G.R. No.
32576 November 6, 1930 and passed into the hands of the Philippine National Bank, its principal creditor, for
FULTRON IRON WORKS CO., plaintiff-appellee,
vs.
CHINA BANKING CORPORATION, ET AL., defendants.
CHINA BANKING CORPORATION, appellant.
Feria and La O, and Gibbs and McDonough for appellant.
Claro M. Recto and DeWitt, Perkins and Brady for appellee.
STREET, J.:
This action was instituted on June 23, 1926, in the Court of First Instance of the City of
Manila by the Fulton Iron Works Co., a Delaware corporation having its principal
place of business in St. Louis, Missouri, and duly authorized under the laws of the
Philippine Islands to engage in business in this country. The defendants named in the
complaint are the China Banking Corporation, a domestic corporation having its
principal place of business in the City of Manila, and one S. C. Schwarzkopf. In the
petitory part of the complaint judgment is sought against the two defendants jointly
and severally for the sum of P131,197.10, with interest. As a ground of action against
the two defendants it is asserted in the complaint that the amount claimed by the
plaintiff is part of a larger sum of money (P176, 197.10) belonging to the plaintiff
which had been deposited in the defendant bank by Schwarzkopf during the year
1922, and which had been misappropriated and embezzled by him, with the full
knowledge and consent of the defendant bank. The idea underlying the action, as
against the bank, is that it has been guilty of what may perhaps be styled a civil
complicity in the misappropriation of the money for which recovery is sought.
Upon hearing the cause, upon the separate answers of the two defendants, the trial
court absolved Schwarckopf from the complaint, for the reason that in two prior
criminal proceedings he had been convicted of the offense of estafa, based upon his
misappropriated of the same money, and in said proceedings the obligation to
indemnify the plaintiff had been imposed upon him in the amount of P146,197.40. His
Honor, however, gave judgment in favor of the plaintiff, the Fulton Iron Works Co.,
to recover of the defendant bank the sum of P127,200.36, with lawful interest from
June 23, 1926, the date of the filing of the complaint, and with costs. From this
judgment the defendant bank appealed.
It appears that in the month of March, 1921, the plaintiff the Fulton Iron Works Co., of
St. Louis, Missouri, sold to the Binalbagan Estate, Inc., a Philippine corporation,
machinery for a sugar mill, for which the purchaser executed three notes amounting
to about $80,000. The first of these notes became due October 1, 1921, and the other
two on April 1, 1922. Neither of the three notes was paid at maturity, owing to the
fact that, before the notes fell due, the Binalbagan Estate, Inc. suspended payments
administration.
The consequently delay in the payments of the notes caused the plaintiff to employ a
firm of lawyers in Manila, of which S. C. Schwarzkopf was then a member, to
represent the plaintiff in an effort to obtain security for the indebtedness, with a view
to its later collection. At the time this retainer was effect, Schwarzkopf was in St.
Louis, on a visit to the United States, and in order that the plaintiff might comply
with the laws of the Philippine Islands in the matter of obtaining a license to transact
business here, the plaintiff executed a formal power of attorney authorizing the
members of Schwarzkopf's firm jointly and severally to accept service in actions and
to do other things necessary to enable the plaintiff to secure the contemplated license.
It is noteworthy that the authority of Schwarzkopf's firm to represent the plaintiff in
the collection of the claims above mentioned did not proceed from this power, but
had its origin in the employment of said firm as attorneys in the matter.
Schwarzkopf returned to Manila in the early part of November, 1921, and the law
firm to which he pertained was dissolved on November 15, 1921. Under the
dissolution agreement the matter of handling this collection devolved upon
Schwarzkopf, and he alone was thereafter concerned in the matter.
On December 13, 1921, Schwarzkopf opened a personal account, as a depositor, in the
China Banking Corporation by making a deposit, on that date, of the sum of P578.
This account was at all times modest in sized, and on January 1, 1922, the credit
balance therein was P543.35. This account has little or no significance in the case, and
it became defunct by September 1, 1922. It may be observed, however, that a few of
the deposits in this account appear to have been taken from account No. 2 to which
reference will presently be made.
In the early part of the year 1922, the financial condition of the Binalbagan Estate, Inc.
began to improve; and on January 13, 1922, D. M. Semple, manager of the Philippine
Sugar Centrals Agency, a department of the Philippine National Bank, drew check
No. 574 for the sum of P10,000, payable to the order of Sydney C. Schwarzkopf, and
delivered the same to him in part payment of the indebtedness owing to the plaintiff
from the Binalbagan Estate, Inc. Upon receiving this check Schwarzkopf signed a
receipt as "attorney-in-fact of Fulton Iron Works Co." The character of attorney-in-
fact, thus assumed by Schwarzkopf, was of course a mere fiction, as the power of
attorney which he really possessed was limited to other matters. The point, however,
is really of no moment.
The check for P10,000 above mentioned was duly indorsed by Schwarzkopf and
deposited by him in a new account with the defendant bank, known as "No. 2
account." This money was thereafter withdrawn from the bank from time to time by
Schwarzkopf, upon his personal checks, and used for his individual purposes. In the
appealed judgment the defendant is held liable for this money, a mere oversight
1
resulting apparently, from a confusion of this matter with the more important issues
involved in other parts of the case. There is no proof that the defendant bank had any
knowledge, or was chargeable with notice, that the P10,000 thus deposited and drawn
out belonged to any person other than Schwarzkopf himself; and, as depositor,
Schwarzkopf of course had absolute control of the account. A depositor is presumed
to be the owner of funds standing in his name in a bank deposit; and where a bank is
not chargeable with notice that the money deposited in such account is the property
of some other person than the depositor, the bank is justified in paying out the money
to the depositor or upon his order, and cannot be liable to any other person as the
true owner. It is hardly necessary to cite authority upon a proposition so manifestly in
accord with the usage and the common sense of the commercial community. The
proposition stated is implicit in all the cases concerned with the question of the
liability of a bank to its depositors and other persons claiming an interest in the
deposits.
Proceeding to the next collection effected by Schwarzkopf upon account of the
plaintiff's claim against the Binalbagan Estate, Inc., we find that on April 11, 1922,
Schwarkopf received, from the manager of the Philippine Sugar Centrals Agency, a
check for the sum of P61,237.50. This check was made payable on its face to "S. C.
Schwarkopf Attorney-in-Fact, Fulton Iron Works Co., or order." After indorsing this
check in the form in which it was drawn, Schwarzkopf opened a new account with
the defendant bank, entitled "S. C. Schwarzkopf, Attorney- in-Fact, Fulton Iron Works
Co.," and deposited said check therein. This account remained undisputed on the
books of the bank for some two months, during which period it had an accretion of
about P130.
Meanwhile, the No. 2 account which had been established back in January, became
depleted, but the manager of the bank, in view, no doubt, of the funds to
Schwarzkopf's credit in the third account conceded to him a credit in No. 2 account of
P25,000. By June 15, 1922, said account became overdrawn to the extend of P22,
144.39, and it was obvious that the limit of the conceded credit would soon be
reached. The manager of the bank then intervened and requested Schwarzkopf to
settle the overdraft. To accomplish this Schwarkopf merely transferred, by check, the
money to his credit in his special account as plaintiff's attorney-in-fact to the No. 2
account. The amount thus transferred was P61,360.81, and the effect of the transfer
was to absorb the overdraft and place a credit balance of nearly P40,000 in No. 2
account. Schwarzkopf then purchased a draft on New York in the amount of $15,000,
and after some delay transmitted the same by mail to the plaintiff. This draft cost
Schwarzkopf the sum of P30,375.02, and it was the only remittance ever made by him
to his client.
