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General Banking Law

1.

G.R. No. 189571 January 21, 2015

THE HONORABLE MONETARY BOARD and GAIL U. FULE, Director,


Supervision and Examination Department II, and BANGKO SENTRAL NG
PILIPINAS, Petitioners,

vs.

PHILIPPINE VETERANS BANK, Respondent.

DECISION

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of


Court seeking to reverse and set aside the Decision1 dated June 15, 2009 and
Order2 dated August 25, 2009 of the Regional Trial Court (RTC) of Makati City in
Civil Case No. 07-271.

The factual antecedents follow.

Respondent established a pension loan product for bona fide veterans or their
surviving spouses, as well as salary loan product for teachers and low-salaried
employees pursuant to its mandate under Republic Act (RA) Nos. 35183 and
71694 to provide financial assistance to veterans and teachers.

As its clientele usually do not have real estate or security to cover their pension
or salary loan, other than their continuing good health and/or employment,
respondent devised a program by charging a premium in the form of a higher fee
known as Credit Redemption Fund(CRF) from said borrowers. Resultantly,
Special Trust Funds were established by respondent for the pension loans of the
veteran-borrowers, salary loans of teachers and low-salaried employees. These
trust funds were, in turn, managed by respondents Trust and Investment
Department, with respondent as beneficiary. The fees charged against the
borrowers were credited to the respective trust funds, which would beused to
fully pay the outstanding obligation of the borrowers in case of death.
On April 30, 2002, an examination was conducted by the Supervision and
Examination Department (SED) II of the Bangko Sentral ng Pilipinas (BSP). It
found, among other things, that respondents collection of premiums from the
proceeds of various salary and pension loans of borrowers to guarantee payment
of outstanding loans violated Section 54 of RA No. 87915 which states that banks
shall not directly engage in insurance business as insurer.

Subsequently, respondent wrote a letter to petitioners justifying the existence of


the CRF.

In a letter dated March 17, 2003, the BSP notified respondent about the
Insurance Commissions opinion that the CRF is a form of insurance. Thus,
respondent was requested to discontinue the collection of said fees.

On February 24, 2004, respondent complied with the BSPs directive and
discontinued the collection of fees for CRF.

On September 16, 2005, petitioners issued Monetary Board (MB) Resolution No.
1139 directing respondents Trust and Investment Department to return to the
borrowers all the balances of the CRF in the amount of P144,713,224.54 as of
August31, 2004, and to preserve the records of borrowers who were deducted
CRFs from their loan proceeds pending resolution or ruling of the Office of the
General Counsel of the BSP. Thus, respondent requested reconsideration of said
MB Resolution. However, the same was denied ina letter dated December 5,
2006.

Accordingly, respondent filed a Petition for Declaratory Relief with the RTC of
Makati City.

In response, petitioners filed a Motion to Dismiss alleging that the petition for
declaratory relief cannot prosper due to respondents prior breach of Section 54
of RA No. 8791.

In an Order6 dated September 24, 2007, the RTC dismissed respondents


petition for declaratory relief and held as follows:

Upon a thorough analysis of the allegations of the petition and the documents
attached thereto as annexes,the arguments of both parties in support of their
respective position on the incident up for resolution, the Court finds that an
ordinary civil action or other else but certainly not the present action for
declaratory relief, is the proper remedy.

Clearly, as gleaned from the verydocuments attached to the petition, and as


correctly pointed out by the [petitioners], [respondent], as found by the BSP
examiners and confirmed by the Monetary Board, violated Section 54 of RA No.
8791, subject matter of the instant case, by engaging in an insurance activity
which is prohibited by such law. To be precise, the law so provides thus: "SEC.
54. Prohibition to Act as Insurer. A bank shall not directly engaged (sic) in the
business as the insurer."

Hence, the issue of whether or not petitioner violated the foregoing law can only
be fittingly resolved thru an ordinaryaction. For which reason, the Court has no
recourse but to put an end to this case.

In view of the foregoing, the Court deems it unnecessary to tackle the other
grounds relied upon by [petitioners] in their motion to dismiss.

WHEREFORE, for reasons afore-stated, the petition is hereby DISMISSED.

SO ORDERED.

Almost a year later, respondent filed a Motion to Admit its Motion for
Reconsideration against said order alleging that it did not receive a copy thereof
until September 3, 2008.

Petitioners opposed said motion on the ground that per Certification of the
Philippine Postal Office, an official copy of the RTCs Order was duly served and
received by respondent on October 17, 2007.

Despite the foregoing, the RTC allowed respondents motion for reconsideration
and required petitioners to file their answer.

In a Decision dated June 15, 2009,the RTC of Makati City granted respondents
petition for declaratory relief disposing as follows:
WHEREFORE, premises considered, it is hereby DECLARED that [respondent],
when it collected additional fees known as "Credit Redemption Fund (CRF)" from
its loan borrowers was not directly engaged in insurance business as insurer;
hence, it did not violate Sec. 54, R.A. 8791, otherwise known as the "General
Banking Law of 2000."

The Monetary Board Resolution No. 1139 dated August 26, 2005 is hereby
DECLARED null and void.

SO ORDERED.7

Petitioners filed a motion for reconsideration against said decision, but the same
was denied in anOrder dated August 25, 2009.

Hence, the present petition wherein petitioners raise the following grounds to
support their petition:

I.

THE COURT A QUOGRIEVOUSLY ERRED IN TAKING COGNIZANCE OF THE


PETITION FOR DECLARATORY RELIEF DESPITE:

(i) THE FINALITY OF THE BSP MB RESOLUTION: (a) DECLARING


RESPONDENT VETERANS BANKS CRF SCHEME AS VIOLATIVE OF
SECTION 54 OF RA 8791; and (b) DIRECTING RESPONDENT TO RETURN
THE ILLEGAL PROCEEDS THEREOF TO ITS BORROWERS; and

(ii) THE BLATANT IMPROPRIETY OF RESORTING TO SUCH PETITION FOR


DECLARATORY RELIEF, CONSIDERING RESPONDENT VETERANS BANKS
PRIOR BREACH OF THE MONETARY BOARD RESOLUTION SUBJECT
THEREOF [ASSUMING ARGUENDO THAT THE SUBJECT BSP RESOLUTION
HASNOT BECOME FINAL];

II.
THE COURT A QUOS ORDER, DISMISSING THE PETITION FOR
DECLARATORY RELIEF HAS LONG BECOME FINAL AND EXECUTORY AND
MAY NO LONGER BE DISTURBED.

III.

PETITIONERS FINDING,THAT RESPONDENT VETERANS BANK IS


ENGAGED IN "INSURANCE BUSINESS," IS IN ACCORD WITH LAW.8

In essence, the issue is whether or not the petition for declaratory relief is proper.

We rule in the negative.

Section 1, Rule 63 of the Rules of Court governs petitions for declaratory relief,
viz.:

SECTION 1. Who may file petition. Any person interested under a deed, will,
contract or other written instrument, whose rights are affected by a statute,
executive order or regulation, ordinance, or any other governmental regulation
may, before breach or violation thereof, bring an action in the appropriate
Regional Trial Court to determine any question of construction or validity arising,
and for a declaration of his rights or duties, thereunder.

Declaratory relief is defined as an action by any person interested in a deed, will,


contract or other written instrument, executive order or resolution, to determine
any question of construction or validity arising from the instrument, executive
order or regulation, or statute; and for a declaration of his rights and duties
thereunder. The only issue that may be raised in such a petition is the question of
construction or validity of provisions in an instrument or statute.9 Ergo, the Court,
in CJH Development Corporation v. Bureau of Internal Revenue,10 held that in
the same manner that court decisions cannot be the proper subjects of a petition
for declaratory relief, decisions of quasijudicial agencies cannot be subjects of a
petition for declaratory relief for the simple reason that if a party is not agreeable
to a decision either on questions of law or of fact, it may avail of the various
remedies provided by the Rules of Court.

In view of the foregoing, the decision of the BSP Monetary Board cannot be a
proper subject matter for a petition for declaratory relief since it was issued by the
BSP Monetary Board inthe exercise of its quasi-judicial powers or functions.
The authority of the petitioners to issue the questioned MB Resolution emanated
from its powers under Section 3711 of RA No. 765312 and Section 6613 of RA
No. 879114 to impose, at its discretion, administrative sanctions, upon any bank
for violation of any banking law.

