G.R. No.

L-60033 April 4, 1984

TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS,

petitioners,
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL
FELIZARDO N. LOTA and CLEMENT DAVID, respondents.

MAKASIAR, Actg. This is a petition for prohibition and injunction with a prayer for the
immediate issuance of restraining order and/or writ of preliminary injunction filed by
petitioners on March 26, 1982.

On March 31, 1982, by virtue of a court resolution issued by this Court on the same
date, a temporary restraining order was duly issued ordering the respondents, their
officers, agents, representatives and/or person or persons acting upon their
(respondents') orders or in their place or stead to refrain from proceeding with the
preliminary investigation in Case No. 8131938 of the Office of the City Fiscal of Manila
(pp. 47-48, rec.). On January 24, 1983, private respondent Clement David filed a motion
to lift restraining order which was denied in the resolution of this Court dated May 18,
1983.

As can be gleaned from the above, the instant petition seeks to prohibit public
respondents from proceeding with the preliminary investigation of I.S. No. 81-31938, in
which petitioners were charged by private respondent Clement David, with estafa and
violation of Central Bank Circular No. 364 and related regulations regarding foreign
exchange transactions principally, on the ground of lack of jurisdiction in that the
allegations of the charged, as well as the testimony of private respondent's principal
witness and the evidence through said witness, showed that petitioners' obligation is
civil in nature.

For purposes of brevity, We hereby adopt the antecedent facts narrated by the Solicitor
General in its Comment dated June 28,1982, as follows:têñ.£îhqwâ£

On December 23,1981, private respondent David filed I.S. No. 81-31938 in the Office of
the City Fiscal of Manila, which case was assigned to respondent Lota for preliminary
investigation (Petition, p. 8).

In I.S. No. 81-31938, David charged petitioners (together with one Robert Marshall and
the following directors of the Nation Savings and Loan Association, Inc., namely Homero
Gonzales, Juan Merino, Flavio Macasaet, Victor Gomez, Jr., Perfecto Manalac, Jaime V.
Paz, Paulino B. Dionisio, and one John Doe) with estafa and violation of Central Bank
Circular No. 364 and related Central Bank regulations on foreign exchange transactions,
allegedly committed as follows (Petition, Annex "A"):têñ.£îhqwâ£

"From March 20, 1979 to March, 1981, David invested with the Nation
Savings and Loan Association, (hereinafter called NSLA) the sum of
P1,145,546.20 on nine deposits, P13,531.94 on savings account
deposits (jointly with his sister, Denise Kuhne), US$10,000.00 on time
deposit, US$15,000.00 under a receipt and guarantee of payment and
US$50,000.00 under a receipt dated June 8, 1980 (au jointly with Denise
Kuhne), that David was induced into making the aforestated investments
by Robert Marshall an Australian national who was allegedly a close
 associate of petitioner Guingona Jr., then NSLA President, petitioner
Martin, then NSLA Executive Vice-President of NSLA and petitioner
Santos, then NSLA General Manager; that on March 21, 1981 N LA was
placed under receivership by the Central Bank, so that David filed claims
therewith for his investments and those of his sister; that on July 22,
1981 David received a report from the Central Bank that only
P305,821.92 of those investments were entered in the records of NSLA;
that, therefore, the respondents in I.S. No. 81-31938 misappropriated the
balance of the investments, at the same time violating Central Bank
Circular No. 364 and related Central Bank regulations on foreign
exchange transactions; that after demands, petitioner Guingona Jr. paid
only P200,000.00, thereby reducing the amounts misappropriated to
P959,078.14 and US$75,000.00."

Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B') in which
they stated the following.têñ.£îhqwâ£

"That Martin became President of NSLA in March 1978 (after the

resignation of Guingona, Jr.) and served as such until October 30, 1980,
while Santos was General Manager up to November 1980; that because
NSLA was urgently in need of funds and at David's insistence, his
investments were treated as special- accounts with interest above the
legal rate, an recorded in separate confidential documents only a portion
of which were to be reported because he did not want the Australian
government to tax his total earnings (nor) to know his total investments;
that all transactions with David were recorded except the sum of
US$15,000.00 which was a personal loan of Santos; that David's check
for US$50,000.00 was cleared through Guingona, Jr.'s dollar account
because NSLA did not have one, that a draft of US$30,000.00 was
placed in the name of one Paz Roces because of a pending transaction
with her; that the Philippine Deposit Insurance Corporation had already
reimbursed David within the legal limits; that majority of the stockholders
of NSLA had filed Special Proceedings No. 82-1695 in the Court of First
Instance to contest its (NSLA's) closure; that after NSLA was placed
under receivership, Martin executed a promissory note in David's favor
and caused the transfer to him of a nine and on behalf (9 1/2) carat
diamond ring with a net value of P510,000.00; and, that the liabilities of
NSLA to David were civil in nature."

Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex' C') stated the
following:têñ.£îhqwâ£

"That he had no hand whatsoever in the transactions between David and

NSLA since he (Guingona Jr.) had resigned as NSLA president in March
1978, or prior to those transactions; that he assumed a portion o; the
liabilities of NSLA to David because of the latter's insistence that he
placed his investments with NSLA because of his faith in Guingona, Jr.;
that in a Promissory Note dated June 17, 1981 (Petition, Annex "D") he
(Guingona, Jr.) bound himself to pay David the sums of P668.307.01 and
US$37,500.00 in stated installments; that he (Guingona, Jr.) secured
payment of those amounts with second mortgages over two (2) parcels
of land under a deed of Second Real Estate Mortgage (Petition, Annex
"E") in which it was provided that the mortgage over one (1) parcel shall
be cancelled upon payment of one-half of the obligation to David; that he
(Guingona, Jr.) paid P200,000.00 and tendered another P300,000.00
which David refused to accept, hence, he (Guingona, Jr.) filed Civil Case
No. Q-33865 in the Court of First Instance of Rizal at Quezon City, to
effect the release of the mortgage over one (1) of the two parcels of land
conveyed to David under second mortgages."
 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:têñ.£îhqwâ£

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:têñ.£îhqwâ£

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:têñ.£îhqwâ£

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:têñ.£îhqwâ£

 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.têñ.
£îhqwâ£

"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:têñ.£îhqwâ£

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:têñ.£îhqwâ£

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 had to be cleared first and converted into Philippine
currency. Accordingly, the bank draft was endorsed by respondent David to petitioner
Guingona, who in turn deposited it to his dollar account with the Security Bank and
Trust Company. Petitioner Guingona merely accommodated the request of the Nation
Savings and loan Association in order to clear the bank draft through his dollar account
because the bank did not have a dollar account. Immediately after the bank draft was
cleared, petitioner Guingona authorized Nation Savings and Loan Association to
withdraw the same in order to be utilized by the bank for its operations.

2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos
before they were accepted and deposited in Nation Savings and Loan Association,
because the bank is presumed to have followed the ordinary course of the business
which is to accept deposits in Philippine currency only, and that the transaction was
regular and fair, in the absence of a clear and convincing evidence to the contrary (see
paragraphs p and q, Sec. 5, Rule 131, Rules of Court).

3. Respondent David has not denied the aforesaid contention of herein petitioners
despite the fact that it was raised. in petitioners' reply filed on May 7, 1982 to private
respondent's comment and in the July 27, 1982 reply to public respondents' comment
and reiterated in petitioners' memorandum filed on October 30, 1982, thereby adding
more support to the conclusion that the US$75,000.00 were really converted into
Philippine currency before they were accepted and deposited into Nation Savings and
Loan Association. Considering that this might adversely affect his case, respondent
David should have promptly denied petitioners' allegation.

In conclusion, considering that the liability of the petitioners is purely civil in nature and
that there is no clear showing that they engaged in foreign exchange transactions, We
hold that the public respondents acted without jurisdiction when they investigated the
charges against the petitioners. Consequently, public respondents should be restrained
from further proceeding with the criminal case for to allow the case to continue, even if
the petitioners could have appealed to the Ministry of Justice, would work great injustice
to petitioners and would render meaningless the proper administration of justice.

