afternoon, a certain
Mary Jo-Anne De Asis (De Asis) dined at petitioner's Kamayan
Restaurant at 15 West Avenue, Quezon City. De Asis was using a
Mitsubishi Galant Super Saloon Model 1995 with plate number UBU
955, assigned to her by her employer Crispa Textile Inc. (Crispa).
On said date, De Asis availed of the valet parking service of
petitioner and entrusted her car key to petitioner's valet counter. A
corresponding parking ticket was issued as receipt for the car. The
car was then parked by petitioner's valet attendant, a certain
Madridano, at the designated parking area. Few minutes later,
Madridano noticed that the car was not in its parking slot and its key
no longer in the box where valet attendants usually keep the keys of
cars entrusted to them. The car was never recovered. Thereafter,
Crispa filed a claim against its insurer, herein respondent Filipino
Merchants Insurance Company, Inc. (FMICI). Having indemnified
Crispa in the amount of P669.500 for the loss of the subject vehicle,
FMICI, as subrogee to Crispa's rights, filed with the RTC at Makati
City an action for damages against petitioner Triple-V Food
Services, Inc., thereat docketed as Civil Case No. 98-838 which was
raffled to Branch 148.
In its answer, petitioner argued that the complaint failed to aver facts
to support the allegations of recklessness and negligence committed
in the safekeeping and custody of the subject vehicle, claiming that it
and its employees wasted no time in ascertaining the loss of the car
and in informing De Asis of the discovery of the loss. Petitioner
further argued that in accepting the complimentary valet parking
service, De Asis received a parking ticket whereunder it is so
provided that "[Management and staff will not be responsible for any
loss of or damage incurred on the vehicle nor of valuables contained
therein", a provision which, to petitioner's mind, is an explicit waiver
of any right to claim indemnity for the loss of the car; and that De
Asis knowingly assumed the risk of loss when she allowed petitioner
to park her vehicle, adding that its valet parking service did not
include extending a contract of insurance or warranty for the loss of
the vehicle.
During trial, petitioner challenged FMICI's subrogation to Crispa's
right to file a claim for the loss of the car, arguing that theft is not a
risk insured against under FMICI's Insurance Policy No. PC-5975 for
the subject vehicle.
waiver by the customer of any right to claim indemnity for any loss of or
respondent FMICI, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff (FMICI) and against the defendant Triple V (herein petitioner) and
the latter is hereby ordered to pay plaintiff the following:
1. The amount of P669,500.00, representing actual damages plus
compounded (sic);
2. The amount of P30,000.00 as acceptance fee plus the amount equal to 25%
of the total amount due as attorney's fees;
3. The amount of P50,000.00 as exemplary damages;
4. Plus, cost of suit.
Defendant Triple V is not therefore precluded from taking appropriate action
against defendant Armando Madridano.
SO ORDERED.
Obviously displeased, petitioner appealed to the Court of Appeals reiterating its
argument that it was not a depositary of the subject car and that it exercised
due diligence and prudence in the safe keeping of the vehicle, in handling the
car-napping incident and in the supervision of its employees. It further argued
that there was no valid subrogation of rights between Crispa and respondent
FMICI.
In a decision dated October 21, 2003,[2]cralaw the Court of Appeals dismissed
petitioner's appeal and affirmed the appealed decision of the trial court, thus:
WHEREFORE, based on the foregoing premises, the instant appeal is hereby
DISMISSED. Accordingly, the assailed June 22, 2001 Decision of the RTC of
Makati City - Branch 148 in Civil Case No. 98-838 is AFFIRMED.
SO ORDERED.
In so dismissing the appeal and affirming the appealed decision, the appellate
court agreed with the findings and conclusions of the trial court that: (a)
petitioner was a depositary of the subject vehicle; (b) petitioner was negligent in
its duties as a depositary thereof and as an employer of the valet attendant; and
(c) there was a valid subrogation of rights between Crispa and respondent
FMICI.
Hence, petitioner's present recourse.
We agree with the two (2) courts below.
When De Asis entrusted the car in question to petitioners valet attendant while
eating at petitioner's Kamayan Restaurant, the former expected the car's safe
return at the end of her meal. Thus, petitioner was constituted as a depositary of
the same car. Petitioner cannot evade liability by arguing that neither a contract
of deposit nor that of insurance, guaranty or surety for the loss of the car was
constituted when De Asis availed of its free valet parking service.
In a contract of deposit, a person receives an object belonging to another with
the obligation of safely keeping it and returning the same.[3]cralaw A deposit
may be constituted even without any consideration. It is not necessary that the
depositary receives a fee before it becomes obligated to keep the item
entrusted for safekeeping and to return it later to the depositor.
Specious is petitioner's insistence that the valet parking claim stub it issued to
De Asis contains a clear exclusion of its liability and operates as an explicit
damage to the vehicle.
The parking claim stub embodying the terms and conditions of the
parking, including that of relieving petitioner from any loss or damage to
the car, is essentially a contract of adhesion, drafted and prepared as it is
by the petitioner alone with no participation whatsoever on the part of the
customers, like De Asis, who merely adheres to the printed stipulations
therein appearing. While contracts of adhesion are not void in
themselves, yet this Court will not hesitate to rule out blind adherence
thereto if they prove to be one-sided under the attendant facts and
circumstances.[4]cralaw
Hence, and as aptly pointed out by the Court of Appeals, petitioner must
not be allowed to use its parking claim stub's exclusionary stipulation as
a shield from any responsibility for any loss or damage to vehicles or to
the valuables contained therein. Here, it is evident that De Asis deposited
the car in question with the petitioner as part of the latter's enticement for
customers by providing them a safe parking space within the vicinity of its
restaurant. In a very real sense, a safe parking space is an added
attraction to petitioner's restaurant business because customers are
thereby somehow assured that their vehicle are safely kept, rather than
parking them elsewhere at their own risk. Having entrusted the subject
car to petitioner's valet attendant, customer De Asis, like all of petitioner's
customers, fully expects the security of her car while at petitioner's
premises/designated parking areas and its safe return at the end of her
visit at petitioner's restaurant.
Petitioner's argument that there was no valid subrogation of rights
between Crispa and FMICI because theft was not a risk insured against
under FMICI's Insurance Policy No. PC-5975 holds no water.
Insurance Policy No. PC-5975 which respondent FMICI issued to Crispa
contains, among others things, the following item: "Insured's Estimate of
Value of Scheduled Vehicle- P800.000".[5]cralaw On the basis of such
item, the trial court concluded that the coverage includes a full
comprehensive insurance of the vehicle in case of damage or loss.
Besides, Crispa paid a premium of P10,304 to cover theft. This is clearly
shown in the breakdown of premiums in the same policy.[6]cralaw Thus,
having indemnified CRISPA for the stolen car, FMICI, as correctly ruled
by the trial court and the Court of Appeals, was properly subrogated to
Crispa's rights against petitioner, pursuant to Article 2207 of the New
Civil Code[7].
Anent the trial court's findings of negligence on the part of the petitioner,
which findings were affirmed by the appellate court, we have consistently
ruled that findings of facts of trial courts, more so when affirmed, as here,
by the Court of Appeals, are conclusive on this Court unless the trial
court itself ignored, overlooked or misconstrued facts and circumstances
which, if considered, warrant a reversal of the outcome of the
case.[8]cralaw This is not so in the case at bar. For, we have ourselves
reviewed the records and find no justification to deviate from the trial
court's findings.
WHEREFORE, petition is hereby DENIED DUE COURSE.
SO ORDERED.

G.R. Nos. L-26948 and L-26949 October 8, 1927
SILVESTRA BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
And
GUILLERMO BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
STREET, J.:
These two actions were instituted in the Court of First Instance of the
Province of Pampanga by the respective plaintiffs, Silvestra Baron
and Guillermo Baron, for the purpose of recovering from the
defendant, Pablo David, the value of palay alleged to have been
sold by the plaintiffs to the defendant in the year 1920. Owing to the
fact that the defendant is the same in both cases and that the two
cases depend in part upon the same facts, the cases were heard
together in the trial court and determined in a single opinion. The
same course will accordingly be followed here.
In the first case, i. e., that which Silvestra Baron is plaintiff, the court
gave judgment for her to recover of the defendant the sum of
P5,238.51, with costs. From this judgment both the plaintiff and the
defendant appealed.
In the second case, i. e., that in which Guillermo Baron, is plaintiff,
the court gave judgment for him to recover of the defendant the sum
of P5,734.60, with costs, from which judgment both the plaintiff and
the defendant also appealed. In the same case the defendant
interposed a counterclaim in which he asked credit for the sum of
P2,800 which he had advanced to the plaintiff Guillermo Baron on
various occasions. This credit was admitted by the plaintiff and
allowed by the trial court. But the defendant also interposed a cross-
action against Guillermo Baron in which the defendant claimed
compensation for damages alleged to have Ben suffered by him by
reason of the alleged malicious and false statements made by the
plaintiff against the defendant in suing out an attachment against the
defendant's property soon after the institution of the action. In the
same cross-action the defendant also sought compensation for
damages incident to the shutting down of the defendant's rice mill for
the period of one hundred seventy days during which the above-
mentioned attachment was in force. The trial judge disallowed these
claims for damages, and from this feature of the decision the
defendant appealed. We are therefore confronted with five distinct
appeals in this record.
Prior to January 17, 1921, the defendant Pablo David has been
engaged in running a rice mill in the municipality of Magalang, in the
Province of Pampanga, a mill which was well patronized by the rice
growers of the vicinity and almost constantly running. On the date
stated a fire occurred that destroyed the mill and its contents, and it
was some time before the mill could be rebuilt and put in operation
again. Silvestra Baron, the plaintiff in the first of the actions before
us, is an aunt of the defendant; while Guillermo Baron, the plaintiff in
the other action; is his uncle. In the months of March, April, and May, 1920,
Silvestra Baron placed a quantity of palay in the defendant's mill; and this, in
connection with some that she took over from Guillermo Baron, amounted to
1,012 cavans and 24 kilos. During approximately the same period Guillermo
Baron placed other 1,865 cavans and 43 kilos of palay in the mill. No
compensation has ever been received by Silvestra Baron upon account of the
palay delivered by Guillermo Baron, he has received from the defendant
advancements amounting to P2,800; but apart from this he has not been
compensated. Both the plaintiffs claim that the palay which was delivered by
them to the defendant was sold to the defendant; while the defendant, on the
other hand, claims that the palay was deposited subject to future withdrawal by
the depositors or subject to some future sale which was never effected. He
therefore supposes himself to be relieved from all responsibility by virtue of the
fire of January 17, 1921, already mentioned.
The plaintiff further say that their palay was delivered to the defendant at his
special request, coupled with a promise on his part to pay for the same at the
highest price per cavan at which palay would sell during the year 1920; and
they say that in August of that year the defendant promised to pay them
severally the price of P8.40 per cavan, which was about the top of the market
for the season, provided they would wait for payment until December. The trial
judge found that no such promise had been given; and the incredulity of the
court upon this point seems to us to be justified. A careful examination of the
proof, however, leads us to the conclusion that the plaintiffs did, some time in
the early part of August, 1920, make demand upon the defendant for a
settlement, which he evaded or postponed leaving the exact amount due to the
plaintiffs undetermined.
It should be stated that the palay in question was place by the plaintiffs in the
defendant's mill with the understanding that the defendant was at liberty to
convert it into rice and dispose of it at his pleasure. The mill was actively
running during the entire season, and as palay was daily coming in from many
customers and as rice was being constantly shipped by the defendant to
Manila, or other rice markets, it was impossible to keep the plaintiffs' palay
segregated. In fact the defendant admits that the plaintiffs' palay was mixed with
that of others. In view of the nature of the defendant's activities and the way in
which the palay was handled in the defendant's mill, it is quite certain that all of
the plaintiffs' palay, which was put in before June 1, 1920, been milled and
disposed of long prior to the fire of January 17, 1921. Furthermore, the proof
shows that when the fire occurred there could not have been more than about
360 cavans of palay in the mill, none of which by any reasonable probability
could have been any part of the palay delivered by the plaintiffs. Considering
the fact that the defendant had thus milled and doubtless sold the plaintiffs'
palay prior to the date of the fire, it result that he is bound to account for its
value, and his liability was not extinguished by the occurence of the fire. In the
briefs before us it seems to have been assumed by the opposing attorneys that
in order for the plaintiffs to recover, it is necessary that they should be able to
establish that the plaintiffs' palay was delivered in the character of a sale, and
that if, on the contrary, the defendant should prove that the delivery was made
in the character of deposit, the defendant should be absolved. But the case
does not depend precisely upon this explicit alternative; for even supposing that
the palay may have been delivered in the character of deposit, subject to future
sale or withdrawal at plaintiffs' election, nevertheless if it was understood that
the defendant might mill the palay and he has in fact appropriated it to his own
use, he is of course bound to account for its value. Under article 1768 of the
Civil Code, when the depository has permission to make use of the thing
deposited, the contract loses the character of mere deposit and becomes a loan
or a commodatum; and of course by appropriating the thing, the bailee
becomes responsible for its value. In this connection we wholly reject the
defendant's pretense that the palay delivered by the plaintiffs or any part
of it was actually consumed in the fire of January, 1921. Nor is the liability
of the defendant in any wise affected by the circumstance that, by a
custom prevailing among rice millers in this country, persons placing
palay with them without special agreement as to price are at liberty to
withdraw it later, proper allowance being made for storage and
shrinkage, a thing that is sometimes done, though rarely.
In view of what has been said it becomes necessary to discover the price
which the defendant should be required to pay for the plaintiffs' palay.
Upon this point the trial judge fixed upon P6.15 per cavan; and although
we are not exactly in agreement with him as to the propriety of the
method by which he arrived at this figure, we are nevertheless of the
opinion that, all things considered, the result is approximately correct. It
appears that the price of palay during the months of April, May, and
June, 1920, had been excessively high in the Philippine Islands and even
prior to that period the Government of the Philippine Islands had been
attempting to hold the price in check by executive regulation. The highest
point was touched in this season was apparently about P8.50 per cavan,
but the market began to sag in May or June and presently entered upon
a precipitate decline. As we have already stated, the plaintiffs made
demand upon the defendant for settlement in the early part of August;
and, so far as we are able to judge from the proof, the price of P6.15 per
cavan, fixed by the trial court, is about the price at which the defendant
should be required to settle as of that date. It was the date of the demand
of the plaintiffs for settlement that determined the price to be paid by the
defendant, and this is true whether the palay was delivered in the
character of sale with price undetermined or in the character of deposit
subject to use by the defendant. It results that the plaintiffs are
respectively entitle to recover the value of the palay which they had
placed with the defendant during the period referred to, with interest from
the date of the filing of their several complaints.
As already stated, the trial court found that at the time of the fire there
were about 360 cavans of palay in the mill and that this palay was
destroyed. His Honor assumed that this was part of the palay delivered
by the plaintiffs, and he held that the defendant should be credited with
said amount. His Honor therefore deducted from the claims of the
plaintiffs their respective proportionate shares of this amount of palay.
We are unable to see the propriety of this feature of the decision. There
were many customers of the defendant's rice mill who had placed their
palay with the defendant under the same conditions as the plaintiffs, and
nothing can be more certain than that the palay which was burned did
not belong to the plaintiffs. That palay without a doubt had long been sold
and marketed. The assignments of error of each of the plaintiffs-
appellants in which this feature of the decision is attacked are therefore
well taken; and the appealed judgments must be modified by eliminating
the deductions which the trial court allowed from the plaintiffs' claims.
The trial judge also allowed a deduction from the claim of the plaintiff
Guillermo Baron of 167 cavans of palay, as indicated in Exhibit 12, 13,
14, and 16. This was also erroneous. These exhibits relate to
transactions that occurred nearly two years after the transactions with
which we are here concerned, and they were offered in evidence merely
to show the character of subsequent transactions between the parties, it
appearing that at the time said exhibits came into existence the
defendant had reconstructed his mill and that business relations with
Guillermo Baron had been resumed. The transactions shown by these
exhibits (which relate to palay withdrawn by the plaintiff from the
defendant's mill) were not made the subject of controversy in either
the complaint or the cross-complaint of the defendant in the second
case. They therefore should not have been taken into account as a
credit in favor of the defendant. Said credit must therefore be
likewise of course be without prejudice to any proper adjustment of
the rights of the parties with respect to these subsequent
transactions that they have heretofore or may hereafter effect.
The preceding discussion disposes of all vital contentions relative to
the liability of the defendant upon the causes of action stated in the
complaints. We proceed therefore now to consider the question of
the liability of the plaintiff Guillermo Baron upon the cross-complaint
of Pablo David in case R. G. No. 26949. In this cross-action the
defendant seek, as the stated in the third paragraph of this opinion,
to recover damages for the wrongful suing out of an attachment by
the plaintiff and the levy of the same upon the defendant's rice mill. It
appears that about two and one-half months after said action was
begun, the plaintiff, Guillermo Baron, asked for an attachment to be
issued against the property of the defendant; and to procure the
issuance of said writ the plaintiff made affidavit to the effect that the
defendant was disposing, or attempting the plaintiff. Upon this
affidavit an attachment was issued as prayed, and on March 27,
1924, it was levied upon the defendant's rice mill, and other
property, real and personal. 1awph!l.net
Upon attaching the property the sheriff closed the mill and placed it
in the care of a deputy. Operations were not resumed until
September 13, 1924, when the attachment was dissolved by an
order of the court and the defendant was permitted to resume
control. At the time the attachment was levied there were, in the
bodega, more than 20,000 cavans of palay belonging to persons
who held receipts therefor; and in order to get this grain away from
the sheriff, twenty-four of the depositors found it necessary to submit
third-party claims to the sheriff. When these claims were put in the
sheriff notified the plaintiff that a bond in the amount of P50,000
must be given, otherwise the grain would be released. The plaintiff,
being unable or unwilling to give this bond, the sheriff surrendered
the palay to the claimants; but the attachment on the rice mill was
maintained until September 13, as above stated, covering a period
of one hundred seventy days during which the mill was idle. The
ground upon which the attachment was based, as set forth in the
plaintiff's affidavit was that the defendant was disposing or
attempting to dispose of his property for the purpose of defrauding
the plaintiff. That this allegation was false is clearly apparent, and
not a word of proof has been submitted in support of the assertion.
On the contrary, the defendant testified that at the time this
attachment was secured he was solvent and could have paid his
indebtedness to the plaintiff if judgment had been rendered against
him in ordinary course. His financial conditions was of course well
known to the plaintiff, who is his uncle. The defendant also states
that he had not conveyed away any of his property, nor had intended
to do so, for the purpose of defrauding the plaintiff. We have before
us therefore a case of a baseless attachment, recklessly sued out
upon a false affidavit and levied upon the defendant's property to his
great and needless damage. That the act of the plaintiff in suing out
the writ was wholly unjustifiable is perhaps also indicated in the
circumstance that the attachment was finally dissolved upon the
motion of the plaintiff himself.
The defendant testified that his mill was accustomed to clean from 400 to 450
cavans of palay per day, producing 225 cavans of rice of 57 kilos each. The
price charged for cleaning each cavan rice was 30 centavos. The defendant
also stated that the expense of running the mill per day was from P18 to P25,
and that the net profit per day on the mill was more than P40. As the mill was
not accustomed to run on Sundays and holiday, we estimate that the defendant
lost the profit that would have been earned on not less than one hundred forty
work days. Figuring his profits at P40 per day, which would appear to be a
conservative estimate, the actual net loss resulting from his failure to operate
the mill during the time stated could not have been less than P5,600. The
reasonableness of these figures is also indicated in the fact that the twenty-four
customers who intervened with third-party claims took out of the camarin 20,000
cavans of palay, practically all of which, in the ordinary course of events, would
have been milled in this plant by the defendant. And of course other grain would
have found its way to this mill if it had remained open during the one hundred
forty days when it was closed.
But this is not all. When the attachment was dissolved and the mill again
opened, the defendant found that his customers had become scattered and
could not be easily gotten back. So slow, indeed, was his patronage in returning
that during the remainder of the year 1924 the defendant was able to mill
scarcely more than the grain belonging to himself and his brothers; and even
after the next season opened many of his old customers did not return. Several
of these individuals, testifying as witnesses in this case, stated that, owing to
the unpleasant experience which they had in getting back their grain from the
sheriff to the mill of the defendant, though they had previously had much
confidence in him.
As against the defendant's proof showing the facts above stated the plaintiff
submitted no evidence whatever. We are therefore constrained to hold that the
defendant was damaged by the attachment to the extent of P5,600, in profits
lost by the closure of the mill, and to the extent of P1,400 for injury to the good-
will of his business, making a total of P7,000. For this amount the defendant
must recover judgment on his cross-complaint.
The trial court, in dismissing the defendant's cross-complaint for damages
resulting from the wrongful suing out of the attachment, suggested that the
closure of the rice mill was a mere act of the sheriff for which the plaintiff was
not responsible and that the defendant might have been permitted by the sheriff
to continue running the mill if he had applied to the sheriff for permission to
operate it. This singular suggestion will not bear a moment's criticism. It was of
course the duty of the sheriff, in levying the attachment, to take the attached
property into his possession, and the closure of the mill was a natural, and even
necessary, consequence of the attachment. For the damage thus inflicted upon
the defendant the plaintiff is undoubtedly responsible.
One feature of the cross-complaint consist in the claim of the defendant (cross-
complaint) for the sum of P20,000 as damages caused to the defendant by the
false and alleged malicious statements contained in the affidavit upon which the
attachment was procured. The additional sum of P5,000 is also claimed as
exemplary damages. It is clear that with respect to these damages the cross-
action cannot be maintained, for the reason that the affidavit in question was
used in course of a legal proceeding for the purpose of obtaining a legal
remedy, and it is therefore privileged. But though the affidavit is not actionable
as a libelous publication, this fact in no obstacle to the maintenance of an action
to recover the damage resulting from the levy of the attachment.
Before closing this opinion a word should be said upon the point raised in the
first assignment of error of Pablo David as defendant in case R. G. No. 26949.
In this connection it appears that the deposition of Guillermo Baron was
presented in court as evidence and was admitted as an exhibit, without
being actually read to the court. It is supposed in the assignment of error
now under consideration that the deposition is not available as evidence
to the plaintiff because it was not actually read out in court. This
connection is not well founded. It is true that in section 364 of the Code
of Civil Procedure it is said that a deposition, once taken, may be read by
either party and will then be deemed the evidence of the party reading it.
The use of the word "read" in this section finds its explanation of course
in the American practice of trying cases for the most part before juries.
When a case is thus tried the actual reading of the deposition is
necessary in order that the jurymen may become acquainted with its
contents. But in courts of equity, and in all courts where judges have the
evidence before them for perusal at their pleasure, it is not necessary
that the deposition should be actually read when presented as evidence.
From what has been said it result that judgment of the court below must
be modified with respect to the amounts recoverable by the respective
plaintiffs in the two actions R. G. Nos. 26948 and 26949 and must be
reversed in respect to the disposition of the cross-complaint interposed
by the defendant in case R. G. No. 26949, with the following result: In
case R. G. No. 26948 the plaintiff Silvestra Baron will recover of the
Pablo David the sum of P6,227.24, with interest from November 21,
1923, the date of the filing of her complaint, and with costs. In case R. G.
No. 26949 the plaintiff Guillermo Baron will recover of the defendant
Pablo David the sum of P8,669.75, with interest from January 9, 1924. In
the same case the defendant Pablo David, as plaintiff in the cross-
complaint, will recover of Guillermo Baron the sum of P7,000, without
costs. So ordered.
Avancea, C.J., Johnson, Malcolm, Villamor, Romualdez and Villa-Real,
JJ., concur.
Separate Opinions
JOHNS, J., dissenting and concurring:
The plaintiff Silvestra Baron is the aunt of the defendant, and Guillermo
Baron, the plaintiff in the other action, is his uncle. There is no dispute as
to the amount of palay which each delivered to the mill of the defendant.
Owing to the fact that they were relatives and that the plaintiffs reposed
special reposed special trust and confidence in the defendant, who was
their nephew, they were not as careful and prudent in their business
dealings with him as they should have been. Plaintiffs allege that their
respective palay was delivered to the defendant at his mill with the
understanding and agreement between them that they should receive the
highest market price for the palay for that season, which was P8.50 per
cavan. They further allege that about August first they made another
contract in and by which he promised and agreed to pay them P8.40 per
cavan for their palay, in consideration of which they agreed to extend the
time for payment to the first of December of that year. The amount of
palay is not in dispute, and the defendant admits that it was delivered to
his mill, but he claims that he kept it on deposit and as bailee without hire
for the plaintiffs and at their own risk, and that the mill was burned down,
and that at the time of the fire, plaintiffs' palay was in the mill. The lower
court found as a fact that there was no merit in that defense, and that
there was but little, if any, palay in the mill at the time of the fire and
that in truth and in fact that defense was based upon perjured
testimony.
The two cases were tried separately in the court below, but all of the
evidence in the case was substituted and used in the other. Both
plaintiffs testified to the making of the respective contracts as
alleged in their complaint; to wit, that they delivered the palay to the
defendant with the express understanding and agreement that he
would pay them for the palay the highest market price for the
season, and to the making of the second contract about the first of
August, in which they had a settlement, and that the defendant then
agreed to pay them P8.40 per cavan, such payment to be made on
December first. It appears that the highest market price for palay for
that season was P8.50 per cavan. The defendant denied the making
of either one of those contracts, and offered no other evidence on
that question. That is to say, we have the evidence of both Silvestra
Baron and Guillermo Baron to the making of those contracts, which
is denied by the defendant only. Plaintiffs' evidence is also
corroborated by the usual and customary manner in which the
growers sell their palay. That is to say, it is their custom to sell the
palay at or about the time it is delivered at the mill and as soon as it
is made ready for market in the form of rice. As stated the lower
court found as a fact that the evidence of the defendants as to
plaintiffs' palay being in the mill at the time of the fire was not worthy
of belief, and that in legal effect it was a manufactured defense. Yet,
strange as it may seem, both the lower court and this court have
found as a fact that upon the question of the alleged contracts, the
evidence for the defendant is true and entitled to more weight than
the evidence of both plaintiffs which is false.
It appears that the plaintiff Silvestra Baron is an old lady about 80
years of age and the aunt of the defendant, and Guillermo Baron is
the uncle. Under the theory of the lower court and of this court, both
of them at all the time during the high prices held their palay in
defendant's mill at their own risk, and that upon that point the
evidence of the defendant, standing alone is entitled to more weight
and is more convincing than the combined evidence of the two
plaintiffs. In the very nature of things, if defendant's evidence upon
that point is true, it stands to reason that, following the custom of
growers, the plaintiffs would have sold their palay during the period
of high prices, and would not have waited until it dropped from P8.50
per cavan to P6.15 per cavan about the first of August. Upon that
question, both the weight and the credibility of the evidence is with
the plaintiffs, and they should have judgment for the full amount of
their palay on the basis of P8.40 per cavan. For such reason, I
vigorously dissent from the majority opinion.
I frankly concede that the attachment was wrongful, and that it
should never have been levied. It remained in force for a period of
one hundred and seventy days at which time it was released on
motion of the plaintiffs. The defendant now claims, and the majority
opinion has allowed him, damages for that full period, exclusive of
Sundays, at the rate, of P40 per day, found to be the net profit for
the operation of the rice mill. It further appears, and this court finds,
that the defendant was a responsible man, and that he had ample
property out which to satisfy plaintiffs' claim. Assuming that to be
true, there was no valid reason why he could not had given a
counter bond and released the attachment. Upon the theory of the
majority opinion, if the plaintiffs had not released the attachment, they would still
be liable to the defendant at the rate of P40 per day up to the present time.
When the mill was attached, if he was in a position to do so, it was the duty of
the defendant to give a counter bond and release the attachment and resume
its operation. The majority opinion also allowed the defendant P1,400 "for injury
to the goodwill of his business." The very fact that after a delay of about four
years, both of the plaintiffs were compelled to bring to their respective actions
against the defendant to recover from him on a just and meritorious claim, as
found by this court and the lower court, and the further fact that after such long
delay, the defendant has sought to defeat the actions by a sham and
manufactured defense, as found by this and the lower court, would arouse the
suspicion of any customers the defendant ever had, and shake their confidence
in his business honor and integrity, and destroy any goodwill which he ever did
have. Under such conditions, it would be strange that the defendant would have
any customers left. He is not entitled to any compensation for the loss of
goodwill, and P5,000 should be the very limit of the amount of his damages for
the wrongful attachment, and upon that point I vigorously dissent. In all other
respects, I agree with the majority opinion.
G.R. No. 126911 April 30, 2003
PHILIPPINE DEPOSIT INSURANCE CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JOSE ABAD, LEONOR
ABAD, SABINA ABAD, JOSEPHINE "JOSIE" BEATA ABAD-ORLINA,
CECILIA ABAD, PIO ABAD, DOMINIC ABAD, TEODORA
ABAD, respondents.