The nature of the BSP Monetary Board as a quasi-judicial agency, and the
character of its determination of whether or not appropriate sanctions may be
imposed upon erring banks, as anexercise of quasi-judicial function, have been
recognized by this Court in the case of United Coconut Planters Bank v. E.
Ganzon, Inc.,15 to wit:

A perusal of Section 9(3) of Batas Pambansa Blg. 129, as amended, and Section
1, Rule 43 of the 1997 Rules of Civil Procedure reveals that the BSP Monetary
Board is not included among the quasi judicial agencies explicitly named therein,
whose final judgments, orders, resolutions or awards are appealableto the Court
of Appeals. Such omission, however, does not necessarily mean that the Court of
Appeals has no appellate jurisdiction over the judgments, orders, resolutions, or
awards of the BSP Monetary Board.

It bears stressing that Section 9(3) of Batas Pambansa Blg. 129, as amended, on
the appellate jurisdiction of the Court of Appeals, generally refers to quasi-judicial
agencies, instrumentalities, boards or commissions. The use of the word
"including" in the said provision, prior to the naming of several quasi-judicial
agencies, necessarily conveys the very idea of non-exclusivity of the
enumeration. The principle of expressio unius est exclusio alterius does not apply
where other circumstances indicate that the enumeration was not intended to be
exclusive, or where the enumeration is by way of example only.

Similarly, Section 1, Rule 43 of the 1997 Revised Rules of Civil Procedure merely
mentions several quasi-judicial agencies without exclusivity in the phraseology.
The enumeration of the agencies therein mentioned is not exclusive. The
introductory phrase "[a]mong these agencies are" preceding the enumeration of
specific quasi-judicial agencies only highlights the fact that the list is not meant to
be exclusive or conclusive. Further, the overture stresses and acknowledges the
existence of other quasi-judicial agencies not included inthe enumeration but
should be deemed included.

A quasi-judicial agency or body isan organ of government other than a court and
other thana legislature, which affects the rights of private parties through either
adjudication or rule-making. The very definition of an administrative agency
includes itsbeing vested with quasi-judicial powers. The ever increasing variety of
powers and functions given to administrative agencies recognizes the need for
the active intervention of administrative agencies in matters calling for technical
knowledge and speed in countless controversies which cannot possibly be
handled by regular courts. A "quasi-judicial function" is a term which applies to
the action, discretion, etc. of public administrative officers or bodies, who are
required to investigate facts, or ascertain the existence of facts, hold hearings,
and draw conclusions from them, as a basis for their official action and to
exercise discretion of a judicial nature.

Undoubtedly, the BSP Monetary Board is a quasi-,judicial agency exercising


quasi-,judicial powers or functions.1wphi1 As aptly observed by the Court of
Appeals, the BSP Monetary Board is an independent central monetary authority
and a body corporate with fiscal and administrative autonomy, mandated to
provide policy directions in the areas of money, banking, and credit. It has the
power to issue subpoena, to sue for contempt those refusing to obey the
subpoena without justifiable reason, to administer oaths and compel presentation
of books, records and others, needed in its examination, to impose fines and
other sanctions and to issue cease and desist order. Section 37 of Republic Act
No. 7653, in particular, explicitly provides that the BSP Monetary Board shall
exercise its discretion in determining whether administrative sanctions should be
imposed on banks and quasi-banks, which necessarily implies that the BSP
Monetary Board must conduct some form of investigation or hearing regarding
the same.16

A priori, having established that the BSP Monetary Board is indeed a quasi-
judicial body exercising quasi-judicial functions, then its decision in MB
Resolution No. 1139 cannot be the proper subject of declaratory relief.

Lastly, also worth noting is the fact that the court a quo's Order dated September
24, 2007, which dismissed respondent's petition for declaratory relief, had long
become final and executory.

To recall, said Order was duly served on and received by respondent on October
1 7, 2007, as evidenced by the Ce1iification issued by the Philippine Postal
Corporation. Almost a year later, however, or on October 15, 2008, respondent
moved for reconsideration of the court a quo's Order of dismissal, claiming it
received a copy of said Order only on September 3, 2008. Thus, respondent's
self-serving claim should not have prevailed over the Certification issued by the
Philippine Postal Corporation. It was error for the trial court to ente1iain it for the
second time despite the lapse of almost a year before respondent filed its motion
for reconsideration against said Order.

WHEREFORE, premises considered, the instant petition is hereby GRANTED.


The Decision dated June 15, 2009 and Order dated August 25, 2009 of the
Regional Trial Court of Makati City in Civil Case No. 07-271 are REVERSED and
SET ASIDE. The Order dated September 24, 2007 of the Regional Trial Court
ofMakati City is hereby REINSTATED.

SO ORDERED.

2.

G.R. NO. 195540 : March 13, 2013

GOLDENWAY MERCHANDISING CORPORATION, Petitioner, v. EQUITABLE


PCI BANK, Respondent.

DECISION

VILLARAMA, JR., J.:

Before the Court is a petition for review on certiorari which seeks to reverse and
set aside the Decision1 dated November 19, 2010 and Resolution2 dated
January 31, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 91120. The CA
affirmed the Decision3 dated January 8, 2007 of the Regional Trial Court (RTC)
of- Valenzuela City, Branch 171 dismissing the complaint in Civil Case No. 295-V
-01.

The facts are undisputed.

On November 29, 1985, Goldenway Merchandising Corporation (petitioner)


executed a Real Estate Mortgage in favor of Equitable PCI Bank (respondent)
over its real properties situated in Valenzuela, Bulacan (now Valenzuela City) and
covered by Transfer Certificate of Title (TCT) Nos. T-152630, T-151655 and T-
214528 of the Registry of Deeds for the Province of Bulacan. The mortgage
secured the Two Million Pesos (P2,000,000.00) loan granted by respondent to
petitioner and was duly registered.4chanroblesvirtualawlibrary

As petitioner failed to settle its loan obligation, respondent extrajudicially


foreclosed the mortgage on December 13, 2000. During the public auction, the
mortgaged properties were sold for P3,500,000.00 to respondent. Accordingly, a
Certificate of Sale was issued to respondent on January 26, 2001. On February
16, 2001, the Certificate of Sale was registered and inscribed on TCT Nos. T-
152630, T-151655 and T-214528.5chanroblesvirtualawlibrary
In a letter dated March 8, 2001, petitioner's counsel offered to redeem the
foreclosed properties by tendering a check in the amount of P3,500,000.00. On
March 12, 2001, petitioner's counsel met with respondent's counsel reiterating
petitioner's intention to exercise the right of redemption.6 However, petitioner was
told that such redemption is no longer possible because the certificate of sale
had already been registered. Petitioner also verified with the Registry of Deeds
that title to the foreclosed properties had already been consolidated in favor of
respondent and that new certificates of title were issued in the name of
respondent on March 9, 2001.

On December 7, 2001, petitioner filed a complaint7 for specific performance and


damages against the respondent, asserting that it is the one-year period of
redemption under Act No. 3135 which should apply and not the shorter
redemption period provided in Republic Act (R.A.) No. 8791. Petitioner argued
that applying Section 47 of R.A. 8791 to the real estate mortgage executed in
1985 would result in the impairment of obligation of contracts and violation of the
equal protection clause under the Constitution. Additionally, petitioner faulted the
respondent for allegedly failing to furnish it and the Office of the Clerk of Court,
RTC of Valenzuela City with a Statement of Account as directed in the Certificate
of Sale, due to which petitioner was not apprised of the assessment and fees
incurred by respondent, thus depriving petitioner of the opportunity to exercise its
right of redemption prior to the registration of the certificate of sale.

In its Answer with Counterclaim,8 respondent pointed out that petitioner cannot
claim that it was unaware of the redemption price which is clearly provided in
Section 47 of R.A. No. 8791, and that petitioner had all the opportune time to
redeem the foreclosed properties from the time it received the letter of demand
and the notice of sale before the registration of the certificate of sale. As to the
check payment tendered by petitioner, respondent said that even assuming
arguendo such redemption was timely made, it was not for the amount as
required by law.