The principal question that arises upon the facts above stated is, whether the
defendant bank is liable to the plaintiff for the sum of P22, 144.39 which was thus
applied to the payment of Schwarzkopf's personal indebtedness resulting from his
overdraft in the No. 2 account. Upon this point the first thing to be noted is that the
very form in which the third account was carried on the books of the defendant bank
was sufficient to charge the bank with notice of the fact that the money deposited in
said account belonged to the Fulton Iron Works Co. and not to Schwarzkopf. It is
commonly said, and truly said in a legal sense, that money has no earmarks. But bank
accounts and commercial paper can have earmarks, and these earmarks consist of the
word or words which infallibly convey to the mind notice that the money or credit
represented by the account with which they are associated or the instrument upon
which they are written rightfully belongs to some other person than the one having
control thereof. A bank cannot permit, much less require, a depositor who is in
control of a trust fund to apply any part of the same to his individual indebtedness to
the bank. The decisions to this effect are uniformly accordant and it is believed no
creditable authority to the contrary can be produced from any source. The expression
"trust fund," in this connection, is not a technical term, and is applied in a loose sense
to indicate the situation where a bank account or negotiable securities of any sort are
under the control of a person other than the true owner. The following decisions are
instructive as illustrating different phases of the rule above stated, the selection
having been made with a view to the fact that the cases cited are for the most part
accessible in one or more series of annotated reports; Central Nat. Bank of Baltimore
vs. Conn. Mut. Life Ins. Co., 104 U. S., 54; 26 Law. ed., 693; Union Stock Yards Nat.
Bank vs. Moore, 25 C. C. A., 150; 79 Fed., 705 Sayre vs. Weil, 94 Ala., 466; 15 L. R. A.,
544; Am. Trust & Banking Co. vs. Boone, 102 Ga., 202; 40 L. R. A., 250; 66 Am. St.
Rep., 167; First Denton Nat. Bank vs. Kenney, 116 Md., 24; Ann. Cas. 19193B, 1337;
Allen vs. Puritan Trust Co., 211 Mass., 409; L. R. A. 1915C, 518 (and note); Emerado
Farmers' El. Co. vs. Farmers' Bank, 20 N. D., 270; 29 L. R. A. (N. S.), 567; Baird vs.
Lorenz (N. D.), 61 L. R. A., 1385, 1389 (note); Walters Nat. Bank vs. Bantock, 41 Okla.,,
153; L. R. A. 1915C, 531; Interstate Nat. Bank vs. Claxton 97 Tex., 569; 65 L. R. A., 820;
104 Am. St. Rep., 885; Boyle vs. Northwestern Nat. Bank of Superior, 125 Wis., 498; 1
L. R. A. (N. S.) 1110 Am. St. Rep., 851; United States Fidelity & Gy. Co. vs. Adoue, 104
Tex., 379; 37 L. R. A. (N. S.), 409; Ann. Cas. 1914B, 667; Underwood Ltd. vs. Bank of
Liverpool (1924), 1 K. B., 755.
Upon the facts before us it is evident that when credit to the extent of P25,000 was
conceded to Schwarzkopf in his personal account No. 2, the eye of the banker was
fixed upon the large amount then upon deposit to Schwarkopf's credit in his account
as attorney-in-fact; but of course, if a bank cannot apply the money in such an
account, or even permit it to be applied, to the personal indebtedness of the fiduciary
depositor, it is not permissible for the bank to extend personal credit to such
depositor upon the faith of the trust account. From any point that the matter be
viewed, the liability of the bank is clear to the extent of P22144.39 this being the
amount derived from Schwarkopf's account as attorney-in-fact which was absorbed
by his overdraft in account No. 2 when the transfer of the balance in the former
account to the latter account was effected, in the manner already stated.
We next proceed to consider the disposition made of the proceeds of the third check
collected by Schwarzkopf upon account of plaintiff's claim against the Binalbagan
Estate, Inc., from the Philippine National Bank. The amount of this collection was
P104, 959.60, and it was paid, on October 11, 1922, by a cashier's check on the
2
Philippine National Bank, payable "to the order of S. C. Schwarzkopf, attorney-in-
fact, Fulton Iron Works Co." Upon receiving this check, Schwarzkopf indorsed it in
proper form, by writing thereon the words "S. C. Schwarzkopf, attorney-in-fact,
Fulton Iron Works Co.," to which he added another indorsement consisting of his
own name alone, and deposited the check in his personal account No. 2 with the
defendant bank. The check thus delivered to the bank was collected by it from the
Philippine National Bank in ordinary course. Thereafter, in the course of the next few
months, Schwarzkopf withdrew, upon checks written by himself, the entire amount
of the money to his credit in account No. 2, thus misappropriating the money in said
account to his own use.
It will be noted that the money thus squandered comprised not only the proceeds of
the check last mentioned but the residue, consisting of a few thousand pesos, which
had been left in No. 2 account after the overdraft had been paid and Schwarzkopf had
remitted the draft of $15,000 to his principal in the United States. We consider that,
from a legal point of view, the situation with respect to this money is precisely the
same as that presented with respect to the money which came into the account later
by deposit of the check for P104,959.60 above mentioned, because as to both funds,
liability is sought to be fixed upon the bank by reason of its knowledge of the source
from which said funds were derived; and in this connection it should be noted that
there is no proof showing that the defendant bank had any knowledge of the
misappropriation of this money by Schwarzkopf other than such as might have been
derived from an inspection of its own books and the checks by which the money was
paid in and paid out.
The feature of the case now under consideration brings us, it must be admitted, into
debatable territory, but a discriminating analysis of the legal principles involved
leads to the conclusion that the defendant cannot be held liable for money paid out by
it in ordinary course on checks, in regular form, drawn by Schwarzkopf on the No. 2
account.
The specialized function of bank is to serve as a place of deposit for money, to keep it
safely while on deposit, and to pay it out, upon demand to the person who effected
the deposit or upon his order. A bank is not a guardian of trust funds deposited with
it in the sense that it must see to their proper application nor is it its business to pry
into the uses to which moneys on deposit in its vault are being put; and so long as it
serves its function and pays the money out in good faith to the person who deposited
it, or upon his order, without knowledge or notice that it is in fact assisting in the
misappropriation of the fund, the bank will be protected. As is well said by the author
of the monographic article on Banks and Banking in Ruling Case Law, It would
seriously interfere with commercial transactions to charge banks with the duty of
supervising the administration of trust funds, when, in due course of business, they
receive checks and drafts in proper form drawn upon such funds in their custody.
The law imposes no such duty upon them (3 R. C. L., 549; see also cases cited in 7 C. J.,
644, 645, note 25).
There are, it is true, decisions from a few courts, deservedly held in high esteem, to
the effect that a bank makes itself an effective accomplice in the conversion of a trust
fund when, with notice of the character of such fund, it permits the person in control
thereof to deposit it in his personal account. But the decided weight of judicial
authority is to the contrary; and it is generally held that the mere act of a bank in
entering a trust fund to the personal account of the fiduciary, knowing it to be a trust
fund, will not make the bank liable in case of the subsequent misappropriation of the
money by the fiduciary. (United States Fidelity & Gy. Co. vs. First Nat. Bank, 18 Cal.
App., 437: Goodwin vs. Am. Nat. Bank, 48 Conn., 550; Batchelder vs. Cen. Nat. Bank
of Boston, 188 Mass., 25; Allen vs. Puritan Trust Co., 211 Mass., 409; L. R. A. 1915C,
518; Gate City Bldg. & Loan Assoc. vs. National Bank of Commerce, 126 Mo., 82; 27 L.
R. A., 401; 47 Am. St. Rep., 630; Bischoff vs. Yorkville Bank, 218 N. Y., 106; Havana C.
R. Co. vs. Knickerbocker Trust Co., 198 N. Y., 422; L. R. A. 1915B, 720). The bank has
the right to presume that the fiduciary will apply a trust fund to its proper purpose,
and at any rate the bank is not required to send a courier with the money to see that it
reaches a proper destination.
In the case before us an intimate study of the checks which came into the defendant
bank against account No. 2 over a series of months, would have led a discerning
person to the conclusion that the plaintiff's money was being squandered, but such an
inference could not legitimately have been drawn from the first few checks which
were drawn upon the fund, and it would be hard to say just where the bank,
supposing its suspicions to have been aroused, should have intervened. No such a
duty is imposed. Of course, when the bank became a party to the application of part
of the plaintiff's money to the satisfaction of the overdraft in No. 2 account, it was
directly chargeable with knowledge of the misappropriation of the fund to the extent
of the overdraft and that fact, as we have already said, made the bank liable. But this
rule cannot be extented to subsequent acts of malversation and misappropriation
committed by the fiduciary against the real owner of the fund.
Furthermore, it is undeniable that a bank may incur liability by assisting the fiduciary
to accomplish a misappropriation, although the bank does not actually profit by the
misappropriation. A decision illustrating this aspect of the law is found in Washborn
vs. Linscott State Bank (87 Kan., 698), where a bank, to help the treasurer of a lodge to
conceal his defalcations, permitted him to overdraw, and when his account were to be
audited, issued to him a deposit certificate for the shortage, payable to the lodge.