While as a rule, the prosecution in a criminal offense cannot be the subject of prohibition
and injunction, this court has recognized the resort to the extraordinary writs of
prohibition and injunction in extreme cases, thus:têñ.£îhqwâ£

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:têñ.£îhqwâ£

"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:têñ.£îhqwâ£
 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.1äwphï1.ñët
G.R. No. L-30511 February 14, 1980

MANUEL M. SERRANO, petitioner,

vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO
M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS
DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS
LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO
TANJUATCO, respondents.

Rene Diokno for petitioner.

F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.

Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent

Overseas Bank of Manila.

Josefina G. Salonga for all other respondents.

CONCEPCION, JR., J.:

Petition for mandamus and prohibition, with preliminary injunction, that seeks the
establishment of joint and solidary liability to the amount of Three Hundred Fifty
Thousand Pesos, with interest, against respondent Central Bank of the Philippines and
Overseas Bank of Manila and its stockholders, on the alleged failure of the Overseas
Bank of Manila to return the time deposits made by petitioner and assigned to him, on
the ground that respondent Central Bank failed in its duty to exercise strict supervision
over respondent Overseas Bank of Manila to protect depositors and the general public. 1
Petitioner also prays that both respondent banks be ordered to execute the proper and
necessary documents to constitute all properties fisted in Annex "7" of the Answer of
respondent Central Bank of the Philippines in G.R. No. L-29352, entitled "Emerita M.
Ramos, et al vs. Central Bank of the Philippines," into a trust fund in favor of petitioner
and all other depositors of respondent Overseas Bank of Manila. It is also prayed that
the respondents be prohibited permanently from honoring, implementing, or doing any
act predicated upon the validity or efficacy of the deeds of mortgage, assignment.
and/or conveyance or transfer of whatever nature of the properties listed in Annex "7" of
the Answer of respondent Central Bank in G.R. No. 29352. 2

A sought for ex-parte preliminary injunction against both respondent banks was not
given by this Court.

Undisputed pertinent facts are:

On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one
year with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the
respondent Overseas Bank of Manila. 3 Concepcion Maneja also made a time deposit,
for one year with 6-½% interest, on March 6, 1967, of Two Hundred Thousand Pesos
(P200,000.00) with the same respondent Overseas Bank of Manila. 4

On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned

and conveyed to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with
respondent Overseas Bank of Manila. 5

Notwithstanding series of demands for encashment of the aforementioned time deposits

from the respondent Overseas Bank of Manila, dating from December 6, 1967 up to
March 4, 1968, not a single one of the time deposit certificates was honored by
respondent Overseas Bank of Manila. 6

Respondent Central Bank admits that it is charged with the duty of administering the
banking system of the Republic and it exercises supervision over all doing business in
the Philippines, but denies the petitioner's allegation that the Central Bank has the duty
to exercise a most rigid and stringent supervision of banks, implying that respondent
Central Bank has to watch every move or activity of all banks, including respondent
Overseas Bank of Manila. Respondent Central Bank claims that as of March 12, 1965,
the Overseas Bank of Manila, while operating, was only on a limited degree of banking
operations since the Monetary Board decided in its Resolution No. 322, dated March
12, 1965, to prohibit the Overseas Bank of Manila from making new loans and
investments in view of its chronic reserve deficiencies against its deposit liabilities. This
limited operation of respondent Overseas Bank of Manila continued up to 1968. 7

Respondent Central Bank also denied that it is guarantor of the permanent solvency of
any banking institution as claimed by petitioner. It claims that neither the law nor sound
banking supervision requires respondent Central Bank to advertise or represent to the
public any remedial measures it may impose upon chronic delinquent banks as such
action may inevitably result to panic or bank "runs". In the years 1966-1967, there were
no findings to declare the respondent Overseas Bank of Manila as insolvent. 8

Respondent Central Bank likewise denied that a constructive trust was created in favor
of petitioner and his predecessor in interest Concepcion Maneja when their time
deposits were made in 1966 and 1967 with the respondent Overseas Bank of Manila as
during that time the latter was not an insolvent bank and its operation as a banking
institution was being salvaged by the respondent Central Bank. 9

Respondent Central Bank avers no knowledge of petitioner's claim that the properties
given by respondent Overseas Bank of Manila as additional collaterals to respondent
Central Bank of the Philippines for the former's overdrafts and emergency loans were
acquired through the use of depositors' money, including that of the petitioner and
Concepcion Maneja. 10

In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the
Philippines," a case was filed by the petitioner Ramos, wherein respondent Overseas
Bank of Manila sought to prevent respondent Central Bank from closing, declaring the
former insolvent, and liquidating its assets. Petitioner Manuel Serrano in this case, filed
on September 6, 1968, a motion to intervene in G.R. No. L-29352, on the ground that
Serrano had a real and legal interest as depositor of the Overseas Bank of Manila in the
matter in litigation in that case. Respondent Central Bank in G.R. No. L-29352 opposed
petitioner Manuel Serrano's motion to intervene in that case, on the ground that his
claim as depositor of the Overseas Bank of Manila should properly be ventilated in the
Court of First Instance, and if this Court were to allow Serrano to intervene as depositor
in G.R. No. L-29352, thousands of other depositors would follow and thus cause an
avalanche of cases in this Court. In the resolution dated October 4, 1968, this Court
denied Serrano's, motion to intervene. The contents of said motion to intervene are
substantially the same as those of the present petition. 11

This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became
final and executory on March 3, 1972, favorable to the respondent Overseas Bank of
Manila, with the dispositive portion to wit:

WHEREFORE, the writs prayed for in the petition are hereby granted and respondent
Central Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of
Manila to participate in clearing, direct the suspension of its operation, and ordering the
liquidation of said bank) are hereby annulled and set aside; and said respondent Central
Bank of the Philippines is directed to comply with its obligations under the Voting Trust
Agreement, and to desist from taking action in violation therefor. Costs against
respondent Central Bank of the Philippines. 12

Because of the above decision, petitioner in this case filed a motion for judgment in this
case, praying for a decision on the merits, adjudging respondent Central Bank jointly
and severally liable with respondent Overseas Bank of Manila to the petitioner for the
P350,000 time deposit made with the latter bank, with all interests due therein; and
declaring all assets assigned or mortgaged by the respondents Overseas Bank of
Manila and the Ramos groups in favor of the Central Bank as trust funds for the benefit
of petitioner and other depositors. 13

By the very nature of the claims and causes of action against respondents, they in
reality are recovery of time deposits plus interest from respondent Overseas Bank of
Manila, and recovery of damages against respondent Central Bank for its alleged failure
to strictly supervise the acts of the other respondent Bank and protect the interests of its
depositors by virtue of the constructive trust created when respondent Central Bank
required the other respondent to increase its collaterals for its overdrafts said
emergency loans, said collaterals allegedly acquired through the use of depositors
money. These claims shoud be ventilated in the Court of First Instance of proper
jurisdiction as We already pointed out when this Court denied petitioner's motion to
intervene in G.R. No. L-29352. Claims of these nature are not proper in actions for
mandamus and prohibition as there is no shown clear abuse of discretion by the Central
Bank in its exercise of supervision over the other respondent Overseas Bank of Manila,
and if there was, petitioner here is not the proper party to raise that question, but rather
the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there anything to
prohibit in this case, since the questioned acts of the respondent Central Bank (the acts
of dissolving and liquidating the Overseas Bank of Manila), which petitioner here intends
to use as his basis for claims of damages against respondent Central Bank, had been
accomplished a long time ago.

Furthermore, both parties overlooked one fundamental principle in the nature of bank
deposits when the petitioner claimed that there should be created a constructive trust in
his favor when the respondent Overseas Bank of Manila increased its collaterals in
favor of respondent Central Bank for the former's overdrafts and emergency loans,
since these collaterals were acquired by the use of depositors' money.