On January 8, 2007, the trial court rendered its decision dismissing the complaint
as well as the counterclaim. It noted that the issue of constitutionality of Sec. 47
of R.A. No. 8791 was never raised by the petitioner during the pre-trial and the
trial. Aside from the fact that petitioner's attempt to redeem was already late,
there was no valid redemption made because Atty. Judy Ann Abat-Vera who
talked to Atty. Joseph E. Mabilog of the Legal Division of respondent bank, was
not properly authorized by petitioner's Board of Directors to transact for and in its
behalf; it was only a certain Chan Guan Pue, the alleged President of petitioner
corporation, who gave instruction to Atty. Abat-Vera to redeem the foreclosed
properties.9chanroblesvirtualawlibrary
Aggrieved, petitioner appealed to the CA which affirmed the trial court's decision.
According to the CA, petitioner failed to justify why Section 47 of R.A. No. 8791
should be declared unconstitutional. Furthermore, the appellate court concluded
that a reading of Section 47 plainly reveals the intention to shorten the period of
redemption for juridical persons and that the foreclosure of the mortgaged
properties in this case when R.A. No. 8791 was already in effect clearly falls
within the purview of the said provision.10chanroblesvirtualawlibrary

Petitioner's motion for reconsideration was likewise denied by the CA.

In the present petition, it is contended that Section 47 of R.A. No. 8791 is


inapplicable considering that the contracting parties expressly and categorically
agreed that the foreclosure of the real estate mortgage shall be in accordance
with Act No. 3135. Citing Co v. Philippine National Bank11 petitioner contended
that the right of redemption is part and parcel of the Deed of Real Estate
Mortgage itself and attaches thereto upon its execution, a vested right flowing out
of and made dependent upon the law governing the contract of mortgage and not
on the mortgagee's act of extrajudicially foreclosing the mortgaged properties.
This Court thus held in said case that "Under the terms of the mortgage contract,
the terms and conditions under which redemption may be exercised are deemed
part and parcel thereof whether the same be merely conventional or imposed by
law."

Petitioner then argues that applying Section 47 of R.A. No. 8791 to the present
case would be a substantial impairment of its vested right of redemption under
the real estate mortgage contract. Such impairment would be violative of the
constitutional proscription against impairment of obligations of contract, a patent
derogation of petitioner's vested right and clearly changes the intention of the
contracting parties. Moreover, citing this Court's ruling in Rural Bank of Davao
City, Inc. v. Court of Appeals12 where it was held that "Section 119 prevails over
statutes which provide for a shorter period of redemption in extrajudicial
foreclosure sales", and in Sulit

v. Court of Appeals,13 petitioner stresses that it has always been the policy of
this Court to aid rather than defeat the mortgagor's right to redeem his property.

Petitioner further argues that since R.A. No. 8791 does not provide for its
retroactive application, courts therefore cannot retroactively apply its provisions
to contracts executed and consummated before its effectivity. Also, since R.A.
8791 is a general law pertaining to the banking industry while Act No. 3135 is a
special law specifically governing real estate mortgage and foreclosure, under
the rules of statutory construction that in case of conflict a special law prevails
over a general law regardless of the dates of enactment of both laws, Act No.
3135 clearly should prevail on the redemption period to be applied in this case.

The constitutional issue having been squarely raised in the pleadings filed in the
trial and appellate courts, we shall proceed to resolve the same.

The law governing cases of extrajudicial foreclosure of mortgage is Act No.


3135,14 as amended by Act No. 4118. Section 6 thereof
provides:chanroblesvirtualawlibrary

SEC. 6. In all cases in which an extrajudicial sale is made under the special
power hereinbefore referred to, the debtor, his successors-in-interest or any
judicial creditor or judgment creditor of said debtor, or any person having a lien
on the property subsequent to the mortgage or deed of

trust under which the property is sold, may redeem the same at any time within
the term of one year from and after the date of the sale; and such redemption
shall be governed by the provisions of sections four hundred and sixty-four to
four hundred and sixty-six, inclusive, of the Code of

Civil Procedure,15 in so far as these are not inconsistent with the provisions of
this Act.

The one-year period of redemption is counted from the date of the registration of
the certificate of sale. In this case, the parties provided in their real estate
mortgage contract that upon petitioner's default and the latter's entire loan
obligation becoming due, respondent may immediately foreclose the mortgage
judicially in accordance with the Rules of Court, or extrajudicially in accordance
with Act No. 3135, as amended.

However, Section 47 of R.A. No. 8791 otherwise known as "The General Banking
Law of 2000" which took effect on June 13, 2000, amended Act No. 3135. Said
provision reads:chanroblesvirtualawlibrary

SECTION 47. Foreclosure of Real Estate Mortgage. In the event of foreclosure,


whether judicially or extrajudicially, of any mortgage on real estate which is
security for any loan or other credit accommodation granted, the mortgagor or
debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate, to
redeem the property by paying the amount due under the mortgage deed, with
interest thereon at the rate specified in the mortgage, and all the costs and
expenses incurred by the bank or institution from the sale and custody of said
property less the income derived therefrom. However, the purchaser at the
auction sale concerned whether in a judicial or extrajudicial foreclosure shall
have the right to enter upon and take possession of such property immediately
after the date of the confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain the conduct of
foreclosure proceedings instituted pursuant to this provision shall be given due
course only upon the filing by the petitioner of a bond in an amount fixed by the
court conditioned that he will pay all the damages which the bank may suffer by
the enjoining or the restraint of the foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is being sold


pursuant to an extrajudicial foreclosure, shall have the right to redeem the
property in accordance with this provision until, but not after, the registration of
the certificate of foreclosure sale with the applicable Register of Deeds which in
no case shall be more than three (3) months after foreclosure, whichever is
earlier. Owners of property that has been sold in a foreclosure sale prior to the
effectivity of this Act shall retain their redemption rights until their expiration.
(Emphasis supplied.)

Under the new law, an exception is thus made in the case of juridical persons
which are allowed to exercise the right of redemption only "until, but not after, the
registration of the certificate of foreclosure sale" and in no case more than three
(3) months after foreclosure, whichever comes first.16chanroblesvirtualawlibrary

May the foregoing amendment be validly applied in this case when the real
estate mortgage contract was executed in 1985 and the mortgage foreclosed
when R.A. No. 8791 was already in effect?

We answer in the affirmative.

When confronted with a constitutional question, it is elementary that every court


must approach it with grave care and considerable caution bearing in mind that
every statute is presumed valid and every reasonable doubt should be resolved
in favor of its constitutionality.17 For a law to be nullified, it must be shown that
there is a clear and unequivocal breach of the Constitution. The ground for nullity
must be clear and beyond reasonable doubt.18 Indeed, those who petition this
Court to declare a law, or parts thereof, unconstitutional must clearly establish
the basis therefor. Otherwise, the petition must fail.19chanroblesvirtualawlibrary
Petitioner's contention that Section 47 of R.A. 8791 violates the constitutional
proscription against impairment of the obligation of contract has no basis.

The purpose of the non-impairment clause of the Constitution20 is to safeguard


the integrity of contracts against unwarranted interference by the State. As a rule,
contracts should not be tampered with by subsequent laws that would change or
modify the rights and obligations of the parties.21 Impairment is anything that
diminishes the efficacy of the contract. There is an impairment if a subsequent
law changes the terms of a contract between the parties, imposes new
conditions, dispenses with those agreed upon or withdraws remedies for the
enforcement of the rights of the parties.22chanroblesvirtualawlibrary

Section 47 did not divest juridical persons of the right to redeem their foreclosed
properties but only modified the time for the exercise of such right by reducing
the one-year period originally provided in Act No. 3135. The new redemption
period commences from the date of foreclosure sale, and expires upon
registration of the certificate of sale or three months after foreclosure, whichever
is earlier. There is likewise no retroactive application of the new redemption
period because Section 47 exempts from its operation those properties
foreclosed prior to its effectivity and whose owners shall retain their redemption
rights under Act No. 3135.

Petitioner's claim that Section 47 infringes the equal protection clause as it


discriminates mortgagors/property owners who are juridical persons is equally
bereft of merit.

The equal protection clause is directed principally against undue favor and
individual or class privilege. It is not intended to prohibit legislation which is
limited to the object to which it is directed or by the territory in which it is to
operate. It does not require absolute equality, but merely that all persons be
treated alike under like conditions both as to privileges conferred and liabilities
imposed.23 Equal protection permits of reasonable classification.24 We have
ruled that one class may be treated differently from another where the groupings
are based on reasonable and real distinctions.25 If classification is germane to
the purpose of the law, concerns all members of the class, and applies equally to
present and future conditions, the classification does not violate the equal
protection guarantee.26chanroblesvirtualawlibrary

We agree with the CA that the legislature clearly intended to shorten the period of
redemption for juridical persons whose properties were foreclosed and sold in
accordance with the provisions of Act No. 3135.27chanroblesvirtualawlibrary
The difference in the treatment of juridical persons and natural persons was
based on the nature of the properties foreclosed whether these are used as
residence, for which the more liberal one-year redemption period is retained, or
used for industrial or commercial purposes, in which case a shorter term is
deemed necessary to reduce the period of uncertainty in the ownership of
property and enable mortgagee-banks to dispose sooner of these acquired
assets. It must be underscored that the General Banking Law of 2000, crafted in
the aftermath of the 1997 Southeast Asian financial crisis, sought to reform the
General Banking Act of 1949 by fashioning a legal framework for maintaining a
safe and sound banking system.28 In this context, the amendment introduced by
Section 47 embodied one of such safe and sound practices aimed at ensuring
the solvency and liquidity of our banks. It cannot therefore be disputed that the
said provision amending the redemption period in Act 3135 was based on a
reasonable classification and germane to the purpose of the law.