CARPIO MORALES, J.:
The present petition for review assails the decision of the Court of Appeals
affirming that of the Regional Trial Court of Iloilo City, Branch 30, finding
petitioner Philippine Deposit Insurance Corporation (PDIC) liable, as statutory
insurer, for the value of 20 Golden Time Deposits belonging to respondents
Jose Abad, Leonor Abad, Sabina Abad, Josephine "Josie" Beata Abad-Orlina,
Cecilia Abad, Pio Abad, Dominic Abad, and Teodora Abad at the Manila
Banking Corporation (MBC), Iloilo Branch.
Prior to May 22, 1997, respondents had, individually or jointly with each other,
71 certificates of time deposits denominated as "Golden Time Deposits" (GTD)
with an aggregate face value of P1,115,889.96.1
On May 22, 1987, a Friday, the Monetary Board (MB) of the Central Bank of the
Philippines, now Bangko Sentral ng Pilipinas, issued Resolution
5052 prohibiting MBC to do business in the Philippines, and placing its assets
and affairs under receivership. The Resolution, however, was not served on
MBC until Tuesday the following week, or on May 26, 1987, when the
designated Receiver took over.3
On May 25, 1987, the next banking day following the issuance of the MB
Resolution, respondent Jose Abad was at the MBC at 9:00 a.m. for the purpose
of pre-terminating the 71 aforementioned GTDs and re-depositing the fund
represented thereby into 28 new GTDs in denominations of P40,000.00 or less
under the names of herein respondents individually or jointly with each
other.4 Of the 28 new GTDs, Jose Abad pre-terminated 8 and withdrew the
value thereof in the total amount of P320,000.00.5
Respondents thereafter filed their claims with the PDIC for the payment of the
remaining 20 insured GTDs.6
On February 11, 1988, PDIC paid respondents the value of 3 claims in
the total amount of P120,000.00. PDIC, however, withheld payment of
the 17 remaining claims after Washington Solidum, Deputy Receiver of
MBC-Iloilo, submitted a report to the PDIC7 that there was massive
conversion and substitution of trust and deposit accounts on May 25,
1987 at MBC-Iloilo.8 The pertinent portions of the report stated:
xxx xxx xxx
On May 25, 1987 (Monday) or a day prior to the official
announcement and take-over by CB of the assets and liabilities
of The Manila Banking Corporation, the Iloilo Branch was found
to have recorded an unusually heavy movements in terms of
volume and amount for all types of deposits and trust accounts.
It appears that the impending receivership of TMBC was
somehow already known to many depositors on account of the
massive withdrawals paid on this day which practically wiped
out the branch's entire cash position. . . .
xxx xxx xxx
. . . The intention was to maximize the availment of PDIC
coverage limited to P40,000 by spreading out big accounts to
as many certificates under various nominees. . . .9
xxx xxx xxx
Because of the report, PDIC entertained serious reservation in
recognizing respondents' GTDs as deposit liabilities of MBC-Iloilo. Thus,
on August 30, 1991, it filed a petition for declaratory relief against
respondents with the Regional Trial Court (RTC) of Iloilo City, for a
judicial declaration determination of the insurability of respondents' GTDs
at MBC-Iloilo.10
In their Answer filed on October 24, 1991 and Amended Answer11 filed
on January 9, 1992, respondents set up a counterclaim against
PDIC whereby they asked for payment of their insured deposits.12
In its Decision of February 22, 1994,13 Branch 30 of the Iloilo RTC
declared the 20 GTDs of respondents to be deposit liabilities of MBC,
hence, are liabilities of PDIC as statutory insurer. It accordingly disposed
as follows:
WHEREFORE, premises considered, judgment is hereby
rendered:
1. Declaring the 28 GTDs of the Abads which were issued by
the TMBC-Iloilo on May 25, 1987 as deposits or deposit
liabilities of the bank as the term is defined under Section 3 (f)
of R.A. No. 3591, as amended;
2. Declaring PDIC, being the statutory insurer of bank deposits,
liable to the Abads for the value of the remaining 20 GTDs, the
other 8 having been paid already by TMBC Iloilo on May
25,1987;
3. Ordering PDIC to pay the Abads the value of said 20 GTDs
less the value of 3 GTDs it paid on February 11, 1988, and the
amounts it may have paid the Abads pursuant to the Order of
this Court dated September 8, 1992;
4. Ordering PDIC to pay immediately the Abads the balance of
its admitted liability as contained in the aforesaid Order of
 September 8, 1992, should there be any, subject to
liquidation when this case shall have been finally decide;
and
5. Ordering PDIC to pay legal interest on the remaining
insured deposits of the Abads from February 11, 1988
until they are fully paid.
SO ORDERED.
On appeal, the Court of Appeals, by the assailed Decision of
October 21, 1996,14 affirmed the trial court's decision except as to
the award of legal interest which it deleted.
Hence, PDIC's present Petition for Review which sets forth this lone
assignment of error:
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING
THE HOLDING OF THE TRIAL COURT THAT THE AMOUNT
REPRESENTED IN THE FACES OF THE SO CALLED "GOLDEN
TIME DEPOSITS" WERE INSURED DEPOSITS EVEN AS THEY
WERE MERE DERIVATIVES OF RESPONDENTS' PREVIOUS
ACCOUNT BALANCES WHICH WERE PRE-
TERMINATED/TERMINATED AT THE TIME THE MANILA
BANKING CORPORATION WAS ALREADY IN SERIOUS
FINANCIAL DISTRESS.
In its supplement to the petition, PDIC adds the following
assignment of error:
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING
THE HOLDING OF THE TRIAL COURT ORDERING PETITIONER
TO PAY RESPONDENTS' CLAIMS FOR PAYMENT OF INSURED
DEPOSITS FOR THE REASON THAT AN ACTION FOR
DECLARATORY RELIEF DOES NOT ESSENTIALLY ENTAIL AN
EXECUTORY PROCESS AS THE ONLY RELIEF THAT SHOULD
HAVE BEEN GRANTED BY THE TRIAL COURT IS A
DECLARATION OF THE RIGHTS AND DUTIES OF PETITIONER
UNDER R.A. 3591, AS AMENDED, PARTICULARLY SECTION 3(F)
THEREOF AS CONSIDERED AGAINST THE SURROUNDING
CIRCUMSTANCES OF THE MATTER IN ISSUE SOUGHT TO BE
CONSTRUED WITHOUT PREJUDICE TO OTHER MATTERS
THAT NEED TO BE CONSIDERED BY PETITIONER IN THE
PROCESSING OF RESPONDENTS' CLAIMS.
Under its charter,15 PDIC (hereafter petitioner) is liable only for
deposits received by a bank "in the usual course of
business."16 Being of the firm conviction that, as the reported May
25, 1987 bank transactions were so massive, hence, irregular,
petitioner essentially seeks a judicial declaration that such
transactions were not made "in the usual course of business" and,
therefore, it cannot be made liable for deposits subject thereof.17
Petitioner points that as MBC was prohibited from doing further
business by MB Resolution 505 as of May 22, 1987, all transactions
subsequent to such date were not done "in the usual course of
business."
Petitioner further posits that there was no consideration for the 20
GTDs subject of respondents' claim. In support of this submission, it
states that prior to March 25, 1987, when the 20 GTDs were made,
MBC had been experiencing liquidity problems, e.g., at the start of
banking operations on March 25, 1987, it had only P2,841,711.90 cash on hand
and at the end of the day it was left with P27,805.81 consisting mostly of
mutilated bills and coins.18 Hence, even if respondents had wanted to convert
the face amounts of the GTDs to cash, MBC could not have complied with it.
Petitioner theorizes that after MBC had exhausted its cash and could no longer
sustain further withdrawal transactions, it instead issued new GTDs as
"payment" for the pre-terminated GTDs of respondents to make sure that all the
newly-issued GTDs have face amounts which are within the statutory coverage
of deposit insurance.
Petitioner concludes that since no cash was given by respondents and none
was received by MBC when the new GTDs were transacted, there was no
consideration therefor and, thus, they were not validly transacted "in the usual
course of business" and no liability for deposit insurance was created.19
Petitioner's position does not persuade.
While the MB issued Resolution 505 on May 22, 1987, a copy thereof was
served on MBC only on May 26, 1987. MBC and its clients could be given the
benefit of the doubt that they were not aware that the MB resolution had been
passed, given the necessity of confidentiality of placing a banking institution
under receivership.20
The evident implication of the law, therefore, is that the appointment
of a receiver may be made by the Monetary Board without notice and
hearing but its action is subject to judicial inquiry to insure the
protection of the banking institution. Stated otherwise, due process
does not necessarily require a prior hearing; a hearing or an
opportunity to be heard may be subsequent to the closure. One can
just imagine the dire consequences of a prior hearing: bank runs
would be the order of the day, resulting in panic and hysteria. In the
process, fortunes may be wiped out, and disillusionment will run the
gamut of the entire banking community. (Emphasis supplied).21
Mere conjectures that MBC had actual knowledge of its impending closure do
not suffice. The MB resolution could not thus have nullified respondents'
transactions which occurred prior to May 26, 1987.
That no actual money in bills and/or coins was handed by respondents to MBC
does not mean that the transactions on the new GTDs did not involve money
and that there was no consideration therefor. For the outstanding balance of
respondents' 71 GTDs in MBC prior to May 26, 198722 in the amount of
P1,115,889.15 as earlier mentioned was re-deposited by respondents under 28
new GTDs. Admittedly, MBC had P2,841,711.90 cash on hand more than
double the outstanding balance of respondent's 71 GTDs at the start of the
banking day on May 25, 1987. Since respondent Jose Abad was at MBC soon
after it opened at 9:00 a.m. of that day, petitioner should not presume that MBC
had no cash to cover the new GTDs of respondents and conclude that there
was no consideration for said GTDs.
Petitioner having failed to overcome the presumption that the ordinary course of
business was followed,23 this Court finds that the 28 new GTDs were deposited
"in the usual course of business" of MBC.
In its second assignment of error, petitioner posits that the trial court erred in
ordering it to pay the balance of the deposit insurance to respondents,
maintaining that the instant petition stemmed from a petition for declaratory
relief which does not essentially entail an executory process, and the only relief
that should have been granted by the trial court is a declaration of the parties'
rights and duties. As such, petitioner continues, no order of payment may
arise from the case as this is beyond the office of declaratory relief
proceedings.24
Without doubt, a petition for declaratory relief does not essentially entail
an executory process. There is nothing in its nature, however, that
prohibits a counterclaim from being set-up in the same action.25
Now, there is nothing in the nature of a special civil action for
declaratory relief that proscribes the filing of a counterclaim
based on the same transaction, deed or contract subject of the
complaint. A special civil action is after all not essentially
different from an ordinary civil action, which is generally
governed by Rules 1 to 56 of the Rules of Court, except that
the former deals with a special subject matter which makes
necessary some special regulation. But the identity between
their fundamental nature is such that the same rules governing
ordinary civil suits may and do apply to special civil actions if
not inconsistent with or if they may serve to supplement the
provisions of the peculiar rules governing special civil
actions.26
Petitioner additionally submits that the issue of determining the amount
of deposit insurance due respondents was never tried on the merits since
the trial dwelt only on the "determination of the viability or validity of the
deposits" and no evidence on record sustains the holding that the
amount of deposit due respondents had been finally determined.27 This
issue was not raised in the court a quo, however, hence, it cannot be
raised for the first time in the petition at bar.28
Finally, petitioner faults respondents for availing of the statutory limits of
the PDIC law, presupposing that, based on the conduct of respondent
Jose Abad on March 25, 1987, he and his co respondents "somehow
knew" of the impending closure of MBC. Petitioner ascribes bad faith to
respondent Jose Abad in transacting the questioned deposits, and seeks
to disqualify him from availing the benefits under the law. 29
Good faith is presumed. This, petitioner failed to overcome since it
offered mere presumptions as evidence of bad faith.
WHEREFORE, the assailed decision of the Court of Appeals is hereby
AFFIRMED.
SO ORDERED.
G.R. No. 90027 March 3, 1993
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,
vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND
TRUST COMPANY, respondents.
Dolorfino & Dominguez Law Offices for petitioner.
Danilo B. Banares for private respondent.
DAVIDE, JR., J.:
Is the contractual relation between a commercial bank and another party
in a contract of rent of a safety deposit box with respect to its contents
placed by the latter one of bailor and bailee or one of lessor and lessee?
This is the crux of the present controversy.
On 3 July 1979, petitioner (through its President, Sergio Aguirre) and
the spouses Ramon and Paula Pugao entered into an agreement
whereby the former purchased from the latter two (2) parcels of land
for a consideration of P350,625.00. Of this amount, P75,725.00 was
paid as downpayment while the balance was covered by three (3)
postdated checks. Among the terms and conditions of the
agreement embodied in a Memorandum of True and Actual
Agreement of Sale of Land were that the titles to the lots shall be
transferred to the petitioner upon full payment of the purchase price
and that the owner's copies of the certificates of titles thereto,
Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall
be deposited in a safety deposit box of any bank. The same could
be withdrawn only upon the joint signatures of a representative of
the petitioner and the Pugaos upon full payment of the purchase
price. Petitioner, through Sergio Aguirre, and the Pugaos then
rented Safety Deposit Box No. 1448 of private respondent Security
Bank and Trust Company, a domestic banking corporation
hereinafter referred to as the respondent Bank. For this purpose,
both signed a contract of lease (Exhibit "2") which contains, inter
alia, the following conditions:
13. The bank is not a depositary of the contents
of the safe and it has neither the possession nor
control of the same.
14. The bank has no interest whatsoever in said
contents, except herein expressly provided, and
it assumes absolutely no liability in connection
therewith.1
After the execution of the contract, two (2) renter's keys were given
to the renters one to Aguirre (for the petitioner) and the other to
the Pugaos. A guard key remained in the possession of the
respondent Bank. The safety deposit box has two (2) keyholes, one
for the guard key and the other for the renter's key, and can be
opened only with the use of both keys. Petitioner claims that the
certificates of title were placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the
petitioner the two (2) lots at a price of P225.00 per square meter
which, as petitioner alleged in its complaint, translates to a profit of
P100.00 per square meter or a total of P280,500.00 for the entire
property. Mrs. Ramos demanded the execution of a deed of sale
which necessarily entailed the production of the certificates of title. In
view thereof, Aguirre, accompanied by the Pugaos, then proceeded
to the respondent Bank on 4 October 1979 to open the safety
deposit box and get the certificates of title. However, when opened
in the presence of the Bank's representative, the box yielded no
such certificates. Because of the delay in the reconstitution of the
title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a
consequence thereof, the petitioner allegedly failed to realize the
expected profit of P280,500.00. Hence, the latter filed on 1
September 1980 a complaint2 for damages against the respondent
Bank with the Court of First Instance (now Regional Trial Court) of
Pasig, Metro Manila which docketed the same as Civil Case No.
38382.
In its Answer with Counterclaim,3 respondent Bank alleged that the petitioner
has no cause of action because of paragraphs 13 and 14 of the contract of
lease (Exhibit "2"); corollarily, loss of any of the items or articles contained in the
box could not give rise to an action against it. It then interposed a counterclaim
for exemplary damages as well as attorney's fees in the amount of P20,000.00.
Petitioner subsequently filed an answer to the counterclaim.4
In due course, the trial court, now designated as Branch 161 of the Regional
Trial Court (RTC) of Pasig, Metro Manila, rendered a decision5 adverse to the
petitioner on 8 December 1986, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered dismissing plaintiff's complaint.
On defendant's counterclaim, judgment is hereby rendered
ordering plaintiff to pay defendant the amount of FIVE
THOUSAND (P5,000.00) PESOS as attorney's fees.
With costs against plaintiff.6
The unfavorable verdict is based on the trial court's conclusion that under
paragraphs 13 and 14 of the contract of lease, the Bank has no liability for the
loss of the certificates of title. The court declared that the said provisions are
binding on the parties.
Its motion for reconsideration7 having been denied, petitioner appealed from
the adverse decision to the respondent Court of Appeals which docketed the
appeal as CA-G.R. CV No. 15150. Petitioner urged the respondent Court to
reverse the challenged decision because the trial court erred in (a) absolving
the respondent Bank from liability from the loss, (b) not declaring as null and
void, for being contrary to law, public order and public policy, the provisions in
the contract for lease of the safety deposit box absolving the Bank from any
liability for loss, (c) not concluding that in this jurisdiction, as well as under
American jurisprudence, the liability of the Bank is settled and (d) awarding
attorney's fees to the Bank and denying the petitioner's prayer for nominal and
exemplary damages and attorney's fees.8
In its Decision promulgated on 4 July 1989,9 respondent Court affirmed the
appealed decision principally on the theory that the contract (Exhibit "2")
executed by the petitioner and respondent Bank is in the nature of a contract of
lease by virtue of which the petitioner and its co-renter were given control over
the safety deposit box and its contents while the Bank retained no right to open
the said box because it had neither the possession nor control over it and its
contents. As such, the contract is governed by Article 1643 of the Civil
Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds
himself to give to another the enjoyment or use of a thing
for a price certain, and for a period which may be definite or
indefinite. However, no lease for more than ninety-nine
years shall be valid.
It invoked Tolentino vs. Gonzales 11 which held that the owner of
the property loses his control over the property leased during the
period of the contract and Article 1975 of the Civil Code which
provides:
Art. 1975. The depositary holding certificates, bonds,
securities or instruments which earn interest shall be bound
to collect the latter when it becomes due, and to take such
steps as may be necessary in order that the securities may
preserve their value and the rights corresponding to
them according to law.
The above provision shall not apply to contracts for
the rent of safety deposit boxes.
and then concluded that "[c]learly, the defendant-appellee is
not under any duty to maintain the contents of the box. The
stipulation absolving the defendant-appellee from liability is in
accordance with the nature of the contract of lease and cannot
be regarded as contrary to law, public order and public
policy." 12 The appellate court was quick to add, however, that
under the contract of lease of the safety deposit box,
respondent Bank is not completely free from liability as it may
still be made answerable in case unauthorized persons enter
into the vault area or when the rented box is forced open.
Thus, as expressly provided for in stipulation number 8 of the
contract in question:
8. The Bank shall use due diligence that no
unauthorized person shall be admitted to any rented
safe and beyond this, the Bank will not be
responsible for the contents of any safe rented from
it. 13
Its motion for reconsideration 14 having been denied in the respondent
Court's Resolution of 28 August 1989, 15petitioner took this recourse
under Rule 45 of the Rules of Court and urges Us to review and set
aside the respondent Court's ruling. Petitioner avers that both the
respondent Court and the trial court (a) did not properly and legally apply
the correct law in this case, (b) acted with grave abuse of discretion or in
excess of jurisdiction amounting to lack thereof and (c) set a precedent
that is contrary to, or is a departure from precedents adhered to and
affirmed by decisions of this Court and precepts in American
jurisprudence adopted in the Philippines. It reiterates the arguments it
had raised in its motion to reconsider the trial court's decision, the brief
submitted to the respondent Court and the motion to reconsider the
latter's decision. In a nutshell, petitioner maintains that regardless of
nomenclature, the contract for the rent of the safety deposit box (Exhibit
"2") is actually a contract of deposit governed by Title XII, Book IV of the
Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is
liable for the loss of the certificates of title pursuant to Article 1972 of the
said Code which provides:
Art. 1972. The depositary is obliged to keep the thing
safely and to return it, when required, to the
depositor, or to his heirs and successors, or to the
person who may have been designated in the
contract. His responsibility, with regard to the
safekeeping and the loss of the thing, shall be
governed by the provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken
into account in determining the degree of care that
the depositary must observe.
Petitioner then quotes a passage from American
Jurisprudence 17 which is supposed to expound on the
prevailing rule in the United States, to wit:
 The prevailing rule appears to be that where a
safe-deposit company leases a safe-deposit box
or safe and the lessee takes possession of the
box or safe and places therein his securities or
other valuables, the relation of bailee and bail or
is created between the parties to the transaction
as to such securities or other valuables; the fact
that the
safe-deposit company does not know, and that it
is not expected that it shall know, the character
or description of the property which is deposited
in such safe-deposit box or safe does not
change that relation. That access to the contents
of the safe-deposit box can be had only by the
use of a key retained by the lessee ( whether it
is the sole key or one to be used in connection
with one retained by the lessor) does not
operate to alter the foregoing rule. The argument
that there is not, in such a case, a delivery of
exclusive possession and control to the deposit
company, and that therefore the situation is
entirely different from that of ordinary bailment,
has been generally rejected by the courts,
usually on the ground that as possession must
be either in the depositor or in the company, it
should reasonably be considered as in the latter
rather than in the former, since the company is,
by the nature of the contract, given absolute
control of access to the property, and the
depositor cannot gain access thereto without the
consent and active participation of the company.
. . . (citations omitted).
and a segment from Words and Phrases 18 which states
that a contract for the rental of a bank safety deposit box
in consideration of a fixed amount at stated periods is a
bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned
contract are contrary to law and public policy and should be declared
null and void. In support thereof, it cites Article 1306 of the Civil
Code which provides that parties to a contract may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order or public policy.
After the respondent Bank filed its comment, this Court gave due
course to the petition and required the parties to simultaneously
submit their respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the
rent of the safety deposit box is not an ordinary contract of lease as
defined in Article 1643 of the Civil Code. However, We do not fully
subscribe to its view that the same is a contract of deposit that is to
be strictly governed by the provisions in the Civil Code on
deposit; 19 the contract in the case at bar is a special kind of
deposit. It cannot be characterized as an ordinary contract of lease
under Article 1643 because the full and absolute possession and
control of the safety deposit box was not given to the joint renters the
petitioner and the Pugaos. The guard key of the box remained with the
respondent Bank; without this key, neither of the renters could open the box. On
the other hand, the respondent Bank could not likewise open the box without
the renter's key. In this case, the said key had a duplicate which was made so
that both renters could have access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not
apply. Neither could Article 1975, also relied upon by the respondent Court, be
invoked as an argument against the deposit theory. Obviously, the first
paragraph of such provision cannot apply to a depositary of certificates, bonds,
securities or instruments which earn interest if such documents are kept in a
rented safety deposit box. It is clear that the depositary cannot open the box
without the renter being present.
We observe, however, that the deposit theory itself does not altogether find
unanimous support even in American jurisprudence. We agree with the
petitioner that under the latter, the prevailing rule is that the relation between a
bank renting out safe-deposit boxes and its customer with respect to the
contents of the box is that of a bail or and bailee, the bailment being for hire and
mutual benefit. 21 This is just the prevailing view because:
There is, however, some support for the view that the
relationship in question might be more properly
characterized as that of landlord and tenant, or lessor and
lessee. It has also been suggested that it should be
characterized as that of licensor and licensee. The relation
between a bank, safe-deposit company, or storage
company, and the renter of a safe-deposit box therein, is
often described as contractual, express or implied, oral or
written, in whole or in part. But there is apparently no
jurisdiction in which any rule other than that applicable to
bailments governs questions of the liability and rights of the
parties in respect of loss of the contents of safe-deposit
boxes. 22 (citations omitted)
In the context of our laws which authorize banking institutions to rent out safety
deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United
States has been adopted. Section 72 of the General Banking Act 23pertinently
provides:
Sec. 72. In addition to the operations specifically authorized
elsewhere in this Act, banking institutions other than
building and loan associations may perform the following
services:
(a) Receive in custody funds,
documents, and valuable objects, and
rent safety deposit boxes for the
safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under
subsections (a), (b) and (c) of this section as depositories or
as agents. . . . 24 (emphasis supplied)
Note that the primary function is still found within the parameters of a contract
of deposit, i.e., the receiving in custody of funds, documents and other valuable
objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function. A
contract of deposit may be entered into orally or in writing 25 and,
pursuant to Article 1306 of the Civil Code, the parties thereto may
establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good
customs, public order or public policy. The depositary's responsibility for
the safekeeping of the objects deposited in the case at bar is governed
by Title I, Book IV of the Civil Code. Accordingly, the depositary would be
liable if, in performing its obligation, it is found guilty of fraud, negligence,
delay or contravention of the tenor of the agreement. 26 In the absence
of any stipulation prescribing the degree of diligence required, that of a
good father of a family is to be observed. 27 Hence, any stipulation
exempting the depositary from any liability arising from the loss of the
thing deposited on account of fraud, negligence or delay would be void
for being contrary to law and public policy. In the instant case, petitioner
maintains that conditions 13 and 14 of the questioned contract of lease of
the safety deposit box, which read:
13. The bank is not a depositary of the contents of
the safe and it has neither the possession nor control
of the same.
14. The bank has no interest whatsoever in said
contents, except herein expressly provided, and it
assumes absolutely no liability in connection
therewith. 28
are void as they are contrary to law and public policy. We find
Ourselves in agreement with this proposition for indeed, said
provisions are inconsistent with the respondent Bank's
responsibility as a depositary under Section 72(a) of the
General Banking Act. Both exempt the latter from any liability
except as contemplated in condition 8 thereof which limits its
duty to exercise reasonable diligence only with respect to who
shall be admitted to any rented safe, to wit:
8. The Bank shall use due diligence that no
unauthorized person shall be admitted to any rented
safe and beyond this, the Bank will not be
responsible for the contents of any safe rented from
it. 29
Furthermore, condition 13 stands on a wrong premise and is
contrary to the actual practice of the Bank. It is not correct to
assert that the Bank has neither the possession nor control of
the contents of the box since in fact, the safety deposit box
itself is located in its premises and is under its absolute control;
moreover, the respondent Bank keeps the guard key to the
said box. As stated earlier, renters cannot open their respective
boxes unless the Bank cooperates by presenting and using this
guard key. Clearly then, to the extent above stated, the
foregoing conditions in the contract in question are void and
ineffective. It has been said:
With respect to property deposited in a safe-deposit
box by a customer of a safe-deposit company, the
parties, since the relation is a contractual one, may
by special contract define their respective duties or
provide for increasing or limiting the liability of the
deposit company, provided such contract is not in
violation of law or public policy. It must clearly appear
 that there actually was such a special contract,
however, in order to vary the ordinary
obligations implied by law from the relationship
of the parties; liability of the deposit company
will not be enlarged or restricted by words of
doubtful meaning. The company, in renting
safe-deposit boxes, cannot exempt itself from
liability for loss of the contents by its own fraud
or negligence or that of its agents or servants,
and if a provision of the contract may be
construed as an attempt to do so, it will be held
ineffective for the purpose. Although it has been
held that the lessor of a safe-deposit box cannot
limit its liability for loss of the contents thereof
through its own negligence, the view has been
taken that such a lessor may limits its liability to
some extent by agreement or
stipulation. 30 (citations omitted)
Thus, we reach the same conclusion which the Court of Appeals
arrived at, that is, that the petition should be dismissed, but on
grounds quite different from those relied upon by the Court of
Appeals. In the instant case, the respondent Bank's exoneration
cannot, contrary to the holding of the Court of Appeals, be based on
or proceed from a characterization of the impugned contract as a
contract of lease, but rather on the fact that no competent proof was
presented to show that respondent Bank was aware of the
agreement between the petitioner and the Pugaos to the effect that
the certificates of title were withdrawable from the safety deposit box
only upon both parties' joint signatures, and that no evidence was
submitted to reveal that the loss of the certificates of title was due to
the fraud or negligence of the respondent Bank. This in turn flows
from this Court's determination that the contract involved was one of
deposit. Since both the petitioner and the Pugaos agreed that each
should have one (1) renter's key, it was obvious that either of them
could ask the Bank for access to the safety deposit box and, with the
use of such key and the Bank's own guard key, could open the said
box, without the other renter being present.
Since, however, the petitioner cannot be blamed for the filing of the
complaint and no bad faith on its part had been established, the trial
court erred in condemning the petitioner to pay the respondent Bank
attorney's fees. To this extent, the Decision (dispositive portion) of
public respondent Court of Appeals must be modified.
WHEREFORE, the Petition for Review is partially GRANTED by
deleting the award for attorney's fees from the 4 July 1989 Decision
of the respondent Court of Appeals in CA-G.R. CV No. 15150. As
modified, and subject to the pronouncement We made above on the
nature of the relationship between the parties in a contract of lease
of safety deposit boxes, the dispositive portion of the said Decision
is hereby AFFIRMED and the instant Petition for Review is
otherwise DENIED for lack of merit.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 4015 August 24, 1908
ANGEL JAVELLANA, plaintiff-appellee,
vs.
JOSE LIM, ET AL., defendants-appellants.
R. Zaldarriaga for appellants.
B. Montinola for appellee.
TORRES, J.:
The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of
October, 1906, with the Court of First Instance of Iloilo, praying that the
defendants, Jose Lim and Ceferino Domingo Lim, he sentenced to jointly and
severally pay the sum of P2,686.58, with interest thereon at the rate of 15 per
cent per annum from the 20th of January, 1898, until full payment should be
made, deducting from the amount of interest due the sum of P1,102.16, and to
pay the costs of the proceedings.