After the audit was made, the certificate was returned and cancelled, and the
shortage reappeared. The court held that a loan had been made to the treasurer
personally, and that the bank became liable to the lodge upon cancelling the deposit
certificate.lawphil.net
Our discussion of this phase of the case should not be concluded without reference to
Bischoff vs. Yorville Bank (218 N. Y., 106), which undoubtedly affords some support
to the contention of the appellee that the defendant bank is liable not only for the
proceeds of the last check collected by Schwarzkopf, but for all of the money which
was transferred to account No. 2 from the account of Schawarzkopf as attorney-in-
3
fact. This decision comes, it must be admitted, from a court of high repute. But we are
unable to accept the court's conclusions, as applicable to the facts before us. In the
case mentioned it appeared that an executor, named Poggenburg, having money on
deposit in a certain bank to his credit as executor, gradually withdrew about $13,000
from said deposit by checks drawn by him, over a long period of time, in the
character of executor. These checks were indorsed by Poggenburg in his own name
simply and deposited in the defendant Yorkville Bank to his personal credit. At the
inception of this series of transactions Poggenburg was indebted by note to the
defendant and payments were made on this note and other notes thereafter executed
in favor of the bank, out of the funds transferred as above stated. The court held,
upon the facts before, it that the defendant knew at all times that the credits created
by the various deposits through checks of the executor were assets pertaining to the
estate of which Poggenburg was executor; and from this fact, in connection with the
misapplication of part of the money to the payment of the personal notes of
Poggenburg, the court held that the defendant bank was liable to the extent of the
whole amount misappropriated by means of the personal account.
money which as he knows belongs to another, without the consent of the latter, — a
principle implicit in all law. We note that the attorneys for the appellant bank have
suggested in their brief that, supposing the bank to have been an accomplice of
Schwarzkopf in the misappropriation of the plaintiff's money, its subsidiary liability
was extinguished as a result of the criminal proceedings against Schwarzkopf. This
suggestion is clearly untenable, with respect to the liability which is fixed upon the
bank by this decision.
From what has been said it follows that the appealed judgment must be modified and
the same is hereby modified by reducing the amount of the judgment against the
bank to the sum of P22,144.39 with lawful interest from June 23, 1926 until date of
payment, 2without pronouncement as to costs. So ordered.
Malcolm, Villamor, Ostrand, Johns, Romualdez, and Villa-Real, JJ., concur.

It will be noted that this decision was made in third instance, after a trial in first
instance possibly before a jury and after the judgment against the bank been affirmed
upon appeal in the appellate division of the Supreme Court. The prior history of the
case was therefore such as to entitle the findings of fact of the two prior courts of
great weight, and these courts had found in effect that the defendant bank had acted
in bad faith. If not explicable upon this ground, the decision in the Court of Appeals
must be considered a unique variant from accepted doctrine in this that while
repudiating the idea, favored by a few courts that the act of depositing a trust fund in
the personal accounts of the fiduciary is an effective act of conversion on the part both
of bank and fiduciary, the court nevertheless held that the act of the bank in
permitting the application of part of the money to the personal indebtedness of the
fiduciary afforded a sufficient basis for finding the bank to have been an accomplice
in the subsequent misapplication, by the fiduciary, of other portions of the deposit.
We can accede to the first of these propositions but not to the second. In this
connection we refer to the Annotation appended to Allen vs. Puritan Trust Co. (L. R.
A. 1915C, 518, 529), where the pertinent cases are analyzed and the conclusion
stated 1 that, by the weight of authority, the placing of a trust fund in the personal
account of the fiduciary does not make the bank liable for a subsequent
misappropriation of the money by the former. For the rest it is enough to say that
there is no proof in this case that the defendant bank had any guilty connection in fact
with the dishonest acts of Schwarzkopf, in squandering the contents of the No. 2
account after he had made his remittance of $15,000 to his principal.

In conclusion we ought to add that the legal principles involved in this decision are
not directly deducible from the provisions of the Negotiable Instruments Law, which
is in force in this jurisdiction (Act No. 2031); and there is no provision of the Civil
Code or Code of Commerce directly bearing upon the point under consideration. The
liability of the defendant bank, to the extent recognized in this decision proceeds
upon the fundamental idea that a creditor cannot apply to the obligation of his debtor

4
JOSE C. GO, G.R. No. 178429 unlawfully and knowingly borrow, either directly or indirectly,
Petitioner, for himself or as the representative of his other related
Present: companies, the deposits or funds of the said banking
institution and/or become a guarantor, indorser or obligor for
QUISUMBING, J., Chairperson, loans from the said bank to others, by then and there using said
- versus - *CARPIO, borrowed deposits/funds of the said bank in facilitating and
CARPIO MORALES, granting and/or caused the facilitating and granting of credit
BRION, and lines/loans and, among others, to the New Zealand Accounts
ABAD, JJ. loans in the total amount of TWO BILLION AND SEVEN
HUNDRED FIFTY-FOUR MILLION NINE HUNDRED
BANGKO SENTRAL NG PILIPINAS, FIVE THOUSAND AND EIGHT HUNDRED FIFTY-SEVEN AND
Respondent. Promulgated: 0/100 PESOS, Philippine Currency, said accused knowing fully
well that the same has been done by him without the written
October 23, 2009 approval of the majority of the Board of Directors of said Orient
x ------------------------------------------------------------------------------------------x Bank and which approval the said accused deliberately failed to
obtain and enter the same upon the records of said banking
institution and to transmit a copy of which to the supervising
DECISION department of the said bank, as required by the General Banking
Act.

CONTRARY TO LAW. [Emphasis supplied.]

BRION, J.:
Through the present petition for review on certiorari,[1] petitioner Jose C. Go
(Go) assails the October 26, 2006 decision[2] of the Court of Appeals (CA) in CA-G.R.
SP No. 79149, as well as its June 4, 2007 resolution.[3] The CA decision and resolution
annulled and set aside the May 20, 2003[4] and June 30, 2003[5]orders of the Regional
Trial Court (RTC), Branch 26, Manila which granted Gos motion to quash the
Information filed against him.
THE FACTS
On May 28, 2001, Go pleaded not guilty to the offense charged.
After the arraignment, both the prosecution and accused Go took part in the
pre-trial conference where the marking of the voluminous evidence for the parties
was accomplished. After the completion of the marking, the trial court ordered the
parties to proceed to trial on the merits.
Before the trial could commence, however, Go filed on February 26, 2003[7] a motion
to quash the Information, which motion Go amended on March 1, 2003.[8]Go claimed
that the Information was defective, as the facts charged therein do not constitute an
offense under Section 83 of RA 337 which states:

On August 20, 1999, an Information[6] for violation of Section 83 of Republic Act No.
337 (RA 337) or the General Banking Act, as amended by Presidential Decree No. 1795,
was filed against Go before the RTC. The charge reads:
That on or about and during the period comprised
between June 27, 1996 and September 15, 1997, inclusive, in the City
of Manila, Philippines, the said accused, being then the Director
and the President and Chief Executive Officer of the Orient
Commercial Banking Corporation (Orient Bank), a commercial
banking institution created, organized and existing under
Philippines laws, with its main branch located at C.M. Recto
Avenue, this City, and taking advantage of his position as such
officer/director of the said bank, did then and there wilfully,
No director or officer of any banking institution shall either directly
or indirectly, for himself or as the representative or agent of
another, borrow any of the deposits of funds of such banks, nor
shall he become a guarantor, indorser, or surety for loans from such
bank, to others, or in any manner be an obligor for money
borrowed from the bank or loaned by it, except with the written
approval of the majority of the directors of the bank, excluding the
director concerned. Any such approval shall be entered upon the
records of the corporation and a copy of such entry shall be
transmitted forthwith to the appropriate supervising
department. The office of any director or officer of a bank who
violates the provisions of this section shall immediately become
vacant and the director or officer shall be punished by

5
 imprisonment of not less than one year nor more than ten years and
by a fine of not less than one thousand nor more than ten thousand
pesos.
