1st 6 Pages Cases

Notes.
Appeals from the COSLAP may not be brought directly before the
Supreme Court but must be elevated to the Court of Appeals but where the
assailed Resolution is void, the Supreme Court may entertain the petition
for certiorari notwithstanding the failure of the petitioner to appeal the
Resolution to the Court of Appeals. (Davao New Town Development
Corporation vs. Commission on the Settlement of Land Problems [COSLAP],
459 SCRA 491 [2005])
A petition under Rule 45 brings up for review errors of judgment while a
petition under Rule 65 concerns errors of jurisdiction amounting to lack or
excess of jurisdiction. (GCP-Manny Transport Services, Inc. vs. Principe, 474
SCRA 555 [2005])
o0o
G.R. No. 179901.April 14, 2008.*

BANCO DE ORO-EPCI, INC.,** petitioner, vs. JAPRL DEVELOPMENT
CORPORATION, RAPID FORMING CORPORATION and JOSE U. AROLLADO,
respondents.
Actions; Courts; Jurisdictions; When a party moves for the suspension of
proceedings pending before a court, he waives whatever defect there is in
the service of summons and is deemed to submit himself voluntarily to the
jurisdiction of the court.Respondents, in their petition for certiorari in the
CA, questioned the jurisdiction of the Makati RTC over their persons (i.e.,
whether or not the service of summons was validly made). Therefore, it
was only the October 10, 2005 order of the said trial court which they in
effect assailed. However, because they withdrew their motion for
reconsideration of the said order, it became final. Moreover, the petition
was filed 10 months and 1 day after the assailed order was issued by the
Makati
_______________
* FIRST DIVISION.
** Formerly Equitable PCI Bank, Inc.
343
VOL. 551, APRIL 14, 2008

343
Banco De Oro-EPCI, Inc. vs. JAPRL Development Corporation
RTC, way past the 60 days allowed by the Rules of Court. For these
reasons, the said petition should have been dismissed outright by the CA.
More importantly, when respondents moved for the suspension of
proceedings in Civil Case No. 03-991 before the Makati RTC (on the basis of
the March 13, 2006 order of the Calamba RTC), they waived whatever
defect there was in the service of summons and were deemed to have
submitted themselves voluntarily to the jurisdiction of the Makati RTC.
Same; Same; Same; Corporation Law; Corporate Rehabilitation; Stay
Orders; Suretyship; Under the Interim Rules of Procedure on Corporate
Rehabilitation, a stay order defers all actions or claims against the
corporation seeking rehabilitation from the date of its issuance until the
dismissal of the petition or termination of the rehabilitation proceedings; A
creditor can demand payment from the surety solidarily liable with the
corporation seeking rehabilitation.We withhold judgment for the moment
on the July 7, 2006 order of the Makati RTC suspending the proceedings in
Civil Case No. 03-991 insofar as JAPRL and RFC are concerned. Under the
Interim Rules of Procedure on Corporate Rehabilitation, a stay order defers
all actions or claims against the corporation seeking rehabilitation from the
date of its issuance until the dismissal of the petition or termination of the
rehabilitation proceedings. The Makati RTC may proceed to hear Civil Case
No. 03-991 only against Arollado if there is no ground to go after JAPRL and
RFC (as will later be discussed). A creditor can demand payment from the
surety solidarily liable with the corporation seeking rehabilitation.
Banks and Banking; Loans; Banks are entities engaged in the lending of
funds obtained through deposits from the publicthey borrow the publics
excess money (i.e., deposits) and lend out the same, redistributing wealth
in the economy by channeling idle savings to profitable investments; Since
banks deal with the publics money, their viability depends largely on their
ability to return those deposits on demand, much importance is given to
sound lending practices and good corporate governance.Banks are
entities engaged in the lending of funds obtained through deposits from
the public. They borrow the publics excess money (i.e., deposits) and lend
out the same. Banks therefore redistribute wealth in the economy by
channeling idle savings to profitable investments. Banks operate (and earn

income) by extending credit facilities financed
344
bank must ascertain that the debtor is capable of fulfilling his

commitments to the bank. Towards this end, a bank may demand from its
credit applicants a statement of their assets and liabilities and of their
income and expenditures and such information as may be prescribed
345
344
SUPREME COURT REPORTS ANNOTATED
VOL. 551, APRIL 14, 2008
345
primarily by deposits from the public. They plough back the bulk of said
deposits into the economy in the form of loans. Since banks deal with the
publics money, their viability depends largely on their ability to return
those deposits on demand. For this reason, banking is undeniably imbued
with public interest. Consequently, much importance is given to sound
lending practices and good corporate governance.
Same; Same; Corporate Rehabilitation; Judicial Notice; Protecting the

integrity of the banking system has become, by large, the responsibility of
banks; The Court is not unaware of the rampant and unscrupulous practice
of obtaining loans without intending to pay the same; The protective
remedy of rehabilitation was never intended to be a refuge of a debtor
guilty of fraud.Protecting the integrity of the banking system has
become, by large, the responsibility of banks. The role of the public,
particularly individual borrowers, has not been emphasized. Nevertheless,
we are not unaware of the rampant and unscrupulous practice of obtaining
loans without intending to pay the same. In this case, petitioner alleged
that JAPRL fraudulently altered and falsified its financial statements in
order to obtain its credit facilities. Considering the amount of petitioners
exposure in JAPRL, justice and fairness dictate that the Makati RTC hear
whether or not respondents indeed committed fraud in securing the credit
accomodation. A finding of fraud will change the whole picture. In this
event, petitioner can use the finding of fraud to move for the dismissal of
the rehabilitation case in the Calamba RTC. The protective remedy of
rehabilitation was never intended to be a refuge of a debtor guilty of fraud.
Same; Same; Same; Under Section 40 of the General Banking Law, banks
have the right to annul any credit accommodation or loan, and demand the
immediate payment thereof, from borrowers proven to be guilty of fraud.
The Makati RTC should proceed to hear Civil Case No. 03-991 against the
three respondents guided by Section 40 of the General Banking Law which
states: Section 40. Requirement for Grant of Loans or Other Credit
Accommodations. Before granting a loan or other credit accommodation, a
by law or by rules and regulations of the Monetary Board to enable the

bank to properly evaluate the credit application which includes the
corresponding financial statements submitted for taxation purposes to the
Bureau of Internal Revenue. Should such statements prove to be false or
incorrect in any material detail, the bank may terminate any loan or credit
accommodation granted on the basis of said statements and shall have the
right to demand immediate repayment or liquidation of the obligation. In
formulating the rules and regulations under this Section, the Monetary
Board shall recognize the peculiar characteristics of microfinancing, such
as cash flow-based lending to the basic sectors that are not covered by
traditional collateral. (emphasis supplied) Under this provision, banks have
the right to annul any credit accommodation or loan, and demand the
immediate payment thereof, from borrowers proven to be guilty of fraud.
Petitioner would then be entitled to the immediate payment of
P194,493,388.98 and other appropriate damages.
PETITION for review on certiorari of the decision and resolution of the Court
of Appeals.
The facts are stated in the opinion of the Court.
Siguion Reyna, Montecillo & Ongsiako for petitioner.
Joselito B. Flores for respondents.
CORONA,J.:
This petition for review on certiorari1 seeks to set aside the decision2 of
the Court of Appeals (CA) in CA-G.R. SP No. 95659 and its resolution3
denying reconsideration.
After evaluating the financial statements of respondent JAPRL Development

Corporation (JAPRL) for fiscal years
6 JAPRL failed to pay the value of trust receipt nos. 114505, 1000006285,
1000006305 and 1000006325. Id.
_______________
7 Id., pp. 62-66.

8 Paragraph 16 of the Trust Receipt Agreement provided:
1 Under Rule 45 of the Rules of Court.
16.If any of the following Events of Default shall have occurred:
2 Penned by Associate Justice Jose L. Sabio, Jr. and concurred in by

Associate Justices Jose C. Reyes, Jr. and Myrna Dimaranan-Vidal of the Tenth
Division of the Court of Appeals. Dated June 7, 2007. Rollo, pp. 49-59.
x x xx x xx x x
3 Dated August 31, 2007. Id., p. 60.

346
346
1998, 1999 and 2000,4 petitioner Banco de Oro-EPCI, Inc. extended credit
facilities to it amounting to P230,000,0005 on March 28, 2003.
Respondents Rapid Forming Corporation (RFC) and Jose U. Arollado acted
as JAPRLs sureties.
Despite its seemingly strong financial position, JAPRL defaulted in the
payment of four trust receipts soon after the approval of its loan.6
Petitioner later learned from MRM Management, JAPRLs financial adviser,
that JAPRL had altered and falsified its financial statements. It allegedly
bloated its sales revenues to post a big income from operations for the
concerned fiscal years to project itself as a viable investment.7 The
information alarmed petitioner. Citing relevant provisions of the Trust
Receipt Agreement,8 it demanded
_______________
b.The Entrustee shall default in the due performance or observance of

any other covenant contained herein on in any agreement under which the
Entruster issued the letter of credit under the terms of which the Trust
Property was purchased, and such default shall remain unremedied for a
period of five (5) calendar days after the Entrustee shall have received
written notice thereof from the Entruster; or,
c.Any statement, representation or warranty made by the Entrustee,
hereunder, in its application with the Entruster or in other document
delivered or made pursuant thereto shall prove to be incorrect or untrue in
the any material respect; or,
d.The Entrustee/any of its subsidiary or affiliate fails to pay or default in
the payment of any installment of the principal or interests relative to, or
fails to comply with or to perform, any other obligation or commits a
breach or violation of
347
VOL. 551, APRIL 14, 2008

347
immediate payment of JAPRLs outstanding obligations amounting to
P194,493,388.98.9
_______________
4 Id., pp. 62-63.

5 Id., p. 63.
any of the terms, conditions or stipulations, of any agreement, contract or

document with Entruster or any third person or persons to which the
Entruster or any of its subsidiary or affiliate is a party or privy, whether

executed prior to or after the date hereof under which credit has or may
have been extended to such Entrustee/subsidisiary or affiliate by the
Entruster or such third person or persons or under which the Entrustee has
agreed to act as guarantor, surety or accommodation party, which, under
the terms of such agreement, contract, document, guaranty or suretyship,
including any agreement similar or analogous thereto, shall constitute a
default or is defined as an event of default thereunder; or,
115612
17,742,002.53
9187128
116067
7,718,059.80
14913
1000006285 1,734.837.50
x x xx x xx x x
14927
j.Any adverse circumstance occurs, which in the reasonable opinion of

the Entruster, materially or adversely affects the ability of the Entrustee to
perform its obligation hereunder; or
1000006305 3,235,780.00
x x xx x xx x x
1000006325 2,809,031.24
Id., pp. 65-66.
14969
9 JAPRLs outstanding liabilities were broken down as follows:
1000006330 3,739,312.50
LETTER OF CREDIT
14982
TRUST
14952
RECEIPT
1000006339 4,142,952.24
OUTSTANDING
15144
BALANCE
1000006532 7,080,696.00
9185863
15168
114505 P 4,818,784.50
1000006558 4,889,034.00
9186617
15181
115613
1000006571 5,104,317.50
10,002,405.35
9186263
348
115099
24,421,786.32
348
9188618
15340
SP Proc. No. Q-03-064
15374
On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for
rehabilitation in the Regional Trial Court (RTC) of Quezon City, Branch 90
(Quezon City RTC).10 It disclosed that it had been experiencing a decline in
sales for the three preceding years and a staggering loss in 2002.11
1000006781 5,344,652.00
Because the petition was sufficient in form and substance,
1000006749
8,974,180.00
15387
1000006801
10,545,120.00
_______________
1000006808 6,454,320.00
15186
1000006574
10,129,035.00
15207
1000006809
5,837,680.00
154131000006824
6,196,080.00
1000006599
7,183,010.00
TOTAL P194,493,388.98
15236
1000006646 6,730,310.00
15244
1000006648 3,481,760.00
15251
1000006652 6,353,342.50
15273
Id., p. 64.
10 Id., pp. 83-84.
11 Id., p. 63.
According to the affidavit of general financial condition executed by Peter
Paul Limson, concurrent chairman and chief executive officer of JAPRL and
RFC, both corporations have been suffering staggering losses since the
year 2000:
1000006670
10,781,095.00
15320
1000006723 9,043,803.00
2002
2000
SALES
JAPRL
2001
P210,570,962
P233,064,377
P303,661,262
RFC
284,828,246 294,940,656 248,013,118
PROFIT/LOSSES
JAPRL
(P14,536,976)
P 269,958
P 516,359
RFC
215,747
327,462
503,112
349
VOL. 551, APRIL 14, 2008

349
the petition, issue an Order: (a) applying a Rehabilitation Receiver and

fixing his bond; (b) staying enforcement of all claims, whether for money or
otherwise and whether such enforcement is by court action or otherwise,
against the debtor, its guarantors and sureties not solidarily liable with the
debtor; (c) prohibiting the debtor from selling, encumbering, transferring,
or disposing in any manner any of its properties except in the ordinary
course of business; (d) prohibiting the debtor from making any payment of
its liabilities outstanding as at the date of filing of the petition; (e)
prohibiting the debtors suppliers of goods or services from withholding
supply of goods and services in the ordinary course of business for as long
as the debtor makes payments for the services and goods supplied after
the issuance of the stay order; (f) directing the payment in full of all
administrative expenses incurred after the issuance of the stay order; (g)
fixing the initial hearing on the petition not earlier than forty-five (45) days
but not later than sixty (60) days from the filing thereof; (h) directing the
petitioner to publish the Order in a newspaper of general circulation in the
Philippines once a week for two (2) consecutive weeks; (i) directing all
creditors and all interested parties (including the Securities and Exchange
Commission) to file and serve on the debtor a verified comment on or
opposition to the petition, with supporting affidavits and documents, not
later than ten (10) days before the date of the initial hearing and putting
them on notice that their failure to do so will bar them from participating in
the proceedings; and (j) directing the creditors and interested parties to
secure from the court copies of the petition and its annexes within such
time as to enable themselves to file their comment on or opposition to the
petition and to prepare for the initial hearing of the petition. (emphasis
supplied)
13 Issued by Presiding Judge Reynaldo B. Daway. Rollo, pp. 83-84.
350

a stay order12 was issued on September 28, 2003.13 However, the
proposed rehabilitation plan for JAPRL and RFC was
_______________
350
12 See Interim Rules of Procedure on Corporate Rehabilitation (A.M. No. 008-10-SC), Sec. 6 which provides:
Section6.Stay Order.If the court finds the petition to be sufficient in
form and substance, it shall, not later than five (5) days from the filing of
eventually rejected by the Quezon City RTC in an order dated May 9,

2005.14
Civil Case No. 03-991
Because JAPRL ignored its demand for payment, petitioner filed a

complaint for sum of money with an application for the issuance of a writ
of preliminary attachment against respondents in the RTC of Makati City,
Branch 145 (Makati RTC) on August 21, 2003.15 Petitioner essentially
asserted that JAPRL was guilty of fraud because it (JAPRL) altered and
falsified its financial statements.16
The Makati RTC subsequently denied the application (for the issuance of a
writ of preliminary attachment) for lack of merit as petitioner was unable to
substantiate its allegations. Nevertheless, it ordered the service of
summons on respondents.17 Pursuant to the said order, summonses were
issued against respondents and were served upon them.
Respondents moved to dismiss the complaint due to an allegedly invalid
service of summons.18 Because the officers return stated that an
administrative assistant had received the summons,19 JAPRL and RFC
argued that Section 11, Rule
_______________
14 Id., p. 127.
15 Annex F, id., pp. 61-71.
16 Id., p. 67.
17 Issued by Presiding Judge Cesar D. Santamaria. Dated September 23,
2003. Annex G, id., pp. 73-74.
18 Annex K, id., pp. 92-94.
19 Annex J, id., p. 91. It stated:
I HEREBY CERTIFY that on July 9, 2004 a copy of summons dated May 5,
2004 issued by the Honorable Court in connection with [Civil Case No. 03991], the undersigned served upon [JAPRL], 2/F Vasquez Madrigal Plaza, 51
Annapolis St., Greenhills, San Juan, Metro Manila, [RFC and Arollado]; thru
Ms. GRACE CANO, administrative assistant who acknowledged receipt as
evidenced by her signature at the original copy of summons.
351
351
14 of the Rules of Court20 contained an exclusive list of persons on whom
summons against a corporation must be served.21 An administrative
assistant was not one of them. Arollado, on the other hand, cited Section
6, Rule 14 thereof22 which mandated personal service of summons on an
individual defendant.23
The Makati RTC, in its October 10, 2005 order,24 noted that because
corporate officers are often busy, summonses to corporations are usually
received only by administrative assistants or secretaries of corporate
officers in the regular course of business. Hence, it denied the motion for
lack of merit.
Respondents moved for reconsideration25 but withdrew it before the
Makati RTC could resolve the matter.26
_______________
DULY SERVED.
City of Makati, 12 July 2004. (emphasis supplied)
20 Rules of Court, Rule 14, Sec. 11 provides:
Section11.Service upon domestic private juridical entity.When the
defendant is a corporation, partnership or association organized under the
laws of the Philippines with a juridical personality, service may be made on
the president, managing partner, general manager, corporate secretary,
treasurer, or in-house counsel. (emphasis supplied)
21 Annex K, Rollo, pp. 92-94. See Mason v. Court of Appeals, 459 Phil.
689, 698-699; 413 SCRA 303, 308 (2003).
22 Rules of Court, Sec. 6, Rule 14 provides:
Section6.Service in person on defendant.Whenever practicable, the
summons shall be served by handing a copy thereof to the defendant in
person, or if he refuses to receive and sign for it, by tendering it to him.
(emphasis supplied)
23 Rollo, p. 93.
VOL. 551, APRIL 14, 2008
24 Annex M, id., pp. 102-103.
28 Annex Q, id., pp. 124-125.
25 Annex N, id., pp. 104-112.
29 Annex R, id., p. 130.
26 Annex, O, id., pp. 113-115.
30 Annex S, id., pp. 131-134.
352
31 Annex T, id., p. 135.
352

33 Respondents motion for reconsideration was pending in the Makati RTC

when they filed the petition for certiorari in the CA. It (petition) should have
been dismissed for being filed prematurely.
RTC SEC Case No. 68-2008-C
34 Annex U, Rollo, pp. 136-149.
On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for
rehabilitation in the RTC of Calamba, Laguna, Branch 34 (Calamba RTC).
Finding JAPRLs petition sufficient in form and in substance, the Calamba
RTC issued a stay order27 on March 13, 2006.
353
In view of the said order, respondents hastily moved to suspend the

proceedings in Civil Case No. 03-991 pending in the Makati RTC.28
On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL
and RFC but ordered Arollado to file an answer. It ruled that, because he
was jointly and solidarily liable with JAPRL and RFC, the proceedings
against him should continue.29 Respondents moved for reconsideration30
but it was denied.31
On August 11, 2006, respondents filed a petition for certiorari32 in the CA
alleging that the Makati RTC committed grave abuse of discretion in issuing
the October 10, 2005 and July 7, 2006 orders.33 They asserted that the
court did not acquire jurisdiction over their persons due to defective
service of summons. Thus, the Makati RTC could not hear the complaint for
sum of money.34
In its June 7, 2007 decision, the CA held that because the summonses were
served on a mere administrative assistant,
_______________
27 Issued by Judge Jesus A. Santiago. Dated September 11, 2006. Id., pp.
126-129.
VOL. 551, APRIL 14, 2008

353
the Makati RTC never acquired jurisdiction over respondents. Thus, it
granted the petition.35
Petitioner moved for reconsideration but it was denied.36 Hence, this
petition.
Petitioner asserts that respondents maliciously evaded the service of
summonses to prevent the Makati RTC from acquiring jurisdiction over their
persons. Furthermore, they employed bad faith to delay proceedings by
cunningly exploiting procedural technicalities to avoid the payment of their
obligations.37
We grant the petition.
Respondents, in their petition for certiorari in the CA, questioned the
jurisdiction of the Makati RTC over their persons (i.e., whether or not the
service of summons was validly made). Therefore, it was only the October
10, 2005 order of the said trial court which they in effect assailed.38
However, because they withdrew their motion for reconsideration of the
said order, it became final. Moreover, the petition was filed 10 months and
1 day after the assailed order was issued by the Makati RTC,39 way past
the 60 days allowed by the Rules of
_______________
35 Supra note 2.
36 Supra note 3.
We withhold judgment for the moment on the July 7, 2006 order of the
Makati RTC suspending the proceedings in Civil Case No. 03-991 insofar as
JAPRL and RFC are concerned. Under the Interim Rules of Procedure on
Corporate Rehabilitation, a stay order defers all actions or claims against
the corporation seeking rehabilitation41 from the date of its issuance until
the dismissal of the petition or termination of the rehabilitation
proceedings.42
_______________
37 Id., pp. 10-35.

38 The July 7, 2006 and September 11, 2006 orders of the Makati RTC
resolved whether or not the proceedings in Civil Case No. 03-991 should be
suspended in view of the March 13, 2006 order of the Calamba RTC in RTC
SEC Case No. 68-2008-C.
39 See Rules of Court, Sec. 4, Rule 65 which provides:
Section4.When and where petition filed.The petition shall be filed not
later than sixty (60) days from notice of judgment, order or resolution. In
case a motion for reconsideration is filed on time, whether such motion is
required or not, the sixty (60) day period shall be counted for the notice of
said motion.
40 See Orosa v. Court of Appeals, 330 Phil. 67; 261 SCRA 376 (1996).
41 Philippine Airlines v. Kurangking, 438 Phil. 375, 381; 389 SCRA 588, 591
(2002).
42 Id.
See A.M. No. 00-8-10-SC, Sec. 11 provides:
Section11.Period of Stay Order.The stay order shall be effective from
the date of its issuance until the dismissal of the petition or termination of
the rehabilitation proceedings.
354
The petition shall be dismissed if no rehabilitation is approved by the court

upon the lapse of one hundred eighty (180) days from the date of the
initial hearing. The court may grant an extension beyond this period only if
it appears by convincing and compelling evidence that the debtor may
successfully be rehabilitated. In no instance, however, shall the period for
approving or disapproving a rehabilitation plan exceed eighteen (18)
months from the date of filing of the petition. (emphasis supplied)
355
VOL. 551, APRIL 14, 2008
Court. For these reasons, the said petition should have been dismissed
outright by the CA.
355
x x xx x xx x x
354
More importantly, when respondents moved for the suspension of

proceedings in Civil Case No. 03-991 before the Makati RTC (on the basis of
the March 13, 2006 order of the Calamba RTC), they waived whatever
defect there was in the service of summons and were deemed to have
submitted themselves voluntarily to the jurisdiction of the Makati RTC.40

The Makati RTC may proceed to hear Civil Case No. 03-991 only against
Arollado if there is no ground to go after JAPRL and RFC (as will later be
discussed). A creditor can demand payment from the surety solidarily
liable with the corporation seeking rehabilitation.43
Respondents abused procedural technicalities (albeit unsuccessfully) for

the sole purpose of preventing, or at least delaying, the collection of their
legitimate obligations. Their reprehensible scheme impeded the speedy
dispensation of justice. More importantly, however, considering the amount
involved, respondents utterly disregarded the significance of a stable and
efficient banking system to the national economy.44
Banks are entities engaged in the lending of funds obtained through
deposits45 from the public.46 They borrow the publics excess money (i.e.,
deposits) and lend out the same.47 Banks therefore redistribute wealth in
the economy by channeling idle savings to profitable investments.
_______________
43 Philippine Blooming Mills v. Court of Appeals, 459 Phil. 875, 892; 413
SCRA 445, 452 (2003) citing Traders Royal Bank v. Court of Appeals, G.R.
No. 78412, 26 September 1989, 177 SCRA 788, 792.
44 Gen. Banking Law, Sec. 2 provides:
Section2.Declaration of Policy.The State recognizes the vital role of
banks providing an environment conducive to the sustained development
of the national economy and the fiduciary nature of banking that requires
high standards of integrity and performance. In furtherance thereof, the
State shall promote a stable and efficient banking and financial system
that is globally competitive, dynamic and responsive to the demands of a
developing economy. (emphasis supplied)
45 Gen. Banking Law, Sec. 3.1.
46 Gen. Banking Law, Sec. 8.2.
47 Frederic Mishkin, The Economics of Money, Banking and Financial
Matters, 5th ed., pp. 231-238.

Banks operate (and earn income) by extending credit facilities financed
primarily by deposits from the public.48 They plough back the bulk of said
deposits into the economy in the form of loans.49 Since banks deal with
the publics money, their viability depends largely on their ability to return
those deposits on demand. For this reason, banking is undeniably imbued
with public interest. Consequently, much importance is given to sound
lending practices and good corporate governance.50
Protecting the integrity of the banking system has become, by large, the
responsibility of banks. The role of the public, particularly individual
borrowers, has not been emphasized. Nevertheless, we are not unaware of
the rampant and unscrupulous practice of obtaining loans without
intending to pay the same.
In this case, petitioner alleged that JAPRL fraudulently altered and falsified
its financial statements in order to obtain its credit facilities. Considering
the amount of petitioners exposure in JAPRL, justice and fairness dictate
that the Makati RTC hear whether or not respondents indeed committed
fraud in securing the credit accomodation.
A finding of fraud will change the whole picture. In this event, petitioner
can use the finding of fraud to move for the dismissal of the rehabilitation
case in the Calamba RTC.
The protective remedy of rehabilitation was never intended to be a refuge
of a debtor guilty of fraud.
Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991
against the three respondents guided by Section 40 of the General Banking
Law which states:
_______________
See also Vicente Valdepeas, Jr., The Bangko Sentral and The Philippine
Economy, pp. 123-124.
48 Valdepeas, id., p. 125.
356
49 The Bangko Sentral ng Pilipinas (BSP) controls bank lending by imposing

reserve requirements which may be increased or reduced, subject to the
financing needs of the economy.
356
50 Valdepeas, supra note 47 at pp. 125-126.

357
VOL. 551, APRIL 14, 2008

357
Section40.Requirement for Grant of Loans or Other Credit
Accommodations.Before granting a loan or other credit accommodation,
a bank must ascertain that the debtor is capable of fulfilling his
commitments to the bank.
collection incurred by the Entruster, and liquidated damages equal to

fifteen percent (15%) of the total amount due but in no case less than
P20,000. Any deficiency resulting within 24 hours from such sale, failing
which the Entruster may take such legal action, without further notice to
the Entrustee, as it may deem necessary to collect such deficiency from
the Entrustee.
358
358
Towards this end, a bank may demand from its credit applicants a
statement of their assets and liabilities and of their income and
expenditures and such information as may be prescribed by law or by rules
and regulations of the Monetary Board to enable the bank to properly
evaluate the credit application which includes the corresponding financial
statements submitted for taxation purposes to the Bureau of Internal
Revenue. Should such statements prove to be false or incorrect in any
material detail, the bank may terminate any loan or credit accommodation
granted on the basis of said statements and shall have the right to demand
immediate repayment or liquidation of the obligation.
In formulating the rules and regulations under this Section, the Monetary
Board shall recognize the peculiar characteristics of microfinancing, such
as cash flow-based lending to the basic sectors that are not covered by
traditional collateral. (emphasis supplied)
The Regional Trial Court of Makati City, Branch 145 is ordered to proceed
expeditiously with the trial of Civil Case No. 03-991 with regard to
respondent Jose U. Arollado, and the other respondents if warranted.
Under this provision, banks have the right to annul any credit
accommodation or loan, and demand the immediate payment thereof,
from borrowers proven to be guilty of fraud. Petitioner would then be
entitled to the immediate payment of P194,493,388.98 and other
appropriate damages.51
_______________
51 Paragraph 28 of the Trust Receipt Agreement provides:

28.In all cases where the Entruster is compelled to resort to the
cancellation of this Trust Receipt or any take legal action to protect its
interests, the Entrustee shall pay attorney fees fixed at 15% of the total
obligation of the Entrustee, which shall in case be less than P20,000
exclusive of costs and fees allowed by law and the other expenses of
Finally, considering that respondents failed to pay the four trust receipts,
the Makati City Prosecutor should investigate whether or not there is
probable cause to indict respondents for violation of Section 13 of the Trust
Receipts Law.52
ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision
and August 31, 2007 resolution of the Court of Appeals in CA-G.R. SP No.
95659 are REVERSED and SET ASIDE.
SO ORDERED.
Puno (C.J., Chairperson), Carpio and Leonardo-De Castro, JJ., concur.
Azcuna, J., On Official Leave.
Id., pp. 66-67.
52 Trust Receipts Law, Sec. 13 provides:
Section13.Penalty Clause.The failure of an entrustee to turn over the
proceeds of the sale of the goods, documents or instruments covered by a
trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with terms
of the trust receipt shall constitute the crime of estafa, punishable under
the provisions of Article Three hundred and fifteen, paragraph one (b) of
Act Numbered Three thousand eight hundred and fifteen, as amended,
otherwise known as the Revised Penal Code. If the violation or offense is
committed by a corporation, partnership, association or other juridical

entities, the penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to civil liabilities arising from
the criminal offense. (emphasis supplied)
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Banco De
Oro-EPCI, Inc. vs. JAPRL Development Corporation, 551 SCRA 342(2008)]
58
Republic vs. Security Credit and Acceptance Corp., et al.
No. L-20583. January 23, 1967.
REPUBLIC OF THE PHILIPPINES, petitioner, vs. SECURITY CREDIT AND
ACCEPTANCE CORPORATION, ROSENDO T. RESUELLO, PABLO TANJUTCO,
ARTURO SORIANO, RuBEN BELTRAN, BIENVENIDO V. ZAPA, PILAR G.
RESUELLO, RICARDO D. BALATBAT, JOSE SEBASTIAN and VITO TANJUTCO,
JR., respondents.
Banks; Nature of a bank; Accepting savings account deposits and lending
the amounts deposited constitute banking A bank is a moneyed institute
founded to facilitate the borrowing, lending and safekeeping of money and
to deal in notes, bills of exchange and credits. An investment company,
which lends out the money of its customers, collects the interest and
charges a commission to both lender and borrower, is a bank. Any person
engaged in the business carried on by banks of deposit, of discount, or of
circulation is doing a banking business, although but one of these functions
is exercised. A corporation. which accepted savings account deposits and
lent the money deposited to borrowers, engaged in banking, as the term is
used in Section 2 of the General Banking Act. It violated the law because it
did not secure any administrative authority to engage in banking.
Same; When corporation which engaged in illegal banking, may be
dissolved.A corporation, which misused its corporate funds and franchise
by engaging in illegal banking, may be dissolved. Its acts were willful, were
repeated 59,463 times and the continuance of its illegal operations causes
public injury owing to the number of persons affected thereby. A writ of quo
warranto for its dissolution is proper,
Courts; Supreme Court has concurrent jurisdiction with Court of First
Instance to issue writ of quo warranto.This Court is vested with original
jurisdiction, concurrently with the Courts of First Instance, to hear and
decide quo warranto
59
Rosendo T. Resuello
President & Chairman of
VOL. 19, JANUARY 23, 1967
the Board
59
Pablo Tanjutco
Director
cases. Where in a quo warranto proceeding to dissolve a corporation there

is no dispute as to the main facts and the principal issue is legal, the
Supreme Court may entertain the quo warranto action, instead of
remanding the case to the proper Court of First Instance, and dispose of
the case promptly as required by the public interest. However, where a quo
warranto case requires the presentation of evidence, it should be filed in
the proper Court of First Instance, which is generally better equipped than
an appellate court for the taking of testimony and the determination of
factual issues (Veraguth vs. Isabela Sugar Co., 57 Phil. 266).
Arturo Soriano
ORIGINAL ACTION in the Supreme Court. Quo warranto.
Director
Ruben Beltran
Director
Bienvenido V. Zapa
Director & Vice-President
Pilar G. Resuello

Solicitor General Arturo A. Alafriz and SolicitorE. M. Salva for petitioner.
Sycip, Salazar, Luna, Manalo & Feliciano for respondents.
Natalio M. Balboa and F.E. Evangelista for the receiver.
CONCEPCION, C.J.:
Director & Secretary-Treasurer

Ricardo D Balatbat
Director & Auditor
Jose R. Sebastian
Director & Legal Counsel
Vito Tanjutco, Jr.
This is an original quo warranto proceeding, initiated by the Solicitor

General, to dissolve the Security and Acceptance Corporation for allegedly
engaging in banking operations without the authority required therefor by
the General Banking Act (Republic Act No. 337). Named as respondents in
the petition are, in addition to said corporation, the following, as alleged
members of its Board of Directors and/or Executive Officers, namely:
Director & Personnel Manager

60
60
NAME
POSITION
The record shows that the Articles of Incorporation of defendant

corporation1 were registered with the Securities and Exchange
Commission on March 27, 1961; that the next day, the Board of Directors
of the corporation adopted a set of by-laws,2 which were filed with said
Com________________
d) To lend or borrow money for the corporation with or without security

and for such purpose to accept or create, make and issue mortgages,
bonds, deeds of trust and negotiable instruments or securities. secured by
mortgage or pledge of property belonging to the corporation; provided,
that as hereinafter provided, the proper officers of the corporation shall
have these powers. unless expressly limited by the Board of Directors: x x
x; (Italics supplied).
61
1 Which, as amended on May 8, 1961, authorized it:

1.To extend credit facilities for home building and agricultural, commercial
and industrial projects;
2.To extend credit, give loans, mortgages and pledges, either as principal,
agent, broker of attorney-in-fact, upon every and all kinds and classes of
products, materials, goods, merchandise, and other properties, real or
personal of every kind and nature;
3.To draw, accept, endorse, purchase, own, sell, discount, mortgage, assign
or otherwise dispose of, negotiate or collect accounts or notes receivables,
negotiable instruments, letters of credit and other evidence of
indebtedness;
4. To purchase, acquire, and take over, all or any part of the rights, assets
and business of any person, partnership, corporation or association, and to
undertake and assume the liabilities and obligations of such person,
partnership, corporation or association whose rights, assets, business or
property may be purchased, acquired or taken over;
5.To issue bonds, debentures, securities, collaterals and other obligations
or otherwise incur indebtedness in such manner as may be ascertained by
the corporation; and
6. To undertake the management, promotion, financing and/or collection
services of the operation of the business, industry or enterprises of any
person, partnership, corporation or association in so far as may be
permitted under the laws of the Philippines. (Italics supplied.)
2 Empowering said Board, inter alia:
c) To pay for any property or rights acquired by the corporation or to
discharge obligations of the corporation either wholly or partly in money or
in stock, bonds, debentures or other securities of the corporation;

61
mission on April 5, 1961; that on September 19, 1961, the Superintendent
of Banks of the Central Bank of the Philippines asked its legal counsel an
opinion on whether or not said corporation is a banking institution, within
the purview of Republic Act No. 337; that, acting upon this request, on
October 11, 1961, said legal counsel rendered an opinion resolving the
query in the affirmative; that in a letter, dated January 15, 1962, addressed
to said Superintendent of Banks, the corporation through its president,
Rosendo T. Resuello, one of defendants herein, sought a reconsideration of
the aforementioned opinion, which reconsideration was denied on March
16, 1962; that, prior thereto, or on March 9, 1961, the corporation had
applied with the Securities and Exchange Commission for the registration
and licensing of its securities under the Securities Act; that, before acting
on this application, the Commission referred it to the Central Bank, which,
in turn, gave the former a copy of the above-mentioned opinion, in line
with which, the Commission advised the corporation on December 5, 1961,
to comply with the requirements of the General Banking Act; that, upon
application of members of the Manila Police Department and an agent of
the Central Bank, on May 18, 1962, the Municipal Court of Manila issued
Search Warrant No. A-1019; that, pursuant thereto, members of the
intelligence division of the Central Bank and of the Manila Police
Department searched the premises of the corporation and seized
documents and records thereof relative to its business operations; that,
upon the return of said warrant, the seized documents and records were,
with the authority of the court, placed under the custody of the Central
Bank of the Philippines; that, upon examination and evaluation of said
documents and records, the intelligence division of the Central Bank
submitted, to the Acting Deputy Governor thereof, a memorandum dated