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. 14 Current and savings
deposit are loans to a bank because it can use the same. The petitioner here in making
time deposits that earn interests with 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 he respondent Bank to honor the time deposit is
failure to pay s obligation as a debtor and not a breach of trust arising from depositary's
failure to return the subject matter of the deposit

WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.

SO ORDERED.
G.R. No. 106671 March 30, 2000

HARRY TANZO, petitioner,

vs.
HON. FRANKLIN M. DRILON, in his capacity as Secretary of Justice, MANUEL J.
SALAZAR and MARIO J. SALAZAR, respondents.

DE LEON, JR., J.:

Before us is a special civil action for certiorari under Rule 65 of the Rules of Court
seeking to annul and set aside the April 10, 1992 Resolution of public respondent
Secretary of Justice, as well as the latter's August 6, 1992 Resolution denying the
petitioner's motion for reconsideration. The assailed Resolutions upheld the Quezon
City Prosecutor's dismissal of the criminal complaint for estafa filed by petitioner Harry
Tanzo against private respondents Manuel and Mario Salazar.

The facts are:

Private respondents are brothers who were engaged in the business of forwarding and
transporting "balikbayan" boxes from California, U.S.A to Metro Manila, Philippines.
Manuel J. Salazar (hereinafter "Manuel") managed the Philippine side via MANSAL
Forwarders, a business registered in his name with principal office at No. 48 Scout
Tobias Street, Quezon City. On the other hand, Mario J. Salazar (hereinafter "Mario")
handled the U.S. side of the forwarding business as General Manager of M.J.S.
International, Inc., a corporation with principal office at No. 3400 Fletcher Drive, Los
Angeles, California, U.S.A.

According to the petitioner, sometime in February of 1989, while he was in Los Angeles,
California, U.S.A. Mario tried to convince him to invest some money in the said
business. Mario had allegedly represented that petitioner's money will be held in trust
and administered by both him and his brother for the exclusive use of their forwarding
and transporting business. Petitioner further alleged that Mario promised him a return
on his investment equivalent to ten per centum (10%) for one month, at the end of
which, his money plus interest earned shall be returned to him.

When petitioner returned to the Philippines, it was Manuel's turn to persuade him to part
with his money under the said investment scheme. Eventually convinced by the private
respondents' representations and assurances, petitioner agreed to invest the total
amount of US $34,000.00 which he entrusted to his aunt, Liwayway Dee Tanzo, who
was residing in the U.S.A. Thus, petitioner issued several personal checks made out to
Liwayway Dee Tanzo, 1 or to "Calfed" 2, or payable to cash 3, to wit:

California Federal

Savings and Loan Asso. Date of Check Amount

Check Numbers ——————— ————

———————
 319 August 04, 1989 US$5,000.00

320 August 09, 1989 9,000.00

321 August 09, 1989 9,000.00

322 August 08, 1989 2,000.00

323 August 10, 1989 4,000.00

324 August 14, 1989 5,000.00

Except for California Federal Check No. 322 which was encashed by Mario
himself, private respondents received the proceeds of the above checks through
Liwayway Dee Tanzo on several occasions in August 1989.

Meanwhile, Mario encountered serious liquidity problems 5 that prompted him to petition
the U.S. Bankruptcy Court for a release from his debts on September 27, 1990. He was
ordered "released from all dischargeable debts" by the said court on January 25, 1991. 6

Upon the expiration of the thirty (30) day investment period, petitioner demanded from
Mario in the States and Manuel in Quezon City proper accounting of his financial
investment and/or the return of his capital plus interest earned. At the outset, private
respondents avoided their obligation to petitioner by making various excuses but after
persistent demands by the latter, Manuel finally admitted that their shipments had
encountered some problems with the Bureau of Customs. Thus, on January 29, 1990,
Manuel executed a letter authorizing the petitioner to withdraw documents to assist in
the release of their shipments from the Bureau of Customs. However, when petitioner
attempted to secure the release of the "balikbayan'" boxes from the Bureau of Customs,
he discovered that the same had actually contained smuggled goods and were
accordingly seized and forfeited in favor of the government.

When private respondents continued to ignore petitioner's demand for the return of his
money, the latter filed, on June 31, 1991, a complaint-affidavit for estafa against private
respondents before the Office of the Quezon City Prosecutor (hereinafter "prosecutor").
In a resolution dated September 4, 1991 the prosecutor dismissed the said complaint on
the ground that "[t]he Quezon City Prosecutor's Office has no territorial jurisdiction over
the offense charged as it was committed not in Quezon City, Philippines." 7 Petitioner's
motion for reconsideration of the said resolution was denied by the prosecutor on the
same ground. 8

Petitioner then filed a petition for review of the dismissal of his complaint for estafa
against private respondents with then Secretary of Justice, Franklin M. Drilon. On April
10, 1992, Acting Secretary of Justice, Eduardo G. Montenegro dismissed the said
petition for review in a resolution which reads:

xxx xxx xxx

An evaluation of the records of the case disclosed that the incident complained of took
place in the United States, and under Article 2 of the Revised Penal Code, our courts
have no jurisdiction over offenses committed outside the territory of the Philippines. While
 the rule allows certain exceptions, the facts do not show that the case falls within any of
said exceptions. Hence, we are convinced, and hereby hold, that there is no cogent
reason to disturb the findings of the Quezon City Prosecutor's Office in the questioned
resolution.

ACCORDINGLY, your petition is dismissed for lack of merit. 3

Dissatisfied, petitioner sought a reconsideration of the above resolution. However, the

Secretary of Justice denied petitioner's motion for reconsideration and stated in a
resolution dated August 6, 1992 that:

xxx xxx xxx

After a careful analysis of the issues raised in your motion and a re-evaluation of the
evidence on record, we find no valid reason to justify a reversal of our previous
resolution.

Aside from your bare allegations that there was a trust agreement between you and the
respondents, and that deceit and misappropriation which are the important elements of
estafa were committed by them in the Philippines, you did not present any concrete or
convincing evidence to support the same. On the contrary, your own evidence shows that
you transacted with Mario Salazar through your aunt. Liwayway Dee Tanzo. This bolsters
the claim of Manuel Salazar that the sums of money received by Mario from Liwayway in
Los Angeles, California, U.S.A, were simple loans as shown by the loan contracts
executed by them in the said place.

WHEREFORE, your motion for reconsideration is hereby denied. 10

Hence, this petition.

Petitioner contends that the Secretary of Justice committed grave abuse of discretion in
dismissing the criminal case for estafa against the private respondents on the ground of
lack of jurisdiction as the crime charged was actually committed in the United States. 11

At the outset, we must point out that the Secretary of Justice dismissed the criminal
charges against the respondents not only for lack of jurisdiction but also, and more
importantly, because it found petitioner's evidence insufficient to support his charge of
estafa against the private respondents. Thus the immediate issue for the determination
of this Court is whether prima facie evidence exists that the private respondents had
committed the crime of estafa and should be held for trial. After all, a finding that
petitioner's complaint for estafa is not supported by that quantum of evidence necessary
to justify the filing of a criminal case in court shall render irrelevant the question of
territorial jurisdiction over the offense charged.

A judicious scrutiny of the evidence on record leads us to agree with the Secretary of
Justice that the transactions between private respondents, particularly, Mario and the
petitioner, were simple loans, and did not constitute a trust agreement, the violation of
which would hold the private respondents liable for estafa.

