EN BANC

[G.R. NOS. 151809-12. April 12, 2005]

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT

(PCGG), Petitioner, v. SANDIGANBAYAN (Fifth Division), LUCIO C. TAN,
CARMEN KHAO TAN, FLORENCIO T. SANTOS, NATIVIDAD P. SANTOS,
DOMINGO CHUA, TAN HUI NEE, MARIANO TAN ENG LIAN, ESTATE OF
BENITO TAN KEE HIONG (represented by TARCIANA C. TAN),
FLORENCIO N. SANTOS, JR., HARRY C. TAN, TAN ENG CHAN, CHUNG
POE KEE, MARIANO KHOO, MANUEL KHOO, MIGUEL KHOO, JAIME
KHOO, ELIZABETH KHOO, CELSO RANOLA, WILLIAM T. WONG,
ERNESTO B. LIM, BENJAMIN T. ALBACITA, WILLY CO, ALLIED
BANKING CORP., ALLIED LEASING AND FINANCE CORPORATION,
ASIA BREWERY, INC., BASIC HOLDINGS CORP., FOREMOST FARMS,
INC., FORTUNE TOBACCO CORP., GRANDSPAN DEVELOPMENT CORP.,
HIMMEL INDUSTRIES, IRIS HOLDINGS AND DEVELOPMENT CORP.,
JEWEL HOLDINGS, INC., MANUFACTURING SERVICES AND TRADE
CORP., MARANAW HOTELS AND RESORT CORP., NORTHERN
TOBACCO REDRYING PLANT, PROGRESSIVE FARMS, INC.,
SHAREHOLDINGS, INC., SIPALAY TRADING CORP., VIRGO HOLDINGS
& DEVELOPMENT CORP., and ATTY. ESTELITO P.
MENDOZA, Respondents.

DECISION

PUNO, J.:

This case is prima impressiones and it is weighted with significance for it concerns on
one hand, the efforts of the Bar to upgrade the ethics of lawyers in government service
and on the other, its effect on the right of government to recruit competent counsel to
defend its interests.

In 1976, General Bank and Trust Company (GENBANK) encountered financial

difficulties. GENBANK had extended considerable financial support to Filcapital
Development Corporation causing it to incur daily overdrawings on its current
account with the Central Bank.1 It was later found by the Central Bank that
GENBANK had approved various loans to directors, officers, stockholders and related
interests totaling P172.3 million, of which 59% was classified as doubtful and P0.505
million as uncollectible.2 As a bailout, the Central Bank extended emergency loans
to GENBANK which reached a total of P310 million.3 Despite the mega loans,
GENBANK failed to recover from its financial woes. On March 25, 1977,
the Central Bank issued a resolution declaring GENBANK insolvent and unable
to resume business with safety to its depositors, creditors and the general public,
and ordering its liquidation.4 A public bidding of GENBANK's assets was held
from March 26 to 28, 1977, wherein the Lucio Tan group submitted the winning
bid.5 Subsequently, former Solicitor General Estelito P. Mendoza filed a
petition with the then Court of First Instance praying for the assistance and
supervision of the court in GENBANK's liquidation as mandated by Section 29 of
Republic Act No. 265.

In February 1986, the EDSA I revolution toppled the Marcos government. One of the
first acts of President Corazon C. Aquino was to establish the Presidential
Commission on Good Government (PCGG) to recover the alleged ill-gotten wealth of
former President Ferdinand Marcos, his family and his cronies. Pursuant to this
mandate, the PCGG, on July 17, 1987, filed with the Sandiganbayan a complaint for
'reversion, reconveyance, restitution, accounting and damages against respondents
Lucio Tan, Carmen Khao Tan, Florencio T. Santos, Natividad P. Santos, Domingo
Chua, Tan Hui Nee, Mariano Tan Eng Lian, Estate of Benito Tan Kee Hiong,
Florencio N. Santos, Jr., Harry C. Tan, Tan Eng Chan, Chung Poe Kee, Mariano
Khoo, Manuel Khoo, Miguel Khoo, Jaime Khoo, Elizabeth Khoo, Celso Ranola,
William T. Wong, Ernesto B. Lim, Benjamin T. Albacita, Willy Co, Allied Banking
Corporation (Allied Bank), Allied Leasing and Finance Corporation, Asia Brewery,
Inc., Basic Holdings Corp., Foremost Farms, Inc., Fortune Tobacco Corporation,
Grandspan Development Corp., Himmel Industries, Iris Holdings and Development
Corp., Jewel Holdings, Inc., Manufacturing Services and Trade Corp., Maranaw
Hotels and Resort Corp., Northern Tobacco Redrying Plant, Progressive Farms, Inc.,
Shareholdings, Inc., Sipalay Trading Corp., Virgo Holdings & Development Corp.,
(collectively referred to herein as respondents Tan, et al.), then President Ferdinand E.
Marcos, Imelda R. Marcos, Panfilo O. Domingo, Cesar Zalamea, Don Ferry and
Gregorio Licaros. The case was docketed as Civil Case No. 0005 of the Second
Division of the Sandiganbayan.6 In connection therewith, the PCGG issued
several writs of sequestration on properties allegedly acquired by the above-named
persons by taking advantage of their close relationship and influence with former
President Marcos.

Respondents Tan, et al. repaired to this Court and filed petitions for certiorari,
prohibition and injunction to nullify, among others, the writs of sequestration issued
by the PCGG.7 After the filing of the parties' comments, this Court referred the cases
to the Sandiganbayan for proper disposition. These cases were docketed as Civil
Case Nos. 0096-0099. In all these cases, respondents Tan, et al. were represented by
their counsel, former Solicitor General Estelito P. Mendoza, who has then resumed his
private practice of law.
On February 5, 1991, the PCGG filed motions to disqualify respondent Mendoza as
counsel for respondents Tan, et al. with the Second Division of
the Sandiganbayan in Civil Case Nos. 00058 and 0096-0099.9 The motions alleged
that respondent Mendoza, as then Solicitor General10 and counsel to Central Bank,
'actively intervened in the liquidation of GENBANK, which was subsequently
acquired by respondents Tan, et al. and became Allied Banking Corporation.
Respondent Mendoza allegedly 'intervened in the acquisition of GENBANK by
respondents Tan, et al. when, in his capacity as then Solicitor General, he advised the
Central Bank's officials on the procedure to bring about GENBANK's liquidation and
appeared as counsel for the Central Bank in connection with its petition for assistance
in the liquidation of GENBANK which he filed with the Court of First Instance (now
Regional Trial Court) of and was docketed as Special Proceeding No. 107812. The
motions to disqualify invoked Rule 6.03 of the Code of Professional
Responsibility. Rule 6.03 prohibits former government lawyers from accepting
'engagement or employment in connection with any matter in which he had intervened
while in said service.