This legitimate public interest pursued by the legislature further enfeebles


petitioner's impairment of contract theory.

The right of redemption being statutory, it must be exercised in the manner


prescribed by the statute,29 and within the prescribed time limit, to make it
effective. Furthermore, as with other individual rights to contract and to property,
it has to give way to police power exercised for public welfare.30 The concept of
police power is well-established in this jurisdiction. It has been defined as the
"state authority to enact legislation that may interfere with personal liberty or
property in order to promote the general welfare." Its scope, ever-expanding to
meet the exigencies of the times, even to anticipate the future where it could be
done, provides enough room for an efficient and flexible response to conditions
and circumstances thus assuming the greatest
benefits.31chanroblesvirtualawlibrary

The freedom to contract is not absolute; all contracts and all rights are subject to
the police power of the State and not only may regulations which affect them be
established by the State, but all such regulations must be subject to change from
time to time, as the general well-being of the community may require, or as the
circumstances may change, or as experience may demonstrate the necessity.32
Settled is the rule that the non-impairment clause of the Constitution must yield to
the loftier purposes targeted by the Government. The right granted by this
provision must submit to the demands and necessities of the State's power of
regulation.33 Such authority to regulate businesses extends to the banking
industry which, as this Court has time and again emphasized, is undeniably
imbued with public interest.34chanroblesvirtualawlibrary

Having ruled that the assailed Section 47 of R.A. No. 8791 is constitutional, we
find no reversible error committed by the CA in holding that petitioner can no
longer exercise the right of redemption over its foreclosed properties after the
certificate of sale in favor of respondent had been registered.

WHEREFORE, the petition for review on certiorari is DENIED for lack of merit.
The Decision dated November 19, 2010 and Resolution dated January 31, 2011
of the Court of Appeals in CA-G.R. CV No. 91120 are hereby AFFIRMED.

With costs against the petitioner.

SO ORDERED.

3.

4.
G.R. No. 204672, February 18, 2015

SPOUSES RODOLFO AND MARCELINA GUEVARRA, Petitioners, v. THE COMMONER LENDING


CORPORATION, INC., Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1are the Decision2 dated October 3, 2011 and the
Resolution3 dated October 17, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 02895,which
affirmed with modification the Order4 dated October 20, 2008 of the Regional Trial Court of Guimbal,
Iloilo, Branch 67 (RTC) in Cadastral Case Nos. 118 and 122, allowing petitioners-spouses Rodolfo
and Marcelina Guevarra (Sps. Guevarra) to exercise their right to repurchase the mortgaged
property subject of this case, conditioned upon the payment of the purchase price fixed by
respondent The Commoner Lending Corporation, Inc. (TCLC). chanroblesvirtuallawlibrary

The Facts

On December 16, 1996,5Sps. Guevarra obtained a P320,000.00 loan from TCLC, which was secured
by a real estate mortgage6 over a 5,532- square meter parcel of land situated in Guimbal, Iloilo,
covered by Original Certificate of Title (OCT) No. F-31900 7 (subject property), emanating from a
free patent granted to Sps. Guevarraon February 25, 1986.8 cralawred

Sps. Guevarra, however, defaulted in the payment of their loan, promptingTCLC to extra-judicially
foreclose the mortgage on the subject property9 in accordance with Act No. 3135,10 as amended.In
the process, TCLCemerged as the highest bidder at the public auction sale held on June 15, 2000 for
the bid amount of P150,000.00,11and on August 25, 2000, the certificate of sale was registered with
the Registry of Deeds of Iloilo.12 cralawre d

Eventually, Sps. Guevarrafailed to redeem the subject property within the one-year reglementary
period, which led to the cancellation of OCT No. F-31900 and the issuance of Transfer Certificate of
Title No.T-1618713 in the name of TCLC. Thereafter, TCLCdemanded that Sps. Guevarra vacate the
property, but to no avail.14
cralawre d

The RTC Proceedings

On June 10, 2005, TCLC applied for a writ of possession 15 before the RTC, docketed as Cadastral
Case No. 118.Sps. Guevarraopposed16 the samebychallenging the validity of the foreclosure
proceedingsdue tothe purported failure of TCLC to comply with the notice, posting and publication
requirements, and lack of authority, as a corporation,to acquire the subject property. Sps. Guevarra
also assailed the issuance by the Sheriff of Iloilo of a Final Deed of Sale 17 to be premature, as they
were still entitled to redeem the subject property within five (5) yearsfrom the expiration of the
one-year period to repurchase.18 cralawre d

Subsequently, or on September 8, 2005, Sps. Guevarra filed before the RTC a petition for
redemption,19 docketed as Cadastral Case No. 122, maintaining that the redemption period did not
expire on August 25, 2001, or one (1) year from the registration of the certificate of sale, but will
still expire five (5) years therefrom, or on August 25, 2006. 20 They further averred that they
pleaded to be allowed to redeem the subject property but TCLC unjustifiably refused the same,
constraining them to file said petition, offering to redeem the subject property at P150,000.00, plus
one percent (1%) interest per month for five (5) years from August 25, 2000, or in the amount of
P240,000.00,21which they consigned22 to the RTC.

Cadastral Case Nos. 118 and 122 werelater consolidated.23 cralawre d

Inan Order24 dated July 12, 2006, the RTC granted TCLCs petition in Cadastral Case No. 118,
resulting in the issuance of the corresponding Writ of Possession 25 andNotice to Vacate26which were
duly served uponSps. Guevarra.27Accordingly, the latterfiled a motion for reconsideration 28andMotion
to Hold in Abeyance the Implementation of the Writ of Possession. 29 cralawre d

In an Order30 dated October 20, 2008, the RTC denied the motion for reconsideration in Cadastral
Case No. 118, but granted Sps. Guevarraspetition in Cadastral Case No. 122. In so doing, the RTC
recognizedSps. Guevarras right to repurchase the subject property, pointing out that they were able
to file their petition within the five-yearperiod provided under Section 119 of Commonwealth Act No.
141,31 otherwise known as the Public Land Act (Public Land Act).32As a consequence, the RTC
directed TCLC to reconvey the subject propertyto Sps. Guevarraand execute the corresponding deed
of reconveyance upon payment of the purchase price of ?150,000.00, plus one percent(1%) interest
per month from the date of the auction sale on June 15, 2000upto August 8, 2006,as well as the
corresponding tax assessments and foreclosure expenses. 33 cralawred

Dissatisfied, TCLC filed a motion for reconsideration34 which was, however, denied in an Order35dated
January 6, 2009; thus, itfiled an appeal36 before the CA. chanroblesvirtuallawlibrary

The CA Proceedings

In a Decision37 dated October 3, 2011, the CA affirmed the RTCs October 20, 2008 Order, upholding
Sps. Guevarras right to repurchase the subject property pursuant to Section 119 of the Public Land
Act, with modification that the same be conditioned upon the payment of the purchase price fixed
by TCLC. It ruled that after the expiration of the redemption period, the present owner, i.e.,
TCLC,has the discretion to set a higher price.38 cralawred

Aggrieved, Sps. Guevarra filed a motion for reconsideration 39 which was, however, denied in a
Resolution40 dated October 17, 2012, hence, this petition.

The Issue Before the Court

The essential issue in this case is whether or not the CA committed a reversible error in ruling that
the repurchase price for the subject property should be fixed by TCLC.