September 10, 1962, finding that the corporation is:
CB team was conducted by this Department. The examination disclosed

the following findings:
1. Performing banking functions, without requisite certificate of authority

from the Monetary Board of the Central Bank, in violation of Secs. 2 and 6
of Republic Act 337, in that it is soliciting and accepting deposit from the
public and lending out the funds so received,
a. Considering the extent of its operations, the Security Credit and

Acceptance Corporation, Inc., receives deposits from the public regularly.
Such deposits are treated in the Corporations financial statements as
conditional subscription to capital stock. Accumulated deposits of P5,000 of
an individual depositor may be converted into stock subscription to the
capital stock of the Security Credit and Acceptance Corporation at the
option of the depositor. Sale of its shares of stock or subscriptions to its
capital stock are offered to the public as part of its regular operations.
62
62
2.Soliciting and accepting savings deposits from the general public when
the companys articles of incorporation authorize it only to engage
primarily in financing agricultural, commercial and industrial projects, and
secondarily, in buying and selling stocks and bonds of any corporation,
thereby exceeding the scope of its powers and authority as granted under
its charter; consequently such acts are ultra-vires;
3.Soliciting subscriptions to the corporate shares of stock and accepting
deposits on account thereof, without prior registration and/or licensing of
such shares or securing exemption therefor, in violation of the Securities
Act; and
4. That being a private credit and financial institution, it should come
under the supervision of the Monetary Board of the Central Bank, by virtue
of the transfer of the authority, power, duties and functions of the
Secretary of Finance, Bank Commissioner and the defunct Bureau of
Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic Act
265 and Secs. 88 and 89 of Republic Act 337." (Italics supplied.) that upon
examination and evaluation of the same records of the corporation, as well
as of other documents and pertinent papers obtained elsewhere, the
Superintendent of Banks, submitted to the Monetary Board of the Central
Bank a memorandum dated August 28, 1962, stating inter alia
11. Pursuant to the request for assistance by the Chief, Intelligence
Division, contained in his Memorandum to the Governor dated May 23,
1962 and in accordance with the written instructions of Governor Castillo
dated May 31, 1962, an examination of the books and records of the
Security Credit and Loans Organizations, Inc. seized by the combined MPD-
b. That out of the funds obtained from the public through the receipt of
deposits and/or the sale of securities, loans are made regularly to any
person by the Security Credit and Acceptance Corporation,
63

63
A copy of the Memorandum Report dated July 30, 1962 of the examination
made by Examiners of this Department of the seized books and records of
the Corporation is attached hereto.
12. Section 2 of Republic Act No. 337, otherwise known as the General
Banking Act, defines the term, banking institution as follows:
Sec. 2. Only duly authorized persons and entities may engage in the
lending of funds obtained from the public through the receipts of deposits
or the sale of bonds, securities, or obligations of any kind and all entities
regularly conducting operations shall be considered as banking institutions
and shall be subject to the provisions of this Act, of the Central Bank Act,
and of other pertinent laws. x x x
13. Premises considered, the examination disclosed that the Security
Credit and Acceptance Corporation is regularly lending funds obtained from
the receipt of deposits and/or the sale of securities. The Corporation
therefore is performing banking functions as contemplated in Republic Act
No. 337, without having first complied with the provisions of said Act.
Recommendations:
In view of all the foregoing, it is recommended that the Monetary Board

decide and declare:
1961 to May 18, 1962, the corporation had established 74 branches in

principal cities and towns through-
1. That
banking
Republic
violation
________________
the Security Credit and Acceptance Corporation is performing

functions without having first complied with the provisions of
Act No. 337, otherwise known as the General Banking Act, in
of Sections 2 and 6 thereof; and
2. That this case be referred to the Special Assistant to the Governor

(Legal Counsel) for whatever legal actions are warranted, including, if
warranted criminal action against the persons criminally liable and/or quo
warranto proceedings with preliminary injunction against the Corporation
for its dissolution'." (Italics supplied.)
that, acting upon said memorandum of the Superintendent of Banks, on
September 14, 1962, the Monetary Board promulgated its Resolution No.
1095, declaring that the corporation is performing banking operations,
without having first complied with the provisions of Sections 2 and 6 of
Republic Act No. 337;3 that on September 25, 1962, the
________________
3Sec. 2. Only duly authorized persons and entities may engage in the
lending of funds obtained from the public through the receipts of deposits
or the sale of bonds, securities, or obligations of any kind, and all entities
regularly conducting such operations shall be considered as banking
institutions and shall be sub
64
64
corporation was advised of the aforementioned resolution, but, this
notwithstanding, the corporation, as well as the members of its Board of
Directors and the officers of the corporation, have been and still are
performing the functions and activities which had been declared to
constitute illegal banking operations; that during the period from March 27,
ject to the provisions of this Act, of the General Bank Act, and of other
pertinent laws. The terms banking institution and bank, as used in this
Act, are synonymous and interchangeable and specially include banks,
banking institutions, commercial banks, savings banks, mortgage banks,
trust companies, building and loan associations, branches and agencies in
the Philippines of foreign banks, hereinafter called Philippine branches, and
all other corporations, companies, partnerships, and associations
performing banking functions in the Philippines.
Persons and entities which receive deposits only occasionally shall not be
considered as banks, but such persons and entities shall be subject to
regulation by the Monetary Board of the Central Bank; nevertheless in no
case may the Central Bank authorize the drawing of checks against
deposits not maintained in banks, or branches or agencies thereof.
The Monetary Board may similarly regulate the activities of persons and
entities which act as agents of banks.
Sec. 6. No person, association or corporation not conducting the business
of a commercial banking corporation, trust corporation, savings and
mortgage banks, or building and loan association, as defined in this Act,
shall advertise or hold itself out as being engaged in the business of such
bank, corporation or association, or use in connection with its business title
the word or words, bank, banking, banker, building and loan
association/ trust corporation, trust company, or words of similar import,
or solicit or receive deposits of money for deposit, disbursement,
safekeeping, or otherwise, or transact in any manner the business of any
such bank, corporation or association, without having first complied with
the provisions of this Act in so far as it relates to commercial banking
corporations, trust corporations, savings and mortgage banks, or building
and loan associations, as the case may be. For any violation of the
provisions of this section by a corporation, the officers and directors
thereof shall be jointly and severally liable. Any violation of the provisions
of this section shall be punished by a fine of five hundred pesos for each
day during which such violation is continued or repeated, and, in default of
the payment thereof, subsidiary imprisonment as prescribed by law.
65
66
65
out the Philippines; that through a systematic and vigorous campaign

undertaken by the corporation, the same had managed to induce the
public to open 59,463 savings deposit accounts with an aggregate deposit
of P1,689,136.74; that, in consequence of the foregoing deposits with the
corporation, its original capital stock of P500,000, divided into 20,000
founders shares of stock and 80,000 preferred shares of stock, both of
which had a par value of P5.00 each, was increased, in less than one (1)
year, to P3,000,000 divided into 130,000 founders shares and 470,000
preferred shares, both with a par value of P5.00 each; and that, according
to its statement of assets and liabilities, as of December 31, 1981, the
corporation had a capital stock aggregating P1,273,265.98 and suffered,
during the year 1961, a loss of P96,685.29. Accordingly, on December 6,
1962, the Solicitor General commenced this quo warranto proceedings for
the dissolution of the corporation, with a prayer that, meanwhile, a writ of
preliminary injunction be issued ex parte, enjoining the corporation and its
branches, as well as its officers and agents, from performing the banking
operations complained of, and that a receiver be appointed pendente lite.
as of July 7, 1961, the Board of Directors of the corporation was composed

of defendants Rosendo T. Resuello, Aquilino L. Illera and Pilar G. Resuello;
that on July 11, 1962, the corporation had filed with the Superintendent of
Banks an application for conversion into a Security Savings and Mortgage
Bank, with defendants Zapa, Balatbat, Tanjutco (Pablo and Vito, Jr.),
Soriano, Beltran and Sebastian as proposed directors, in addition to the
defendants first named above, with defendants Rosendo T. Resuello, Zapa,
Pilar G. Resuello, Balatbat and Sebastian as proposed president, vicepresident, secretary-treasurer, auditor and legal counsel, respectively; that
said additional officers had never assumed their respective offices because
of the pendency of the approval of said application for conversion; that
defendants Soriano, Beltran, Sebastian, Vito Tanjutco, Jr. and Pablo Tanjutco
had subsequently withdrawn from the proposed mortgage and savings
bank; that on November 29, 1982or before the commencement of the
present proceedingsthe corporation and defendants Rosendo T. Resuello
and Pilar G. Resuello had instituted Civil Case No. 52342 of the Court of
First Instance of Manila against Purificacion Santos and other members of
the savings plan of the corporation and the City Fiscal, for a declaratory
relief and an injunction; that on December 3, 1962, Judge Gaudencio
Cloribel of said court issued a writ directing the defendants in said case No.
52342 and their representatives or agents to refrain from prosecuting the
plaintiff spouses and other officers of the corporation by reason of or in
connection with the acceptance by the same of deposits under its savings
plan; that acting upon a petition filed by plaintiffs in said case No. 52342,
on December 6, 1962, the Court of First Instance of Manila had appointed
Jose Ma. Ramirez as receiver of the corporation; that, on December 12,
1962, said Ramirez qualified as such receiver, after filing the requisite
bond; that, except as to one of the defendants in said case No. 52342, the
issues therein have already been joined; that the failure of the corporation
to honor the demands f or withdrawal of its depositors or members of its
savings plan and its former employees was due, not to mismanagement or
misappropriation of corporate funds, but to an abnormal si-
Upon joint motion of both parties, on August 20, 1963, the Superintendent
of Banks of the Central Bank of the Philippines was appointed by this Court
receiver pendente lite of defendant corporation, and upon the filing of the
requisite bond, said officer assumed his functions as such receiver on
September 16, 1963.
In their answer, defendants admitted practically all of the allegations of
fact made in the petition. They, however, denied that defendants Tanjutco
(Pablo and Vito, Jr.), Soriano, Beltran, Zapa, Balatbat and Sebastian, are
directors of the corporation, as well as the validity of the opinion, ruling,
evaluation and conclusions, rendered, made and/or reached by the legal
counsel and the intelligence division of the Central Bank, the Securities
and Exchange Commission, and the Superintendent of Banks of the
Philippines, or in Resolution No. 1095 of the Monetary Board, or of Search
Warrant No. A-1019 of the Municipal Court of Manila, and of the search and
seizure made thereunder. By way of affirmative allegations, defendants
averred that,
67
66
57
tuation created by the mass demand for withdrawal of deposits, by the

attachment of property of the corporation by its creditors, by the
suspension by debtors of the corporation of the payment of their debts
thereto and by an order of the Securities and Exchange Commission dated
September 26, 1962, to the corporation to stop soliciting and receiving
deposits; and that the withdrawal of deposits of members of the savings
plan of the corporation was understood to be subject, as to time and
amounts, to the financial condition of the corporation as an investment
firm.
of banking operations. It is conceded, however, that, in consequence of a

propaganda campaign therefor, a total of 59,463 savings account deposits
have been made by the public with the corporation and its 74 branches,
with an aggregate deposit of P1,689,136.74, which has been lent out to
such persons as the corporation deemed suitable therefor. It is clear that
these transactions partake of the nature of banking, as the term is used in
Section 2 of the General Banking Act. Indeed, a bank has been defined as:
In its reply, plaintiff alleged that a photostat copy, attached to said

pleading, of the anniversary publication of defendant corporation showed
that defendants Pablo Tanjuteo, Arturo Soriano, Ruben Beltran, Bienvenido
V. Zapa, Ricardo D. Balatbat, Jose R. Sebastian and Vito Tanjutco, Jr. are
officers and/or directors thereof; that this is confirmed by the minutes of a
meeting of stockholders of the corporation, held on September 27, 1962,
showing that said defendants had been elected officers thereof; that the
views of the legal counsel of the Central Bank, of the Securities and
Exchange Commission, the Intelligence Division, the Superintendent of
Banks and the Monetary Board above referred to have been expressed in
the lawful performance of their respective duties and have not been
assailed or impugned in accordance with law; that neither has the validity
of Search Warrant No. A-1019 been contested as provided by law; that the
only assets of the corporation now consist of accounts receivable
amounting approximately to P500,000, and its office equipment and
appliances, despite its increased capitalization of P3,000,000 and its
deposits amounting to not less than P1,689,136.74; and that the
aforementioned petition of the corporation, in Civil Case No. 52342 of the
Court of First Instance of Manila. for a declaratory relief is now highly
improper, the defendants having already committed infractions and
violations of the law justifying the dissolution of the corporation.
Although, admittedly, defendant corporation has not secured the requisite
authority to engage in banking, defendants deny that its transactions
partake of the nature
68
68
x x x a moneyed institute [Talmage vs. Pell, 7 N.Y. (3 Seld.) 328, 347, 348]
founded to facilitate the borrowing, lending and safe-keeping of money
(Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243, 255 U.S. 180, 210,
65 L. Ed. 577) and to deal, in notes, bills of exchange, and credits (State vs.
Cornings Sav. Bank, 115 N.W. 937, 139 lowa 338)." (Banks & Banking, by
Zellmann, Vol. I, p. 46).
Moreover, it has been held that:
An investment company which loans out the money of its customers,
collects the interest and charges a commission to both lender and
borrower, is a bank. (Western Investment Banking Co. vs. Murray, 56 P.
728, 730, 731; 6 Ariz. 215.)
x x x any person engaged in the business carried on by banks of deposit,
of discount, or of circulation is doing a banking business, although but one
of these functions is exercised. (MacLaren vs. State, 124 N.W. 667, 141
Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S. 30.)
Accordingly, defendant corporation has violated the law by engaging in
banking without securing the administrative authority required in Republic
Act No. 337.
That the illegal transactions thus undertaken by defendant corporation
warrant its dissolution is apparent from the fact that the foregoing misuser
of the corporate funds and franchise affects the essence of its business,
that it is wilful and has been repeated 59,463 times, and that its
continuance inflicts injury upon the public, owing to the number of persons
affected thereby.
It is urged, however, that this case should be remanded to the Court of
First Instance of Manila upon the authority of Veraguth vs. Isabela Sugar
Co. (57 Phil. 266). In this connection, it should be noted that this Court is
vested with original jurisdiction, concurrently with courts of first instance,

to hear and decide quo warranto cases
69
VOL, 19, JANUARY 23, 1967

69
Hanover Insurance Company vs. Manila Port Service, et al.
and, that, consequently, it is discretionary for us to entertain the present
case or to require that the issues therein be taken up in said Civil Case No.
52342. The Veraguth case cited by herein defendants, in support of the
second alternative, is not in point, because in said case there were issues
of fact which required the presentation of evidence, and courts of first
instance are, in general, better equipped than appellate courts for the
taking of testimony and the determination of questions of fact. In the case
at bar, there is, however, no dispute as to the principal facts or acts
performed by the corporation in the conduct of its business. The main
issue here is one of law, namely, the legal nature of said facts or of the
aforementioned acts of the corporation. For this reason, and because
public interest demands an early disposition of the case, we have deemed
it best to determine the merits thereof.
Wherefore, the writ prayed for should be, as it is hereby granted and
defendant corporation is, accordingly, ordered dissolved. The appointment
of receiver herein issued pendente lite is hereby made permanent, and the
receiver is, accordingly, directed to administer the properties, deposits,
and other assets of defendant corporation and wind up the affairs thereof
conformably to Rules 59 and 66 of the Rules of Court. It is so ordered.
Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez
and Castro, JJ., concur.
Writ granted. Defendant corporation ordered dissolved.
Note.Similar quo warranto cases against corporations are Government
vs, Philippine Sugar Estates Co., 38 Phil. 15 and Government of the
Philippine Islands vs. El Hogar Filipino, 50 Phil. 399. See secs. 2 and 12,
Rule 66, Revised Rules of Court.
____________
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Republic
vs. Security Credit and Acceptance Corp., et al., 19 SCRA 58(1967)]
Same; Same; What is prohibited by law is for investment companies to

lend funds obtained from the public through receipts of deposit, which is a
function of banking institutions.Indubitably, what is prohibited by law is
for investment companies to lend funds obtained from the public through
receipts of deposit, which is a function of banking institutions.
_______________
* SECOND DIVISION.
** Petitioner Teodoro Baas should not have been included in the caption of
this case as his name was ordered excluded by the trial court on 23
October 1997 since he died during the pendency of the case thereat.
VOL. 343, OCTOBER 18, 2000
527
Baas vs. Asia Pacific Finance Corporation
G.R. No. 128703. October 18, 2000.*
TEODORO BAAS,** C.G. DIZON CONSTRUCTION, INC., and CENEN DIZON,
petitioners, vs. ASIA PACIFIC FINANCE CORPORATION,1 substituted by
INTERNATIONAL CORPORATE BANK now known as UNION BANK OF THE
PHILIPPINES, respondent.
Commercial Law; Banks and Banking; The transaction between petitioners
and respondent was one involving not a loan but purchase of receivables
at a discount, well within the purview of investing, reinvesting or trading
in securities which an investment company is authorized to perform and
does not constitute a violation of the General Banking Act.An investment
company refers to any issuer which is or holds itself out as being engaged
or proposes to engage primarily in the business of investing, reinvesting or
trading in securities. As defined in Sec. 2, par. (a), of the Revised Securities
Act, securities shall include x x x x commercial papers evidencing
indebtedness of any person, financial or non-financial entity, irrespective of
maturity, issued, endorsed, sold, transferred or in any manner conveyed to
another with or without recourse, such as promissory notes x x x x
Clearly, the transaction between petitioners and respondent was one
involving not a loan but purchase of receivables at a discount, well within
the purview of investing, reinvesting or trading in securities which an
investment company, like ASIA PACIFIC, is authorized to perform and does
not constitute a violation of the General Banking Act.
1 This case was originally titled Teodoro Baas, C.G. Dizon Construction,
Inc., and Cenen Dizon v. Court of Appeals and Asia Pacific Finance
Corporatio. The Court of Appeals, which was inadvertently made partyrespondent, was excluded on motion of petitioners since the court which
rendered the decision appealed from is not required to be joined as partyrespondent (Rule 45, 1997 Rules of Civil Procedure).
528
528
But here, the funds supposedly lent to petitioners have not been shown
to have been obtained from the public by way of deposits, hence, the
inapplicability of banking laws.
Civil Law; Contracts; Court finds the terms and conditions of the instrument
clear, free from any ambiguity, and expressive of the real intent and
agreement of the parties.On petitioners submission that the true
intention of the parties was to enter into a contract of loan, we have
examined the Promissory Note and failed to discern anything therein that
would support such theory. On the contrary, we find the terms and
conditions of the instrument clear, free from any ambiguity, and expressive
of the real intent and agreement of the parties.
Same; Same; Notarial documents are evidence of the facts in clear and
unequivocal manner therein expressed.The Deed of Chattel Mortgage
and Continuing Undertaking were duly acknowledged before a notary
public and, as such, have in their favor the presumption of regularity. To
contradict them there must be clear, convincing and more than merely
preponderant evidence. In the instant case, the records do not show even
a preponderance of evidence in favor of petitioners claim that the Deed of
Chattel Mortgage and Continuing Undertaking were never intended by the
parties to be legal, valid and binding. Notarial documents are evidence of
the facts in clear and unequivocal manner therein expressed.
PETITION for review on certiorari of a decision of the Court of Appeals.

Quiason, Makalintal, Barot, Torres & Ibarra for petitioners.
A.M. Perz & Associates for private respondent.
Macalino and Associates for respondent Union Bank.
BELLOSILLO, J.:
C.G. DIZON CONSTRUCTION, INC. and CENEN DIZON in this petition for
review seek the reversal of the 24 July 1996 Decision of the Court of
Appeals dismissing their appeal for lack of merit and affirming in toto the
decision of the trial court holding them liable to Asia Pacific Finance
Corporation in the amount of
529
On 20 March 1981 Asia Pacific Finance Corporation (ASIA PACIFIC for short)
filed a complaint for a sum of money with prayer for a writ of replevin
against Teodoro Baas, C.G. Dizon Construction and Cenen Dizon.
Sometime in August 1980 Teodoro Banas executed a Promissory Note in
favor of C.G. Dizon Construction whereby for value received he promised to
pay to the order of C.G. Dizon Construction the sum of P390,000.00 in
installments of P32,500.00 every 25th day of the month starting from
September 25, 1980 up to August 25, 1981.3
Later, C.G. Dizon Construction endorsed with recourse the Promissory Note
to ASIA PACIFIC, and to secure payment thereof, C.G. Dizon Construction,
through its corporate officers, Cenen Dizon, President, and Juliette B. Dizon,
Vice President and Treasurer, executed a Deed of Chattel Mortgage
covering three (3) heavy equipment units of Caterpillar Bulldozer Crawler
Tractors with Model Nos. D8-14A, D8-2U and D8H in favor of ASIA PACIFIC.4
Moreover, Cenen Dizon executed on 25 August 1980 a Continuing
Undertaking wherein he bound himself to pay the obligation jointly and
severally with C.G. Dizon Construction.5
In compliance with the provisions of the Promissory Note, C.G. Dizon
Construction made the following installment payments to ASIA PACIFIC:
P32,500.00 on 25 September 1980, P32,500.00 on 27 October 1980 and
P65,000.00 on 27 February 1981, or a total of P130,000.00. Thereafter,
however, C.G. Dizon Construction defaulted in the payment of the
remaining installments, prompting ASIA PACIFIC to send a Statement of
Account to Cenen Dizon for the unpaid balance of P267,737.50 inclusive of
interests and charges, and P66,909.38 representing attorneys fees. As the
de_______________
2 Penned by Justice Hilarion L. Aquino, concurred in by Justices Jainal D.

Rasul and Hector L. Hofilea.
VOL. 343, OCTOBER 18, 2000
3 Exh. A.
529
4 Exh. C.
5 Exh. D.
P87,637.50 at 14% interest per annum in addition to attorneys fees and

costs of suit, as well as its 21 March 1997 Resolution denying
reconsideration thereof.2
530
530
VOL. 343, OCTOBER 18, 2000
531
mand was unheeded, ASIA PACIFIC sued Teodoro Banas, C.G. Dizon
Construction and Cenen Dizon.
While defendants (herein petitioners) admitted the genuineness and due

execution of the Promissory Note, the Deed of Chattel Mortgage and the
Continuing Undertaking, they nevertheless maintained that these
documents were never intended by the parties to be legal, valid and
binding but a mere subterfuge to conceal the loan of P390,000.00 with
usurious interests.
Defendants claimed that since ASIA PACIFIC could not directly engage in
banking business, it proposed to them a scheme wherein plaintiff ASIA
PACIFIC could extend a loan to them without violating banking laws: first,
Cenen Dizon would secure a promissory note from Teodoro Baas with a
face value of P390,000.00 payable in installments; second, ASIA PACIFIC
would then make it appear that the promissory note was sold to it by
Cenen Dizon with the 14% usurious interest on the loan or P54,000.00
discounted and collected in advance by ASIA PACIFIC; and, lastly, Cenen
Dizon would provide sufficient collateral to answer for the loan in case of
default in payment and execute a continuing guaranty to assure
continuous and prompt payment of the loan. Defendants also alleged that
out of the loan of P390,000.00 defendants actually received only
P329,185.00 after ASIA PACIFIC deducted the discounted interest, service
handling charges, insurance premium, registration and notarial fees.
Sometime in October 1980 Cenen Dizon informed ASIA PACIFIC that he
would be delayed in meeting his monthly amortization on account of
business reverses and promised to pay instead in February 1981. Cenen
Dizon made good his promise and tendered payment to ASIA PACIFIC in an
amount equivalent to two (2) monthly amortizations. But ASIA PACIFIC
attempted to impose a 3% interest for every month of delay, which he
flatly refused to pay for being usurious.
Afterwards, ASIA PACIFIC allegedly made a verbal proposal to Cenen Dizon
to surrender to it the ownership of the two (2) bulldozer crawler tractors
and, in turn, the latter would treat the formers account as closed and the
loan fully paid. Cenen Dizon supposedly agreed and accepted the offer.
Defendants averred that the
531
value of the bulldozer crawler tractors was more than adequate to cover
their obligation to ASIA PACIFIC.
Meanwhile, on 21 April 1981 the trial court issued a writ of replevin against
defendant C.G. Dizon Construction for the surrender of the bulldozer
crawler tractors subject of the Deed of Chattel Mortgage. Of the three (3)
bulldozer crawler tractors, only two (2) were actually turned over by
defendantsD8-14A and D8-2Uwhich units were subsequently foreclosed
by ASIA PACIFIC to satisfy the obligation. D8-14A was sold for P120,000.00
and D8-2U for P60,000.00 both to ASIA PACIFIC as the highest bidder.
During the pendency of the case, defendant Teodoro Banas passed away,
and on motion of the remaining defendants, the trial court dismissed the
case against him. On the other hand, ASIA PACIFIC was substituted as
party plaintiff by International Corporate Bank after the disputed
Promissory Note was assigned and/or transferred by ASIA PACIFIC to
International Corporate Bank. Later, International Corporate Bank merged
with Union Bank of the Philippines. As the surviving entity after the merger,
and having succeeded to all the rights and interests of International
Corporate Bank in this case, Union Bank of the Philippines was substituted
as a party in lieu of International Corporate Bank.6
On 25 September 1992 the Regional Trial Court ruled in favor of ASIA
PACIFIC holding the defendants jointly and severally liable for the unpaid
balance of the obligation under the Promissory Note in the amount of
P87,637.50 at 14% interest per annum, and attorneys fees equivalent to
25% of the monetary award.7
On 24 July 1996 the Court of Appeals affirmed in toto the decision of the
trial court thus
_______________
6 This case however continued to be prosecuted and defended in the

names of ASIA PACIFIC and Teodoro Banas, among other defendants,
respectively, notwithstanding the Orders of 22 August 1985 on substitution
of party-plaintiff and of 23 October 1987 re dismissal of the case against

deceased defendant Teodoro Banas, both issued by the trial court.
7 Decision penned by Judge Domingo R. Garcia, RTC-Br. 157, Pasig City.
532
532
We reject the argument. An investment company refers to any issuer which

is or holds itself out as being engaged or proposes to engage primarily in
the business of investing, reinvesting or trading in securities.8 As defined
in Sec. 2, par. (a), of the Revised Securities Act,9 securities shall include x
x x x commercial papers evidencing indebtedness of any person, financial
or non-financial entity, irrespective of maturity, issued, endorsed, sold,
transferred
_______________

Defendant-appellants contention that the instruments were executed
merely as a subterfuge to skirt banking laws is an untenable defense. If
that were so then they too were parties to the illegal scheme. Why should
they now be allowed to take advantage of their own knavery to escape the
liabilities that their own chicanery created?
Defendant-appellants also want us to believe their story that there was an
agreement between them and the plaintiff-appellee that if the former
would deliver their 2 bulldozer crawler tractors to the latter, the defendantappellants obligation would fully be extinguished. Again, nothing but the
word that comes out between the teeth supports such story. Why did they
not write down such an important agreement? Is it believable that
seasoned businessmen such as the defendant-appellant Cenen G. Dizon
and the other officers of the appellant corporation would deliver the
bulldozers without a receipt of acquittance from the plaintiff-appellee x x x
x In our book, that is not credible.
The pivotal issues raised are: (a) Whether the disputed transaction
between petitioners and ASIA PACIFIC violated banking laws, hence, null
and void; and (b) Whether the surrender of the bulldozer crawler tractors
to respondent resulted in the extinguishment of petitioners obligation.
On the first issue, petitioners insist that ASIA PACIFIC was organized as an
investment house which could not engage in the lending of funds obtained
from the public through receipt of deposits. The disputed Promissory Note,
Deed of Chattel Mortgage and Continuing Undertaking were not intended
to be valid and binding on the parties as they were merely devices to
conceal their real intention which was to enter into a contract of loan in
violation of banking laws.
8 See Sec. 4, RA 2629.

9 B.P. Blg. 178.
533
VOL. 343, OCTOBER 18, 2000

533
or in any manner conveyed to another with or without recourse, such as
promissory notes x x x x Clearly, the transaction between petitioners and
respondent was one involving not a loan but purchase of receivables at a
discount, well within the purview of investing, reinvesting or trading in
securities which an investment company, like ASIA PACIFIC, is authorized
to perform and does not constitute a violation of the General Banking
Act.10 Moreover, Sec. 2 of the General Banking Act provides in part
Sec. 2. Only entities duly authorized by the Monetary Board of the Central
Bank may engage in the lending of funds obtained from the public through
the receipt of deposits of any kind, and all entities regularly conducting
such operations shall be considered as banking institutions and shall be
subject to the provisions of this Act, of the Central Bank Act, and of other
pertinent laws (italics supplied).
Indubitably, what is prohibited by law is for investment companies to lend
funds obtained from the public through receipts of deposit, which is a
function of banking institutions. But here, the funds supposedly lent to
petitioners have not been shown to have been obtained from the public by
way of deposits, hence, the inapplicability of banking laws.
On petitioners submission that the true intention of the parties was to

enter into a contract of loan, we have examined the Promissory Note and
failed to discern anything therein that would support such theory. On the
contrary, we find the terms and conditions of the instrument clear, free
from any ambiguity, and expressive of the real intent and agreement of the
parties. We quote the pertinent portions of the Promissory Note
(Sgd.) Teodoro Baas
FOR VALUE RECEIVED, I/We, hereby promise to pay to the order of C.G.
Dizon Construction, Inc. the sum of THREE HUNDRED NINETY THOUSAND
ONLY (P390,000.00), Philippine Currency in the following manner:
(Sgd.) Juliette B. Dizon
P32,500.00 due every 25th of the month starting from September 25, 1980
up to August 25, 1981.
_______________
10 RA 337.
534
534
I/We agree that if any of the said installments is not paid as and when it
respectively falls due, all the installments covered hereby and not paid as
yet shall forthwith become due and payable at the option of the holder of
this note with interest at the rate of 14% per annum on each unpaid
installment until fully paid.
If any amount due on this note is not paid at its maturity and this note is
placed in the hands of an attorney for collection, I/We agree to pay in
addition to the aggregate of the principal amount and interest due, a sum
equivalent to TEN PERCENT (10%) thereof as Attorneys fees, in case no
action is filed, otherwise, the sum will be equivalent to TWENTY FIVE (25%)
of the said principal amount and interest due x x x x
Makati, Metro Manila, August 25, 1980.
ENDORSED TO ASIA PACIFIC FINANCE CORPORATION WITH RECOURSE, C.G.

DIZON CONSTRUCTION, INC.
By: (Sgd.) Cenen Dizon
President
VP/Treasurer
Likewise, the Deed of Chattel Mortgage and Continuing Undertaking were
duly acknowledged before a notary public and, as such, have in their favor
the presumption of regularity. To contradict them there must be clear,
convincing and more than merely preponderant evidence. In the instant
case, the records do not show even a preponderance of evidence in favor
of petitioners claim that the Deed of Chattel Mortgage and Continuing
Undertaking were never intended by the parties to be legal, valid and
binding. Notarial documents are evidence of the facts in clear and
unequivocal manner therein expressed.11
Interestingly, petitioners assertions were based mainly on the self-serving
testimony of Cenen Dizon, and not on any other independent evidence. His
testimony is not only unconvincing, as found by the trial court and the
Court of Appeals, but also self-defeating in light of the documents
presented by respondent, i.e., Promissory Note, Deed of Chattel Mortgage
and Continuing Undertaking, the accuracy, correctness and due execution
of which were admitted by
_______________
11 Salame v. Court of Appeals, G.R. No. 104373, 22 December 1994 239

SCRA 356.
535
VOL. 343, OCTOBER 18, 2000

535
petitioners. Oral evidence certainly cannot prevail over the written

agreements of the parties. The courts need only rely on the faces of the
written contracts to determine their true intention on the principle that
when the parties have reduced their agreements in writing, it is presumed
that they have made the writings the only repositories and memorials of
their true agreement.
The second issue deals with a question of fact. We have ruled often enough
that it is not the function of this Court to analyze and weigh the evidence
all over again, its jurisdiction being limited to reviewing errors of law that
might have been committed by the lower court.12 At any rate, while we
are not a trier of facts, hence, not required as a rule to look into the factual
bases of the assailed decision of the Court of Appeals, we did so just the
same in this case if only to satisfy petitioners that we have carefully
studied and evaluated the case, all too mindful of the tenacity and vigor
with which the parties, through their respective counsel, have pursued this
case for nineteen (19) years.
Petitioners contend that the parties already had a verbal understanding
wherein ASIA PACIFIC actually agreed to consider petitioners account
closed and the principal obligation fully paid in exchange for the ownership
of the two (2) bulldozer crawler tractors.
We are not persuaded. Again, other than the bare allegations of
petitioners, the records are bereft of any evidence of the supposed
agreement. As correctly observed by the Court of Appeals, it is
unbelievable that the parties entirely neglected to write down such an
important agreement. Equally incredulous is the fact that petitioner Cenen
Dizon, a seasoned businessman, readily consented to deliver the
bulldozers to respondent without a corresponding receipt of acquittance.
Indeed, even the testimony of petitioner Cenen Dizon himself negates the
supposed verbal understanding between the parties
Q:
You said and is it not a fact that you surrendered the bulldozers to APCOR
by virtue of the seizure order?
_______________
12 Remalante v. Tibe, G.R. No. L-59514, 25 February 1988, 158 SCRA 138.
536
536
A:
There was no seizure order. Atty. Carag during that time said if I surrender
the two equipment, we might finally close a deal if the equipment would
come up to the balance of the loan. So I voluntarily surrendered, I pulled
them from the job site and returned them to APCOR x x x x
Q:
You mentioned a certain Atty. Carag, who is he?
A:
He was the former legal counsel of APCOR. They were handling cases. In
fact, I talked with Atty. Carag, we have a verbal agreement if I surrender
the equipment it might suffice to pay off the debt so I did just that (italics
ours).13
In other words, there was no binding and perfected contract between
petitioners and respondent regarding the settlement of the obligation, but
only a conditional one, a mere conjecture in fact, depending on whether
the value of the tractors to be surrendered would equal the balance of the
loan plus interests. And since the bulldozer crawler tractors were sold at
the foreclosure sale for only P180,000.00,14 which was not enough to
cover the unpaid balance of P267,637.50, petitioners are still liable for the
deficiency.
Barring therefore a showing that the findings complained of are totally
devoid of support in the records, or that they are so glaringly erroneous as
to constitute serious abuse of discretion, we see no valid reason to discard
them. More so in this case where the findings of both the trial court and the
appellate court coincide with each other on the matter.
With regard to the computation of petitioners liability, the records show
that petitioners actually paid to respondent a total sum of P130,000.00 in
addition to the P180,000.00 proceeds realized from the sale of the
bulldozer crawler tractors at public auction. Deducting these amounts from
the principal obligation of P390,000.00 leaves a balance of P80,000.00, to
which must be added P7,637.50 accrued interests and charges as of 20

March 1981, or a total unpaid balance of P87,637.50 for which petitioners
are jointly and severally liable. Furthermore, the unpaid balance should
earn 14% interest per annum as stipulated in the Promissory Note,
computed from 20 March 1981 until fully paid.
_______________
13 TSN, 15 November 1988, pp. 7-8.