On April 22, 1991 the Second Division of the Sandiganbayan issued a

resolution denying PCGG's motion to disqualify respondent Mendoza in Civil Case
No. 0005.11 It found that the PCGG failed to prove the existence of an inconsistency
between respondent Mendoza's former function as Solicitor General and his present
employment as counsel of the Lucio Tan group. It noted that respondent Mendoza did
not take a position adverse to that taken on behalf of the Central Bank during his term
as Solicitor General.12 It further ruled that respondent Mendoza's appearance as
counsel for respondents Tan, et al. was beyond the one-year prohibited period under
Section 7(b) of Republic Act No. 6713 since he ceased to be Solicitor General in the
year 1986. The said section prohibits a former public official or employee from
practicing his profession in connection with any matter before the office he used to be
with within one year from his resignation, retirement or separation from public
office.13 The PCGG did not seek any reconsideration of the ruling.14 ςrνll

It appears that Civil Case Nos. 0096-0099 were transferred from

the Sandiganbayan's Second Division to the Fifth Division.15 In its resolution dated
July 11, 2001, the Fifth Division of the Sandiganbayan denied the other PCGG's
motion to disqualify respondent Mendoza.16 It adopted the resolution of its Second
Division dated April 22, 1991, and observed that the arguments were the same in
substance as the motion to disqualify filed in Civil Case No. 0005. The PCGG sought
reconsideration of the ruling but its motion was denied in its resolution dated
December 5, 2001.17 ςrνll

Hence, the recourse to this Court by the PCGG assailing the resolutions dated July 11,
2001 and December 5, 2001 of the Fifth Division of the Sandiganbayan via a
Petition for Certiorari and prohibition under Rule 65 of the 1997 Rules of Civil
Procedure.18 The PCGG alleged that the Fifth Division acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in issuing the assailed
resolutions contending that: 1) Rule 6.03 of the Code of Professional Responsibility
prohibits a former government lawyer from accepting employment in connection with
any matter in which he intervened; 2) the prohibition in the Rule is not time-bound; 3)
that Central Bank could not waive the objection to respondent Mendoza's appearance
on behalf of the PCGG; and 4) the resolution in Civil Case No. 0005 was
interlocutory, thus res judicata does not apply.19ςrνll

The petition at bar raises procedural and substantive issues of law. In view, however,
of the import and impact of Rule 6.03 of the Code of Professional Responsibility to
the legal profession and the government, we shall cut our way and forthwith resolve
the substantive issue.

Substantive Issue

The key issue is whether Rule 6.03 of the Code of Professional Responsibility applies
to respondent Mendoza. Again, the prohibition states: 'A lawyer shall not, after
leaving government service, accept engagement or employment in connection with
any matter in which he had intervened while in the said service.

I.A. The history of Rule 6.03

A proper resolution of this case necessitates that we trace the historical lineage of
Rule 6.03 of the Code of Professional Responsibility.

In the seventeenth and eighteenth centuries, ethical standards for lawyers were
pervasive in England and other parts of Europe. The early statements of standards did
not resemble modern codes of conduct. They were not detailed or collected in one
source but surprisingly were comprehensive for their time. The principal thrust of the
standards was directed towards the litigation conduct of lawyers. It underscored the
central duty of truth and fairness in litigation as superior to any obligation to the
client. The formulations of the litigation duties were at times intricate, including
specific pleading standards, an obligation to inform the court of falsehoods and a duty
to explore settlement alternatives. Most of the lawyer's other basic duties --
competency, diligence, loyalty, confidentiality, reasonable fees and service to the poor
-- originated in the litigation context, but ultimately had broader application to all
aspects of a lawyer's practice.
The forms of lawyer regulation in colonial and early post-revolutionary
America did not differ markedly from those in England. The colonies and early states
used oaths, statutes, judicial oversight, and procedural rules to govern attorney
behavior. The difference from England was in the pervasiveness and continuity of
such regulation. The standards set in England varied over time, but the variation in
early America was far greater. The American regulation fluctuated within a single
colony and differed from colony to colony. Many regulations had the effect of setting
some standards of conduct, but the regulation was sporadic, leaving gaps in the
substantive standards. Only three of the traditional core duties can be fairly
characterized as pervasive in the formal, positive law of the colonial and post-
revolutionary period: the duties of litigation fairness, competency and reasonable
fees.20ςrνll

The nineteenth century has been termed the 'dark ages' of legal ethics in the United
States. By mid-century, American legal reformers were filling the void in two ways.
First, David Dudley Field, the drafter of the highly influential New York 'Field Code,
introduced a new set of uniform standards of conduct for lawyers. This concise
statement of eight statutory duties became law in several states in the second half of
the nineteenth century. At the same time, legal educators, such as David Hoffman and
George Sharswood, and many other lawyers were working to flesh out the broad
outline of a lawyer's duties. These reformers wrote about legal ethics in unprecedented
detail and thus brought a new level of understanding to a lawyer's duties. A number of
mid-nineteenth century laws and statutes, other than the Field Code, governed lawyer
behavior. A few forms of colonial regulations - e.g., the 'do no falsehood oath and the
deceit prohibitions -- persisted in some states. Procedural law continued to directly, or
indirectly, limit an attorney's litigation behavior. The developing law of agency
recognized basic duties of competence, loyalty and safeguarding of client property.
Evidence law started to recognize with less equivocation the attorney-client privilege
and its underlying theory of confidentiality. Thus, all of the core duties, with the likely
exception of service to the poor, had some basis in formal law. Yet, as in the colonial
and early post-revolutionary periods, these standards were isolated and did not
provide a comprehensive statement of a lawyer's duties. The reformers, by contrast,
were more comprehensive in their discussion of a lawyer's duties, and they actually
ushered a new era in American legal ethics.21 ςrνll