Petitioner failed to present evidence other than his bare assertion that he had invested
money in private respondents' business on the basis of a trust agreement. The
photocopies of the checks allegedly subject of the trust agreement did more damage
than good to petitioner's proposition. None of these checks were issued to either Mario
or Manuel and were in fact payable to "Liwayway Dee Tanzo", "Calfed" or "Cash".
Moreover, only one of these checks was actually encashed by Mario, the rest by
Liwaway Dee Tanzo. On the basis of the foregoing alone, private respondents could
have completely denied the existence of their liability to petitioner as neither proof in
writing nor witnesses exist to substantiate petitioner's claim of a trust agreement
between himself and the private respondents. On the contrary, Manuel does not deny
that Mario had indeed received money from the petitioner, albeit claiming that the
latter's liability thereunder is purely civil in nature for being rooted in a simple loan
contract. Manuel offered in evidence copies of the contracts of loan entered into
between M.J.S. International and Liwayway Dee Tanzo. 12 We agree with the petitioner
that these loan contracts do not by themselves prove that his agreement with the private
respondents was also a loan. As correctly pointed out by the petitioner, he is not a party
to these contracts that clearly stipulate "Liwayway Dee Tanzo" as creditor and "M.J.S.
International represented by its General Manager, Mario J. Salazar" as debtor.

These loan contracts may, however, be given evidentiary value in support of Manuel's
claim that the agreement with petitioner was no different from the loan contracts with
Liwayway Dee Tanzo. Under the rule of res inter alios acta, evidence that one did or did
not do a certain thing at one time is not admissible to prove that he did or did not do the
same or similar thing at another time, but it may be received to prove a specific intent or
knowledge, identity, plan, system, scheme, habit, custom or usage, and the like. 13

Elaborating thus, we have held that:

[C]ollateral facts may be received as evidence under exceptional circumstances, as when

there is a rational similarity or resemblance between the conditions giving rise to the fact
offered and the circumstances surrounding the issue or fact to be proved. Evidence of
similar acts may frequently become relevant, especially in actions based on fraud and
deceit, because it sheds light on the state of mind or knowledge of a person, it provides
insight into such person's motive or intent; it uncovers a scheme, design or plan, or it
reveals a mistake. 14 (Emphasis supplied)

The series of transactions between MJS International and Liwayway Dee Tanzo were
entered into under similar circumstances as those surrounding the contract between
petitioner and Mario. Just like the alleged trust agreement between petitioner and Mario,
the loan contracts between M.J.S International and Liwayway Dee Tanzo provide that
the creditor shall lend to the debtor a specific amount for use by the latter in its business
operations. 15 Petitioner also admits that he entrusted the checks to Liwayway Dee
Tanzo for investment in private respondents' business. This shows that private
respondents were transacting directly with Liwayway Dee Tanzo in the usual manner
that they conduct business, that is the loan of money for stipulated interest. Hence,
private respondents' modus operandi, if there ever was one, in raising additional capital
for M.J.S. International was to borrow money from willing investors. It is thus unlikely,
considering the scheme of things, that private respondents would all of a sudden
deviate from an established business practice to enter into a trust agreement with the
petitioner.

In view of the foregoing and the unfortunate fact that petitioner has failed to present
controverting evidence, this Court is constrained to adopt private respondents' position
that the agreement between Mario and the petitioner was in the nature of a simple loan
agreement.

Therefore, petitioner's contention that private respondents have committed the crime of
estafa

1. With unfaithfulness or abuse of confidence, namely:

xxx xxx xxx

b) By misappropriating or converting, to the prejudice of another, money,

goods or any other personal property received by the offender in trust, or
on commission, or for administration, or under any other obligation
involving the duty to make delivery of, or to return the same, even though
such obligation be totally or partially guaranteed by a bond; or by denying
having received such money, goods, or other property; 16

necessarily fails. This Court has ruled that when the relation is purely that of
debtor and creditor, the debtor cannot be held liable for the crime of estafa, under
the above quoted provision, by merely refusing to pay or by denying the
indebtedness. 17 The reason behind this rule is simple. In order that a person can
be convicted of estafa under Article 315, par. 1(b) of the Revised Penal Code, it
must be proven that he has the obligation to deliver or return the same money,
goods or personal property that he has received. The obligation to deliver exactly
the same money, that is, bills or coins, is non-existent in a simple loan of money
because in the latter; the borrower acquires ownership of the money borrowed. 18
Being the owner, the borrower can dispose of the thing borrowed and his act will
not be considered misappropriation thereof. 19

In the alternative, petitioner accuses private respondents of committing the crime of

estafa under Article 315, par. 2(a) of the Revised Penal Code which provides as follows:

2. By means of any of the following false pretenses or fraudulent acts

executed prior to or simultaneously with the commission of the fraud.

(a) By using a fictitious name, or falsely pretending to possess power

influence, qualifications, property, credit, agency, business or imaginary
transactions; or by means of other similar deceits.

Specifically, petitioner contends that he was deceived by private respondents to

pay with his money on their representation that the same would be held in trust
for investment in their legitimate freight business only to find out later on that
private respondents used his money for the illicit activity of smuggling prohibited
goods into the Philippines. 20

This contention cannot be sustained for lack of evidence. Petitioner claims that private
respondents used his money for smuggling. The fact, however, that several shipments
from M.J.S. International Freight Services to Mansal Forwarders were seized and
forfeited by the Bureau of Customs for containing smuggled items does not prove that
petitioner's money was indeed used by private respondents in the said illegal activity.
Petitioner himself admits that he and his relatives were regular clients of private
respondents since
1988. 21 It cannot, thus, be doubted that the private respondents were likewise engaged
in a legitimate forwarding business in which business petitioner's money could have
actually been invested.

The letter issued by Manuel authorizing petitioner to withdraw documents covering the
containers that were later seized by the Bureau of Customs bears little weight in view of
the fact that the same was not even presented before the prosecutor and the Secretary
of Justice. Further, as correctly pointed out by the private respondents, it is a mere
blank form that does not even indicate petitioner's name as authorized bearer. 22

As we have explained earlier, the true nature of the contract between petitioner and
private respondents was that of a simple loan. In such a contract, the debtor promises
to pay to the creditor an equal amount of money plus interest if stipulated. 23 It is true
that private respondents failed to fulfill their promise to petitioner to return his money
plus interest at the end of one month. However, mere non-compliance of a promise to
perform a thing does not constitute deceit 24 because it is hard to determine and infer a
priori the criminal intent to the person promising. 25 In other words, deceit should be
proved and established by acts distinct from and independent of, the non-compliance of
the promise, 26 and this, petitioner failed to do.

WHEREFORE, the petition is hereby DISMISSED.1âwphi1.nêt

SO ORDERED.
G.R. No. 141835               February 4, 2009

CENTRAL BANK OF THE PHILIPPINES, Petitioner,

vs.
CITYTRUST BANKING CORPORATION, Respondent.

DECISION

CARPIO MORALES, J.:

Pursuant to Republic Act No. 625, the old Central Bank Law, respondent Citytrust Banking
Corporation (Citytrust), formerly Feati Bank, maintained a demand deposit account with
petitioner Central Bank of the Philippines, now Bangko Sentral ng Pilipinas.

As required, Citytrust furnished petitioner with the names and corresponding signatures of five
of its officers authorized to sign checks and serve as drawers and indorsers for its account. And it
provided petitioner with the list and corresponding signatures of its roving tellers authorized to
withdraw, sign receipts and perform other transactions on its behalf. Petitioner later issued
security identification cards to the roving tellers one of whom was "Rounceval Flores" (Flores).

On July 15, 1977, Flores presented for payment to petitioner’s Senior Teller Iluminada dela Cruz
(Iluminada) two Citytrust checks of even date, payable to Citytrust, one in the amount of
P850,000 and the other in the amount of P900,000, both of which were signed and indorsed by
Citytrust’s authorized signatory-drawers.

After the checks were certified by petitioner’s Accounting Department, Iluminada verified them,
prepared the cash transfer slip on which she affixed her signature, stamped the checks with the
notation "Received Payment" and asked Flores to, as he did, sign on the space above such
notation. Instead of signing his name, however, Flores signed as "Rosauro C. Cayabyab" – a fact
Iluminada failed to notice.1avvphi1

Iluminada thereupon sent the cash transfer slip and checks to petitioner’s Cash Department
where an officer verified and compared the drawers’ signatures on the checks against their
specimen signatures provided by Citytrust, and finding the same in order, approved the cash
transfer slip and paid the corresponding amounts to Flores. Petitioner then debited the amount of
the checks totaling P1,750,000 from Citytrust’s demand deposit account.