14 Exh. F.
537
VOL. 343, OCTOBER 18, 2000
Finally, while we empathize with petitioners, we cannot close our eyes to

the overriding considerations of the law on obligations and contracts which
must be upheld and honored at all times. Petitioners have undoubtedly
benefited from the transaction; they cannot now be allowed to impugn its
validity and legality to escape the fulfillment of a valid and binding
obligation.
WHEREFORE, no reversible error having been committed by the Court of
Appeals, its assailed Decision of 24 July 1996 and its Resolution of 21
March 1997 are AFFIRMED. Accordingly, petitioners C.G. Construction, Inc.
and Cenen Dizon are ordered jointly and severally to pay respondent Asia
Pacific Finance Corporation, substituted by International Corporate Bank
(now known as Union
_______________
537
15 See South Sea Surety and Insurance Co., Inc. v. Court of Appeals, G.R.
No. 102253, 2 June 1995, 244 SCRA 744.
538
On the amount of attorneys fees which under the Promissory Note is

equivalent to 25% of the principal obligation and interests due, it is not,
strictly speaking, the attorneys fees recoverable as between the attorney
and his client regulated by the Rules of Court. Rather, the attorneys fees
here are in the nature of liquidated damages and the stipulation therefor is
aptly called a penal clause. It has been said that so long as such stipulation
does not contravene the law, morals and public order, it is strictly binding
upon the obligor. It is the litigant, not the counsel, who is the judgment
creditor entitled to enforce the judgment by execution.15
Nevertheless, it appears that petitioners failure to fully comply with their
part of the bargain was not motivated by ill will or malice, but due to
financial distress occasioned by legitimate business reverses. Petitioners in
fact paid a total of P130,000.00 in three (3) installments, and even went to
the extent of voluntarily turning over to respondent their heavy equipment
consisting of two (2) bulldozer crawler tractors, all in a bona fide effort to
settle their indebtedness in full. Article 1229 of the New Civil Code
specifically empowers the judge to equitably reduce the civil penalty when
the principal obligation has been partly or irregularly complied with. Upon
the foregoing premise, we hold that the reduction of the attorneys fees
from 25% to 15% of the unpaid principal plus interests is in order.
538
Bank of the Philippines), P87,637.50 representing the unpaid balance on
the Promissory Note, with interest at fourteen percent (14%) per annum
computed from 20 March 1981 until fully paid, and fifteen percent (15%) of
the principal obligation and interests due by way of attorneys fees. Costs
against petitioners.
SO ORDERED.
Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.
Judgment affirmed.
Note.Where the terms of the instruments are clear and leave no doubt as
to their meaning, they should not be disturbed. (Tanguilig vs. Court of
Appeals, 266 SCRA 78 [1997])
o0o
539
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Baas vs.
Asia Pacific Finance Corporation, 343 SCRA 527(2000)]
LAWPHIL
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 174134
July 30, 2008
FIRST PLANTERS PAWNSHOP, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
First Planters Pawnshop, Inc. (petitioner) contests the deficiency valueadded and documentary stamp taxes imposed upon it by the Bureau of
Internal Revenue (BIR) for the year 2000. The core of petitioner's argument
is that it is not a lending investor within the purview of Section 108(A) of
the National Internal Revenue Code (NIRC), as amended, and therefore not
subject to value-added tax (VAT). Petitioner also contends that a pawn
ticket is not subject to documentary stamp tax (DST) because it is not
proof of the pledge transaction, and even assuming that it is so, still, it is
not subject to tax since a documentary stamp tax is levied on the
document issued and not on the transaction.
The facts:
In a Pre-Assessment Notice dated July 7, 2003, petitioner was informed by
the BIR that it has an existing tax deficiency on its VAT and DST liabilities
for the year 2000. The deficiency assessment was at P541,102.79 for VAT
and P23,646.33 for DST.1 Petitioner protested the assessment for lack of
legal and factual bases.2
Petitioner subsequently received a Formal Assessment Notice on December
29, 2003, directing payment of VAT deficiency in the amount
of P541,102.79 and DST deficiency in the amount of P24,747.13, inclusive
of surcharge and interest.3 Petitioner filed a protest,4 which was denied by
Acting Regional Director Anselmo G. Adriano per Final Decision on Disputed
Assessment dated January 29, 2004.5
Petitioner then filed a petition for review with the Court of Tax Appeals
(CTA).6 In a Decision dated May 9, 2005, the 2nd Division of the CTA upheld
the deficiency assessment.7 Petitioner filed a motion for
reconsideration8which was denied in a Resolution dated October 7, 2005. 9
Petitioner appealed to the CTA En Banc which rendered a Decision dated
June 7, 2006, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the Petition for Review is hereby
DENIED for lack of merit. The assailed Decision dated May 9, 2005 and
Resolution dated October 7, 2005 are hereby AFFIRMED.
SO ORDERED.10
Petitioner sought reconsideration but this was denied by the
CTA En Banc per Resolution dated August 14, 2006.11
Hence, the present petition for review under Rule 45 of the Rules of Court
based on the following grounds:
I
THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN
FINDING PETITIONER LIABLE FOR VAT.
II
THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN

RULING THAT PETITIONER IS LIABLE FOR DST ON PAWN TICKETS. 12
The determination of petitioner's tax liability depends on the tax treatment
of a pawnshop business. Oddly, there has not been any definitive
declaration in this regard despite the fact that pawnshops have long been
in existence. All that has been stated is what pawnshops are not, but not
what pawnshops are.
The BIR itself has maintained an ambivalent stance on this issue. Initially,
in Revenue Memorandum Order No. 15-91 issued on March 11, 1991, a
pawnshop business was considered as "akin to lending investors business
activity" and subject to 5% percentage tax beginning January 1, 1991,
under Section 116 of the Tax Code of 1977, as amended by E.O. No. 273. 13
With the passage of Republic Act (R.A.) No. 7716 or the EVAT Law in
1994,14 the BIR abandoned its earlier position and maintained that
pawnshops are subject to 10% VAT, as implemented by Revenue
Regulations No. 7-95. This was complemented by Revenue Memorandum
Circular No. 45-01 dated October 12, 2001, which provided that pawnshop
operators are liable to the 10% VAT based on gross receipts beginning
January 1, 1996, while pawnshops whose gross annual receipts do not
exceed P550,000.00 are liable for percentage tax, pursuant to Section
109(z) of the Tax Code of 1997.
CTA decisions affirmed the BIR's position that pawnshops are subject to
VAT. In H. Tambunting Pawnshop, Inc. v. Commissioner of Internal
Revenue,15 the CTA ruled that the petitioner therein was subject to 10%
VAT under Section 108 of the Tax Code of 1997. Antam Pawnshop
Corporation v. Commissioner of Internal Revenue16reiterates said ruling. It
was the CTA's view that the services rendered by pawnshops fall under the
general definition of "sale or exchange of services" under Section 108(A) of
the Tax Code of 1997.
On July 15, 2003, the Court rendered Commissioner of Internal Revenue v.
Michel J. Lhuillier Pawnshop, Inc.17 in which it was categorically ruled that
while pawnshops are engaged in the business of lending money, they are
not considered "lending investors" for the purpose of imposing percentage
taxes.18 The Court gave the following reasons: first, under the 1997 Tax
Code, pawnshops and lending investors were subjected to different tax
treatments; second, Congress never intended pawnshops to be treated in
the same way as lending investors; third, Section 116 of the NIRC of 1977
subjects to percentage tax dealers in securities and lending investors only;
and lastly, the BIR had ruled several times prior to the issuance of RMO No.
15-91 and RMC 43-91 that pawnshops were not subject to the 5%
percentage tax on lending investors imposed by Section 116 of the NIRC of
1977, as amended by Executive Order No. 273.
In view of said ruling, the BIR issued Revenue Memorandum Circular No.
36-2004 dated June 16, 2004, canceling the previous lending investor's tax
assessments on pawnshops. Said Circular stated, inter alia:
In view of the said Supreme Court decision, all assessments on pawnshops
for percentage taxes as lending investors are hereby cancelled. This
Circular is being issued for the sole purpose of resolving the tax liability of
pawnshops to the 5% lending investors tax provided under the then
Section 116 of the NIRC of 1977, as amended, and shall not cover issues
relating to their other tax liabilities. All internal revenue officials are
enjoined from issuing assessments on pawnshops for percentage taxes on
lending investors, under the then Section 116 of the NIRC of 1977, as
amended.
For purposes of the gross receipt tax provided for under Republic Act No.
9294, the pawnshops are now subject thereof. This shall however, be
covered by another issuance.19
Revenue Memorandum Circular No. 37-2004 was issued on the same date
whereby pawnshop businesses were allowed to settle their VAT liabilities
for the tax years 1996-2002 pursuant to a memorandum of agreement
entered into by the Commissioner of Internal Revenue and the Chambers
of Pawnbrokers of the Philippines, Inc. The Circular likewise instructed all
revenue officers to ensure that "all VAT due from pawnshops beginning
January 1, 2003, including increments thereto, if any, are assessed and
collected from pawnshops under its jurisdiction."
In the interim, however, Congress passed Republic Act (R.A.) No. 9238 on
February 5, 2004 entitled, "An Act Amending Certain Sections of the
National Internal Revenue Code of 1997, as amended, by Excluding Several
Services from the Coverage of the Value-added Tax and Re-imposing the
Gross Receipts Tax on Banks and Non-bank Financial Intermediaries
Performing Quasi-banking Functions and Other Non-bank Financial
Intermediaries beginning January 01, 2004."20
Pending publication of R.A. No. 9238, the BIR issued Bank Bulletin No.
2004-01 on February 10, 2004 advising all banks and non-bank financial
intermediaries that they shall remain liable under the VAT system.
When R.A. No. 9238 took effect on February 16, 2004, the Department of
Finance issued Revenue Regulations No. 10-2004 dated October 18, 2004,
classifying pawnshops as Other Non-bank Financial Intermediaries. The BIR
then issued Revenue Memorandum Circular No. 73-2004 on November 25,
2004, prescribing the guidelines and policies on the assessment and
collection of 10% VAT for gross annual sales/receipts
exceeding P550,000.00 or 3% percentage tax for gross annual
sales/receipts not exceeding P550,000.00 of pawnshops prior to January 1,
2005.
In fine, prior to the EVAT Law, pawnshops were treated as lending investors
subject to lending investor's tax. Subsequently, with the Court's ruling
in Lhuillier, pawnshops were then treated as VAT-able enterprises under the
general classification of "sale or exchange of services" under Section
108(A) of the Tax Code of 1997, as amended. R.A. No. 9238 finally
classified pawnshops as Other Non-bank Financial Intermediaries.
The Court finds that pawnshops should have been treated as non-bank
financial intermediaries from the very beginning, subject to the appropriate
taxes provided by law, thus
Under the National Internal Revenue Code of 1977,21 pawnshops
should have been levied the 5% percentage tax on gross receipts
imposed on bank and non-bank financial intermediaries under
Section 119 (now Section 121 of the Tax Code of 1997);
With the imposition of the VAT under R.A. No. 7716 or the EVAT
Law,22 pawnshops should have been subjected to the 10% VAT
imposed on banks and non-bank financial intermediaries and
financial institutions under Section 102 of the Tax Code of 1977
(now Section 108 of the Tax Code of 1997);23
This was restated by R.A. No. 8241,24 which amended R.A. No.
7716, although the levy, collection and assessment of the 10% VAT
on services rendered by banks, non-bank financial intermediaries,
finance companies, and other financial intermediaries not
performing quasi-banking functions, were made effective January
1, 1998;25
R.A. No. 8424 or the Tax Reform Act of 199726 likewise imposed a
10% VAT under Section 108 but the levy, collection and
assessment thereof were again deferred until December 31,
1999;27
The levy, collection and assessment of the 10% VAT was further
deferred by R.A. No. 8761 until December 31, 2000, and by R.A.
No. 9010, until December 31, 2002;
With no further deferments given by law, the levy, collection and
assessment of the 10% VAT on banks, non-bank financial
intermediaries, finance companies, and other financial
intermediaries not performing quasi-banking functions were finally
made effective beginning January 1, 2003;
Finally, with the enactment of R.A. No. 9238, the services of
banks, non-bank financial intermediaries, finance companies, and
other financial intermediaries not performing quasi-banking
functions were specifically exempted from VAT,28 and the 0% to 5%
percentage tax on gross receipts on other non-bank financial

intermediaries was reimposed under Section 122 of the Tax Code of
1997.29
At the time of the disputed assessment, that is, for the year 2000,
pawnshops were not subject to 10% VAT under the general provision on
"sale or exchange of services" as defined under Section 108(A) of the Tax
Code of 1997, which states: "'sale or exchange of services' means the
performance of all kinds of services in the Philippines for others for a fee,
remuneration or consideration x x x." Instead, due to the specific nature of
its business, pawnshops were then subject to 10% VAT under the category
of non-bank financial intermediaries, as provided in the same Section
108(A), which reads:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
Properties. (A) Rate and Base of Tax. - There shall be levied, assessed and collected, a
value-added tax equivalent to ten percent (10%) of gross receipts derived
from the sale or exchange of services, including the use or lease of
properties.
them, acquired by them, or otherwise coursed through them, either for

their own account or for the account of others." 33
It need not be elaborated that pawnshops are non-banks/banking
institutions. Moreover, the nature of their business activities partakes that
of a financial intermediary in that its principal function is lending.
A pawnshop's business and operations are governed by Presidential Decree
(P.D.) No. 114 or the Pawnshop Regulation Act and Central Bank Circular
No. 374 (Rules and Regulations for Pawnshops). Section 3 of P.D. No. 114
defines pawnshop as "a person or entity engaged in the business of
lending money on personal property delivered as security for loans and
shall be synonymous, and may be used interchangeably, with pawnbroker
or pawn brokerage."
That pawnshops are to be treated as non-bank financial intermediaries is
further bolstered by the fact that pawnshops are under the regulatory
supervision of the Bangko Sentral ng Pilipinas and covered by its Manual of
Regulations for Non-Bank Financial Institutions. The Manual includes
pawnshops in the list of non-bank financial intermediaries, viz.:
4101Q.1 Financial Intermediaries
The phrase "sale or exchange of services" means the performance of all

kinds or services in the Philippines for others for a fee, remuneration or
consideration, including x x x services of banks, non-bank financial
intermediaries and finance companies; and non-life insurance
companies (except their crop insurances), including surety, fidelity,
indemnity and bonding companies; and similar services regardless of
whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties. The phrase 'sale or exchange of services' shall
likewise include: x x x (Emphasis and underscoring supplied)
The tax treatment of pawnshops as non-bank financial intermediaries is not
without basis.
R.A. No. 337, as amended, or the General Banking Act characterizes the
terms banking institution and bank as synonymous and interchangeable
and specifically include commercial banks, savings bank, mortgage banks,
development banks, rural banks, stock savings and loan associations, and
branches and agencies in the Philippines of foreign banks. 30 R.A. No. 8791
or the General Banking Law of 2000, meanwhile, provided thatbanks shall
refer to entities engaged in the lending of funds obtained in the form of
deposits.31 R.A. No. 8791 also included cooperative banks, Islamic banks
and other banks as determined by the Monetary Board of the Bangko
Sentral ng Pilipinas in the classification of banks.32lavvphi1
Financial intermediaries, on the other hand, are defined as "persons or
entities whose principal functions include the lending, investing or
placement of funds or evidences of indebtedness or equity deposited with
xxx
Non-bank financial intermediaries shall include the following:
(1) A person or entity licensed and/or registered with any government
regulatory body as a non-bank financial intermediary, such as investment
house, investment company, financing company, securities dealer/broker,
lending investor, pawnshop, money broker x x x. (Emphasis supplied)
Revenue Regulations No. 10-2004, in fact, recognized these bases, to wit:
SEC. 2. BASES OF QUALIFYING PAWNSHOPS AS NON-BANK FINANCIAL
INTERMEDIARIES. - Whereas, in relation to Sec. 2.3 of Rev. Regs No. 9-2004
defining "Non-bank Financial Intermediaries, the term "pawnshop" as
defined under Presidential Decree No. 114 which authorized its creation, to
be a person or entity engaged in the business of lending money, all fall
within the classification of Non-bank Financial Intermediaries and therefore,
covered by Sec. 4 of R.A. No. 9238.
This classification is equally supported by Subsection 4101Q.1 of the BSP
Manual of Regulations for Non-Bank Financial Intermediaries and reiterated
in BSP Circular No. 204-99, classifying pawnshops as one of Non-bank
Financial Intermediaries within the supervision of the Bangko Sentral ng
Pilipinas.
Ultimately, R.A. No. 9238 categorically confirmed the classification of

pawnshops as non-bank financial intermediaries.
Coming now to the issue at hand - Since petitioner is a non-bank financial
intermediary, it is subject to 10% VAT for the tax years 1996 to
2002; however, with the levy, assessment and collection of VAT
from non-bank financial intermediaries being specifically deferred
by law,34 then petitioner is not liable for VAT during these tax
years. But with the full implementation of the VAT system on non-bank
financial intermediaries starting January 1, 2003, petitioner is liable for
10% VAT for said tax year. And beginning 2004 up to the present, by virtue
of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to
percentage tax on gross receipts from 0% to 5 %, as the case may be.
Lastly, petitioner is liable for documentary stamp taxes.
The Court has settled this issue in Michel J. Lhuillier Pawnshop, Inc. v.
Commissioner of Internal Revenue,35 in which it was ruled that the subject
of DST is not limited to the document alone. Pledge, which is an exercise of
a privilege to transfer obligations, rights or properties incident thereto, is
also subject to DST, thus
x x x the subject of a DST is not limited to the document embodying the
enumerated transactions. A DST is an excise tax on the exercise of a right
or privilege to transfer obligations, rights or properties incident thereto. In
Philippine Home Assurance Corporation v. Court of Appeals, it was held
that:
xxxx
Pledge is among the privileges, the exercise of which is subject to DST. A
pledge may be defined as an accessory, real and unilateral contract by
virtue of which the debtor or a third person delivers to the creditor or to a
third person movable property as security for the performance of the
principal obligation, upon the fulfillment of which the thing pledged, with
all its accessions and accessories, shall be returned to the debtor or to the
third person. This is essentially the business of pawnshops which are
defined under Section 3 of Presidential Decree No. 114, or the Pawnshop
Regulation Act, as persons or entities engaged in lending money on
personal property delivered as security for loans.
Section 12 of the Pawnshop Regulation Act and Section 21 of the Rules and
Regulations For Pawnshops issued by the Central Bank to implement the
Act, require every pawnshop or pawnbroker to issue, at the time of every
such loan or pledge, a memorandum or ticket signed by the pawnbroker
and containing the following details: (1) name and residence of the
pawner; (2) date the loan is granted; (3) amount of principal loan; (4)
interest rate in percent; (5) period of maturity; (6) description of pawn; (7)
signature of pawnbroker or his authorized agent; (8) signature or thumb
mark of pawner or his authorized agent; and (9) such other terms and
conditions as may be agreed upon between the pawnbroker and the
pawner. In addition, Central Bank Circular No. 445, prescribed a standard
form of pawn tickets with entries for the required details on its face and the
mandated terms and conditions of the pledge at the dorsal portion thereof.
Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:
xxxx
True, the law does not consider said ticket as an evidence of security or
indebtedness. However, for purposes of taxation, the same pawn ticket is
proof of an exercise of a taxable privilege of concluding a contract of
pledge. At any rate, it is not said ticket that creates the pawnshops
obligation to pay DST but the exercise of the privilege to enter into a
contract of pledge. There is therefore no basis in petitioners assertion that
a DST is literally a tax on a document and that no tax may be imposed on a
pawn ticket.
The settled rule is that tax laws must be construed in favor of the taxpayer
and strictly against the government; and that a tax cannot be imposed
without clear and express words for that purpose. Taking our bearing from
the foregoing doctrines, we scrutinized Section 195 of the NIRC, but there
is no way that said provision may be interpreted in favor of petitioner.
Section 195 unqualifiedly subjects all pledges to DST. It states that "[o]n
every x x x pledge x x x there shall be collected a documentary stamp tax
x x x." It is clear, categorical, and needs no further interpretation or
construction. The explicit tenor thereof requires hardly anything than a
simple application.
xxxx
In the instant case, there is no law specifically and expressly exempting
pledges entered into by pawnshops from the payment of DST. Section 199
of the NIRC enumerated certain documents which are not subject to stamp
tax; but a pawnshop ticket is not one of them. Hence, petitioners nebulous
claim that it is not subject to DST is without merit. It cannot be overemphasized that tax exemption represents a loss of revenue to the
government and must, therefore, not rest on vague inference. Exemption
from taxation is never presumed. For tax exemption to be recognized, the
grant must be clear and express; it cannot be made to rest on doubtful
implications.
Under the principle of stare decisis et non quieta movere (follow past
precedents and do not disturb what has been settled), once a case has
been decided one way, any other case involving exactly the same point at
issue, as in the case at bar, should be decided in the same manner. 36
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated

June 7, 2006 and Resolution dated August 14, 2006 of the Court of Tax
Appeals En Banc is MODIFIED to the effect that the Bureau of Internal
Revenue assessment for VAT deficiency in the amount of P541,102.79 for
the year 2000 is REVERSED and SET ASIDE, while its assessment for
DST deficiency in the amount of P24,747.13, inclusive of surcharge and
interest, is UPHELD.
Footnotes
1
Rollo, Annex "C", p. 84.
Id., Annex "D", pp. 85-90.
Id., Annex "E", pp. 91-95.
Id., Annex "F", pp. 96-107.
Id., Annex "G", p. 108.
Id., Annex "H", pp. 109-122.
Id., Annex "I", pp. 150-168.
Id., Annex "J", pp. 169-183.
Id., Annex "K", pp. 184-188.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MINITA V. CHICO-NAZARIO
Associate Justice
ANTONIO EDUARDO B.
NACHURA
Associate Justice
RUBEN T. REYES
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of
the Courts Division.
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
10
Id. at 80.
11
Rollo, pp. 82-83.
12
Id. at 34.
As clarified by BIR Revenue Memorandum Circular No. 43-91

issued on May 27, 1991.
13
Entitled, "An Act Restructuring the Value-Added Tax (VAT)

System, Widening its Tax Base and Enhancing its Administration,
and for these purposes Amending and Repealing the Relevant
Provisions of the National Internal Revenue Code, as amended, and
for Other Purposes."
14
15
C.T.A. Case No. 6915, April 11, 2004.
16
C.T.A. Case No. 7069, June 17, 2005.
G.R. No. 150947, July 15, 2003, 406 SCRA 178. Penned by Chief
Justice Hilario G. Davide, Jr. with the concurrence of Associate
Justices Jose Vitug, Consuelo Ynares-Santiago, Antonio T. Carpio
and Adolfo S. Azcuna.
17
18
Id. at 185.
19
ftp://ftp.bir.gov.ph/webadmin1/pdf/1887rmc36_04.pdf.
services as prescribed in Section 17(a) and (b) of Republic

Act No. 7616, as amended by Republic Act. 8241, is hereby
further deferred until December 31, 1999, unless Congress
deems otherwise: Provided, That the said services shall
continue to pay the applicable tax prescribed under the
present provisions of the National Internal Revenue Code,
as amended.
Republic Act (R.A.) No. 9238 lapsed into law on February 05,
2004 without the signature of the President, in accordance with
Article VI, Section 27 (1) of the Constitution.
20
28
21
Presidential Decree No. 1158.
22
Effective May 28, 1994.
R.A. No. 9238, Section 2 provides:

SEC. 2. Section 109 of the same Code is hereby amended
by rewording paragraph (1) and inserting additional
paragraphs after (z) which shall now read as follows:
The implementation of the VAT system under R.A. No. 7716 was
made effective January 1, 1996 (seeCommissioner of Internal
Revenue v. Philippine Global Communications, Inc., G.R. No.
144696, August 16, 2006, 499 SCRA 53).
23
24
Approved on December 20, 1996.
25
"SEC. 109. Exempt Transactions. The following shall be

exempt from the value-added tax:
xxxx
(aa) Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank
financial intermediaries;
SEC. 11. Section 17 of Republic Act No. 7716 is hereby

amended to read as follows:
xxxx
"EC. 17. Effectivity of the Imposition of VAT on Certain

Goods, Properties and Services. The value-added tax
shall be levied, assessed and collected on the following
transactions, starting January 1, 1998:
The foregoing exemptions to the contrary notwithstanding,

any person whose sale of goods or properties or services
which are otherwise not subject to VAT, but who issue a
VAT invoice or receipt therefor shall, in additional to his
liability to other applicable percentage tax, if any, be liable
to the tax imposed in Section 106 or 108 without the
benefit of input tax credit, and such tax shall also be
recognized as input tax credit to the purchaser under
Section 110, all of this Code."
xxxx
(b) Services rendered by banks, non-bank financial
intermediaries, finance companies and other financial
intermediaries not performing quasi-banking functions;
29
R.A. No. 9238, Section 4 reads:
x x x x:"
R.A. No. 8424 renamed the National Internal Revenue Code of
1977 to National Internal Revenue Code of 1997, or the Tax Code of
1997, and took effect on January 1, 1998.
26
27

SEC. 5. Transitory Provisions. - Deferment of the Effectivity
of the Imposition of VAT on Certain Services. - The
effectivity of the imposition of the value-added tax on
Section 4. Section 122 of the National Internal Revenue

Code of 1997, as amended, is hereby restored with
amendments to read as follows:
"Sec. 122. Tax on Other Non-Bank Financial
Intermediaries. There shall be collected a tax of five
percent (5%) on the gross receipts derived by other nonbank financial intermediaries doing business in the
Philippines, from interest, commissions, discounts and all
other items treated as gross income under this code:
Provided, that interests, commissions and discounts from
lending activities, as well as income from financial leasing,

shall be taxed on the basis of remaining maturities of the
instruments from which such receipts are derived, in
accordance with the following schedule:
maturity period is five (5) years or less....................... 5%
maturity period is more than five (5) years..................1%
Provided, however, that in case the maturity period is
shortened thru pretermination, then the maturity period
shall be reckoned to end as of the date of pretermination
for purposes of classifying the transaction and the correct
rate shall be applied accordingly.
Provided, finally, that the generally accepted accounting
principles as may be prescribed by the Securities and
Exchange Commission for other non-bank financial
intermediaries shall likewise be the basis for the calculation
of gross receipts.
Nothing in this code shall preclude the Commissioner from
imposing the same tax herein provided on persons
performing similar financing activities."
30
Section 2.
31
Section 3.1.
32
Section 3.1 (e), (f), and (g).
General Banking Act, Section 2-D(c); Manual of Regulations for

Non-Bank Financial Institutions, 4101Q.1.
33
34
See pages 7-8 of this Decision.
35
G.R. No. 166786, May 3, 2006, 489 SCRA 147.
Commissioner of Internal Revenue v. Trustworthy Pawnshop, Inc.,

G.R. No. 149834, May 2, 2006, 488 SCRA 538, 545.
36
The Lawphil Project - Arellano Law Foundation
________________
* FIRST DIVISION
361
VOL. 183, MARCH 19, 1990

361
Simex International (Manila), Inc. vs. Court of Appeals
360
G.R. No. 88013. March 19, 1990.*
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner, vs. THE
HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
Civil Law; Moral damages; Moral damages are not awarded to penalize the
defendant but to compensate the plaintiff for injuries he may have
suffered.We agree that moral damages are not awarded to penalize the
defendant but to compensate the plaintiff for the injuries he may have
suffered. In the case at bar, the petitioner is seeking such damages for the
prejudice sustained by it as a result of the private respondents fault. The
respondent court said that the claimed losses are purely speculative and
are not supported by substantial evidence, but it failed to consider that the
amount of such losses need not be established with exactitude, precisely
because of their nature. Moral damages are not susceptible of pecuniary
estimation. Article 2216 of the Civil Code specifically provides that no
proof of pecuniary loss is necessary in order that moral, nominal,
temperate, liquidated or exemplary damages may be adjudicated. That is
why the determination of the amount to be awarded (except liquidated
damages) is left to the sound discretion of the court, according to the
circumstances of each case.
Same; Same; As petitioner has indeed incurred loss through private

respondents fault, the proper remedy is the award of moral damages.
Considering all this, we feel that the award of nominal damages in the sum
of P20,000.00 was not the proper relief to which the petitioner was
entitled. Under Article 2221 of the Civil Code, nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or recognized, and not for
the purpose of indemnifying the plaintiff for any loss suffered by him. As
we have found that the petitioner has indeed incurred loss through the
fault of the private respondent, the proper remedy is the award to it of
moral damages, which we impose, in our discretion, in the same amount of
P20,000.00.
Same; Exemplary damages; Respondent banks error in not crediting the
deposit in question to petitioner, and for not correcting it immediately after
its discovery comes under the wanton manner under the Civil Code that
calls for the imposition of exemplary damages.The point is that as a
business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary
nature of their relationship. In the case at bar, it is obvious that the
respondent bank was remiss in that duty and violated that relationship.
What is especially deplorable is that, having been informed of its error in
not crediting the deposit in question to the petitioner, the respondent bank
did not immediately correct it but did so only one week later or twentythree days after the deposit was made. It bears repeating that the record
does not contain any satisfactory explanation of why the error was made in
the first place and why it was not corrected immediately after its discovery.
Such ineptness comes under the concept of the wanton manner
contemplated in the Civil Code that calls for the imposition of exemplary
damages.
PETITION to review the judgment of the Court of Appeals.

Don P. Porcuincula for petitioner.
San Juan, Gonzalez, San Agustin & Sinense for private respondent.
CRUZ, J.:
The dishonored checks are the following:

1. Check No. 215391 dated May 29, 1981, in favor of California
Manufacturing Company, Inc. for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal
Revenue in the amount of P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in
the amount of P7,080.00:
4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife
Trading Corporation in the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife
Trading Corporation in the amount of P12,953.00:
We are concerned in this case with the question of damages,

362
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc.
in the amount of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club
Corporation in the amount of P4,385.02: and
362
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the
amount of P6,275.00.2
As a consequence, the California Manufacturing Corporation
specifically moral and exemplary damages. The negligence of the private

respondent has already been established. All we have to ascertain is
whether the petitioner is entitled to the said damages and, if so, in what
amounts.
________________
The parties agree on the basic facts. The petitioner is a private corporation
engaged in the exportation of food products. It buys these products from
various local suppliers and then sells them abroad, particularly in the
United States, Canada and the Middle East. Most of its exports are
purchased by the petitioner on credit.
2 Exhibits 1-a to 1-h.
The petitioner was a depositor of the respondent bank and maintained a

checking account in its branch at Romulo Avenue, Cubao, Quezon City. On
May 25, 1981, the petitioner deposited to its account in the said bank the
amount of P100,000.00, thus increasing its balance as of that date to
P190,380.74. 1 Subsequently, the petitioner issued several checks against
its deposit but was suprised to learn later that they had been dishonored
for insufficient funds.
VOL. 183, MARCH 19, 1990
1 Rollo, p. 4.
363
363
sent on June 9, 1981, a letter of demand to the petitioner, threatening
prosecution if the dishonored check issued to it was not made good. It also
withheld delivery of the order made by the petitioner. Similar letters were
sent to the petitioner by the Malabon Long Life Trading, on June 15, 1981,
and by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled
the petitioners credit line and demanded that future payments be made
by it in cash or certified check. Meantime, action on the pending orders of
the petitioner with the other suppliers whose checks were dishonored was
also deferred.
The petitioner complained to the respondent bank on June 10, 1981.3
Investigation disclosed that the sum of P100,000.00 deposited by the
petitioner on May 25, 1981, had not been credited to it. The error was
rectified on June 17, 1981, and the dishonored checks were paid after they
were re-deposited.4
In its letter dated June 20, 1981, the petitioner demanded reparation from
the respondent bank for its gross and wanton negligence. This demand
was not met. The petitioner then filed a complaint in the then Court of First
Instance of Rizal claiming from the private respondent moral damages in
the sum of P1,000,000.00 and exemplary damages in the sum of
P500,000.00, plus 25% attorneys fees, and costs.
After trial, Judge Johnico G. Serquia rendered judgment holding that moral
and exemplary damages were not called for under the circumstances.
However, observing that the plaintiffs right had been violated, he ordered
the defendant to pay nominal damages in the amount of P20,000.00 plus
P5,000.00 attorneys fees and costs.5 This decision was affirmed in toto by
the respondent court.6
The respondent court found with the trial court that the private respondent
was guilty of negligence but agreed that the petitioner was nevertheless
not entitled to moral damages. It said:
The essential ingredient of moral damages is proof of bad faith (De
Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the
________________
3 Rollo, p. 6.
4 Ibid. , pp. 6-7.
5 Id., p. 24.
6 Victor, J., with Ejercito and Pe, JJ., concurring.
364
364
omission by the defendant-appellee bank to credit appellants deposit of
P100,000.00 on May 25, 1981. But the bank rectified its records. It credited
the said amount in favor of plaintiff-appellant in less than a month. The
dishonored checks were eventually paid. These circumstances negate any
imputation or insinuation of malicious, fraudulent, wanton and gross bad
faith and negligence on the part of the defendant-appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it
cannot share some of the conclusions of the lower courts. It seems to us
that the negligence of the private respondent had been brushed off rather
lightly as if it were a minor infraction requiring no more than a slap on the
wrist. We feel it is not enough to say that the private respondent rectified
its records and credited the deposit in less than a month as if this were
sufficient repentance. The error should not have been committed in the
first place. The respondent bank has not even explained why it was
committed at all. It is true that the dishonored checks were, as the Court of
Appeals put it, eventually paid. However, this took almost a month when,
properly, the checks should have been paid immediately upon
presentment.
As the Court sees it, the initial carelessness of the respondent bank,
aggravated by the lack of promptitude in repairing its error, justifies the
grant of moral damages. This rather lackadaisical attitude toward the
complaining depositor constituted the gross negligence, if not wanton bad
faith, that the respondent court said had not been established by the
petitioner.
We also note that while stressing the rectification made by the respondent
bank, the decision practically ignored the prejudice suffered by the
petitioner. This was simply glossed over if not, indeed, disbelieved. The fact
is that the petitioners credit line was canceled and its orders were not
acted upon pending receipt of actual payment by the suppliers. Its
business declined. Its reputation was tarnished. Its standing was reduced in
the business community. All this was due to the fault of the respondent
bank which was undeniably remiss in its duty to the petitioner.
this rule is where the corporation has a good reputation that is debased,
resulting in its social humiliation.9
Article 2205 of the Civil Code provides that actual or compensatory

damages may be received (2) for injury to the plaintiffs
________________
365
7 Cerrano v. Tan Chuco, 38 Phil. 392.
VOL. 183, MARCH 19, 1990
8 Dee Hua Liong Electrical Equipment Corporation v. Reyes, 145 SCRA 713;
San Andres v. Court of Appeals, 116 SCRA 81.
365
9 Mambulao Lumber Co. v. Philippine National Bank, 22 SCRA 359.
366
business standing or commercial credit. There is no question that the

petitioner did sustain actual injury as a result of the dishonored checks and
that the existence of the loss having been established absolute certainty
as to its amount is not required.7 Such injury should bolster all the more
the demand of the petitioner for moral damages and justifies the
examination by this Court of the validity and reasonableness of the said
claim.
We agree that moral damages are not awarded to penalize the defendant
but to compensate the plaintiff for the injuries he may have suffered.8 In
the case at bar, the petitioner is seeking such damages for the prejudice
sustained by it as a result of the private respondents fault. The respondent
court said that the claimed losses are purely speculative and are not
supported by substantial evidence, but if failed to consider that the
amount of such losses need not be established with exactitude, precisely
because of their nature. Moral damages are not susceptible of pecuniary
estimation. Article 2216 of the Civil Code specifically provides that no
proof of pecuniary loss is necessary in order that moral, nominal,
temperate, liquidated or exemplary damages may be adjudicated. That is
why the determination of the amount to be awarded (except liquidated
damages) is left to the sound discretion of the court, according to the
circumstances of each case.
From every viewpoint except that of the petitioners, its claim of moral
damages in the amount of P1,000,000.00 is nothing short of preposterous.
Its business certainly is not that big, or its name that prestigious, to sustain
such an extravagant pretense. Moreover, a corporation is not as a rule
entitled to moral damages because, not being a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings,
serious anxiety, mental anguish and moral shock. The only exception to
366
We shall recognize that the petitioner did suffer injury because of the
private respondents negligence that caused the dishonor of the checks
issued by it. The immediate consequence was that its prestige was
impaired because of the bouncing checks and confidence in it as a reliable
debtor was diminished. The private respondent makes much of the one
instance when the petitioner was sued in a collection case, but that did not
prove that it did not have a good reputation that could not be marred,
more so since that case was ultimately settled.10 It does not appear that,
as the private respondent would portray it, the petitioner is an unsavory
and disreputable entity that has no good name to protect.
Considering all this, we feel that the award of nominal damages in the sum
of P20,000.00 was not the proper relief to which the petitioner was
entitled. Under Article 2221 of the Civil Code, nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or recognized, and not for
the purpose of indemnifying the plaintiff for any loss suffered by him. As
we have found that the petitioner has indeed incurred loss through the
fault of the private respondent, the proper remedy is the award to it of
moral damages, which we impose, in our discretion, in the same amount of
P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:

Art. 2229. Exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern world
and plays a vital role in the economic life of every civilized nation. Whether
as mere passive entities for the safekeeping and saving of money or as
active instruments of business and commerce, banks have become an
ubiquitous presence
________________
10 Rollo, pp. 38-41.