The Monetary Board may regulate the amount of credit
accommodations that may be extended, directly or indirectly, by
banking institutions to their directors, officers, or
stockholders. However, the outstanding credit accommodations
which a bank may extend to each of its stockholders owning two
percent (2%) or more of the subscribed capital stock, its directors, or
its officers, shall be limited to an amount equivalent to the
respective outstanding deposits and book value of the paid-in
capital contribution in the bank. Provided, however, that loans and
advances to officers in the form of fringe benefits granted in
accordance with rules and regulations as may be prescribed by
Monetary Board shall not be subject to the preceding limitation. (As
amended by PD 1795)
In addition to the conditions established in the preceding
paragraph, no director or a building and loan association shall
engage in any of the operations mentioned in said paragraphs,
except upon the pledge of shares of the association having a total
withdrawal value greater than the amount borrowed. (As amended
by PD 1795)
In support of his motion to quash, Go averred that based on the facts alleged
in the Information, he was being prosecuted for borrowing the deposits or funds of
the Orient Bank and/or acting as a guarantor, indorser or obligor for the banks loans
to other persons. The use of the word and/or meant that he was charged for being
either a borrower or a guarantor, or for being both a borrower and guarantor. Go
claimed that the charge was not only vague, but also did not constitute an offense. He
posited that Section 83 of RA 337 penalized only directors and officers of banking
institutions who acted either as borrower or as guarantor, but not as both.
Go further pointed out that the Information failed to state that his alleged act
of borrowing and/or guarantying was not among the exceptions provided for in the
law. According to Go, the second paragraph of Section 83 allowed banks to extend
credit accommodations to their directors, officers, and stockholders, provided it is
limited to an amount equivalent to the respective outstanding deposits and book
value of the paid-in capital contribution in the bank. Extending credit
accommodations to bank directors, officers, and stockholders is not per seprohibited,
unless the amount exceeds the legal limit. Since the Information failed to state that the
amount he purportedly borrowed and/or guarantied was beyond the limit set by
law, Go insisted that the acts so charged did not constitute an offense.
Finding Gos contentions persuasive, the RTC granted Gos motion to quash
the Information on May 20, 2003. It denied on June 30, 2003 the motion for
reconsideration filed by the prosecution.
The prosecution did not accept the RTC ruling and filed a petition
for certiorari to question it before the CA. The Information, the prosecution claimed,
was sufficient. The word and/or did not materially affect the validity of the
Information, as it merely stated a mode of committing the crime penalized under
Section 83 of RA 337. Moreover, the prosecution asserted that the second paragraph
of Section 83 (referring to the credit accommodation limit) cannot be interpreted as an
exception to what the first paragraph provided. The second paragraph only sets
borrowing limits that, if violated, render the bank, not the director-borrower, liable. A
violation of the second paragraph of Section 83 under which Go is being prosecuted is
therefore separate and distinct from a violation of the first paragraph. Thus, the
prosecution prayed that the orders of the RTC quashing the Information be set aside
and the criminal case against Go be reinstated.
On October 26, 2006, the CA rendered the assailed decision granting the
prosecutions petition for certiorari.[9] The CA declared that the RTC misread the law
when it decided to quash the Information against Go. It explained that the allegation
that Go acted either as a borrower or a guarantor or as both borrower and guarantor
merely set forth the different modes by which the offense was committed. It did not
necessarily mean that Go acted both as borrower and guarantor for the same loan at
the same time. It agreed with the prosecutions stand that the second paragraph of
Section 83 of RA 337 is not an exception to the first paragraph. Thus, the failure of the
Information to state that the amount of the loan Go borrowed or guaranteed exceeded
the legal limits was, to the CA, an irrelevant issue. For these reasons, the CA annulled
and set aside the RTCs orders and ordered the reinstatement of the criminal charge
against Go. After the CAs denial of his motion for reconsideration,[10] Go filed the
present appeal by certiorari.
THE PETITION
In his petition, Go alleges that the appellate court legally erred in
overturning the trial courts orders. He insists that the Information failed to allege the
acts or omissions complained of with sufficient particularity to enable him to know
the offense being charged; to allow him to properly prepare his defense; and likewise
to allow the court to render proper judgment.
Repeating his arguments in his motion to quash, Go reads Section 83 of RA
337 as penalizing a director or officer of a banking institution for either borrowingthe
deposits or funds of the bank, or guaranteeing or indorsing loans to others, but not for
assuming both capacities. He claimed that the prosecutions shotgun approach in
alleging that he acted as borrower and/or guarantor rendered the Information highly
defective for failure to specify with certainty the specific act or omission complained
of. To petitioner Go, the prosecutions approach was a clear violation of his
6
constitutional right to be informed of the nature and cause of the accusation against
him.
Additionally, Go reiterates his claim that credit accommodations by banks to
their directors and officers are legal and valid, provided that these are limited to their
outstanding deposits and book value of the paid-in capital contribution in the
bank. The failure to state that he borrowed deposits and/or guaranteed loans beyond
this limit rendered the Information defective. He thus asks the Court to reverse the
CA decision to reinstate the criminal charge.
In its Comment,[11] the prosecution raises the same defenses against Gos
contentions. It insists on the sufficiency of the allegations in the Information and
prays for the denial of Gos petition.
THE COURTS RULING
The Court does not find the petition meritorious and accordingly denies it.
The Accuseds Right to be
Informed
Under the Constitution, a person who stands charged of a criminal offense
has the right to be informed of the nature and cause of the accusation against
him.[12] The Rules of Court, in implementing the right, specifically require that the
acts or omissions complained of as constituting the offense, including the qualifying
and aggravating circumstances, must be stated in ordinary and concise language, not
necessarily in the language used in the statute, but in terms sufficient to enable a
person of common understanding to know what offense is being charged and the
attendant qualifying and aggravating circumstances present, so that the accused can
properly defend himself and the court can pronounce judgment. [13] To broaden the
scope of the right, the Rules authorize the quashal, upon motion of the accused, of an
Information that fails to allege the acts constituting the offense. [14] Jurisprudence has
laid down the fundamental test in appreciating a motion to quash an Information
grounded on the insufficiency of the facts alleged therein. We stated in People v.
Romualdez[15] that:
The determinative test in appreciating a motion to quash xxx is the
sufficiency of the averments in the information, that is, whether the
facts alleged, if hypothetically admitted, would establish the
essential elements of the offense as defined by law without
considering matters aliunde. As Section 6, Rule 110 of the Rules of
Criminal Procedure requires, the information only needs to state
the ultimate facts; the evidentiary and other details can be
provided during the trial.
To restate the rule, an Information only needs to state the ultimate
facts constituting the offense, not the finer details of why and
how the illegal acts alleged amounted to undue injury or
damage matters that are appropriate for the trial. [Emphasis
supplied]
The facts and circumstances necessary to be included in the Information are
determined by reference to the definition and elements of the specific crimes. The
Information must allege clearly and accurately the elements of the crime
charged.[16]
Elements of Violation of
Section 83 of RA 337
Under Section 83, RA 337, the following elements must be present to constitute a
violation of its first paragraph:
1. the offender is a director or officer of any banking institution;
2. the offender, either directly or indirectly, for himself or as representative or
agent of another, performs any of the following acts:
a. he borrows any of the deposits or funds of such bank; or
b. he becomes a guarantor, indorser, or surety for loans from such
bank to others, or
c. he becomes in any manner an obligor for money borrowed from
bank or loaned by it;
3. the offender has performed any of such acts without the written approval of
the majority of the directors of the bank, excluding the offender, as the
director concerned.
A simple reading of the above elements easily rejects Gos contention that the
law penalizes a bank director or officer only either for borrowing the banks deposits
or funds or for guarantying loans by the bank, but not for acting in both
capacities. The essence of the crime is becoming an obligor of the bank without
securing the necessary written approval of the majority of the banks directors.
The second element merely lists down the various modes of committing the
offense. The third mode, by declaring that [no director or officer of any banking
institution shall xxx] in any manner be an obligor for money borrowed from the bank
or loaned by it, in fact serves a catch-all phrase that covers any situation when a
director or officer of the bank becomes its obligor. The prohibition is directed
against a bank director or officer who becomes in any manner an obligor for
money borrowed from or loaned by the bank without the written approval of the
majority of the banks board of directors. To make a distinction between the act of
borrowing and guarantying is therefore unnecessary because in either situation, the
director or officer concerned becomes an obligor of the bank against whom the
obligation is juridically demandable.