More than a year and nine months later, Citytrust, by letter dated April 23, 1979, alleging that the
checks were already cancelled because they were stolen, demanded petitioner to restore the
amounts covered thereby to its demand deposit account. Petitioner did not heed the demand,
however.

Citytrust later filed a complaint for estafa, with reservation on the filing of a separate civil action,
against Flores. Flores was convicted.

Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a complaint for
recovery of sum of money with damages against petitioner which it alleged erred in encashing
the checks and in charging the proceeds thereof to its account, despite the lack of authority of
"Rosauro C. Cayabyab."
By Decision1 of November 13, 1991, Branch 32 of the RTC of Manila found both Citytrust and
petitioner negligent and accordingly held them equally liable for the loss. Both parties appealed
to the Court of Appeals which, by Decision2 dated July 16, 1999, affirmed the trial court’s
decision, it holding that both parties contributed equally to the fraudulent encashment of the
checks, hence, they should equally share the loss in consonance with Article 21793 vis a vis
Article 11724 of the Civil Code.

In arriving at its Decision, the appellate court noted that while "Citytrust failed to take adequate
precautionary measures to prevent the fraudulent encashment of its checks," petitioner was not
entirely blame-free in light of its failure to verify the signature of Citytrust’s agent authorized to
receive payment.

Brushing aside petitioner’s contention that it cannot be sued, the appellate court held that
petitioner’s Charter specifically clothes it with the power to sue and be sued.

Also brushing aside petitioner’s assertion that Citytrust’s reservation of the filing of a separate
civil action against Flores precluded Citytrust from filing the civil action against it, the appellate
court held that the "action for the recovery of sum of money is separate and distinct and is
grounded on a separate cause of action from that of the criminal case for estafa."

Hence, the present appeal, petitioner maintaining that Flores having been an authorized roving
teller, Citytrust is bound by his acts. Also maintaining that it was not negligent in releasing the
proceeds of the checks to Flores, the failure of its teller to properly verify his signature
notwithstanding, petitioner contends that verification could be dispensed with, Flores having
been known to be an authorized roving teller of Citytrust who had had numerous transactions
with it (petitioner) on its (Citytrust’s) behalf for five years prior to the questioned transaction.

Attributing negligence solely to Citytrust, petitioner harps on Citytrust’s allowing Flores to steal
the checks and failing to timely cancel them; allowing Flores to wear the issued identification
card issued by it (petitioner); failing to report Flores’ absence from work on the day of the
incident; and failing to explain the circumstances surrounding the supposed theft and
cancellation of the checks.

Drawing attention to Citytrust’s considerable delay in demanding the restoration of the proceeds
of the checks, petitioners argue that, assuming arguendo that its teller was negligent, Citytrust’s
negligence, which preceded that committed by the teller, was the proximate cause of the loss or
fraud.

The petition is bereft of merit.

Petitioner’s teller Iluminada did not verify Flores’ signature on the flimsy excuse that Flores had
had previous transactions with it for a number of years. That circumstance did not excuse the
teller from focusing attention to or at least glancing at Flores as he was signing, and to satisfy
herself that the signature he had just affixed matched that of his specimen signature. Had she
done that, she would have readily been put on notice that Flores was affixing, not his but a
fictitious signature.
Given that petitioner is the government body mandated to supervise and regulate banking and
other financial institutions, this Court’s ruling in Consolidated Bank and Trust Corporation v.
Court of Appeals5 illumines:

The contract between the bank and its depositor is governed by the provisions of the Civil Code
on simple loan. Article 1980 of the Civil Code expressly provides that "x x x savings x x x
deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan." There is a debtor-creditor relationship between the bank and its
depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank
money and the bank agrees to pay the depositor on demand. The savings deposit agreement
between the bank and the depositor is the contract that determines the rights and obligations of
the parties.

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of
Republic Act No. 8791 ("RA 8791"), which took effect on 13 June 2000, declares that the State
recognizes the "fiduciary nature of banking that requires high standards of integrity and
performance." This new provision in the general banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v.
Court of Appeals, holding that "the bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their relationship."

This fiduciary relationship means that the bank’s obligation to observe "high standards of
integrity and performance" is deemed written into every deposit agreement between a bank and
its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence
higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree
of diligence required of an obligor is that prescribed by law or contract, and absent such
stipulation then the diligence of a good father of a family. Section 2 of RA 8791 prescribes the
statutory diligence required from banks – that banks must observe "high standards of integrity
and performance" in servicing their depositors. Although RA 8791 took effect almost nine years
after the unauthorized withdrawal of the P300,000 from L.C. Diaz’s savings account,
jurisprudence at the time of the withdrawal already imposed on banks the same high standard of
diligence required under RA No. 8791. (Emphasis supplied)

Citytrust’s failure to timely examine its account, cancel the checks and notify petitioner of their
alleged loss/theft should mitigate petitioner’s liability, in accordance with Article 2179 of the
Civil Code which provides that if the plaintiff’s negligence was only contributory, the immediate
and proximate cause of the injury being the defendant’s lack of due care, the plaintiff may
recover damages, but the courts shall mitigate the damages to be awarded. For had Citytrust
timely discovered the loss/theft and/or subsequent encashment, their proceeds or part thereof
could have been recovered.

In line with the ruling in Consolidated Bank, the Court deems it proper to allocate the loss
between petitioner and Citytrust on a 60-40 ratio.

WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is hereby AFFIRMED
with MODIFICATION, in that petitioner and Citytrust should bear the loss on a 60-40 ratio.

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 complaint
2
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 decision 5 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 reconsideration 7 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, 15 petitioner 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 23 pertinently 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. L-50550-52 October 31, 1979

CHEE KIONG YAM, AMPANG MAH, ANITA YAM JOSE Y.C. YAM AND RICHARD
YAM, petitioners,
vs.
HON. NABDAR J. MALIK, Municipal Judge of Jolo, Sulu (Branch I), THE PEOPLE
OF THE PHILIPPINES, ROSALINDA AMIN, TAN CHU KAO and LT. COL. AGOSTO
SAJOR respondents.

Tomas P. Matic, Jr. for petitioners.

Jose E. Fernandez for private respondent.

Office of the Solicitor General for respondent the People of the Philippines.

ABAD SANTOS, J.:

This is a petition for certiorari, prohibition, and mandamus with preliminary injunction.
Petitioners alleged that respondent Municipal Judge Nabdar J. Malik of Jolo, Sulu, acted
without jurisdiction, in excess of jurisdiction and with grave abuse of discretion when:

(a) he held in the preliminary investigation of the charges of estafa filed by respondents
Rosalinda Amin, Tan Chu Kao and Augusto Sajor against petitioners that there was a
prima facie case against the latter;

(b) he issued warrants of arrest against petitioners after making the above
determination; and

(c) he undertook to conduct trial on the merits of the charges which were docketed in his
court as Criminal Cases No. M-111, M-183 and M-208.

Respondent judge is said to have acted without jurisdiction, in excess of jurisdiction and
with grave abuse of discretion because the facts recited in the complaints did not
constitute the crime of estafa, and assuming they did, they were not within the
jurisdiction of the respondent judge.

In a resolution dated May 23, 1979, we required respondents to comment in the petition
and issued a temporary restraining order against the respondent judge from further
proceeding with Criminal Cases Nos. M-111, M-183 and M-208 or from enforcing the
warrants of arrest he had issued in connection with said cases.

Comments by the respondent judge and the private respondents pray for the dismissal
of the petition but the Solicitor General has manifested that the People of the Philippines
have no objection to the grant of the reliefs prayed for, except the damages. We
considered the comments as answers and gave due course to the petition.
The position of the Solicitor General is well taken. We have to grant the petition in order
to prevent manifest injustice and the exercise of palpable excess of authority.