367
VOL. 183, MARCH 19, 1990

367
among the people, who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the humble wage-earner
has not hesitated to entrust his lifes savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some
interest for him. The ordinary person, with equal faith, usually maintains a
modest checking account for security and convenience in the settling of his
monthly bills and the payment of ordinary expenses. As for business
entities like the petitioner, the bank is a trusted and active associate that
can help in the running of their affairs, not only in the form of loans when
needed but more often in the conduct of their day-to-day transactions like
the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos
or of millions. The bank must record every single transaction accurately,
down to the last centavo, and as promptly as possible. This has to be done
if the account is to reflect at any given time the amount of money the
depositor can dispose of as he sees fit, confident that the bank will deliver
it as and to whomever he directs. A blunder on the part of the bank, such
as the dishonor of a check without good reason, can cause the depositor
not a little embarrassment if not also financial loss and perhaps even civil
and criminal litigation.
The point is that as a business affected with public interest and because of
the nature of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship. In the case at bar, it is obvious that
the respondent bank was remiss in that duty and violated that relationship.
What is especially deplorable is that, having been informed of its error in
not crediting the deposit in question to the petitioner, the respondent bank
did not immediately correct it but did so only one week later or twentythree days after the deposit was made. It bears repeating that the record
does not contain any satisfactory explanation of why the error was made in
the first place and why it was not corrected immediately after its discovery.
Such ineptness comes under the concept of the wanton manner
contemplated in the Civil Code that calls for the
368
368
United Coconut Planters Bank vs. Intermediate Appellate Court
imposition of exemplary damages.
After deliberating on this particular matter, the Court, in the exercise of its
discretion, hereby imposes upon the respondent bank exemplary damages
in the amount of P50,000.00, by way of example or correction for the
public good, in the words of the law. It is expected that this ruling will
serve as a warning and deterrent against the repetition of the ineptness
and indefference that has been displayed here, lest the confidence of the
public in the banking system be further impaired.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private
respondent is ordered to pay the petitioner, in lieu of nominal damages,
moral damages in the amount of P20,000.00, and exemplary damages in
the amount of P50,000.00 plus the original award of attorneys fees in the
amount of P5,000.00, and costs.
SO ORDERED.
THIRD DIVISION
ALICE A.I. SANDEJAS,
G.R. No. 155033
Narvasa (Chairman), Gancayco, Grio-Aquino and Medialdea, JJ., concur.

Judgment modified.
Note.Though incapable of pecuniary estimation, moral damages may be
recovered if they are the proximate result of the defendants wrongful act
or omission. (De Lem vs. Court of Appeals, 165 SCRA 166)
o0o [Simex International (Manila), Inc. vs. Court of Appeals,
183 SCRA 360(1990)]
ROSITA A.I. CUSI,
PATRICIA A.I. SANDEJAS and
Present:
BENJAMIN A.I. ESPIRITU,
Petitioners,
YNARES-SANTIAGO,
Chairperson,
AUSTRIA-MARTINEZ,
- versus -
CARPIO MORALES,*
CHICO-NAZARIO, and
NACHURA, JJ.
SPS. ARTURO IGNACIO, JR.
LAWPHIL
and EVELYN IGNACIO,
Promulgated:
Respondents.
December 19, 2007
x------------------------------------------------x
DECISION
Before the Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court assailing the Decision1 of the Court of Appeals (CA) in CAG.R. CV No. 62404 promulgated on August 27, 2002, which affirmed with
modification the Decision of the Regional Trial Court (RTC) of Pasig City,
Branch 158, in Civil Case No. 65146 dated December 18, 1998.
The facts of the case, as summarized by the RTC, are as follows:
It appears from the plaintiffs' [petitioners] evidence that Arturo
[respondent] is the elder brother of Alice [petitioner] and Rosita
[petitioner], Benjamin [petitioner] and Patricia [petitioner] are Arturo's
nephew and niece. Arturo and his wife Evelyn [respondent] are residents of
the United States. In October 1993, Arturo leased from Dr. Borja a
condominium unit identified as Unit 28-C Gilmore Townhomes located at
Granada St., Quezon City. The lease was for the benefit of Benjamin who is
the occupant of the unit. The rentals were paid by Ignacio. The term of the
lease is for one (1) year and will expire on October 15, 1994. It appears
that Arturo was intending to renew the lease contract. As he had to leave
for the U.S., Arturo drew up a check, UCPB Check No. GRH-560239 and
wrote on it the name of the payee, Dr. Manuel Borja, but left blank the date
and amount. He signed the check. The check was intended as payment for
the renewal of the lease. The date and the amount were left blank because
Arturo does not know when it will be renewed and the new rate of the
lease. The check was left with Arturo's sister-in-law, who was instructed to
deliver or give it to Benjamin.
The check later came to the possession of Alice who felt that Arturo
cheated their sister in the amount of three million pesos (P3,000,000.00).
She believed that Arturo and Rosita had a joint "and/or" money market
placement in the amount of P3 million with the UCPB branch at Ortigas
Ave., San Juan and that Ignacio preterminated the placement and ran away
with it, which rightfully belonged to Rosita. Alice then inquired from UCPB
Greenhills branch if Arturo still has an account with them. On getting a
confirmation, she together with Rosita drew up a scheme to recover the P3
million from Arturo. Alice filled up the date of the check with "March 17,
1995" and the amount with "three million only." Alice got her driver,
Kudera, to stand as the payee of the check, Dr. Borja. Alice and Rosita
came to SBC2 Greenhills Branch together with a man (Kudera) who[m] they
introduced as Dr. Borja to the then Assistant Cashier Luis. After introducing
the said man as Dr. Borja, Rosita, Alice and the man who was later
identified as Kudera opened a Joint Savings Account No. 271-410554-7. As
initial deposit for the Joint Savings Account, Alice, Rosita and Kudera
deposited the check. No ID card was required of Mr. Kudera because it is an
internal policy of the bank that when a valued client opens an account, an
identification card is no longer required (TSN, April 21, 1997, pp. 15-16).
SBC also allowed the check to be deposited without the endorsement of
the impostor Kudera. SBC officials stamped on the dorsal portion of the
check "endorsement/lack of endorsement guaranteed" and sent the check
for clearing to the Philippine Clearing House Corporation.
On 21 March 1995, after the check had already been cleared by the drawer
bank UCPB, Rosita withdrew P1 million from Joint Savings Account and
deposited said amount to the current account of Alice with SBC Greenhills
Branch. On the same date, Alice caused the transfer of P2 million from the
Joint Savings Account to two (2) Investment Savings Account[s] in the
names of Alice, Rosita and/or Patricia. ...
On April 4, 1995, a day after Evelyn and Atty. Sanz inquired about the
identity of the persons and the circumstances surrounding the deposit and
withdrawal of the check, the three million pesos in the two investment
savings account[s] and in the current account just opened with SBC were
withdrawn by Alice and Rosita.3
On June 18, 1995, Arturo Ignacio, Jr. and Evelyn Ignacio (respondents) filed
a verified complaint for recovery of a sum of money and damages against
Security Bank and Trust Company (SBTC) and its officers, namely: Rene
Colin D. Gray, Manager; and Sonia Ortiz-Luis, Cashier. The complaint also
impleaded herein petitioner Benjamin A.I. Espiritu (Benjamin), a "John
Doe," representing himself as Manuel N. Borja; and a "Jane Doe."
On November 7, 1995, the complaint was amended by additionally
impleading herein petitioners Alice A.I. Sandejas (Alice), Rosita A.I. Cusi
(Rosita) and Patricia A.I. Sandejas (Patricia) as defendants who filed their
respective answers and counterclaims.
After trial, the RTC rendered judgment dated December 18, 1998 with the
following dispositive portion:
WHEREFORE, in view of the foregoing, judgment is rendered in favor of
plaintiffs as against defendants Security Bank and Trust Co., Rene Colin
Gray, Sonia Ortiz Luis, Alice A.I. Sandejas and Rosita A.I. Cusi, ordering
them to pay jointly and severally the plaintiffs the following amounts:
(1) P3,000,000.00 plus legal interest on it from March 17, 1995 until the
entire amount is fully paid;
(2) P500,000.00 as moral damages;
The award of moral damages, exemplary damages, and attorney's fees in

favor of Benjamin Espiritu is DELETED.
(3) P200,000.00 as exemplary damages;

SO ORDERED.6
(4) P300,000.00 as attorney's fees; plus
(5) the cost of suit.
In turn, plaintiffs are directed to pay Benjamin A.I. Espiritu the amount
of P100,000.00 as moral damages, P50,000.00 as exemplary damages and
another P50,000.00 as attorney's fees.
The counterclaims of Patricia A.I. Sandejas are dismissed.
SO ORDERED.4
Both parties appealed the RTC Decision to the CA.
On August 14, 1999, during the pendency of the appeal with the CA, herein
respondent Arturo Ignacio, Jr. (Arturo) died.5
On August 27, 2002, the CA promulgated the presently assailed Decision,
disposing as follows:
Petitioners and SBTC, together with Gray and Ortiz-Luis, filed their
respective petitions for review before this Court.
However, the petition filed by SBTC, Gray and Ortiz-Luis, docketed as G.R.
No. 155038, was denied in a Resolution 7 issued by this Court on November
20, 2002, for their failure to properly verify the petition, submit a valid
certification of non-forum shopping, and attach to the petition the
duplicate original or certified true copy of the assailed CA Decision. Said
Resolution became final and executory on April 9, 2003. 8
On the other hand, the instant petition was given due course. Petitioners
enumerated the following grounds in support of their petition:
I. THE COURT OF APPEALS HAD DECIDED A QUESTION OF SUBSTANCE NOT
HERETOFORE DECIDED BY THIS COURT AND/OR HAD DECIDED IT IN A WAY
PROBABLY NOT IN ACCORD WITH EQUITY, THE LAW AND THE APPLICABLE
DECISIONS OF THIS COURT, SUCH AS:
WHEREFORE, in view of the foregoing, the assailed decision of the trial

court is hereby AFFIRMED with the MODIFICATION that the judgment
shall read as follows:
(a) IN NOT HOLDING THAT AS BETWEEN SIBLINGS, THE AGGRIEVED

SIBLING HAS THE RIGHT TO TAKE MEASURES OR STEPS TO PROTECT HIS
OWN INTEREST OR PROPERTY RIGHTS FROM AN ACT OF THE GUILTY
SIBLING;
The defendants-appellants Security Bank and Trust Company, Rene Colin

D. Gray, Sonia Ortiz-Luis, Alice A.I. Sandejas, and Rosita A.I. Cusi, are
hereby ordered to jointly and severally pay the plaintiffs the following
amounts:
(b) IN NOT HOLDING THAT THE ACT OF ROSITA AND ALICE IN FILLING OUT
THE BLANK PORTIONS OF THE CHECK TO RECOVER WHAT ARTURO, JR.
TOOK FROM AND DUE ROSITA, DID NOT GIVE RISE TO AN ACTIONABLE
TORT;
1. P3,000,000.00 plus legal interest computed from March 17, 1995 until
the entire amount is fully paid;
(c) IN NOT HOLDING THAT THE CRIMINAL ACT OF ARTURO, JR. IN

SUBMITTING AN AFFIDAVIT OF LOSS OF THE CERTIFICATE OF TIME DEPOSIT
FORP3,000,000 THAT RIGHTFULLY BELONGED TO ROSITA JUST TO BE ABLE
TO PRE-TERMINATE THE TIME DEPOSIT AND GET ITS FACE VALUE, WHEN HE
KNEW IT WAS NOT LOST BUT IN FACT INTACT AND IN THE POSSESSION OF
ROSITA, IS A DISHONEST AND REPREHENSIBLE ACT THAT JUSTIFIED ROSITA
AND ALICE IN TAKING MEANS TO REGAIN THE MONEY AND TO DENY
ARTURO, JR. ANY RIGHT TO RECOVER THE SAID AMOUNT AS WELL AS TO
AN AWARD OF DAMAGES;
2. P200,000.00 as moral damages;

3. P100,000.00 as exemplary damages;
4. P50,000.00 as attorney's fees; plus
5. the costs of suit.
(d) IN NOT HOLDING THAT THE CRIMINAL ACT OF ARTURO, JR. IN

SUBMITTING AN AFFIDAVIT OF LOSS OF THE OWNER'S COPY OF THE TITLE
IN MORAYTA AND IN TESTIFYING IN COURT AS TO SUCH, WHEN THAT IS
NOT THE TRUTH AS HE KNEW THAT THE ORIGINAL OWNER'S COPY OF THE
TITLE WAS WITH ROSITA, IS ANOTHER DISHONEST AND REPREHENSIBLE

ACT THAT SHOULD NOT HAVE ENTITLED HIM TO ANY AWARD OF DAMAGES;
AND
(e) IN NOT APPLYING THE RULE ON PARI DELICTO UNDER ART. 1412 OF
THE CIVIL CODE.
II. THE COURT OF APPEALS HAD DEPARTED FROM THE USUAL COURSE OF
JUDICIAL PROCEEDINGS WHEN IT FAILED TO RESOLVE IN THE APPEAL THE
COUNTERCLAIM OF ROSITA AGAINST ARTURO, JR. FOR THE RECOVERY OF
THE AMOUNTS LEGALLY HERS THAT SHOULD JUSTIFY ALICE'S BEING
ABSOLVED FROM ANY LIABILITY FOR USING THE CHECK IN RECOVERING
THE AMOUNT RIGHTFULLY BELONGING TO ROSITA;
III. THE COURT OF APPEALS HAD DEPARTED FROM THE USUAL COURSE OF
JUDICIAL PROCEEDINGS WHEN IT REVERSED THE TRIAL COURT'S FINDING
THAT RESPONDENT WAS GUILTY OF BAD FAITH AND MALICE THAT
ENTITLED PETITIONER BENJAMIN A.I. ESPIRITU TO THE AWARD OF
DAMAGES NOTWITHSTANDING THAT THERE WAS AMPLE EVIDENCE SHOWN
THAT SUCH BAD FAITH AND MALICE WAS MADE AS A LEVERAGE TO
COMPEL ARTURO'S SIBLINGS TO RETURN TO HIM THE P3,000,000 WHICH
WAS NOT HIS; and,
IV. THE COURT OF APPEALS HAD DECIDED THE CASE NOT IN ACCORD WITH
LAW WHEN IT DELETED THE AWARD OF DAMAGES TO PETITIONER ESPIRITU
AND IN NOT HAVING RULED THAT HE WAS ENTITLED TO A HIGHER AWARD
OF DAMAGES CONSIDERING THE CIRCUMSTANCES OF THE CASE AS WELL
AS IN NOT HAVING RULED THAT PATRICIA WAS ENTITLED TO AN AWARD OF
DAMAGES.9
Petitioners argue that the CA overlooked and ignored vital pieces of
evidence showing that the encashment of the subject check was not
fraudulent and, on the contrary, was justified under the circumstances; and
that such encashment did not amount to an actionable tort and that it
merely called for the application of the civil law rule on pari delicto.
In support of these arguments, petitioners contend that the principal
adversaries in the present case are full blooded siblings; that the law
recognizes the solidarity of family which is why it is made a condition that
earnest efforts towards a compromise be exerted before one family
member can institute a suit against the other; that even if Arturo
previously defrauded Rosita and deprived her of her lawful share in the
sale of her property, petitioners Rosita and Alice did not precipitately file
suit against him and instead took extra-legal measures to protect Rosita's
property rights and at the same time preserve the solidarity of their family
and save it from public embarrassment. Petitioners also aver that Rosita's
and Alice's act of encashing the subject check is not fraudulent because
they did not have any unlawful intent and that they merely took from
Arturo what rightfully belonged to Rosita. Petitioners contend that even
granting that the act of Rosita and Alice amounted to an actionable tort,
they could not be adjudged liable to return the amount to respondents or
to pay damages in their favor, because the civil law rule onpari
delicto dictates that, when both parties are at fault, neither of them could
expect positive relief from courts of justice and, instead, are left in the
state where they were at the time of the filing of the case.
Petitioners also contend that the CA erred in failing to award damages to
Patricia even if the appellate court sustained the trial court's finding that
she was not a party to the fraudulent acts committed by Rosita and Alice.
Petitioners argue that even if Patricia did not bother to know the details of
the cases against her and left everything to her mother, she did not even
know the nature of the case against her, or her superiors in the bank where
she worked did not know whether she was the plaintiff or defendant, these
were not reasons to deny her award of damages. The fact remains that she
had been maliciously dragged into the case, and that the suit had
adversely affected her work and caused her mental worries and anguish,
besmirched reputation, embarrassment and humiliation.
As to Benjamin, petitioners aver that the CA also erred in deleting the
award of damages and attorney's fees in his favor. Petitioners assert that
the trial court found that Benjamin suffered mental anguish, wounded
feelings and moral shock as a result of the filing of the present case. Citing
the credentials and social standing of Benjamin, petitioners claim that the
award of damages and attorney's fees in his favor should be increased.
Lastly, petitioners contend that the award of damages and attorney's fees
to respondents should be deleted for their failure to establish malice or bad
faith on the part of petitioners Alice and Rosita in recovering
the P3,000,000.00 which Arturo took from Rosita; and that it is Rosita who
is entitled to damages and attorney's fees for Arturo's failure and refusal to
give her share in the sale of her property in Morayta.
In their Memorandum, respondents simply contend that the issues raised
by petitioners are factual in nature and that the settled rule is that
questions of fact are not subject to review by the Supreme Court in a
petition for review on certiorari under Rule 45 of the Rules of Court. While
there are exceptions to this rule, respondents assert that petitioners failed
to show that the instant case falls under any of these exceptions.
The Courts Ruling
The Court finds the petition bereft of merit. There is no compelling reason
for the Court to disturb the findings of facts of the lower courts.
The trial court's findings are as follows: (1) Rosita failed to establish that
there is an agreement between her and Arturo that the latter will give her
one-third of the proceeds of the sale of the Morayta property; (2)
petitioners were not able to establish by clear and sufficient evidence that
the P3,000,000.00 which they took from Arturo when they encashed the
subject check was part of the proceeds of the sale of the Morayta property;
(3) Rosita's counterclaim is permissive and she failed to pay the full docket
and filing fees for her counterclaim.10
Petitioners challenge the findings of the RTC and insist that they should not
be held liable for encashing the subject check because Arturo defrauded
Rosita and that he committed deceitful acts which deprived her of her
rightful share in the sale of her building in Morayta; that the amount
of P3,000,000.00 represented by the check which they encashed formed
part of the proceeds of the said sale; that Alice and Rosita were merely
moved by their desire to recover from Arturo, Rosita's supposed share in
the sale of her property.
However, the Court agrees with respondents that only questions of law are
entertained in petitions for review on certiorari under Rule 45 of the Rules
of Court.11 The trial courts findings of fact, which the Court of Appeals
affirmed, are generally binding and conclusive upon this court. 12 There are
recognized exceptions to this rule, among which are: (1) the conclusion is
grounded on speculations, surmises or conjectures; (2) the inference is
manifestly mistaken, absurd or impossible; (3) there is grave abuse of
discretion; (4) the judgment is based on a misapprehension of facts; (5) the
findings of facts are conflicting; (6) there is no citation of specific evidence
on which the factual findings are based; (7) the finding of absence of facts
is contradicted by the presence of evidence on record; (8) the findings of
the CA are contrary to the findings of the trial court; (9) the CA manifestly
overlooked certain relevant and undisputed facts that, if properly
considered, would justify a different conclusion; (10) the findings of the CA
are beyond the issues of the case; and (11) such findings are contrary to
the admissions of both parties.13 In the instant case, petitioners failed to
demonstrate that their petition falls under any one of the above
exceptions.
Petitioners' assignments of errors boil down to the basic issue of whether
or not Alice and Rosita are justified in encashing the subject check given
the factual circumstances established in the present case.
Petitioners' posture is not sanctioned by law. If they truly believe that
Arturo took advantage of and violated the rights of Rosita, petitioners
should have sought redress from the courts and should not have simply
taken the law into their own hands. Our laws are replete with specific
remedies designed to provide relief for the violation of one's rights. In the
instant case, Rosita could have immediately filed an action for the
nullification of the sale of the building she owns in light of petitioners' claim
that the document bearing her conformity to the sale of the said building
was taken by Arturo from her without her knowledge and consent. Or, in
the alternative, as the CA correctly held, she could have brought a suit for
the collection of a sum of money to recover her share in the sale of her
property in Morayta. In a civilized society such as ours, the rule of law
should always prevail. To allow otherwise would be productive of nothing
but mischief, chaos and anarchy. As a lawyer, who has sworn to uphold the
rule of law, Rosita should know better. She must go to court for relief.
It is true that Article 151 of the Family Code requires that earnest efforts
towards a compromise be made before family members can institute suits
against each other. However, nothing in the law sanctions or allows the
commission of or resort to any extra-legal or illegal measure or remedy in
order for family members to avoid the filing of suits against another family
member for the enforcement or protection of their respective rights.
Petitioners invoke the rule of pari delicto to support their contention that
respondents do not deserve any relief from the courts.
The principle of pari delicto provides that when two parties are equally at
fault, the law leaves them as they are and denies recovery by either one of
them.14 Indeed, one who seeks equity and justice must come to court with
clean hands.15 However, in the present case, petitioners were not able to
establish that respondents are also at fault. Thus, the principle of pari
delictocannot apply.
In any case, the application of the pari delicto principle is not absolute, as
there are exceptions to its application.16 One of these exceptions is where
the application of the pari delicto rule would violate well-established public
policy.17 The prevention of lawlessness and the maintenance of peace and
order are established public policies. In the instant case, to deny
respondents relief on the ground of pari delicto would put a premium on
the illegal act of petitioners in taking from respondents what the former
claim to be rightfully theirs.
Petitioners also question the trial court's ruling that their counterclaim is
permissive. This Court has laid down the following tests to determine
whether a counterclaim is compulsory or not, to wit: (1) Are the issues of
fact or law raised by the claim and the counterclaim largely the same? (2)
Would res judicata bar a subsequent suit on defendants claims, absent the
compulsory counterclaim rule? (3) Will substantially the same evidence
support or refute plaintiffs claim as well as the defendants counterclaim?
and (4) Is there any logical relation between the claim and the
counterclaim, such that the conduct of separate trials of the respective
claims of the parties would entail a substantial duplication of effort and
time by the parties and the court?18
Tested against the above-mentioned criteria, this Court agrees with the
view of the RTC that Rosita's counterclaim for the recovery of her alleged
share in the sale of the Morayta property is permissive in nature. The
evidence needed to prove respondents' claim to recover the amount
of P3,000,000.00 from petitioners is different from that required to
establish Rosita's demands for the recovery of her alleged share in the sale
of the subject Morayta property. The recovery of respondents' claim is not
contingent or dependent upon the establishment of Rosita's counterclaim
such that conducting separate trials will not result in the substantial
duplication of the time and effort of the court and the parties.
In Sun Insurance Office, Ltd., (SIOL) v. Asuncion,19 this Court laid down the
rules on the payment of filing fees, to wit:
1. It is not simply the filing of the complaint or appropriate initiatory
pleading, but the payment of the prescribed docket fee, that vests a trial
court with jurisdiction over the subject-matter or nature of the action.
Where the filing of the initiatory pleading is not accompanied by payment
of the docket fee, the court may allow payment of the fee within a
reasonable time but in no case beyond the applicable prescriptive or
reglementary period.
2. The same rule applies to permissive counterclaims, third-party claims
and similar pleadings, which shall not be considered filed until and unless
the filing fee prescribed therefor is paid. The court may allow payment of
said fee within a reasonable time but also in no case beyond its applicable
prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by the filing of
the appropriate pleading and payment of the prescribed filing fee but,
subsequently, the judgment awards a claim not specified in the pleading,
or if specified the same has been left for determination by the court, the
additional filing fee therefor shall constitute a lien on the judgment. It shall
be the responsibility of the Clerk of Court or his duly authorized deputy to
enforce said lien and assess and collect the additional fee. 20
In order for the trial court to acquire jurisdiction over her permissive
counterclaim, Rosita is bound to pay the prescribed docket fees. 21 Since it
is not disputed that Rosita never paid the docket and filing fees, the RTC
did not acquire jurisdiction over her permissive counterclaim. Nonetheless,
the trial court ruled on the merits of Rosita's permissive counterclaim by
dismissing the same on the ground that she failed to establish that there is
a sharing agreement between her and Arturo with respect to the proceeds
of the sale of the subject Morayta property and that the amount
of P3,000,000.00 represented by the check which Rosita and Alice
encashed formed part of the proceeds of the said sale.
It is settled that any decision rendered without jurisdiction is a total nullity
and may be struck down at any time, even on appeal before this Court. 22
In the present case, considering that the trial court did not acquire
jurisdiction over the permissive counterclaim of Rosita, any proceeding
taken up by the trial court and any ruling or judgment rendered in relation
to such counterclaim is considered null and void. In effect, Rosita may file a
separate action against Arturo for recovery of a sum of money.
However, Rosita's claims for damages and attorney's fees are compulsory
as they necessarily arise as a result of the filing by respondents of their
complaint. Being compulsory in nature, payment of docket fees is not
required.23 Nonetheless, since petitioners are found to be liable to return to
respondents the amount of P3,000,000.00 as well as to pay moral and
exemplary damages and attorney's fees, it necessarily follows that Rosita's
counterclaim for damages and attorney's fees should be dismissed as
correctly done by the RTC and affirmed by the CA.
As to Patricia's entitlement to damages, this Court has held that while no
proof of pecuniary loss is necessary in order that moral damages may be
awarded, the amount of indemnity being left to the discretion of the court,
it is nevertheless essential that the claimant should satisfactorily show the
existence of the factual basis of damages and its causal connection to
defendants acts.24 This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer.25 Moreover, additional facts must be pleaded
and proven to warrant the grant of moral damages under the Civil Code,
these being, social humiliation, wounded feelings, grave anxiety, etc. that
resulted from the act being complained of.26 In the present case, both the
RTC and the CA were not convinced that Patricia is entitled to damages.
Quoting the RTC, the CA held thus:
With respect to Patricia, she did not even bother to know the details of the
case against her, she left everything to the hands of her mother Alice. Her
attitude towards the case appears weird, she being a banker who seems so
concerned of her reputation.
Aside from the parties to this case, her immediate superiors in the BPI
knew that she is involved in a case. They did not however know whether
she is the plaintiff or the defendant in the case. Further, they did not know
the nature of the case that she is involved in. It appears that Patricia has
not suffered any of the injuries enumerated in Article 2217 of the Civil
Code, thus, she is not entitled to moral damages and attorney's fees. 27
This Court finds no cogent reason to depart from the above-quoted findings
as Patricia failed to satisfactorily show the existence of the factual basis for
granting her moral damages and the causal connection of such fact to the
act of respondents in filing a complaint against her.
In addition, and with respect to Benjamin, the Court agrees with the CA
that in the absence of a wrongful act or omission, or of fraud or bad faith,
moral damages cannot be awarded.28 The adverse result of an action does
not per se make the action wrongful, or the party liable for it.29 One may
err, but error alone is not a ground for granting such damages. 30 In the
absence of malice and bad faith, the mental anguish suffered by a person
for having been made a party in a civil case is not the kind of anxiety
which would warrant the award of moral damages.31
A resort to judicial processes is not, per se, evidence of ill will upon which a
claim for damages may be based.32
or amusements to restore him to the status quo ante would not be

achieved.41 In the present case, the Court finds no cogent reason to modify
the amount of moral damages granted by the CA.
In China Banking Corporation v. Court of Appeals,33 this Court held:

Settled in our jurisprudence is the rule that moral damages cannot be
recovered from a person who has filed a complaint against another in good
faith, or without malice or bad faith(Philippine National Bank v. Court of
Appeals, 159 SCRA 433 [1988]; R & B Surety and Insurance v. Intermediate
Appellate Court, 129 SCRA 736 [1984]). If damage results from the filing of
the complaint, it is damnum absque injuria (Ilocos Norte Electrical
Company v. Court of Appeals, 179 SCRA 5 [1989]).34
In the present case, the Court agrees with the RTC and the CA that
petitioners failed to establish that respondents were moved by bad faith or
malice in impleading Patricia and Benjamin. Hence, Patricia and Benjamin
are not entitled to damages.
The Court sustains the award of moral and exemplary damages as well as
attorney's fees in favor of respondents.
As to moral damages, Article 20 of the Civil Code provides that every
person who, contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same. In addition, Article 2219
(10) of the Civil Code provides that moral damages may be recovered in
acts or actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35
of the same Code. More particularly, Article 21 of the said Code provides
that any person who willfully causes loss or injury to another in a manner
that is contrary to morals, good customs, or public policy shall compensate
the latter for the damage. In the present case, the act of Alice and Rosita in
fraudulently encashing the subject check to the prejudice of respondents is
certainly a violation of law as well as of the public policy that no one should
put the law into his own hands. As to SBTC and its officers, their negligence
is so gross as to amount to a willfull injury to respondents. The banking
system has become an indispensable institution in the modern world and
plays a vital role in the economic life of every civilized society. 35 Whether
as mere passive entities for the safe-keeping and saving of money or as
active instruments of business and commerce, banks have attained a
ubiquitous presence among the people, who have come to regard them
with respect and even gratitude and most of all, confidence. 36 For this
reason, banks should guard against injury attributable to negligence or bad
faith on its part.37
There is no hard-and-fast rule in the determination of what would be a fair
amount of moral damages since each case must be governed by its own
peculiar facts.38 The yardstick should be that it is not palpably and
scandalously excessive.39 Moreover, the social standing of the aggrieved
party is essential to the determination of the proper amount of the
award.40 Otherwise, the goal of enabling him to obtain means, diversions,
Likewise, the Court finds no compelling reason to disturb the modifications

made by the CA on the award of exemplary damages and attorney's fees.
Under Article 2229 of the Civil Code, exemplary or corrective damages are
imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated, or compensatory damages. In the instant
case, the award of exemplary damages in favor of respondents is in order
for the purpose of deterring those who intend to enforce their rights by
taking measures or remedies which are not in accord with law and public
policy. On the part of respondent bank, the public relies on a bank's sworn
profession of diligence and meticulousness in giving irreproachable
service.42 Hence, the level of meticulousness must be maintained at all
times by the banking sector.43 In the present case the award of exemplary
damages is justified by the brazen acts of petitioners Rosita and Alice in
violating the law coupled with the gross negligence committed by
respondent bank and its officers in allowing the subject check to be
deposited which later paved the way for its encashment.
As to attorney's fees, Article 2208 of the same Code provides, among
others, that attorney's fees may be recovered when exemplary damages
are awarded or when the defendant's act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to protect his
interest.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of
Appeals dated August 27, 2002 in CA-G.R. CV No. 62404 is AFFIRMED.
Costs against the petitioners.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
Associate Justice
Chairperson
CONCHITA CARPIO MORALES
MINITA V. CHICO-NAZARIO
Associate Justice
Associate Justice
ANTONIO EDUARDO B. NACHURA

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of
the Courts Division.
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
RTC Decision, rollo, pp. 110-111.
Rollo, pp. 118-119.
CA rollo, pp. 100-102.
Id. at 520.
Id. at 539.
CA rollo, p. 542.
Petition, rollo, pp. 17-18.
10
RTC Decision, rollo, pp. 117-118.
Iron Bulk Shipping Phil. Co., Ltd. v. Remington Industrial Sales

Corp., 462 Phil. 694, 703 (2003).
11
12
Id. at 703-704.
13
Id. at 704.
14
Yu Bun Guan v. Ong, 419 Phil. 845, 856 (2001).
Tala Realty Services Corporation v. Banco Filipino Savings and

Mortgage Bank, 441 Phil. 1, 45 (2002).
15
Pajuyo v. Court of Appeals, G.R. No. 146364, June 3, 2004, 430

SCRA 492, 515, citing Silagan v. Intermediate Appellate Court, 274
Phil. 182, 193 (1991).
16
REYNATO S. PUNO
Chief Justice
17
Id.
Tan v. Kaakbay Finance Corporation, 452 Phil. 637, 647 (2003),

citing Intestate Estate of Dalisay v. Hon. Marasigan, 327 Phil. 298,
301 (1996) and Quintanilla v. Court of Appeals, 344 Phil. 811, 819
(1997).
18
Footnotes
*
Per raffle dated December 3, 2007.
Penned by Justice Amelita G. Tolentino with the concurrence of

Justices Ruben T. Reyes (now a member of this Court) and Renato
C. Dacudao; rollo, pp. 121-137.
19
G.R. Nos. 79937-38, February 13, 1989, 170 SCRA 274.
20
Id. at 285.
21
Suson v. Court of Appeals, 343 Phil. 816, 825 (1997).
Security Bank and Trust Company.
Lopez v. David, Jr., G.R. No. 152145, March 30, 2004, 426 SCRA
535, 543.
22
23
41
Id. at 585.
42
Prudential Bank v. Court of Appeals, 384 Phil. 817, 826 (2000).
43
Id.
Tan v. Kaakbay, supra note 18, at 648.
Mahinay v. Velasquez, Jr., 464 Phil. 146, 149 (2004), citing Kierulf
v. Court of Appeals, 336 Phil. 414, 431-432 (1997).
24
Mahinay v. Velasquez, Jr., id. at 149-150; Kierulf v. Court of

Appeals, id. at 432.
25
Mahinay v. Velasquez, Jr., id. at 150; Kierulf v. Court of Appeals,

id.
26
27
CA rollo, p. 518.
Bank of the Philippine Islands v. Casa Montessori Internationale,

G.R. No. 149454, May 28, 2004, 430 SCRA 261, 293-294.
28
29
Id at 294.
30
Id.
31
Padillo v. Court of Appeals, 422 Phil. 334, 356 (2001).
Ceballos v. Intestate Estate of the Late Emigdio Mercado, G.R.