Toward the end of the nineteenth century, a new form of ethical standards began to
guide lawyers in their practice - the bar association code of legal ethics. The bar codes
were detailed ethical standards formulated by lawyers for lawyers. They combined the
two primary sources of ethical guidance from the nineteenth century. Like the
academic discourses, the bar association codes gave detail to the statutory statements
of duty and the oaths of office. Unlike the academic lectures, however, the bar
association codes retained some of the official imprimatur of the statutes and oaths.
Over time, the bar association codes became extremely popular that states adopted
them as binding rules of law. Critical to the development of the new codes was the re-
emergence of bar associations themselves. Local bar associations formed sporadically
during the colonial period, but they disbanded by the early nineteenth century. In the
late nineteenth century, bar associations began to form again, picking up where their
colonial predecessors had left off. Many of the new bar associations, most notably the
Alabama State Bar Association and the American Bar Association, assumed on the
task of drafting substantive standards of conduct for their members.22 ςrνll

In 1887, Alabama became the first state with a comprehensive bar association code
of ethics. The 1887 Alabama Code of Ethics was the model for several states' codes,
and it was the foundation for the American Bar Association's (ABA) 1908 Canons of
Ethics.23ςrνll

In 1917, the Philippine Bar found that the oath and duties of a lawyer were
insufficient to attain the full measure of public respect to which the legal profession
was entitled. In that year, the Philippine Bar Association adopted as its own, Canons 1
to 32 of the ABA Canons of Professional Ethics.24 ςrνll

As early as 1924, some ABA members have questioned the form and function of the
canons. Among their concerns was the 'revolving door or 'the process by which
lawyers and others temporarily enter government service from private life and then
leave it for large fees in private practice, where they can exploit information, contacts,
and influence garnered in government service.25 These concerns were classified
as adverse-interest conflicts' and 'congruent-interest conflicts. 'Adverse-interest
conflicts' exist where the matter in which the former government lawyer represents a
client in private practice is substantially related to a matter that the lawyer dealt with
while employed by the government and the interests of the current and former are
adverse.26 On the other hand, 'congruent-interest representation conflicts' are
unique to government lawyers and apply primarily to former government
lawyers.27 For several years, the ABA attempted to correct and update the canons
through new canons, individual amendments and interpretative opinions. In 1928, the
ABA amended one canon and added thirteen new canons.28 To deal with problems
peculiar to former government lawyers, Canon 36 was minted which disqualified
them both for 'adverse-interest conflicts' and 'congruent-interest representation
conflicts.29 The rationale for disqualification is rooted in a concern that the
government lawyer's largely discretionary actions would be influenced by the
temptation to take action on behalf of the government client that later could be to the
advantage of parties who might later become private practice clients.30 Canon
36 provides, viz.:
ςηαñrοblεš νιr†υ αl lαω lιbrαrÿ
36. Retirement from judicial position or public employment

A lawyer should not accept employment as an advocate in any matter upon the merits
of which he has previously acted in a judicial capacity.

A lawyer, having once held public office or having been in the public employ
should not, after his retirement, accept employment in connection with any
matter he has investigated or passed upon while in such office or employ.

Over the next thirty years, the ABA continued to amend many of the canons and
added Canons 46 and 47 in 1933 and 1937, respectively.31 ςrνll

In 1946, the Philippine Bar Association again adopted as its own Canons 33 to 47 of
the ABA Canons of Professional Ethics.32 ςrνll

By the middle of the twentieth century, there was growing consensus that the ABA
Canons needed more meaningful revision. In 1964, the ABA President-elect Lewis
Powell asked for the creation of a committee to study the 'adequacy and effectiveness'
of the ABA Canons. The committee recommended that the canons needed substantial
revision, in part because the ABA Canons failed to distinguish between 'the
inspirational and the proscriptive and were thus unsuccessful in enforcement. The
legal profession in the United States likewise observed that Canon 36 of the ABA
Canons of Professional Ethics resulted in unnecessary disqualification of lawyers for
negligible participation in matters during their employment with the government.

The unfairness of Canon 36 compelled ABA to replace it in the 1969 ABA Model
Code of Professional Responsibility.33 The basic ethical principles in the Code of
Professional Responsibility were supplemented by Disciplinary Rules that defined
minimum rules of conduct to which the lawyer must adhere.34 In the case of Canon
9, DR 9-101(b)35 became the applicable supplementary norm. The drafting committee
reformulated the canons into the Model Code of Professional Responsibility, and, in
August of 1969, the ABA House of Delegates approved the Model Code.36 ςrνll

Despite these amendments, legal practitioners remained unsatisfied with the results
and indefinite standards set forth by DR 9-101(b) and the Model Code of Professional
Responsibility as a whole. Thus, in August 1983, the ABA adopted new Model
Rules of Professional Responsibility. The Model Rules used the 'restatement format,
where the conduct standards were set-out in rules, with comments following each rule.
The new format was intended to give better guidance and clarity for enforcement
'because the only enforceable standards were the black letter Rules. The Model Rules
eliminated the broad canons altogether and reduced the emphasis on narrative
discussion, by placing comments after the rules and limiting comment discussion to
the content of the black letter rules. The Model Rules made a number of substantive
improvements particularly with regard to conflicts of interests.37 In particular, the
ABA did away with Canon 9, citing the hopeless dependence of the concept of
impropriety on the subjective views of anxious clients as well as the norm's
indefinite nature.38 ςrνll

In cadence with these changes, the Integrated Bar of the Philippines (IBP) adopted
a proposed Code of Professional Responsibility in 1980 which it submitted to this
Court for approval. The Code was drafted to reflect the local customs, traditions,
and practices of the bar and to conform with new realities. On June 21, 1988, this
Court promulgated the Code of Professional Responsibility.39 Rule 6.03 of the
Code of Professional Responsibility deals particularly with former government
lawyers, and provides, viz.: ςη αñrοblεš νιr†υα l lα ω lιbrαrÿ

Rule 6.03 - A lawyer shall not, after leaving government service, accept engagement
or employment in connection with any matter in which he had intervened while in
said service.