Authority from the court having been previously obtained, the complaint was
amended on the 10th of January, 1907; it was then alleged, on the 26th of May,
1897, the defendants executed and subscribed a document in favor of the
plaintiff reading as follows:
We have received from Angel Javellana, as a deposit without interest, the sum
of two thousand six hundred and eighty-six cents of pesos fuertes, which we will
return to the said gentleman, jointly and severally, on the 20th of January, 1898.
Jaro, 26th of May, 1897. Signed Jose Lim. Signed: Ceferino Domingo
Lim.
That, when the obligation became due, the defendants begged the plaintiff for
an extension of time for the payment thereof, building themselves to pay
interest at the rate of 15 per cent on the amount of their indebtedness, to which
the plaintiff acceded; that on the 15th of May, 1902, the debtors paid on account
of interest due the sum of P1,000 pesos, with the exception of either capital or
interest, had thereby been subjected to loss and damages.
A demurrer to the original complaint was overruled, and on the 4th of January,
1907, the defendants answered the original complaint before its amendment,
setting forth that they acknowledged the facts stated in Nos. 1 and 2 of the
complaint; that they admitted the statements of the plaintiff relative to the
payment of 1,102.16 pesos made on the 15th of November, 1902, not,
however, as payment of interest on the amount stated in the foregoing
document, but on account of the principal, and denied that there had been any
agreement as to an extension of the time for payment and the payment of
interest at the rate of 15 per cent per annum as alleged in paragraph 3 of the
complaint, and also denied all the other statements contained therein.
As a counterclaim, the defendants alleged that they had paid to the plaintiff
sums which, together with the P1,102.16 acknowledged in the complaint,
aggregated the total sum of P5,602.16, and that, deducting therefrom the total
sum of P2,686.58 stated in the document transcribed in the complaint, the
plaintiff still owed the defendants P2,915.58; therefore, they asked that
judgment be entered absolving them, and sentencing the plaintiff to pay them
the sum of P2,915.58 with the costs.
Evidence was adduced by both parties and, upon their exhibits, together with an
account book having been made of record, the court below rendered judgment
on the 15th of January, 1907, in favor of the plaintiff for the recovery of the sum
of P5,714.44 and costs.
The defendants excepted to the above decision and moved for a new trial. This
motion was overruled and was also excepted to by them; the bill of exceptions
presented by the appellants having been approved, the same was in due
course submitted to this court.
The document of indebtedness inserted in the complaint states that the
plaintiff left on deposit with the defendants a given sum of money which
they were jointly and severally obliged to return on a certain date fixed in
the document; but that, nevertheless, when the document appearing as
Exhibits 2, written in the Visayan dialect and followed by a translation into
Spanish was executed, it was acknowledged, at the date thereof, the
15th of November, 1902, that the amount deposited had not yet been
returned to the creditor, whereby he was subjected to losses and
damages amounting to 830 pesos since the 20th of January, 1898, when
the return was again stipulated with the further agreement that the
amount deposited should bear interest at the rate of 15 per cent per
annum, from the aforesaid date of January 20, and that the 1,000 pesos
paid to the depositor on the 15th of May, 1900, according to the receipt
issued by him to the debtors, would be included, and that the said rate of
interest would obtain until the debtors on the 20th of May, 1897, it is
called a deposit consisted, and they could have accomplished the return
agreed upon by the delivery of a sum equal to the one received by them.
For this reason it must be understood that the debtors were lawfully
authorized to make use of the amount deposited, which they have done,
as subsequent shown when asking for an extension of the time for the
return thereof, inasmuch as, acknowledging that they have subjected the
letter, their creditor, to losses and damages for not complying with what
had been stipulated, and being conscious that they had used, for their
own profit and gain, the money that they received apparently as a
deposit, they engaged to pay interest to the creditor from the date named
until the time when the refund should be made. Such conduct on the part
of the debtors is unquestionable evidence that the transaction entered
into between the interested parties was not a deposit, but a real contract
of loan.
Article 1767 of the Civil Code provides that
The depository can not make use of the thing deposited
without the express permission of the depositor.
Otherwise he shall be liable for losses and damages.
Article 1768 also provides that
When the depository has permission to make use of the thing
deposited, the contract loses the character of a deposit and
becomes a loan or bailment.
The permission shall not be presumed, and its existence must
be proven.
When on one of the latter days of January, 1898, Jose Lim went to the
office of the creditor asking for an extension of one year, in view of the
fact the money was scare, and because neither himself nor the other
defendant were able to return the amount deposited, for which reason he
agreed to pay interest at the rate of 15 per cent per annum, it was
because, as a matter of fact, he did not have in his possession the
amount deposited, he having made use of the same in his business and
for his own profit; and the creditor, by granting them the extension,
evidently confirmed the express permission previously given to use and
dispose of the amount stated as having bee deposited, which, in
accordance with the loan, to all intents and purposes gratuitously, until
the 20th of January, 1898, and from that dated with interest at 15 per
cent per annum until its full payment, deducting from the total
amount of interest the sum of 1,000 pesos, in accordance with the
provisions of article 1173 of the Civil Code.
Notwithstanding that it does not appear that Jose Lim signed the
document (Exhibit 2) executed in the presence of three witnesses on
the 15th of November, 1902, by Ceferino Domingo Lim on behalf of
himself and the former, nevertheless, the said document has not
been contested as false, either by a criminal or by a civil proceeding,
nor has any doubt been cast upon the authenticity of the signatures
of the witnesses who attested the execution of the same; and from
the evidence in the case one is sufficiently convinced that the said
Jose Lim was perfectly aware of and authorized his joint codebtor to
liquidate the interest, to pay the sum of 1,000 pesos, on account
thereof, and to execute the aforesaid document No. 2. A true
ratification of the original document of deposit was thus made, and
not the least proof is shown in the record that Jose Lim had ever
paid the whole or any part of the capital stated in the original
document, Exhibit 1.
If the amount, together with interest claimed in the complaint, less
1,000 pesos appears as fully established, such is not the case with
the defendant's counterclaim for P5,602.16, because the existence
and certainty of said indebtedness imputed to the plaintiff has not
been proven, and the defendants, who call themselves creditors for
the said amount have not proven in a satisfactory manner that the
plaintiff had received partial payments on account of the same; the
latter alleges with good reason, that they should produce the
receipts which he may have issued, and which he did issue
whenever they paid him any money on account. The plaintiffs
allegation that the two amounts of 400 and 1,200 pesos, referred to
in documents marked "C" and "D" offered in evidence by the
defendants, had been received from Ceferino Domingo Lim on
account of other debts of his, has not been contradicted, and the fact
that in the original complaint the sum of 1,102.16 pesos, was
expressed in lieu of 1,000 pesos, the only payment made on
account of interest on the amount deposited according to documents
No. 2 and letter "B" above referred to, was due to a mistake.
Moreover, for the reason above set forth it may, as a matter of
course, be inferred that there was no renewal of the contract
deposited converted into a loan, because, as has already been
stated, the defendants received said amount by virtue of real loan
contract under the name of a deposit, since the so-called bailees
were forthwith authorized to dispose of the amount deposited. This
they have done, as has been clearly shown.
The original joint obligation contracted by the defendant debtor still
exists, and it has not been shown or proven in the proceedings that
the creditor had released Joe Lim from complying with his obligation
in order that he should not be sued for or sentenced to pay the
amount of capital and interest together with his codebtor, Ceferino
Domingo Lim, because the record offers satisfactory evidence
against the pretension of Jose Lim, and it further appears that
document No. 2 was executed by the other debtor, Ceferino
Domingo Lim, for himself and on behalf of Jose Lim; and it has also
been proven that Jose Lim, being fully aware that his debt had not
yet been settled, took steps to secure an extension of the time for
payment, and consented to pay interest in return for the concession requested
from the creditor.
In view of the foregoing, and adopting the findings in the judgment appealed
from, it is our opinion that the same should be and is hereby affirmed with the
costs of this instance against the appellant, provided that the interest agreed
upon shall be paid until the complete liquidation of the debt. So ordered.
G.R. No. 112392 February 29, 2000
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals
in CA-G.R. CV No. 37392 affirming in toto that of the Regional Trial Court of
Makati, Branch 139,2 which dismissed the complaint filed by petitioner Bank of
the Philippine Islands against private respondent Benjamin C. Napiza for sum of
money.
On September 3, 1987, private respondent deposited in Foreign Currency
Deposit Unit (FCDU) Savings Account No. 028-1873 which he maintained in
petitioner bank's Buendia Avenue Extension Branch, Continental Bank
Manager's Check No. 000147574 dated August 17, 1984, payable to "cash" in
the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly
endorsed by private respondent on its dorsal side.5 It appears that the check
belonged to a certain Henry who went to the office of private respondent and
requested him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same. Private respondent
acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the
understanding that as soon as the check is cleared, both of them would go to
the bank to withdraw the amount of the check upon private respondent's
presentation to the bank of his passbook.
Using the blank withdrawal slip given by private respondent to Chan, on
October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the amount of
$2,541.67 from FCDU Savings Account No. 028-187. Notably, the withdrawal
slip shows that the amount was payable to Ramon A. de Guzman and Agnes C.
de Guzman and was duly initialed by the branch assistant manager, Teresita
Lindo.6
On November 20, 1984, petitioner received communication from the Wells
Fargo Bank International of New York that the said check deposited by private
respondent was a counterfeit check7 because it was "not of the type or style of
checks issued by Continental Bank International."8 Consequently, Mr. Ariel
Reyes, the manager of petitioner's Buendia Avenue Extension Branch,
instructed one of its employees, Benjamin D. Napiza IV, who is private
respondent's son, to inform his father that the check bounced.9 Reyes himself
sent a telegram to private respondent regarding the dishonor of the check. In
turn, private respondent's son wrote to Reyes stating that the check been
assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de
Guzman after it shall have been cleared upon instruction of Chan. He also said
that upon learning of the dishonor of the check, his father immediately tried to
contact Chan but the latter was out of town.10
Private respondent's son undertook to return the amount of $2,500.00 to
petitioner bank. On December 18, 1984, Reyes reminded private respondent of
his son's promise and warned that should he fail to return that amount within
seven (7) days, the matter would be referred to the bank's lawyers for
appropriate action to protect the bank's interest.11 This was followed by
a letter of the bank's lawyer dated April 8, 1985 demanding the return of
the $2,500.00.12
In reply, private respondent wrote petitioner's counsel on April 20,
198513 stating that he deposited the check "for clearing purposes" only
to accommodate Chan. He added:
Further, please take notice that said check was deposited on
September 3, 1984 and withdrawn on October 23, 1984, or a
total period of fifty (50) days had elapsed at the time of
withdrawal. Also, it may not be amiss to mention here that I
merely signed an authority to withdraw said deposit subject to
its clearing, the reason why the transaction is not reflected in
the passbook of the account. Besides, I did not receive its
proceeds as may be gleaned from the withdrawal slip under
the captioned signature of recipient.1wphi1.nt
If at all, my obligation on the transaction is moral in nature,
which (sic) I have been and is (sic) still exerting utmost and
maximum efforts to collect from Mr. Henry Chan who is directly
liable under the circumstances.
xxx xxx xxx
On August 12, 1986, petitioner filed a complaint against private
respondent, praying for the return of the amount of $2,500.00 or the
prevailing peso equivalent plus legal interest from date of demand to
date of full payment, a sum equivalent to 20% of the total amount due as
attorney's fees, and litigation and/or costs of suit.
Private respondent filed his answer, admitting that he indeed signed a
"blank" withdrawal slip with the understanding that the amount deposited
would be withdrawn only after the check in question has been cleared.
He likewise alleged that he instructed the party to whom he issued the
signed blank withdrawal slip to return it to him after the bank draft's
clearance so that he could lend that party his passbook for the purpose
of withdrawing the amount of $2,500.00. However, without his
knowledge, said party was able to withdraw the amount of $2,541.67
from his dollar savings account through collusion with one of petitioner's
employees. Private respondent added that he had "given the Plaintiff fifty
one (51) days with which to clear the bank draft in question." Petitioner
should have disallowed the withdrawal because his passbook was not
presented. He claimed that petitioner had no one to blame except itself
"for being grossly negligent;" in fact, it had allegedly admitted having paid
the amount in the check "by mistake" . . . "if not altogether due to
collusion and/or bad faith on the part of (its) employees." Charging
petitioner with "apparent ignorance of routine bank procedures," by way
of counterclaim, private respondent prayed for moral damages of
P100,000.00, exemplary damages of P50,000.00 and attorney's fees of
30% of whatever amount that would be awarded to him plus an
honorarium of P500.00 per appearance in court.
Private respondent also filed a motion for admission of a third party
complaint against Chan. He alleged that "thru strategem and/or
manipulation," Chan was able to withdraw the amount of $2,500.00 even
without private respondent's passbook. Thus, private respondent prayed
that third party defendant Chan be made to refund to him the amount
withdrawn and to pay attorney's fees of P5,000.00 plus P300.00
honorarium per appearance.
Petitioner filed a comment on the motion for leave of court to admit
the third party complaint, whenever it asserted that per paragraph 2
of the Rules and Regulations governing BPI savings accounts,
private respondent alone was liable "for the value of the credit given
on account of the draft or check deposited." It contended that private
respondent was estopped from disclaiming liability because he
himself authorized the withdrawal of the amount by signing the
withdrawal slip. Petitioner prayed for the denial of the said motion so
as not to unduly delay the disposition of the main case asserting that
private respondent's claim could be ventilated in another case.
Private respondent replied that for the parties to obtain complete
relief and to avoid multiplicity of suits, the motion to admit third party
complaint should be granted. Meanwhile, the trial court issued
orders on August 25, 1987 and October 28, 1987 directing private
respondent to actively participate in locating Chan. After private
respondent failed to comply, the trial court, on May 18, 1988,
dismissed the third party complaint without prejudice.
On November 4, 1991, a decision was rendered dismissing the
complaint. The lower court held that petitioner could not hold private
respondent liable based on the check's face value alone. To so hold
him liable "would render inutilethe requirement of "clearance" from
the drawee bank before the value of a particular foreign check or
draft can be credited to the account of a depositor making such
deposit." The lower court further held that "it was incumbent upon
the petitioner to credit the value of the check in question to the
account of the private respondent only upon receipt of the notice of
final payment and should not have authorized the withdrawal from
the latter's account of the value or proceeds of the check." Having
admitted that it committed a "mistake" in not waiting for the
clearance of the check before authorizing the withdrawal of its value
or proceeds, petitioner should suffer the resultant loss.
On appeal, the Court of Appeals affirmed the lower court's decision.
The appellate court held that petitioner committed "clears gross
negligence" in allowing Ruben Gayon, Jr. to withdraw the money
without presenting private respondent's passbook and, before the
check was cleared and in crediting the amount indicated therein in
private respondent's account. It stressed that the mere deposit of a
check in private respondent's account did not mean that the check
was already private respondent's property. The check still had to be
cleared and its proceeds can only be withdrawn upon presentation
of a passbook in accordance with the bank's rules and regulations.
Furthermore, petitioner's contention that private respondent
warranted the check's genuineness by endorsing it is untenable for it
would render useless the clearance requirement. Likewise, the
requirement of presentation of a passbook to ascertain the propriety
of the accounting reflected would be a meaningless exercise. After
all, these requirements are designed to protect the bank from
deception or fraud.
The Court of Appeals cited the case of Roman Catholic Bishop of
Malolos, Inc. v. IAC,14 where this Court stated that a personal check
is not legal tender or money, and held that the check deposited in
this case must be cleared before its value could be properly
transferred to private respondent's account.
Without filing a motion for the reconsideration of the Court of Appeals' Decision,
petitioner filed this petition for review on certiorari, raising the following issues:
1. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER
HIS WARRANTIES AS A GENERAL INDORSER.
2. WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED
BETWEEN RESPONDENT NAPIZA AND RUBEN GAYON.
3. WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT
IN ALLOWING THE WITHDRAWAL.
Petitioner claims that private respondent, having affixed his signature at the
dorsal side of the check, should be liable for the amount stated therein in
accordance with the following provision of the Negotiable Instruments Law (Act
No. 2031):
Sec. 66. Liability of general indorser. Every indorser who indorses
without qualification, warrants to all subsequent holders in due course
(a) The matters and things mentioned in subdivisions (a), (b), and (c)
of the next preceding section; and
(b) That the instrument is at the time of his indorsement, valid and
subsisting.
And, in addition, he engages that on due presentment, it shall be
accepted or paid, or both, as the case may be, according to its tenor,
and that if it be dishonored, and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder,
or to any subsequent indorser who may be compelled to pay it.
Sec. 65, on the other hand, provides for the following warranties of a person
negotiating an instrument by delivery or by qualified indorsement: (a) that the
instrument is genuine and in all respects what it purports to be; (b) that he has a
good title to it, and (c) that all prior parties had capacity to contract.15 In People
v. Maniego,16 this Court described the liabilities of an indorser as follows:
Appellant's contention that as mere indorser, she may not be liable on
account of the dishonor of the checks indorsed by her, is likewise
untenable. Under the law, the holder or last indorsee of a negotiable
instrument has the right "to enforce payment of the instrument for the
full amount thereof against all parties liable thereon. Among the
"parties liable thereon." Is an indorser of the instrument, i.e., "a
person placing his signature upon an instrument otherwise than as a
maker, drawer or acceptor * * unless he clearly indicated by
appropriate words his intention to be bound in some other capacity."
Such an indorser "who indorses without qualification," inter
alia "engages that on due presentment, * * (the instrument) shall be
accepted or paid, or both, as the case may be, according to its tenor,
and that if it be dishonored, and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof to the holder,
or any subsequent indorser who may be compelled to pay it."
Maniego may also be deemed an "accommodation party" in the light
of the facts, i.e., a person "who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving value thereof, and for
the purpose of lending his name to some other person." As such, she
is under the law "liable on the instrument to a holder for value,
notwithstanding such holder at the time of taking the instrument
knew * * (her) to be only an accommodation party," although she has
the right, after paying the holder, to obtain reimbursement from the
party accommodated, "since the relation between them is in
effect that of principal and surety, the accommodation party
being the surety.
It is thus clear that ordinarily private respondent may be held liable as an
indorser of the check or even as an accommodation party.17 However, to
hold private respondent liable for the amount of the check he deposited
by the strict application of the law and without considering the attending
circumstances in the case would result in an injustice and in the erosion
of the public trust in the banking system. The interest of justice thus
demands looking into the events that led to the encashment of the check.
Petitioner asserts that by signing the withdrawal slip, private respondent
"presented the opportunity for the withdrawal of the amount in question."
Petitioner relied "on the genuine signature on the withdrawal slip, the
personality of private respondent's son and the lapse of more than fifty
(50) days from date of deposit of the Continental Bank draft, without the
same being returned yet."18 We hold, however, that the propriety of the
withdrawal should be gauged by compliance with the rules thereon that
both petitioner bank and its depositors are duty-bound to observe.
In the passbook that petitioner issued to private respondent, the following
rules on withdrawal of deposits appear:
4. Withdrawals must be made by the depositor personally but
in some exceptional circumstances, the Bank may allow
withdrawal by another upon the depositor's written authority
duly authenticated; and neither a deposit nor a withdrawal will
be permitted except upon the presentation of the depositor's
savings passbook, in which the amount deposited withdrawn
shall be entered only by the Bank.
5. Withdrawals may be made by draft, mail or telegraphic
transfer in currency of the account at the request of the
depositor in writing on the withdrawal slip or by authenticated
cable. Such request must indicate the name of the payee/s,
amount and the place where the funds are to be paid. Any
stamp, transmission and other charges related to such
withdrawals shall be for the account of the depositor and shall
be paid by him/her upon demand. Withdrawals may also be
made in the form of travellers checks and in pesos.
Withdrawals in the form of notes/bills are allowed subject
however, to their (availability).
6. Deposits shall not be subject to withdrawal by check, and
may be withdrawal only in the manner above provided, upon
presentation of the depositor's savings passbook and with the
withdrawal form supplied by the Bank at the counter.19
Under these rules, to be able to withdraw from the savings account
deposit under the Philippine foreign currency deposit system, two
requisites must be presented to petitioner bank by the person
withdrawing an amount: (a) a duly filled-up withdrawal slip, and (b) the
depositor's passbook. Private respondent admits he signed a blank
withdrawal slip ostensibly in violation of Rule No. 6 requiring that the
request for withdrawal must name the payee, the amount to be
withdrawn and the place where such withdrawal should be made. That
the withdrawal slip was in fact a blank one with only private respondent's
two signatures affixed on the proper spaces is buttressed by petitioner's
allegation in the instant petition that had private respondent indicated
therein the person authorized to receive the money, then Ruben Gayon,
Jr. could not have withdrawn any amount. Petitioner contends that
"(I)n failing to do so (i.e., naming his authorized agent), he practically
authorized any possessor thereof to write any amount and to collect
the same."20
Such contention would have been valid if not for the fact that the
withdrawal slip itself indicates a special instruction that the amount is
payable to "Ramon A. de Guzman &/or Agnes C. de Guzman." Such
being the case, petitioner's personnel should have been duly warned
that Gayon, who was also employed in petitioner's Buendia Ave.
Extension branch,21 was not the proper payee of the proceeds of
the check. Otherwise, either Ramon or Agnes de Guzman should
have issued another authority to Gayon for such withdrawal. Of
course, at the dorsal side of the withdrawal slip is an "authority to
withdraw" naming Gayon the person who can withdraw the amount
indicated in the check. Private respondent does not deny having
signed such authority. However, considering petitioner's clear
admission that the withdrawal slip was a blank one except for private
respondent's signature, the unavoidable conclusion is that the
typewritten name of "Ruben C. Gayon, Jr." was intercalated and
thereafter it was signed by Gayon or whoever was allowed by
petitioner to withdraw the amount. Under these facts, there could not
have been a principal-agent relationship between private respondent
and Gayon so as to render the former liable for the amount
withdrawn.
Moreover, the withdrawal slip contains a boxed warning that states:
"This receipt must be signed and presented with the corresponding
foreign currency savings passbook by the depositor in person. For
withdrawals thru a representative, depositor should accomplish the
authority at the back." The requirement of presentation of the
passbook when withdrawing an amount cannot be given mere lip
service even though the person making the withdrawal is authorized
by the depositor to do so. This is clear from Rule No. 6 set out by
petitioner so that, for the protection of the bank's interest and as a
reminder to the depositor, the withdrawal shall be entered in the
depositor's passbook. The fact that private respondent's passbook
was not presented during the withdrawal is evidenced by the entries
therein showing that the last transaction that he made with the bank
was on September 3, 1984, the date he deposited the controversial
check in the amount of $2,500.00.22
In allowing the withdrawal, petitioner likewise overlooked another
rule that is printed in the passbook. Thus:
2. All deposits will be received as current funds and will be
repaid in the same manner; provided, however, that
deposits of drafts, checks, money orders, etc. will be
accented as subject to collection only and credited to the
account only upon receipt of the notice of final payment.
Collection charges by the Bank's foreign correspondent in
effecting such collection shall be for the account of the
depositor. If the account has sufficient balance, the
collection shall be debited by the Bank against the
account. If, for any reason, the proceeds of the deposited
checks, drafts, money orders, etc., cannot be collected or
if the Bank is required to return such proceeds, the
provisional entry therefor made by the Bank in the savings
passbook and its records shall be deemed automatically
cancelled regardless of the time that has elapsed, and whether or not
the defective items can be returned to the depositor; and the Bank is
hereby authorized to execute immediately the necessary corrections,
amendments or changes in its record, as well as on the savings
passbook at the first opportunity to reflect such cancellation.
(Emphasis and underlining supplied.)
As correctly held by the Court of Appeals, in depositing the check in his name,
private respondent did not become the outright owner of the amount stated
therein. Under the above rule, by depositing the check with petitioner, private
respondent was, in a way, merely designating petitioner as the collecting bank.
This is in consonance with the rule that a negotiable instrument, such as a
check, whether a manager's check or ordinary check, is not legal tender.23 As
such, after receiving the deposit, under its own rules, petitioner shall credit the
amount in private respondent's account or infuse value thereon only after the
drawee bank shall have paid the amount of the check or the check has been
cleared for deposit. Again, this is in accordance with ordinary banking practices
and with this Court's pronouncement that "the collecting bank or last endorser
generally suffers the loss because has the duty to ascertain the genuineness of
all prior endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the presentment
has done its duty to ascertain the genuineness of the endorsements."24 The
rule finds more meaning in this case where the check involved is drawn on a
foreign bank and therefore collection is more difficult than when the drawee
bank is a local one even though the check in question is a manager's check.25
In Banco Atlantico v. Auditor General,26 Banco Atlantico, a commercial bank in
Madrid, Spain, paid the amounts represented in three (3) checks to Virginia
Boncan, the finance officer of the Philippine Embassy in Madrid. The bank did
so without previously clearing the checks with the drawee bank, the Philippine
National Bank in New York, on account of the "special treatment" that Boncan
received from the personnel of Banco Atlantico's foreign department. The Court
held that the encashment of the checks without prior clearance is "contrary to
normal or ordinary banking practice specially so where the drawee bank is a
foreign bank and the amounts involved were large." Accordingly, the Court
approved the Auditor General's denial of Banco Atlantico's claim for payment of
the value of the checks that was withdrawn by Boncan.
Said ruling brings to light the fact that the banking business is affected with
public interest. By the nature of its functions, a bank is under obligation to treat
the accounts of its depositors "with meticulous care, always having in mind the
fiduciary nature of their relationship."27 As such, in dealing with its depositors, a
bank should exercise its functions not only with the diligence of a good father of
a family but it should do so with the highest degree of care.28
In the case at bar, petitioner, in allowing the withdrawal of private respondent's
deposit, failed to exercise the diligence of a good father of a family. In total
disregard of its own rules, petitioner's personnel negligently handled private
respondent's account to petitioner's detriment. As this Court once said on this
matter:
Negligence is the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct
of human affairs, would do, or the doing of something which a prudent
and reasonable man would do. The seventy-eight (78)-year-old, yet
still relevant, case of Picart v. Smith, provides that test by which to
determine the existence of negligence in a particular case which may
be stated as follows: Did the defendant in doing the alleged negligent
act use that reasonable care and caution which an ordinarily prudent
person would have used in the same situation? If not, then he is guilty
of negligence. The law here in effect adopts the standard
supposed to be supplied by the imaginary conduct of the
discreetpater-familias of the Roman law. The existence of
negligence in a given case is not determined by reference to
the personal judgment of the actor in the situation before him.
The law considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and prudence and
determines liability by that.29
Petitioner violated its own rules by allowing the withdrawal of an amount
that is definitely over and above the aggregate amount of private
respondent's dollar deposits that had yet to be cleared. The bank's ledger
on private respondent's account shows that before he deposited
$2,500.00, private respondent had a balance of only $750.00.30 Upon
private respondent's deposit of $2,500.00 on September 3, 1984, that
amount was credited in his ledger as a deposit resulting in the
corresponding total balance of $3,250.00.31 On September 10, 1984, the
amount of $600.00 and the additional charges of $10.00 were indicated
therein as withdrawn thereby leaving a balance $2,640.00. On
September 30, 1984, an interest of $11.59 was reflected in the ledger
and on October 23, 1984, the amount of $2,541.67 was entered as
withdrawn with a balance of $109.92.32 On November 19, 1984 the word
"hold" was written beside the balance of $109.92.33 That must have
been the time when Reyes, petitioner's branch manager, was informed
unofficially of the fact that the check deposited was a counterfeit, but
petitioner's Buendia Ave. Extension Branch received a copy of the
communication thereon from Wells Fargo Bank International in New York
the following day, November 20, 1984.34 According to Reyes, Wells
Fargo Bank International handled the clearing of checks drawn against
U.S. banks that were deposited with petitioner.35
From these facts on record, it is at once apparent that petitioner's
personnel allowed the withdrawal of an amount bigger than the original
deposit of $750.00 and the value of the check deposited in the amount of
$2,500.00 although they had not yet received notice from the clearing
bank in the United States on whether or not the check was funded.
Reyes' contention that after the lapse of the 35-day period the amount of
a deposited check could be withdrawn even in the absence of a
clearance thereon, otherwise it could take a long time before a depositor
could make a withdrawal,36 is untenable. Said practice amounts to a
disregard of the clearance requirement of the banking system.
While it is true that private respondent's having signed a blank withdrawal
slip set in motion the events that resulted in the withdrawal and
encashment of the counterfeit check, the negligence of petitioner's
personnel was the proximate cause of the loss that petitioner sustained.