No. 155856, May 28, 2004, 430 SCRA 323, 336.
32
33
G.R. No. 94182, March 28, 1994, 231 SCRA 472.
34
Id. at 478.
Cagungun v. Planters Development Bank, G.R. No. 158674,

October 17, 2005, 473 SCRA 259, 273-274.
35
36
Id. at 274
37
Id.
38
Id. at 273.
39
Id.
Samson, Jr. v. Bank of the Philippine Islands, 453 Phil. 577, 585
(2003).
40
Unchecked Article -dec2007
Quisumbing (Chairperson), Corona,** Tinga and Chico-Nazario,*** JJ.,

concur.
Petition denied.
Note.A judgment, if left unexecuted because of the inefficiency,
negligence, misconduct or ignorance of the law of those charged with their
execution, delays the administration of justice, renders the decision inutile
and becomes an empty victory for the prevailing party. (Badoles-Algodon
vs. Zaldivar, 497 SCRA 446 [2006])
o0o
G.R. No. 170984.January 30, 2009.*
SECURITY BANK AND TRUST COMPANY, petitioner, vs. RIZAL COMMERCIAL
BANKING CORPORATION, respondent.
G.R. No. 170987.January 30, 2009.*
RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. SECURITY
BANK AND TRUST COMPANY, respondent.
Banks and Banking; Checks; Words and Phrases; A managers check is one
drawn by a banks manager upon the bank itselfit stands on the same
footing as a certified check, which is deemed to have been accepted by the
bank that certified it.It must be noted
_______________
** Additional member per Special Order No. 558 dated January 15, 2009 in
lieu of Justice Presbitero J. Velasco, Jr. who is on official leave.
*** Additional member per Special Order No. 562 dated January 21, 2009 in
lieu of Justice Arturo D. Brion who is on leave.
* SECOND DIVISION.
408
SO ORDERED.
408
Security Bank
Corporation
and
Trust
Company
vs.
Rizal
Commercial
Banking
that the questioned check issued by SBTC is not just an ordinary check but
a managers check. A managers check is one drawn by a banks manager
upon the bank itself. It stands on the same footing as a certified check,
which is deemed to have been accepted by the bank that certified it. As
the banks own check, a managers check becomes the primary obligation
of the bank and is accepted in advance by the act of its issuance. In this
case, RCBC, in immediately crediting the amount of P8 million to CMCs
account, relied on the integrity and honor of the check as it is regarded in
commercial transactions. Where the questioned check, which was payable
to Cash, appeared regular on its face, and the bank found nothing
unusual in the transaction, as the drawer usually issued checks in big
amounts made payable to cash, RCBC cannot be faulted in paying the
value of the questioned check.
Same; Same; The banking system has become an indispensable institution
in the modern world and plays a vital role in the economic life of every
civilized societyit is important that banks should guard against injury
attributable to negligence or bad faith on its part; The highest degree of
diligence is expected, and high standards of integrity and performance are
required of banks.In addition to the above-mentioned award of
compensatory damages, we also find merit in the need to award
exemplary damages in order to set an example for the public good. The
banking system has become an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized society.
Whether as mere passive entities for the safe-keeping and saving of money
or as active instruments of business and commerce, banks have attained
an ubiquitous presence among the people, who have come to regard them
with respect and even gratitude and, above all, trust and confidence. In
this connection, it is important that banks should guard against injury
attributable to negligence or bad faith on its part. As repeatedly
emphasized, since the banking business is impressed with public interest,
the trust and confidence of the public in it is of paramount importance.
Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are required of it. SBTC having
failed in this respect, the award of exemplary damages to RCBC in the
amount of P50,000.00 is warranted.
409
VOL. 577, JANUARY 30, 2009
409
Security Bank
Corporation
and
Trust
Company
vs.
Rizal
Commercial
Banking
PETITIONS for review on certiorari of the decision and resolution of the

Court of Appeals.
Pacis & Reyes for SBTC.
Siguion Reyna, Montecillo & Ongsiako for RCBC.
QUISUMBING,Acting C.J.:
Before us are opposing parties petitions for review of the Decision1 dated
March 29, 2005 and Resolution2 dated December 12, 2005 of the Court of
Appeals in CA-G.R. CV No. 67387. The two petitions are herein consolidated
as they stem from the same set of factual circumstances.
The facts, as found by the trial and appellate courts, are as follows:
On January 9, 1981, Security Bank and Trust Company (SBTC) issued a
managers check for P8 million, payable to CASH, as proceeds of the loan
granted to Guidon Construction and Development Corporation (GCDC). On
the same day, the P8-million check, along with other checks, was
deposited by Continental Manufacturing Corporation (CMC) in its Current
Account No. 0109-022888 with Rizal Commercial Banking Corporation
(RCBC). Immediately, RCBC honored the P8-million check and allowed CMC
to withdraw the same.3
On the next banking day, January 12, 1981, GCDC issued a Stop Payment
Order to SBTC, claiming that the P8-million check was released to a third
party by mistake. Consequently, SBTC dishonored and returned the
managers
_______________
1 Rollo (G.R. No. 170987), pp. 36-48. Penned by Associate Justice

Magdangal M. De Leon, with Associate Justices Salvador J. Valdez, Jr. and
Mariano C. Del Castillo concurring.
2 Id., at pp. 49-50. Penned by Associate Justice Magdangal M. De Leon,

with Associate Justices Juan Q. Enriquez, Jr. and Mariano C. Del Castillo
concurring.
On appeal, the Court of Appeals affirmed with modification the above

Decision, to wit:
3 Id., at p. 37.
WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION.

Appellant Security Bank and Trust Co. shall pay
410
_______________
410
4 Id.
5 Records, pp. 1-5.
Security Bank
Corporation
and
Trust
Company
vs.
Rizal
Commercial
Banking
check to RCBC. Thereafter, the check was returned back and forth between
the two banks, resulting in automatic debits and credits in each banks
clearing balance.4
On February 13, 1981, RCBC filed a complaint5 for damages against SBTC
with the then Court of First Instance of Rizal, Branch XXII. Said case was
docketed as Civil Case No. 1081 and later transferred to the Regional Trial
Court (RTC) of Makati City, Branch 143.
Meanwhile, following the rules of the Philippine Clearing House, RCBC and
SBTC stopped returning the checks to each other. By way of a temporary
arrangement pending resolution of the case, the P8-million check was
equally divided between, and credited to, RCBC and SBTC.6
On May 9, 2000, the RTC of Makati City, Branch 143, rendered a Decision7
in favor of RCBC. The dispositive portion of the decision reads:
PREMISES CONSIDERED, the Court renders judgment in favor of plaintiff
[RCBC] and finds defendant SBTC justly liable to [RCBC] and sentences
[SBTC] to pay [RCBC] the amount of:
1.PhP4,000,000.00 as and for actual damages;
2.PhP100,000.00 as and for attorneys fees; and,
3.the costs.
SO ORDERED.8
6 Rollo (G.R. No. 170987), p. 38.

7 CA Rollo, pp. 93-96. Penned by Acting Presiding Judge Salvador S. Abad
Santos.
8 Id., at p. 96.
411
VOL. 577, JANUARY 30, 2009

411
Security Bank
Corporation
and
Trust
Company
vs.
Rizal
Commercial
Banking
appellee Rizal Commercial Banking Corporation not only the principal

amount of P4,000,000.00 but also interest thereon at (6%) per annum
covering appellees unearned income on interest computed from the time
of filing of the complaint on February 13, 1981 to the date of finality of this
Decision. For lack of factual and legal basis, the award of attorneys fees is
DELETED.
SO ORDERED.9
Now for our resolution are the opposing parties petitions for review on
certiorari of the abovecited decision. On its part, SBTC alleges the following
to support its petition:
I.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN REFUSING TO

APPLY THE LAW BECAUSE, IN ITS OPINION, TO DO SO WOULD RESULT IN
AN INJUSTICE.
II.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT
TO DETERMINE WHETHER OR NOT A BANK IS A HOLDER IN DUE COURSE,
ONLY THE NEGOTIABLE INSTRUMENTS LAW NEED BE APPLIED TO THE
EXCLUSION OF CENTRAL BANK RULES AND REGULATIONS.
III.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO NOTE
THAT THE MANAGERS CHECK IN QUESTION WAS ACCEPTED FOR DEPOSIT
BY THE RCBC AND WAS NOT ENCASHED BY THE PAYEE.
WHICH WERE IMMEDIATELY WITHDRAWN TO HONOR THE 43 CHECKS

TOTALING P49,017,669.66 DRAWN BY CONTINENTAL MANUFACTURING
CORPORATION ON ITS CURRENT ACCOUNT WERE NOT ALL MANAGERS
CHECK[S] BUT INCLUDED ORDINARY CHECKS IN THE TOTAL AMOUNT OF
PhP15,436,140.81.
VI.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO
CONSIDER THAT EACH OF THE 43 CHECKS DRAWN BY THE CONTINENTAL
MANUFACTURING CORPORATION WERE ALL HONORED BY RCBC ON THE
BASIS OF A MIXTURE OF ALL THE MANAGERS AND ORDINARY CHECKS
DEPOSITED ON THAT DAY OF 9 JANUARY 1981.
VII.
THE RCBC IS A HOLDER IN DUE COURSE.
IV.
CONSIDER THAT PRIOR TO THE DEPOSIT OF THE CHECKS WORTH PhP53
MILLION, RCBC WAS HOLDING 43 CHECKS TOTALING P49,017,669.66
DRAWN BY CONTINENTAL MANUFACTURING CORPORATION AGAINST ITS
CURRENT ACCOUNT WHEN THE BALANCE OF THAT ACCOUNT WAS A MERE
P573.62.
_______________
VIII.
SBTC WAITED FOR THREE (3) DAYS TO NOTIFY THE RCBC OF THE STOP
PAYMENT ORDER.
IX.
9 Rollo (G.R. No. 170984), p. 88.

SBTC SHOULD HAVE FIRST ACQUIRED PERSONAL KNOWLEDGE OF THE
FACTS WHICH GAVE RISE TO THE REQUEST FOR THE STOP PAYMENT
ORDER BEFORE HONORING SUCH REQUEST.
412
X.
412
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN REFUSING TO

HOLD SBTC LIABLE FOR DAMAGE CLAIMS BASED SOLELY ON SPECULATION,
CONJECTURE AND GUESSWORK.
413
Security Bank
Corporation
and
Trust
Company
vs.
Rizal
Commercial
Banking
V.
CONSIDER THAT THE CHECKS DEPOSITED WITH RCBC THE PROCEEDS OF
VOL. 577, JANUARY 30, 2009

413
Security Bank
Corporation
and
Trust
Company
vs.
Rizal
Commercial
Banking
XI.
414
414
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN HOLDING THAT

RCBC IS NOT ENTITLED TO EXEMPLARY DAMAGES.
XII.
Security Bank
Corporation
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING SBTC

LIABLE FOR THE ATTORNEYS FEES OF RCBC [SIC].10
On RCBCs part, the following issues are submitted for resolution:
I.
WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGERS CHECK IT ISSUED.
II.
WHETHER OR NOT RCBC IS ENTITLED TO COMPENSATORY DAMAGES
EQUIVALENT TO THE INTEREST INCOME LOST AS A RESULT OF THE ILLEGAL
REFUSAL OF SBTC TO HONOR ITS OWN MANAGERS CHECK, AS WELL AS
FOR EXEMPLARY DAMAGES AND ATTORNEYS FEES.11
Simply stated, we find that in these consolidated petitions, the legal issues
for our resolution are: (1) Is SBTC liable to RCBC for the remaining P4
million? and (2) Is SBTC liable to pay for lost interest income on the
remaining P4 million, exemplary damages and attorneys fees?
RCBC avers that the managers check issued by SBTC is substantially as
good as the money it represents because by its peculiar character, its
issuance has the effect of an advance acceptance. RCBC claims that it is a
holder in due course when it credited the P8-million managers check to
CMCs account. Accordingly, RCBC asserts that SBTCs re-
and
Trust
Company
vs.
Rizal
Commercial
Banking
fusal to honor its obligation justifies RCBC claim for lost interest income,
exemplary damages and attorneys fees.
On the other hand, SBTC contends that RCBC violated Monetary Board
Resolution No. 2202 of the Central Bank of the Philippines mandating all
banks to verify the genuineness and validity of all checks before allowing
drawings of the same. SBTC insists that RCBC should bear the
consequences of allowing CMC to withdraw the amount of the check before
it was cleared.12
We shall rule on the issues seriatim.
At the outset, it must be noted that the questioned check issued by SBTC is
not just an ordinary check but a managers check. A managers check is
one drawn by a banks manager upon the bank itself. It stands on the same
footing as a certified check,13 which is deemed to have been accepted by
the bank that certified it.14 As the banks own check, a managers check
becomes the primary obligation of the bank and is accepted in advance by
the act of its issuance.15
In this case, RCBC, in immediately crediting the amount of P8 million to
CMCs account, relied on the integrity and honor of the check as it is
regarded in commercial transactions. Where the questioned check, which
was payable to Cash, appeared regular on its face, and the bank found
nothing unusual in the transaction, as the drawer usually issued
_______________
_______________
12 Id., at pp. 264-269.
10 Id., at pp. 256-258.
11 Id., at p. 178.
13 Equitable PCI Bank v. Ong, G.R. No. 156207, September 15, 2006, 502
SCRA 119, 132.
14 The Negotiable Instruments Law (Act No. 2031),
Sec.187.Certification of check; effect of.Where a check is certified by

the bank on which it is drawn, the certification is equivalent to an
acceptance.
15International Corporate Bank v. Gueco, G.R. No. 141968, February 12,
2001, 351 SCRA 516, 528.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980
Memorandum alters the extraordinary nature of the managers check and
the relative rights of the parties thereto. SBTCs liability as drawer remains
the same by drawing the instrument, it admits the existence of the
payee and his then capacity to indorse; and engages that on
_______________
415
VOL. 577, JANUARY 30, 2009
16Security Bank & Trust Company v. Triumph Lumber and Construction

Corporation, G.R. No. 126696, January 21, 1999, 301 SCRA 537, 557.
415
17 Rollo (G.R. No. 170984), p. 218.
Security Bank
Corporation
and
Trust
Company
vs.
Rizal
Commercial
Banking
416
checks in big amounts made payable to cash, RCBC cannot be faulted in

paying the value of the questioned check.16
416
In our considered view, SBTC cannot escape liability by invoking Monetary

Board Resolution No. 2202 dated December 21, 1979, prohibiting drawings
against uncollected deposits. For we must point out that the Central Bank
at that time issued a Memorandum dated July 9, 1980, which interpreted
said Monetary Board Resolution No. 2202. In its pertinent portion, said
Memorandum reads:
MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No. 2202
dated December 31, 1979 prohibiting, as a matter of policy, drawing
against uncollected deposit effective July 1, 1980, uncollected deposits
representing managers cashiers/ treasurers checks, treasury warrants,
postal money orders and duly funded on us checks which may be
permitted at the discretion of each bank, covers drawings against demand
deposits as well as withdrawals from savings deposits.17
Thus, it is clear from the July 9, 1980 Memorandum that banks were given
the discretion to allow immediate drawings on uncollected deposits of
managers checks, among others. Consequently, RCBC, in allowing the
immediate withdrawal against the subject managers check, only exercised
a prerogative expressly granted to it by the Monetary Board.

Security Bank
Corporation
and
Trust
Company
vs.
Rizal
Commercial
Banking
due presentment, the instrument will be accepted, or paid, or both,

according to its tenor.18
Concerning RCBCs claim for lost interest income on the remaining P4
million, this is already covered by the amount of damages in the form of
legal interest of 6%, based on Article 220019 and 220920 of the Civil Code
of the Philippines, as awarded by the Court of Appeals in its decision.
In addition to the above-mentioned award of compensatory damages, we
also find merit in the need to award exemplary damages in order to set an
example for the public good. The banking system has become an
indispensable institution in the modern world and plays a vital role in the
economic life of every civilized society. Whether as mere passive entities
for the safe-keeping and saving of money or as active instruments of
business and commerce, banks have attained an ubiquitous presence
among the people, who have come to regard them with respect and even
gratitude and, above all, trust and confidence. In this connection, it is
important that banks should guard against injury attributable to negligence
or bad faith on its part. As repeatedly emphasized, since the banking
business is impressed with public interest, the trust and confidence of the
public in it is of paramount importance. Consequently, the highest degree

of diligence is expected, and high standards of integrity and performance
are required of
_______________
P4,000,000.00, with legal interest thereon at six percent (6%) per annum
from the time of filing of the complaint on February 13, 1981 to the date of
finality of this Decision; (2) exemplary damages of P50,000.00; and (3)
attorneys fees of P25,000.00.
No pronouncement as to costs.
SO ORDERED.
18 The Negotiable Instruments Law (Act No. 2031),

Sec.61.Liability of drawer.The drawer by drawing the instrument
admits the existence of the payee and his then capacity to indorse; and
engages that, on due presentment, the instrument will be accepted, or
paid, or both, according to its tenor.
19 ART.2200.Indemnification for damages shall comprehend not only
the value of the loss suffered, but also that of the profits which the obligee
failed to obtain.
20 ART.2209.If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages, there
being no stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest, which is
six percent per annum.
417
Corona,** Carpio-Morales, Tinga and Leonardo-De Castro,*** JJ., concur.

_______________
21 See Bank of the Philippine Islands v. Roxas, G.R. 16783, October 15,
2007, 536 SCRA 168, 172.
22 Civil Code, Art. 2208. In the absence of stipulation, attorneys fees and
expenses of litigation, other than judicial costs, cannot be recovered,
except:
(1)When exemplary damages are awarded;
xxxx
In all cases, the attorneys fees and expenses of litigation must be
reasonable.
VOL. 577, JANUARY 30, 2009
Bank of the Philippine Islands v. Roxas, supra.
417
** Additional member in lieu of Associate Justice Presbitero J. Velasco, Jr.

who is abroad on official business.
Security Bank
Corporation
and
Trust
Company
vs.
Rizal
Commercial
Banking
*** Additional member in lieu of Associate Justice Arturo D. Brion who took
no part due to his being a former partner of one of the parties counsel.
it. SBTC having failed in this respect, the award of exemplary damages to
RCBC in the amount of P50,000.00 is warranted.21
Pursuant to current jurisprudence, with the finding of liability for exemplary
damages, attorneys fees in the amount of P25,000.0022 must also be
awarded against SBTC and in favor of RCBC.
WHEREFORE, the assailed Decision dated March 29, 2005 and Resolution
dated December 12, 2005 of the Court of Appeals in CA-G.R. CV No. 67387
is hereby AFFIRMED with MODIFICATION. Security Bank and Trust Company
is ordered to pay Rizal Commercial Banking Corporation: (1) the remaining
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Security
Bank and Trust Company vs. Rizal Commercial Banking Corporation, 577
SCRA 407(2009)]
without legal excuse, to perform any promise which forms the whole or
part of the contract.
Banks and Banking; Loans; The business of a bank is one affected with
public interest, for which reason the bank should guard against loss due to
negligence or bad faith, and in approving the loan of an applicant, the bank
concerns itself with proper information regarding its debtors.The
business of a bank is one affected with public interest, for which reason the
bank should guard against loss due to negligence or bad faith. In approving
the loan of an applicant, the bank concerns itself with proper [information]
regarding its debtors. Any investigation previously conducted on the
property offered by petitioners as collateral did not preclude PNB from
considering new information on the same property as security for a
subsequent loan. The credit and property investigation for the original loan
of P3 million did not oblige PNB to grant and release any additional loan. At
the time the original P3 million credit line was approved, the title to the
property appeared to pertain exclusively to petitioners. By the time the
application for an increase was consid_______________
* FIRST DIVISION.
VOL. 512, JANUARY 23, 2007

305
** Montalvo and Acierto were made parties to the petition in their capacity
as branch managers of PNB, Tabuk, Kalinga.
306
Omengan vs. Philippine National Bank

G.R. No. 161319. January 23, 2007.*
SPS. EDGAR AND DINAH OMENGAN, petitioners, vs. PHILIPPINE NATIONAL
BANK, HENRY M. MONTALVO AND MANUEL S. ACIERTO,** respondents.
306
Contracts; Breach of Contract; Appeals; The existence of a breach of

contract is a factual matter not usually reviewed in a petition filed under
Rule 45.The existence of breach of contract is a factual matter not
usually reviewed in a petition filed under Rule 45. But since the RTC and
the CA had contradictory findings, we are constrained to rule on this issue.
ered, however, PNB already had reason to suspect petitioners claim of

exclusive ownership.
Same; Same; Words and Phrases; Breach of Contract, Defined.Breach

of contract is defined as follows: [It] is the failure without legal reason to
comply with the terms of a contract. It is also defined as the [f]ailure,
of Appeals.
Franklin B. Calpito for petitioners.
Marino M. Buban, Jr. for respondent PNB.

CORONA, J.:
final half million was, however, withheld by Montalvo because of a letter

allegedly sent by Edgars sisters. It read:
Appas, Tabuk
This petition for review on certiorari1 seeks a review and reversal of the
Court of Appeals (CA) decision2 and resolution3 in CA-G.R. CV No. 71302.
In October 1996, the Philippine National Bank (PNB) Tabuk (Kalinga) Branch
approved petitioners-spouses application for a revolving credit line of P3
million. The loan was secured by two residential lots in Tabuk, KalingaApayao covered by Transfer Certificate of Title (TCT) Nos. 12954 and
12112. The certificates of title, issued by the Registry of Deeds of the
Province of Kalinga-Apayao, were in the name of Edgar4 Omengan married
to Dinah Omengan.
The first P2.5 million was released by Branch Manager Henry Montalvo on
three separate dates. The release of the
Kalinga
7 November 1996
The Manager
Philippine National Bank
Tabuk Branch
Poblacion, Tabuk
Kalinga
_______________
Sir:
1 Filed under Rule 45 of the Rules of Court.
This refers to the land at Appas, Tabuk in the name of our brother, Edgar
Omengan, which was mortgaged to [the] Bank in the amount of Three
Million Pesos (P3,000,000.00), the sum of [P2.5 Million] had already been
released and received by our brother, Edgar.
2 Penned by Associate Justice Eugenio S. Labitoria and concurred in by

Associate Justices Andres B. Reyes, Jr. and Regalado E. Maambong of the
Fifth Division of the Court of Appeals. Annex A, Rollo, pp. 40-47.
3 Annex B, Rollo, p. 49.
4 The CA Decision stated that the properties were registered in the name
of plaintiff-appellee Danilo Omengan x x x. We assume that this was a
mere typographical error and that the CA referred to Edgar since no other
Danilo was mentioned in the records.
307
In this connection, it is requested that the remaining unreleased balance of

[half a million pesos] be held in abeyance pending an understanding by the
rest of the brothers and sisters of Edgar. Please be informed that the
property mortgaged, while in the name of Edgar Omengan, is owned in coownership by all the children of the late Roberto and Elnora Omengan. The
lawyer who drafted the document registering the subject property under
Edgars name can attest to this fact. We had a prior understanding with
Edgar in allowing him to make use of the property as collateral, but he
refuses to comply with such arrangement. Hence, this letter. (emphasis
ours)
VOL. 512, JANUARY 23, 2007

307
Very truly yours,
(Sgd.) Shirley O. Gamon
(Sgd.) Imogene O. Bangao

(Sgd.) Caroline O. Salicob
1) To release without delay in favor of [petitioners] the amount of

P2,000,000.00 to complete the P5,000,000.00 credit line agreement;
(Sgd.) Alice O. Claver5
2) To pay [petitioners] the amount of P2,760,000.00 representing the

losses and/or expected income of the [petitioners] for three years;
Montalvo was eventually replaced as branch manager by Manuel Acierto

who released the remaining half million pesos
3) To pay lawful interest, until the amount aforementioned on paragraphs 1

and 2 above are fully paid; and
_______________
4) To pay the costs.

SO ORDERED.6
5 Annex A, Rollo, pp. 41-42.
_______________
308
6 Annex A, Rollo, p. 43.
308
309

VOL. 512, JANUARY 23, 2007
to petitioners on May 2, 1997. Acierto also recommended the approval of a

P2 million increase in their credit line to the Cagayan Valley Business
Center Credit Committee in Santiago City.
309
The credit committee approved the increase of petitioners credit line (from
P3 million to P5 million), provided Edgars sisters gave their conformity.
Acierto informed petitioners of the conditional approval of their credit line.
The CA, however, on June 18, 2003, reversed and set aside the RTC
decision dated April 21, 2001.7
But petitioners failed to secure the consent of Edgars sisters; hence, PNB
put on hold the release of the additional P2 million.
On October 7, 1998, Edgar Omengan demanded the release of the P2
million. He claimed that the condition for its release was not part of his
credit line agreement with PNB because it was added without his consent.
PNB denied his request.
On March 3, 1999, petitioners filed a complaint for breach of contract and
damages against PNB with the Regional Trial Court (RTC), Branch 25 in
Tabuk, Kalinga. After trial, the court decided in favor of petitioners.
Accordingly, judgment is hereby rendered finding in favor of [petitioners.]
[PNB is ordered]:
Petitioners now contend that the CA erred when it did not sustain the
finding of breach of contract by the RTC.8
The existence of breach of contract is a factual matter not usually reviewed
in a petition filed under Rule 45. But since the RTC and the CA had
contradictory findings, we are constrained to rule on this issue.
Was there a breach of contract? There was none.
Breach of contract is defined as follows:
[It] is the failure without legal reason to comply with the terms of a
contract. It is also defined as the [f]ailure, without legal excuse, to
perform any promise which forms the whole or part of the contract.9
In this case, the parties agreed on a P3 million credit line. This sum was
completely released to petitioners who subsequently applied10 for an
increase in their credit line. This was conditionally approved by PNBs credit
committee. For all intents and purposes, petitioners sought an additional
loan.
The condition attached to the increase in credit line requiring petitioners to
acquire the conformity of Edgars sisters was never acknowledged and
accepted by petitioners. Thus, as to the additional loan, no meeting of the
minds actually occurred and no breach of contract could be attributed to
PNB. There was no perfected contract over the increase in credit line.
[T]he business of a bank is one affected with public interest, for which
reason the bank should guard against loss due to negligence or bad faith.
In approving the loan of an appli_______________
7 Id., at p. 47.
8 Petition, Rollo, pp. 17-33.
9 Cathay Pacific Airways, Ltd. v. Sps. Vasquez, 447 Phil. 306, 320; 399
SCRA 207, 219 (2003). Citations omitted.
10 Petition, Rollo, p. 15.
310
for an increase was considered, however, PNB already had reason to

suspect petitioners claim of exclusive ownership.
A mortgagee can rely on what appears on the certificate of title presented
by the mortgagor and an innocent mortgagee is not expected to conduct
an exhaustive investigation on the history of the mortgagors title. This
rule is strictly applied to banking institutions. x x x
Banks, indeed, should exercise more care and prudence in dealing even
with registered lands, than private individuals, as their business is one
affected with public interest. xxx Thus, this Court clarified that the rule that
persons dealing with registered lands can rely solely on the certificate of
title does not apply to banks.12 (emphasis supplied)
Here, PNB had acquired information sufficient to induce a reasonably
prudent person to inquire into the status of the title over the subject
property. Instead of defending their position, petitioners merely insisted
that reliance on the face of the certificate of title (in their name) was
sufficient. This principle, as already mentioned, was not applicable to
financial institutions like PNB.
_______________
11 United Coconut Planters Bank v. Ramos, G.R. 147800, 11 November

2003, 415 SCRA 596, 609.
12 Heirs of Eduardo Manlapat v. Court of Appeals, G.R. No. 125585, June 8,
2005, 459 SCRA 412, 433. Citations omitted.
311
310
VOL. 512, JANUARY 23, 2007
311
cant, the bank concerns itself with proper [information] regarding its
debtors.11 Any investigation previously conducted on the property offered
by petitioners as collateral did not preclude PNB from considering new
information on the same property as security for a subsequent loan. The
credit and property investigation for the original loan of P3 million did not
oblige PNB to grant and release any additional loan. At the time the
original P3 million credit line was approved, the title to the property
appeared to pertain exclusively to petitioners. By the time the application

In truth, petitioners had every chance to turn the situation in their favor if,
as they said, they really owned the subject property alone, to the exclusion
of any other owner(s). Unfortunately, all they offered were bare denials of
the coownership claimed by Edgars sisters.
PNB exercised reasonable prudence in requiring the abovementioned

condition for the release of the additional loan. If the condition proved
unacceptable to petitioners, the parties could have discussed other terms
instead of making an obstinate and outright demand for the release of the
additional amount. If the alleged co-ownership in fact had no leg to stand
on, petitioners could have introduced evidence other than a simple denial
of its existence.
Since PNB did not breach any contract and since it exercised the degree of
diligence expected of it, it cannot be held liable for damages.
WHEREFORE, the decision and resolution of the Court of Appeals in CA-G.R.
CV No. 71302 are hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
Puno (C.J., Chairperson), Sandoval-Gutierrez, Azcuna and Garcia, JJ.,
concur.
Judgment and resolution affirmed.
Notes.In petitions under Rule 45, the Court does not dwell on alleged
grave abuse of discretion but limits its observation to alleged errors of law.
(Rongavilla vs. Court of Appeals, 294 SCRA 289 [1998])
Breach of contract gives rise to a cause of action for specific performance
or for rescission. (Cabutihan vs. Landcenter Construction & Development
Corporation, 383 SCRA 353 [2002])
o0o
[Omengan vs. Philippine National Bank, 512 SCRA 305(2007)]
_______________
620
* FIRST DIVISION.
621
Bank of the Philippine Islands vs. Court of Appeals

G.R. No. 136202. January 25, 2007.*
VOL. 512, JANUARY 25, 2007
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS,

ANNABELLE A. SALAZAR, and JULIO R. TEMPLONUEVO, respondents.
621
Certiorari; Only questions of law may be raised in an appeal by certiorari

under Rule 45 of the Rules of Court; Factual findings of the Court of
Appeals are entitled to great weight and respect, especially when the CA
affirms the factual findings of the trial court; Exceptions.Generally, only
questions of law may be raised in an appeal by certiorari under Rule 45 of
the Rules of Court. Factual findings of the CA are entitled to great weight
and respect, especially when the CA affirms the factual findings of the trial
court. Such questions on whether certain items of evidence should be
accorded probative value or weight, or rejected as feeble or spurious, or
whether or not the proofs on one side or the other are clear and convincing
and adequate to establish a proposition in issue, are questions of fact. The
same holds true for questions on whether or not the body of proofs
presented by a party, weighed and analyzed in relation to contrary
evidence submitted by the adverse party may be said to be strong, clear
and convincing, or whether or not inconsistencies in the body of proofs of a
party are of such gravity as to justify refusing to give said proofs weight
all these are issues of fact which are not reviewable by the Court. This rule,
however, is not absolute and admits of certain exceptions, namely: a) when
the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; b) when the inference made is manifestly mistaken, absurd, or
impossible; c) when there is a grave abuse of discretion; d) when the
judgment is based on a misapprehension of facts; e) when the findings of
fact are conflicting; f) when the CA, in making its findings, went beyond the
issues of the case and the same are contrary to the admissions of both
appellant and appellee; g) when the findings of the CA are contrary to
those of the trial court; h) when the findings of fact are conclusions without
citation of specific evidence on which they are based; i) when the finding of
fact of the CA is premised on the supposed absence of evidence but is
contradicted by the evidence on record; and j) when the CA manifestly
overlooked certain relevant

facts not disputed by the parties and which, if properly considered, would
justify a different conclusion.
Negotiable Instruments Law; Checks; The weight of authority is that the
mere possession of a negotiable instrument does not in itself conclusively
establish either the right of the possessor to receive payment, or of the
right of one who has made payment to be discharged from liability.
Section 49 of the Negotiable Instruments Law contemplates a situation
whereby the payee or indorsee delivers a negotiable instrument for value
without indorsing it, thus: Transfer without indorsement; effect of.Where
the holder of an instrument payable to his order transfers it for value
without indorsing it, the transfer vests in the transferee such title as the
transferor had therein, and the transferee acquires in addition, the right to
have the indorsement of the transferor. But for the purpose of determining
whether the transferee is a holder in due course, the negotiation takes
effect as of the time when the indorsement is actually made. It bears
stressing that the above transaction is an equitable assignment and the
transferee acquires the instrument subject to defenses and equities
available among prior parties. Thus, if the transferor had legal title, the
transferee acquires such title and, in addition, the right to have the
indorsement of the transferor and also the right, as holder of the legal title,
to maintain legal action against the maker or acceptor or other party liable
to the transferor. The underlying premise of this provision, however, is that
a valid transfer of ownership of the negotiable instrument in question has
taken place. Transferees in this situation do not enjoy the presumption of
ownership in favor of holders since they are neither payees nor indorsees
of such instruments. The weight of authority is that the mere possession of
a negotiable instrument does not in itself conclusively establish either the
right of the possessor to receive payment, or of the right of one who has
made payment to be discharged from liability. Thus, something more than
mere possession by persons who are not payees or indorsers of the

instrument is necessary to authorize payment to them in the absence of
any other facts from which the authority to receive payment may be
inferred.
Same; Same; Crossed Checks; If instruments payable to named payees or
to their order have not been indorsed in blank, only such payees or their
indorsees can be holders and entitled to receive payment in their own
right.In State Investment House v. IAC, 175
622
622
negotiated. Negotiable instruments are negotiated by transfer to one

person or another in such a manner as to constitute the transferee the
holder thereof. If payable to bearer it is negotiated by delivery. If payable
to order it is negotiated by the indorsement completed by delivery. The
present case involves checks payable to order. Not being a payee or
indorsee of the checks, private respondent Salazar could not be a holder
thereof.
Same; Same; It is an exception to the general rule for a payee of an order
instrument to transfer the instrument without indorsement.It is an
exception to the general rule for a payee of an order instrument to transfer
the instrument without indorsement. Pre623

SCRA 310 (1989), the Court enumerated the effects of crossing a check,
thus: (1) that the check may not be encashed but only deposited in the
bank; (2) that the check may be negotiated only onceto one who has an
account with a bank; and (3) that the act of crossing the check serves as a
warning to the holder that the check has been issued for a definite purpose
so that such holder must inquire if the check has been received pursuant
to that purpose. Thus, even if the delay in the demand for reimbursement
is taken in conjunction with Salazars possession of the checks, it cannot be
said that the presumption of ownership in Templonuevos favor as the
designated payee therein was sufficiently overcome. This is consistent with
the principle that if instruments payable to named payees or to their order
have not been indorsed in blank, only such payees or their indorsees can
be holders and entitled to receive payment in their own right.
Same; Same; Presumptions; Words and Phrases; The presumption under
Section 131(s) of the Rules of Court stating that a negotiable instrument
was given for a sufficient consideration will not inure to the benefit of
someone who was merely the transferee of the physical possession of the
instrumentthe phrase given or indorsed in the context of a negotiable
instrument refers to the manner in which such instrument may be
negotiated.The presumption under Section 131(s) of the Rules of Court
stating that a negotiable instrument was given for a sufficient
consideration will not inure to the benefit of Salazar because the term
given does not pertain merely to a transfer of physical possession of the
instrument. The phrase given or indorsed in the context of a negotiable
instrument refers to the manner in which such instrument may be
VOL. 512, JANUARY 25, 2007

623
cisely because the situation is abnormal, it is but fair to the maker and to
prior holders to require possessors to prove without the aid of an initial
presumption in their favor, that they came into possession by virtue of a
legitimate transaction with the last holder. Salazar failed to discharge this
burden, and the return of the check proceeds to Templonuevo was
therefore warranted under the circumstances despite the fact that
Templonuevo may not have clearly demonstrated that he never authorized
Salazar to deposit the checks or to encash the same. Noteworthy also is
the fact that petitioner stamped on the back of the checks the words: All
prior endorsements and/or lack of endorsements guaranteed, thereby
making the assurance that it had ascertained the genuineness of all prior
endorsements. Having assumed the liability of a general indorser,
petitioners liability to the designated payee cannot be denied.
Same; Banks and Banking; Checks; A bank generally has a right of set-off
over the deposits therein for the payment of any withdrawals on the part of
a depositorthe right of a collecting bank to debit a clients account for
the value of a dishonored check that has previously been credited has
fairly been established by jurisprudence.The right of set-off was
explained in Associated Bank v. Tan, 446 SCRA 282 (2004): A bank
generally has a right of set-off over the deposits therein for the payment of
any withdrawals on the part of a depositor. The right of a collecting bank to
debit a clients account for the value of a dishonored check that has
previously been credited has fairly been established by jurisprudence. To

begin with, Article 1980 of the Civil Code provides that [f]ixed, savings,
and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan. Hence, the
relationship between banks and depositors has been held to be that of
creditor and debtor. Thus, legal compensation under Article 1278 of the
Civil Code may take place when all the requisites mentioned in Article
1279 are present, as follows: (1) That each one of the obligors be bound
principally, and that he be at the same time a principal creditor of the
other; (2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same quality if
the latter has been stated; (3) That the two debts be due; (4) That they be
liquidated and demandable; (5) That over neither of them there be any
retention or controversy, commenced by third persons and communicated
in due time to the debtor.
624
ownership of checks and acted deliberately in paying the same, contrary to

ordinary banking policy and practice. It must be emphasized that the law
imposes a duty of diligence on the collecting bank to scrutinize checks
deposited with it, for the purpose of determining their genuineness and
regularity. The collecting bank, being primarily engaged in banking, holds
itself out to the public as the expert on this field, and the law thus holds it
to a high standard of conduct. The taking and collection of a check without
the proper indorsement amount to a conversion of the check by the bank.
Same; Same; Damages; A depositor has the right to recover reasonable
moral damages even if the banks negligence may not have been attended
with malice and bad faith, if the former suffered mental anguish, serious
anxiety, embarrassment and humiliation.This whole incident would have
been avoided had petitioner adhered to the standard of diligence expected
of one engaged in the banking business. A depositor has the right to
recover reasonable moral damages even if the banks negligence may not
have been attended
625
624
VOL. 512, JANUARY 25, 2007
625
Same; Same; As businesses affected with public interest, and because of

the nature of their functions, banks are under obligation to treat the
accounts of their depositors with meticulous care, always having in mind
the fiduciary nature of their relationship.It is conceded that petitioner
had the right of set-off over the amount it paid to Templonuevo against the
deposit of Salazar, the issue of whether it acted judiciously is an entirely
different matter. As businesses affected with public interest, and because
of the nature of their functions, banks are under obligation to treat the
accounts of their depositors with meticulous care, always having in mind
the fiduciary nature of their relationship. In this regard, petitioner was
clearly remiss in its duty to private respondent Salazar as its depositor.
Same; Same; The taking and collection of a check without the proper
indorsement amount to a conversion of the check by the bank.To begin
with, the irregularity appeared plainly on the face of the checks. Despite
the obvious lack of indorsement thereon, petitioner permitted the
encashment of these checks three times on three separate occasions. This
negates petitioners claim that it merely made a mistake in crediting the
value of the checks to Salazars account and instead bolsters the
conclusion of the CA that petitioner recognized Salazars claim of
with malice and bad faith, if the former suffered mental anguish, serious
anxiety, embarrassment and humiliation. Moral damages are not meant to
enrich a complainant at the expense of defendant. It is only intended to
alleviate the moral suffering she has undergone. The award of exemplary
damages is justified, on the other hand, when the acts of the bank are
attended by malice, bad faith or gross negligence. The award of reasonable
attorneys fees is proper where exemplary damages are awarded. It is
proper where depositors are compelled to litigate to protect their interest.
of Appeals.
Justino M. Marquez, III for petitioner.
Abesamis, Medialdea & Abesamis for respondent A. Salazar.
Arniel N. Bondoc for respondent Templonuevo.