The Courts Ruling

In an extra-judicial foreclosure of registered land acquired under a free patent, the mortgagor may
redeem the property within two (2) years from the date of foreclosure if the land is mortgaged to a
rural bank under Republic Act No. (RA) 720,41 as amended, otherwise known as the Rural Banks Act,
or within one (1) year from the registration of the certificate of sale if the land is mortgaged to
parties other than rural banks pursuant to Act No. 3135.42 If the mortgagor fails to exercise such
right, he or his heirs may still repurchase the property within five (5) years from the expiration of
the aforementioned redemption period43 pursuant to Section 119 of the Public Land Act, which
states:chanRoble svirtualLawlibrary

SEC. 119. Every conveyance of land acquired under the free patent or homestead provisions, when
proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period of
five years from the date of the conveyance. cralawlawlibrary

In this case, the subject property was mortgaged to and foreclosed by TCLC, which is a lending or
credit institution, and not a rural bank; hence, the redemption period is one (1) year from the
registration of the certificate of sale on August 25, 2000, or until August 25, 2001. Given that Sps.
Guevarra failed to redeem the subject property within the aforestated redemption period, TCLC was
entitled, as a matter of right, to consolidate its ownership and to possess the same. 44 Nonetheless,
such right should not negate Sps. Guevarras right to repurchase said property within five (5) years
from the expiration of the redemption period on August 25, 2001, or until August 25, 2006, in view
of Section 119 of the Public Land Act as above-cited.

In this relation, it is apt to clarify that contrary to TCLCs claim, 45the tender of the repurchase price
is not necessary for the preservation of the right of repurchase, because the filing of a judicial action
for such purpose within the five-year period under Section 119 of the Public Land Actis already
equivalent to a formal offer to redeem. On this premise, consignation of the redemption price is
equally unnecessary.46 cralawre d

Thus, the RTC and CAboth correctly ruled that Sps. Guevarras right to repurchase the subject
property had not yet expiredwhen Cadastral Case No. 122 was filed on September 8, 2005. That
being said, the Court now proceeds to determine the proper amount of the repurchase price.

Sps. Guevarrainsist that the repurchase price should be the purchase price at the auction sale plus
interest of one percent (1%) per month and other assessment fees, 47citing the rulings in the cases
of Belisario v. Intermediate Appellate Court48 (Belisario) and Salenillas v. CA49 (Salenillas). On the
other hand, TCLC maintains that it is entitled to its total claims under the promissory note and the
mortgage contract50in accordance with Section 4751 of the General Banking Law of 2000.52 cralawred

TCLCs argument is partly correct.

To resolve the matter, it must first be pointed out that case law has equated a right of repurchase of
foreclosed properties under Section 119 of the Public Land Act as a right of redemption 53 and the
repurchase price as a redemption price.54 Thus, in Salenillas, the Court applied then Section 30,
now Section 28, Rule 39 of the Rules of Court (Rules) in the redemption of the foreclosed property
covered by a free patent: chanRoble svirtualLawlibrary

Now, as regards the redemption price, applying Sec. 30 of Rule 39 of the [Rules], the petitioners
should reimburse the private respondent the amount of the purchase price at the public auction
plus interest at the rate of one per centum per month up to November 17, 1983, together
with the amounts of assessments and taxes on the property that the private respondent might
have paid after purchase and interest on the last named amount at the same rate as that
on the purchase price. (Emphases supplied)55 cralawlawlibrary

The Court has,however, ruled56 that redemptions from lending or credit institutions, like TCLC, are
governed by Section 7857 of the General Banking Act (now Section 47 of the General Banking Law of
2000), which amended Section 6 of Act No. 3135 in relation to the proper redemption price when
the mortgagee is a bank, or a banking or credit institution. 58 cralawre d

Nonetheless, the Court cannot subscribe to TCLCs contention that it is entitled to its total claims
under the promissory note and the mortgage contract59in view of the settled rule that an action to
foreclose must be limited to the amount mentioned in the mortgage.60Hence, amounts not
stated therein must be excluded, like the penalty charges of three percent (3%) per
month included in TCLCs claim.61A penalty charge is likened to a compensation for damages in case
of breach of the obligation. Being penal in nature,it must be specific and fixed by the contracting
parties.62
cralawre d

Moreover, the Court notes that the stipulated three percent (3%) monthly interest is excessive
and unconscionable.In a plethora of cases, the Court has affirmed that stipulated interest rates
of three percent (3%) per month and higher are excessive, iniquitous, unconscionable,
and exorbitant,63hence, illegal64and void for being contrary to morals.65 In Agner v. BPI
Family Savings Bank, Inc.,66 the Court had the occasion to rule: chanRoble svirtualLawlibrary

Settled is the principle which this Court has affirmed in a number of cases that stipulated interest
rates of three percent (3%) per month and higher are excessive, iniquitous, unconscionable, and
exorbitant. While Central Bank Circular No. 905-82, which took effect on January 1, 1983,
effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of
maturity, nothing in the said circular could possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would either enslave their borrowers or lead to a
hemorrhaging of their assets. Since the stipulation on the interest rate is void for being
contrary to morals, if not against the law, it is as if there was no express contract on said
interest rate; thus, the interest rate may be reduced as reason and equity demand.
(Emphases supplied)67 cralawla wlibrary

As such, the stipulated three percent (3%) monthly interest should be equitably reduced to one
percent (1%) per month or twelve percent (12%) per annum reckoned from the execution of the
real estate mortgage on December 12, 1996,68 until the filing of the petition in Cadastral Case No.
122 on September 8, 2005.

In addition to the principal and interest, the repurchase price should also include all the expenses of
foreclosure, i.e., Judicial Commission, Publication Fee, and Sheriffs Fee, in accordance with Section
4769 of the General Banking Law of 2000. Considering further that Sps. Guevarra failed to redeem
the subject property within the one-year reglementary period, they are liable to reimburse TCLC for
the corresponding Documentary Stamp Tax (DST) and Capital Gains Tax (CGT) it paid pursuant to
Bureau of Internal Revenue (BIR) Revenue Regulations No. 4-99, 70which requires the payment of
DST on extra-judicial foreclosure sales of capital assets initiated by banks, finance and insurance
companies, as well as CGT in cases of non-redemption. CGT and DST are expenses incident to
TCLCs custody of the subject property, hence, likewise due, under the above provision of law.

Accordingly, the repurchase price is hereby computed as follows:


Principal P320,000.00
Add: Interest from 12/12/1996 to
09/05/2005
from 12/12/1996 to 12/12/2004: P307,200.00
(P320,000.00 x 12% x 8 years)
from 12/13/2004 to 09/08/2005: 28,405.48 335,605.48
(P320,000.00 x 12% x 270/365)
Total Amount due under the mortgage P655,605.48
Add:Capital Gains Tax 18,203.17
Documentary Stamp Tax 4,501.46
Judicial Commission 4,150.00
Publication Fee 4,000.00
Sheriffs Fee 3,000.00
Repurchase Price P689,460.11
==============

From this repurchase priceshall be deducted the amount consigned to the RTC, or P240,000.00.
Sps. Guevarramay repurchase the subject property within thirty (30) days from finality of this
Decision upon payment of the net amount of P449,460.11.

WHEREFORE, the petition is DENIED. The Decision dated October 3, 2011 and the Resolution
dated October 17, 2012 of the Court of Appeals in CA-G.R. CV No. 02895 are
hereby AFFIRMED with MODIFICATION allowing petitioners-spouses Rodolfo and
MarcelinaGuevarra to repurchase the subject property from respondent The Commoner Lending
Corporation, Inc. (TCLC) within thirty (30) days from the finality of this Decision for the price
of P689,460.11, less the amount of P240,000.00 previously consigned to the court a quo, or the net
amount of P449,460.11, for which the corresponding deed of absolute conveyance shall be executed
by TCLC.