Rule 6.03 of the Code of Professional Responsibility retained the general structure of
paragraph 2, Canon 36 of the Canons of Professional Ethics but replaced the
expansive phrase 'investigated and passed upon with the word 'intervened. It is,
therefore, properly applicable to both 'adverse-interest conflicts' and 'congruent-
interest conflicts.

The case at bar does not involve the 'adverse interest aspect of Rule 6.03.
Respondent Mendoza, it is conceded, has no adverse interest problem when he acted
as Solicitor General in Sp. Proc. No. 107812 and later as counsel of respondents
Tan, et al. in Civil Case No. 0005 and Civil Case Nos. 0096-0099 before
the Sandiganbayan. Nonetheless, there remains the issue of whether there exists a
'congruent-interest conflict sufficient to disqualify respondent Mendoza from
representing respondents Tan, et al.

I.B. The 'congruent interest aspect of Rule 6.03

The key to unlock Rule 6.03 lies in comprehending first, the meaning of
'matter referred to in the rule and, second, the metes and bounds of the
'intervention made by the former government lawyer on the 'matter. The American
Bar Association in its Formal Opinion 342, defined 'matter as any discrete, isolatable
act as well as identifiable transaction or conduct involving a particular situation and
specific party, and not merely an act of drafting, enforcing or interpreting
government or agency procedures, regulations or laws, or briefing abstract principles
of law.
Firstly, it is critical that we pinpoint the 'matter which was the subject of intervention
by respondent Mendoza while he was the Solicitor General. The PCGG relates the
following acts of respondent Mendoza as constituting the 'matter where he intervened
as a Solicitor General, viz:40
ςrνll

The PCGG's Case for Atty. Mendoza's Disqualification

The PCGG imputes grave abuse of discretion on the part of the Sandiganbayan (Fifth
Division) in issuing the assailed Resolutions dated July 11, 2001 and December 5,
2001 denying the motion to disqualify Atty. Mendoza as counsel for respondents
Tan, et al. The PCGG insists that Atty. Mendoza, as then Solicitor General, actively
intervened in the closure of GENBANK by advising the Central Bank on how to
proceed with the said bank's liquidation and even filing the petition for its liquidation
with the CFI of.

As proof thereof, the PCGG cites the Memorandum dated March 29, 1977 prepared
by certain key officials of the Central Bank, namely, then Senior Deputy Governor
Amado R. Brinas, then Deputy Governor Jaime C. Laya, then Deputy Governor and
General Counsel Gabriel C. Singson, then Special Assistant to the Governor Carlota
P. Valenzuela, then Asistant to the Governor Arnulfo B. Aurellano and then Director
of Department of Commercial and Savings Bank Antonio T. Castro, Jr., where they
averred that on March 28, 1977, they had a conference with the Solicitor General
(Atty. Mendoza), who advised them on how to proceed with the liquidation of
GENBANK. The pertinent portion of the said memorandum states: ςηαñrοblεš νιr†υ αl lαω lιbrαrÿ

Immediately after said meeting, we had a conference with the Solicitor General and he
advised that the following procedure should be taken:

1. Management should submit a memorandum to the Monetary Board reporting that

studies and evaluation had been made since the last examination of the bank as of
August 31, 1976 and it is believed that the bank can not be reorganized or placed in a
condition so that it may be permitted to resume business with safety to its depositors
and creditors and the general public.

2. If the said report is confirmed by the Monetary Board, it shall order the liquidation
of the bank and indicate the manner of its liquidation and approve a liquidation plan.

3. The Central Bank shall inform the principal stockholders of Genbank of the
foregoing decision to liquidate the bank and the liquidation plan approved by the
Monetary Board.
4. The Solicitor General shall then file a petition in the Court of First Instance reciting
the proceedings which had been taken and praying the assistance of the Court in the
liquidation of Genbank.

The PCGG further cites the Minutes No. 13 dated March 29, 1977 of the Monetary
Board where it was shown that Atty. Mendoza was furnished copies of pertinent
documents relating to GENBANK in order to aid him in filing with the court the
petition for assistance in the bank's liquidation. The pertinent portion of the said
minutes reads: ςηαñrοblεš νιr† υαl lαω lιbrαrÿ

The Board decided as follows: ςηαñrοblεš νιr†υ αl lαω lιbrαrÿ

.. .

E. To authorize Management to furnish the Solicitor General with a copy of the

subject memorandum of the Director, Department of Commercial and Savings Bank
dated March 29, 1977, together with copies of:

1. Memorandum of the Deputy Governor, Supervision and Examination Sector, to the

Monetary Board, dated March 25, 1977, containing a report on the current situation of
Genbank;

2. Aide Memoire on the Antecedent Facts Re: General Bank and Trust Co., dated
March 23, 1977;

3. Memorandum of the Director, Department of Commercial and Savings Bank, to the

Monetary Board, dated March 24, 1977, submitting, pursuant to Section 29 of R.A.
No. 265, as amended by P.D. No. 1007, a repot on the state of insolvency of Genbank,
together with its attachments; and

4. Such other documents as may be necessary or needed by the Solicitor General for
his use in then CFI-praying the assistance of the Court in the liquidation of Genbank.

Beyond doubt, therefore, the 'matter or the act of respondent Mendoza as Solicitor
General involved in the case at bar is 'advising the Central Bank, on how to
proceed with the said bank's liquidation and even filing the petition for its liquidation
with the CFI of. In fine, the Court should resolve whether his act of advising the
Central Bank on the legal procedure to liquidate GENBANK is included within the
concept of 'matter under Rule 6.03. The procedure of liquidation is given in black
and white in Republic Act No. 265, section 29, viz:

The provision reads in part:

SEC. 29. Proceedings upon insolvency. - Whenever, upon examination by the head of
the appropriate supervising or examining department or his examiners or agents into
the condition of any bank or non-bank financial intermediary performing quasi-
banking functions, it shall be disclosed that the condition of the same is one of
insolvency, or that its continuance in business would involve probable loss to its
depositors or creditors, it shall be the duty of the department head concerned
forthwith, in writing, to inform the Monetary Board of the facts, and the Board may,
upon finding the statements of the department head to be true, forbid the institution to
do business in the Philippines and shall designate an official of the Central Bank or a
person of recognized competence in banking or finance, as receiver to immediately
take charge of its assets and liabilities, as expeditiously as possible collect and gather
all the assets and administer the same for the benefit of its creditors, exercising all the
powers necessary for these purposes including, but not limited to, bringing suits and
foreclosing mortgages in the name of the bank or non-bank financial intermediary
performing quasi-banking functions.