7
 The language of the law is broad enough to encompass either act of
borrowing or guaranteeing, or both. While the first paragraph of Section 83 is penal in
nature, and by principle should be strictly construed in favor of the accused, the
Court is unwilling to adopt a liberal construction that would defeat the legislatures
intent in enacting the statute. The objective of the law should allow for a reasonable
flexibility in its construction. Section 83 of RA 337, as well as other banking laws
adopting the same prohibition,[17] was enacted to ensure that loans by banks and
similar financial institutions to their own directors, officers, and stockholders are
above board.[18] Banks were not created for the benefit of their directors and officers;
they cannot use the assets of the bank for their own benefit, except as may be
permitted by law. Congress has thus deemed it essential to impose restrictions on
borrowings by bank directors and officers in order to protect the public, especially the
depositors.[19] Hence, when the law prohibits directors and officers of banking
institutions from becoming in any manner an obligor of the bank (unless with the
approval of the board), the terms of the prohibition shall be the standards to be
applied to directors transactions such as those involved in the present case.
Credit accommodation limit is
not an exception nor is it an
element of the
offense
Contrary to Gos claims, the second paragraph of Section 83, RA 337 does not
provide for an exception to a violation of the first paragraph thereof, nor does it
constitute as an element of the offense charged. Section 83 of RA 337 actually imposes
three restrictions: approval, reportorial, and ceiling requirements.
The approval requirement (found in the first sentence of the first paragraph
of the law) refers to the written approval of the majority of the banks board of
directors required before bank directors and officers can in any manner be an obligor
for money borrowed from or loaned by the bank. Failure to secure the approval
renders the bank director or officer concerned liable for prosecution and, upon
conviction, subjects him to the penalty provided in the third sentence of first
paragraph of Section 83.
The reportorial requirement, on the other hand, mandates that any such
approval should be entered upon the records of the corporation, and a copy of the
entry be transmitted to the appropriate supervising department. The reportorial
requirement is addressed to the bank itself, which, upon its failure to do so, subjects it
to quo warranto proceedings under Section 87 of RA 337.[20]
The ceiling requirement under the second paragraph of Section 83 regulates
the amount of credit accommodations that banks may extend to their directors or
officers by limiting these to an amount equivalent to the respective outstanding
deposits and book value of the paid-in capital contribution in the bank. Again, this is
a requirement directed at the bank. In this light, a prosecution for violation of the first
paragraph of Section 83, such as the one involved here, does not require an allegation
that the loan exceeded the legal limit. Even if the loan involved is below the legal
limit, a written approval by the majority of the banks directors is still required;
otherwise, the bank director or officer who becomes an obligor of the bank is
liable. Compliance with the ceiling requirement does not dispense with the approval
requirement.
Evidently, the failure to observe the three requirements under Section 83
paves the way for the prosecution of three different offenses, each with its own set of
elements. A successful indictment for failing to comply with the approval
requirement will not necessitate proof that the other two were likewise not observed.
Rules of Court allow
amendment of insufficient
Information
Assuming that the facts charged in the Information do not constitute an offense, we
find it erroneous for the RTC to immediately order the dismissal of the Information,
without giving the prosecution a chance to amend it. Section 4 of Rule 117 states:
SEC. 4. Amendment of complaint or information.If the motion to
quash is based on an alleged defect of the complaint or information
which can be cured by amendment, the court shall order that an
amendment be made.
If it is based on the ground that the facts charged do not
constitute an offense, the prosecution shall be given by the court an
opportunity to correct the defect by amendment. The motion shall be
granted if the prosecution fails to make the amendment, or the
complaint or information still suffers from the same defect despite
the amendment. [Emphasis supplied]
Although an Information may be defective because the facts charged do not
constitute an offense, the dismissal of the case will not necessarily follow. The Rules
specifically require that the prosecution should be given a chance to correct the
defect; the court can order the dismissal only upon the prosecutions failure to do
so. The RTCs failure to provide the prosecution this opportunity twice[21]constitutes an
arbitrary exercise of power that was correctly addressed by the CA through
the certiorari petition. This defect in the RTCs action on the case, while not central to
the issue before us, strengthens our conclusion that this criminal case should be
resolved through full-blown trial on the merits.
WHEREFORE, we DENY the petitioners petition for review
on certiorari and AFFIRM the decision of the Court of Appeals in CA-G.R. SP No.
79149, promulgated on October 26, 2006, as well as its resolution of June 4, 2007. The
Regional Trial Court, Branch 26, Manila is directed to PROCEED with the hearing of
Criminal Case No. 99-178551. Costs against the petitioner.
8
SO ORDERED.

9
HILARIO P. SORIANO, G.R. No. 162336 never been authorized by RBSM's Board of Directors and no report thereof had ever been
Petitioner, submitted to the Department of Rural Banks, Supervision and Examination Sector of the
BSP. The letter of the OSI, which was not subscribed under oath, ended with a request that a
- versus - Present: preliminary investigation be conducted and the corresponding criminal charges be filed
against petitioner at his last known address.
PEOPLE OF THE PHILIPPINES, CARPIO, J., Chairperson,
BANGKO SENTRAL NG CORONA,* Acting on the letter-request and its annexes, State Prosecutor Albert R. Fonacier proceeded
PILIPINAS (BSP), PHILIPPINE BRION, with the preliminary investigation. He issued a subpoena with the witnesses affidavits and
DEPOSIT INSURANCE DEL CASTILLO, and supporting documents attached, and required petitioner to file his counter-affidavit. In due
CORPORATION (PDIC), PUBLIC PEREZ, JJ. course, the investigating officer issued a Resolution finding probable cause and
PROSECUTOR ANTONIO C. correspondingly filed two separate informations against petitioner before the Regional Trial
BUAN, and STATE Court (RTC) of Malolos, Bulacan.[13]
PROSECUTOR ALBERTO R. Promulgated:
FONACIER, The first Information,[14] dated November 14, 2000 and docketed as Criminal Case No. 237-M-
Respondents. [1] February 1, 2010 2001, was for estafa through falsification of commercial documents, under Article 315,
x-------------------------------------------------------------------x paragraph 1(b), of the Revised Penal Code (RPC), in relation to Article 172 of the RPC and PD
1689. It basically alleged that petitioner and his co-accused, in abuse of the confidence reposed
in them as RBSM officers, caused the falsification of a number of loan documents, making it
DECISION appear that one Enrico Carlos filled up the same, and thereby succeeded in securing a loan and
converting the loan proceeds for their personal gain and benefit.[15] The information reads:
DEL CASTILLO, J.:
That in or about the month of April, 1997, and thereafter, in San
Miguel, Bulacan, and within the jurisdiction of this Honorable Court, the
A bank officer violates the DOSRI[2] law when he acquires bank funds for his personal benefit, said accused HILARIO P. SORIANO and ROSALINDA ILAGAN, as
even if such acquisition was facilitated by a fraudulent loan application.Directors, officers, principals by direct participation, with unfaithfulness or abuse of
stockholders, and their related interests cannot be allowed to interpose the fraudulent nature of confidence and taking advantage of their position as President of the Rural
the loan as a defense to escape culpability for their circumvention of Section 83 of Republic Act Bank of San Miguel (Bulacan), Inc. and Branch Manager of the Rural Bank
(RA) No. 337.[3] of San Miguel San Miguel Branch [sic], a duly organized banking
Before us is a Petition for Review on Certiorari[4] under Rule 45 of the Rules of Court, institution under Philippine Laws, conspiring, confederating and mutually
assailing the September 26, 2003 Decision[5] and the February 5, 2004Resolution[6] of the Court helping one another, did then and there, willfully and feloniously falsify
of Appeals (CA) in CA-G.R. SP No. 67657. The challenged Decision disposed as follows: loan documents consisting of undated loan application/information sheet,
WHEREFORE, premises considered, the instant petition for credit proposal dated April 14, 1997, credit proposal dated April 22, 1997,
certiorari is hereby DENIED.[7] credit investigation report dated April 15, 1997, promissory note dated
April 23, 1997, disclosure statement on loan/credit transaction dated April
Factual Antecedents 23, 1997, and other related documents, by making it appear that one Enrico
Carlos filled up the application/information sheet and filed the
Sometime in 2000, the Office of Special Investigation (OSI) of the Bangko Sentral ng aforementioned loan documents when in truth and in fact Enrico Carlos
Pilipinas (BSP), through its officers,[8] transmitted a letter[9] dated March 27, 2000 to Jovencito did not participate in the execution of said loan documents and that by
Zuo, Chief State Prosecutor of the Department of Justice (DOJ). The letter attached as annexes virtue of said falsification and with deceit and intent to cause damage, the
five affidavits,[10] which would allegedly serve as bases for filing criminal charges for Estafa accused succeeded in securing a loan in the amount of eight million pesos
thru Falsification of Commercial Documents, in relation to Presidential Decree (PD) No. (PhP8,000,000.00) from the Rural Bank of San Miguel San Ildefonso branch
1689,[11] and for Violation of Section 83 of RA 337, as amended by PD 1795,[12] against, inter in the name of Enrico Carlos which amount of PhP8 million representing
alia, petitioner herein Hilario P. Soriano. These five affidavits, along with other documents, the loan proceeds the accused thereafter converted the same amount to
stated that spouses Enrico and Amalia Carlos appeared to have an outstanding loan of P8 their own personal gain and benefit, to the damage and prejudice of the
million with the Rural Bank of San Miguel (Bulacan), Inc. (RBSM), but had never applied for Rural Bank of San Miguel San Ildefonso branch, its creditors, the Bangko
nor received such loan; that it was petitioner, who was then president of RBSM, who had Sentral ng Pilipinas, and the Philippine Deposit Insurance Corporation.