AZCUNA, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking the
reversal of the Decision1 dated April 3, 1998, and the Resolution2 dated
November 9, 1998, of the Court of Appeals in CA-G.R. CV No. 42241.
The facts3 are as follows:
A.A. Salazar Construction and Engineering Services filed an action for a
sum of money with damages against herein petitioner Bank of the
Philippine Islands (BPI) on December 5, 1991 before Branch 156 of the
Regional Trial Court (RTC) of Pasig City. The complaint was later amended
by substitut_______________
1 CA Rollo, pp. 100-116.

2 Rollo, p. 57.
3 CA Rollo, pp. 100-105.
demanded from the former payment of the amount of Two Hundred SixtySeven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos
(P267,692.50) representing the aggregate value of three (3) checks, which
were allegedly payable to him, but which were deposited with the
petitioner bank to private respondent Salazars account (Account No. 02031187-67) without his knowledge and corresponding endorsement.
Accepting that Templonuevos claim was a valid one, petitioner BPI froze
Account No. 0201-0588-48 of A.A. Salazar and Construction and
Engineering Services, instead of Account No. 0203-1187-67 where the
checks were deposited, since this account was already closed by private
respondent Salazar or had an insufficient balance.
Private respondent Salazar was advised to settle the matter with
Templonuevo but they did not arrive at any settlement. As it appeared that
private respondent Salazar was not entitled to the funds represented by
the checks which were deposited and accepted for deposit, petitioner BPI
decided to debit the amount of P267,707.70 from her Account No.
02010588-48 and the sum of P267,692.50 was paid to Templonuevo by
means of a cashiers check. The difference between the value of the
checks (P267,692.50) and the amount actually debited from her account
(P267,707.70) represented bank charges in connection with the issuance of
a cashiers check to Templonuevo.
627
626
VOL. 512, JANUARY 25, 2007
626
ing the name of Annabelle A. Salazar as the real party in interest in place
of A.A. Salazar Construction and Engineering Services. Private respondent
Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven
Thousand, Seven Hundred Seven Pesos and Seventy Centavos
(P267,707.70) debited by petitioner BPI from her account. She likewise
prayed for damages and attorneys fees.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R.
Templonuevo, third-party defendant and herein also a private respondent,
627
In the answer to the third-party complaint, private respondent
Templonuevo admitted the payment to him of P267,692.50 and argued
that said payment was to correct the malicious deposit made by private
respondent Salazar to her private account, and that petitioner banks
negligence and tolerance regarding the matter was violative of the primary
and ordinary rules of banking. He likewise contended that the debiting or
taking of the reimbursed amount from the account of private respondent
Salazar by petitioner BPI was a matter exclusively between said parties
and may be pursuant to banking rules and regulations, but did not in any
way affect him. The debiting from another account of private respondent
Salazar, considering that her other account was effectively closed, was not
his concern.
After trial, the RTC rendered a decision, the dispositive portion of which
reads thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiff [private respondent Salazar] and against the defendant
[petitioner BPI] and ordering the latter to pay as follows:
Petitioner therefore filed this petition on these grounds:

I.
1. The amount of P267,707.70 with 12% interest thereon from September

16, 1991 until the said amount is fully paid;
The Court of Appeals committed reversible error in misinterpreting Section

49 of the Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of
the New Rules on Evidence.
2. The amount of P30,000.00 as and for actual damages;
II.
3. The amount of P50,000.00 as and for moral damages;

4. The amount of P50,000.00 as and for exemplary damages;
5. The amount of P30,000.00 as and for attorneys fees; and
The Court of Appeals committed reversible error in NOT applying the

provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI.
III.
6. Costs of suit.
The counterclaim is hereby ordered DISMISSED for lack of factual basis.
The third-party complaint [filed by petitioner] is hereby likewise ordered
DISMISSED for lack of merit.
Third-party defendants [i.e., private respondent Templonuevos]
counterclaim is hereby likewise DISMISSED for lack of factual basis.
The Court of Appeals committed a reversible error in holding, based on a

misapprehension of facts, that the account from which BPI debited the
amount of P267,707.70 belonged to a corporation with a separate and
distinct personality.
IV.
628
628
The Court of Appeals committed a reversible error in holding, based

entirely on speculations, surmises or conjectures, that there was an
agreement between SALAZAR and TEMPLONUEVO that checks
_______________

SO ORDERED.4
4 Records, pp. 323-324.
On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and
held that respondent Salazar was entitled to the proceeds of the three (3)
checks notwithstanding the lack of endorsement thereon by the payee.
The CA concluded that Salazar and Templonuevo had previously agreed
that the checks payable to JRT Construction and Trading5 actually belonged
to Salazar and would be deposited to her account, with petitioner
acquiescing to the arrangement.6
5 Private respondent Templonuevo admitted that he was doing business

under the name and style, JRT Construction and Trading. See Records, p.
179.
6 Rollo, p. 106.
629
VOL. 512, JANUARY 25, 2007

629
the contemplation of Section 49 of the Negotiable Instruments Law,8 as

the latter applies only to a holder defined under Section 191of the same.9
_______________

payable to TEMPLONUEVO may be deposited by SALAZAR to her personal
account and that BPI was privy to this agreement.
V.
The Court of Appeals committed reversible error in holding, based entirely

on speculation, surmises or conjectures, that SALAZAR suffered great
damage and prejudice and that her business standing was eroded.
VI.
7 Id., at pp. 12-13.

8 Infra note 17.
9 Sec. 191. Definition and meaning of terms.In this Act, unless the
contract otherwise requires:
630
630
The Court of Appeals erred in affirming instead of reversing the decision of

the lower court against BPI and dismissing SALAZARs complaint.
VII.
The Honorable Court erred in affirming the decision of the lower court
dismissing the third-party complaint of BPI.7
The issues center on the propriety of the deductions made by petitioner
from private respondent Salazars account. Stated otherwise, does a
collecting bank, over the objections of its depositor, have the authority to
withdraw unilaterally from such depositors account the amount it had
previously paid upon certain unendorsed order instruments deposited by
the depositor to another account that she later closed?
2. Salazar failed to adduce sufficient evidence to prove that her possession

of the three checks was lawful despite her allegations that these checks
were deposited pursuant to a prior internal arrangement with Templonuevo
and that petitioner was privy to the arrangement.
3. The CA should have applied the Civil Code provisions on legal
compensation because in deducting the subject amount from Salazars
account, petitioner was merely rectifying the undue payment it made upon
the checks and exercising its prerogative to alter or modify an erroneous
credit entry in the regular course of its business.
Petitioner argues thus:
4. The debit of the amount from the account of A.A. Salazar Construction
and Engineering Services was proper even though the value of the checks
had been originally credited to the personal account of Salazar because
A.A. Salazar Construction and Engineering Services, an unincorporated
single proprietorship, had no separate and distinct personality from
Salazar.
1. There is no presumption in law that a check payable to order, when

found in the possession of a person who is neither a payee nor the
indorsee thereof, has been lawfully transferred for value. Hence, the CA
should not have presumed that Salazar was a transferee for value within
5. Assuming the deduction from Salazars account was improper, the CA

should not have dismissed petitioners third-party complaint against
Templonuevo because the latter would have the legal duty to return to
petitioner the proceeds of the checks which he previously received from it.
6. There was no factual basis for the award of damages to Salazar.

The petition is partly meritorious.
(b) That these checks which had an aggregate amount of P267,692.50

were payable to the order of JRT Construction and Trading, the name and
style under which Templonuevo does business;
_______________
(c) That despite the lack of endorsement of the designated payee upon
such checks, Salazar was able to deposit the checks in her personal
savings account with petitioner and encash the same;
xxx
(d) That petitioner accepted and paid the checks on three (3) separate
occasions over a span of eight months in 1990; and
Holder means the payee or indorsee of a bill or note who is in possession

of it, or the bearer thereof;
632
xxx
631
632
VOL. 512, JANUARY 25, 2007
631
(e) That Templonuevo only protested the purportedly unauthorized

encashment of the checks after the lapse of one year from the date of the
last check.10

First, the issue raised by petitioner requires an inquiry into the factual
findings made by the CA. The CAs conclusion that the deductions from the
bank account of A.A. Salazar Construction and Engineering Services were
improper stemmed from its finding that there was no ineffective payment
to Salazar which would call for the exercise of petitioners right to set off
against the formers bank deposits. This finding, in turn, was drawn from
the pleadings of the parties, the evidence adduced during trial and upon
the admissions and stipulations of fact made during the pre-trial, most
significantly the following:
(a) That Salazar previously had in her possession the following checks:
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount
of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of
P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638 dated August 28,
1990 for the amount of P154,800.00;
Petitioner concedes that when it credited the value of the checks to the
account of private respondent Salazar, it made a mistake because it failed
to notice the lack of endorsement thereon by the designated payee. The
CA, however, did not lend credence to this claim and concluded that
petitioners actions were deliberate, in view of its admission that the
mistake was committed three times on three separate occasions,
indicating acquiescence to the internal arrangement between Salazar and
Templonuevo. The CA explained thus:
It was quite apparent that the three checks which appellee Salazar
deposited were not indorsed. Three times she deposited them to her
account and three times the amounts borne by these checks were credited
to the same. And in those separate occasions, the bank did not return the
checks to her so that she could have them indorsed. Neither did the bank
question her as to why she was depositing the checks to her account
considering that she was not the payee thereof, thus allowing us to come
to the conclusion that defendant-appellant BPI was fully aware that the
proceeds of the three checks belong to appellee.
For if the bank was not privy to the agreement between Salazar and
Templonuevo, it is most unlikely that appellant BPI (or any bank for that
matter) would have accepted the checks for deposit on three separate
times nary any question. Banks are most finicky over accepting checks for
deposit without the corresponding indorsement by their payee. In fact,
they hesitate to accept indorsed checks for deposit if the depositor is not
one they know very well.11
The CA likewise sustained Salazars position that she received the checks
from Templonuevo pursuant to an internal arrangement between them,
ratiocinating as follows:
_______________
10 Records, pp. 178-179.

11 CA Rollo, pp. 106-107.
633
rejected as feeble or spurious, or whether or not the proofs on one side or

the other are clear and convincing and adequate to establish a proposition
in issue, are questions of fact. The same holds true for questions on
whether or not the body of proofs presented by a party, weighed and
analyzed in relation to contrary evidence submitted by the adverse party
may be said to be strong, clear and convincing, or whether or not
inconsistencies in the body of proofs of a party are of such gravity as to
justify refusing to give said proofs weightall
_______________
12 Id., at p. 107.
13 Madrigal v. Court of Appeals, G.R. No. 142944, April 15, 2005, 456 SCRA
247; Bernardo v. Court of Appeals, G.R. No. 101680, December 7, 1992,
216 SCRA 224; Remalante v. Tibe, G.R. No. L-59514, February 25, 1988,
158 SCRA 138.
14 Borromeo v. Sun, G.R. No. 75908, October 22, 1999, 317 SCRA 176.
VOL. 512, JANUARY 25, 2007
634
633
634
If there was indeed no arrangement between Templonuevo and the

plaintiff over the three questioned checks, it baffles us why it was only on
August 31, 1991 or more than a year after the third and last check was
deposited that he demanded for the refund of the total amount of
P267,692.50.
A prudent man knowing that payment is due him would have demanded
payment by his debtor from the moment the same became due and
demandable. More so if the sum involved runs in hundreds of thousand of
pesos. By and large, every person, at the very moment he learns that he
was deprived of a thing which rightfully belongs to him, would have
created a big fuss. He would not have waited for a year within which to do
so. It is most inconceivable that Templonuevo did not do this.12
This rule, however, is not absolute and admits of certain exceptions,

namely: a) when the conclusion is a finding grounded entirely on
speculations, surmises, or conjectures; b) when the inference made is
manifestly mistaken, absurd, or impossible; c) when there is a grave abuse
of discretion; d) when the judgment is based on a misapprehension of
facts; e) when the findings of fact are conflicting; f) when the CA, in making
its findings, went beyond the issues of the case and the same are contrary
to the admissions of both appellant and appellee; g) when the findings of
the CA are contrary to those of the trial court; h) when the findings of fact
are conclusions without citation of specific evidence on which they are
based; i) when the finding of fact of the CA is premised on the supposed
absence of evidence but is contradicted by the evidence on record; and j)
Generally, only questions of law may be raised in an appeal by certiorari

under Rule 45 of the Rules of Court.13 Factual findings of the CA are
entitled to great weight and respect, especially when the CA affirms the
factual findings of the trial court.14 Such questions on whether certain
items of evidence should be accorded probative value or weight, or

these are issues of fact which are not reviewable by the Court.15
when the CA manifestly overlooked certain relevant facts not disputed by

the parties and which, if properly considered, would justify a different
conclusion.16
In the present case, the records do not support the finding made by the CA
and the trial court that a prior arrangement existed between Salazar and
Templonuevo regarding the transfer of ownership of the checks. This fact is
crucial as Salazars entitlement to the value of the instruments is based on
the assumption that she is a transferee within the contemplation of Section
49 of the Negotiable Instruments Law.
Section 49 of the Negotiable Instruments Law contemplates a situation
whereby the payee or indorsee delivers a negotiable instrument for value
without indorsing it, thus:
_______________
title, to maintain legal action against the maker or acceptor or other party
liable to the transferor. The underlying premise of this provision, however,
is that a valid transfer of ownership of the negotiable instrument in
question has taken place.
Transferees in this situation do not enjoy the presumption of ownership in
favor of holders since they are neither payees nor indorsees of such
instruments. The weight of authority is that the mere possession of a
negotiable instrument does not in itself conclusively establish either the
right of the possessor to receive payment, or of the right of one who has
made payment to be discharged from liability. Thus, something more than
mere possession by persons who are not payees or indorsers of the
instrument is necessary to authorize payment to them in the absence of
any other facts from which the authority to receive payment may be
inferred.18
_______________
15 Paterno v. Paterno, G.R. No. 63680, March 23, 1990, 183 SCRA 630.
16 Arcaba v. Tabancura, 421 Phil. 1096; 370 SCRA 414 (2001); Martinez v.
Court of Appeals, G.R. No. 123547, May 21, 2001, 358 SCRA 38.
635
17 Act No. 2031 (1911).

18 11 Am. Jur. 2d, 988, citing Doubleday v. Kress, 50 NY 410, Hoffmaster
v. Black, 84 NE 423, and First Nat. Bank v. Gorman, 21 P2d 549.
636
VOL. 512, JANUARY 25, 2007

635
Transfer without indorsement; effect of.Where the holder of an
instrument payable to his order transfers it for value without indorsing it,
the transfer vests in the transferee such title as the transferor had therein,
and the transferee acquires in addition, the right to have the indorsement
of the transferor. But for the purpose of determining whether the
transferee is a holder in due course, the negotiation takes effect as of the
time when the indorsement is actually made.17
It bears stressing that the above transaction is an equitable assignment
and the transferee acquires the instrument subject to defenses and
equities available among prior parties. Thus, if the transferor had legal
title, the transferee acquires such title and, in addition, the right to have
the indorsement of the transferor and also the right, as holder of the legal
636
The CA and the trial court surmised that the subject checks belonged to
private respondent Salazar based on the pre-trial stipulation that
Templonuevo incurred a one-year delay in demanding reimbursement for
the proceeds of the same. To the Courts mind, however, such period of
delay is not of such unreasonable length as to estop Templonuevo from
asserting ownership over the checks especially considering that it was
readily apparent on the face of the instruments19 that these were crossed
checks.
In State Investment House v. IAC,20 the Court enumerated the effects of
crossing a check, thus: (1) that the check may not be encashed but only
deposited in the bank; (2) that the check may be negotiated only onceto
one who has an account with a bank; and (3) that the act of crossing the
check serves as a warning to the holder that the check has been issued for
a definite purpose so that such holder must inquire if the check has been
received pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken in
conjunction with Salazars possession of the checks, it cannot be said that
the presumption of ownership in Templonuevos favor as the designated
payee therein was sufficiently overcome. This is consistent with the
principle that if instruments payable to named payees or to their order
have not been indorsed in blank, only such payees or their indorsees can
be holders and entitled to receive payment in their own right.21
The presumption under Section 131(s) of the Rules of Court stating that a
negotiable instrument was given for a sufficient consideration will not inure
to the benefit of Salazar because the term given does not pertain merely
to a transfer of physical possession of the instrument. The phrase given or
indorsed in the context of a negotiable instrument refers to
_______________
It is an exception to the general rule for a payee of an order instrument to

transfer the instrument without indorsement. Precisely because the
situation is abnormal, it is but fair to the maker and to prior holders to
require possessors to prove without the aid of an initial presumption in
their favor, that they came into possession by virtue of a legitimate
transaction with the last holder.23 Salazar failed to discharge this burden,
and the return of the check proceeds to Templonuevo was therefore
warranted under the circumstances despite the fact that Templonuevo may
not have clearly demonstrated that he never authorized Salazar to deposit
the checks or to encash the same. Noteworthy also is the fact that
petitioner stamped on the back of the checks the words: All prior
endorsements and/or lack of endorsements guaranteed, thereby making
the assurance that it had ascertained the genuineness of all prior
endorsements. Having assumed the liability of a general indorser,
petitioners liability to the designated payee cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to debit
Salazars account for the value of the checks it previously credited in her
favor. It is of no moment that the account debited by petitioner was
different from the original account to which the proceeds of the check were
credited be_______________
19 Records, pp. 286-293.

20 G.R. No. 72764, July 13, 1989, 175 SCRA 310.
22 Negotiable Instruments Law, Section 30.
21 Supra note 18.
23 Campos, Jr. and Lopez Campos, Notes and Selected Cases on

Negotiable Instruments Law, p. 108 (1994).
637
638
VOL. 512, JANUARY 25, 2007
637
the manner in which such instrument may be negotiated. Negotiable
instruments are negotiated by transfer to one person or another in such a
manner as to constitute the transferee the holder thereof. If payable to
bearer it is negotiated by delivery. If payable to order it is negotiated by
the indorsement completed by delivery.22 The present case involves
checks payable to order. Not being a payee or indorsee of the checks,
private respondent Salazar could not be a holder thereof.
638
cause both admittedly belonged to Salazar, the former being the account
of the sole proprietorship which had no separate and distinct personality
from her, and the latter being her personal account.
The right of set-off was explained in Associated Bank v. Tan:24
A bank generally has a right of set-off over the deposits therein for the
payment of any withdrawals on the part of a depositor. The right of a
collecting bank to debit a clients account for the value of a dishonored
check that has previously been credited has fairly been established by
jurisprudence. To begin with, Article 1980 of the Civil Code provides that
[f]ixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
Hence, the relationship between banks and depositors has been held to be
that of creditor and debtor. Thus, legal compensation under Article 1278 of
the Civil Code may take place when all the requisites mentioned in Article
1279 are present, as follows:
(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.
While, however, it is conceded that petitioner had the right of set-off over
the amount it paid to Templonuevo against the deposit of Salazar, the issue
of whether it acted judiciously is an entirely different matter.25 As
businesses affected with
639
public interest, and because of the nature of their functions, banks are
under obligation to treat the accounts of their depositors with meticulous
care, always having in mind the fiduciary nature of their relationship.26 In
this regard, petitioner was clearly remiss in its duty to private respondent
Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks.
Despite the obvious lack of indorsement thereon, petitioner permitted the
encashment of these checks three times on three separate occasions. This
negates petitioners claim that it merely made a mistake in crediting the
value of the checks to Salazars account and instead bolsters the
conclusion of the CA that petitioner recognized Salazars claim of
ownership of checks and acted deliberately in paying the same, contrary to
ordinary banking policy and practice. It must be emphasized that the law
imposes a duty of diligence on the collecting bank to scrutinize checks
deposited with it, for the purpose of determining their genuineness and
regularity. The collecting bank, being primarily engaged in banking, holds
itself out to the public as the expert on this field, and the law thus holds it
to a high standard of conduct.27 The taking and collection of a check
without the proper indorsement amount to a conversion of the check by
the bank.28
More importantly, however, solely upon the prompting of Templonuevo,
and with full knowledge of the brewing dispute between Salazar and
Templonuevo, petitioner debited the
_______________
_______________
24 G.R. No. 156940, December 14, 2004, 446 SCRA 282.

25 Id.
26 Prudential Bank v. Court of Appeals, G.R. No. 125536, March 16, 2000,
328 SCRA 264; Simex International [Manila], Inc. v. Court of Appeals, G.R.
No. 88013, March 19, 1990, 183 SCRA 360; Bank of the Phil. Iskands v.
Intermediate Appellate Court, G.R. No. 69162, February 21, 1992, 206
SCRA 408.
639
27 Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corp.,

G.R. No. L-74917, January 20, 1988, 157 SCRA 188.
VOL. 512, JANUARY 25, 2007
28 Associated Bank v. Court of Appeals, G.R. No. 89802, May 7, 1992, 208
SCRA 465; City Trust Banking Corp. v. Intermediate Appellate Court, G.R.
No. 84281, May 27, 1994, 232 SCRA 559.
640
640
account held in the name of the sole proprietorship of Salazar without even
serving due notice upon her. This ran contrary to petitioners assurances to
private respondent Salazar that the account would remain untouched,
pending the resolution of the controversy between her and
Templonuevo.29 In this connection, the CA cited the letter dated
September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner
banks Pasig/Ortigas branch, to private respondent Salazar informing her
that her account had been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude that
Account No. 0201-0588-48 will remain frozen or untouched until herein
[Salazar] has settled matters with Templonuevo. But, in an unexpected
move, in less than two weeks (eleven days to be precise) from the time
that letter was written, [petitioner] bank issued a cashiers check in the
name of Julio R. Templonuevo of the J.R.T. Construction and Trading for the
sum of P267,692.50 (Exhibit 8) and debited said amount from Ms.
Arcillas account No. 0201-0588-48 which was supposed to be frozen or
controlled. Such a move by BPI is, to Our minds, a clear case of negligence,
if not a fraudulent, wanton and reckless disregard of the right of its
depositor.
The records further bear out the fact that respondent Salazar had issued
several checks drawn against the account of A.A. Salazar Construction and
Engineering Services prior to any notice of deduction being served. The CA
sustained private respondent Salazars claim of damages in this regard:
The act of the bank in freezing and later debiting the amount of
P267,692.50 from the account of A.A. Salazar Construction and
Engineering Services caused plaintiff-appellee great damage and prejudice
particularly when she had already issued checks drawn against the said
account. As can be expected, the said checks bounced. To prove this,
plaintiff-appellee presented as exhibits photocopies of checks dated
September 8, 1991, October 28, 1991, and November 14, 1991 (Exhibits
D, E and F respectively).30
_______________
29 CA Rollo, p. 112; Transcript of Stenographic Notes dated November 9,

1992, pp. 8-9.
30 CA Rollo, pp. 111.
641
VOL. 512, JANUARY 25, 2007

641
These checks, it must be emphasized, were subsequently dishonored,
thereby causing private respondent Salazar undue embarrassment and
inflicting damage to her standing in the business community. Under the
circumstances, she was clearly not given the opportunity to protect her
interest when petitioner unilaterally withdrew the above amount from her
account without informing her that it had already done so.
For the above reasons, the Court finds no reason to disturb the award of
damages granted by the CA against petitioner. This whole incident would
have been avoided had petitioner adhered to the standard of diligence
expected of one engaged in the banking business. A depositor has the
right to recover reasonable moral damages even if the banks negligence
may not have been attended with malice and bad faith, if the former
suffered mental anguish, serious anxiety, embarrassment and
humiliation.31 Moral damages are not meant to enrich a complainant at
the expense of defendant. It is only intended to alleviate the moral
suffering she has undergone. The award of exemplary damages is justified,
on the other hand, when the acts of the bank are attended by malice, bad
faith or gross negligence. The award of reasonable attorneys fees is proper
where exemplary damages are awarded. It is proper where depositors are
compelled to litigate to protect their interest.32
WHEREFORE, the petition is partially GRANTED. The assailed Decision
dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the
Court of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it
ordered petitioner Bank of the Philippine Islands to return the amount of
Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100
Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion is
REVERSED and SET ASIDE. In all other respects, the same are AFFIRMED.
No costs.
_______________
31 Civil Code, Article 2217.

32 Prudential Bank v. Court of Appeals, supra note 26.
642
642
Manliclic vs. Calaunan
SO ORDERED.
Puno (C.J., Chairman), Sandoval-Gutierrez, Corona and Garcia, JJ.,
concur.
Petition partially granted, assailed decision and resolution modified.
Notes.The crossing of a check with the phrase Payees Account Only, is
a warning that the check should be deposited only in the account of the
payee. (Philippine Commercial International Bank vs. Court of Appeals, 350
SCRA 446 [2001])
A person to whom a crossed check was endorsed by the payee of said
check could not be considered a holder in due course. (Atrium
Management Corporation vs. Court of Appeals, 353 SCRA 23 [2001])
o0o
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Bank of
the Philippine Islands vs. Court of Appeals, 512 SCRA 620(2007)]
Banks and Banking; Evidence; Bad Faith; Words and Phrases; A bank, in
suppressing the best evidence that could have bolstered its claim and
confirmed its innocence, the presumption arises that it withheld the same
for fraudulent purposes; Bad faith imports a dishonest purpose or some
moral obliquity or conscious doing of a wrong that partakes of the nature of
fraud.While petitioner may argue that simple negligence does not
warrant the award of moral damages, it nonetheless cannot insist that that
was all it was guilty of. It refused to produce the original copy of the
deposit slip which could have proven its claim that it did not receive
respondents missing check. Thus, in suppressing the best evidence that
could have bolstered its claim and confirmed its innocence, the
presumption
_______________
* FIRST DIVISION.
VOL. 520, APRIL 2, 2007
** On June 8, 2005, the Court granted the motion of private respondents to

implead Metropolitan Bank and Trust Company as petitioner following the
latters acquisition of Solidbank. Under Rule 3, Section 19 of the Rules of
Court, the person or entity which acquired the interest of a party to a case
may be substituted in the action or joined with the original party.
123
124
Solidbank Corporation/Metropolitan Bank and Trust Company vs. Tan

G.R. No. 167346. April 2, 2007.*
124
SOLIDBANK CORPORATION/METROPOLITAN BANK AND TRUST COMPANY,**

petitioner, vs. SPOUSES PETER and SUSAN TAN, respondents.
Appeals; The Supreme Court accords respect to the factual findings of the
trial court and, unless it overlooked substantial matters that would alter
the outcome of the case, the Court will not disturb such findings.The
Court stresses that it accords respect to the factual findings of the trial
court and, unless it overlooked substantial matters that would alter the
outcome of the case, this Court will not disturb such findings. We
meticulously reviewed the records of the case and found no reason to
deviate from the rule. Moreover, since the CA affirmed these findings on
appeal, they are final and conclusive on us. We therefore sustain the RTCs
and CAs findings that petitioner was indeed negligent and responsible for
respondents lost check.

now arises that it withheld the same for fraudulent purposes. Moreover, in
presenting a false deposit slip in its attempt to feign innocence,
petitioners bad faith was apparent and unmistakable. Bad faith imports a
dishonest purpose or some moral obliquity or conscious doing of a wrong
that partakes of the nature of fraud.
Same; The business of banking is impressed with public interest and great
reliance is made on the banks sworn profession of diligence and
meticulousness in giving irreproachable service.As to the award of
exemplary damages, the law allows it by way of example for the public
good. The business of banking is impressed with public interest and great
reliance is made on the banks sworn profession of diligence and

meticulousness in giving irreproachable service. For petitioners failure to
carry out its responsibility and to account for respondents lost check, we
hold that the lower courts did not err in awarding exemplary damages to
the latter.
Same; Extraordinary Diligence; Common Carriers; Like a common carrier

whose business is imbued with public interest, a bank should exercise
extraordinary diligence to negate its liability to the depositors.In citing
the different provisions of the Civil Code on common carriers, the trial court
merely made reference to the kind of diligence that petitioner should have
performed under the circumstances. In other words, like a common carrier
whose business is also imbued with public interest, petitioner should have
exercised extraordinary diligence to negate its liability to respondents.
CORONA, J.:
Same; Same; Same; The Court finds no compelling reason to disallow the
application of the provisions on common carriers in this case if only to
emphasize the fact that banking institutions have the duty to exercise the
highest degree of diligence when transacting with the public.In one case,
the Court did not hesitate to apply the doctrine of last clear chance
(commonly used in transportation laws involving common carriers) to a
banking transaction where it adjudged the bank responsible for the
encashment of a forged check. There, we enunciated that the degree of
diligence required of banks is more than that of a good father of a family in
keeping with their responsibility to exercise the necessary care and
prudence in handling their clients money. We find no compelling reason to
disallow the application of the provisions on common carriers to this case if
only to emphasize the fact that banking institutions (like petitioner) have
the duty to exercise the highest degree of diligence when trans-
On December 2, 1991, respondents representative, Remigia Frias,

deposited with petitioner ten checks worth P455,962. Grace Neri,
petitioners teller no. 8 in its Juan Luna, Manila Branch, received two
deposit slips for the checks, an original and a duplicate. Neri verified the
checks and their amounts in the deposit slips then returned the duplicate
copy to Frias and kept the original copy for petitioner.
125
2 Id., pp. 22-23.
Maximino Z. Banaga, Jr. for petitioner.

Beltran, Beltran, Rubrico, Koa and Mendoza for respondents.
Assailed in this petition for review by certiorari under Rule 45 of the Rules
of Court are the decision1 and resolution2 of the Court of Appeals (CA)
dated November 26, 2004 and March 1, 2005, respectively, in CA-G.R. CV
No. 58618,3 affirming the decision of the Regional Trial Court (RTC) of
Manila, Branch 31.4
_______________
1 Penned by Associate Justice Arcangelita M. Romilla-Lontok and concurred

in by Associate Justices Rodrigo V. Cosico and Danilo B. Pine (retired) of the
Twelfth Division of the Court of Appeals; Rollo, pp. 9-20.
3 Entitled Peter and Susan Tan v. Solidbank Corporation.

VOL. 520, APRIL 2, 2007
4 Decided by Judge Zenaida R. Daguna, Rollo, pp. 74-80.
125
126

acting with the public. By the nature of their business, they are required to
observe the highest standards of integrity and performance, and utmost
assiduousness as well.
126
of Appeals.
In accordance with the usual practice between petitioner and respondents,

the latters passbook was left with petitioner for the recording of the
deposits on the banks ledger. Later, respondents retrieved the passbook
and discovered that one of the checks, Metropolitan Bank and Trust
Company (Metrobank) check no. 403954, payable to cash in the sum of
P250,000 was not posted therein.
Immediately, respondents notified petitioner of the problem. Petitioner
showed respondent Peter Tan a duplicate copy of a deposit slip indicating
the list of checks deposited by Frias. But it did not include the missing
check. The deposit slip bore the stamp mark teller no. 7 instead of teller
no. 8 who previously received the checks.
Still later, respondent Peter Tan learned from Metrobank (where he
maintained an account) that Metrobank check no. 403954 had cleared
after it was inexplicably deposited by a certain Dolores Lagsac in Premier
Bank in San Pedro, Laguna. Respondents demanded that petitioner pay the
amount of the check but it refused, hence, they filed a case for collection
of a sum of money in the RTC of Manila, Branch 31.
In its answer, petitioner averred that the deposit slips Frias used when she
deposited the checks were spurious. Petitioner accused respondents of
engaging in a scheme to illegally exact money from it. It added that,
contrary to the claim of respondents, it was teller no. 7 who received the
deposit slips and, although respondents insisted that Frias deposited ten
checks, only nine checks were actually received by said teller. By way of
counterclaim, it sought payment of P1,000,000 as actual and moral
damages and P500,000 as exemplary damages.
After trial, the RTC found petitioner liable to respondents:
Upon examination of the oral, as well as of the documentary evidence
which the parties presented at the trial in support of their respective
contentions, and after taking into consideration all the circumstances of
the case, this Court believes that the loss of Metrobank Check No. 403954
in the sum of P250,000.00 was due to the
127
fault of [petitioner][It] retained the original copy of the [deposit slip

marked by Teller No. 7]. There is a presumption in law that evidence
willfully suppressed would be adverse if produced.
Art. 1173 of the Civil Code states that the fault or negligence of the
obligor consists in the omission of that diligence which is required by the
nature of the obligation and corresponds with the circumstances of the
person of the time and of the place; and that if the law or contract does
not state the diligence which is to be observed in the performance, the
same as expected of a good father of a family shall be required.
For failure to comply with its obligation, [petitioner] is presumed to have
been at fault or to have acted negligently unless they prove that they
observe extraordinary diligence as prescribed in Arts. 1733 and 1735 of
the Civil Code (Art. 1756)
xxx
xxx
xxx
WHEREFORE, premises considered, judgment is hereby rendered in favor of

[respondents], ordering [petitioner] to pay the sum of P250,000, with legal
interest from the time the complaint [for collection of a sum of money] was
filed until satisfied; P25,000.00 moral damages; P25,000.00 exemplary
damages plus 20% of the amount due [respondents] as and for attorneys
fees. With costs.
SO ORDERED.5
Petitioner appealed to the CA which affirmed in toto the RTCs assailed
decision:
Serious doubt [was] engendered by the fact that [petitioner] did not
present the original of the deposit slip marked with Teller No. 7 and on
which the entry as to Metrobank Check No. 403954 did not appear. Even
the most cursory look at the handwriting thereon reveal[ed] a very marked
difference with that in the other deposit slips filled up [by Frias] on
December 2, 1991. Said circumstances spawn[ed] the belief thus, the said
deposit slip was prepared by [petitioner] itself to cover up for the lost
check.6
_______________
VOL. 520, APRIL 2, 2007

127
5 Rollo, pp. 79-80.
6 Rollo, p. 17.
128
8 Lipat v. Pacific Banking Corporation, 450 Phil. 410; 402 SCRA 339 (2003).
9 Bordalba v. Court of Appeals, 425 Phil. 407; 374 SCRA 555 (2002).
128
129

VOL. 520, APRIL 2, 2007
Petitioner filed a motion for reconsideration but the CA dismissed it. Hence,
this appeal.
129
Before us, petitioner faults the CA for upholding the RTC decision.
Petitioner argues that: (1) the findings of the RTC and the CA were not
supported by the evidence and records of the case; (2) the award of
damages in favor of respondents was unwarranted and (3) the application
by the RTC, as affirmed by the CA, of the provisions of the Civil Code on
common carriers to the instant case was erroneous.7
The petition must fail.
On the first issue, petitioner contends that the lower courts erred in finding
it negligent for the loss of the subject check. According to petitioner, the
fact that the check was deposited in Premier Bank affirmed its claim that it
did not receive the check.
At the outset, the Court stresses that it accords respect to the factual
findings of the trial court and, unless it overlooked substantial matters that
would alter the outcome of the case, this Court will not disturb such
findings.8 We meticulously reviewed the records of the case and found no
reason to deviate from the rule. Moreover, since the CA affirmed these
findings on appeal, they are final and conclusive on us.9 We therefore
sustain the RTCs and CAs findings that petitioner was indeed negligent
and responsible for respondents lost check.
On the issue of damages, petitioner argues that the moral and exemplary
damages awarded by the lower courts had no legal basis. For the award of
moral damages to stand, petitioner avers that respondents should have
proven the existence of bad faith by clear and convincing evidence.
According

to petitioner, simple negligence cannot be a basis for its award. It insists
that the award of exemplary damages is justified only when the act
complained of was done in a wanton, fraudulent and oppressive manner.10
We disagree.
While petitioner may argue that simple negligence does not warrant the
award of moral damages, it nonetheless cannot insist that that was all it
was guilty of. It refused to produce the original copy of the deposit slip
which could have proven its claim that it did not receive respondents
missing check. Thus, in suppressing the best evidence that could have
bolstered its claim and confirmed its innocence, the presumption now
arises that it withheld the same for fraudulent purposes.11
Moreover, in presenting a false deposit slip in its attempt to feign
innocence, petitioners bad faith was apparent and unmistakable. Bad faith
imports a dishonest purpose or some moral obliquity or conscious doing of
a wrong that partakes of the nature of fraud.12
As to the award of exemplary damages, the law allows it by way of
example for the public good. The business of banking is impressed with
public interest and great reliance is made on the banks sworn profession
of diligence and meticulousness in giving irreproachable service.13 For
petitioners failure to carry out its responsibility and to account for
respondents lost check, we hold that the lower courts did not err in
awarding exemplary damages to the latter.
_______________
_______________
10 Petitioners Memorandum, Rollo, p. 157.
7 Rollo, pp. 150-159.
11 Philippine Banking Corporation v. Court of Appeals, G.R. No. 127469, 15

January 2004, 419 SCRA 487.
12 Petitioners Memorandum, Rollo, p. 157.
13 See Prudential Bank v. Court of Appeals, 384 Phil. 817; 328 SCRA 264
(2000); Bank of the Philippine Islands v. Casa Montessori International, G.R.
No. 149454, 28 May 2004, 430 SCRA 261.
130
_______________
14 Supra, at p. 5.
15 Id., Articles 1733, 1735 and 1756 of the Civil Code.
16 Canlas v. Asian Savings Bank, et al., 383 Phil. 315; 326 SCRA 415
(2000); see also Bank of the Philippine Islands v. Court of Appeals, G.R. No.
102383, 26 November 1992, 216 SCRA 51.
131
130
VOL. 520, APRIL 2, 2007

131
On the last issue, we hold that the trial court did not commit any error. A
cursory reading of its decision reveals that it anchored its conclusion that
petitioner was negligent on Article 1173 of the Civil Code.14
In citing the different provisions of the Civil Code on common carriers,15

the trial court merely made reference to the kind of diligence that
petitioner should have performed under the circumstances. In other words,
like a common carrier whose business is also imbued with public interest,
petitioner should have exercised extraordinary diligence to negate its
liability to respondents.
WHEREFORE, the assailed decision and resolution of the Court of Appeals

dated November 26, 2004 and March 1, 2005, respectively, in CA-G.R. CV
No. 58618 are hereby AFFIRMED. Accordingly, the petition is DENIED.
Assuming arguendo that the trial court indeed used the provisions on
common carriers to pin down liability on petitioner, still we see no reason
to strike down the RTC and CA rulings on this ground alone.
In one case,16 the Court did not hesitate to apply the doctrine of last clear
chance (commonly used in transportation laws involving common carriers)
to a banking transaction where it adjudged the bank responsible for the
encashment of a forged check. There, we enunciated that the degree of
diligence required of banks is more than that of a good father of a family in
keeping with their responsibility to exercise the necessary care and
prudence in handling their clients money.
We find no compelling reason to disallow the application of the provisions
on common carriers to this case if only to emphasize the fact that banking
institutions (like petitioner) have the duty to exercise the highest degree of
diligence when transacting with the public. By the nature of their business,
they are required to observe the highest standards of integrity and

performance, and utmost assiduousness as well.17
Costs against petitioner.