.. .

If the Monetary Board shall determine and confirm within the said period that the
bank or non-bank financial intermediary performing quasi-banking functions is
insolvent or cannot resume business with safety to its depositors, creditors and the
general public, it shall, if the public interest requires, order its liquidation, indicate the
manner of its liquidation and approve a liquidation plan. The Central Bank shall, by
the Solicitor General, file a petition in the Court of First Instance reciting the
proceedings which have been taken and praying the assistance of the court in the
liquidation of such institution. The court shall have jurisdiction in the same
proceedings to adjudicate disputed claims against the bank or non-bank financial
intermediary performing quasi-banking functions and enforce individual liabilities of
the stockholders and do all that is necessary to preserve the assets of such institution
and to implement the liquidation plan approved by the Monetary Board. The
Monetary Board shall designate an official of the Central Bank, or a person of
recognized competence in banking or finance, as liquidator who shall take over the
functions of the receiver previously appointed by the Monetary Board under this
Section. The liquidator shall, with all convenient speed, convert the assets of the
banking institution or non-bank financial intermediary performing quasi-banking
functions to money or sell, assign or otherwise dispose of the same to creditors and
other parties for the purpose of paying the debts of such institution and he may, in the
name of the bank or non-bank financial intermediary performing quasi-banking
functions, institute such actions as may be necessary in the appropriate court to collect
and recover accounts and assets of such institution.
The provisions of any law to the contrary notwithstanding, the actions of the
Monetary Board under this Section and the second paragraph of Section 34 of this Act
shall be final and executory, and can be set aside by the court only if there is
convincing proof that the action is plainly arbitrary and made in bad faith. No
restraining order or injunction shall be issued by the court enjoining the Central Bank
from implementing its actions under this Section and the second paragraph of Section
34 of this Act, unless there is convincing proof that the action of the Monetary Board
is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the
clerk or judge of the court in which the action is pending a bond executed in favor of
the Central Bank, in an amount to be fixed by the court. The restraining order or
injunction shall be refused or, if granted, shall be dissolved upon filing by the Central
Bank of a bond, which shall be in the form of cash or Central Bank cashier(s) check,
in an amount twice the amount of the bond of the petitioner or plaintiff conditioned
that it will pay the damages which the petitioner or plaintiff may suffer by the refusal
or the dissolution of the injunction. The provisions of Rule 58 of the New Rules of
Court insofar as they are applicable and not inconsistent with the provisions of this
Section shall govern the issuance and dissolution of the restraining order or injunction
contemplated in this Section.

Insolvency, under this Act, shall be understood to mean the inability of a bank or non-
bank financial intermediary performing quasi-banking functions to pay its liabilities as
they fall due in the usual and ordinary course of business. Provided, however, That
this shall not include the inability to pay of an otherwise non-insolvent bank or non-
bank financial intermediary performing quasi-banking functions caused by
extraordinary demands induced by financial panic commonly evidenced by a run on
the bank or non-bank financial intermediary performing quasi-banking functions in
the banking or financial community.

The appointment of a conservator under Section 28-A of this Act or the appointment
of a receiver under this Section shall be vested exclusively with the Monetary Board,
the provision of any law, general or special, to the contrary notwithstanding. (As
amended by PD Nos. 72, 1007, 1771 & 1827, Jan. 16, 1981)

We hold that this advice given by respondent Mendoza on the procedure to liquidate
GENBANK is not the 'matter contemplated by Rule 6.03 of the Code of Professional
Responsibility. ABA Formal Opinion No. 342 is clear as daylight in stressing that
the 'drafting, enforcing or interpreting government or agency procedures,
regulations or laws, or briefing abstract principles of law are acts which do not
fall within the scope of the term 'matter and cannot disqualify.

Secondly, it can even be conceded for the sake of argument that the above act of
respondent Mendoza falls within the definition of matter per ABA Formal Opinion
No. 342. Be that as it may, the said act of respondent Mendoza which is the
'matter involved in Sp. Proc. No. 107812 is entirely different from the
'matter involved in Civil Case No. 0096. Again, the plain facts speak for themselves.
It is given that respondent Mendoza had nothing to do with the decision of the Central
Bank to liquidate GENBANK. It is also given that he did not participate in the sale of
GENBANK to Allied Bank. The 'matter where he got himself involved was in
informing Central Bank on the procedure provided by law to liquidate GENBANK
thru the courts and in filing the necessary petition in Sp. Proc. No. 107812 in the then
Court of First Instance. The subject 'matter of Sp. Proc. No. 107812, therefore, is
not the same nor is related to but is different from the subject 'matter in Civil
Case No. 0096. Civil Case No. 0096 involves the sequestration of the stocks owned
by respondents Tan, et al., in Allied Bank on the alleged ground that they are ill-
gotten. The case does not involve the liquidation of GENBANK. Nor does it involve
the sale of GENBANK to Allied Bank. Whether the shares of stock of the reorganized
Allied Bank are ill-gotten is far removed from the issue of the dissolution and
liquidation of GENBANK. GENBANK was liquidated by the Central Bank due,
among others, to the alleged banking malpractices of its owners and officers. In other
words, the legality of the liquidation of GENBANK is not an issue in the
sequestration cases. Indeed, the jurisdiction of the PCGG does not include the
dissolution and liquidation of banks. It goes without saying that Code 6.03 of the
Code of Professional Responsibility cannot apply to respondent Mendoza because
his alleged intervention while a Solicitor General in Sp. Proc. No. 107812 is an
intervention on a matter different from the matter involved in Civil Case No.
0096.