ordered, facilitated, and received the proceeds of the loan; and that the P8 million loan had
10
 CONTRARY TO LAW.[16]
The other Information[17] dated November 10, 2000 and docketed as Criminal Case No. 238-M-
2001, was for violation of Section 83 of RA 337, as amended by PD 1795.The said provision
refers to the prohibition against the so-called DOSRI loans. The information alleged that, in his
capacity as President of RBSM, petitioner indirectly secured an P8 million loan with RBSM, for
his personal use and benefit, without the written consent and approval of the bank's Board of
Directors, without entering the said transaction in the bank's records, and without transmitting
a copy of the transaction to the supervising department of the bank. His ruse was facilitated by
placing the loan in the name of an unsuspecting RBSM depositor, one Enrico Carlos.[18] The
information reads:
That in or about the month of April, 1997, and thereafter, and
within the jurisdiction of this Honorable Court, the said accused, in his
capacity as President of the Rural Bank of San Miguel (Bulacan), Inc., did
then and there, willfully and feloniously indirectly borrow or secure a loan
with the Rural Bank of San Miguel San Ildefonso branch, a domestic rural
banking institution created, organized and existing under Philippine laws,
amounting to eight million pesos (PhP8,000,000.00), knowing fully well
that the same has been done by him without the written consent and
approval of the majority of the board of directors of the said bank, and
which consent and approval the said accused deliberately failed to obtain
and enter the same upon the records of said banking institution and to
transmit a copy thereof to the supervising department of the said bank, as
required by the General Banking Act, by using the name of one depositor
Enrico Carlos of San Miguel, Bulacan, the latter having no knowledge of
the said loan, and one in possession of the said amount of eight million
pesos (PhP8,000,000.00), accused converted the same to his own personal
use and benefit, in flagrant violation of the said law.
CONTRARY TO LAW.[19]
Both cases were raffled to Branch 79 of the RTC of Malolos, Bulacan.[20]
On June 8, 2001, petitioner moved to quash[21] these informations on two grounds: that the
court had no jurisdiction over the offense charged, and that the facts charged do not constitute
an offense.
On the first ground, petitioner argued that the letter transmitted by the BSP to the DOJ
constituted the complaint and hence was defective for failure to comply with the mandatory
requirements of Section 3(a), Rule 112 of the Rules of Court, such as the statement of address of
petitioner and oath and subscription.[22] Moreover, petitioner argued that the officers of
OSI, who were the signatories to the letter-complaint, were not authorized by the BSP
Governor, much less by the Monetary Board, to file the complaint. According to petitioner, this
alleged fatal oversight violated Section 18, pars. (c) and (d) of the New Central Bank Act (RA
7653).
On the second ground, petitioner contended that the commission of estafa under paragraph
1(b) of Article 315 of the RPC is inherently incompatible with the violation of DOSRI law (as set
out in Section 83[23] of RA 337, as amended by PD 1795),[24]hence a person cannot be charged for
both offenses. He argued that a violation of DOSRI law requires the offender to obtain a
loan from his bank, without complying with procedural, reportorial, or ceiling
requirements. On the other hand, estafa under par. 1(b), Article 315 of the RPC requires the
offender to misappropriate or convert something that he holds in trust, or on commission, or
for administration, or under any other obligation involving the duty to return the same.[25]
Essentially, the petitioner theorized that the characterization of possession is different
in the two offenses. If petitioner acquired the loan as DOSRI, he owned the loaned money and
therefore, cannot misappropriate or convert it as contemplated in the offense of
estafa. Conversely, if petitioner committed estafa, then he merely held the money in trust for
someone else and therefore, did not acquire a loan in violation of DOSRI rules.
Ruling of the Regional Trial Court
In an Order[26] dated August 8, 2001, the trial court denied petitioner's Motion to Quash for lack
of merit. The lower court agreed with the prosecution that the assailed OSI letter was not the
complaint-affidavit itself; thus, it need not comply with the requirements under the Rules of
Court. The trial court held that the affidavits, which were attached to the OSI letter, comprised
the complaint-affidavit in the case. Since these affidavits were duly subscribed and sworn to
before a notary public, there was adequate compliance with the Rules. The trial court further
held that the two offenses were separate and distinct violations, hence the prosecution of one
did not pose a bar to the other.[27]
Petitioners Motion for Reconsideration was likewise denied in an Order
dated September 5, 2001.[28]
Aggrieved, petitioner filed a Petition for Certiorari[29] with the CA, reiterating his arguments
before the trial court.
Ruling of the Court of Appeals
The CA denied the petition on both issues presented by petitioner.
On the first issue, the CA determined that the BSP letter, which petitioner characterized to be a
fatally infirm complaint, was not actually a complaint, but a transmittal or cover letter
only. This transmittal letter merely contained a summary of the affidavits which were attached
to it. It did not contain any averment of personal knowledge of the events and transactions that
constitute the elements of the offenses charged. Being a mere transmittal letter, it need not
comply with the requirements of Section 3(a) of Rule 112 of the Rules of Court.[30]
The CA further determined that the five affidavits attached to the transmittal letter should be
considered as the complaint-affidavits that charged petitioner with violation of Section 83 of
RA 337 and for Estafa thru Falsification of Commercial Documents. These complaint-affidavits
complied with the mandatory requirements set out in the Rules of Court they were subscribed
11
and sworn to before a notary public and subsequently certified by State Prosecutor Fonacier,
who personally examined the affiants and was convinced that the affiants fully understood
their sworn statements.[31]
Anent the second ground, the CA found no merit in petitioner's argument that the violation of
the DOSRI law and the commission of estafa thru falsification of commercial documents are
inherently inconsistent with each other. It explained that the test in considering a motion to
quash on the ground that the facts charged do not constitute an offense, is whether the facts
alleged, when hypothetically admitted, constitute the elements of the offense charged. The
appellate court held that this test was sufficiently met because the allegations in the assailed
informations, when hypothetically admitted, clearly constitute the elements of Estafa thru
Falsification of Commercial Documents and Violation of DOSRI law.[32]
Petitioners Motion for Reconsideration[33] was likewise denied for lack of merit.
Hence, this petition.
Issues
Restated, petitioner raises the following issues[34] for our consideration:
I
Whether the complaint complied with the mandatory requirements
provided under Section 3(a), Rule 112 of the Rules of Court and Section 18,
paragraphs (c) and (d) of RA 7653.
II
Whether a loan transaction within the ambit of the DOSRI law (violation of
Section 83 of RA 337, as amended) could also be the subject of Estafa under
Article 315 (1) (b) of the Revised Penal Code.
III
Is a petition for certiorari under Rule 65 the proper remedy against an
Order denying a Motion to Quash?
IV
Whether petitioner is entitled to a writ of injunction.
Our Ruling
The petition lacks merit.