In Criminal Case No. M-111, respondent Rosalinda M. Amin charges petitioners Yam
Chee Kiong and Yam Yap Kieng with estafa through misappropriation of the amount of
P50,000.00. But the complaint states on its face that said petitioners received the
amount from respondent Rosalinda M. Amin "as a loan." Moreover, the complaint in
Civil Case No. N-5, an independent action for the collection of the same amount filed by
respondent Rosalinda M. Amin with the Court of First Instance of Sulu on September
11, 1975, likewise states that the P50,000.00 was a "simple business loan" which
earned interest and was originally demandable six (6) months from July 12, 1973.
(Annex E of the petition.)

In Criminal Case No. M-183, respondent Tan Chu Kao charges petitioners Yam Chee
Kiong, Jose Y.C. Yam, Ampang Mah and Anita Yam, alias Yong Tay, with estafa
through misappropriation of the amount of P30,000.00. Likewise, the complaint states
on its face that the P30,000.00 was "a simple loan." So does the complaint in Civil Case
No. N-8 filed by respondent Tan Chu Kao on April 6, 1976 with the Court of First
Instance of Sulu for the collection of the same amount. (Annex D of the petition.).

In Criminal Case No. M-208, respondent Augusto Sajor charges petitioners Jose Y.C.
Yam, Anita Yam alias Yong Tai Mah, Chee Kiong Yam and Richard Yam, with estafa
through misappropriation of the amount of P20,000.00. Unlike the complaints in the
other two cases, the complaint in Criminal Case No. M-208 does not state that the
amount was received as loan. However, in a sworn statement dated September 29,
1976, submitted to respondent judge to support the complaint, respondent Augusto
Sajor states that the amount was a "loan." (Annex G of the petition.).

We agree with the petitioners that the facts alleged in the three criminal complaints do
not constitute estafa through misappropriation.

Estafa through misappropriation is committed according to Article 315, paragraph 1,

subparagraph (b), of the Revised Penal Code as follows:

Art. 315. Swindling (Estafa). — Any person who shall defraud another by any of the
means mentioned herein below shall be punished by:

xxx xxx xxx

1. With unfaithfulness or abuse of confidence namely:

xxx xxx xxx

b) By misappropriating or converting, to the prejudice of another, money, goods, or any

other personal property received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty to make delivery of or to
return the same, even though such obligation be totally or partially guaranteed by a bond;
or by denying having received such money, goods, or other property.

In order that a person can be convicted under the abovequoted provision, it must be
proven that he has the obligation to deliver or return the same 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 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.

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 be 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 loam
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.

In U.S. vs. Ibañez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a
person to refuse to nay his debt or to deny its existence.

We are of the opinion and so decide that when the relation is purely that of debtor and
creditor, the debtor can not be held liable for the crime of estafa, under said article, by
merely refusing to pay or by denying the indebtedness.

It appears that respondent judge failed to appreciate the distinction between the two
types of loan, mutuum and commodatum, when he performed the questioned acts, He
mistook the transaction between petitioners and respondents Rosalinda Amin, Tan Chu
Kao and Augusto Sajor to be commodatum wherein the borrower does not acquire
ownership over the thing borrowed and has the duty to return the same thing to the
lender.

Under Sec. 87 of the Judiciary Act, the municipal court of a provincial capital, which the
Municipal Court of Jolo is, has jurisdiction over criminal cases where the penalty
provided by law does not exceed prision correccional or imprisonment for not more than
six (6) years, or fine not exceeding P6,000.00 or both, The amounts allegedly
misappropriated by petitioners range from P20,000.00 to P50,000.00. The penalty for
misappropriation of this magnitude exceeds prision correccional or 6 year imprisonment.
(Article 315, Revised Penal Code), Assuming then that the acts recited in the
complaints constitute the crime of estafa, the Municipal Court of Jolo has no jurisdiction
to try them on the merits. The alleged offenses are under the jurisdiction of the Court of
First Instance.

Respondents People of the Philippines being the sovereign authority can not be sued
for damages. They are immune from such type of suit.

With respect to the other respondents, this Court is not the proper forum for the
consideration of the claim for damages against them.

WHEREFORE, the petition is hereby granted; the temporary restraining order

previously issued is hereby made permanent; the criminal complaints against petitioners
are hereby declared null and void; respondent judge is hereby ordered to dismiss said
criminal cases and to recall the warrants of arrest he had issued in connection
therewith. Moreover, respondent judge is hereby rebuked for manifest ignorance of
elementary law. Let a copy of this decision be included in his personal life. Costs
against private respondents.

SO ORDERED.
G.R. No. L-49353 June 11, 1981

THE OVERSEAS BANK OF MANILA, petitioners,

vs.
COURT OF APPEALS and TONY D. TAPIA, in his capacity as Attorney-in-Fact of
ENRIQUETA MICHEL DE CHAMPOURCIN respondents.

BARREDO, J.:

Petition for review of the decision of the Court of Appeals in CA-G.R. No. 44766-R,
Tony D. Tapia, etc. vs. The Overseas Bank of Manila and the denial of the motion for
reconsideration thereof. That judgment affirmed in toto the decision of the Court of First
Instance of Manila, Branch IV, in Civil Case No. 69876, for collection of money, reading
thus:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff against the herein
defendant ordering the latter (1) to pay plaintiff the sum of P100,000.00 representing the
value of its time deposit together with interest thereon at 4-1/2 % per annum from
November 9, 1964 until the whole amount shall have been fully paid; (2) to pay attomey's
fees in the amount of P1,000.00 it appearing that defendant's unjust and malicious
refusal to pay has compelled plaintiff to litigate and secure services of counsel; and to
pay costs. (Page 22, Record.)

Actually, this case is simple enough but of undoubtedly great interest and grave
importance to the banking community. It was for this reason that after denying originally
the herein petition, We found it proper to give the same due course after petitioner filed
a forceful and well-reasoned second motion for reconsideration.

In petitioner's counsel's "Statement of the Case and of Matters Involved", it is stated

that:

Private respondent TONY D. TAPIA, in his capacity as attorney-in-fact of ENRIQUETA

MICHEL DE CHAMPOURCIN (TAPIA), instituted the present action in the Court of First
Instance of Manila against petitioner, The Overseas Bank of Manila (TOBM), to enforce
collection of the proceeds of a time deposit for which TOBM had issued a certificate for
P100,000.00, with an interest rate of 4-1/2 % per annum (Exh. "A").

After trial, the trial court rendered judgment for TAPIA the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff

against the herein defendant ordering the latter (1) to pay plaintiff the
sum of P100,000.00 representing the value of its time deposit together
with interest thereon at 41/2% per annum from November 9, 1964 until
the whole amount shall have been fully paid:

Not satisfied, TOBM interposed an appeal.

In the meantime, during the pendency of this case, certain developments took place with
respect to TOBM which were taken note of by the Court of Appeals in its resolution dated
November 3, 1978, thus:
 This Court took note of the fact that on July 31, 1968, TOBM was
excluded by the Central Bank under Monetary Board Resolution No.
1263 from inter-bank clearing, that on August 1, 1968, its operations
were suspended under Central Bank Resolution No. 1290; and that on
August 13, 1968, it was completely forbidden by the Central Bank in its
Resolution No. 1333 to do business preparatory to its forcible liquidation.
These Resolutions were, however, annulled and set aside by the
Supreme Court in its decision in Ramos vs. Central Bank, L-29350,
promulgated October 4, 1971. To assure maximum protection to its
depositors, creditors and the public interest, the rehabilitation,
normalization and stabilization thereof was also ordered by the Supreme
Court in its resolution dated February 24, 1972. Pursuant thereto, both
TOBM and the Central Bank submitted a Program of Rehabilitation of
TOBM which was approved by the Supreme Court in its Resolution in L-
29353, October 23, 1974 (60 SCRA 278). (C.A. Resolution dated Nov. 3,
1978, Appendix 'B', p. XVII.)