SO ORDERED.
concur.
Assailed decision and resolution affirmed, petition denied.
Notes.A bank employee was grossly negligent where she delivered
several credit cards to a person who was merely identified and described
over the telephone. (Citibank, N.A. vs. Gatchalian, 240 SCRA 212 [1995])
Banks, their business being impressed with public interest, are expected to
exercise more care and prudence than private individuals in their dealings,
even those involving registered lands. (Consolidated Rural Bank [Cagayan
Valley], Inc. v. Court of Appeals, 448 SCRA 347 [2005])
o0o
_______________
17 Simex International (Manila) v. Court of Appeals, G.R. No. 88013, 19

March 1990, 183 SCRA 360.
132 [Solidbank Corporation/Metropolitan Bank and Trust Company vs. Tan,
520 SCRA 123(2007)]
728
Bulos, Jr. vs. Yasuma
VOL. 527, JULY 17, 2007

727
G.R. No. 164159. July 17, 2007.*
HONORIO C. BULOS, JR., petitioner, vs. KOJI YASUMA, respondent.
Appeals; The jurisdiction of the Supreme Court in a Petition for Review
under Rule 45 is limited to reviewing only errors of law.It is well-settled
that the findings of fact of the trial court, especially when affirmed by the
Court of Appeals, are accorded the highest degree of respect, and
generally will not be disturbed on appeal. Such findings are binding and
conclusive to the Court. Furthermore, it is not the Courts function under
Rule 45 of the 1997 Revised Rules of Civil Procedure to review, examine
and evaluate or weigh the probative value of the evidence presented. The
jurisdiction of the Court in a Petition for Review under Rule 45 is limited to
reviewing only errors of law. Unless the case falls under the recognized
exceptions, the rule shall not be disturbed.
Same; Exceptions.Recognized exceptions to this rule are: (1) when the
findings are grounded entirely on speculation, surmises or conjectures; (2)
when the inference made is manifestly mistaken, absurd or impossible; (3)
when there is grave abuse of discretion; (4)
_______________
* THIRD DIVISION.
728
when the judgment is based on a misapprehension of facts; (5) when the

finding of facts are conflicting; (6) when in making the findings, the Court
of Appeals went beyond the issues of the case, or its findings are contrary
to the admissions of both the appellee and the appellant; (7) when the
findings are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioners
main and reply briefs are not disputed by the respondents; (10) when the
findings of facts are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the
parties, which if properly considered, would justify a different conclusion.
(Langkaan Realty Development, Inc. v. United Coconut Planters Bank, 400
Phil. 1349, 1356; 347 SCRA 542, 549 [2000]; Nokom v. National Labor
Relations Commission, 390 Phil. 1228, 1242-1243; 336 SCRA 97, 110
[2000]; Commissioner of Internal Revenue v. Embroidery and Garments
Industries [Phils.], Inc., 364 Phil. 541, 546547; 305 SCRA 70, 74-75 [1999];
Sps. Sta. Maria v. Court of Appeals, 349 Phil. 275, 282-283; 285 SCRA 351,
357-358 [1998]).
Contracts; Debts; Payment; When the existence of a debt is fully
established by the evidence contained in the record, the burden of proving
that it has been extinguished by payment devolves upon the debtor who
offers such defense.When the existence of a debt is fully established by
the evidence contained in the record, the burden of proving that it has
been extinguished by payment devolves upon the debtor who offers such
defense. The debtor has the burden of showing with legal certainty that
the obligation has been discharged by payment. In the present case, the
petitioner failed to prove that indeed, his liability to pay the remaining
balance of his obligation with the respondent had been extinguished by his
offer to transfer to respondent his shares of stocks in the Rural Bank of
Paraaque.
Banks and Banking; Assignments; A foreigner is not qualified to own capital
stock in a rural bank, and could not therefore accept assignment of shares
of stocks in a rural bank.Section 4, Republic Act No. 7353, otherwise
known as The Rural Banks Act of 1992, provides: Section 4. x x x. With
the exception of shareholdings of corporations organized primarily to hold

equities in rural banks as provided for under Section 12-C of Republic Act
No. 337, as
729
VOL. 527, JULY 17, 2007
hemorrhaging of their assets.In the case of Ruiz v. Court of Appeals, 401

SCRA 410 (2003), citing the cases of Medel v. Court of Appeals, 299 SCRA
481 (1998), Garcia v. Court of Appeals, 167 SCRA 815 (1988), Spouses
Bautista v. Pilar Development Corporation, 312 SCRA 611 (1999), and the
recent case of Spouses Solangon v. Salazar, 360 SCRA 379 (2001), this
Court considered the 3% interest per month or 36% interest per annum as
730
729
amended, and of Filipino-controlled domestic banks, the capital stock of
any rural bank shall be fully owned and held directly or indirectly by
citizens of the Philippines or corporations, associations or cooperatives
qualified under Philippine laws to own and hold such capital stock: x x x.
(Emphasis supplied.) Given the foregoing provision of law, this Court
agrees with the Court of Appeals that the respondent, being a foreigner, is
not qualified to own capital stock in the Rural Bank of Paraaque. This
renders the assignment of shares of stocks in the Rural Bank of Paraaque
in favor of respondent void. As previously stated, the assignment of the
shares of stocks in the rural bank was not accepted by the respondent
precisely because of the prohibition stated under Republic Act No. 7353,
which was explained to him by his counsel, the late Atty. Timario, Jr.
Usury Law; Interest; An interest rate of 4% per month or 48% per annum is
highly unconscionable and inordinate.In the face of all of the above, this
Court nevertheless sustains the assertion of the petitioner that the
imposition of 21% interest on the outstanding loan obligation of
P2,240,000.00 has no legal and factual bases. According to the promissory
note executed by Dr. Lim, and agreed to by all the parties, in case of the
borrowers failure to pay the loan obligation within the stipulated period,
the extended period shall be considered running monthly under the same
terms and rate of interest, which is 4% per month, until the principal has
been fully paid. Thus, the remaining balance of P2,240,000.00 is still
subject to the interest rate of 4% per month or 48% per annum. To our
mind such rate of interest is highly unconscionable and inordinate.
Same; Same; While the Usury Law has been suspended by Central Bank
Circular No. 905, s. 1982, effective on 1 January 1983, and parties to a loan
agreement have been given wide latitude to agree on any interest rate,
still stipulated interest rates are illegal if they are unconscionablenothing
in the said circular grants lenders carte blanche authority to raise interest
rates to levels which will either enslave their borrowers or lead to a
730
excessive and unconscionable. Thereby, the Court, in the said case,
equitably reduced the rate of interest to 1% interest per month or 12%
interest per annum. The Court also held that while the Usury Law has been
suspended by Central Bank Circular No. 905, s. 1982, effective on 1
January 1983, and parties to a loan agreement have been given wide
latitude to agree on any interest rate, still stipulated interest rates are
illegal if they are unconscionable. Nothing in the said circular grants
lenders carte blanche authority to raise interest rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of their assets.
Surely, it is more consonant with justice that the rate of interest in the
present case, which is 4% per month or 48% per annum, be reduced
equitably. We find, that the reduction of the interest rate by the trial court,
pegged at 21% per annum, was not proper.
Same; Same; Following established jurisprudence, the legal interest rate of
12% should apply, computed from the date of judicial demand.The
agreed interest rate of 4% per month or 48% per annum is unconscionable
and must be mitigated. Following established jurisprudence, the legal
interest rate of 12% should apply, computed from the date of judicial
demand, that is, 7 April 1990. The aforequoted paragraph 3 of the
guidelines is also appropriate herein, and a 12% interest per annum is
imposed on petitioners monetary liability to respondent from the date of
the finality of this Decision until it is fully paid.
Judgments; The general rule is that, where there is conflict between the
dispositive portion or the fallo and the body of a decision, the fallo controls,
a rule that rests on the theory that the fallo is the final order while the
opinion in the body is merely a statement ordering nothing.The general
rule is that, where there is conflict between the dispositive portion or the
fallo and the body of a decision, the fallo controls. This rule rests on the
theory that the fallo is the final order while the opinion in the body is
merely a statement ordering nothing. However, where the inevitable
conclusion from the body of the decision is so clear as to show that there
was a mistake in the dispositive portion, the body of the decision prevails.
In his complaint before the RTC, the respondent prayed for 20% of
P2,240,000.00 as attorneys fees. In the body of the RTC decision, the trial
court awarded outright respondents prayer for attorneys fees without any
discussion that it found the 20% respondent prayed for as excessive and
that it was reducing the percentage of the attor-
Case No. 90-1053; and (2) the Resolution4 of the Court of Appeals, dated
11 June 2004, which denied the petitioners Motion for Reconsideration.
Herein petitioner Honorio C. Bulos (petitioner) was one of the defendants in
a Complaint for collection of sum of money plus damages with prayer for a
writ of preliminary attachment, docketed as Civil Case No. 90-1053,
entitled, Koji Yasuma v. Ramon R. Lim, Honorio C. Bulos and Bede S.
Tabalingcos, filed with the RTC by herein respondent Koji Yasuma, a
Japanese national.
_______________
731
1 Rollo, pp. 31-55.
VOL. 527, JULY 17, 2007
731
neys fees to 10%. This court is more inclined to believe that the 10%
attorneys fees in the body of the RTC decision is merely a typographical
error. Consequently, the general rule applies to this case, and the 20%
attorneys fees ordered paid by the fallo of the RTC decision controls.
of Appeals.
2 Penned by Associate Justice Arsenio J. Magpale with Associate Justices

Conrado M. Vasquez, Jr. and Bienvenido L. Reyes, concurring; id., at pp. 819.
3 Penned by Judge Oscar B. Pimentel; id., at pp. 126-167.
4 Id., at pp. 183-184.
732
732

Renato T. Nuguid for petitioner.
Glenn R. Subia for respondent.
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari1 under Rule 45 of the 1997

Revised Rules of Civil Procedure seeking to set aside and to declare null
and void (1) the Decision,2 dated 5 January 2004, of the Court of Appeals
in CA-G.R. CV No. 54969, which affirmed the Decision,3 dated 30 August
1996, of the Makati City Regional Trial Court (RTC), Branch 148, in Civil

The controversy in the present case arose from the following antecedents:
Petitioner, together with Dr. Ramon R. Lim (Dr. Lim) and Atty. Bede S.
Tabalingcos (Atty. Tabalingcos), obtained a loan from Koji Yasuma
(respondent) in the amount of P2,500,000.00, as evidenced by a
promissory note,5 dated 11 October 1988, signed solely by Dr. Lim per
agreement among the petitioner, Dr. Lim and Atty. Tabalingcos.6 The said
promissory note provides for the following conditions: (1) payment of
interest at the rate of 4% for a period of three months or until 10 January
1989; (2) in case of a roll over for failure of the borrowers to pay on the
agreed period, the extension will be considered running monthly under the
same terms and rate of interest until the principal amount has been fully
paid; and (3) should the said promissory note be brought to court for
collection, the borrowers agree to pay an additional amount equivalent to

10% of the principal amount plus attorneys fee, which in no case shall be
less than P10,000.00. As a security for the said loan, both petitioner and
Dr. Lim executed Real Estate Mortgages7 over their respective properties.
On 16 December 1988, petitioner and Dr. Lim executed a Deed of
Assumption,8 to the effect that petitioner assumed the loan obligation of
Dr. Lim due respondent with the condition that Dr. Lim shall first secure the
respondents consent to and approval of the said Deed of Assumption.
However, the conformity of respondent to the said Deed of Assumption
was not obtained by Dr. Lim. When the loan obligation became due and
demandable on 10 January 1989, respondent demanded payment from the
petitioner, Dr. Lim and Atty. Tabalingcos, but they failed and refused to pay
the same. Respondent then made a demand in writing and through
telephone calls to Atty. Tabalingcos. Atty. Tabalingcos just told respondent
that
_______________
5 Id., at p. 81.
respondent that the petitioner had certain properties in Paraaque City

which he was willing to sell to the respondent to cover the obligation of the
petitioner, Dr. Lim and Atty. Tabalingcos. Out of respondents desperation
to collect the loan that he had extended to the petitioner, Dr. Lim and Atty.
Tabalingcos, respondent agreed to the aforesaid proposal. Thus, on 24
February 1989, a Deed of Sale,9 over certain parcels of land located in
Paraaque City and covered by Transfer Certificates of Title (TCTs) No.
467734 and 332355 in the name of petitioner, was executed in favor of the
respondent for a total consideration of P1,630,750.00, paid via a dacion en
pago arrangement.
After the execution of the Deed of Sale, all the parties agreed that there
was still a balance of P2,240,000.00 owed to the respondent. In a
Certification10 dated 27 February 1989, which the petitioner and Dr. Lim
considered as another Deed of Assumption, petitioner assumed the
P1,500,000.00 obligation of Dr. Lim. The consideration for the said
assumption of obligation is the transfer11 of the shares of stocks of the
Rural Bank of Paraaque to the respondent to offset the obligation.
Petitioner thus offered the said shares of stocks to the respondent. Atty.
Tabalingcos, for his part and in his capacity
_______________
6 TSN, 25 May 1992, pp. 7-12; TSN, 31 March 1995, p. 6.

7 Rollo, pp. 82-85.
9 Rollo, pp. 111-113.
8 Records, Vol. II, p. 444.
10 Id., at p. 115.
733
11 The petitioner, Dr. Lim and Atty. Tabalingcos are stockholders of the
Rural Bank of Paraaque. However, Dr. Lim later on decided not to join the
bank anymore.
VOL. 527, JULY 17, 2007
734
733
he would talk first to the petitioner and Dr. Lim and he will then inform the
respondent of their response, but Atty. Tabalingcos never called back.
After painstaking efforts to collect the loan from the petitioner, Dr. Lim and
Atty. Tabalingcos, respondent requested Atty. Tabalingcos, who happened
to be his legal adviser at that time, to foreclose the Real Estate Mortgages
executed by the petitioner and Dr. Lim over their respective properties.
Atty. Tabalingcos failed to do so. Instead, he made a proposal to
734
as Chairman of the Board of the said bank, issued a certification12 to the
effect that the respondent holds P1,250,000.00 worth of shares of stocks,
equivalent to 20% shareholdings in the Rural Bank of Paraaque. However,
during that time, the Rural Bank of Paraaque must first increase its
authorized capital stock subject to the approval of the Securities and
Exchange Commission (SEC) because the original shares had already been
fully subscribed and fully paid. Because of this and of the information
provided by his then counsel, the late Atty. Bayani M. Timario, Jr. (Atty.
Timario, Jr.), that a foreigner cannot be a stockholder of a rural bank, the
respondent absolutely refused to accept the shares of stocks and
demanded instead an outright payment of the loan obligation. As the
shares of stocks were already assigned to the respondent via a certification
issued by Atty. Tabalingcos, the latter then issued a check13 in the amount
of P2,240,000.00 to the order of the respondent, dated 25 December 1989,
to buy the said shares in behalf of an interested buyer. When the
respondent presented the check to the bank, it was dishonored for having
been drawn against insufficient funds.
Subsequently, the respondent sent a demand letter14 to each of the
borrowersthe petitioner, Dr. Lim and Atty. Tabalingcosfor the full
payment of their outstanding obligation; but, to no avail. This prompted
the respondent to file with the RTC a Complaint for Sum of Money with
Damages and with Prayer for a Writ of Preliminary Attachment against the
petitioner, Dr. Lim and Atty. Tabalingcos. On 23 April 1990, the trial court
issued an Order15 granting the writ of preliminary attachment applied for
by the respondent upon his filing of a bond fixed at P2,240,000.00. By
virtue of the said writ, several lots of the petitioner, and the house and lot
of Dr. Lim located in Quezon City, were attached. Petitioner
_______________

filed a Motion to Dissolve Writ of Attachment which was granted by the trial
court in its Order dated 7 October 199216 conditioned upon petitioners
posting of a counter-bond in the amount of P2,240,000.00. Petitioner
moved for the reduction of his counter-bond to P770,000.00 considering
that the respondent made an admission that the petitioner partially paid
the loan obligation in the amount of P1,630,750.00. The said motion was
granted by the court a quo in its Order dated 1 August 1995.17
On 30 August 1996, the trial court rendered a Decision in favor of the
respondent and against the petitioner, Dr. Lim and Atty. Tabalingcos, the
decretal portion of which reads as follows:
WHEREFORE, premises considered, and finding that [herein respondent]
has fully established not only by preponderance of evidence by competent
proof of his entitlement to his claims in the [C]omplaint, judgment is
hereby rendered in favor of [respondent] and against [herein petitioner,
together with Dr. Lim and Atty. Tabalingcos]. Ordering [the petitioner, Dr.
Lim and Atty. Tabalingcos] to jointly and severally pay the [respondent] the
following:
(1) The amount of P2,240,000.00 plus interest of 21% per annum as of
April, 1990, the time of the filing of the [C]omplaint;
(2) The sum equivalent to 20% of P2,240,000.00 plus P500.00 per
appearance in the case, for and as attorneys fees.
(3) Costs of the suit.
12 Rollo, p. 116.
13 Id., at p. 86.
14 Id., at pp. 87-93.
The cross-claim filed by [Atty. Tabalingcos] against the [petitioner] is

hereby DISMISSED for reasons stated above.
Costs against [petitioner, Dr. Lim and Atty. Tabalingcos].18
15 Id., at pp. 94-95.
Aggrieved by the aforesaid Decision of the trial court, the petitioner, Dr.
Lim and Atty. Tabalingcos appealed to the
735
_______________
VOL. 527, JULY 17, 2007
16 Id., at p. 122.
735
17 Id., at pp. 123-124.

18 Id., at p. 167.
736
737
736
VOL. 527, JULY 17, 2007
737
Court of Appeals. However, Atty. Tabalingcos did not file his appellants
brief. On 5 January 2004, the Court of Appeals rendered a Decision
affirming in toto the Decision of the trial court. The petitioner moved for its
reconsideration, but it was denied in a Resolution dated 11 June 2004
issued by the appellate court.
deserves scant consideration as in fact, he had religiously followed up with

petitioner and Atty. Tabalingcos the issuance of the certificate for the said
shares of stocks.
Hence, this petition by petitioner. However, Dr. Lim and Atty. Tabalingcos
did not appeal before this Court.
Petitioner submits the following issues for this Courts resolution:
I. Whether or not the obligation of petitioner to pay respondent has already
(sic) fully extinguished.
II. Whether or not the offer to purchase shares of stock of Rural Bank of
Paraaque amounting to P1,250,000.00 extinguished petitioner Bulos
obligation to pay the balance of the loan with (sic) respondent.
III. Whether or not petitioner Bulos is entitled to claim for damages.
IV. Whether or not [the] imposition of 21% interest on P2,240,000.00 and
20% of the said amount as attorneys fees has no legal and factual basis
(sic).
Petitioner argues that despite the partial payment made by him in the
amount P1,630,750.00, and in spite of the respondents unequivocal
admission of the same, still, the respondent did not deduct the said
amount from the total amount of the obligation due him. Instead, the
respondent continuously claimed the amount of P2,240,000.00 as of 25
December 1989, plus interest at the rate of 4% per month from 25
December 1989 when he filed his Complaint on 7 April 1990.
The petitioner likewise avers that his obligation to pay the balance of the
loan to the respondent had already been extinguished when he offered to
the respondent the shares of stocks of the Rural Bank of Paraaque
amounting to P1,250,000.00. Respondents assertion that he did not
accept the offer of the shares of stocks because of his nationality
Petitioner further alleges that he is entitled to claim damages for he had

been subjected to ridicule, mental anguish, besmirched reputation, and
extreme anxiety as a result of the respondents unfounded and malicious
suit. Petitioner lost business opportunities as a consequence of the
attachment made on his real properties in Tarlac; thus, respondent should
be made liable for the payment of damages for all that he had suffered. As
to the imposition of 21% interest on the P2,240,000.00 outstanding loan
obligation and 20% of the said amount as attorneys fees, petitioner
asserts that the same has no legal and factual bases. The imposition of the
said interest is highly excessive and exorbitant in light of the dacion en
pago arrangement and the assignment of shares of stocks of the Rural
Bank of Paraaque.
It is well-settled that the findings of fact of the trial court, especially when
affirmed by the Court of Appeals, are accorded the highest degree of
respect, and generally will not be disturbed on appeal. Such findings are
binding and conclusive to the Court. Furthermore, it is not the Courts
function under Rule 45 of the 1997 Revised Rules of Civil Procedure to
review, examine and evaluate or weigh the probative value of the evidence
presented. The jurisdiction of the Court in a Petition for Review under Rule
45 is limited to reviewing only errors of law.19 Unless the case falls under
the recognized exceptions,20 the rule shall not be disturbed.
_______________
19 Culaba v. Court of Appeals, G.R. No. 125862, 15 April 2004, 427 SCRA
721, 729.
20 Recognized exceptions to this rule are: (1) when the findings are
grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when

there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the finding of facts are conflicting; (6)
when in making the findings, the Court of
findings of facts are premised on the supposed absence of evidence and

contradicted by the evidence on record; and (11) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the
parties, which if properly considered, would justify a different conclusion.
(Langkaan Realty Development, Inc. v. United Coconut Planters Bank, 400
Phil. 1349, 1356; 347 SCRA 542, 549 [2000]; Nokom v. National Labor
Relations Commission, 390 Phil. 1228, 1242-1243; 336 SCRA 97, 110
[2000]; Commissioner of Internal Revenue v. Embroidery and Garments
Industries [Phils.], Inc., 364 Phil. 541, 546-547; 305 SCRA 70, 74-75 [1999];
Sps. Sta. Maria v. Court of Appeals, 349 Phil. 275, 282-283; 285 SCRA 351,
357-358 [1998]).
739
738
738
The following findings of fact, properly supported by evidence, made by

both the trial court and the appellate court can no longer be modified and
are binding on this Court: (1) the original loan obtained by the petitioner,
together with Dr. Lim and Atty. Tabalingcos, from the respondent amounted
to P2,500,000.00 with 4% interest for three months, or from 11 October
1988 up to 10 January 1989, and in case of extension of the loan, the
interest of 5% per month will be imposed; (2) the obligation of the
petitioner, Dr. Lim and Atty. Tabalingcos was joint and solidary as
evidenced by the following acts:
(a) the promissory note was solely signed by Dr. Lim per agreement among
the parties;
(b) the act of Dr. Lim in executing a Deed of Real Estate Mortgage in favor
of respondent to cover the amount of the promissory note;
(c) the act of the petitioner in executing a second Deed of Real Estate
Mortgage as additional security to the loan; and
(d) the act of Atty. Tabalingcos in issuing a check in the amount of P2,
240,000.00 to cover the balance of the obligation;
_______________
Appeals went beyond the issues of the case, or its findings are contrary to
the admissions of both the appellee and the appellant; (7) when the
findings are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioners
main and reply briefs are not disputed by the respondents; (10) when the
VOL. 527, JULY 17, 2007

739
(3) petitioner failed to pay the loan by 10 January 1989; thus, from 11
October 1988 up to February 1989, the loan obligation, including interest,
reached a total amount of P2,700,000.00; (4) petitioner made a partial
payment via a dacion en pago, amounting to P1,630,750.00, which was
deducted from the total loan obligation of P2,700,000.00 leaving a balance
of P1,069,000.00 as of 24 February 1989; (5) by March 1989, the balance
of the loan began earning a 5% interest per month after all the parties
agreed to an increase in the interest rate during the extended period; (6)
taking into consideration the outstanding loan balance of P1,069,000.00,
plus interest, and minus a discount granted by respondent, the amount still
due respondent was determined by the parties to be P2,240,000.00; and
(7) to pay the remaining indebtedness, Atty. Tabalingcos issued a check
covering the amount but it was dishonored, therefore, the indebtedness
remains at P2,240,000.00.
When the existence of a debt is fully established by the evidence
contained in the record, the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers such
defense. The debtor has the burden of showing with legal certainty that
the obligation has been discharged by payment.21 In the present case, the
petitioner failed to prove that indeed, his liability to pay the remaining
balance of his obligation with the respondent had been extinguished by his
offer to transfer to respondent his shares of stocks in the Rural Bank of
Paraaque.
The defense of the petitioner that the offer he made to respondent of his
shares of stocks in Rural Bank of Paraaque amounting to P1,250,000.00
had already extinguished his obligation to pay the balance of the loan
stands on hollow ground.
_______________
Q:
Now, you have stated a while ago Mr. Witness, that the balance be paid by
shares of stocks and as a matter of fact the [respondent] has accepted that
preposition, what happened if any, afterwards?
A:
21 Coronel v. Capati, G.R. No. 157836, 26 May 2005, 459 SCRA 205, 213.
In my case, I transferred 330 something shares of stocks in the name of

[the respondent] and I believe [Atty.] Tabalingcos have done the same.
740
_______________
740
22 TSN, 29 July 1992, pp. 19-20.
741

Section 4, Republic Act No. 7353, otherwise known as The Rural Banks Act
of 1992, provides:
Section 4. x x x. With the exception of shareholdings of corporations
organized primarily to hold equities in rural banks as provided for under
Section 12-C of Republic Act No. 337, as amended, and of Filipinocontrolled domestic banks, the capital stock of any rural bank shall be fully
owned and held directly or indirectly by citizens of the Philippines or
corporations, associations or cooperatives qualified under Philippine laws
to own and hold such capital stock: x x x. (Emphasis supplied.)
VOL. 527, JULY 17, 2007

741
Q:
Did you find out for yourselves what happened afterwards if any?
A:
Given the foregoing provision of law, this Court agrees with the Court of
Appeals that the respondent, being a foreigner, is not qualified to own
capital stock in the Rural Bank of Paraaque. This renders the assignment
of shares of stocks in the Rural Bank of Paraaque in favor of respondent
void. As previously stated, the assignment of the shares of stocks in the
rural bank was not accepted by the respondent precisely because of the
prohibition stated under Republic Act No. 7353, which was explained22 to
him by his counsel, the late Atty. Timario, Jr.
However we have transferred in their name however

technicalities in the issuance, Central Bank technicalities.
Moreover, petitioner mentioned in his testimony before the trial court that
all the shares of stocks of the Rural Bank of Paraaque had already been
fully subscribed and, for shares to be made available, additional capital
should be infused and the SEC should approved the additional shares for
subscription. Here we quote that part of the petitioners testimony:
Issuance of shares of stocks certificate, during that period we have to

increase our authorized capital stock with the [SEC] because the original
one were already fully subscribed and fully paid. [Emphasis supplied].
there
are
Q:
What are these Central Bank technicalities?
A:
Q:
Then what happened?
742
A:
The only way for us, for the bank to issue additional shares of stocks
certificate is to wait for the approval of the increase of capitalization from
the [SEC] so that these assigned shares to [Atty.] Tabalingcos can be lodge.
742
Q:
What did you do if any afterwards?
same terms and rate of interest, which is 4% per month, until the principal
has been fully paid. Thus, the remaining balance of P2,240,000.00 is still
subject to the interest rate of 4% per month24 or 48% per annum. To our
mind such rate of interest is highly unconscionable and inordinate.
A:
We informed the [respondent] about that.
x x x x.
Q:
What was his reply if any?
A:
He started complaining and said, just return to me my money that is how
it all started.23
From the aforesaid testimony of the petitioner, it is highly impossible for
respondent to have acquired by assignment any shares of stocks in the
Rural Bank of Paraaque. Thus, the obligation of the petitioner to pay the
balance of the loan remains subsisting.
In the face of all of the above, this Court nevertheless sustains the
assertion of the petitioner that the imposition of 21% interest on the
outstanding loan obligation of P2,240,000.00 has no legal and factual
bases.
According to the promissory note executed by Dr. Lim, and agreed to by all
the parties, in case of the borrowers failure to pay the loan obligation
within the stipulated period, the extended period shall be considered
running monthly under the
_______________
23 TSN, 31 March 1995, pp. 16-19.
In the case of Ruiz v. Court of Appeals,25 citing the cases of Medel v. Court
of Appeals,26 Garcia v. Court of Appeals,27 Spouses Bautista v. Pilar
Development Corporation 28 and the recent case of Spouses Solangon v.
Salazar,29 this Court considered the 3% interest per month or 36% interest
per annum as excessive and unconscionable. Thereby, the Court, in the
said case, equitably reduced the rate of interest to 1% interest per month
or 12% interest per annum. The Court also held that while the Usury Law
has been suspended by Central Bank Circular No. 905, s. 1982, effective on
1 January 1983, and parties to a loan agreement have been given wide
latitude to agree on any interest rate, still stipulated interest rates are
illegal if they are unconscionable. Nothing in the said circular grants
lenders carte blanche authority to raise interest rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of their assets.30
Surely, it is
_______________
24 In the promissory note which was signed solely by Dr. Lim per
agreement among the petitioner, Dr. Lim and Atty. Tabalingcos, the
stipulated rate of interest was 4%. When the loan obligation became due
and demandable and the borrowers failed to pay on the agreed period they
sought extension of their loan obligation and promised to increase the rate
of interest to 5% to which the respondent agreed. But, when the
respondent filed his Complaint for collection of sum of money, the rate of
interest which he prayed for was 4% as what was stated in the promissory
note.
25 449 Phil. 419, 433-434; 401 SCRA 410, 421 (2003).
26 359 Phil. 820, 829-830; 299 SCRA 481, 490 (1998).

27 G.R. Nos. L-82282-83, 24 November 1988, 167 SCRA 815, 830-831.
paragraph 1 or paragraph 2, above, shall be 12% per annum from such

finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.32 [Emphasis supplied].
28 371 Phil. 533, 543-544; 312 SCRA 611, 619 (1999).
_______________
29 412 Phil. 816, 822-823; 360 SCRA 379, 385 (2001).

30 Ruiz v. Court of Appeals, supra note 25 at p. 434; p. 421.
31 G.R. No. 97412, 12 July 1994, 234 SCRA 78.
743
32 Id., at pp. 95-97.

744
VOL. 527, JULY 17, 2007

743
744
more consonant with justice that the rate of interest in the present case,
which is 4% per month or 48% per annum, be reduced equitably. We find,
that the reduction of the interest rate by the trial court, pegged at 21% per
annum, was not proper.
In Eastern Shipping Lines, Inc. v. Court of Appeals,31 the Court formulated

the following rules of thumb to guide the lower courts in the imposition of
the proper interest on the amounts due, to wit:
I. x x x.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to
be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.
2. x x x x.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
The agreed interest rate of 4% per month or 48% per annum is

unconscionable and must be
mitigated.
Following established
jurisprudence, the legal interest rate of 12% should apply, computed from
the date of judicial demand, that is, 7 April 1990. The aforequoted
paragraph 3 of the guidelines is also appropriate herein, and a 12%
interest per annum is imposed on petitioners monetary liability to
respondent from the date of the finality of this Decision until it is fully paid.
As regards the argument of the petitioner that the award of attorneys fees
equivalent to 20% of P2,240,000.00 is excessive, this Court finds the same
specious. The lower courts found that by reason of the acts of the
petitioner and his cohorts, the respondent had to secure the services of
counsel in order to preserve and protect his rights. If not for the refusal of
the petitioner to settle his obligation, the respondent would not have
incurred expenses in filing a case which dragged on for more than a
decade in order to recover the loan which he extended to the petitioner,
Dr. Lim and Atty. Tabalingcos. Hence, the award of 20% of P2,240,000.00
as attorneys fees is only reasonable. Conspicuously, there appears to be a
variation as to the percentage of attorneys fees awarded in the dispositive
portion and in the body of the RTC decision. In the dispositive portion of the
RTC decision, the attorneys fees awarded was 20% of P2,240,000.00;
while in the body of the same decision, the rate referred to 10% of
P2,240,000.00.33
The general rule is that, where there is conflict between the dispositive
portion or the fallo and the body of a decision, the fallo controls. This rule
rests on the theory that the fallo is the final order while the opinion in the
body is merely a statement ordering nothing. However, where the
inevitable conclusion from the body of the decision is so clear as to show
that there was a mistake in the dispositive portion, the body
_______________
Ynares-Santiago
concur.
Petition partially
modification.
(Chairperson),
granted,
Austria-Martinez
judgment
and
and
resolution
Nachura,
affirmed
JJ.,
with
Notes.C.B. Circular No. 905 could not be properly invoked to justify the
escalation clauses requiring that the in_______________
33 Rollo, p. 163.
745
34 Poliand Industrial Limited v. National Development Company, G.R. No.