First Issue:
Whether the complaint complied with the mandatory requirements
provided under Section 3(a), Rule 112 of the Rules of Court and Section
18, paragraphs (c) and (d) of
Republic Act No. 7653
Petitioner moved to
withdraw the first issue
from the instant petition
On March 5, 2007, the Court noted[35] petitioner's Manifestation and Motion for Partial
Withdrawal of the Petition[36] dated February 7, 2007. In the said motion, petitioner informed
the Court of the promulgation of a Decision entitled Soriano v. Hon. Casanova,[37] which also
involved petitioner and similar BSP letters to the DOJ.According to petitioner, the said Decision
allegedly ruled squarely on the nature of the BSP letters and the validity of the sworn affidavits
attached thereto. For this reason, petitioner moved for the partial withdrawal of the instant
petition insofar as it involved the issue of whether or not a court can legally acquire jurisdiction
over a complaint which failed to comply with the mandatory requirements provided under
Section 3(a), Rule 112 of the Rules of Court and Section 18, paragraphs (c) and (d) of RA 7653.[38]
Given that the case had already been submitted for resolution of the Court when petitioner
filed his latest motion, and that all respondents had presented their positions and arguments on
the first issue, the Court deems it proper to rule on the same.
In Soriano v. Hon.
Casanova, the Court held
that the affidavits attached
to the BSP transmittal
letter complied with the
mandatory requirements
under the Rules of Court.
To be sure, the BSP letters involved in Soriano v. Hon. Casanova[39] are not the same as the BSP
letter involved in the instant case. However, the BSP letters in Soriano v. Hon. Casanova and the
BSP letter subject of this case are similar in the sense that they are all signed by the OSI officers
of the BSP, they were not sworn to by the said officers, they all contained summaries of their
attached affidavits, and they all requested the conduct of a preliminary investigation and the
filing of corresponding criminal charges against petitioner Soriano. Thus, the principle of stare
decisis dictates that the ruling in Soriano v. Hon. Casanova be applied in the instant case once a
question of law has been examined and decided, it should be deemed settled and closed to
further argument.[40]
We held in Soriano v. Hon. Casanova, after a close scrutiny of the letters transmitted by
the BSP to the DOJ, that these were not intended to be the complaint, as envisioned under the
Rules. They did not contain averments of personal knowledge of the events and transactions
constitutive of any offense. The letters merely transmitted for preliminary investigation the
affidavits of people who had personal knowledge of the acts of petitioner. We ruled that these
affidavits, not the letters transmitting them, initiated the preliminary investigation. Since these
12
affidavits were subscribed under oath by the witnesses who executed them before a notary
public, then there was substantial compliance with Section 3(a), Rule 112 of the Rules of Court.
Anent the contention that there was no authority from the BSP Governor or the Monetary
Board to file a criminal case against Soriano, we held that the requirements of Section 18,
paragraphs (c) and (d) of RA 7653 did not apply because the BSP did not institute the
complaint but merely transmitted the affidavits of the complainants to the DOJ.
We further held that since the offenses for which Soriano was charged were public crimes,
authority holds that it can be initiated by any competent person with personal knowledge of
the acts committed by the offender. Thus, the witnesses who executed the affidavits clearly fell
within the purview of any competent person who may institute the complaint for a public
crime.
The ruling in Soriano v. Hon. Casanova has been adopted and elaborated upon in the
recent case of Santos-Concio v. Department of Justice.[41] Instead of a transmittal letter from the
BSP, the Court in Santos-Concio was faced with an NBI-NCR Report, likewise with affidavits of
witnesses as attachments. Ruling on the validity of the witnesses sworn affidavits as bases for a
preliminary investigation, we held:
The Court is not unaware of the practice of incorporating all
allegations in one document denominated as complaint-affidavit. It does
not pronounce strict adherence to only one approach, however, for there
are cases where the extent of ones personal knowledge may not cover the
entire gamut of details material to the alleged offense. The private
offended party or relative of the deceased may not even have witnessed
the fatality,in which case the peace officer or law enforcer has to rely chiefly
on affidavits of witnesses. The Rules do not in fact preclude the attachment
of a referral or transmittal letter similar to that of the NBI-NCR. Thus,
in Soriano v. Casanova, the Court held:
A close scrutiny of the letters transmitted by the
BSP and PDIC to the DOJ shows that
these were not intended to be the complaint envisioned
under the Rules. It may be clearly inferred from the
tenor of the letters that the officers merely intended to
transmit the affidavits of the bank employees to the
DOJ. Nowhere in the transmittal letters is there any
averment on the part of the BSP and PDIC officers of
personal knowledge of the events and transactions
constitutive of the criminal violations alleged to have
been made by the accused. In fact, the letters clearly
stated that what the OSI of the BSP and the LIS of the
PDIC did was to respectfully transmit to the DOJ for
preliminary investigation the affidavits and personal
knowledge of the acts of the petitioner. These affidavits
were subscribed under oath by the witnesses who
executed them before a notary public. Since
the affidavits, not the letters transmitting them, were
intended to initiate the preliminary investigation, we hold
that Section 3(a), Rule 112 of the Rules of Court was
substantially complied with.
Citing the ruling of this Court in Ebarle v.
Sucaldito, the Court of Appeals correctly held
that a complaint for purposes of preliminary investigation by
the fiscal need not be filed by the offended party. The rule has
been that, unless the offense subject thereof is one that
cannot be prosecuted de oficio, the same may be filed, for
preliminary investigation purposes, by any competent
person. The crime of estafa is a public crime which can
be initiated by any competent person. The witnesses
who executed the affidavits based on their personal
knowledge of the acts committed by the petitioner fall
within the purview of any competent person who may
institute the complaint for a public crime. x x
x (Emphasis and italics supplied)
A preliminary investigation can thus validly proceed on the basis of
an affidavit of any competent person, without the referral document, like
the NBI-NCR Report, having been sworn to by the law enforcer as the
nominal complainant. To require otherwise is a needless exercise. The
cited case of Oporto, Jr. v. Judge Monserate does not appear to dent this
proposition. After all, what is required is to reduce the evidence into
affidavits, for while reports and even raw information may justify the
initiation of an investigation, the preliminary investigation stage can be
held only after sufficient evidence has been gathered and evaluated which
may warrant the eventual prosecution of the case in court.[42]
Following the foregoing rulings in Soriano v. Hon. Casanova and Santos-Concio v. Department of
Justice, we hold that the BSP letter, taken together with the affidavits attached thereto, comply
with the requirements provided under Section 3(a), Rule 112 of the Rules of Court and Section
18, paragraphs (c) and (d) of RA 7653.
Second Issue:
Whether a loan transaction within the ambit of the DOSRI law
(violation of Section 83 of RA 337, as amended) could be the subject of
Estafa under Article 315 (1) (b) of the
Revised Penal Code
The second issue was raised by petitioner in the context of his Motion to Quash
Information on the ground that the facts charged do not constitute an offense.[43] It is settled that
in considering a motion to quash on such ground, the test is whether the facts alleged, if
hypothetically admitted, would establish the essential elements of the offense charged as
defined by law. The trial court may not consider a situation contrary to that set forth in the
13
criminal complaint or information. Facts that constitute the defense of the petitioner[s] against
the charge under the information must be proved by [him] during trial. Such facts or
circumstances do not constitute proper grounds for a motion to quash the information on the
ground that the material averments do not constitute the offense.[44]
We have examined the two informations against petitioner and we find that they contain
allegations which, if hypothetically admitted, would establish the essential elements of the
crime of DOSRI violation and estafa thru falsification of commercial documents.
In Criminal Case No. 238-M-2001 for violation of DOSRI rules, the information alleged that
petitioner Soriano was the president of RBSM; that he was able to indirectly obtain a loan from
RBSM by putting the loan in the name of depositor Enrico Carlos; and that he did this without
complying with the requisite board approval, reportorial, and ceiling requirements.
In Criminal Case No. 237-M-2001 for estafa thru falsification of commercial documents, the
information alleged that petitioner, by taking advantage of his position as president of RBSM,
falsified various loan documents to make it appear that an Enrico Carlos secured a loan of P8
million from RBSM; that petitioner succeeded in obtaining the loan proceeds; that he later
converted the loan proceeds to his own personal gain and benefit; and that his action caused
damage and prejudice to RBSM, its creditors, the BSP, and the PDIC.