It must be noted that the said resolutions of the Central Bank were held by this Honorable
Supreme Court to have been "adopted in abuse of discretion equivalent to excess of
jurisdiction" (Ramos vs. Central Bank, 41 SCRA 565). Equally noteworthy, however, is
that the CB resolution suspending TOBM's business operations had actually been
implemented starting 2 August 1968, (id.) before it was annulled, and that as of this
writing TOBM has yet to resume operations in accordance with the aforesaid program of
rehabilitation approved by this Honorable Supreme Court.

In the decision it rendered in the instant case, (C.A. Decision, Appendix "A", p. V) the
Court of Appeals affirmed in toto the trial court's judgment, which, as aforeseen, orders
TOBM, among other things, to pay plaintiff the sum of P100,000.00 representing the
value of its time deposit together with interest thereon at 4-1/2% per annum until the
whole amount shall have been fully paid.

TOBM moved respondent Court of Appeals to reconsider its judgment on two grounds,
namely, (a) the suspension of operations of TOBM by the Central Bank likewise
suspends payment of accrued interest, and (b) respondent Court's judgment must
conform to the program of rehabilitation of TOBM approved by this Supreme Court. The
Court of Appeals, acting on the motion for reconsideration, issued its resolution
(Appendix 'B' hereto dated November 3, 1978, declaring

In as much as a Program of Rehabilitation of the TOBM has been

approved by the Supreme Court as above-mentioned, the execution of
the decision in question should be made in accordance with the provision
thereof, especially paragraph 3, sub-paragraph 4, Phase 1-
Rehabilitation.

WHEREFORE, the motion for reconsideration is granted, and the

dispositive portion of the decision, dated September 19, 1978, is hereby
amended, so as to read as follows:

WHEREFORE, the judgment appealed from is hereby

affirmed in toto but the execution thereof should be in
accordance with the provision of the Program of
Rehabilitation of TOBM as approved by the Supreme
Court in its resolution in G.R. No. L-29352 dated October
23, 1974 (60 SCRA 278) especially paragraph 3,
Subparagraph 4, Phase 1, Rehabilitation, to quote:

34 Petitioners shall effect an agreement with OBM's

depositors and creditors, singly or collectively, for the
 conversion of their deposits and claims into bills payable
under plans mutually acceptable to the parties
concerned, with the end in view that payments of all
deposits and claims against OBM may be made after a
period three (3) years from date of suspension of normal
banking operations.

However, in the event that said program of rehabilitation is revoked or

failed to materialize, the execution of the judgment is further subject to
any subsequent development or charge that will be taken and considered
by the Supreme Court and/or Central Bank in the premises, regarding
the payments of deposits and claims against the Overseas Bank of
Manila. (pp. XX, Court of Appeals' Resolution dated Nov. 3, 1978,
Appendix "B" hereof).

Thus, while the resolution purports to grant TOBM's motion for reconsideration, actually it
reiterates its affirmance of the trial court's judgment in toto and rejects TOBM's prayer to
be declared exempt from liability for interest on the deposit during the suspension of its
business operations by the Central Bank, declaring:

Appellant TOBM has not been declared insolvent. The suspension of its
operations in 1968 was merely temporary. Its assets and properties were
intact including its various investments, the management of which was
taken over by the Central Bank to protect its depositors and creditors.
Hence, there could be no justifiable reason to suspend the payment of
the accrued interests on the appellee's time deposit of P100,000.00
which has been long overdue. The payment of interest thereon at 4-1/2%
per annum from November 9, 1964 ordered by the lower court as wen as
this Court upon the appellant is in accordance with the agreement
embodied in the certificate of deposit, Exhibit "A", issued by the bank in
favor of the appellee. Such agreement is the law between the parties and
it should be complied with (Art. 1159, NCC). The mere suspension of its
operation which was temporary could not excuse the appellant from
complying with its obligation. The effect of the suspension and declared
insolvency of a bank is to make its deposits due and actionable and a
depositor then is entitled to interest on his deposits from the date of such
suspension (10 Am. Jr. 2d. p. 389).

The cases cited by the appellant in its motion has no application in this
case for these refer to instances where the bank has been declared
insolvent. This is not the situation prevailing in the case at bar.'

Moreover, while the resolution also purports to declare that the execution of the judgment
of the trial court should be in accordance with the Program of Rehabilitation of TOBM as
approved by the Supreme Court, this is negated by its aforesaid reaffirmance in toto of
the trial court's judgment, which holds TOBM totally liable to TAPIA.

On the other hand, private respondent's brief begins thus:

Herein respondents respectfully beg leave of Court to adopt as their own the Statement
of the Case and of Matters Involved in the petitioner's Brief, the same being in
consonance with the records of the case.

To begin with, we wish to call the attention of this Honorable Tribunal that the only ground
upon which the present petition is predicated reads as follows:
 The suspension of operations of the Overseas Bank of Manila on August
1, 1968 by the Monetary Board likewise suspends payment of accrued
interest contrary to the decision of this Honorable Court affirming in toto
the decision of the Court of First Instance ordering defendant-appellant to
pay plaintiff-appellee the sum of P100,000.00 representing the value of
its time deposit together with interest thereon at 4-1/2% per annum from
November 9, 1964 until the whole amount shall have been fully paid
despite the suspension of operations and closing of the Bank by the
Monetary Board on August 1, 1968 and August 13, 1968, respectively
(Petition, p. 10).

Apparently, the only issue in this case is whether or not the Petitioner is exempt from the
payment of interest on the private respondent's time deposit of P100,000.00 for the
period that its business operations were suspended by the Central Bank. We respectfully
submit that under the facts of the case, the petitioner should be required to pay the
accrued interest. And since the payment of the principal time deposit of P100,000.00 by
the petitioner to the private respondent is no longer at issue, we shall focus our
discussion on the subject of accrued interests as raised by the petitioner in its
Assignment of Errors. (Pages 1-2)

Briefly then" the general and main issue submitted for Our resolution is: When a bank is
excluded by the Central Bank from inter-bank clearing, and a day later further
suspended from operation, and thirteen days afterwards completely forbidden by the
same (Central Bank) to do business preparatory to its forcible liquidation, but
subsequently, the Supreme Court temporarily restrains the mentioned Central Bank's
orders and ultimately renders a decision nullifying the same, (41 SCRA 565) with
subsequent directives for the rehabilitation, normalization and stabilization thereof,
under a formula approved by the Court, (60 SCRA 276) and the process of such
rehabilitation, normalization and stabilization is considerably delayed, thru no fault of the
bank, but due to usually difficult and lengthy procedures and transactions directed
towards such end, is a person who has deposited money in said bank before the
Central Bank's orders were issued, entitled to the payment of interest on his deposit that
accrues during all the period from the bank's factual closure to its actual reopening for
normal business? To make this statement of the issue more complete, it may be added
that although private respondent does not dispute that there was complete paralization
of the bank from August 13, 1968, he insists that since technically the bank was not
placed under liquidation because of the decision of the Supreme Court, its obligation,
contractual in nature, to pay him interest may not be deemed excused and should be
enforced. Private respondent admits though that in cases of actual liquidation of a bank,
it is justifiable for it not to pay interest of the nature here in dispute.

Thus, Our task is narrowed down to the resolution of the legal problem of whether or
not, for purposes of the payment of the interest here in question, stoppage of the
operations of a bank by a legal order of liquidation may be equated with actual
cessation of the bank's operation, not different, factually speaking, in its effects, from
legal liquidation, the factual cessation having been ordered by the Central Bank.