Proximate cause, which is determined by a mixed consideration of logic,
common sense, policy and precedent, is "that cause, which, in natural
and continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have
occurred."37 The proximate cause of the withdrawal and eventual loss of
the amount of $2,500.00 on petitioner's part was its personnel's
negligence in allowing such withdrawal in disregard of its own rules and
the clearing requirement in the banking system. In so doing, petitioner
assumed the risk of incurring a loss on account of a forged or counterfeit
foreign check and hence, it should suffer the resulting
damage.1wphi1.nt
WHEREFORE, the petition for review on certiorari is DENIED. The estafa and violation of Central Bank Circular No. 364 and recorded in separate confidential
Decision of the Court of Appeals in CA-G.R. CV No. 37392 is related Central Bank regulations on foreign exchange documents only a portion of
AFFIRMED. transactions, allegedly committed as follows (Petition, which were to be reported
Annex "A"):t.hqw because he did not want the
SO ORDERED. Australian government to tax his
"From March 20, 1979 to March, 1981, total earnings (nor) to know his
G.R. No. L-60033 April 4, 1984 David invested with the Nation Savings total investments; that all
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and and Loan Association, (hereinafter transactions with David were
TERESITA SANTOS, petitioners, called NSLA) the sum of P1,145,546.20 recorded except the sum of
vs. on nine deposits, P13,531.94 on US$15,000.00 which was a
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, savings account deposits (jointly with personal loan of Santos; that
ASST. CITY FISCAL FELIZARDO N. LOTA and CLEMENT his sister, Denise Kuhne), David's check for US$50,000.00
DAVID, respondents. US$10,000.00 on time deposit, was cleared through Guingona,
US$15,000.00 under a receipt and Jr.'s dollar account because
guarantee of payment and NSLA did not have one, that a
US$50,000.00 under a receipt dated draft of US$30,000.00 was
MAKASIAR, Actg. C.J.:+.wph!1
June 8, 1980 (au jointly with Denise placed in the name of one Paz
This is a petition for prohibition and injunction with a prayer for the Kuhne), that David was induced into Roces because of a pending
immediate issuance of restraining order and/or writ of preliminary making the aforestated investments by transaction with her; that the
injunction filed by petitioners on March 26, 1982. Robert Marshall an Australian national Philippine Deposit Insurance
who was allegedly a close associate of Corporation had already
On March 31, 1982, by virtue of a court resolution issued by this petitioner Guingona Jr., then NSLA
Court on the same date, a temporary restraining order was duly reimbursed David within the legal
President, petitioner Martin, then NSLA limits; that majority of the
issued ordering the respondents, their officers, agents, Executive Vice-President of NSLA and
representatives and/or person or persons acting upon their stockholders of NSLA had filed
petitioner Santos, then NSLA General Special Proceedings No. 82-
(respondents') orders or in their place or stead to refrain from Manager; that on March 21, 1981 N LA
proceeding with the preliminary investigation in Case No. 8131938 1695 in the Court of First
was placed under receivership by the Instance to contest its (NSLA's)
of the Office of the City Fiscal of Manila (pp. 47-48, rec.). On Central Bank, so that David filed claims
January 24, 1983, private respondent Clement David filed a motion closure; that after NSLA was
therewith for his investments and those placed under receivership, Martin
to lift restraining order which was denied in the resolution of this of his sister; that on July 22, 1981 David
Court dated May 18, 1983. executed a promissory note in
received a report from the Central Bank David's favor and caused the
As can be gleaned from the above, the instant petition seeks to that only P305,821.92 of those transfer to him of a nine and on
prohibit public respondents from proceeding with the preliminary investments were entered in the behalf (9 1/2) carat diamond ring
investigation of I.S. No. 81-31938, in which petitioners were charged records of NSLA; that, therefore, the with a net value of P510,000.00;
by private respondent Clement David, with estafa and violation of respondents in I.S. No. 81-31938 and, that the liabilities of NSLA to
Central Bank Circular No. 364 and related regulations regarding misappropriated the balance of the David were civil in nature."
foreign exchange transactions principally, on the ground of lack of investments, at the same time violating
jurisdiction in that the allegations of the charged, as well as the Central Bank Circular No. 364 and Petitioner, Guingona, Jr., in his counter-affidavit
testimony of private respondent's principal witness and the evidence related Central Bank regulations on (Petition, Annex' C') stated the following:t.hqw
through said witness, showed that petitioners' obligation is civil in foreign exchange transactions; that
after demands, petitioner Guingona Jr. "That he had no hand
nature. whatsoever in the transactions
paid only P200,000.00, thereby
For purposes of brevity, We hereby adopt the antecedent facts reducing the amounts misappropriated between David and NSLA since
narrated by the Solicitor General in its Comment dated June to P959,078.14 and US$75,000.00." he (Guingona Jr.) had resigned
28,1982, as follows:t.hqw as NSLA president in March
Petitioners, Martin and Santos, filed a joint counter-affidavit 1978, or prior to those
On December 23,1981, private respondent (Petition, Annex' B') in which they stated the transactions; that he assumed a
David filed I.S. No. 81-31938 in the Office of the following.t.hqw portion o; the liabilities of NSLA
City Fiscal of Manila, which case was assigned to David because of the latter's
to respondent Lota for preliminary investigation "That Martin became President of insistence that he placed his
(Petition, p. 8). NSLA in March 1978 (after the investments with NSLA because
resignation of Guingona, Jr.) and of his faith in Guingona, Jr.; that
In I.S. No. 81-31938, David charged petitioners served as such until October 30, 1980, in a Promissory Note dated June
(together with one Robert Marshall and the while Santos was General Manager up 17, 1981 (Petition, Annex "D") he
following directors of the Nation Savings and to November 1980; that because NSLA (Guingona, Jr.) bound himself to
Loan Association, Inc., namely Homero was urgently in need of funds and at pay David the sums of
Gonzales, Juan Merino, Flavio Macasaet, Victor David's insistence, his investments P668.307.01 and US$37,500.00
Gomez, Jr., Perfecto Manalac, Jaime V. Paz, were treated as special- accounts with in stated installments; that he
Paulino B. Dionisio, and one John Doe) with interest above the legal rate, an (Guingona, Jr.) secured payment
 of those amounts with
second mortgages over two
(2) parcels of land under a
deed of Second Real Estate
Mortgage (Petition, Annex
"E") in which it was provided
that the mortgage over one
(1) parcel shall be cancelled
upon payment of one-half of
the obligation to David; that
he (Guingona, Jr.) paid
P200,000.00 and tendered
another P300,000.00 which
David refused to accept,
hence, he (Guingona, Jr.)
filed Civil Case No. Q-33865
in the Court of First Instance
of Rizal at Quezon City, to
effect the release of the
mortgage over one (1) of the
two parcels of land
conveyed to David under
second mortgages."
At the inception of the preliminary investigation
before respondent Lota, petitioners moved to
dismiss the charges against them for lack of
jurisdiction because David's claims allegedly
comprised a purely civil obligation which was
itself novated. Fiscal Lota denied the motion to
dismiss (Petition, p. 8).
But, after the presentation of David's principal
witness, petitioners filed the instant petition
because: (a) the production of the Promisory
Notes, Banker's Acceptance, Certificates of
Time Deposits and Savings Account allegedly
showed that the transactions between David and
NSLA were simple loans, i.e., civil obligations on
the part of NSLA which were novated when
Guingona, Jr. and Martin assumed them; and (b)
David's principal witness allegedly testified that
the duplicate originals of the aforesaid
instruments of indebtedness were all on file with
NSLA, contrary to David's claim that some of his
investments were not record (Petition, pp. 8-9).
Petitioners alleged that they did not exhaust
available administrative remedies because to do
so would be futile (Petition, p. 9) [pp. 153-157,
rec.].
As correctly pointed out by the Solicitor General, the sole issue for
resolution is whether public respondents acted without jurisdiction
when they investigated the charges (estafa and violation of CB
Circular No. 364 and related regulations regarding foreign exchange
transactions) subject matter of I.S. No. 81-31938.
There is merit in the contention of the petitioners that their liability is civil in
nature and therefore, public respondents have no jurisdiction over the charge of
estafa.
A casual perusal of the December 23, 1981 affidavit. complaint filed in the
Office of the City Fiscal of Manila by private respondent David against
petitioners Teopisto Guingona, Jr., Antonio I. Martin and Teresita G. Santos,
together with one Robert Marshall and the other directors of the Nation Savings
and Loan Association, will show that from March 20, 1979 to March, 1981,
private respondent David, together with his sister, Denise Kuhne, invested with
the Nation Savings and Loan Association the sum of P1,145,546.20 on time
deposits covered by Bankers Acceptances and Certificates of Time Deposits
and the sum of P13,531.94 on savings account deposits covered by passbook
nos. 6-632 and 29-742, or a total of P1,159,078.14 (pp. 15-16, roc.). It appears
further that private respondent David, together with his sister, made investments
in the aforesaid bank in the amount of US$75,000.00 (p. 17, rec.).
Moreover, the records reveal that when the aforesaid bank was placed under
receivership on March 21, 1981, petitioners Guingona and Martin, upon the
request of private respondent David, assumed the obligation of the bank to
private respondent David by executing on June 17, 1981 a joint promissory note
in favor of private respondent acknowledging an indebtedness of Pl,336,614.02
and US$75,000.00 (p. 80, rec.). This promissory note was based on the
statement of account as of June 30, 1981 prepared by the private respondent
(p. 81, rec.). The amount of indebtedness assumed appears to be bigger than
the original claim because of the added interest and the inclusion of other
deposits of private respondent's sister in the amount of P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to
divide the said indebtedness, and petitioner Guingona executed another
promissory note antedated to June 17, 1981 whereby he personally
acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and
US$37,500.00 (1/2 of US$75,000.00) in favor of private respondent (p. 25, rec.).
The aforesaid promissory notes were executed as a result of deposits made by
Clement David and Denise Kuhne with the Nation Savings and Loan
Association.
Furthermore, the various pleadings and documents filed by private respondent
David, before this Court indisputably show that he has indeed invested his
money on time and savings deposits with the Nation Savings and Loan
Association.
It must be pointed out that when private respondent David invested his money
on nine. and savings deposits with the aforesaid bank, the contract that was
perfected was a contract of simple loan or mutuum and not a contract of
deposit. Thus, Article 1980 of the New Civil Code provides that:t.hqw
Article 1980. Fixed, savings, and current deposits of-money
in banks and similar institutions shall be governed by the
provisions concerning simple loan.
In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119
[1975], We said:t.hqw
It should be noted that fixed, savings, and current deposits
of money in banks and similar institutions are hat true
deposits. are considered simple loans and, as such, are not
preferred credits (Art. 1980 Civil Code; In re Liquidation of
Mercantile Batik of China Tan Tiong Tick vs. American
Apothecaries Co., 66 Phil 414; Pacific Coast Biscuit Co. vs.
Chinese Grocers Association 65 Phil. 375; Fletcher
American National Bank vs. Ang Chong UM 66 PWL
385; Pacific Commercial Co. vs. American
Apothecaries Co., 65 PhiL 429; Gopoco Grocery vs.
Pacific Coast Biscuit CO.,65 Phil. 443)."
This Court also declared in the recent case of Serrano vs. Central Bank
of the Philippines (96 SCRA 102 [1980]) that:t.hqw
Bank deposits are in the nature of irregular deposits.
They are really 'loans because they earn interest. All
kinds of bank deposits, whether fixed, savings, or
current are to be treated as loans and are to be
covered by the law on loans (Art. 1980 Civil Code
Gullas vs. Phil. National Bank, 62 Phil. 519). Current
and saving deposits, are loans to a bank because it
can use the same. The petitioner here in making time
deposits that earn interests will respondent Overseas
Bank of Manila was in reality a creditor of the
respondent Bank and not a depositor. The
respondent Bank was in turn a debtor of
petitioner. Failure of the respondent Bank to honor
the time deposit is failure to pay its obligation as a
debtor and not a breach of trust arising from a
depositary's failure to return the subject matter of the
deposit(Emphasis supplied).
Hence, the relationship between the private respondent and the Nation
Savings and Loan Association is that of creditor and debtor;
consequently, the ownership of the amount deposited was transmitted to
the Bank upon the perfection of the contract and it can make use of the
amount deposited for its banking operations, such as to pay interests on
deposits and to pay withdrawals. While the Bank has the obligation to
return the amount deposited, it has, however, no obligation to return or
deliver the same money that was deposited. And, the failure of the Bank
to return the amount deposited will not constitute estafa through
misappropriation punishable under Article 315, par. l(b) of the Revised
Penal Code, but it will only give rise to civil liability over which the public
respondents have no- jurisdiction.
WE have already laid down the rule that:t.hqw
In order that a person can be convicted under the
above-quoted provision, it must be proven that he
has the obligation to deliver or return the some
money, goods or personal property that he
received Petitioners had no such obligation to return
the same money, i.e., the bills or coins, which they
received from private respondents. This is so
because as clearly as stated in criminal complaints,
the related civil complaints and the supporting sworn
statements, the sums of money that petitioners
received were loans.
The nature of simple loan is defined in Articles 1933
and 1953 of the Civil Code.t.hqw
"Art. 1933. By the contract of
loan, one of the parties delivers
to another, either something not
consumable so that the latter
may use the same for a certain
 time- and return it, in which
case the contract is called a
commodatum; or money
or other consumable thing,
upon the condition that the
same amount of the same
kind and quality shall he
paid in which case the
contract is simply called a
loan or mutuum.
"Commodatum is essentially
gratuitous.
"Simple loan may be
gratuitous or with a
stipulation to pay interest.
"In commodatum the bailor
retains the ownership of
the thing loaned while in
simple loan, ownership
passes to the borrower.
"Art. 1953. A person who
receives a loan of money or
any other fungible thing
acquires the ownership
thereof, and is bound to pay
to the creditor an equal
amount of the same kind
and quality."
It can be readily noted from the above-quoted
provisions that in simple loan (mutuum), as
contrasted to commodatum the borrower
acquires ownership of the money, goods or
personal property borrowed Being the owner,
the borrower can dispose of the thing borrowed
(Article 248, Civil Code) and his act will not be
considered misappropriation thereof' (Yam vs.
Malik, 94 SCRA 30, 34 [1979]; Emphasis
supplied).
But even granting that the failure of the bank to pay the time and
savings deposits of private respondent David would constitute a
violation of paragraph 1(b) of Article 315 of the Revised Penal Code,
nevertheless any incipient criminal liability was deemed avoided,
because when the aforesaid bank was placed under receivership by
the Central Bank, petitioners Guingona and Martin assumed the
obligation of the bank to private respondent David, thereby resulting
in the novation of the original contractual obligation arising from
deposit into a contract of loan and converting the original trust
relation between the bank and private respondent David into an
ordinary debtor-creditor relation between the petitioners and private
respondent. Consequently, the failure of the bank or petitioners
Guingona and Martin to pay the deposits of private respondent
would not constitute a breach of trust but would merely be a failure
to pay the obligation as a debtor.
Moreover, while it is true that novation does not extinguish criminal liability, it
may however, prevent the rise of criminal liability as long as it occurs prior to the
filing of the criminal information in court. Thus, in Gonzales vs. Serrano ( 25
SCRA 64, 69 [1968]) We held that:t.hqw had to be cleared first and converted into Philippine currency.
As pointed out in People vs. Nery, novation prior to the filing
of the criminal information as in the case at bar may
convert the relation between the parties into an ordinary
creditor-debtor relation, and place the complainant in
estoppel to insist on the original transaction or "cast doubt
on the true nature" thereof.
Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578,
580-581 [1983] ), this Court reiterated the ruling in People vs. Nery ( 10 SCRA
244 [1964] ), declaring that:t.hqw 2. It is safe to assume that the U.S. dollars were converted first into
The novation theory may perhaps apply prior to the filling of
the criminal information in court by the state prosecutors
because up to that time the original trust relation may be
converted by the parties into an ordinary creditor-debtor
situation, thereby placing the complainant in estoppel to
insist on the original trust. But after the justice authorities
have taken cognizance of the crime and instituted action in
court, the offended party may no longer divest the
prosecution of its power to exact the criminal liability, as
distinguished from the civil. The crime being an offense
against the state, only the latter can renounce it (People vs.
Gervacio, 54 Off. Gaz. 2898; People vs. Velasco, 42 Phil.
76; U.S. vs. Montanes, 8 Phil. 620).
It may be observed in this regard that novation is not one of
the means recognized by the Penal Code whereby criminal
liability can be extinguished; hence, the role of novation
may only be to either prevent the rise of criminal habihty or
to cast doubt on the true nature of the original basic
transaction, whether or not it was such that its breach would
not give rise to penal responsibility, as when money loaned
is made to appear as a deposit, or other similar disguise is
resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S. vs.
Villareal, 27 Phil. 481).
In the case at bar, there is no dispute that petitioners Guingona and Martin
executed a promissory note on June 17, 1981 assuming the obligation of the
bank to private respondent David; while the criminal complaint for estafa was
filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear
that novation occurred long before the filing of the criminal complaint with the
Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability would be avoided
but there will still be a civil liability on the part of petitioners Guingona and
Martin to pay the assumed obligation.
Petitioners herein were likewise charged with violation of Section 3 of Central
Bank Circular No. 364 and other related regulations regarding foreign exchange
transactions by accepting foreign currency deposit in the amount of
US$75,000.00 without authority from the Central Bank. They contend however,
that the US dollars intended by respondent David for deposit were all converted
into Philippine currency before acceptance and deposit into Nation Savings and
Loan Association.
Petitioners' contention is worthy of behelf for the following reasons:
1. It appears from the records that when respondent David was about to
make a deposit of bank draft issued in his name in the amount of
US$50,000.00 with the Nation Savings and Loan Association, the same
Accordingly, the bank draft was endorsed by respondent David to
petitioner Guingona, who in turn deposited it to his dollar account with
the Security Bank and Trust Company. Petitioner Guingona merely
accommodated the request of the Nation Savings and loan Association
in order to clear the bank draft through his dollar account because the
bank did not have a dollar account. Immediately after the bank draft was
cleared, petitioner Guingona authorized Nation Savings and Loan
Association to withdraw the same in order to be utilized by the bank for
its operations.
Philippine pesos before they were accepted and deposited in Nation
Savings and Loan Association, because the bank is presumed to have
followed the ordinary course of the business which is to accept deposits
in Philippine currency only, and that the transaction was regular and fair,
in the absence of a clear and convincing evidence to the contrary (see
paragraphs p and q, Sec. 5, Rule 131, Rules of Court).
3. Respondent David has not denied the aforesaid contention of herein
petitioners despite the fact that it was raised. in petitioners' reply filed on
May 7, 1982 to private respondent's comment and in the July 27, 1982
reply to public respondents' comment and reiterated in petitioners'
memorandum filed on October 30, 1982, thereby adding more support to
the conclusion that the US$75,000.00 were really converted into
Philippine currency before they were accepted and deposited into Nation
Savings and Loan Association. Considering that this might adversely
affect his case, respondent David should have promptly denied
petitioners' allegation.
In conclusion, considering that the liability of the petitioners is purely civil
in nature and that there is no clear showing that they engaged in foreign
exchange transactions, We hold that the public respondents acted
without jurisdiction when they investigated the charges against the
petitioners. Consequently, public respondents should be restrained from
further proceeding with the criminal case for to allow the case to
continue, even if the petitioners could have appealed to the Ministry of
Justice, would work great injustice to petitioners and would render
meaningless the proper administration of justice.
While as a rule, the prosecution in a criminal offense cannot be the
subject of prohibition and injunction, this court has recognized the resort
to the extraordinary writs of prohibition and injunction in extreme cases,
thus:t.hqw
On the issue of whether a writ of injunction can
restrain the proceedings in Criminal Case No. 3140,
the general rule is that "ordinarily, criminal
prosecution may not be blocked by court prohibition
or injunction." Exceptions, however, are allowed in
the following instances:t.hqw
"1. for the orderly administration
of justice;
"2. to prevent the use of the
strong arm of the law in an
 oppressive and vindictive
manner;
"3. to avoid multiplicity of
actions;
"4. to afford adequate
protection to constitutional
rights;
"5. in proper cases, because
the statute relied upon is
unconstitutional or was held
invalid" ( Primicias vs.
Municipality of Urdaneta,
Pangasinan, 93 SCRA 462,
469-470 [1979]; citing
Ramos vs. Torres, 25 SCRA
557 [1968]; and Hernandez
vs. Albano, 19 SCRA 95, 96
[1967]).
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-
622 [1966]), We held that:t.hqw following cases: The Overseas Bank of Manila v. Court of Appeals and Tony D.
The writs of certiorari and prohibition, as
extraordinary legal remedies, are in the ultimate
analysis, intended to annul void proceedings; to
prevent the unlawful and oppressive exercise of
legal authority and to provide for a fair and
orderly administration of justice. Thus, in Yu
Kong Eng vs. Trinidad, 47 Phil. 385, We took
cognizance of a petition for certiorari and
prohibition although the accused in the case
could have appealed in due time from the order
complained of, our action in the premises being
based on the public welfare policy the
advancement of public policy. In Dimayuga vs.
Fajardo, 43 Phil. 304, We also admitted a
petition to restrain the prosecution of certain
chiropractors although, if convicted, they could
have appealed. We gave due course to their
petition for the orderly administration of justice
and to avoid possible oppression by the strong
arm of the law. And in Arevalo vs. Nepomuceno,
63 Phil. 627, the petition for certiorari
challenging the trial court's action admitting an
amended information was sustained despite the
availability of appeal at the proper time.
WHEREFORE, THE PETITION IS HEREBY GRANTED; THE
TEMPORARY RESTRAINING ORDER PREVIOUSLY ISSUED IS
MADE PERMANENT. COSTS AGAINST THE PRIVATE
RESPONDENT.
SO ORDERED.1wph1.t duly constituted authority, the Central Bank."
[G.R. No. L-56047. April 27, 1982.]
THE OVERSEAS BANK OF MANILA, Petitioner, v. THE
HONORABLE COURT OF APPEALS and JULIAN R.
CORDERO, Respondents.
Emmanuel Pelaez, Sr. for Petitioner.
Alberto S. Ortiz for Private Respondent.
SYNOPSIS
Respondent Cordero deposited different sums of money with The Overseas
Bank of Manila. Before said deposits could be withdrawn, the Central Bank
passed Resolutions Nos. 1327 and 1263 providing among others, the
suspension of the operations of the said bank. The Supreme Court however
annulled the aforesaid resolutions in Ramos, Et. Al. v. Central Bank (40 SCRA
565), for which reason, petitioner bank is ready to accept its liability for the
payment to private respondent of the balance of the principal amount deposited
with it but submits that it is not liable for the interests thereon during the period
that the bank was closed. The judgment of the trial court as modified by the
Court of Appeals ordered TOBM to pay the aforesaid amount with interest until
fully paid. Hence, this petition.
On review by certiorari, the Supreme Court ruled that respondent is not entitled
to the payment of the interest in question, in line with Its pronouncements in the
Tapia, G.R. No. L-49353, June 11, 1981, (105 SCRA 49) and The Overseas
Bank of Manila v. Vicente Cordero, G.R. No. L-33582, March 30, 1982, which
are materially identical to the one at bar.
Decision under review, reversed.
SYLLABUS
COMMERCIAL LAW; BANKS; TIME DEPOSIT; INTEREST; PAYMENT
CEASES UPON SUSPENSION OF BANKING OPERATIONS BY CENTRAL
BANK; CASE AT BAR. Where petitioner bank does not deny and is ready to
accept its liability for the return or payment to herein private respondent of the
balance of Thirty Thousand (P30,000.00) Pesos of the principal amount
deposited by him but submits that it is not liable for the interests thereon during
the period that Central Banks Resolutions Nos. 1327 and 1263 were in force
and effect and the bank was, consequently, for all practical purposes under a
state of liquidation, while on the other hand, private respondent maintains, and
the Court of Appeals so held, that in view of the decision of this Court annulling
the mentioned Central Bank resolutions, the herein petitioner bank was "not
legally dead hence, "the ordinary laws governing the relationship of a time
deposit (sic) and the bank are applicable, the issue thus joined by the parties is
precisely the very same one already resolved in the Overseas Bank of Manila v.
Court of Appeals and Tony D. Tapia, G.R. No. L-49353, June 11, 1981, 105
SCRA 49 and The Overseas Bank of Manila v. Vicente Cordero, G.R. No. L-
33582, March 30, 1982 to the effect that" it should be deemed read into every
contract of deposit with a bank that the obligation to pay interest on the deposit
ceases the moment the operation of the bank is completely suspended by the
embodied in a Voting Trust Agreement, executed by the petitioners on
DECISION
BARREDO, J.:
Petition for review of the decision of the Court of Appeals in its CA-G.R.
No. 51339-R, Julian R. Cordero, plaintiff-appellee v. The Overseas Bank
of Manila, Defendant-Appellant, which modified the judgment of the trial
court but nevertheless sentenced herein petitioner
thus:chanroblesvirtual|awlibrary
"WHEREFORE, the judgment appealed from is hereby modified.
Defendant-appellant The Overseas Bank of Manila is hereby ordered to
pay the sum of P30,000.00 with 6% interest per annum from July 20,
1967 until fully paid. In all other respects, the judgment is affirmed.
"SO ORDERED." (P. 33, Record.)
The background facts hereof are parallel in all material respects to those
in The Overseas Bank of Manila v. Court of Appeals and Tony D. Tapia,
G.R. No. L-49353, June 11, 1981, 105 SCRA 49, and the more recent
case of The Overseas Bank of Manila v. Vicente Cordero, G.R. No. L-
33582, March 30, 1982.
Briefly stated, in all these three cases Tapia and the Corderos deposited,
on time basis, different sums of money respectively with the Overseas
Bank of Manila. Before they could withdraw said deposits, "by Resolution
No. 1327 confirmed on August 13, 1968 (Exh. 1-TOBM), the Monetary
Board decided, among others, . . .To affirm the decisions of the Board
under its Resolution No. 1263 dated July 30, 1968 prohibiting TOBM
from participating in clearing and Resolution No. 1290 dated August 13,
1968 authorizing the Board of Directors of TOBM to suspend the
operations of the said Bank . . ." The Board also excluded TOBM from
clearing as even with the P10 million special fund loan intended to be
made available under Section 90 of Republic Act No. 265 to TOBM, the
extremely distressed financial condition of said Bank will continue to
prevail and that . . . there seem to be no other alternative except to
liquidate the bank under Section 29 of R.A. 265. In another resolution
(Exh. 2-TOBM) the Monetary Board pursuant to Section 29 of Republic
Act No. 265 decided to forbid TOBM to do business in the Philippines; to
instruct the Superintendent of Banks to take such further action as may
be necessary pursuant to Section 29 of Republic Act 265." (P. 25,
Record).
Subsequently, however, on October 24, 1971, this Supreme Court
annulled the Central Bank Resolution No. 1263. As stated by the Court of
Appeals in the decision under review:jgc:chanrobles.com.ph
"The Supreme Court, in Ramos, Et. Al. v. Central Bank of the Philippines,
1 while recognizing the precarious financial condition of the defendant-
appellant, ruled that a previous commitment of the Central Bank for the
continued operation of, and rehabilitation of, the OBM (defendant-
appellant bank) estopped the Central Bank through the Monetary Board
from liquidating and declaring the bank insolvent. This commitment is
November 20, 1967 and prepared by the attorneys of the Central Bank.
Thus the Supreme Court said:chanrob1es virtual 1aw library
Bearing in mind that the communications Annexes B and G as well as
the voting trust agreement, Annex A, had been prepared by the CB and
the well known rule that ambiguities therein are to be construed
against the party that caused them, the record becomes clear that,
in consideration of the execution of the voting trust agreement by the
petitioner stockholders of OBM, and of the mortgage or assignment
of their personal properties to the CB (Res. Nos. 2015, 16 October
1967, Annex F Petition), the CB had agreed to announce its
readiness to support the new management, in order to allay the fear
of depositors and creditors. (Annex B), and to stave off liquidation case of Overseas Bank of Manila versus Court of Appeals (105 SCRA 49) is
by providing adequate funds for the rehabilitation, normalization and
stabilization of the OBM, in a manner similar to what the CB had
previously done with the Republic Bank (Petition, Annex G, ante).
While no express terms in the document refer to the provision of
funds by the CB for the purpose, the same is necessarily implied, for
in no other way could it rehabilitate, normalize and stabilize a
distressed bank.
Even in the absence of contract, the record plainly shows that the
CB made express representations to petitioners herein that it would
support the OBM, and avoid its liquidation if the petitioners would
execute (a) the Voting Trust Agreement turning over the
management of OBM to the CB or its nominees, and (b) mortgage or
assign their properties to the Central Bank to cover the overdraft
balance of OBM. The petitioners having complied with these
conditions and parted with value to the profit of the Central Bank
(which thus acquired additional security for its own advances), the
CB may not now renege on its representation and liquidate the
OBM, to the detriment of its stockholders, depositors and other
creditors, under the rule of promissory estoppel (19 Am. Jur., pages
657-658, 28 Am. Jur. 2d, 656-657).