Significantly, this is not the first occasion that we adjudge the sufficiency of similarly worded
informations. In Soriano v. People,[45] involving the same petitioner in this case (but different
transactions), we also reviewed the sufficiency of informations for DOSRI violation and estafa
thru falsification of commercial documents, which were almost identical, mutatis mutandis, with
the subject informations herein. We held in Soriano v. People that there is no basis for the quashal
of the informations as they contain material allegations charging Soriano with violation of
DOSRI rules and estafa thru falsification of commercial documents.
Petitioner raises the theory that he could not possibly be held liable for estafa in
concurrence with the charge for DOSRI violation. According to him, the DOSRI charge
presupposes that he acquired a loan, which would make the loan proceeds his ownmoney and
which he could neither possibly misappropriate nor convert to the prejudice of another, as
required by the statutory definition of estafa.[46] On the other hand, if petitioner did not acquire
any loan, there can be no DOSRI violation to speak of. Thus, petitioner posits that the two
offenses cannot co-exist. This theory does not persuade us.
Petitioners theory is based on the false premises that the loan was extended to him by
the bank in his own name, and that he became the owner of the loan proceeds. Both premises
are wrong.
The bank money (amounting to P8 million) which came to the possession of
petitioner was money held in trust or administration by him for the bank, in his
fiduciary capacity as the President of said bank.[47] It is not accurate to say that petitioner
became the owner of the P8 million because it was the proceeds of a loan.That would have
been correct if the bank knowingly extended the loan to petitioner himself. But that is not the
case here. According to the information for estafa, the loan was supposed to be for another
person, a certain Enrico Carlos; petitioner, through falsification, made it appear that said Enrico
Carlos applied for the loan when in fact he (Enrico Carlos) did not. Through such fraudulent
device, petitioner obtained the loan proceeds and converted the same. Under these
circumstances, it cannot be said that petitioner became the legal owner of the P8 million. Thus,
petitioner remained the banks fiduciary with respect to that money, which makes it capable of
misappropriation or conversion in his hands.
The next question is whether there can also be, at the same time, a charge for DOSRI
violation in such a situation wherein the accused bank officer did not secure a loan in his own
name, but was alleged to have used the name of another person in order to indirectly secure a
loan from the bank. We answer this in the affirmative. Section 83 of RA 337 reads:
Section 83. No director or officer of any banking institution shall,
either directly or indirectly, for himself or as the representative or agent of
others, borrow any of the deposits of funds of such bank, nor shall he become
a guarantor, indorser, or surety for loans from such bank to others, or in any
manner be an obligor for moneys borrowed from the bank or loaned by it,
except with the written approval of the majority of the directors of the
bank, excluding the director concerned. Any such approval shall be
entered upon the records of the corporation and a copy of such entry shall
be transmitted forthwith to the Superintendent of Banks. The office of any
director or officer of a bank who violates the provisions of this section shall
immediately become vacant and the director or officer shall be punished
by imprisonment of not less than one year nor more than ten years and by
a fine of not less than one thousand nor more than ten thousand pesos. x x
x
The prohibition in Section 83 is broad enough to cover various modes of borrowing.[48] It
covers loans by a bank director or officer (like herein petitioner) which are made either: (1)
directly, (2) indirectly, (3) for himself, (4) or as the representative or agent of others. It applies
even if the director or officer is a mere guarantor, indorser or surety for someone else's loan or is
in any manner an obligor for money borrowed from the bank or loaned by it. The covered
transactions are prohibited unless the approval, reportorial and ceiling requirements under
Section 83 are complied with. The prohibition is intended to protect the public, especially the
depositors,[49] from the overborrowing of bank funds by bank officers, directors, stockholders
and related interests, as such overborrowing may lead to bank failures.[50] It has been said that
banking institutions are not created for the benefit of the directors [or officers]. While directors
have great powers as directors, they have no special privileges as individuals. They cannot use
the assets of the bank for their own benefit except as permitted by law. Stringent restrictions are
placed about them so that when acting both for the bank and for one of themselves at the same
time, they must keep within certain prescribed lines regarded by the legislature as essential to
safety in the banking business.[51]
A direct borrowing is obviously one that is made in the name of the DOSRI himself or
where the DOSRI is a named party, while an indirect borrowing includes one that is made by a
third party, but the DOSRI has a stake in the transaction.[52] The latter type indirect borrowing
applies here. The information in Criminal Case 238-M-2001 alleges that petitioner in his capacity
14
as President of Rural Bank of San Miguel San Ildefonso branch x x x indirectly borrow[ed] or
secure[d] a loan with [RBSM] x x xknowing fully well that the same has been done by him
without the written consent and approval of the majority of the board of directors x x x, and
which consent and approval the said accused deliberately failed to obtain and enter the same
upon the records of said banking institution and to transmit a copy thereof to the supervising
department of the said bank x x x by using the name of one depositor Enrico Carlos x x x, the latter
having no knowledge of the said loan, and once in possession of the said amount of eight million
pesos (P8 million), [petitioner] converted the same to his own personal use and benefit.[53]
The foregoing information describes the manner of securing the loan as indirect;
names petitioner as the benefactor of the indirect loan; and states that the requirements of the
law were not complied with. It contains all the required elements[54] for a violation of Section 83,
even if petitioner did not secure the loan in his own name.
The broad interpretation of the prohibition in Section 83 is justified by the fact that it
even expressly covers loans to third parties where the third parties are aware of the transaction
(such as principals represented by the DOSRI), and where the DOSRIs interest does not appear
to be beneficial but even burdensome (such as in cases when the DOSRI acts as a mere
guarantor or surety). If the law finds it necessary to protect the bank and the banking system in
such situations, it will surely be illogical for it to exclude a case like this where the DOSRI
acted for his own benefit, using the name of an unsuspecting person. A contrary interpretation will
effectively allow a DOSRI to use dummies to circumvent the requirements of the law.
In sum, the informations filed against petitioner do not negate each other.
Third Issue:
Is a Rule 65 petition for certiorari the proper remedy against
an Order denying a Motion to Quash?
Whether petitioner is entitled to a writ of injunction
The requisites to justify an injunctive relief are: (1) the right of the complainant is clear and
unmistakable; (2) the invasion of the right sought to be protected is material and substantial;
and (3) there is an urgent and paramount necessity for the writ to prevent serious damage. A
clear legal right means one clearly founded in or granted by law or is enforceable as a matter of
law. Absent any clear and unquestioned legal right, the issuance of an injunctive writ would
constitute grave abuse of discretion.[57] Caution and prudence must, at all times, attend the
issuance of an injunctive writ because it effectively disposes of the main case without trial
and/or due process.[58] In Olalia v. Hizon,[59] the Court held as follows:
It has been consistently held that there is no power the exercise of
which is more delicate, which requires greater caution, deliberation and
sound discretion, or more dangerous in a doubtful case, than the issuance
of an injunction. It is the strong arm of equity that should never be
extended unless to cases of great injury, where courts of law cannot afford
an adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation
upon the freedom of action of the [complainant] and should not be granted
lightly or precipitately. It should be granted only when the court is fully
satisfied that the law permits it and the emergency demands it.
Given this Court's findings in the earlier issues of the instant case, we find no compelling
reason to grant the injunctive relief sought by petitioner.
WHEREFORE, the petition is DENIED. The assailed September 26, 2003 Decision as well as
the February 5, 2004 Resolution of the Court of Appeals in CA-G.R. SP No. 67657
are AFFIRMED. Costs against petitioner.

This issue may be speedily resolved by adopting our ruling in Soriano v. People,[55]where we SO ORDERED.
held:

In fine, the Court has consistently held that a special civil action
for certiorari is not the proper remedy to assail the denial of a motion to
quash an information. The proper procedure in such a case is for the
accused to enter a plea, go to trial without prejudice on his part to present
the special defenses he had invoked in his motion to quash and if after trial
on the merits, an adverse decision is rendered, to appeal therefrom in the
manner authorized by law. Thus, petitioners should not have forthwith
filed a special civil action for certiorari with the CA and instead, they should
have gone to trial and reiterated the special defenses contained in their
motion to quash. There are no special or exceptional circumstances in the
present case that would justify immediate resort to a filing of a petition
for certiorari. Clearly, the CA did not commit any reversible error, much
less, grave abuse of discretion in dismissing the petition.[56]

Fourth Issue:
15