SO ORDERED. cralawla wlibrary

G.R. No. 204672, February 18, 2015, PERLAS-BERNABE,SUMMARY:On


December 16, 1996, Sps. Guevarra obtained a P320,000.00 loan from TCLC,
which was secured by a real estatemortgage over land granted to the Sps
through free patent.. The Sps. Defaulted on the loan and the property
wasforeclosed. Sps. Guevarra challenged the validity of the foreclosure
proceedings due to the purported failure ofTCLC to comply with the notice,
posting and publication requirements, and lack of authority, as a
corporation,toacquire the subject property. Sps. Guevarra also assailed the
issuance by the Sheriff of Iloilo of a Final Deed ofSale to be premature, as they
were still entitled to redeem the subject property within five (5) yearsfrom
theexpiration of the one-year period to repurchase. The RTC ruled for the Sps.
The CA affirmed. The SC affired,holding that the Sps. Still had the right to
redeem the property, having filed a case within the 5 year period.DOCTRINE:In
an extra-judicial foreclosure of registered land acquired under a free patent, the
mortgagor may redeem theproperty within two (2) years from the date of
foreclosure if the land is mortgaged to a rural bank under RepublicAct No. (RA)
720, as amended, otherwise known as the Rural Banks Act, or within one (1)
year from theregistration of the certificate of sale if the land is mortgaged to
parties other thanrural banks pursuant to Act No.3135. If the mortgagor fails to
exercise such right, he or his heirs may still repurchase the property within five
(5)years from the expiration of the aforementioned redemption period pursuant to
Section 119 of the Public Land Act.Contrary to TCLCs claim, the tender of the
repurchase price is not necessary for the preservation of the right ofrepurchase,
because the filing of a judicial action for such purpose within the five-year period
under Section 119 ofthe Public Land Actis already equivalent to a formal offer
to redeem. On this premise, consignation of theredemption price is equally
unnecessary.Nonetheless, the Court cannot subscribe to TCLCs
contention that it is entitled to its total claims underthe promissory
note and the mortgage contractin view of the settled rule that an action to
foreclose must be limitedto the amount mentioned in the mortgage.Moreover,
the Court notes that the stipulated three percent (3%) monthly interest
is excessive, iniquitous,unconscionable, and exorbitant, hence, illegaland void
for being contrary to morals

5.

6.

7.

DECISION

VELASCO, JR., J.:

This is an appeal from the January 18, 2012 Decision [1] of the Court of
Appeals in CA-G.R. SP No. 108571 entitled Philippine National Bank v.
Department of Justice, Amelio C. Tria and John Doe which affirmed the
Resolution dated December 26, 2007 issued by the Department of Justice.

The Facts

Respondent Amelio C. Tria (Tria) was a former Branch Manager of


petitioner Philippine National Bank (PNB), assigned at PNBs Metropolitan
Waterworks and Sewerage System Branch (PNB-MWSS) located within the
Metropolitan Waterworks and Sewerage System (MWSS)
Compound, Katipunan Road, Balara, Quezon City.

On September 21, 2001, MWSS opened Current Account (C/A) No.


244-850099-6 with PNB-MWSS and made an initial deposit of PhP
6,714,621.13 on October 10, 2001. The account was intended as a
depository for a loan from the Asian Development Bank (ADB) to fund
Contract No. MS-O1C.

To withdraw from the account, PNB checks must be issued and three
signatures securedone signatory each from MWSS, Maynilad Water
Services, Inc. (MWSI), and the contractor, China-Geo Engineering
Corporation (China-Geo).[2]
On April 16, 2003, C/A 244-850099-6 became dormant with a balance
of PhP 5,397,154.07.[3]

In the meantime, Tria requested a listing of the dormant accounts of


PNB-MWSS and borrowed the folders of MWSS and C/A 244-850099-6.
[4]
On one occasion, Tria also inquired about the irregularities involving
managers checks committed by the banks former branch accountant.[5]

On April 22, 2004, PNB-MWSS received a letter-request from MWSS


instructing the deduction of PhP 5,200,000 (plus charges) from C/A 244-
850099-6 and the issuance of the corresponding managers check in the same
amount payable to a certain Atty. Rodrigo A. Reyes. The letter-request was
purportedly signed and approved by the duly authorized signatories of
MWSS. Hence, C/A 244-850099-6 was re-activated in light of the letter-
request.[6]

The letter-request, supporting documents, and Managers Check


Application Form were then evaluated by the banks Sales and Service
Officer (SSO), Agnes F. Bagasani, who found the same to be in order.[7]

Edsel B. Francisco (Francisco), who was also designated to perform


the tasks of a Fund Transfer Processor (FTP), likewise verified the letter-
request and the documents from the MWSS Current Account folder of the
bank. He then effected the transaction requested by debiting C/A No. 244-
850099-6 for the purchase of a Managers Check payable to Atty. Rodrigo A.
Reyes and prepared a Batch Input Sheet listing the supporting documents for
the transaction together with the other transactions for that day.[8]
Managers Check No. 1165848 was, thus, prepared and issued in the name of
Atty. Rodrigo A. Reyes (Atty. Reyes) for the amount of PhP 5,200,000 (five
million two hundred thousand pesos).[9]

On April 26, 2004, PNB-MWSS received cash delivery from


PNBs Cash Center in the amount of PhP 8,660,000.[10] Nonetheless, at
around 11:00 a.m. of the same day, respondent Tria accompanied Atty.
Reyes in presenting Managers Check No. 1165848 to PNBs Quezon City
Circle Branch (PNB-Circle) for encashment and told PNB-Circles SSO,
George T. Flandez (Flandez), that PNB-MWSS had no available cash to pay
the amount indicated in the Managers Check. He also informed Flandez that
Atty. Reyes was a valued client of his branch and was in a hurry to leave for
a scheduled appointment.[11]
To confirm the issuance of Managers Check No. 1165848, Flandez
called PNB-MWSS and talked to its Sales and Service Head, Geraldine C.
Veniegas (Veniegas).[12]Veniegas confirmed that PNB-MWSS issued a
managers check in favor of Atty. Reyes and sent a letter-confirmation
through e-mail to PNB-Circle.[13]

While waiting for the confirmation, Flandez interviewed Atty. Reyes.


Atty. Reyes told Flandez that he was an MWSS contractor and the amount
covered by Managers Check No. 1165848 represented the proceeds of his
recent contract with MWSS. Atty. Reyes then showed his drivers license and
Integrated Bar of the Philippines identification card to Flandez and wrote the
numbers of these cards on the back of the managers check.[14]

Upon receiving confirmation from PNB-MWSS regarding the managers


check, Flandez went to the Cash Center of PNB-Circle to pick up the cash
requisition. Tria and Atty. Reyes, however, followed him with Tria telling
Flandez: Pirmahan ko na lang tong check, George. Identify ko na lang siya
kasi nagmamadali siya. Dito na lang i-receive. For security kasi nag-iisa
lang siya.[15] Tria then placed his signature on the check above the
handwritten note PAYEE IDENTIFIED AMELIO C. TRIA.[16]

In August 2004, Veniegas, the Sales and Service Head of PNB-MWSS,


observed that Tria showed sudden concern with the Minutes of the Meeting
dated August 6, 2004 even if he was no longer involved in the operations of
the bank. Tria reminded her to prepare the Minutes of the Meeting. Tria then
made revisions therein.[17] After the revised Minutes of the Meeting had been
signed by all the attendees, Tria sought to further amend the Minutes, as
follows:
9. For your information, BM Tria, per delineation of functions has
no approving authority except in the opening of current and
savings account. The BM is purely on marketing clients and
giving services to existing and new clients. Sometimes, we are
requesting his assistance like:

- represent/follow up our operational needs in the Head


Office;
- handles client complaints;
- assists in emergency cash requisitions;
- assists in accompanying valued client/clients to QC Circle
Branch for encashment of MCs merely to identify the
bearer/payee and confirmation of the MC whenever we are
short in cash;
- we usually seek some advice and strategies on handling
clients complaints and on other operational matters. [18]

On November 1, 2004, Tria retired as PNB-MWSS Manager under


PNBs regular retirement plan.[19]
On February 2, 2005, Zaida Pulida (Pulida), the MWSS employee in charge
of C/A No. 244-850099-6,[20] inquired about the accounts outstanding
balance. While she was trying to reconcile the records of MWSS and PNB,
she inquired about a debit entry dated April 22, 2004 to C/A No. 244-
850099-6 in the amount of PhP 5,200,000.

Veniegas verified that PhP 5,200,000 was indeed debited and was
encashed using Managers Check No. 1165848 in favor of Atty. Rodrigo A.
Reyes. Veniegas also attempted to retrieve the files for the transaction on
April 22, 2004 but discovered that the duplicate copy of Managers Check
No. 1165848, the managers check application form and the letter of
authority were all missing.[21]

Pulida notified Veniegas that MWSS did not apply for the issuance of the
managers check payable to Atty. Reyes. Upon verification with the
Integrated Bar of the Philippines, it was discovered that there was no
Rodrigo A. Reyes included in its membership roster. Further, upon
inspection of the PNB-MWSS microfilm copy of Managers Check No.
1165848, it was shown that the check was negotiated and encashed at the
PNB-Circle on April 26, 2004 and was annotated with ok for payment per
confirmation and approval of PNB MWSS by Tria on the dorsal portion of
the check.[22]

On February 14, 2005, MWSS wrote the new Branch Manager of PNB-
MWSS, Ofelia Daway, about the unauthorized withdrawal from their PNB
C/A No. 244-850099-6.[23]MWSS expressed surprise at the withdrawal of
PhP 5,200,030 from its account when it had not issued any PNB checks. The
MWSS letter also stated that:

Our contractor has already submitted their final billing and


we expect to withdraw the full amount deposited to the said
account within a months time. We therefore demand the refund or
restoration within five (5) days after receipt of this letter of the
amount of P5,200,030.00 to PNB Account No. 244-850099-6
representing the amount withdrawn without MWSS
authorization/instructions. Otherwise, we will use all the legal
means available to MWSS to recover the amount.