Thirdly, we now slide to the metes and bounds of the 'intervention contemplated by
Rule 6.03. 'Intervene means, viz.:ςηαñrοblεš νιr†υα l lα ω lιbrαrÿ

1: to enter or appear as an irrelevant or extraneous feature or circumstance. .. 2: to

occur, fall, or come in between points of time or events. .. 3: to come in or between by
way of hindrance or modification: INTERPOSE. .. 4: to occur or lie between two
things (Paris, where the same city lay on both sides of an intervening river. ..)41
ςrνll

On the other hand, 'intervention is defined as:

1: the act or fact of intervening: INTERPOSITION; 2: interference that may affect the
interests of others.42
ςrνll

There are, therefore, two possible interpretations of the word 'intervene. Under
the first interpretation, 'intervene includes participation in a proceeding even if the
intervention is irrelevant or has no effect or little influence.43 Under the second
interpretation, 'intervene only includes an act of a person who has the power to
influence the subject proceedings.44 We hold that this second meaning is more
appropriate to give to the word 'intervention under Rule 6.03 of the Code of
Professional Responsibility in light of its history. The evils sought to be remedied by
the Rule do not exist where the government lawyer does an act which can be
considered as innocuous such as 'x x x drafting, enforcing or interpreting government
or agency procedures, regulations or laws, or briefing abstract principles of law.

In fine, the intervention cannot be insubstantial and insignificant. Originally,

Canon 36 provided that a former government lawyer 'should not, after his retirement,
accept employment in connection with any matter which he has investigated or
passed upon while in such office or employ. As aforediscussed, the broad sweep of
the phrase 'which he has investigated or passed upon resulted in unjust
disqualification of former government lawyers. The 1969 Code restricted its latitude,
hence, in DR 9-101(b), the prohibition extended only to a matter in which the lawyer,
while in the government service, had 'substantial responsibility. The 1983 Model
Rules further constricted the reach of the rule. MR 1.11(a) provides that 'a lawyer
shall not represent a private client in connection with a matter in which the
lawyer participated personally and substantially as a public officer or employee.

It is, however, alleged that the intervention of respondent Mendoza in Sp. Proc. No.
107812 is significant and substantial. We disagree. For one, the petition in the special
proceedings is an initiatory pleading, hence, it has to be signed by respondent
Mendoza as the then sitting Solicitor General. For another, the record is arid as to
the actual participation of respondent Mendoza in the subsequent proceedings.
Indeed, the case was in slumberville for a long number of years. None of the parties
pushed for its early termination. Moreover, we note that the petition filed merely
seeks the assistance of the court in the liquidation of GENBANK. The principal role
of the court in this type of proceedings is to assist the Central Bank in
determining claims of creditors against the GENBANK. The role of the court is not
strictly as a court of justice but as an agent to assist the Central Bank in determining
the claims of creditors. In such a proceeding, the participation of the Office of the
Solicitor General is not that of the usual court litigator protecting the interest of
government.

II

Balancing Policy Considerations

To be sure, Rule 6.03 of our Code of Professional Responsibility represents a

commendable effort on the part of the IBP to upgrade the ethics of lawyers in the
government service. As aforestressed, it is a take-off from similar efforts especially by
the ABA which have not been without difficulties. To date, the legal profession in the
United States is still fine tuning its DR 9-101(b) rule.

In fathoming the depth and breadth of Rule 6.03 of our Code of Professional
Responsibility, the Court took account of various policy considerations to assure
that its interpretation and application to the case at bar will achieve its end without
necessarily prejudicing other values of equal importance. Thus, the rule was not
interpreted to cause a chilling effect on government recruitment of able legal
talent. At present, it is already difficult for government to match compensation
offered by the private sector and it is unlikely that government will be able to reverse
that situation. The observation is not inaccurate that the only card that the government
may play to recruit lawyers is have them defer present income in return for the
experience and contacts that can later be exchanged for higher income in private
practice.45 Rightly, Judge Kaufman warned that the sacrifice of entering government
service would be too great for most men to endure should ethical rules prevent them
from engaging in the practice of a technical specialty which they devoted years in
acquiring and cause the firm with which they become associated to be
disqualified.46 Indeed, 'to make government service more difficult to exit can only
make it less appealing to enter.47ςrνll

In interpreting Rule 6.03, the Court also cast a harsh eye on its use as a litigation
tactic to harass opposing counsel as well as deprive his client of competent legal
representation. The danger that the rule will be misused to bludgeon an opposing
counsel is not a mere guesswork. The Court of Appeals for the District of Columbia
has noted 'the tactical use of motions to disqualify counsel in order to delay
proceedings, deprive the opposing party of counsel of its choice, and harass and
embarrass the opponent, and observed that the tactic was 'so prevalent in large civil
cases in recent years as to prompt frequent judicial and academic commentary.48 Even
the United States Supreme Court found no quarrel with the Court of Appeals'
description of disqualification motions as 'a dangerous game.49 In the case at bar,
the new attempt to disqualify respondent Mendoza is difficult to divine. The
disqualification of respondent Mendoza has long been a dead issue. It was
resuscitated after the lapse of many years and only after PCGG has lost many legal
incidents in the hands of respondent Mendoza. For a fact, the recycled motion for
disqualification in the case at bar was filed more than four years after the filing of
the petitions for certiorari, prohibition and injunction with the Supreme Court which
were subsequently remanded to the Sandiganbayan and docketed as Civil Case Nos.
0096-0099.50 At the very least, the circumstances under which the motion to
disqualify in the case at bar were refiled put petitioner's motive as highly suspect.

Similarly, the Court in interpreting Rule 6.03 was not unconcerned with the
prejudice to the client which will be caused by its misapplication. It cannot be
doubted that granting a disqualification motion causes the client to lose not only the
law firm of choice, but probably an individual lawyer in whom the client has
confidence.51 The client with a disqualified lawyer must start again often without the
benefit of the work done by the latter.52 The effects of this prejudice to the right to
choose an effective counsel cannot be overstated for it can result in denial of due
process.

The Court has to consider also the possible adverse effect of a truncated reading
of the rule on the official independence of lawyers in the government service.
According to Prof. Morgan: 'An individual who has the security of knowing he or she
can find private employment upon leaving the government is free to work vigorously,
challenge official positions when he or she believes them to be in error, and resist
illegal demands by superiors. An employee who lacks this assurance of private
employment does not enjoy such freedom.53 He adds: 'Any system that affects the
right to take a new job affects the ability to quit the old job and any limit on the ability
to quit inhibits official independence.54 The case at bar involves the position of
Solicitor General, the office once occupied by respondent Mendoza. It cannot be
overly stressed that the position of Solicitor General should be endowed with a
great degree of independence. It is this independence that allows the Solicitor
General to recommend acquittal of the innocent; it is this independence that gives him
the right to refuse to defend officials who violate the trust of their office. Any undue
dimunition of the independence of the Solicitor General will have a corrosive effect
on the rule of law.