"As a result of these findings, the Supreme Court annulled the
Central Banks Resolution Nos. 1263, 1290 and 1333 (that prohibit
the Overseas Bank of Manila to participate in clearing, direct the
suspension of its operations, and ordering liquidation of said bank)
and directed the Central Bank to comply with its obligations under
the Voting Trust Agreement, and further, to desist from taking action
in violation thereof." (Pp. 29-31, Record.)
Under the foregoing facts, petitioner bank does not deny and is
ready to accept its liability for the return or payment to herein private
respondent Julian R. Cordero of the balance of Thirty Thousand
(P30,000.00) Pesos of the principal amount deposited by him but
submits that it is not liable for the interests thereon during the period
that Central Banks Resolution Nos. 1327 and 1263 were in force
and effect and the bank was, consequently, for all practical purposes
under a state of liquidation. On the other hand, private respondent
maintains, and the Court of Appeals so held, that in view of the
decision of this Supreme Court annulling the mentioned Central
Banks resolutions, the herein petitioner bank was "not legally dead",
hence "the ordinary laws governing the relationship of a time deposit
(sic?) and the bank are applicable."cralaw virtua1aw library
The issue thus joined by the parties is precisely the very same one
We already resolved in Tapia and Cordero (Vicente) supra. In this
latest case, Mr. Justice Escolin held for the Court
thus:jgc:chanrobles.com.ph
"Thus, with the principal claim of respondent having been satisfied,
the only remaining issue to be determined is whether respondent is entitled to
(1) interest on his time deposit during the period that petitioner was closed and
(2) to attorneys fees.
"We find the answer to be in the negative.
"The pronouncement made by this Court, per Justice Barredo, in the recent
BATAAN SHIPYARD & ENGINEERING CO., INC.
explicit and categorical. We quote:chanrob1es virtual 1aw library
It is a matter of common knowledge which we take judicial notice of, that what
enables a bank to pay stipulated interest on money deposited with it is that thru
the other aspects of its operation, it is able to generate funds to cover the
payment of such interest. Unless a bank can lend money, engage in
international transactions, acquire foreclosed mortgaged properties or their
proceeds and generally engage in other banking and financing activities, from
which it can derive income, it is inconceivable how it can carry on as a
depository obligated to pay stipulated interest. . . . Consequently, it should be
deemed read into every contract of deposit with a bank that the obligation to
pay interest on the deposit ceases the moment the operation of the bank is
completely suspended by the duly constituted authority, the Central Bank.
We consider it of trivial consequence that the stoppage of the banks operations
by the Central Bank has been subsequently declared illegal by the Supreme
Court, for before the Courts order, the bank had no alternative under the law
than to obey the orders of the Central Bank. Whatever be the juridical
significance of the subsequent action of the Supreme Court, the stubborn fact
remained that the petitioner was totally crippled from then on from earning the
income needed to meet its obligations to its depositors. If such a situation
cannot, strictly speaking be legally denominated as force majeure as
maintained by private respondent, We hold it is a matter of simple equity that it
be treated as such.
"And concluding, this Court stated:chanrob1es virtual 1aw library
Parenthetically, We may add for the guidance of those who might be concerned
and so that the unnecessary litigations may be avoided from further clogging
the dockets of the courts that in the light of the consideration expounded in the
above opinion, the same formula that exempts petitioner from the payment of
interest to its depositors during the whole period of factual stoppage of its
operations by orders of the Central Bank, modified in effect by the decision as
well as the approval of a formula-of rehabilitation by this Court, should be, as a
matter of consistency, applicable or followed in respect to all other obligations of
petitioner which could not be paid during the period of its actual complete
closure.
"Neither can respondent Cordero recover attorneys fees. The trial court found
that herein petitioners refusal to pay was not due to a willful and dishonest
refusal to comply with its obligation but to restrictions imposed by the Central
Bank (Record on Appeal [CA] p. 49). Since respondent did not appeal from this
decision, he is now barred from contesting the same."cralaw virtua1aw library
We cannot perceive any justifiable ground or reason to depart from the
considerations and judgments in those earlier cases materially identical to the
one at bar. Private respondent has not adduced any cogent argument which
could persuade Us otherwise.chanrobles lawlibrary : rednad
WHEREFORE, the decision under review is hereby reversed and petitioner is
declared not liable for the interest on private respondents time deposit in
question in accordance with the previous rulings of this Court above
referred to. No costs.
G.R. No. 75885 May 27, 1987
(BASECO), petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT,
CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY
CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ,
COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S.
DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.
Apostol, Bernas, Gumaru, Ona and Associates for petitioner.
Vicente G. Sison for intervenor A.T. Abesamis.
NARVASA, J.:
Challenged in this special civil action of certiorari and prohibition by a
private corporation known as the Bataan Shipyard and Engineering Co.,
Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by
President Corazon C. Aquino on February 28, 1986 and March 12, 1986,
respectively, and (2) the sequestration, takeover, and other orders
issued, and acts done, in accordance with said executive orders by the
Presidential Commission on Good Government and/or its Commissioners
and agents, affecting said corporation.
1. The Sequestration, Takeover, and Other Orders Complained of
a. The Basic Sequestration Order
The sequestration order which, in the view of the petitioner corporation,
initiated all its misery was issued on April 14, 1986 by Commissioner
Mary Concepcion Bautista. It was addressed to three of the agents of the
Commission, hereafter simply referred to as PCGG. It reads as follows:
RE: SEQUESTRATION ORDER
By virtue of the powers vested in the Presidential
Commission on Good Government, by authority of
the President of the Philippines, you are hereby
directed to sequester the following companies.
1. Bataan Shipyard and
Engineering Co., Inc.
(Engineering Island Shipyard
and Mariveles Shipyard)
2. Baseco Quarry
3. Philippine Jai-Alai Corporation
4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.
6. Trident Management Co.
 7. New Trident Management
8. Bay Transport
9. And all affiliate companies
of Alfredo "Bejo" Romualdez
You are hereby ordered:
1. To implement this sequestration order with a
minimum disruption of these companies'
business activities.
2. To ensure the continuity of these companies
as going concerns, the care and maintenance of
these assets until such time that the Office of the
President through the Commission on Good
Government should decide otherwise.
3. To report to the Commission on Good
Government periodically.
Further, you are authorized to request for
Military/Security Support from the Military/Police
authorities, and such other acts essential to the
achievement of this sequestration order. 1
b. Order for Production of Documents
On the strength of the above sequestration order, Mr. Jose M.
Balde, acting for the PCGG, addressed a letter dated April 18, 1986
to the President and other officers of petitioner firm, reiterating an
earlier request for the production of certain documents, to wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation
2.2. By-Laws
2.3. Minutes of the Annual
Stockholders Meeting from
1973 to 1986
2.4. Minutes of the Regular
and Special Meetings of the
Board of Directors from
1973 to 1986
2.5. Minutes of the
Executive Committee
Meetings from 1973 to 1986
2.6. Existing contracts with
suppliers/contractors/others.
3. Yearly list of stockholders with their
corresponding share/stockholdings from 1973 to
1986 duly certified by the Corporate Secretary.
4. Audited Financial Statements such as
Balance Sheet, Profit & Loss and others from
1973 to December 31, 1985.
5. Monthly Financial Statements for the current year up to
March 31, 1986.
6. Consolidated Cash Position Reports from January to
April 15, 1986.
7. Inventory listings of assets up dated up to March 31,
1986.
8. Updated schedule of Accounts Receivable and Accounts
Payable.
9. Complete list of depository banks for all funds with the
authorized signatories for withdrawals thereof.
10. Schedule of company investments and placements. 2
The letter closed with the warning that if the documents were not submitted
within five days, the officers would be cited for "contempt in pursuance with
Presidential Executive Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security
Services
A third order assailed by petitioner corporation, hereafter referred to simply as
BASECO, is that issued on April 21, 1986 by a Capt. Flordelino B. Zabala, a
member of the task force assigned to carry out the basic sequestration order.
He sent a letter to BASECO's Vice-President for Finance, 3 terminating the
contract for security services within the Engineer Island compound between
BASECO and "Anchor and FAIRWAYS" and "other civilian security agencies,"
CAPCOM military personnel having already been assigned to the area,
(2) Change of Mode of Payment of
Entry Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to
"Truck Owners and Contractors," particularly a "Mr. Buddy Ondivilla National
Marine Corporation," advising of the amendment in part of their contracts with
BASECO in the sense that the stipulated charges for use of the BASECO road
network were made payable "upon entry and not anymore subject to monthly
billing as was originally agreed upon." 4
d. Aborted Contract for Improvement of Wharf at Engineer
Island
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in
behalf of BASECO with Deltamarine Integrated Port Services, Inc., in virtue of
which the latter undertook to introduce improvements costing approximately
P210,000.00 on the BASECO wharf at Engineer Island, allegedly then in poor
condition, avowedly to "optimize its utilization and in return maximize the
revenue which would flow into the government coffers," in consideration of
Deltamarine's being granted "priority in using the improved portion of the wharf
ahead of anybody" and exemption "from the payment of any charges for the use
of wharf including the area where it may install its bagging equipments" "until
the improvement remains in a condition suitable for port operations." 5 It seems
however that this contract was never consummated. Capt. Jorge B. Siacunco,
"Head- (PCGG) BASECO Management Team," advised Deltamarine by letter
dated July 30, 1986 that "the new management is not in a position to honor the
said contract" and thus "whatever improvements * * (may be introduced) shall
be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." 6
e. Order for Operation of Sesiman Rock Quarry,
Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed
a PCGG agent, Mayor Melba O. Buenaventura, "to plan and implement
progress towards maximizing the continuous operation of the BASECO
Sesiman Rock Quarry * * by conventional methods;" but afterwards,
Commissioner Bautista, in representation of the PCGG, authorized
another party, A.T. Abesamis, to operate the quarry, located at
Mariveles, Bataan, an agreement to this effect having been executed by
them on September 17, 1986. 7
f. Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this time dated June 26,
1986, Mayor Buenaventura was also "authorized to clean and beautify
the Company's compound," and in this connection, to dispose of or sell
"metal scraps" and other materials, equipment and machineries no
longer usable, subject to specified guidelines and safeguards including
audit and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the
provisional takeover by the PCGG of BASECO, "the Philippine Dockyard
Corporation and all their affiliated companies." 9 Diaz invoked the
provisions of Section 3 (c) of Executive Order No. 1, empowering the
Commission
* * To provisionally takeover in the public interest or
to prevent its disposal or dissipation, business
enterprises and properties taken over by the
government of the Marcos Administration or by
entities or persons close to former President Marcos,
until the transactions leading to such acquisition by
the latter can be disposed of by the appropriate
authorities.
A management team was designated to implement the order, headed by
Capt. Siacunco, and was given the following powers:
1. Conducts all aspects of operation of the subject
companies;
2. Installs key officers, hires and terminates
personnel as necessary;
3. Enters into contracts related to management and
operation of the companies;
4. Ensures that the assets of the companies are not
dissipated and used effectively and efficiently;
revenues are duly accounted for; and disburses
funds only as may be necessary;
5. Does actions including among others, seeking of
military support as may be necessary, that will
ensure compliance to this order;
6. Holds itself fully accountable to the Presidential
Commission on Good Government on all aspects
related to this take-over order.
 h. Termination of Services of
BASECO Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S.
Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R.
Cuesta I, advising of the termination of their services by the
PCGG. 10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its
members and agents which, to repeat, petitioner BASECO would
have this Court nullify. More particularly, BASECO prays that this
Court-
1) declare unconstitutional and void Executive Orders Numbered 1
and 2;
2) annul the sequestration order dated April- 14, 1986, and all other
orders subsequently issued and acts done on the basis thereof,
inclusive of the takeover order of July 14, 1986 and the termination
of the services of the BASECO executives. 11
a. Re Executive Orders No. 1 and 2, and the
Sequestration and Takeover Orders
While BASECO concedes that "sequestration without resorting to
judicial action, might be made within the context of Executive Orders
Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution
was promulgated, under the principle that the law promulgated by
the ruler under a revolutionary regime is the law of the land, it
ceased to be acceptable when the same ruler opted to promulgate
the Freedom Constitution on March 25, 1986 wherein under Section
I of the same, Article IV (Bill of Rights) of the 1973 Constitution was
adopted providing, among others, that "No person shall be deprived
of life, liberty and property without due process of law." (Const., Art. I
V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive
Orders "as well as the Sequestration Order * * and Takeover Order *
* issued purportedly under the authority of said Executive Orders,
rests on four fundamental considerations: First, no notice and
hearing was accorded * * (it) before its properties and business were
taken over; Second, the PCGG is not a court, but a purely
investigative agency and therefore not competent to act as
prosecutor and judge in the same cause; Third, there is nothing in
the issuances which envisions any proceeding, process or remedy
by which petitioner may expeditiously challenge the validity of the
takeover after the same has been effected; and Fourthly, being
directed against specified persons, and in disregard of the
constitutional presumption of innocence and general rules and
procedures, they constitute a Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to
1986, which it has apparently already complied with, was issued
without court authority and infringed its constitutional right against
self-incrimination, and unreasonable search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership
and Management
BASECO further contends that the PCGG had unduly interfered with its right of
dominion and management of its business affairs by
1) terminating its contract for security services with Fairways & Anchor, without
the consent and against the will of the contracting parties; and amending the
mode of payment of entry fees stipulated in its Lease Contract with National
Stevedoring & Lighterage Corporation, these acts being in violation of the non-
impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous
contract" with Deltamarine Integrated Port Services, Inc., giving the latter free
use of BASECO premises; 16
3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and
operate its rock quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap, equipment,
machinery and other materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and
all their affiliated companies;
6) terminating the services of BASECO executives: President Hilario M. Ruiz;
EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto
Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19
7) planning to elect its own Board of Directors; 20
8) allowing willingly or unwillingly its personnel to take, steal, carry away from
petitioner's premises at Mariveles * * rolls of cable wires, worth P600,000.00 on
May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars
supposed to have been buried therein. 22
3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover
Orders
Many misconceptions and much doubt about the matter of sequestration,
takeover and freeze orders have been engendered by misapprehension, or
incomplete comprehension if not indeed downright ignorance of the law
governing these remedies. It is needful that these misconceptions and doubts
be dispelled so that uninformed and useless debates about them may be
avoided, and arguments tainted b sophistry or intellectual dishonesty be quickly
exposed and discarded. Towards this end, this opinion will essay an exposition
of the law on the matter. In the process many of the objections raised by
BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the explicit
command of the Provisional Constitution, ordained by Proclamation No.
3, 23 that the President-in the exercise of legislative power which she was
authorized to continue to wield "(until a legislature is elected and convened
under a new Constitution" "shall give priority to measures to achieve the
mandate of the people," among others to (r)ecover ill-gotten properties
amassed by the leaders and supporters of the previous regime and protect the
interest of the people through orders of sequestration or freezing of assets or
accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-gotten
wealth," and postulates that "vast resources of the government have
been amassed by former President Ferdinand E. Marcos, his immediate
family, relatives, and close associates both here and abroad." 25 Upon
these premises, the Presidential Commission on Good Government was
created, 26 "charged with the task of assisting the President in regard to
(certain specified) matters," among which was precisely-
* * The recovery of all in-gotten wealth accumulated
by former President Ferdinand E. Marcos, his
immediate family, relatives, subordinates and close
associates, whether located in the Philippines or
abroad, including the takeover or sequestration of all
business enterprises and entities owned or controlled
by them, during his administration, directly or through
nominees, by taking undue advantage of their public
office and/or using their powers, authority, influence,
connections or relationship. 27
In relation to the takeover or sequestration that it was authorized to
undertake in the fulfillment of its mission, the PCGG was granted "power
and authority" to do the following particular acts, to wit:
1. To sequester or place or cause to be placed under
its control or possession any building or office
wherein any ill-gotten wealth or properties may be
found, and any records pertaining thereto, in order to
prevent their destruction, concealment or
disappearance which would frustrate or hamper the
investigation or otherwise prevent the Commission
from accomplishing its task.
2. To provisionally take over in the public interest or
to prevent the disposal or dissipation, business
enterprises and properties taken over by the
government of the Marcos Administration or by
entities or persons close to former President Marcos,
until the transactions leading to such acquisition by
the latter can be disposed of by the appropriate
authorities.
3. To enjoin or restrain any actual or threatened
commission of acts by any person or entity that may
render moot and academic, or frustrate or otherwise
make ineffectual the efforts of the Commission to
carry out its task under this order. 28
So that it might ascertain the facts germane to its objectives, it was
granted power to conduct investigations; require submission of evidence
by subpoenae ad testificandum and duces tecum; administer oaths;
punish for contempt. 29It was given power also to promulgate such rules
and regulations as may be necessary to carry out the purposes of * * (its
creation). 30
c. Executive Order No. 2
Executive Order No. 2 gives additional and more specific data and
directions respecting "the recovery of ill-gotten properties amassed by
the leaders and supporters of the previous regime." It declares that:
 1) * * the Government of the Philippines is in
possession of evidence showing that there are
assets and properties purportedly pertaining to
former Ferdinand E. Marcos, and/or his wife
Mrs. Imelda Romualdez Marcos, their close
relatives, subordinates, business associates,
dummies, agents or nominees which had been
or were acquired by them directly or indirectly,
through or as a result of the improper or illegal
use of funds or properties owned by the
government of the Philippines or any of its
branches, instrumentalities, enterprises, banks
or financial institutions, or by taking undue
advantage of their office, authority, influence,
connections or relationship, resulting in their
unjust enrichment and causing grave damage
and prejudice to the Filipino people and the
Republic of the Philippines:" and
2) * * said assets and properties are in the form
of bank accounts, deposits, trust accounts,
shares of stocks, buildings, shopping centers,
condominiums, mansions, residences, estates,
and other kinds of real and personal properties
in the Philippines and in various countries of the
world." 31
Upon these premises, the President-
1) froze "all assets and properties in the
Philippines in which former President Marcos
and/or his wife, Mrs. Imelda Romualdez Marcos,
their close relatives, subordinates, business
associates, dummies, agents, or nominees have
any interest or participation;
2) prohibited former President Ferdinand Marcos
and/or his wife * *, their close relatives,
subordinates, business associates, duties,
agents, or nominees from transferring,
conveying, encumbering, concealing or
dissipating said assets or properties in the
Philippines and abroad, pending the outcome of
appropriate proceedings in the Philippines to
determine whether any such assets or
properties were acquired by them through or as
a result of improper or illegal use of or the
conversion of funds belonging to the
Government of the Philippines or any of its
branches, instrumentalities, enterprises, banks
or financial institutions, or by taking undue
advantage of their official position, authority,
relationship, connection or influence to unjustly
enrich themselves at the expense and to the
grave damage and prejudice of the Filipino
people and the Republic of the Philippines;
3) prohibited "any person from transferring,
conveying, encumbering or otherwise depleting
or concealing such assets and properties or
from assisting or taking part in their transfer, encumbrance,
concealment or dissipation under pain of such penalties as
are prescribed by law;" and
4) required "all persons in the Philippines holding such
assets or properties, whether located in the Philippines or
abroad, in their names as nominees, agents or trustees, to
make full disclosure of the same to the Commission on
Good Government within thirty (30) days from publication of
* (the) Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by which the
PCGG is empowered, "with the assistance of the Office of the Solicitor General
and other government agencies, * * to file and prosecute all cases investigated
by it * * as may be warranted by its findings." 34 All such cases, whether civil or
criminal, are to be filed "with the Sandiganbayan which shall have exclusive and
original jurisdiction thereof." 35 Executive Order No. 14 also pertinently provides
that civil suits for restitution, reparation of damages, or indemnification for
consequential damages, forfeiture proceedings provided for under Republic Act
No. 1379, or any other civil actions under the Civil Code or other existing laws,
in connection with * * (said Executive Orders Numbered 1 and 2) may be filed
separately from and proceed independently of any criminal proceedings and
may be proved by a preponderance of evidence;" and that, moreover, the
"technical rules of procedure and evidence shall not be strictly applied to* *
(said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these
being:
1) that "(i)ll-gotten properties (were) amassed by the
leaders and supporters of the previous regime"; 37
a) more particularly, that ill-gotten wealth (was)
accumulated by former President Ferdinand E. Marcos, his
immediate family, relatives, subordinates and close
associates, * * located in the Philippines or abroad, * * (and)
business enterprises and entities (came to be) owned or
controlled by them, during * * (the Marcos) administration,
directly or through nominees, by taking undue advantage of
their public office and/or using their powers, authority,
influence, Connections or relationship; 38
b) otherwise stated, that "there are assets and properties
purportedly pertaining to former President Ferdinand E.
Marcos, and/or his wife Mrs. Imelda Romualdez Marcos,
their close relatives, subordinates, business associates,
dummies, agents or nominees which had been or were
acquired by them directly or indirectly, through or as a result
of the improper or illegal use of funds or properties owned
by the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions,
or by taking undue advantage of their office, authority,
influence, connections or relationship, resulting in their
unjust enrichment and causing grave damage and prejudice
to the Filipino people and the Republic of the
Philippines"; 39
c) that "said assets and properties are in the form of
bank accounts. deposits, trust. accounts, shares of
stocks, buildings, shopping centers, condominiums,
mansions, residences, estates, and other kinds of
real and personal properties in the Philippines and in
various countries of the world;" 40 and
2) that certain "business enterprises and properties
(were) taken over by the government of the Marcos
Administration or by entities or persons close to
former President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the
Government's plan "to recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming the
above described factual premises of the Executive Orders and
Proclamation No. 3 to be true, to be demonstrable by competent
evidence, the recovery from Marcos, his family and his dominions of the
assets and properties involved, is not only a right but a duty on the part
of Government.
But however plain and valid that right and duty may be, still a balance
must be sought with the equally compelling necessity that a proper
respect be accorded and adequate protection assured, the fundamental
rights of private property and free enterprise which are deemed pillars of
a free society such as ours, and to which all members of that society may
without exception lay claim.
* * Democracy, as a way of life enshrined in the
Constitution, embraces as its necessary components
freedom of conscience, freedom of expression, and
freedom in the pursuit of happiness. Along with these
freedoms are included economic freedom and
freedom of enterprise within reasonable bounds and
under proper control. * * Evincing much concern for
the protection of property, the Constitution distinctly
recognizes the preferred position which real estate
has occupied in law for ages. Property is bound up
with every aspect of social life in a democracy as
democracy is conceived in the Constitution.The
Constitution realizes the indispensable role which
property, owned in reasonable quantities and used
legitimately, plays in the stimulation to economic
effort and the formation and growth of a solid social
middle class that is said to be the bulwark of
democracy and the backbone of every progressive
and happy country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot
simply be assumed. They will have to be duly established by adequate
proof in each case, in a proper judicial proceeding, so that the recovery
of the ill-gotten wealth may be validly and properly adjudged and
consummated; although there are some who maintain that the fact-that
an immense fortune, and "vast resources of the government have been
amassed by former President Ferdinand E. Marcos, his immediate
family, relatives, and close associates both here and abroad," and they
have resorted to all sorts of clever schemes and manipulations to
disguise and hide their illicit acquisitions-is within the realm of
judicial notice, being of so extensive notoriety as to dispense with
proof thereof, Be this as it may, the requirement of evidentiary
substantiation has been expressly acknowledged, and the procedure
to be followed explicitly laid down, in Executive Order No. 14.
b. Need of Provisional Measures to Collect and
Conserve Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the
recovery of such "ill-gotten wealth" as the evidence at hand may
reveal, there is an obvious and imperative need for preliminary,
provisional measures to prevent the concealment, disappearance,
destruction, dissipation, or loss of the assets and properties subject
of the suits, or to restrain or foil acts that may render moot and
academic, or effectively hamper, delay, or negate efforts to recover
the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional
remedies. These are: (1) sequestration; (2) freeze orders; and (3)
provisional takeover.
Sequestration and freezing are remedies applicable generally to
unearthed instances of "ill-gotten wealth." The remedy of
"provisional takeover" is peculiar to cases where "business
enterprises and properties (were) taken over by the government of
the Marcos Administration or by entities or persons close to former
President Marcos." 43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester
property claimed to be "ill-gotten" means to place or cause to be
placed under its possession or control said property, or any building
or office wherein any such property and any records pertaining
thereto may be found, including "business enterprises and entities,"-
for the purpose of preventing the destruction, concealment or
dissipation of, and otherwise conserving and preserving, the same-
until it can be determined, through appropriate judicial proceedings,
whether the property was in truth will- gotten," i.e., acquired through
or as a result of improper or illegal use of or the conversion of funds
belonging to the Government or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by
taking undue advantage of official position, authority relationship,
connection or influence, resulting in unjust enrichment of the
ostensible owner and grave damage and prejudice to the
State. 44 And this, too, is the sense in which the term is commonly
understood in other jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of
property alleged to constitute "ill-gotten wealth" "from transferring,
conveying, encumbering or otherwise depleting or concealing such
property, or from assisting or taking part in its transfer,
encumbrance, concealment, or dissipation." 46 In other words, it
commands the possessor to hold the property and conserve it
subject to the orders and disposition of the authority decreeing such
freezing. In this sense, it is akin to a garnishment by which the possessor or
ostensible owner of property is enjoined not to deliver, transfer, or otherwise
dispose of any effects or credits in his possession or control, and thus becomes
in a sense an involuntary depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law acknowledges the
apparent distinction between "ill gotten" "business enterprises and entities"
(going concerns, businesses in actual operation), generally, as to which the
remedy of sequestration applies, it being necessarily inferred that the remedy
entails no interference, or the least possible interference with the actual
management and operations thereof; and "business enterprises which
were taken over by the government government of the Marcos Administration or
by entities or persons close to him," in particular, as to which a "provisional
takeover" is authorized, "in the public interest or to prevent disposal or
dissipation of the enterprises." 48 Such a "provisional takeover" imports
something more than sequestration or freezing, more than the placing of the
business under physical possession and control, albeit without or with the least
possible interference with the management and carrying on of the business
itself. In a "provisional takeover," what is taken into custody is not only the
physical assets of the business enterprise or entity, but the business operation
as well. It is in fine the assumption of control not only over things, but over
operations or on- going activities. But, to repeat, such a "provisional takeover" is
allowed only as regards "business enterprises * * taken over by the government
of the Marcos Administration or by entities or persons close to former President
Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once again the provisional,
contingent character of the remedies just described. Indeed the law plainly
qualifies the remedy of take-over by the adjective, "provisional." These
remedies may be resorted to only for a particular exigency: to prevent in the
public interest the disappearance or dissipation of property or business, and
conserve it pending adjudgment in appropriate proceedings of the primary issue
of whether or not the acquisition of title or other right thereto by the apparent
owner was attended by some vitiating anomaly. None of the remedies is meant
to deprive the owner or possessor of his title or any right to the property
sequestered, frozen or taken over and vest it in the sequestering agency, the
Government or other person. This can be done only for the causes and by the
processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally
take over is to be understood and exercised, the language of the executive
orders in question leaves no doubt. Executive Order No. 1 declares that the
sequestration of property the acquisition of which is suspect shall last "until the
transactions leading to such acquisition * * can be disposed of by the
appropriate authorities." 49 Executive Order No. 2 declares that the assets or
properties therein mentioned shall remain frozen "pending the outcome of
appropriate proceedings in the Philippines to determine whether any such
assets or properties were acquired" by illegal means. Executive Order No. 14
makes clear that judicial proceedings are essential for the resolution of the
basic issue of whether or not particular assets are "ill-gotten," and resultant
recovery thereof by the Government is warranted.
e. State of Seizure Not To Be Indefinitely Maintained; The
Constitutional Command
There is thus no cause for the apprehension voiced by BASECO 50 that
sequestration, freezing or provisional takeover is designed to be an end in itself,
that it is the device through which persons may be deprived of their
property branded as "ill-gotten," that it is intended to bring about a
permanent, rather than a passing, transitional state of affairs. That this is
not so is quite explicitly declared by the governing rules.
Be this as it may, the 1987 Constitution should allay any lingering fears
about the duration of these provisional remedies. Section 26 of its
Transitory Provisions, 51 lays down the relevant rule in plain terms, apart
from extending ratification or confirmation (although not really necessary)
to the institution by presidential fiat of the remedy of sequestration and
freeze orders:
SEC. 26. The authority to issue sequestration or
freeze orders under Proclamation No. 3 dated March
25, 1986 in relation to the recovery of ill-gotten
wealth shag remain operative for not more
than eighteen months after the ratification of this
Constitution. However, in the national interest, as
certified by the President, the Congress may
extend said period.
A sequestration or freeze order shall be issued only
upon showing of a prima facie case. The order and
the list of the sequestered or frozen properties shall
forthwith be registered with the proper court. For
orders issued before the ratification of this
Constitution, the corresponding judicial action or
proceeding shall be filed within six months from its
ratification. For those issued after such ratification,
the judicial action or proceeding shall be commenced
within six months from the issuance thereof.