PNB conducted its own investigation and, at its conclusion, sought to hold
Tria liable for qualified theft.[24]

Employees of PNB-MWSS, Veniegas, Bagasani, and Francisco, and PNB-


Circles SSO, Flandez, executed separate complaint-affidavits to recount the
circumstances of the issuance and encashment of Managers Check No.
1165848, and accused Tria guilty of qualified theft.
Tria, via his Counter-Affidavit, contended that (1) there was no taking of
personal property; (2) there was no intent to gain on his part; (3) the personal
property does not belong to PNB even if it is the depositary bank; (4) there
was no grave abuse of confidence on his part; and (5) his alleged
identification of the payee is not the operative act that triggered the payment
of the managers check by the PNB-MWSS Branch. [25] Instead, Tria argued
that it was Flandez who approved and paid the managers check even beyond
his authority. He added that it was the other bank employees who should be
held liable for the loss.

In his Reply-Affidavit dated February 20, 2006, Flandez contradicted Trias


claim that Tria left PNB-Circle immediately after signing Managers Check
No. 1165848. According to Flandez, Tria helped Atty. Reyes count the PhP
5,200,000 by the bundle and even asked the banks security guard for a
plastic bag for the cash.[26]

Following a preliminary investigation, the Assistant City Prosecutor issued a


Resolution[27] on August 15, 2006 stating that Trias identification of the
payee did not consummate the payment of the Managers Check. Rather, it
was held, the consummation of the payment occurred during Flandez
approval of the encashment. The Resolutions dispositive portion reads:

WHEREFORE, in view of the foregoing, Undersigned


respectfully recommends the approval of the above and the
dismissal of the charge for Qualified Theft against respondent
Amelio C. Tria due to lack of evidence and probable cause.

PNB moved for reconsideration but was denied in a


Resolution[28] dated April 13, 2007.

Undaunted, PNB filed a petition for review with the Department of Justice
(DOJ) and prayed for the reversal of the August 15, 2006 and April 13, 2007
Resolutions issued by the Office of the City Prosecutor of Quezon City
(OCP).

On December 26, 2007, then Justice Secretary Raul M. Gonzales issued a


Resolution dismissing PNBs petition for review. PNBs motion for
reconsideration was denied in a Resolution dated February 27, 2009.

PNB sought recourse before the Court of Appeals (CA). It alleged that both
the OCP and the DOJ committed grave abuse of discretion in failing to
consider that Tria and Atty. Reyes/John Doe conspired in committing the
crime of qualified theft; and the DOJ committed grave abuse of discretion in
failing to consider the existence of probable cause in the instant case and
affirming the OCPs findings that there is no probable cause to hold Tria and
Atty. Reyes/John Doe for trial in the crime of qualified theft.

The Ruling of the CA

On January 18, 2010, the CA decided in favor of Tria. In affirming the DOJ
Resolution issued by Secretary Gonzales, the CA took notice of how
Managers Check No. 1165848 was issued and paid by PNB after the
verification made by PNBs own employees.

The CA ruled that probable cause against Tria and Atty. Reyes was not
established since the employees of PNB made the encashment after their
own independent verification of C/A No. 244-850099-6. Further, the CA
deferred to the DOJs determination of probable cause for the filing of an
information in court as it is an executive function and ruled that the
resolutions were not reversible as PNB was unable to show that these
resolutions of the DOJ were tainted with grave abuse of discretion. The CA,
thus, affirmed the OCPs finding that Trias identification of the payee did not
by itself bring about the payment of the subject managers check and
concluded that the element of taking of personal property belonging to
another without the owners consent is lacking since PNB consented to the
taking by Atty. Reyes.

The dispositive portion of the CA Decision reads:

WHEREFORE, the petition is DISMISSED. The assailed


Resolutions dated December 26, 2007 and February 29, 2009,
issued by Justice Secretary Raul M. Gonzales in I.S. No. 05-
10093. are AFFIRMED.

SO ORDERED.

PNB, thus, questions the Decision of the CA by the instant appeal.

The Ruling of this Court

We find petitioners appeal meritorious.


According to the CA, it was the approval of the request for the issuance and
for the encashment of the managers check by the employees of PNB that
resulted in the withdrawal of the amount encashed by Atty. Reyes/John
Doe. Hence, according to the appellate court, the OCP was correct in not
pursuing the criminal case against Tria.

Clearly, the CA in the instant case erroneously overlooked vital factual


circumstances that call for a reversal of its ruling.

While discretionary authority to determine probable cause in a


preliminary investigation to ascertain sufficient ground for the filing of an
information rests with the executive branch,[29] such authority is far from
absolute. It may be subject to review when it has been clearly used with
grave abuse of discretion.[30] And indeed, grave abuse of discretion attended
the decision to drop the charges against Tria as there was more than
probable cause to proceed against him for qualified theft.

It must be emphasized at the outset that what is necessary for the filing of a
criminal information is not proof beyond reasonable doubt that the person
accused is guilty of the acts imputed on him, but only that there is probable
cause to believe that he is guilty of the crime charged.

Probable cause, for purposes of filing a criminal information, are such


facts as are sufficient to engender a well-founded belief that a crime has
been committed and that the accused is probably guilty thereof.[31] It is the
existence of such facts and circumstances as would excite the belief in a
reasonable mind, acting on the facts within the knowledge of the prosecutor,
that the person charged was guilty of the crime for which he is to be
prosecuted. [32] A finding of probable cause needs only to rest on evidence
showing that, more likely than not, a crime has been committed and that it
was committed by the accused.[33]

The acts of Tria and the relevant circumstances that led to the
encashment of the check provide more than sufficient basis for the finding of
probable cause to file an information against him and John Doe/Atty. Reyes
for qualified theft. In fact, it is easy to infer from the factual milieu of the
instant case the existence of all the elements necessary for the prosecution of
the crime of qualified theft.

As defined, theft is committed by any person who, with intent to gain,


but without violence against, or intimidation of persons nor force upon
things, shall take the personal property of another without the latters
consent.[34] If committed with grave abuse of confidence, the crime of theft
becomes qualified.[35] In prcis, qualified theft punishable under Article 310 in
relation to Articles 308 and 309 of the Revised Penal Code (RPC)
is committed when the following elements are present:

1. Taking of personal property;


2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owners consent;
5. That it be accomplished without the use of violence or
intimidation against persons, nor of force upon things; and
6. That it be done with grave abuse of confidence.

In the instant case, the first and second elements are unquestionably
present. The money involved is the personal property of Trias employer,
PNB. Trias argument that the amount does not belong to PNB even if it is
the depositary bank is erroneous since it is well established that a bank
acquires ownership of the money deposited by its clients.[36]

The third element, intent to gain or animus lucrandi, is an internal act that is
presumed from the unlawful taking by the offender of the thing subject of
asportation.[37] This element is immediately discernable from the
circumstances narrated in the affidavits submitted by PNBs employees. In
particular, it is plain from Trias misrepresentation that the person he called
Atty. Reyes was a valued client of PNB-MWSS who was authorized to
encash the managers check and his act of revising his functions as stated in
the Minutes of the Meeting referred to by Veniegas to make it appear that he
had been tasked with accompanying valued client/clients to QC Circle
Branch for encashment of MCs merely to identify the bearer/payee and
confirmation of the MC whenever we are short in cash.

The fifth element is undisputed, while the last element, that the taking be
done with grave abuse of confidence, is sufficiently shown by the affidavits
of PNB and Trias own admission of the position he held at the Bank.
A banks employees are entrusted with the possession of money of the bank
due to the confidence reposed in them and as such they occupy positions of
confidence.[38]

It is the existence of the fourth elementthe taking be done without the


owners consentthat is the crux of contention. While the appellate court,
together with the DOJ and OCP, maintains the negative and equates the
cumulative acts of the other PNB employees as the consent of PNB in the
issuance and encashment of the managers check, this Court cannot find itself
to sustain such opinion.