No less significant a consideration is the deprivation of the former government

lawyer of the freedom to exercise his profession. Given the current state of our law,
the disqualification of a former government lawyer may extend to all members of his
law firm.55 Former government lawyers stand in danger of becoming the lepers of the
legal profession.

It is, however, proffered that the mischief sought to be remedied by Rule 6.03 of the
Code of Professional Responsibility is the possible appearance of impropriety and
loss of public confidence in government. But as well observed, the accuracy of
gauging public perceptions is a highly speculative exercise at best56 which can lead to
untoward results.57 No less than Judge Kaufman doubts that the lessening of
restrictions as to former government attorneys will have any detrimental effect on that
free flow of information between the government-client and its attorneys which the
canons seek to protect.58 Notably, the appearance of impropriety theory has been
rejected in the 1983 ABA Model Rules of Professional Conduct59 and some courts
have abandoned per se disqualification based on Canons 4 and 9 when an actual
conflict of interest exists, and demand an evaluation of the interests of the defendant,
government, the witnesses in the case, and the public.60 ςrνll
It is also submitted that the Court should apply Rule 6.03 in all its strictness for it
correctly disfavors lawyers who 'switch sides. It is claimed that 'switching sides'
carries the danger that former government employee may compromise confidential
official information in the process. But this concern does not cast a shadow in the
case at bar. As afore-discussed, the act of respondent Mendoza in informing the
Central Bank on the procedure how to liquidate GENBANK is a different
matter from the subject matter of Civil Case No. 0005 which is about the
sequestration of the shares of respondents Tan, et al., in Allied Bank. Consequently,
the danger that confidential official information might be divulged is nil, if not
inexistent. To be sure, there are no inconsistent 'sides' to be bothered about in the
case at bar. For there is no question that in lawyering for respondents Tan, et
al., respondent Mendoza is not working against the interest of Central Bank. On the
contrary, he is indirectly defending the validity of the action of Central Bank in
liquidating GENBANK and selling it later to Allied Bank. Their interests coincide
instead of colliding. It is for this reason that Central Bank offered no objection to the
lawyering of respondent Mendoza in Civil Case No. 0005 in defense of respondents
Tan, et al. There is no switching of sides for no two sides are involved.

It is also urged that the Court should consider that Rule 6.03 is intended to
avoid conflict of loyalties, i.e., that a government employee might be subject to a
conflict of loyalties while still in government service.61 The example given by the
proponents of this argument is that a lawyer who plans to work for the company that
he or she is currently charged with prosecuting might be tempted to prosecute less
vigorously.62 In the cautionary words of the Association of the Bar Committee in
1960: 'The greatest public risks arising from post employment conduct may well
occur during the period of employment through the dampening of aggressive
administration of government policies.63 Prof. Morgan, however, considers this
concern as 'probably excessive.64 He opines 'x x x it is hard to imagine that a private
firm would feel secure hiding someone who had just been disloyal to his or her last
client - the government. Interviews with lawyers consistently confirm that law firms
want the 'best government lawyers - the ones who were hardest to beat - not the least
qualified or least vigorous advocates.65 But again, this particular concern is a non
factor in the case at bar. There is no charge against respondent Mendoza that he
advised Central Bank on how to liquidate GENBANK with an eye in later defending
respondents Tan, et al. of Allied Bank. Indeed, he continues defending both the
interests of Central Bank and respondents Tan, et al. in the above cases.

Likewise, the Court is nudged to consider the need to curtail what is perceived as the
'excessive influence of former officials' or their 'clout.66 Prof. Morgan again warns
against extending this concern too far. He explains the rationale for his warning, viz:
'Much of what appears to be an employee's influence may actually be the power or
authority of his or her position, power that evaporates quickly upon departure from
government x x x.67 More, he contends that the concern can be demeaning to those
sitting in government. To quote him further: 'x x x The idea that, present officials
make significant decisions based on friendship rather than on the merit says more
about the present officials than about their former co-worker friends. It implies a lack
of will or talent, or both, in federal officials that does not seem justified or intended,
and it ignores the possibility that the officials will tend to disfavor their friends in
order to avoid even the appearance of favoritism.68

III

The question of fairness

Mr. Justices Panganiban and Carpio are of the view, among others, that the congruent
interest prong of Rule 6.03 of the Code of Professional Responsibility should be
subject to a prescriptive period. Mr. Justice Tinga opines that the rule cannot apply
retroactively to respondent Mendoza. Obviously, and rightly so, they are disquieted by
the fact that (1) when respondent Mendoza was the Solicitor General, Rule 6.03 has
not yet adopted by the IBP and approved by this Court, and (2) the bid to disqualify
respondent Mendoza was made after the lapse of time whose length cannot, by any
standard, qualify as reasonable. At bottom, the point they make relates to the
unfairness of the rule if applied without any prescriptive period and retroactively, at
that. Their concern is legitimate and deserves to be initially addressed by the IBP and
our Committee on Revision of the Rules of Court.

IN VIEW WHEREOF, the petition assailing the resolutions dated July 11, 2001 and
December 5, 2001 of the Fifth Division of the Sandiganbayan in Civil Case Nos.
0096-0099 is denied.

No cost.

SO ORDERED.

Davide, Jr., C.J., Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio,

Austria-Martinez, Corona and Garcia, JJ., concur.

Panganiban and Tinga, JJ.., Please see separate opinion.

Carpio-Morales and Callejo, Sr., JJ.., Please see dissenting opinion.

Azcuna, J., I was former PCGG Chair.

Chico-Nazario, J., No part.