The sequestration or freeze order is deemed
automatically lifted if no judicial action or proceeding
is commenced as herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are
akin to the provisional remedy of preliminary attachment, or
receivership. 53 By attachment, a sheriff seizes property of a defendant
in a civil suit so that it may stand as security for the satisfaction of any
judgment that may be obtained, and not disposed of, or dissipated, or
lost intentionally or otherwise, pending the action. 54 By receivership,
property, real or personal, which is subject of litigation, is placed in the
possession and control of a receiver appointed by the Court, who shall
conserve it pending final determination of the title or right of possession
over it. 55 All these remedies sequestration, freezing, provisional,
takeover, attachment and receivership are provisional, temporary,
designed for-particular exigencies, attended by no character of
permanency or finality, and always subject to the control of the issuing
court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders
are not issued by a court is of no moment. The Solicitor General draws
attention to the writ of distraint and levy which since 1936 the
Commissioner of Internal Revenue has been by law authorized to issue
against property of a delinquent taxpayer. 56 BASECO itself declares
that it has not manifested "a rigid insistence on sequestration as a purely
judicial remedy * * (as it feels) that the law should not be ossified to
a point that makes it insensitive to change." What it insists on, what
it pronounces to be its "unyielding position, is that any change in
procedure, or the institution of a new one, should conform to due
process and the other prescriptions of the Bill of Rights of the
Constitution." 57 It is, to be sure, a proposition on which there can
be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well
as delivery of personal property in replevin suits, sequestration and
provisional takeover writs may issue ex parte. 58 And as in
preliminary attachment, receivership, and delivery of personality, no
objection of any significance may be raised to the ex parte issuance
of an order of sequestration, freezing or takeover, given its
fundamental character of temporariness or conditionality; and taking
account specially of the constitutionally expressed "mandate of the
people to recover ill-gotten properties amassed by the leaders and
supporters of the previous regime and protect the interest of the
people;" 59 as well as the obvious need to avoid alerting suspected
possessors of "ill-gotten wealth" and thereby cause that
disappearance or loss of property precisely sought to be prevented,
and the fact, just as self-evident, that "any transfer, disposition,
concealment or disappearance of said assets and properties would
frustrate, obstruct or hamper the efforts of the Government" at the
just recovery thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and
receivership, there exist a prima facie factual foundation, at least, for
the sequestration, freeze or takeover order, and adequate and fair
opportunity to contest it and endeavor to cause its negation or
nullification. 61
Both are assured under the executive orders in question and the
rules and regulations promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the
requirements of fairness and due process." 62Executive Order No. 2
declares that with respect to claims on allegedly "ill-gotten" assets
and properties, "it is the position of the new democratic government
that President Marcos * * (and other parties affected) be afforded fair
opportunity to contest these claims before appropriate Philippine
authorities." 63 Section 7 of the Commission's Rules and
Regulations provides that sequestration or freeze (and takeover)
orders issue upon the authority of at least two commissioners, based
on the affirmation or complaint of an interested party, or motu
proprio when the Commission has reasonable grounds to believe
that the issuance thereof is warranted. 64 A similar requirement is
now found in Section 26, Art. XVIII of the 1987 Constitution, which
requires that a "sequestration or freeze order shall be issued only
upon showing of a prima facie case." 65
b. Opportunity to Contest
And Sections 5 and 6 of the same Rules and Regulations lay down the
procedure by which a party may seek to set aside a writ of sequestration or
freeze order, viz:
SECTION 5. Who may contend.-The person against whom
a writ of sequestration or freeze or hold order is directed
may request the lifting thereof in writing, either personally or
through counsel within five (5) days from receipt of the writ
or order, or in the case of a hold order, from date of
knowledge thereof.
SECTION 6. Procedure for review of writ or order.-After due
hearing or motu proprio for good cause shown, the
Commission may lift the writ or order unconditionally or
subject to such conditions as it may deem necessary, taking
into consideration the evidence and the circumstance of the
case. The resolution of the commission may be appealed
by the party concerned to the Office of the President of the
Philippines within fifteen (15) days from receipt thereof.
Parenthetically, even if the requirement for a prima facie showing of "ill- gotten
wealth" were not expressly imposed by some rule or regulation as a condition to
warrant the sequestration or freezing of property contemplated in the executive
orders in question, it would nevertheless be exigible in this jurisdiction in which
the Rule of Law prevails and official acts which are devoid of rational basis in
fact or law, or are whimsical and capricious, are condemned and struck
down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the foregoing considerations as to
the validity and propriety of sequestration, freeze and takeover orders, it should
be dispelled by the fact that these particular remedies and the authority of the
PCGG to issue them have received constitutional approbation and sanction. As
already mentioned, the Provisional or "Freedom" Constitution recognizes the
power and duty of the President to enact "measures to achieve the mandate of
the people to * * * (recover ill- gotten properties amassed by the leaders and
supporters of the previous regime and protect the interest of the people
through orders of sequestration or freezing of assets or accounts." And as also
already adverted to, Section 26, Article XVIII of the 1987 Constitution 67 treats
of, and ratifies the "authority to issue sequestration or freeze orders under
Proclamation No. 3 dated March 25, 1986."
The institution of these provisional remedies is also premised upon the State's
inherent police power, regarded, as t lie power of promoting the public welfare
by restraining and regulating the use of liberty and property," 68 and as "the
most essential, insistent and illimitable of powers * * in the promotion of general
welfare and the public interest," 69and said to be co-extensive with self-
protection and * * not inaptly termed (also) the'law of overruling necessity." "70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far been said
that the PCGG is not, and was never intended to act as, a judge. Its general
function is to conduct investigations in order to collect evidence establishing
instances of "ill-gotten wealth;" issue sequestration, and such orders as may be
warranted by the evidence thus collected and as may be necessary to preserve
and conserve the assets of which it takes custody and control and prevent their
disappearance, loss or dissipation; and eventually file and prosecute in the
proper court of competent jurisdiction all cases investigated by it as may be
warranted by its findings. It does not try and decide, or hear and determine, or
adjudicate with any character of finality or compulsion, cases involving
the essential issue of whether or not property should be forfeited and
transferred to the State because "ill-gotten" within the meaning of the
Constitution and the executive orders. This function is reserved to the
designated court, in this case, the Sandiganbayan. 71 There can
therefore be no serious regard accorded to the accusation, leveled by
BASECO, 72that the PCGG plays the perfidious role of prosecutor and
judge at the same time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts
disclosed by the record, hereafter to be discussed, the petition cannot
succeed. The writs of certiorari and prohibition prayed for will not be
issued.
The facts show that the corporation known as BASECO was owned or
controlled by President Marcos "during his administration, through
nominees, by taking undue advantage of his public office and/or using
his powers, authority, or influence, " and that it was by and through the
same means, that BASECO had taken over the business and/or assets
of the National Shipyard and Engineering Co., Inc., and other
government-owned or controlled entities.
12. Organization and Stock Distribution of BASECO
BASECO describes itself in its petition as "a shiprepair and shipbuilding
company * * incorporated as a domestic private corporation * * (on Aug.
30, 1972) by a consortium of Filipino shipowners and shipping
executives. Its main office is at Engineer Island, Port Area, Manila, where
its Engineer Island Shipyard is housed, and its main shipyard is located
at Mariveles Bataan." 73 Its Articles of Incorporation disclose that its
authorized capital stock is P60,000,000.00 divided into 60,000 shares, of
which 12,000 shares with a value of P12,000,000.00 have been
subscribed, and on said subscription, the aggregate sum of
P3,035,000.00 has been paid by the incorporators. 74The same articles
Identify the incorporators, numbering fifteen (15), as follows: (1) Jose A.
Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P.
Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M.
Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose
Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S.
Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres.
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased
to be stockholders, namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta,
(3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6)
Rodolfo Torres. As of this year, 1986, there were twenty (20)
stockholders listed in BASECO's Stock and Transfer Book. 75Their
names and the number of shares respectively held by them are as
follows:
1. Jose A. Rojas 1,248 shares
2. Severino G. de la 1,248 shares
Cruz
3. Emilio T. Yap 2,508 shares
 of the BNS, consigned for future negotiation all its structures, buildings,
4. Jose Fernandez 1,248 shares
shops, quarters, houses, plants, equipment and facilities, in stock or in transit.
This it did in virtue of a "Contract of Purchase and Sale with Chattel Mortgage"
5. Jose Francisco 128 sharesexecuted on February 13, 1973. The price was P52,000,000.00. As partial
payment thereof, BASECO delivered to NASSCO a cash bond of
P11,400,000.00, convertible into cash within twenty-four (24) hours from
6. Manuel S. Mendoza 96 shares completion of the inventory undertaken pursuant to the contract. The balance of
P41,600,000.00, with interest at seven percent (7%) per annum, compounded
semi-annually, was stipulated to be paid in equal semi-annual installments over
7. Anthony P. Lee 1,248 shares
a term of nine (9) years, payment to commence after a grace period of two (2)
years from date of turnover of the shipyard to BASECO. 76
8. Hilario M. Ruiz 32 shares 14. Subsequent Reduction of Price; Intervention of Marcos
Unaccountably, the price of P52,000,000.00 was reduced by more than one-
9. Constante L. Farias 8 shares half, to P24,311,550.00, about eight (8) months later. A document to this effect
was executed on October 9, 1973, entitled "Memorandum Agreement," and was
signed for NASSCO by Arturo Pacificador, as Presiding Officer of the Board of
10. Fidelity 65,882 shares
Directors, and David R. Ines, as General Manager. 77 This agreement bore, at
Management, Inc. the top right corner of the first page, the word "APPROVED" in the handwriting
of President Marcos, followed by his usual full signature. The document recited
that a down payment of P5,862,310.00 had been made by BASECO, and the
11. Trident 7,412 shares
balance of P19,449,240.00 was payable in equal semi-annual installments over
Management nine (9) years after a grace period of two (2) years, with interest at 7% per
annum.
12. United Phil. Lines 1,240 shares
15. Acquisition of 300 Hectares from Export Processing Zone Authority
On October 1, 1974, BASECO acquired three hundred (300) hectares of land in
13. Renato M. Tanseco 8 shares Mariveles from the Export Processing Zone Authority for the price of
P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00
was paid upon its execution, and the balance stipulated to be payable in
14. Fidel Ventura 8 shares installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
15. Metro Bay Drydock 136,370 shares
Some nine months afterwards, or on July 15, 1975, to be precise, BASECO,
again with the intervention of President Marcos, acquired ownership of the rest
16. Manuel Jacela 1 share of the assets of NASSCO which had not been included in the first two (2)
purchase documents. This was accomplished by a deed entitled "Contract of
Purchase and Sale," 79 which, like the Memorandum of Agreement dated
17. Jonathan G. Lu 1 share October 9, 1973 supra also bore at the upper right-hand corner of its first page,
the handwritten notation of President Marcos reading, "APPROVED, July 29,
1973," and underneath it, his usual full signature. Transferred to BASECO were
18. Jose J. Tanchanco 1 share
NASSCO's "ownership and all its titles, rights and interests over all equipment
and facilities including structures, buildings, shops, quarters, houses, plants and
19. Dioscoro Papa 128 sharesexpendable or semi-expendable assets, located at the Engineer Island, known
as the Engineer Island Shops, including all the equipment of the Bataan
National Shipyards (BNS) which were excluded from the sale of NBS to
20. Edward T. Marcelo 4 shares BASECO but retained by BASECO and all other selected equipment and
machineries of NASSCO at J. Panganiban Smelting Plant." In the same deed,
NASSCO committed itself to cooperate with BASECO for the acquisition from
TOTAL 218,819 shares.
the National Government or other appropriate Government entity of Engineer
Island. Consideration for the sale was set at P5,000,000.00; a down payment of
13 Acquisition of NASSCO by BASECO P1,000,000.00 appears to have been made, and the balance was stipulated to
be paid at 7% interest per annum in equal semi annual installments over a term
Barely six months after its incorporation, BASECO acquired from of nine (9) years, to commence after a grace period of two (2) years. Mr. Arturo
National Shipyard & Steel Corporation, or NASSCO, a government-
Pacificador again signed for NASSCO, together with the general manager, Mr.
owned or controlled corporation, the latter's shipyard at Mariveles, David R. Ines.
Bataan, known as the Bataan National Shipyard (BNS), and
except for NASSCO's Engineer Island Shops and certain equipment 17. Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a loan from
the NDC, taken from "the last available Japanese war damage fund of
$19,000,000.00," to pay for "Japanese made heavy equipment (brand
new)." 80 On September 3, 1975, it got another loan also from the NDC
in the amount of P30,000,000.00 (id.). And on January 28, 1976, it got
still another loan, this time from the GSIS, in the sum of
P12,400,000.00. 81 The claim has been made that not a single centavo
has been paid on these loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were submitted to President Marcos
regarding BASECO. The first was contained in a letter dated September
5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second was
embodied in a confidential memorandum dated September 16, 1977 of
Capt. A.T. Romualdez. 84 They further disclose the fine hand of Marcos
in the affairs of BASECO, and that of a Romualdez, a relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported to
Marcos that there had been "no orders or demands for ship construction"
for some time and expressed the fear that if that state of affairs persisted,
BASECO would not be able to pay its debts to the Government, which at
the time stood at the not inconsiderable amount of
P165,854,000.00. 85 He suggested that, to "save the situation," there be
a "spin-off (of their) shipbuilding activities which shall be handled
exclusively by an entirely new corporation to be created;" and towards
this end, he informed Marcos that BASECO was
* * inviting NDC and LUSTEVECO to participate by
converting the NDC shipbuilding loan to BASECO
amounting to P341.165M and assuming and
converting a portion of BASECO's shipbuilding loans
from REPACOM amounting to P52.2M or a total of
P83.365M as NDC's equity contribution in the new
corporation. LUSTEVECO will participate by
absorbing and converting a portion of the REPACOM
loan of Bay Shipyard and Drydock, Inc., amounting to
P32.538M.86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11)
days later. It opened with the following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation and Re-assessment of a
Performance of a Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in
meeting its loan obligations due chiefly to the fact that "orders to build
ships as expected * * did not materialize."
He advised that five stockholders had "waived and/or assigned their
holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de la
Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee.
Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose A.
Rojas had a major heart attack," he made the following quite
revealing, and it may be added, quite cynical and indurate
recommendation, to wit:
* * (that) their replacements (be effected) so we
can register their names in the stock book prior
to the implementation of your instructions to
pass a board resolution to legalize the transfers
under SEC regulations;
2. By getting their replacements, the families
cannot question us later on; and
3. We will owe no further favors from them. 87
He also transmitted to Marcos, together with the report, the following
documents: 88
1. Stock certificates indorsed and assigned in
blank with assignments and waivers; 89
2. The articles of incorporation, the amended
articles, and the by-laws of BASECO;
3. Deed of Sales, wherein NASSCO sold to
BASECO four (4) parcels of land in "Engineer
Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the
name of BASECO, covering "Engineer Island";
5. Contract dated October 9, 1973, between
NASSCO and BASECO re-structure and
equipment at Mariveles, Bataan;
6. Contract dated July 16, 1975, between
NASSCO and BASECO re-structure and
equipment at Engineer Island, Port Area Manila;
7. Contract dated October 1, 1974, between
EPZA and BASECO re 300 hectares of land at
Mariveles, Bataan;
8. List of BASECO's fixed assets;
9. Loan Agreement dated September 3, 1975,
BASECO's loan from NDC of P30,000,000.00;
10. BASECO-REPACOM Agreement dated May
27, 1975;
11. GSIS loan to BASECO dated January 28,
1976 of P12,400,000.00 for the housing facilities
for BASECO's rank-and-file employees. 90
Capt. Romualdez also recommended that BASECO's loans be
restructured "until such period when BASECO will have enough
orders for ships in order for the company to meet loan obligations,"
and that
An LOI may be issued to government agencies
using floating equipment, that a linkage scheme
be applied to a certain percent of BASECO's net
profit as part of BASECO's amortization payments to make
it justifiable for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder
or officer of BASECO, yet he has presented a report on BASECO to President
Marcos, and his report demonstrates intimate familiarity with the firm's affairs
and problems.
19. Marcos' Response to Reports
President Marcos lost no time in acting on his subordinates' recommendations,
particularly as regards the "spin-off" and the "linkage scheme" relative to
"BASECO's amortization payments."
a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a Memorandum to Secretary
Geronimo Velasco of the Philippine National Oil Company and Chairman
Constante Farias of the National Development Company, directing them "to
participate in the formation of a new corporation resulting from the spin-off of
the shipbuilding component of BASECO along the following guidelines:
a. Equity participation of government shall be through
LUSTEVECO and NDC in the amount of P115,903,000
consisting of the following obligations of BASECO which are
hereby authorized to be converted to equity of the said new
corporation, to wit:
1. NDC P83,865,000 (P31.165M loan &
P52.2M Reparation)
2. LUSTEVECO P32,538,000
(Reparation)
b. Equity participation of government shall be in the form of
non- voting shares.
For immediate compliance. 92
Mr. Marcos' guidelines were promptly complied with by his subordinates.
Twenty-two (22) days after receiving their president's memorandum, Messrs.
Hilario M. Ruiz, Constante L. Farias and Geronimo Z. Velasco, in
representation of their respective corporations, executed a PRE-
INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they
undertook to form a shipbuilding corporation to be known as "PHIL-ASIA
SHIPBUILDING CORPORATION," to bring to realization their president's
instructions. It would seem that the new corporation ultimately formed was
actually named "Philippine Dockyard Corporation (PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of
instructions. On February 14, 1978, he issued Letter of Instructions No. 670
addressed to the Reparations Commission REPACOM the Philippine National
Oil Company (PNOC), the Luzon Stevedoring Company (LUSTEVECO), and
the National Development Company (NDC). What is commanded therein is
summarized by the Solicitor General, with pithy and not inaccurate observations
PCGG) were:
as to the effects thereof (in italics), as follows:
* * 1) the shipbuilding equipment procured by BASECO
through reparations be transferred to NDC subject to
reimbursement by NDC to BASECO (of) the amount of s
allegedly representing the handling and incidental expenses
incurred by BASECO in the installation of said
equipment (so instead of NDC getting paid on its
loan to BASECO, it was made to pay BASECO
instead the amount of P18.285M); 2) the shipbuilding
equipment procured from reparations through EPZA,
now in the possession of BASECO and BSDI (Bay
Shipyard & Drydocking, Inc.) be transferred to
LUSTEVECO through PNOC; and 3) the shipbuilding
equipment (thus) transferred be invested by
LUSTEVECO, acting through PNOC and NDC, as
the government's equity participation in a
shipbuilding corporation to be established in
partnership with the private sector.
xxx xxx xxx
And so, through a simple letter of instruction and
memorandum, BASECO's loan obligation to NDC
and REPACOM * * in the total amount of P83.365M
and BSD's REPACOM loan of P32.438M were wiped
out and converted into non-voting preferred
shares. 95
20. Evidence of Marcos'
Ownership of BASECO
It cannot therefore be gainsaid that, in the context of the proceedings at
bar, the actuality of the control by President Marcos of BASECO has
been sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves
that President Marcos not only exercised control over BASECO, but also
that he actually owns well nigh one hundred percent of its outstanding
stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986,
there were 218,819 shares of stock outstanding, ostensibly owned by
twenty (20) stockholders. 96 Four of these twenty are juridical persons:
(1) Metro Bay Drydock, recorded as holding 136,370 shares; (2) Fidelity
Management, Inc., 65,882 shares; (3) Trident Management, 7,412
shares; and (4) United Phil. Lines, 1,240 shares. The first three
corporations, among themselves, own an aggregate of 209,664 shares of
BASECO stock, or 95.82% of the outstanding stock.
Now, the Solicitor General has drawn the Court's attention to the
intriguing circumstance that found in Malacanang shortly after the
sudden flight of President Marcos, were certificates corresponding to
more than ninety-five percent (95%) of all the outstanding shares of stock
of BASECO, endorsed in blank, together with deeds of assignment of
practically all the outstanding shares of stock of the three (3) corporations
above mentioned (which hold 95.82% of all BASECO stock), signed by
the owners thereof although not notarized. 97
More specifically, found in Malacanang (and now in the custody of the
1) the deeds of assignment of all 600 outstanding
shares of Fidelity Management Inc. which
supposedly owns as aforesaid 65,882 shares of
BASECO stock;
 2) the deeds of assignment of 2,499,995 of the
2,500,000 outstanding shares of Metro Bay
Drydock Corporation which allegedly owns
136,370 shares of BASECO stock;
3) the deeds of assignment of 800 outstanding
shares of Trident Management Co., Inc.
which allegedly owns 7,412 shares of BASECO
stock, assigned in blank; 98 and
4) stock certificates corresponding to 207,725
out of the 218,819 outstanding shares of
BASECO stock; that is, all but 5 % all
endorsed in blank. 99
While the petitioner's counsel was quick to dispute this asserted fact,
assuring this Court that the BASECO stockholders were still in
possession of their respective stock certificates and had "never
endorsed * * them in blank or to anyone else," 100 that denial is
exposed by his own prior and subsequent recorded statements as a
mere gesture of defiance rather than a verifiable factual declaration.
By resolution dated September 25, 1986, this Court granted
BASECO's counsel a period of 10 days "to SUBMIT, as undertaken
by him, * * the certificates of stock issued to the stockholders of * *
BASECO as of April 23, 1986, as listed in Annex 'P' of the
petition.' 101 Counsel thereafter moved for extension; and in his
motion dated October 2, 1986, he declared inter alia that "said
certificates of stock are in the possession of third parties, among
whom being the respondents themselves * * and petitioner is still
endeavoring to secure copies thereof from them." 102 On the same
day he filed another motion praying that he be allowed "to secure
copies of the Certificates of Stock in the name of Metro Bay
Drydock, Inc., and of all other Certificates, of Stock of petitioner's
stockholders in possession of respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor
General not unreasonably argued that counsel's aforestated motion
to secure copies of the stock certificates "confirms the fact that
stockholders of petitioner corporation are not in possession of * *
(their) certificates of stock," and the reason, according to him, was
"that 95% of said shares * * have been endorsed in blank and found
in Malacaang after the former President and his family fled the
country." To this manifestation BASECO's counsel replied on
November 5, 1986, as already mentioned, Stubbornly insisting that
the firm's stockholders had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on
November 27, 1986 among other things "to require * * the petitioner
* * to deposit upon proper receipt with Clerk of Court Juanito
Ranjo the originals of the stock certificates alleged to be in its
possession or accessible to it, mentioned and described in Annex 'P'
of its petition, (and other pleadings) * * within ten (10) days from
notice." 106 In a motion filed on December 5, 1986, 107 BASECO's
counsel made the statement, quite surprising in the premises, that "it
will negotiate with the owners (of the BASECO stock in question) to
allow petitioner to borrow from them, if available, the certificates
referred to" but that "it needs a more sufficient time therefor" (sic).
BASECO's counsel however eventually had to confess inability to
produce the originals of the stock certificates, putting up the feeble
excuse that while he had "requested the stockholders to allow * * (him) to
borrow said certificates, * * some of * * (them) claimed that they had delivered
the certificates to third parties by way of pledge and/or to secure performance of
obligations, while others allegedly have entrusted them to third parties in view of
last national emergency." 108 He has conveniently omitted, nor has he offered
to give the details of the transactions adverted to by him, or to explain why he
had not impressed on the supposed stockholders the primordial importance of
convincing this Court of their present custody of the originals of the stock, or if
he had done so, why the stockholders are unwilling to agree to some sort of
arrangement so that the originals of their certificates might at the very least be
exhibited to the Court. Under the circumstances, the Court can only conclude
that he could not get the originals from the stockholders for the simple reason
that, as the Solicitor General maintains, said stockholders in truth no longer
have them in their possession, these having already been assigned in blank to
then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders
In the light of the affirmative showing by the Government that, prima facie at
least, the stockholders and directors of BASECO as of April, 1986 109 were
mere "dummies," nominees or alter egos of President Marcos; at any rate, that
they are no longer owners of any shares of stock in the corporation, the
conclusion cannot be avoided that said stockholders and directors have no
basis and no standing whatever to cause the filing and prosecution of the
instant proceeding; and to grant relief to BASECO, as prayed for in the petition,
would in effect be to restore the assets, properties and business sequestered
and taken over by the PCGG to persons who are "dummies," nominees or alter
egos of the former president.
From the standpoint of the PCGG, the facts herein stated at some length do
indeed show that the private corporation known as BASECO was "owned or
controlled by former President Ferdinand E. Marcos * * during his
administration, * * through nominees, by taking advantage of * * (his) public
office and/or using * * (his) powers, authority, influence * *," and that NASSCO
and other property of the government had been taken over by BASECO; and
the situation justified the sequestration as well as the provisional takeover of the
corporation in the public interest, in accordance with the terms of Executive
Orders No. 1 and 2, pending the filing of the requisite actions with the
Sandiganbayan to cause divestment of title thereto from Marcos, and its
adjudication in favor of the Republic pursuant to Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of the facts is
correct; accordingly, it sustains the acts of sequestration and takeover by the
PCGG as being in accord with the law, and, in view of what has thus far been
set out in this opinion, pronounces to be without merit the theory that said acts,
and the executive orders pursuant to which they were done, are fatally defective
in not according to the parties affected prior notice and hearing, or an adequate
remedy to impugn, set aside or otherwise obtain relief therefrom, or that the
PCGG had acted as prosecutor and judge at the same time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive orders in question
are a bill of attainder. 110 "A bill of attainder is a legislative act which inflicts
punishment without judicial trial." 111 "Its essence is the substitution of a
legislative for a judicial determination of guilt." 112
In the first place, nothing in the executive orders can be reasonably construed
as a determination or declaration of guilt. On the contrary, the executive orders,
inclusive of Executive Order No. 14, make it perfectly clear that any judgment of
guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down
by a judicial tribunal, in this case, the Sandiganbayan, upon complaint
filed and prosecuted by the PCGG. In the second place, no punishment
is inflicted by the executive orders, as the merest glance at their
provisions will immediately make apparent. In no sense, therefore, may
the executive orders be regarded as a bill of attainder.
23. No Violation of Right against Self-Incrimination and Unreasonable
Searches and Seizures
BASECO also contends that its right against self incrimination and
unreasonable searches and seizures had been transgressed by the
Order of April 18, 1986 which required it "to produce corporate records
from 1973 to 1986 under pain of contempt of the Commission if it fails to
do so." The order was issued upon the authority of Section 3 (e) of
Executive Order No. 1, treating of the PCGG's power to "issue
subpoenas requiring * * the production of such books, papers, contracts,
records, statements of accounts and other documents as may be
material to the investigation conducted by the Commission, " and
paragraph (3), Executive Order No. 2 dealing with its power to "require all
persons in the Philippines holding * * (alleged "ill-gotten") assets or
properties, whether located in the Philippines or abroad, in their names
as nominees, agents or trustees, to make full disclosure of the same * *."
The contention lacks merit.
It is elementary that the right against self-incrimination has no application
to juridical persons.
While an individual may lawfully refuse to answer
incriminating questions unless protected by an
immunity statute, it does not follow that a corporation,
vested with special privileges and franchises, may
refuse to show its hand when charged with an abuse
ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the
constitutional protections which private individuals
have. * * They are not at all within the privilege
against self-incrimination, although this court more
than once has said that the privilege runs very
closely with the 4th Amendment's Search and
Seizure provisions. It is also settled that an officer of
the company cannot refuse to produce its records in
its possession upon the plea that they will either
incriminate him or may incriminate it." (Oklahoma
Press Publishing Co. v. Walling, 327 U.S. 186;
emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is
presumed to be incorporated for the benefit of the
public. It received certain special privileges and
franchises, and holds them subject to the laws of the
state and the limitations of its charter. Its powers are
limited by law. It can make no contract not authorized
by its charter. Its rights to act as a corporation are
only preserved to it so long as it obeys the laws of its
creation. There is a reserve right in the legislature to
investigate its contracts and find out whether it has
exceeded its powers. It would be a strange anomaly
to hold that a state, having chartered a corporation to
 make use of certain franchises, could not, in the
exercise of sovereignty, inquire how these
franchises had been employed, and whether
they had been abused, and demand the
production of the corporate books and papers
for that purpose. The defense amounts to this,
that an officer of the corporation which is
charged with a criminal violation of the statute
may plead the criminality of such corporation as
a refusal to produce its books. To state this
proposition is to answer it. While an individual
may lawfully refuse to answer incriminating
questions unless protected by an immunity
statute, it does not follow that a corporation,
vested with special privileges and franchises
may refuse to show its hand when charged with
an abuse of such privileges. (Wilson v. United
States, 55 Law Ed., 771, 780 [emphasis, the
Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of
Executive Order No. 14 assures protection to individuals required to
produce evidence before the PCGG against any possible violation of
his right against self-incrimination. It gives them immunity from
prosecution on the basis of testimony or information he is compelled
to present. As amended, said Section 4 now provides that
xxx xxx xxx
The witness may not refuse to comply with the
order on the basis of his privilege against self-
incrimination; but no testimony or other
information compelled under the order (or any
information directly or indirectly derived from
such testimony, or other information) may be
used against the witness in any criminal case,
except a prosecution for perjury, giving a false
statement, or otherwise failing to comply with the
order.