On the contrary, the facts portray the stark absence of consent on the
part of PNB for the issuance of managers check payable to Atty. Rodrigo A.
Reyes and its felonious encashment by John Doe/Atty. Reyes in complicity
with Tria.

Tria, it must be reiterated, was PNBs bank manager for its MWSS
branch. The check in question was a managers check. A managers check
is one drawn by a banks manager, Tria in this case, upon the bank itself.
We have held that it stands on the same footing as a certified check, which is
deemed to have been accepted by the bank that certified it, as it is an order
of the bank to pay, drawn upon itself, committing in effect its total resources,
integrity and honor behind its issuance. By its peculiar character and general
use in commerce, a managers check is regarded substantially to be as
good as the money it represents.[39] In fact, it is obvious from the PNB
affidavits that the MWSS C/A was deducted upon the issuance of the
managers check and not upon its encashment. Indeed, as the banks own
check, a managers check becomes the primary obligation of the bank and is
accepted in advance by the act of its issuance.[40]

Taking this fact into consideration, it cannot be denied that the wheels
of the felony started turning days before the misrepresentations made by Tria
at PNB-Circle. And the encashment was a mere culmination of the crime
that was commenced in PNB-MWSS.

The felony of qualified theft started with the use of the now missing
falsified letter-request and supporting documents for the issuance of the
managers check and the re-activation of the MWSS C/A. It was the
pretense of an authority from MWSS that deprived PNB the liberty to
either withhold or freely give its consent for the valid reactivation of the
account and issuance of the check. Quoting from Black v. State,[41] this
Court held in Gaviola v. People[42] that such pretense does not validate a
taking:

In all cases where one in good faith takes anothers property under
claim of title in himself, he is exempt from the charge of larceny,
however puerile or mistaken the claim may in fact be. And the
same is true where the taking is on behalf of another, believed to
be the true owner. Still, if the claim is dishonest, a mere pretense,
it will not protect the taker.
In more conventional words, this Court sustained the finding of
qualified theft in People v. Salonga,[43] where the taking was done through
the issuance of a check by the very person responsible for, and in custody of,
the said check, viz:

The crime charged is Qualified Theft through Falsification of


Commercial Document. The information alleged that the accused
took P36,480.30 with grave abuse of confidence by forging the
signature of officers authorized to sign the subject check and had
the check deposited in the account of Firebrake Sales and
Services, a fictitious payee without any legitimate transaction with
Metrobank. Theft is qualified if it is committed with grave abuse
of confidence. The fact that accused-appellant as assistant cashier
of Metrobank had custody of the aforesaid checks and had
access not only in the preparation but also in the release of
Metrobank cashiers checks suffices to designate the crime as
qualified theft as he gravely abused the confidence reposed in him
by the bank as assistant cashier. x x x (Emphasis supplied.)

Similar to the bank involved in Salonga, PNB was deprived of the


discretion to withhold its consent since, as the circumstances establish, the
very person responsible for the custody and the issuance of the check is the
one guilty for its felonious issuance and encashment, its former branch
manager Tria.

Indeed, the pretense made in PNB-MWSS that led to the issuance of


the Managers Check cannot be imputed on anyone other than Tria. His role
as the branch manager of PNB-MWSS who had the responsibility over the
functions of the employees of PNB-MWSS cannot be overlooked. As branch
manager, Tria signs managers checks. He serves as the last safeguard against
any pretense resorted to for an illicit claim over the banks money. The acts
of the other bank officials in the MWSS branch in processing the managers
checks pass through the supervision and approval of Tria. Thus, the
processing and approval of the check are the responsibility of Tria.

As such, Tria is duty-bound to verify from the banks client any


supposed authority given for the issuance of a managers check. He was,
therefore, duty-bound to confirm with MWSS whether the letter-
authorization for the deduction of P5.2 million from the MWSS C/A is
genuine, legal and binding. Tria is required to exercise the highest degree of
care since the degree of diligence required of banks is more than that of a
good father of a family where the fiduciary nature of their relationship with
their depositors is concerned.[44] This degree of diligence was wanting in
Trias failure to determine the veracity of said letter-authority considering
that the amount to be deducted is large, with the withdrawal of almost the
entire amount of the deposit leaving only less than PhP 200, more so when
the account has been dormant since April 16, 2003.

As standard banking practice intended precisely to prevent


unauthorized and fraudulent withdrawals, a bank manager verifies with the
client-depositor to authenticate and confirm that he/she has validly
authorized such withdrawal. Such failure of Tria as bank manager to verify
the legitimacy of the requested withdrawal lends credence to the accusation
that he colluded with Atty. Reyes to feloniously take money from PNB, and
his complicity includes depriving the bank of its opportunity to deny and
withhold the consent for the necessary issuance of Managers Check No.
1165848. It cannot, therefore, be gainsaid that PNB did not consent to the
issuance of the check and its eventual encashmentwhich both constitute
the taking of personal propertyas respondents had made sure that the
bank was rendered inutile and incapable to give its consent. The fourth
element of the crime clearly exists.

Furthermore, a branch manager normally stays at his branch to


perform his functions and duties in such position in said branch except on
official business as prescribed by the bank. Certainly, it is not one of the
duties of a branch manager to leave his office and personally accompany a
payee of a managers check it issued to another branch to encash said
check. It is, therefore, unusual and highly suspicious for Tria to leave his
office located in Balara, Diliman, Quezon City and travel to Quezon
Avenue where the PNB-Circle is located to identify a fictitious payee and
ensure the encashment of the check.

Tria could just have waited for a call from the branch manager of the
PNB Quezon City Circle Branch to verify the authenticity of said
check. Such extra effort and unexplained gesture on the part of Tria to
provide assistance to Atty. Reyes, a fake lawyer, to ensure the encashment of
the check leaves one to believe that he is in cahoots with the impostor.

What is more, it is curious that Tria accompanied John Doe/Atty.


Reyes to encash the managers check in another branch under the pretext that
his own branch is short of cash when in fact more than PhP 8 million has just
been delivered to PNB-MWSS. Such misrepresentation can only be
considered as an attempt to cover the crime and pass the blame to other PNB
employees, as in fact the CA ruled that Flandez is to blame. This attempt is
further reinforced by the curious case of the missing fictitious letter-request
and its supporting documents, which were last seen in the vault of PNB-
MWSS which can be accessed by Tria. Furthermore, the allegation of
Veniegas that Tria unilaterally and secretly revised the banks Minutes of the
Meeting to reflect that he had no approval authority beyond opening
accounts but was specifically requested by the bank to assist valued clients
in encashing checks at the Quezon City Circle Branch shows an ingenious
ploy by Tria to cover his tracks upon the eventual discovery of the theft and
is in contravention of the General Banking Law of 2000.[45]

Nonetheless, nothing is more damning than the fact that Tria vouched
for the identity of John Doe/Atty. Reyes, even claimed that Atty. Reyes is a
valued client of PNB-MWSS, affixed his signature at the back portion of the
check to guarantee that Atty. Reyes is the true and legal payee, and
ultimately guaranteed that the Managers check is legally effective and valid
and everything is aboveboard. PNB-Circle could have verified from MWSS
if the deduction is authorized especially considering that the money will be
deducted from an account of a government corporation. The identification
by Tria of Atty. Reyes as payee precluded and preempted the bank officials
from verifying the transaction from MWSS. Thus, the identification made by
Tria impliedly warranted to the PNB-Circle that said Managers check was
validly issued with the consent of PNB, and that the encashment is legal and
warranted.

It must also be noted that Tria likewise made representations to the


PNB-Circle that the Managers check is legal and valid as evidenced by the
annotation at the dorsal portion of the check ok for payment per
confirmation and approval of PNB MWSS. The act of Tria in confirming
and approving the encashment of the check by Reyes is the pretense of
the consent given to him by PNB to authorize the issuance of the
managers check that resulted in the taking of PhP 5.2 million from
PNB. Tria must, therefore, be prosecuted and tried before the courts of
justice.

While it is truly imperative to relieve a person from the pain of going


through the rigors of trial, it is more imperative to proceed with the
prosecution of a criminal case to ensure that the truth is revealed and justice
served when there is a prima facie case against him.[46]

WHEREFORE, the petition is GRANTED. The Decision of the


Court of Appeals in CA-G.R. SP No. 108571 is REVERSED and SET
ASIDE. The Office of the City Prosecutor of Quezon City is ORDERED to
file an Information charging Amelio C. Tria and Atty. Reyes/John Doe for
Qualified Theft.

SO ORDERED.

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