Endnotes:

1
Rollo, p. 240; Filcapital Development Corporation was a related interest of the
Yujuico Family Group and the directors and officers of GENBANK.
2
Rollo, pp. 240, 242.
3
Rollo, p. 7.
4
Rollo, pp. 7, 108, 248.
5
Rollo, pp. 110-114, 248.
6
Rollo, pp. 217-218.
7
Rollo, p. 143.
8
Rollo, pp. 216-220.
9
Rollo, pp. 44, 221- 225.
10
Atty. Mendoza served as Solicitor General from 1972 to 1986.
11
Rollo, p. 63.
12
Rollo, p. 61.
13
Rollo, pp. 57-63.
14
Rollo, p. 178.
15
Rollo, pp. 42, 44; The 'Motion to disqualify Atty. Estelito P. Mendoza as counsel
for petitioners' in Civil Case Nos. 0096-0099 was filed with the Sandiganbayan's
Second Division. However, the motion was ultimately resolved by the
Sandiganbayan's Fifth Division in its proceedings held on July 11, 2001.
16
Rollo, p. 42.
17
Rollo, p. 43.
18
Rollo, pp. 2-40.
19
Rollo, pp. 12-14.
20
Andrews, Standards of Conduct for Lawyers: 'An 800-Year Revolution, 57 SMU L.
Rev. 1385 (2004).
21
Ibid.
22
Ibid.
23
Ibid.
24
Agpalo, Legal and Judicial Ethics, pp. 24-25 (2002); In re Tagorda, 53 Phil. 37
(1927).
25
Wolfram, Modern Legal Ethics, p. 456 (1986).
26
Id. at 457.
27
Ibid.; The use of the word 'conflict is a misnomer; 'congruent-interest representation
conflicts' arguably do not involve conflicts at all, as it prohibits lawyers from
representing a private practice client even if the interests of the former government
client and the new client are entirely parallel.
28
Supra, note 20.
29
ABA Canons of Professional Ethics, Canon 36 (1908); ABA Model Code of
Professional Responsibility (1963), DR 9-101(b); ABA Model Rules of Professional
Responsibility, MR 1.11(a) and (b) (1983).
30
Supra, note 25 at 458.
31
Supra, note 20.
32
Agpalo, Legal and Judicial Ethics, p. 25 (2002).
33
Canon 9 was adopted to replace Canon 36 because Canon 36 "proved to be too
broadly encompassing." ABA Opinion No. 342 (1975); Canon 9 states: 'A lawyer
should avoid even the appearance of professional impropriety.
34
Model Code of Professional Responsibility, Preliminary Statement (1983); "The
Disciplinary Rules. .. are mandatory in character. The Disciplinary Rules state the
minimum level of conduct below which no lawyer can fall without being subject to
disciplinary action."
35
DR 9-101(b): A lawyer shall not accept private employment in a matter in which he
had substantial responsibility while he was a public employee.
36
Supra, note 20.
37
Ibid.
38
Model Rules of Professional Conduct, Rule 1.09 comment (1984): 'The other rubric
formerly used for dealing with disqualification is the appearance of impropriety
proscribed in Canon 9 of the ABA Model Code of Professional Responsibility. This
rubric has a two-fold problem. First, the appearance of impropriety can be taken to
include any new client-lawyer relationship that might make a former client feel
anxious. If that meaning were adopted, disqualification would become little more than
a question of subjective judgment by the former client. Second, since 'impropriety is
undefined, the term appearance of impropriety is question-begging. It therefore has to
be recognized that the problem of disqualification cannot be properly resolved. .. by
the very general concept of appearance of impropriety.
39
Supra, note 32.
40
See Dissent of J. Callejo, Sr., pp.19-20.
41
Webster's Third New International Dictionary of the English Language Unabridged,
p. 1183 (1993).
42
Id.
43
Id.; This may be inferred from the second definition of 'intervene which is 'to occur,
fall, or come in between points of time or events.
44
Id.; This may be inferred from the third definition of 'intervene which is 'to come in
or between by way of hindrance or modification, and the second definition of
'intervention which is 'interference that may affect the interests of others.
45
Wolfram, Modern Legal Ethics, p. 461 (1986).
46
Kaufman, The Former Government Attorney and Canons of Professional Ethics, 70
Harv. L. Rev. 657 (1957).
47
Remarks of Federal Trade Commission Chairman Calvin Collier before Council on
Younger Lawyers, 1976 Annual Convention of the Federal Bar Association
(September 16, 1976).
48
Koller v. Richardson-Merrell, Inc., 737 F.2d 1038, 1051 (D.C. Cir. 1984); Board of
Education of New York City v. Nyquist, 590 F.2d 1241, 1246 (2d Cir. 1979);
Williamsburg Wax Museum v. Historic Figures, Inc., 501 F.Supp. 326, 331 (D.D.C.
1980).
49
Richardson-Merrell, Inc. v. Koller, 472 U.S. 424, 436 (1985).
50
Rollo, p. 143; The petitions for certiorari, prohibition and injunction were filed
sometime in August 1986. The motion for disqualification in Civil Case No. 0096-
0099 was filed on February 5, 1991.
51
United States v. Brothers, 856 F. Supp. 370, 375 (M.D. Tenn. 1992).
52
First Wis. Mortgage Trust v. First Wis. Corp., 584 F.2d 201 (7th Cir. 1978); EZ
Paintr Corp. v. Padco, Inc., 746 F.2d 1459, 1463 (Fed. Cir. 1984); Realco
Serv. v. Holt, 479 F. Supp. 867, 880 (E.D. Pa. 1979).
53
Morgan, Appropriate Limits on Participation by a former Agency Official in
Matters Before an Agency, Duke L.J., Vol. 1980, February, No. 1, p. 54.
54
Ibid.
55
Agpalo, Legal and Judicial Ethics, pp. 292-293; Hilado v. David, 84 Phil. 569
(1949).
56
Wolfram, Modern Legal Ethics, p. 320 (1986).
57
Id. at p. 321.
58
Kaufman, The Former Government Attorney and Canons of Professional Ethics, 70
Harv. L. Rev. 657 (1957).
59
Supra, note 38.
60
United States v. O'Malley, 786 F.2d 786, 789 (7th Cir. 1985); United
States v. James, 708 F.2d 40, 44 (2d Cir. 1983).
61
Supra, note 53 at 44.
62
Ibid.
63
Ibid., see footnote 207 of article.
64
Ibid.
65
Id. at 45.
66
Id. at 42.
67
Id. at 42-43.
68
Id. at 43.