The constitutional safeguard against unreasonable searches and
seizures finds no application to the case at bar either. There has
been no search undertaken by any agent or representative of the
PCGG, and of course no seizure on the occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the
scope and extent of the powers that may be wielded by the PCGG
with regard to the properties or businesses placed under
sequestration or provisionally taken over. Obviously, it is not a
question to which an answer can be easily given, much less one
which will suffice for every conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG
cannot exercise acts of dominion over property sequestered, frozen
or provisionally taken over. AS already earlier stressed with no little
insistence, the act of sequestration; freezing or provisional takeover
of property does not import or bring about a divestment of title over
said property; does not make the PCGG the owner thereof. In relation to the
property sequestered, frozen or provisionally taken over, the PCGG is a
conservator, not an owner. Therefore, it can not perform acts of strict
ownership; and this is specially true in the situations contemplated by the
sequestration rules where, unlike cases of receivership, for example, no court
exercises effective supervision or can upon due application and hearing, grant
authority for the performance of acts of dominion.
Equally evident is that the resort to the provisional remedies in question should
entail the least possible interference with business operations or activities so
that, in the event that the accusation of the business enterprise being "ill gotten"
be not proven, it may be returned to its rightful owner as far as possible in the
same condition as it was at the time of sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property
or business sequestered or provisionally taken over, much like a court-
appointed receiver, 115 such as to bring and defend actions in its own name;
receive rents; collect debts due; pay outstanding debts; and generally do such
other acts and things as may be necessary to fulfill its mission as conservator
and administrator. In this context, it may in addition enjoin or restrain any actual
or threatened commission of acts by any person or entity that may render moot
and academic, or frustrate or otherwise make ineffectual its efforts to carry out
its task; punish for direct or indirect contempt in accordance with the Rules of
Court; and seek and secure the assistance of any office, agency or
substantial changes in policy, program or practice of the corporation
instrumentality of the government. 116 In the case of sequestered businesses
generally (i.e., going concerns, businesses in current operation), as in the case
of sequestered objects, its essential role, as already discussed, is that of
conservator, caretaker, "watchdog" or overseer. It is not that of manager, or
innovator, much less an owner.
c. Powers over Business Enterprises Taken Over by
Marcos or Entities or Persons Close to him; Limitations
Thereon
Now, in the special instance of a business enterprise shown by evidence to
have been "taken over by the government of the Marcos Administration or by
entities or persons close to former President Marcos," 117 the PCGG is given
power and authority, as already adverted to, to "provisionally take (it) over in the
public interest or to prevent * * (its) disposal or dissipation;" and since the term
is obviously employed in reference to going concerns, or business enterprises
in operation, something more than mere physical custody is connoted; the
PCGG may in this case exercise some measure of control in the operation,
running, or management of the business itself. But even in this special situation,
the intrusion into management should be restricted to the minimum degree
necessary to accomplish the legislative will, which is "to prevent the disposal or
dissipation" of the business enterprise. There should be no hasty,
indiscriminate, unreasoned replacement or substitution of management officials
or change of policies, particularly in respect of viable establishments. In fact,
such a replacement or substitution should be avoided if at all possible, and
undertaken only when justified by demonstrably tenable grounds and in line with
the stated objectives of the PCGG. And it goes without saying that where
replacement of management officers may be called for, the greatest prudence,
circumspection, care and attention - should accompany that undertaking to the
end that truly competent, experienced and honest managers may be recruited.
There should be no role to be played in this area by rank amateurs, no matter
how wen meaning. The road to hell, it has been said, is paved with good
intentions. The business is not to be experimented or played around with, not
run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight
should never be lost sight of the ultimate objective of the whole exercise,
which is to turn over the business to the Republic, once judicially
established to be "ill-gotten." Reason dictates that it is only under these
conditions and circumstances that the supervision, administration and
control of business enterprises provisionally taken over may legitimately
be exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances
that the PCGG may properly exercise the prerogative to vote
sequestered stock of corporations, granted to it by the President of the
Philippines through a Memorandum dated June 26, 1986. That
Memorandum authorizes the PCGG, "pending the outcome of
proceedings to determine the ownership of * * (sequestered) shares of
stock," "to vote such shares of stock as it may have sequestered in
corporations at all stockholders' meetings called for the election of
directors, declaration of dividends, amendment of the Articles of
Incorporation, etc." The Memorandum should be construed in such a
manner as to be consistent with, and not contradictory of the Executive
Orders earlier promulgated on the same matter. There should be no
exercise of the right to vote simply because the right exists, or because
the stocks sequestered constitute the controlling or a substantial part of
the corporate voting power. The stock is not to be voted to replace
directors, or revise the articles or by-laws, or otherwise bring about
except for demonstrably weighty and defensible grounds, and always in
the context of the stated purposes of sequestration or provisional
takeover, i.e., to prevent the dispersion or undue disposal of the
corporate assets. Directors are not to be voted out simply because the
power to do so exists. Substitution of directors is not to be done without
reason or rhyme, should indeed be shunned if at an possible, and
undertaken only when essential to prevent disappearance or wastage of
corporate property, and always under such circumstances as assure that
the replacements are truly possessed of competence, experience and
probity.
In the case at bar, there was adequate justification to vote the incumbent
directors out of office and elect others in their stead because the
evidence showed prima facie that the former were just tools of President
Marcos and were no longer owners of any stock in the firm, if they ever
were at all. This is why, in its Resolution of October 28, 1986; 118 this
Court declared that
Petitioner has failed to make out a case of grave
abuse or excess of jurisdiction in respondents' calling
and holding of a stockholders' meeting for the
election of directors as authorized by the
Memorandum of the President * * (to the PCGG)
dated June 26, 1986, particularly, where as in this
case, the government can, through its designated
directors, properly exercise control and management
over what appear to be properties and assets owned
and belonging to the government itself and over
which the persons who appear in this case on behalf
of BASECO have failed to show any right or even
any shareholding in said corporation.
It must however be emphasized that the conduct of the PCGG nominees
in the BASECO Board in the management of the company's affairs
should henceforth be guided and governed by the norms herein laid
down. They should never for a moment allow themselves to forget
that they are conservators, not owners of the business; they are
fiduciaries, trustees, of whom the highest degree of diligence and
rectitude is, in the premises, required.
25. No Sufficient Showing of Other Irregularities
As to the other irregularities complained of by BASECO, i.e., the
cancellation or revision, and the execution of certain contracts,
inclusive of the termination of the employment of some of its
executives, 119 this Court cannot, in the present state of the
evidence on record, pass upon them. It is not necessary to do so.
The issues arising therefrom may and will be left for initial
determination in the appropriate action. But the Court will state that
absent any showing of any important cause therefor, it will not
normally substitute its judgment for that of the PCGG in these
individual transactions. It is clear however, that as things now stand,
the petitioner cannot be said to have established the correctness of
its submission that the acts of the PCGG in question were done
without or in excess of its powers, or with grave abuse of discretion.
WHEREFORE, the petition is dismissed. The temporary restraining
order issued on October 14, 1986 is lifted.
Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.
Separate Opinions
TEEHANKEE, CJ., concurring:
I fully concur with the masterly opinion of Mr. Justice Narvasa. In the
process of disposing of the issues raised by petitioner BASECO in
the case at bar, it comprehensively discusses the laws and
principles governing the Presidential Commission on Good
Government (PCGG) and defines the scope and extent of its powers
in the discharge of its monumental task of recovering the "ill-gotten
wealth, accumulated by former President Ferdinand E. Marcos, his
immediate family, relatives, subordinates and close associates,
whether located in the Philippines or abroad (and) business
enterprises and entities owned or controlled by them during I . . .(the
Marcos) administration, directly or through nominees, by taking
undue advantage of their public office and/or using their powers,
authority, influence, connections or relationship." 1
The Court is unanimous insofar as the judgment at bar upholds the
imperative need of recovering the ill-gotten properties amassed by
the previous regime, which "deserves the fullest support of the
judiciary and all sectors of society." 2 To quote the pungent
language of Mr. Justice Cruz, "(T)here is no question that all lawful
efforts should be taken to recover the tremendous wealth plundered
from the people by the past regime in the most execrable thievery
perpetrated in all history. No right-thinking Filipino can quarrel with
this necessary objective, and on this score I am happy to concur
with the ponencia." 3
The Court is likewise unanimous in its judgment dismissing the petition to
declare unconstitutional and void Executive Orders Nos. 1 and 2 to annul the
sequestration order of April 14, 1986. For indeed, the 1987 Constitution
overwhelmingly adopted by the people at the February 2, 1987 plebiscite
expressly recognized in Article XVIII, section 26 thereof 4 the vital functions of
respondent PCGG to achieve the mandate of the people to recover such ill-
gotten wealth and properties as ordained by Proclamation No. 3 promulgated
on March 25, 1986.
The Court is likewise unanimous as to the general rule set forth in the main
opinion that "the PCGG cannot exercise acts of dominion over property
sequestered, frozen or provisionally taken over" and "(T)he PCGG may thus
exercise only powers of administration over the property or business
sequestered or provisionally taken over, much like a court-appointed receiver,
such as to bring and defend actions in its own name; receive rents; collect debts
due; pay outstanding debts; and generally do such other acts and things as may
be necessary to fulfill its mission as conservator and administrator. In this
context, it may in addition enjoin or restrain any actual or threatened
commission of acts by any person or entity that may render moot and
academic, or frustrate or otherwise make ineffectual its efforts to carry out its
task; punish for direct or indirect contempt in accordance with the Rules of
Court; and seek and secure the assistance of any office, agency or
instrumentality of the government. In the case of sequestered businesses
generally (i.e. going concerns, business in current operation), as in the case of
sequestered objects, its essential role, as already discussed, is that of
conservator, caretaker, 'watchdog' or overseer. It is not that of manager, or
innovator, much less an owner." 5
Now, the case at bar involves one where the third and most encompassing and
rarely invoked of provisional remedies, 6 the provisional takeover of the Baseco
properties and business operations has been availed of by the PCGG, simply
because the evidence on hand, not only prima facie but convincingly with
substantial and documentary evidence of record establishes that the
corporation known as petitioner BASECO "was owned or controlled by
President Marcos 'during his administration, through nominees, by taking undue
advantage of his public office and/or using his powers, authority, or influence;'
and that it was by and through the same means, that BASECO had taken over
the business and/or assets of the [government-owned] National Shipyard and
Engineering Co., Inc., and other government-owned or controlled entities." The
documentary evidence shows that petitioner BASECO (read Ferdinand E.
Marcos) in successive transactions all directed and approved by the former
President-in an orgy of what according to the PCGG's then chairman, Jovito
Salonga, in his statement before the 1986 Constitutional Commission, "Mr. Ople
once called 'organized pillage' "-gobbled up the government corporation
National Shipyard & Steel Corporation NASSCO its shipyard at Mariveles, 300
hectares of land in Mariveles from the Export Processing Zone Authority,
Engineer Island itself in Manila and its complex of equipment and facilities
including structures, buildings, shops, quarters, houses, plants and expendable
or semi-expendable assets and obtained huge loans of $19,000,000.00 from
the last available Japanese war damage fund, P30,000,000.00 from the NDC
and P12,400,000.00 from the GSIS. The sordid details are set forth in detail in
Paragraphs 1 1 to 20 of the main opinion. They include confidential reports from
then BASECO president Hilario M. Ruiz and the deposed President's brother-in-
law, then Captain (later Commodore) Alfredo Romualdez, who although not on
record as an officer or stockholder of BASECO reported directly to the deposed
President on its affairs and made the recommendations, all approved by the
latter, for the gobbling up by BASECO of all the choice government assets and
properties.
All this evidence has been placed of record in the case at bar. And
petitioner has had all the time and opportunity to refute it, submittals to
the contrary notwithstanding, but has dismally failed to do so. To cite one
glaring instance: as stated in the main opinion, the evidence submitted to
this Court by the Solicitor General "proves that President Marcos not only
exercised control over BASECO, but also that he actually owns well nigh
one hundred percent of its outstanding stock." It cites the fact that three
corporations, evidently front or dummy corporations, among twenty
shareholders, in name, of BASECO, namely Metro Bay Drydock, Fidelity
Management, Inc. and Trident Management hold 209,664 shares or
95.82%, of BASECO's outstanding stock. Now, the Solicitor General
points out further than BASECO certificates "corresponding to more than
ninety-five percent (95%) of all the outstanding shares of stock of
BASECO, endorsed in blank, together with deeds of assignment of
practically all the outstanding shares of stock of the three (3) corporations
above mentioned (which hold 95.82% of all BASECO stock), signed by
the owners thereof although not notarized" 7 were found in Malacaang
shortly after the deposed President's sudden flight from the country on
the night of February 25, 1986. Thus, the main opinion's unavoidable
conclusion that "(W)hile the petitioner's counsel was quick to dispute this
asserted fact, assuring this Court that the BASECO stockholders were
still in possession of their respective stock certificates and had 'never
endorsed * * * them in blank or to anyone else,' that denial is exposed by
his own prior and subsequent recorded statements as a mere gesture of
defiance rattler than a verifiable factual declaration . . . . Under the
circumstances, the Court can only conclude that he could not get the
originals from the stockholders for the simple reason that as the Solicitor
General maintains, said stockholders in truth no longer have them in their
possession, these having already been assigned in blank to President
Marcos."8
With this strong unrebutted evidence of record in this Court, Justice
Melencio-Herrera, joined by Justice Feliciano, expressly concurs with the
main opinion upholding the commission's take-over, stating that "(I) have
no objection to according the right to vote sequestered stock in case of a
takeover of business actually belonging to the government or whose
capitalization comes from public funds but which, somehow, landed in
the hands of private persons, as in the case of BASECO." They merely
qualify their concurrence with the injunction that such takeovers be
exercised with "caution and prudence" pending the determination of "the
true and real ownership" of the sequestered shares. Suffice it to say in
this regard that each case has to be judged from the pertinent facts and
circumstances and that the main opinion emphasizes sufficiently that it is
only in the special instances specified in the governing laws grounded on
the superior national interest and welfare and the practical necessity of
preserving the property and preventing its loss or disposition that the
provisional remedy of provisional take-over is exercised.
Here, according to the dissenting opinion, "the PCGG concludes that
sequestered property is ill-gotten wealth and proceeds to exercise acts of
ownership over said properties . . . . and adds that "the fact of ownership
must be established in a proper suit before a court of justice"-which this
Court has preempted with its finding that "in the context of the
proceedings at bar, the actuality of the control by President Marcos of
BASECO has been sufficiently shown."
But BASECO who has instituted this action to set aside the sequestration
and take-over orders of respondent commission has chosen to raise
these very issues in this Court. We cannot ostrich-like hide our head in
the sand and say that it has not yet been established in the proper
court that what the PCGG has taken over here are government
properties, as a matter of record and public notice and knowledge,
like the NASSCO, its Engineer Island and Mariveles Shipyard and
entire complex, which have been pillaged and placed in the name of
the dummy or front company named BASECO but from all the
documentary evidence of record shown by its street certificates all
found in Malacanang should in reality read "Ferdinand E. Marcos"
and/or his brother-in-law. Such take-over can in no way be termed
"lawless usurpation," for the government does not commit any act of
usurpation in taking over its own properties that have been
channeled to dummies, who are called upon to prove in the proper
court action what they have failed to do in this Court, that they have
lawfully acquired ownership of said properties, contrary to the
documentary evidence of record, which they must likewise explain
away. This Court, in the exercise of its jurisdiction on certiorari and
as the guardian of the Constitution and protector of the people's
basic constitutional rights, has entertained many petitions on the part
of parties claiming to be adversely affected by sequestration and
other orders of the PCGG, This Court set the criterion that such
orders should issue only upon showing of a prima facie case, which
criterion was adopted in the 1987 Constitution. The Court's judgment
cannot be faulted if much more than a prima facie has been shown
in this case, which the faceless figures claiming to represent
BASECO have failed to refute or disprove despite all the opportunity
to do so.
The record plainly shows that petitioner BASECO which is but a
mere shell to mask its real owner did not and could not explain how
and why they received such favored and preferred treatment with
tailored Letters of Instruction and handwritten personal approval of
the deposed President that handed it on a silver platter the whole
complex and properties of NASSCO and Engineer Island and the
Mariveles Shipyard.
It certainly would be the height of absurdity and helplessness if this
government could not here and now take over the possession and
custody of its very own properties and assets that had been stolen
from it and which it had pledged to recover for the benefit and in the
greater interest of the Filipino people, whom the past regime had
saddled with a huge $27-billion foreign debt that has since ballooned
to $28.5-billion.
Thus, the main opinion correctly concludes that "(I)n the light of the
affirmative showing by the Government that, prima facie at least, the
stockholders and directors of BASECO as of April, 1986 were mere
'dummies,' nominees or alter egos of President Marcos; at any rate,
that they are no longer owners of any shares of stock in the
corporation, the conclusion cannot be avoided that said stockholders
and directors have no basis and no standing whatever to cause the
filing and prosecution of the instant proceeding; and to grant relief to
BASECO, as prayed for in the petition, would in effect be to restore
the assets, properties and business sequestered and taken over by
the PCGG to persons who are 'dummies' nominees or alter egos of
the former President." 9
And Justice Padilla in his separate concurrence "called a spade a
spade," citing the street certificates representing 95 % of BASECO's
outstanding stock found in Malacaang after Mr. Marcos' hasty flight
in February, 1986 and the extent of the control he exercised over policy
decisions affecting BASECO and concluding that "Consequently, even ahead of
judicial proceedings, I am convinced that the Republic of the Philippines, thru
the PCGG, has the right and even the duty to take over full control and
supervision of BASECO."
Indeed, the provisional remedies available to respondent commission are
rooted in the police power of the State, the most pervasive and the least
limitable of the powers of Government since it represents "the power of
sovereignty, the power to govern men and things within the limits of its
domain." 10 Police power has been defined as the power inherent in the State
"to prescribe regulations to promote the health, morals, education, good order
or safety, and general welfare of the people." 11 Police power rests upon public
necessity and upon the right of the State and of the public to self-
protection. 12 "Salus populi suprema est lex" or "the welfare of the people is the
Supreme Law." 13 For this reason, it is co-extensive with the necessities of the
case and the safeguards of public interest. 14 Its scope expands and contracts
with changing needs. 15 "It may be said in a general way that the police power
extends to all the great public needs. It may be put forth in aid of what is
sanctioned by usage, or held by the prevailing morality or strong and
preponderant opinion to be greatly and immediately necessary to the public
welfare." 16 That the public interest or the general welfare is subserved by
sequestering the purported ill-gotten assets and properties and taking over
stolen properties of the government channeled to dummy or front companies is
stating the obvious. The recovery of these ill-gotten assets and properties would
greatly aid our financially crippled government and hasten our national
economic recovery, not to mention the fact that they rightfully belong to the
people. While as a measure of self-protection, if, in the interest of general
welfare, police power may be exercised to protect citizens and their businesses
in financial and economic matters, it may similarly be exercised to protect the
government itself against potential financial loss and the possible disruption of
governmental functions. 17 Police power as the power of self-protection on the
part of the community bears the same relation to the community that the
principle of self-defense bears to the individual. 18 Truly, it may be said that
even more than self- defense, the recovery of ill-gotten wealth and of the
government's own properties involves the material and moral survival of the
nation, marked as the past regime was by the obliteration of any line between
private funds and the public treasury and abuse of unlimited power and
elimination of any accountability in public office, as the evidence of record
amply shows.
It should be mentioned that the tracking down of the deposed President's actual
ownership of the BASECO shares was fortuitously facilitated by the recovery of
the street certificates in Malacaang after his hasty flight from the country last
year. This is not generally the case.
For example, in the ongoing case filed by the government to recover from the
Marcoses valuable real estate holdings in New York and the Lindenmere estate
in Long Island, former PCGG chairman Jovito Salonga has revealed that their
names "do not appear on any title to the property. Every building in New York is
titled in the name of a Netherlands Antilles corporation, which in turn is
purportedly owned by three Panamanian corporations, with bearer shares. This
means that the shares of this corporation can change hands any time, since
they can be transferred, under the law of Panama, without previous registration
on the books of the corporation. One of the first documents that we discovered
shortly after the February revolution was a declaration of trust handwritten by
Mr. Joseph Bernstein on April 4, 1982 on a Manila Peninsula Hotel stationery
stating that he would act as a trustee for the benefit of President Ferdinand
misdeeds have been subject to public exposure and as stated in the
Marcos and would act solely pursuant to the instructions of Marcos with
respect to the Crown Building in New York." 19
This is just to stress the difficulties of the tasks confronting respondent
PCGG, which nevertheless has so far commendably produced
unprecedented positive results. As stated by then chairman Salonga:
PCGG has turned over to the Office of the President
around 2 billion pesos in cash, free of any lien. It has
also delivered to the President-as a result of a
compromise settlement-around 200 land titles
involving vast tracks of land in Metro Manila, Rizal,
Laguna, Cavite, and Bataan, worth several billion
pesos. These lands are now available for low-cost
housing projects for the benefit of the poor and the
dispossessed amongst our people.
In the legal custody of the Commission as a result of
sequestration proceedings, are expensive jewelry
amounting to 310 million pesos, 42 aircraft
amounting to 718 million pesos, vessels amounting
to 748 million pesos, and shares of stock amounting
to around 215 million pesos.
But, as I said, the bulk of the ill-gotten wealth is
located abroad, not in the Philippines. Through the
efforts of the PCGG, we have caused the freezing or
sequestration of properties, deposits, and securities
probably worth many billions of pesos in New York,
New Jersey, Hawaii, California, and more
importantly-in Switzerland. Due to favorable
developments in Switzerland, we may expect,
according to our Swiss lawyers, the first deliveries of
the Swiss deposits in the foreseeable future, perhaps
in less than a year's time. In New York, PCGG
through its lawyers who render their services free of
cost to the Philippine government, succeeded in
getting injunctive relief against Mr. and Mrs. Marcos
and their nominees and agents. There is now an
offer for settlement that is being studied and explored
by our lawyers there.
If we succeed in recovering not an (since this is
impossible) but a substantial part of the ill-gotten
wealth here and in various countries of the world
something the revolutionary governments of China,
Ethiopia, Iran and Nicaragua were not able to
accomplish at all with respect to properties outside
their territorial boundaries the Presidential
Commission on Good Government, which has
undertaken the difficult and thankless task of trying to
undo what had been done so secretly and effectively
in the last twenty years, shall have more than
justified its existence. 20
The misdeeds of some PCGG volunteers and personnel cited in the
dissenting opinion do not detract at an from the PCGG's
accomplishments, just as no one would do away with newspapers
because of some undesirable elements. The point is that all such
dissent itself, the erring PCGG representatives have been forthwith
dismissed and replaced.
The magnitude of the tasks that confront respondent PCGG with its
limited resources and staff support and volunteers should be
appreciated, together with the assistance that foreign governments
and lawyers have spontaneously given the commission.
A word about the PCGG's firing of the BASECO lawyers who filed
the present petition challenging its questioned orders, filing a motion
to withdraw the petition, after it had put in eight of its representatives
as directors of the BASECO board of directors. This was entirely
proper and in accordance with the Court's Resolution of October 28,
1986, which denied BASECO's motion for the issuance of a
restraining order against such take-over and declared that "the
government can, through its designated directors, properly exercise
control and management over what appear to be properties and
assets owned and belonging to the government itself and over which
the persons who appear in this case on behalf of BASECO have
failed to show any eight or even any shareholding in said
corporation." In other words, these dummies or fronts cannot seek to
question the government's right to recover the very properties and
assets that have been stolen from it by using the very same stolen
properties and funds derived therefrom. If they wish to pursue their
own empty claim, they must do it on their own, after first establishing
that they indeed have a lawful right and/or shareholding in BASECO.
Under the 1987 Constitution, the PCGG is called upon to file the
judicial proceedings for forfeiture and recovery of the sequestered or
frozen properties covered by its orders issued before the ratification
of the Constitution on February 2, 1987, within six months from such
ratification, or by August 2, 1987. (For those orders issued after such
ratification, the judicial action or proceeding must be commenced
within six months from the issuance thereof.) The PCGG has not
really been given much time, considering the magnitude of its tasks.
It is entitled to some forbearance, in availing of the maximum time
granted it for the filing of the corresponding judicial action with the
Sandiganbayan.
PADILLA, J., concurring:
The majority opinion penned by Mr. Justice Narvasa maintains and
upholds the valid distinction between acts of conservation and
preservation of assets and acts of ownership. Sequestration, freeze
and temporary take-over encompass the first type of acts. They do
not include the second type of acts which are reserved only to the
rightful owner of the assets or business sequestered or temporarily
taken over.
The removal and election of members of the board of directors of a
corporate enterprise is, to me, a clear act of ownership on the part of
the shareholders of the corporation. Under ordinary circumstances, I
would deny the PCGG the authority to change and elect the
members of BASECO's Board of Directors. However, under the facts
as disclosed by the records, it appears that the certificates of stock
representing about ninety-five (95%) per cent of the total ownership
in BASECO's capital stock were found endorsed in blank in
Malacanang (presumably in the possession and control of Mr.
Marcos) at the time he and his family fled in February 1986. This
circumstance let alone the extent of the control Mr. Marcos
exercised, while in power, over policy decisions affecting BASECO, entirely
satisfies my mind that BASECO was owned and controlled by Mr. Marcos. This
is calling a spade a spade. I am also entirely satisfied in my mind that Mr.
Marcos could not have acquired the ownership of BASECO out of his lawfully-
gotten wealth.
Consequently, even ahead of judicial proceedings, I am convinced that the
Republic of the Philippines, through the PCGG, has the right and even the duty
to take-over full control and supervision of BASECO.
MELENCIO-HERRERA, J., concurring:
I would like to qualify my concurrence in so far as the voting of sequestered
stork is concerned.
The voting of sequestered stock is, to my mind, an exercise of an attribute of
ownership. It goes beyond the purpose of a writ of sequestration, which is
essentially to preserve the property in litigation (Article 2005, Civil Code).
Sequestration is in the nature of a judicial deposit (ibid.).
I have no objection to according the right to vote sequestered stock in case of a
take-over of business actually belonging to the government or whose
capitalization comes from public funds but which, somehow, landed in the
hands of private persons, as in the case of BASECO. To my mind, however,
caution and prudence should be exercised in the case of sequestered shares of
an on-going private business enterprise, specially the sensitive ones, since the
true and real ownership of said shares is yet to be determined and proven more
conclusively by the Courts.
It would be more in keeping with legal norms if forfeiture proceedings provided
for under Republic Act No. 1379 be filed in Court and the PCGG seek judicial
appointment as a receiver or administrator, in which case, it would be
empowered to vote sequestered shares under its custody (Section 55,
Corporation Code). Thereby, the assets in litigation are brought within the
Court's jurisdiction and the presence of an impartial Judge, as a requisite of due
process, is assured. For, even in its historical context, sequestration is a judicial
matter that is best handled by the Courts.
I consider it imperative that sequestration measures be buttressed by judicial
proceedings the soonest possible in order to settle the matter of ownership of
sequestered shares and to determine whether or not they are legally owned by
the stockholders of record or are "ill-gotten wealth" subject to forfeiture in favor
of the State. Sequestration alone, being actually an ancillary remedy to a
principal action, should not be made the basis for the exercise of acts of
dominion for an indefinite period of time.
Sequestration is an extraordinary, harsh, and severe remedy. It should be
confined to its lawful parameters and exercised, with due regard, in the words of
its enabling laws, to the requirements of fairness, due process (Executive Order
No. 14, palay 7, 1986), and Justice (Executive Order No. 2, March 12, 1986).
Feliciano, J., concur.
GUTIERREZ, JR., J., concurring and dissenting:
I concur, in part, in the erudite opinion penned for the Court by my distinguished
colleague Mr. Justice Andres R. Narvasa. I agree insofar as it states the
principles which must govern PCGG sequestrations and emphasizes the
limitations in the exercise of its broad grant of powers.
I concur in the general propositions embodied in or implied from the
majority opinion, among them:
(1) The efforts of Government to recover ill-gotten properties amassed by
the previous regime deserve the fullest support of the judiciary and all
sectors of society. I believe, however, that a nation professing adherence
to the rule of law and fealty to democratic processes must adopt ways
and means which are always within the bounds of lawfully granted
authority and which meet the tests of due process and other Bill of Rights
protections.