In the case of Chinese Grocer's Association, et al, vs. American Apothecaries, 65 Phil.
395, this Court held:

As to the second assignment of error, this court, in G.R. No. 43682, In re Liquidation of
the Mercantile Bank of China, Tan Tiong Tick, claimant and appellant, vs. American
 Apothecaries, C., et al, claimants and appellees, through Justice Imperial, held the
following:

4. The court held that the appellant is not entitled to charge interest on
the amounts of his claims, and this is the object of the second
assignment of error. Upon this point a distinction must be made between
the interest which the deposits should earn from their existence until the
bank ceased to operate, and that which they may earn from the, time the
bank's operations were stopped until the date, of payment of the
deposits. As to the first class, we hold that it should be paid because
such interest has been earned in the ordinary course of the bank's
business and before the latter has been declared in a state of liquidation.
Moreover, the bank being authorized by law to make use of the deposits,
with the station stated, to invest the same in its business and other
operations, it may be presumed that it bound itself to pay interest to the
depositors as in fact it paid interest prior to the dates of the said claims.
As to the interest which may be charged from the date the bank ceased
to do business because it was declared in a state of liquidation, we hold
that the said interest should not be paid.

The Court of Appeals considered this ruling inapplicable to the instant

case, precisely because, as contended by private respondent, the said
Apothecaries case had in fact in contemplation a valid order of liquidation
of the bank concerned, whereas here, the order of the Central Bank of
August 13, 1968 completely forbidding herein petitioner to do business
preparatory to its liquidation was first restrained and then nullified by this
Supreme Court. In other words, as far as private respondent is concerned,
it is the legal reason for cessation of operations, not the actual cessation
thereof, that matters and is decisive insofar as his right to the continued
payment of the interest on his deposit during the period of cessation is
concerned.

In the light of the peculiar circumstances of this particular case, We disagree. It is Our
considered view, after mature deliberation, that it is utterly unfair to award private
respondent his prayer for payment of interest on his deposit during the period that
petitioner bank was not allowed by the Central Bank to operate.

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. Conventional wisdom
dictates this inexorable fair and just conclusion. And it can be said that all who deposit
money in banks are aware of such a simple economic proposition. 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 bank's operation by the
Central Bank has been subsequently declared illegal by the Supreme Court, for before
the Court's 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.

What is more, private respondent overlooks the fact that as noted in the very resolution
of the Court of Appeals of November 3, 1978 granting petitioner's motion for
reconsideration, said Court could not but take into account that petitioner's manner or
mode of rehabilitation, normalization and stabilization was placed by the resolution of
the Supreme Court of February 24, 1972 in the hands of the Central Bank, for it "to seek
practical solutions in all good faith for such rehabilitation." Pursuant to said resolution, a
"Program of Rehabilitation of TOBM (herein petitioner)" was submitted to this Court and
We approved said program only on October 23, 1974. But that approval did not yet put
petitioner back on its feet. The Central Bank, evidently in accordance with law,
continued to refuse to allow it to operate until the program approved by the Court could
materialize. Thus, after October 23, 1976, steps were continuously taken along that
direction, and, as it is now of public knowledge, it was only this year 1981, that
petitioner, with another name and another management has been allowed to reopen.

In the aforementioned resolution of the Court of Appeals of November 3, 1978, it

revised the dispositive portion of its original decision in the following manner:

WHEREFORE, the motion for reconsideration is granted, and the dispositive portion of
the decision dated September 19, 1978, is hereby amended, so as to read as follows:

WHEREFORE, the judgment appealed from is hereby affirmed in toto,

but the execution thereof should be in accordance with the provision of
the Program of Rehabilitation of TOBM as approved by the Supreme
Court in its resolution in G. R. No. L-29352 dated October 23, 1974 (60
SCRA 278) especially paragraph 3, sub-paragraph 4, Phase 1,
Rehabilitation to quote:

34 Petitioners shall effect an agreement with OBM's

depositors and creditors, singly or collectively, for the
conversion of their deposits and claims into bills payable
under plans mutually acceptable to the parties
concerned, with the end in view that payments of all
deposits and claims against OBM may be made after a
period of three (3) years from date of resumption of
normal banking operations.'

However, in the event that said program of rehabilitation is revoked or failed to

materialize, the execution of the judgment is further subject to any subsequent
development or change that will be taken and considered by the Supreme Court and/or
Central Bank in the premises, regarding the payments of deposits and claims against the
Ovarseas Bank of Manila. (Pp. 33-34, Record.)

Peculiarly, however, while the Appellate Court resolved to "grant" petitioner's motion for
reconsideration, it still maintained its judgment affirming in toto the decision of the trial
court, albeit it made the execution thereof subject to the conditions aforequoted.
Naturally, petitioner could not be contented with such modification, hence the present
petition before Us asking, in effect, for the reversal of the foregoing resolution of the
Court of Appeals which left it with the obligation to pal the interest private respondent is
demanding, as if it were legally possible for the Court of Appeals to ignore or modify the
"Program of Rehabilitation" approved by this Court, which provides inter alia that:

3.4. Petitioners shall effect an agreement with OBM's depositors and creditors, singly or
collectively, for the conversion of their deposits and claims into bills payable under plans
mutually acceptable to the parties concerned, with the end in view that payments of all
deposits and claims against OBM may be made after a period of three (3) years from
date of resumption of normal banking operation. (1)

xxx xxx xxx

PHASE II

NORMALIZATION AND STABILIZATION

This phase shall be undertaken only when all the conditions for rehabilitation of OBM as
speciffied in Phase I have been fulfilled and/or complied with by petitioners. Banking
operations and transactions which OBM may be allowed to perform shall be in
accordance with such authority as the Monetary Board, upon recommendation of the
Director, Department of Commercial & Savings Banks, may deem proper to extend OBM.

OBM may be allowed to resume normal banking operations only when, in addition to
standard conditions prevailing in normal banking institutions:

1. It has reduced its loans/accounts receivable by at least 75% of the aggregate amount
outstanding as of the start of the rehabilitation phase;

2. A program of paying depositors and creditors has been accepted singly or collectively
by all such depositors and creditors, including Government instrumentalities and the
Philippine National Bank;

3. The issues relative to penalties and interests mentioned in paragraph 3.8 hereof have
been resolved either judicially or extrajudicially.

The Comptroller-designate and the committee-of-three mentioned in paragraph 2.7

herein shall continue to function for as long as OBM has not been allowed to resume
normal banking operations. (Pp. 283-285, 60 SCRA.)

Nowhere in the above program is there anything indicating that depositors are entitled
to interest. Paragraph 3.4 of the same refers to deposits exclusively. If the Central Bank
authorities or the Supreme Court had in mind the payment also of interest on such
deposits, either of those authorities would have required clear language to such effect
be included in the program. It is understandable why nothing of that sort was required.
As We have explained earlier, the complete factual suspension of petitioner's operation
as a bank disabled it to commit itself to the payment of such interest. Hopefully,
petitioner may be able to resume operations and recover its standing as a normal bank.
But it is almost vain to expect that within the forseeable future, it would be in a position
to pay in full even at least the deposits themselves, not to mention the interest thereon.
In justice and equity, having been subjected to what the Supreme Court has found to be
an unfortunate express or abuse by the Central Bank of the exercise of its authority
under the law, it would be, to put it tritely "squeezing blood out of turnip" for Us to grant
private respondent's demand.
Parenthetically, We may add for the guidance of those who might be concerned, and so
that unnecessary litigations may be avoided from further clogging the dockets of the
courts, that in the light of the considerations 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.

PREMISES CONSIDERED, judgment is hereby rendered modifying the decision of the

Court of Appeals under review in the sense that the judgment of the trial court requiring
petitioner to pay interest on private respondent's deposit from August 13, 1968 up to the
reopening for normal operations of petitioner is reversed, and petitioner is declared free
from any liability therefor, and that with regard to his deposit of P100,000.00, it is Our
judgment that he secure payment thereof by negotiating with petitioner in accordance
with the terms of the Rehabilitation Program of TOBM approved by this Court on
October 23, 1974.

No costs.