(2) Sequestration is intended to prevent the destruction, concealment, or
dissipation of ill-gotten wealth. The object is conservation and
preservation. Any exercise of power beyond these objectives is lawless
usurpation.
(3) The PCGG exercises only such powers as are granted by law and not
proscribed by the Constitution. The remedies it enforces are provisional
and contingent. Whether or not sequestered property is indeed ill-gotten
must be-determined by a court of justice. The PCGG has absolutely no
power to divest title over sequestered property or to act as if its findings
are final.
(4) The PCGG does not own sequestered property. It cannot and must
not exercise acts of ownership. To quote the majority opinion, "one thing
is certain ..., the PCGG cannot exercise acts of dominion."
(5) The provisional takeover in a sequestration should not be indefinitely
maintained. It is the duty of the PCGG to immediately file appropriate
criminal or civil cases once the evidence has been gathered.
It is the difference between what the Court says and what the PCGG
does which constrains me to dissent. Even as the Court emphasizes
principles of due process and fair play, it has unfortunately validated ultra
vires acts violative of those very same principles. While we stress the
rules which must govern the PCGG in the exercise of its powers, the
Court has failed to stop or check acts which go beyond the power of
sequestration given by law to the PCGG.
We are all agreed in the Court that the PCGG is not a judge. It is an
investigator and prosecutor. Sequestration is only a preliminary or
ancillary remedy. There must be a principal and independent suit filed in
court to establish the true ownership of sequestered properties. The
factual premise that a sequestered property was ill-gotten by former
President Marcos, his family, relatives, subordinates, and close
associates cannot be assumed. The fact of ownership must be
established in a proper suit before a court of justice.
But what has the Court, in effect, ruled?
Pages 21 to 33 of the majority opinion are dedicated to a statement of
facts which conclusively and indubitably shows that BASECO is owned
by President Marcos-and that it was acquired and vastly enlarged by the
former President's taking undue advantage of his public office and using
his powers, authority, or influence.
There has been no court hearing, no trial, and no presentation of
evidence. All that we have is what the PCGG has given us. The petitioner
has not even been allowed to see the evidence, much less refute it.
What the PCGG has gathered in the course of its seizures and
investigations may be gospel truth. However, that truth must be properly
established in a trial court, not unilaterally determined by the PCGG
or declared by this Court in a special proceeding which only asks us
to set aside or enjoin an illegal exercise of power. After this decision,
there is nothing more for a trial court to ascertain. Certainly, no lower
court would dare to arrive at findings contrary to this Court's
conclusions, no matter how insistent we may be in labelling such
conclusions as "prima facie." To me, this is the basic flaw in PCGG
procedures that the Court is, today, unwittingly legitimating. Even
before the institution of a court case, the PCGG concludes that
sequestered property is ill-gotten wealth and proceeds to exercise
acts of ownership over said properties. It treats sequestered
property as its own even before the oppositor-owners have been
divested of their titles.
The Court declares that a state of seizure is not to be indefinitely
maintained. This means that court proceedings to either forfeit the
sequestered properties or clear the names and titles of the
petitioners must be filed as soon as possible.
This case is a good example of disregard or avoidance of this
requirement. With the kind of evidence which the PCGG professes
to possess, the forfeiture case could have been filed simultaneously
with the issuance of sequestration orders or shortly thereafter.
And yet, the records show that the PCGG appears to concentrate
more on the means rather than the ends, in running the BASECO,
taking over the board of directors and management, getting rid of
security guards, disposing of scrap, entering into new contracts and
otherwise behaving as if it were already the owner. At this late date
and with all the evidence PCGG claims to have, no court case has
been filed.
Among the interesting items elicited during the oral arguments or
found in the records of this petition are:
(1) Upon sequestering BASECO, some PCGG personnel lost no
time in digging up paved premises with jack hammers in a frantic
search for buried gold bars.
(2) Two top PCGG volunteers charged each other with stealing
properties under their custody. The PCGG had to step in, dismiss
the erring representatives, and replace them with new ones.
(3) The petitioner claims that the lower bid of a rock quarry operator
was accepted even as a higher and more favorable bid was offered.
When the questionable deal was brought to our attention, the
awardee allegedly raised his bid to the level of the better offer. The
successful bidder later submitted a comment in intervention
explaining his side. Whoever is telling the truth, the fact remains that
multi-million peso contracts involving the operations of sequestered
companies should be entered into under the supervision of a court,
not freely executed by the PCGG even when the petitioner-owners
question the propriety and integrity of those transactions.
(4) The PCGG replaced eight out of eleven members of the
BASECO board of directors with its own men. Upon taking over full
control of the corporation, the newly installed board reversed the
efforts of the former owners to protect their interests. The new board
fired the BASECO lawyers who instituted the instant petition. It then
filed a motion to withdraw this very same petition we are now
deciding. In other words, the "new owners" did not want the
Supreme Court to continue poking into the legality of their acts. They moved to
abort the petition filed with us.
Any suspicion of impropriety would have been avoided if the PCGG had filed
the required court proceedings and exercised its acts of management and
control under court supervision. The requirements of due process would have
been met.
One other matter I wish to discuss in this separate opinion is PCGG's selection
of eight out of the eleven members of the BASECO board of directors.
The election of the members of a board of directors is distinctly and
unqualifiedly an act of ownership. When stockholders of a corporation elect or
remove members of a board of directors, they exercise their right of ownership
in the company they own, By no stretch of the imagination can the revamp of a
board of directors be considered as a mere act of conserving assets or
preventing the dissipation of sequestered assets. The broad powers of a
sequestrator are more than enough to protect sequestered assets. There is no
need and no legal basis to reach out further and exercise ultimate acts of
ownership.
Under the powers which PCGG has assumed and wields, it can amend the
articles and by-laws of a sequestered corporation, decrease the capital stock, or
sell substantially all corporate assets without any effective check from the
owners not yet divested of their titles or from a court of justice. The PCGG is
tasked to preserve assets but when it exercises the acts of an owner, it could
also very well destroy. I hope that the case of the Philippine Daily Express, a
major newspaper closed by the PCGG, is an isolated example. Otherwise,
banks, merchandizing firms, investment institutions, and other sensitive
businesses will find themselves in a similar quandary.
I join the PCGG and all right thinking Filipinos in condemning the totalitarian
acts which made possible the accumulation of ill-gotten wealth. I, however,
dissent when authoritarian and ultra vires methods are used to recover that
stolen wealth. One wrong cannot be corrected by the employment of another
wrong.
I, therefore, vote to grant the petition. Pending the filing of an appropriate case
in court, the PCGG must be enjoined from exercising any and all acts of
ownership over the sequestered firm.
Bidin and Cortes, JJ., concur and dissent.
CRUZ, J., dissenting:
My brother Narvasa has written a truly outstanding decision that bespeaks a
penetrating and analytical mind and a masterly grasp of the serious problem we
are asked to resolve. He deserves and I offer him my sincere admiration.
There is no question that all lawful efforts should be taken to recover the
tremendous wealth plundered from the people by the past regime in the most
execrable thievery perpetrated in all history. No right-thinking Filipino can
quarrel with this necessary objective, and on this score I am happy to concur
with the ponencia.
But for all my full agreement with the basic thesis of the majority, I regret I find
myself unable to support its conclusions in favor Of the respondent PCGG. My
view is that these conclusions clash with the implacable principles of the free
society. foremost among which is due process. This demands our reverent
regard.
Due process protects the life, liberty and property of every person,
whoever he may be. Even the most despicable criminal is entitled to this
protection. Granting this distinction to Marcos, we are still not justified in
depriving him of this guaranty on the mere justification that he appears to
own the BASECO shares.
I am convinced and so submit that the PCGG cannot at this time take
over the BASECO without any court order and exercise thereover acts of
ownership without court supervision. Voting the shares is an act of
ownership. Reorganizing the board of directors is an act of ownership.
Such acts are clearly unauthorized. As the majority opinion itself
stresses, the PCGG is merely an administrator whose authority is limited
to preventing the sequestered properties from being dissipated or
clandestinely transferred.
The court action prescribed in the Constitution is not inadequate and is
available to the PCGG. The advantage of this remedy is that, unlike
the ad libitum measures now being take it is authorized and at the same
time also limited by the fundamental law. I see no reason why it should
not now be employed by the PCGG, to remove all doubts regarding the
legality of its acts and all suspicions concerning its motives.
Separate Opinions
TEEHANKEE, CJ., concurring:
I fully concur with the masterly opinion of Mr. Justice Narvasa. In the
process of disposing of the issues raised by petitioner BASECO in the
case at bar, it comprehensively discusses the laws and principles
governing the Presidential Commission on Good Government (PCGG)
and defines the scope and extent of its powers in the discharge of its
monumental task of recovering the "ill-gotten wealth, accumulated by
former President Ferdinand E. Marcos, his immediate family, relatives,
subordinates and close associates, whether located in the Philippines or
abroad (and) business enterprises and entities owned or controlled by
them during I . . .(the Marcos) administration, directly or through
nominees, by taking undue advantage of their public office and/or using
their powers, authority, influence, connections or relationship." 1
The Court is unanimous insofar as the judgment at bar upholds the
imperative need of recovering the ill-gotten properties amassed by the
previous regime, which "deserves the fullest support of the judiciary and
all sectors of society." 2 To quote the pungent language of Mr. Justice
Cruz, "(T)here is no question that all lawful efforts should be taken to
recover the tremendous wealth plundered from the people by the past
regime in the most execrable thievery perpetrated in all history. No right-
thinking Filipino can quarrel with this necessary objective, and on this
score I am happy to concur with the ponencia." 3
The Court is likewise unanimous in its judgment dismissing the petition to
declare unconstitutional and void Executive Orders Nos. 1 and 2 to annul
the sequestration order of April 14, 1986. For indeed, the 1987
Constitution overwhelmingly adopted by the people at the February 2,
1987 plebiscite expressly recognized in Article XVIII, section 26
thereof 4 the vital functions of respondent PCGG to achieve the mandate
of the people to recover such ill-gotten wealth and properties as ordained
by Proclamation No. 3 promulgated on March 25, 1986.
The Court is likewise unanimous as to the general rule set forth in
the main opinion that "the PCGG cannot exercise acts of dominion
over property sequestered, frozen or provisionally taken over" and
"(T)he PCGG may thus exercise only powers of administration over
the property or business sequestered or provisionally taken over,
much like a court-appointed receiver, such as to bring and defend
actions in its own name; receive rents; collect debts due; pay
outstanding debts; and generally do such other acts and things as
may be necessary to fulfill its mission as conservator and
administrator. In this context, it may in addition enjoin or restrain any
actual or threatened commission of acts by any person or entity that
may render moot and academic, or frustrate or otherwise make
ineffectual its efforts to carry out its task; punish for direct or indirect
contempt in accordance with the Rules of Court; and seek and
secure the assistance of any office, agency or instrumentality of the
government. In the case of sequestered businesses generally (i.e.
going concerns, business in current operation), as in the case of
sequestered objects, its essential role, as already discussed, is that
of conservator, caretaker, 'watchdog' or overseer. It is not that of
manager, or innovator, much less an owner." 5
Now, the case at bar involves one where the third and most
encompassing and rarely invoked of provisional remedies, 6 the
provisional takeover of the Baseco properties and business
operations has been availed of by the PCGG, simply because the
evidence on hand, not only prima facie but convincingly with
substantial and documentary evidence of record establishes that the
corporation known as petitioner BASECO "was owned or controlled
by President Marcos 'during his administration, through nominees,
by taking undue advantage of his public office and/or using his
powers, authority, or influence;' and that it was by and through the
same means, that BASECO had taken over the business and/or
assets of the [government-owned] National Shipyard and
Engineering Co., Inc., and other government-owned or controlled
entities." The documentary evidence shows that petitioner BASECO
(read Ferdinand E. Marcos) in successive transactions all directed
and approved by the former President-in an orgy of what according
to the PCGG's then chairman, Jovito Salonga, in his statement
before the 1986 Constitutional Commission, "Mr. Ople once called
'organized pillage' "-gobbled up the government corporation National
Shipyard & Steel Corporation NASSCO its shipyard at Mariveles,
300 hectares of land in Mariveles from the Export Processing Zone
Authority, Engineer Island itself in Manila and its complex of
equipment and facilities including structures, buildings, shops,
quarters, houses, plants and expendable or semi-expendable assets
and obtained huge loans of $19,000,000.00 from the last available
Japanese war damage fund, P30,000,000.00 from the NDC and
P12,400,000.00 from the GSIS. The sordid details are set forth in
detail in Paragraphs 1 1 to 20 of the main opinion. They include
confidential reports from then BASECO president Hilario M. Ruiz
and the deposed President's brother-in- law, then Captain (later
Commodore) Alfredo Romualdez, who although not on record as an
officer or stockholder of BASECO reported directly to the deposed
President on its affairs and made the recommendations, all
approved by the latter, for the gobbling up by BASECO of all the
choice government assets and properties.
All this evidence has been placed of record in the case at bar. And
petitioner has had all the time and opportunity to refute it, submittals
to the contrary notwithstanding, but has dismally failed to do so. To cite one
glaring instance: as stated in the main opinion, the evidence submitted to this
Court by the Solicitor General "proves that President Marcos not only exercised
control over BASECO, but also that he actually owns well nigh one hundred
percent of its outstanding stock." It cites the fact that three corporations,
evidently front or dummy corporations, among twenty shareholders, in name, of
BASECO, namely Metro Bay Drydock, Fidelity Management, Inc. and Trident
Management hold 209,664 shares or 95.82%, of BASECO's outstanding stock.
Now, the Solicitor General points out further than BASECO certificates
"corresponding to more than ninety-five percent (95%) of all the outstanding
shares of stock of BASECO, endorsed in blank, together with deeds of
assignment of practically all the outstanding shares of stock of the three (3)
corporations above mentioned (which hold 95.82% of all BASECO stock),
signed by the owners thereof although not notarized" 7 were found in
Malacaang shortly after the deposed President's sudden flight from the country
on the night of February 25, 1986. Thus, the main opinion's unavoidable
conclusion that "(W)hile the petitioner's counsel was quick to dispute this
asserted fact, assuring this Court that the BASECO stockholders were still in
possession of their respective stock certificates and had 'never endorsed * * *
them in blank or to anyone else,' that denial is exposed by his own prior and
subsequent recorded statements as a mere gesture of defiance rattler than a
verifiable factual declaration . . . . Under the circumstances, the Court can only
conclude that he could not get the originals from the stockholders for the simple
reason that as the Solicitor General maintains, said stockholders in truth no
longer have them in their possession, these having already been assigned in
blank to President Marcos."8
With this strong unrebutted evidence of record in this Court, Justice Melencio-
Herrera, joined by Justice Feliciano, expressly concurs with the main opinion
upholding the commission's take-over, stating that "(I) have no objection to
according the right to vote sequestered stock in case of a takeover of business
actually belonging to the government or whose capitalization comes from public
funds but which, somehow, landed in the hands of private persons, as in the
case of BASECO." They merely qualify their concurrence with the injunction
that such takeovers be exercised with "caution and prudence" pending the
determination of "the true and real ownership" of the sequestered shares.
Suffice it to say in this regard that each case has to be judged from the pertinent
facts and circumstances and that the main opinion emphasizes sufficiently that
it is only in the special instances specified in the governing laws grounded on
the superior national interest and welfare and the practical necessity of
preserving the property and preventing its loss or disposition that the provisional
remedy of provisional take-over is exercised.
Here, according to the dissenting opinion, "the PCGG concludes that
sequestered property is ill-gotten wealth and proceeds to exercise acts of
ownership over said properties . . . . and adds that "the fact of ownership must
be established in a proper suit before a court of justice"-which this Court has
preempted with its finding that "in the context of the proceedings at bar, the
actuality of the control by President Marcos of BASECO has been sufficiently
shown."
But BASECO who has instituted this action to set aside the sequestration and
take-over orders of respondent commission has chosen to raise these very
issues in this Court. We cannot ostrich-like hide our head in the sand and say
that it has not yet been established in the proper court that what the PCGG has
taken over here are government properties, as a matter of record and public
notice and knowledge, like the NASSCO, its Engineer Island and Mariveles
Shipyard and entire complex, which have been pillaged and placed in the name
of the dummy or front company named BASECO but from all the documentary
evidence of record shown by its street certificates all found in
Malacanang should in reality read "Ferdinand E. Marcos" and/or his
brother-in-law. Such take-over can in no way be termed "lawless
usurpation," for the government does not commit any act of usurpation in
taking over its own properties that have been channeled to dummies,
who are called upon to prove in the proper court action what they have
failed to do in this Court, that they have lawfully acquired ownership of
said properties, contrary to the documentary evidence of record, which
they must likewise explain away. This Court, in the exercise of its
jurisdiction on certiorari and as the guardian of the Constitution and
protector of the people's basic constitutional rights, has entertained many
petitions on the part of parties claiming to be adversely affected by
sequestration and other orders of the PCGG, This Court set the criterion
that such orders should issue only upon showing of a prima facie case,
which criterion was adopted in the 1987 Constitution. The Court's
judgment cannot be faulted if much more than a prima facie has been
shown in this case, which the faceless figures claiming to represent
BASECO have failed to refute or disprove despite all the opportunity to
do so.
The record plainly shows that petitioner BASECO which is but a mere
shell to mask its real owner did not and could not explain how and why
they received such favored and preferred treatment with tailored Letters
of Instruction and handwritten personal approval of the deposed
President that handed it on a silver platter the whole complex and
properties of NASSCO and Engineer Island and the Mariveles Shipyard.
It certainly would be the height of absurdity and helplessness if this
government could not here and now take over the possession and
custody of its very own properties and assets that had been stolen from it
and which it had pledged to recover for the benefit and in the greater
interest of the Filipino people, whom the past regime had saddled with a
huge $27-billion foreign debt that has since ballooned to $28.5-billion.
Thus, the main opinion correctly concludes that "(I)n the light of the
affirmative showing by the Government that, prima facie at least, the
stockholders and directors of BASECO as of April, 1986 were mere
'dummies,' nominees or alter egos of President Marcos; at any rate, that
they are no longer owners of any shares of stock in the corporation, the
conclusion cannot be avoided that said stockholders and directors have
no basis and no standing whatever to cause the filing and prosecution of
the instant proceeding; and to grant relief to BASECO, as prayed for in
the petition, would in effect be to restore the assets, properties and
business sequestered and taken over by the PCGG to persons who are
'dummies' nominees or alter egos of the former President." 9
And Justice Padilla in his separate concurrence "called a spade a
spade," citing the street certificates representing 95 % of BASECO's
outstanding stock found in Malacaang after Mr. Marcos' hasty flight in
February, 1986 and the extent of the control he exercised over policy
decisions affecting BASECO and concluding that "Consequently, even
ahead of judicial proceedings, I am convinced that the Republic of the
Philippines, thru the PCGG, has the right and even the duty to take over
full control and supervision of BASECO."
Indeed, the provisional remedies available to respondent commission are
rooted in the police power of the State, the most pervasive and the least
limitable of the powers of Government since it represents "the power of
sovereignty, the power to govern men and things within the limits of its
domain." 10 Police power has been defined as the power inherent in the
State "to prescribe regulations to promote the health, morals,
education, good order or safety, and general welfare of the
people." 11 Police power rests upon public necessity and upon the
right of the State and of the public to self-protection. 12 "Salus populi
suprema est lex" or "the welfare of the people is the Supreme
Law." 13 For this reason, it is co-extensive with the necessities of
the case and the safeguards of public interest. 14 Its scope expands
and contracts with changing needs. 15 "It may be said in a general
way that the police power extends to all the great public needs. It
may be put forth in aid of what is sanctioned by usage, or held by
the prevailing morality or strong and preponderant opinion to be
greatly and immediately necessary to the public welfare." 16 That
the public interest or the general welfare is subserved by
sequestering the purported ill-gotten assets and properties and
taking over stolen properties of the government channeled to
dummy or front companies is stating the obvious. The recovery of
these ill-gotten assets and properties would greatly aid our
financially crippled government and hasten our national economic
recovery, not to mention the fact that they rightfully belong to the
people. While as a measure of self-protection, if, in the interest of
general welfare, police power may be exercised to protect citizens
and their businesses in financial and economic matters, it may
similarly be exercised to protect the government itself against
potential financial loss and the possible disruption of governmental
functions. 17 Police power as the power of self-protection on the part
of the community bears the same relation to the community that the
principle of self-defense bears to the individual. 18 Truly, it may be
said that even more than self- defense, the recovery of ill-gotten
wealth and of the government's own properties involves the material
and moral survival of the nation, marked as the past regime was by
the obliteration of any line between private funds and the public
treasury and abuse of unlimited power and elimination of any
accountability in public office, as the evidence of record amply
shows.
It should be mentioned that the tracking down of the deposed
President's actual ownership of the BASECO shares was fortuitously
facilitated by the recovery of the street certificates in Malacaang
after his hasty flight from the country last year. This is not generally
the case.
For example, in the ongoing case filed by the government to recover
from the Marcoses valuable real estate holdings in New York and
the Lindenmere estate in Long Island, former PCGG chairman Jovito
Salonga has revealed that their names "do not appear on any title to
the property. Every building in New York is titled in the name of a
Netherlands Antilles corporation, which in turn is purportedly owned
by three Panamanian corporations, with bearer shares. This means
that the shares of this corporation can change hands any time, since
they can be transferred, under the law of Panama, without previous
registration on the books of the corporation. One of the first
documents that we discovered shortly after the February revolution
was a declaration of trust handwritten by Mr. Joseph Bernstein on
April 4, 1982 on a Manila Peninsula Hotel stationery stating that he
would act as a trustee for the benefit of President Ferdinand Marcos
and would act solely pursuant to the instructions of Marcos with
respect to the Crown Building in New York." 19
This is just to stress the difficulties of the tasks confronting respondent PCGG,
which nevertheless has so far commendably produced unprecedented positive
results. As stated by then chairman Salonga:
PCGG has turned over to the Office of the President around
2 billion pesos in cash, free of any lien. It has also delivered
to the President-as a result of a compromise settlement-
around 200 land titles involving vast tracks of land in Metro
Manila, Rizal, Laguna, Cavite, and Bataan, worth several
billion pesos. These lands are now available for low-cost
housing projects for the benefit of the poor and the
dispossessed amongst our people.
In the legal custody of the Commission as a result of
sequestration proceedings, are expensive jewelry
amounting to 310 million pesos, 42 aircraft amounting to
718 million pesos, vessels amounting to 748 million pesos,
and shares of stock amounting to around 215 million pesos.
But, as I said, the bulk of the ill-gotten wealth is located
abroad, not in the Philippines. Through the efforts of the
PCGG, we have caused the freezing or sequestration of
properties, deposits, and securities probably worth many
billions of pesos in New York, New Jersey, Hawaii,
California, and more importantly-in Switzerland. Due to
favorable developments in Switzerland, we may expect,
according to our Swiss lawyers, the first deliveries of the
Swiss deposits in the foreseeable future, perhaps in less
than a year's time. In New York, PCGG through its lawyers
who render their services free of cost to the Philippine
government, succeeded in getting injunctive relief against
Mr. and Mrs. Marcos and their nominees and agents. There
is now an offer for settlement that is being studied and
explored by our lawyers there.
If we succeed in recovering not an (since this is impossible)
but a substantial part of the ill-gotten wealth here and in
various countries of the world-something the revolutionary
governments of China, Ethiopia, Iran and Nicaragua were
not able to accomplish at all with respect to properties
outside their territorial boundaries-the Presidential
Commission on Good Government, which has undertaken
the difficult and thankless task of trying to undo what had
been done so secretly and effectively in the last twenty
years, shall have more than justified its existence. 20
The misdeeds of some PCGG volunteers and personnel cited in the dissenting
opinion do not detract at an from the PCGG's accomplishments, just as no one
would do away with newspapers because of some undesirable elements. The
point is that all such misdeeds have been subject to public exposure and as
stated in the dissent itself, the erring PCGG representatives have been forthwith
dismissed and replaced.
The magnitude of the tasks that confront respondent PCGG with its limited
resources and staff support and volunteers should be appreciated, together with
the assistance that foreign governments and lawyers have spontaneously given
the commission.
A word about the PCGG's firing of the BASECO lawyers who filed the present
petition challenging its questioned orders, filing a motion to withdraw the
petition, after it had put in eight of its representatives as directors of the
BASECO board of directors. This was entirely proper and in accordance
with the Court's Resolution of October 28, 1986, which denied
BASECO's motion for the issuance of a restraining order against such
take-over and declared that "the government can, through its designated
directors, properly exercise control and management over what appear to
be properties and assets owned and belonging to the government itself
and over which the persons who appear in this case on behalf of
BASECO have failed to show any eight or even any shareholding in said
corporation." In other words, these dummies or fronts cannot seek to
question the government's right to recover the very properties and assets
that have been stolen from it by using the very same stolen properties
and funds derived therefrom. If they wish to pursue their own empty
claim, they must do it on their own, after first establishing that they
indeed have a lawful right and/or shareholding in BASECO.
Under the 1987 Constitution, the PCGG is called upon to file the judicial
proceedings for forfeiture and recovery of the sequestered or frozen
properties covered by its orders issued before the ratification of the
Constitution on February 2, 1987, within six months from such
ratification, or by August 2, 1987. (For those orders issued after such
ratification, the judicial action or proceeding must be commenced within
six months from the issuance thereof.) The PCGG has not really been
given much time, considering the magnitude of its tasks. It is entitled to
some forbearance, in availing of the maximum time granted it for the
filing of the corresponding judicial action with the Sandiganbayan.
PADILLA, J., concurring:
The majority opinion penned by Mr. Justice Narvasa maintains and
upholds the valid distinction between acts of conservation and
preservation of assets and acts of ownership. Sequestration, freeze and
temporary take-over encompass the first type of acts. They do not
include the second type of acts which are reserved only to the rightful
owner of the assets or business sequestered or temporarily taken over.
The removal and election of members of the board of directors of a
corporate enterprise is, to me, a clear act of ownership on the part of the
shareholders of the corporation. Under ordinary circumstances, I would
deny the PCGG the authority to change and elect the members of
BASECO's Board of Directors. However, under the facts as disclosed by
the records, it appears that the certificates of stock representing about
ninety-five (95%) per cent of the total ownership in BASECO's capital
stock were found endorsed in blank in Malacanang (presumably in the
possession and control of Mr. Marcos) at the time he and his family fled
in February 1986. This circumstance let alone the extent of the control
Mr. Marcos exercised, while in power, over policy decisions affecting
BASECO, entirely satisfies my mind that BASECO was owned and
controlled by Mr. Marcos. This is calling a spade a spade. I am also
entirely satisfied in my mind that Mr. Marcos could not have acquired the
ownership of BASECO out of his lawfully-gotten wealth.
Consequently, even ahead of judicial proceedings, I am convinced that
the Republic of the Philippines, through the PCGG, has the right and
even the duty to take-over full control and supervision of BASECO.
MELENCIO-HERRERA, J., concurring:
I would like to qualify my concurrence in so far as the voting of
sequestered stork is concerned.
The voting of sequestered stock is, to my mind, an exercise of an
attribute of ownership. It goes beyond the purpose of a writ of
sequestration, which is essentially to preserve the property in
litigation (Article 2005, Civil Code). Sequestration is in the nature of
a judicial deposit (ibid.).
I have no objection to according the right to vote sequestered stock
in case of a take-over of business actually belonging to the
government or whose capitalization comes from public funds but
which, somehow, landed in the hands of private persons, as in the
case of BASECO. To my mind, however, caution and prudence
should be exercised in the case of sequestered shares of an on-
going private business enterprise, specially the sensitive ones, since
the true and real ownership of said shares is yet to be determined
and proven more conclusively by the Courts.
It would be more in keeping with legal norms if forfeiture
proceedings provided for under Republic Act No. 1379 be filed in
Court and the PCGG seek judicial appointment as a receiver or
administrator, in which case, it would be empowered to vote
sequestered shares under its custody (Section 55, Corporation
Code). Thereby, the assets in litigation are brought within the Court's
jurisdiction and the presence of an impartial Judge, as a requisite of
due process, is assured. For, even in its historical context,
sequestration is a judicial matter that is best handled by the Courts.
I consider it imperative that sequestration measures be buttressed
by judicial proceedings the soonest possible in order to settle the
matter of ownership of sequestered shares and to determine
whether or not they are legally owned by the stockholders of record
or are "ill-gotten wealth" subject to forfeiture in favor of the State.
Sequestration alone, being actually an ancillary remedy to a
principal action, should not be made the basis for the exercise of
acts of dominion for an indefinite period of time.
Sequestration is an extraordinary, harsh, and severe remedy. It
should be confined to its lawful parameters and exercised, with due
regard, in the words of its enabling laws, to the requirements of
fairness, due process (Executive Order No. 14, palay 7, 1986), and
Justice (Executive Order No. 2, March 12, 1986).