143866, 22 August 2005, 467 SCRA 500, 550.
746
VOL. 527, JULY 17, 2007

745
of the decision prevails.34 In his complaint before the RTC, the respondent
prayed for 20% of P2,240,000.00 as attorneys fees. In the body of the RTC
decision, the trial court awarded outright respondents prayer for
attorneys fees without any discussion that it found the 20% respondent
prayed for as excessive and that it was reducing the percentage of the
attorneys fees to 10%. This court is more inclined to believe that the 10%
attorneys fees in the body of the RTC decision is merely a typographical
error. Consequently, the general rule applies to this case, and the 20%
attorneys fees ordered paid by the fallo of the RTC decision controls.
WHEREFORE, premises considered, the instant Petition is PARTIALLY
GRANTED. The Decision and Resolution of the Court of Appeals dated 5
January 2004 and 11 June 2004, respectively, in CA-G.R. CV No. 54969,
which affirmed the Decision, dated 30 August 1996, of the Makati City RTC,
Branch 148, in Civil Case No. 90-1053, are hereby AFFIRMED with the
MODIFICATION that an interest rate of 12% per annum shall be applied to
the balance of the loan amounting to P2,240,000.00, computed from the
date of judicial demand, i.e., 7 April 1990; and of 12% interest per annum
on the amount due from the date of the finality of this Decision until fully
paid. Costs against the petitioner.
SO ORDERED.
746
Tondo Medical Center Employees Association vs. Court of Appeals
crease be within the limits allowed by law, such circular not being a grant
of specific authority. (Almeda vs. Court of Appeals, 256 SCRA 292 [1996])
A combined interest and penalty rate at 10% per month or 120% per
annum should be deemed iniquitous, unconscionable, and inordinate. (Dio
vs. Japor, 463 SCRA 170 [2005]) [Bulos, Jr. vs. Yasuma, 527 SCRA
727(2007)]
Note.The number and the location of the wounds inflicted upon the
victim were important indicia disproving self-defense. (People vs. Escarlos,
410 SCRA 463 [2008])
o0o
G.R. No. 178306.December 18, 2008.*

FRANCISCO R. NUNGA, JR. and VICTOR D. NUNGA, petitioners, vs.
FRANCISCO N. NUNGA III, respondent.
Constitutional Law; Banks and Banking; Republic Act No. 7353; Only
citizens of the Philippines can own and hold, directly or indirectly, the
capital stock of a rural bank, subject only to the exception also clearly
stated in the same provision.The afore-quoted provision categorically
provides that only citizens of the Philippines can own and hold, directly or
indirectly, the capital stock of a rural bank, subject only to the exception
also clearly stated in the same provision. This was the very interpretation
of Section 4 of Republic Act No. 7353 made by this Court in Bulos, Jr. v.
Yasuma, 527 SCRA 727 (2007) on the basis of which the Court disqualified
therein respondent Yasuma, a foreigner, from owning capital stock in the
Rural Bank of Paraaque. In the instant case, it is undisputed that when
Gonzalez executed the Contract to Sell and the Deed of Absolute Sale
covering his RBA shares of stock in favor of Francisco Jr., the latter was
already a naturalized citizen of the United States of America.
Consequently, the acquisition by Francisco, Jr. of the disputed RBA shares
by virtue of the foregoing contracts is a violation of the clear and
mandatory dictum of Republic Act No. 7353, which the Court cannot
countenance.
Civil Law; Contracts; While it is true that a law creating new rights may be
given retroactive effect, the same can only be made possible if the new
right does not prejudice or impair any vested right.Even the subsequent
enactment of Republic Act No. 8179 cannot benefit Francisco Jr. It is true
that under the Civil Code of the Philippines, laws shall have no retroactive
effect, unless the contrary is provided. But there are settled exceptions to
this general rule, such as when the statute is CURATIVE or REMEDIAL in
nature, or when it CREATES NEW RIGHTS. Francisco Jr. and Victor assert
that, as an exception to the cardinal rule of prospective application of laws,
Republic
_______________
* THIRD DIVISION.
761

moral, temperate, liquidated or compensatory damages. In contracts and
quasi-contracts, exemplary damages may be awarded if the defendant
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.
It cannot, however, be considered as a matter of right; the court has to
decide whether or not such damages should be adjudicated. Before the
court may consider an award for exemplary damages, the plaintiff must
first show that he is entitled to moral, temperate or
Nunga, Jr. vs. Nunga III
762
761
VOL. 574, December 18, 2008
Act No. 8179 may be retroactively applied, since it creates for the first time
a substantive right in favor of natural-born citizens of the Philippines.
Francisco Jr. and Victor, however, overlooked the vital exception to the
exception. While it is true that a law creating new rights may be given
retroactive effect, the same can only be made possible if the new right
does not prejudice or impair any vested right.
Same; Same; A contract that violates the law is null and void ab initio and
vests no rights and creates no obligation; It produces no legal effect at all.
It would not matter that Gonzalez executed the Contract to Sell in favor
of Francisco Jr. prior to the Deed of Assignment in favor of Francisco III. As
established in the previous discussion, the Contract to Sell between
Gonzalez and Francisco Jr. was void and without force and effect for being
contrary to law. It intended to effect a transfer, which was prohibited by
Republic Act No. 7353. It is even irrelevant that the terms of said Contract
to Sell had been fully complied with and performed by the parties thereto,
and that a Deed of Absolute Sale was already executed by Gonzalez in
favor of Francisco Jr. A void agreement will not be rendered operative by
the parties alleged performance (partial or full) of their respective
prestations. A contract that violates the law is null and void ab initio and
vests no rights and creates no obligations. It produces no legal effect at all.
Same; Same; Damages; Exemplary Damages; In contracts and quasicontracts, exemplary damages may be awarded if the defendant acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.With
respect to the award of damages, the Court agrees in the findings of the
Court of Appeals that Francisco III failed to establish his entitlement to
moral damages in view of the absence of proof that he endured physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, or any similar injury. As
regards the grant of exemplary damages, we likewise uphold the ruling of
the appellate court that the same was not warranted under the
circumstances, as FRANCISCO III was not able to prove that he was entitled
to moral, temperate or compensatory damages. Exemplary damages are
762
compensatory damages; but it is not necessary that he prove the
monetary value thereof.
of Appeals.
Kho, Bustos, Malcontento, Argosino Law Offices for petitioners.
Quisumbing, Fernando & Javellana Law Offices for respondent.
CHICO-NAZARIO,J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court assailing the Decision1 dated 31 January 2007 and
Resolution2 dated 4 June 2007 of the Court of Appeals in CA-G.R. CV No.
78424. The appellate court, in its assailed decision, reversed the Decision3
dated 25 October 2002 of the Regional Trial Court (RTC) of the City of San
Fernando, Pampanga, Branch 42, in Commercial Case No. 018, which
ordered the registration of the transfer of ownership of the disputed shares
of stock in the Rural Bank of Apalit, Inc. (RBA) in favor of petitioners; and in
its resolution, denied the Motion for Reconsideration of the aforementioned
decision.
Presented hereunder are the factual antecedents of the case.
On 30 January 1996, the RBA conducted its Annual Stockholders Meeting

at its principal office in San Vicente, Apalit, Pampanga. Attending the said
meeting were stockholders representing 28,150 out of the 35,956 total
outstanding shares of stock of RBA.4 Petitioner Francisco R. Nunga, Jr.
(Francisco Jr.), his son petitioner Victor D. Nunga (Victor), and his nephew
respondent Francisco N. Nunga III (Francisco III) were among the
stockholders of RBA. However, peti_______________
1 Penned by Associate Justice Jose C. Reyes, Jr. with Associate Justices Jose
L. Sabio, Jr. and Myrna Dimaranan-Vidal, concurring; Rollo, pp. 8-26.
2 Rollo, p. 29.
On 19 February 1996, Gonzalez executed a Contract to Sell5 in favor of

Francisco Jr., which pertinently provided:
CONTRACT TO SELL
KNOW ALL MEN BY THESE PRESENTS:
This CONTRACT TO SELL, executed this 19th day of February, 1996, at
Quezon City, by:
JESUS J. GONZALE[Z], of legal age, Filipino citizen, married to Cristina D.
Gonzale[z], residing at No. 10 2nd Ave., Crame, Quezon City, hereinafter
referred to as the VENDOR;
in favor of
3 Penned by Judge Pedro M. Sunga, Jr.; Rollo, pp. 331-341.
FRANCISCO D. (sic) NUNGA, JR., of legal age, single, residing at Poblacion,

Masantol, Pampanga[,] hereinafter referred to as the PURCHASER;
4 Rollo, pp. 116-118.
WITNESSETH:
763
That the VENDOR is the absolute registered owner of several shares of

stocks of the RURAL BANK OF APALIT, INC. located at Apalit, Pampanga,
more particularly described as follows:
_______________
763
5 Records, Vol. I, pp. 118-119.
tioner Francisco Jr. was not present at the meeting, as he was then in the
United States of America where he is a naturalized citizen.
764
Quorum having been established at the meeting, the stockholders

proceeded with the election of the RBA Board of Directors to serve for the
fiscal year 1996. Francisco III was voted the Chairman of the Board; with
Ma. Elena Rueda, Ma. Rosario Elena Nacario, Cecilia Viray and Dwight
Nunga, the Members. In the same meeting, stockholder Jesus Gonzalez
(Gonzalez) made known his intention to sell his shareholdings.
Victor, thereafter, informed his father, Francisco Jr., of Gonzalezs intention
to sell his shares. Francisco Jr. then instructed Victor to inquire from
Gonzalez the terms of the sale. After a series of negotiations, Gonzalez
ultimately agreed to sell his shares of stock to Francisco Jr.
764
Stock Cert. No. No. of Shares

Represented
Date of Issue
Journal Folio No.
May, 1978
250
36
122
Jan., 1991
105
264
Feb., 1991
6 Rollo, p. 152.
152
487
Nov., 1993
765
166
Feb., 1994
181
525
July, 1994
213
336
That the VENDOR has offered to sell the abovestated (sic) shares of stocks
and the PURCHASER has agreed to purchase the same for a total
consideration of P200,000;
That it is hereby agreed that out of the total consideration or contract
price, the purchaser will pay the amount of FIFTY THOUSAND PESOS
(P50,000.00), receipt of which is herein acknowledged by the purchaser, at
the date and place below stated and the remaining balance of P150,000
will be paid in full on February, (sic) 28, 1996;
That it is further agreed that the VENDOR will execute an authorization in
favor of the herein purchaser or his representative, Victor D. Nunga[,] to
retrieve all the corresponding Stocks (sic) Certificates as above indicated
from the Apalit Rural Bank, Inc.
WHEREFORE, for and in consideration of the total amount of P200,000 (sic)
receipt in part of which is herein acknowledged in the amount of
P50,000.00, the vendor hereby agrees to sell, cede and transfer all the
above stated shares of stocks to the PURCHASER, his heirs[,] successors,
and assigns, absolutely free from any encumbrance and lien whatsoever.
IN WITNESS WHEREOF, I have hereunto set my signature this 19th day of
FEBRUARY, (sic) 1996, at Quezon City, Philippines.
(signed)
JESUS J. GONZALES
Vendor
On even date, Victor gave the initial payment of P50,000.00 to Gonzalez,
who duly acknowledged the same.6 In exchange, Gonzalez
_______________

765
handed Victor RBA Stock Certificates No. 105, No. 152 and No. 166. As to
the four other certificates that were in the possession of the RBA, Gonzalez
issued a letter7 addressed to Isabel Firme (Firme), the RBA Corporate
Secretary, which instructed the latter to turn over to Victor the remaining
stock certificates in Gonzalezs name. Upon being presented with
Gonzalezs letter, Firme gave Victor Stock Certificate No. 181, but alleged
that Stock Certificates No. 5 and No. 36 could no longer be located in the
files of RBA. Firme advised Victor to merely reconstitute the missing stock
certificates.8 A reading of the said Contract to Sell would reveal, however,
that the same was only notarized on 28 February 1996.
Before Francisco Jr. and Victor could pay the balance of the contract price
for Gonzalezs RBA shares of stock, Gonzalez entered into another contract
involving the very same shares. It would appear that on 27 February 1996,
Gonzalez executed a Deed of Assignment9 of his RBA shares of stock in
favor of Francisco III, the relevant terms of which recite:
DEED OF ASSIGNMENT
For value (sic) consideration received, the undersigned ASSIGNOR JESUS
GONZALE[Z], of legal age, Filipino and resident of #10 2ND AVENUE,
CUBAO, QUEZON CITY, METRO MANILA hereby sells, assigns and transfers
unto FRANCISCO N. NUNGA III (AS ASSIGNEE), Filipino, of legal age and
with postal address at 1122 Alhambra St., Ermita 1000 Metro Manila, his
assigns and successors, all their rights, titles and interests to the following
shares of stocks owned by the ASSIGNOR in Apalit Rural Bank, Inc., with
par value of one hundred pesos only (P100.00) per share, free from all liens
and encumbrances.
_______________
Assignor
7 Id., at p. 108.
8 With respect to Stock Certificate No. 213, the same was not mentioned in
Gonzalez letter, so Firme initially refused to give it to Victor. Said
certificate was only delivered to the latter after the full payment of the
agreed purchase price. (Rollo, p. 457)
9 Rollo, p. 105.
766
The next day, on 28 February 1996, Francisco Jr. arrived from the United
States of America. He and Victor then promptly proceeded to the residence
of Gonzalez in order to pay the balance of P150,000.00 of the purchase
price stated in their Contract to Sell with Gonzalez. Gonzalez, however,
informed them that he already sold his shares of stock to Francisco III.12
After discussing the matter, Gonzalez was somehow convinced to accept
the balance of the purchase price and sign his name at the dorsal portion
of the stock certificates to endorse
766
Date
At the same time the afore-quoted Deed was executed, Francisco III paid in
full the agreed purchase price of P300,000.00 using a BPI (Bank of the
Philippine Islands) Family Bank Check No. 0347505 issued in favor of
Gonzalez. An acknowledgment receipt signed by Gonzalez and witnessed
by his wife Cristina D. Gonzalez evidenced the payment.10 Since the stock
certificates covering the shares were already in Victors possession,
Gonzalez immediately wrote Victor a letter,11 demanding that Victor hand
over the said stock certificates to Francisco III, the supposed new owner of
the shares.
_______________
SC. No. No. of
Shares Amount
May 24, 1969
4 (sic)
250
P 25,000.00
January 02, 1975
36
122
12,200.00
February 19, 1991
105
264
26,400.00
November 10, 1993
152
487
48,700.00
February 22, 1994
166
800.00
July 25, 1994
525
181
February 2, 1996
213
52,500.00
336
33,600.00
IN WITNESS WHEREOF, the ASSIGNOR have (sic) cause (sic) these presents
to be signed at Quezon City, this 27 day of February, 1996.
(signed)
JESUS J. GONZALE[Z]
10 Id., at p. 215.
11 Id., at p. 106.
12 Id., at p. 458.
767

767
the same to Francisco Jr. Gonzalez also executed a Deed of Absolute Sale13
in favor of Francisco Jr., which states:
DEED OF ABSOLUTE SALE
This DEED OF ABSOLUTE SALE, executed this 28th day of February, 1996,
at SAN JUAN, M.M. by:
JESUS J. GONZALE[Z], of legal age, Filipino citizen, married to Cristina D.
Gonzale[z], residing at No. 10 2nd Ave., Crame, Quezon City, hereinafter
referred to as the VENDOR;
in favor of
13 Id., at pp. 159-160.

768
768
FRANCISCO R. NUNGA, JR., of legal age, married, residing at Poblacion,

Masantol, Pampanga[,] hereinafter referred to as the PURCHASER[;]
WITNESSETH:
That the VENDOR is the absolute registered owner of several shares of

stocks of the RURAL BANK OF APALIT, INC. located at Apalit, Pampanga,
more particularly described as follows:
Stock Cert.
No.
No. of Shares
Represented
Date of Issue
Journal Folio
No.
WHEREFORE, for and in consideration of the total amount of TWO

HUNDRED THOUSAND PESOS (P200,000.00), receipt of which in full is
herein acknowledged, the VENDOR hereby sells, cedes and transfers all the
above stated shares of stocks to the PURCHASER, his heirs, successors,
and assigns, absolutely free from any encumbrance and lien whatsoever.
IN WITNESS WHEREOF, I have hereunto set my signature this 28 day of FEB
(sic), 1996, at SAN JUAN, MM, Philippines.
(signed)
250
May, 1978
36
122
Jan., 1991
105
264
Feb., 1991
152
487
Nov., 1993
166
Feb., 1994
181
525
July, 1994
213
336
That Stock Certificate Nos. 5 and 36 respectively representing 250 and 122
shares of the Rural Bank of Apalit[,] Inc. were lost and is (sic) currently in
the process of reconstitution;
That the VENDOR has offered to sell the abovestated (sic) shares of stocks
and the PURCHASER has agreed to purchase the same.
_______________
JESUS J. GONZALE[Z]
Vendor
Incidentally, on that same day, Francisco III delivered to Firme the Deed of
Assignment which Gonzalez executed in his favor, and a copy of Gonzalezs
letter to Victor dated 27 February 1996 demanding the latter to surrender
the stock certificates in his possession to Francisco III. Accordingly, on 1
March 1996, Firme wrote Victor a letter14 requesting that the latter
immediately comply with the enclosed 27 February 1996 letter of
Gonzalez.
Victor refused to comply with Firmes request and instead demanded that
the sale of shares of stock by Gonzalez in favor of Francisco Jr. on 28
February 1996 be entered into the Corporate Book of Transfer of RBA.
Firme, in turn, rejected Victors demand, alleging that Francisco III already
bought Gonzalezs shares.15
Consequently, on 14 March 1996, Victor filed a Petition16 with the
Securities and Exchange Commission (SEC) against Francisco III and Firme,
which was docketed as SEC Case No. 03-96-5288. Victor prayed that the
SEC declare null and void the Stockholders Meeting held on 30 January
1996 for lack of the required majority quorum; as well as the votes cast for
the shares of the deceased stockholders, namely, Teodorico R. Nunga,
Carmencita N. Nunga and Jesus Enrico N. Nunga. Victor additionally
requested that the transfer of Gonzalezs RBA shareholdings to Francisco Jr.
be annotated on the RBA Corporate Transfer Book and new stock
certificates be issued in favor
_______________
14 Id., at p. 109.
15 Id., at p. 458.
16 Id., at pp. 88-93.
769

769
of Francisco Jr. Victor finally pleaded that Francisco III and Firme be ordered
to jointly pay him P50,000.00 as attorneys fees, damages and litigation
expenses.
On the same date, Francisco III likewise filed a Complaint17 against
Gonzalez, Francisco Jr., and Victor before the SEC, which was docketed as
SEC Case No. 03-96-5292. Francisco III sought the issuance of a Temporary
Restraining Order (TRO) against Francisco Jr. and Victor, who were allegedly
conspiring to oust him and the other members of the RBA Board of
Directors. Francisco III also prayed, inter alia, for judgment ordering (a)
Victor to surrender Gonzalezs stock certificates in order that the same
may be transferred to Francisco IIIs name; and (b) Francisco Jr. and Victor
to desist from attempting to register the purported sale by Gonzales of his
RBA shares of stock to Francisco Jr., who had already become a naturalized
American citizen and was, thus, disqualified from owning shares in RBA.
Francisco III and Firme filed their joint Answer18 in SEC Case No. 03-965288, while Francisco Jr. and Victor filed their Answer19 in SEC Case No.
03-96-5292. Gonzalez, however, was considered in default in both SEC

cases for failure to file his answers despite notice.
Eventually, Francisco Jr.20 and Victor filed a Motion for Consolidation21 of
the two cases pending before the SEC, alleging that they involved common
questions of fact and law, which required the presentation of similar
evidence. Said Motion was granted in an Order22 dated 30 September
1996. Thereafter, SEC Cases No. 03-96-5288 and No. 03-96-5292 were
jointly heard.
_______________
17 Id., at pp. 95-104.

18 Id., at pp. 119-126.
19 Id., at pp. 138-147.
20 Victor alone filed the Petition in SEC Case No. 03-96-5288; however,
Francisco Jr. joined him in subsequent pleadings, claiming to be also a
petitioner in the said case.
21 Records, Vol. 1, pp. 191-193.
22 Id., at p. 204.
770
770
After the parties submitted their respective Offers of Evidence, but before
the SEC could rule on the same, the cases were eventually turned over to
the RTC pursuant to Administrative Circular AM No. 00-11-0323 of the
Supreme Court dated 21 November 2000.24
_______________
23Resolution Designating Certain Branches of Regional Trial Courts to Try

and Decide Cases Formerly Cognizable by the Securities and Exchange
Commission En Banc.
To implement the provision of Sec. 5.2 of Republic Act No. 8799 (The
Securities Regulation Code), and in the interest of a speedy and efficient
administration of justice and subject to the guidelines hereinafter set forth,
the following branches of the Regional Trial Courts (RTC) are hereby
designated to try and decide Securities and Exchange Commission (SEC)
cases enumerated in Sec. 5 of P.D. No. 902-A (Reorganization of the
Securities and Exchange Commission), arising within their respective
territorial jurisdictions with respect to the National Capital Judicial Region
and within the respective provinces in the First to the Twelfth Judicial
Regions:
xxxx
THIRD JUDICIAL REGION
xxxx
Pampanga (San Fernando)
(26) Br. 42, Judge Pedro M. Sunga, Jr.
24 Francisco III filed his Offer of Documentary Evidence (Rollo, pp. 208214) on 6 January 1998, while petitioners filed their Formal Offer of Exhibits
(Rollo, pp. 175-180) on 17 April 1999. Thereafter, on 15 January 2001, SEC
Case No. 03-96-5292 was transferred to the RTC of Manila, Branch 46,
pursuant to Administrative Circular No. 00-11-03 of the Supreme Court.
The case was docketed as Civil Case No. 01-99651. SEC Case No. 03-965288, on the other hand, was transferred to the RTC of San Fernando,
Pampanga, Branch 42 and was docketed as Civil Case No. 01-101345.
Before the RTC of Manila, Branch 46, Francisco Jr. and Victor filed an
Omnibus Motion (Records, Vol. 1, pp. 229-230) on 26 September 2001,
praying that SEC Case No. 03-96-5288 be jointly tried with SEC Case No.
03-96-5292. This was, however, denied in an Order (Records, Vol. 1, p. 232)
dated 28 September 2001. On 5 November 2001, Victor filed a Motion for
Reconsideration (Records, Vol. 1, pp. 233-236) thereof. In an Order dated 8
November 2001, the RTC of Manila, Branch 46 transferred Civil Case No.
01-99651 to the RTC of San Fernando, Pampanga, Branch 42.
771
771
In the RTC, SEC Cases No. 03-96-5288 and No. 03-96-5292 were docketed
as Commercial Cases No. 001 and No. 018, respectively.
Francisco Jr. and Victor subsequently filed a Motion to Resolve their Formal
Offer of Exhibits, which the SEC was not able to act upon. In an Order25
dated 30 April 2002, the RTC admitted the formal offers of evidence in both
cases.
On 25 October 2002,26 the RTC promulgated its Decision. With respect to
Commercial Case No. 001, Victors Petition, the RTC ruled:
The Court, after a careful study on the evidences on record finds that
[herein petitioner Victor] failed to substantiate the allegation in the
petition. [Victor] failed to controvert the documentary evidences presented
by [herein respondent Francisco III] to wit: Minutes of the Stockholders
Meeting, showing the number of shares present in person or in proxy[;]
written Proxy in favor of Dwight N. Nunga in (sic) behalf of deceased
Teodorico R. Nunga by virtue of the Extrajudicial Settlement of estate in
(sic) behalf of Carmencita Noel Nunga proxy executed by Ma. Del Carmen
N. Leveriza in her capacity as the Judicial Administratrix duly appointed by
the RTC Branch 60, Makati[,] Metro Manila in Special Proceedings No. M146127; Affidavit of respondent Isabel C. Firme stating thereat the fact that
the certificate of stock delivered for registration in the Corporate Transfer
Book were mere xerox copies thus, the refusal. Thus further, proved
[Victors] lack of cause of action against [Francisco III] and as a result of
which damages on the part of [Francisco III] and Isabel C. Firme who were
constrained to hire the services of their counsel to protect their right (sic).
(Emphasis ours.)
As regards Commercial Case No. 018,28 Francisco IIIs Complaint, the RTC
decreed:
The Court[,] after a careful study on the aforementioned evidences (sic)
on record[,] finds and holds that [herein petitioner Francisco Jr.] has a
better right over the subject shares considering that the Contract to Sell
was executed prior to the Deed of Assignment presented by
_______________
25 Records, Vol. II, p. 12.

26 Id., at pp. 38-39.
27 This statement apparently refers to the written proxies executed in
favor of Dwight Nunga by Teodorico R. Nunga, Carmencita N. Nunga and
Ma. Rosario Elena N. Nacario. (Records, Vol. I, p. 5)
28 Records, pp. 40-41.
772
SEC.9.Investment Rights of Former Natural-born Filipinos.For

purposes of this Act, former natural born citizens of the Philippines shall
have the same investment rights of a Filipino citizen in Cooperatives under
Republic Act No. 6938, Rural Banks under Republic Act No. 7353, Thrift
Banks and Private Development Banks under Republic Act No. 7906, and
Financing Companies under Republic Act No. 5980.
Furthermore, insofar as (sic) [Gonzalez], the same was (sic) considered as
in default for failure to appear and participate despite notice. (Emphasis
ours.)
In the end, the RTC disposed of the two cases in this wise:
772
WHEREFORE, in view of the foregoing, judgment is hereby rendered in

Commercial Case No. 001 ordering the dismissal of the Petition filed by
_______________

the [herein respondent Francisco III]. The Court gleaned also from the
evidences (sic) that the Deed of Assignment was executed in bad faith as
[Francisco III] is aware of the transaction between [herein petitioner Victor]
in (sic) behalf of his father and [Gonzalez], thus, the conclusion that the
Deed of Assignment was executed with malice. The Contract to Sell may
not be a public instrument29 but being a consensual contract it is,
therefore, valid there being a meeting of the mind (sic) between the
parties. Further, there being no contention on (sic) the contrary, on the
validity of the Deed of Absolute Sale interposed by [Gonzalez] coupled with
the proof of full payment and the endorsement of the Stock Certificate at
the back by the owner[,] which is the only operative act of valid transfer of
shares of stock certificate provided for by law and jurisprudence, clearly
convinced the Court that the latter honored the transaction between him
and [Victor] in (sic) behalf of his father [Francisco Jr.] and[,] to bind third
parties, the fact of transfer should be registered with the transfer book of
the corporation.
xxxx
Further, with respect to the issue on the citizenship of [Francisco Jr.], not
being qualified to own such share (sic), the Court is inclined to give
credence on (sic) the contention of the latter[,] it being supported by R.A.
8179[,] known as An Act to Further Liberalize Foreign Investment,[] to
wit:
29 The Contract to Sell in favor of Francisco Jr. and Victor was notarized
only on 28 February 1996 (Records, Vol. I, p. 118) or one day after the
Deed of Assignment in favor of Francisco III was executed and notarized on
27 February 1996.
773

773
[herein petitioner Victor] against [herein respondent Francisco III] and
Isabel C. Firme.
Insofar as Commercial Case No. 018[,] judgment is hereby rendered in
favor of the [herein petitioners Victor and Francisco Jr.] and against
[Francisco III] ordering the following:
1)Ordering the Corporate Secretary of the Rural Bank of Apalit, Inc, (sic)
to register the fact of the transfer of ownership in favor of [Francisco Jr.]
and to cancel Stock certificate (sic) in the name of Jesus [Gonzalez] and to
issue a new one (sic) in the name of [Francisco Jr.] upon presentation of
Stock Certificate Nos. 105, 152, 166, 181, 213, 5 and 36 duly endorsed by
Jesus [Gonzalez];
2)The [respondent Francisco III] to pay the [petitioners Victor and
Francisco Jr.] the amount of P100,000.00 [for] moral damages[;]
3)The amount of P100,000.00 [for] exemplary damages[;]
4)The amount of P50,000.00 [for] attorneys (sic) fees and the cost of
suit.30
Francisco III filed a Motion for Partial Reconsideration31 of the aforequoted
Decision, but it was denied by the RTC in an Order32 dated 31 January
2003. Thus, Francisco III filed with the RTC a Notice of Appeal.33 His appeal
before the Court of Appeals was docketed as CA-G.R. CV No. 78424.
Before the Court of Appeals, Francisco III argued that the RTC erred in: (1)
ruling that Francisco Jr. had a better right over the disputed shares of stock,
considering that the prior contract which he had entered into with
Gonzalez was a mere contract to sell; (2) finding that the Deed of
Assignment in Francisco IIIs favor was executed in bad faith, inasmuch as
it was not supported by any of the evidence presented by all the parties;
and (3) giving retroactive effect to Republic Act No. 8179,34 which grants
former natural born citizens (such as Francisco Jr.) equal investment rights
in rural banks of the Phil_______________
30 Rollo, pp. 41-42.

31 Id., at pp. 259-268.
32 Id., at p. 281.
33 Id., at pp. 282-283.
34 An Act to Further Liberalize Foreign Investment.
774

ippines as Philippine citizens. In relation to his third assignment of error,
Francisco III pointed out that Republic Act No. 8179 took effect only on 16
April 1996, after Francisco Jr. entered into the questionable contracts with
Gonzalez; hence, the said statute cannot benefit Francisco Jr.
On 31 January 2007, the Court of Appeals rendered its assailed Decision
favoring Francisco III. It held that Francisco Jr. cannot invoke the provisions
of Republic Act No. 8179 based on the following ratiocination:
In the instant case, there is nothing in Republic Act No. 8179 [An Act to
Further Liberalize Foreign Investment] which provides that it should
retroact to the date of effectivity of Republic Act No. 7353 [The Rural Banks
Act of 1992]. Neither is it necessarily implied from Republic Act No. 8179
that it or any of its provisions should be given a retroactive effect. On the
contrary, there is an express provision in Republic Act No. 8179 that it
shall take effect fifteen (15) days after publication in two (2) newspapers
of general circulation in the Philippines. Being crystal clear on its
prospective application, it must be given its literal meaning and applied
without further interpretation (BPI Leasing Corporation vs. Court of
Appeals, 416 SCRA 4, 13 [2003]). Republic Act No. 8179 was published on
March 31, 1996 at the Manila Times and Malaya; hence, it took effect on
April 15, 1996. x x x.
Republic Act No. 7353 specifically states that the capital stock of any rural
bank shall be fully owned and held directly or indirectly by citizens of the
Philippines xxx. It bears stressing that the use of the word shall alone,
applying the rule on statutory construction, already underscores the
mandatory nature of the law, and hence; (sic) requires adherence thereto.
xxx Therefore, it is Our considered view that the sale and the subsequent
transfer on February 28, 1996 of the shares of stock of JESUS [Gonzalez] to
FRANCISCO, JR., a naturalized American citizen, were made in patent
violation of Republic Act No. 7353. Considering that Republic Act No. 7353
did not contain any provision authorizing the validity of the sale and
transfer of the shares of stock to a foreigner, specifically to a former
natural-born citizen of the Philippines, the same should be deemed null
and void pursuant to Article 5 of the Civil Code of the Philippines, which
reads:
ART.5.Acts executed against the provisions of mandatory or prohibitory
laws shall be void, except when the law itself authorizes their validity.
774
775

775
x x x The fact that Republic Act No. 8179 expressly granted to former
natural-born citizens of the Philippines investment rights similar to those of
citizens of the Philippines bolsters the view that Republic Act No. 7353
indeed prohibited foreign nationals from owning shares of stock in rural
banks. Had it been necessarily implied from the provisions of Republic Act
No. 7353 that foreign nationals could own shares of stock in rural banks,
the legislature would not have wasted time and effort in inserting a new
provision granting to former natural-born citizens of the Philippines equal
investment rights in Republic Act No. 8179.
Furthermore, there is no merit in the assertion of FRANCISCO JR. and
VICTOR that Republic Act No. 8179 should be given a retroactive effect in
accordance with the following rule:
The principle that a new law shall not have retroactive effect only governs
rights arising from acts done under the rule of the former law; but if a right
be declared for the first time by a new law it shall take effect from the time
of such declaration, even though it has arisen from acts subject to the
former laws, provided that it does not prejudice another acquired right of
the same origin. x x x.
Republic Act No. 8179 cannot be applied retroactively insofar as the instant
case is concerned, as its application would prejudice the (sic) FRANCISCO
III who had acquired vested right over the shares of stock prior to the
effectivity of the said law. Such right was vested to him when the Deed of
Assignment was executed by Jesus in his favor on February 27, 1996.
Undoubtedly, FRANCISCO III had a better right over the shares of stock of
JESUS inasmuch as the validity of the Deed of Assignment was not affected
despite the prior execution of the Contract to Sell in favor of FRANCISCO JR.
on February 19, 1996. As previously adverted to, the said Contract, as well
as the Deed of Absolute Sale and the subsequent transfer of the shares of
stock to FRANCISCO JR., was null and void for violating a mandatory
provision of Republic Act No. 7353. x x x.35
The Court of Appeals, however, decided to award Francisco III only
attorneys fees and cost of suit, but not moral and exemplary damages:
We hold that FRANCISCO III is not entitled to moral damages. FRANCISCO

III made no mention in his Complaint and during the hearing
_______________
35 Rollo, pp. 20-23.

776
776
that he sustained mental anguish, serious anxiety, wounded feelings and
other emotional and mental sufferings by reason of the double sale. x x x.
Likewise, FRANCISCO III is not entitled to exemplary damages. x x x In the
instant case, FRANCISCO III failed to sufficiently prove his entitlement to
moral, temperate or compensatory damages. Hence, his claim for
exemplary damages must similarly fail.
However, as to his claim for attorneys fees and cost of suit, We find it to
be tenable as the records of the case clearly reveal that FRANCISCO III was
compelled to litigate or to incur expenses to protect his interest because of
the double sale. x x x. Under the circumstances obtaining in the instant
case, We deem that the award of P20,000.00 as attorneys fees is
reasonable.36
The fallo of the Court of Appeals Decision thus reads:
WHEREFORE, the foregoing premises considered, the Decision dated

October 25, 2002 of Branch 42 of the Regional Trial Court of San Fernando,
Pampanga with respect to Commercial Case No. 018 is hereby REVERSED
and SET ASIDE. A new one is hereby rendered ORDERING the following:
1)Victor Nunga to surrender the stock certificates of Jesus Gonzalez to
the Corporate Secretary of Rural Bank of Apalit, Inc.;
2)[T]he Corporate Secretary of Rural Bank of Apalit, Inc. to register the

assignment of shares of stock in favor of Francisco Nunga III, to cancel the
stock certificates of Jesus Gonzale[z], and to issue new ones in the name of
Francisco Nunga III; and,
3)Jesus Gonzale[z], Francisco Nunga, Jr., and Victor Nunga to pay, jointly
and severally, the sum of P20,000.00 as attorneys fees, plus the cost of
suit.37
Francisco Jr. and Victor, together with Gonzalez, filed a Motion for
Reconsideration38 of the foregoing Decision. Their Motion, however, was
denied by the Court of Appeals in its assailed Resolution dated 4 June
2007.
Refusing to concede, Francisco Jr. and Victor filed the instant Petition,39
which they anchor on the following assignment of errors:
II.
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT FRANCISCO III HAS A VESTED RIGHT TO THE SHARES OF STOCK OF
GONZALE[Z], WHICH WOULD BE IMPAIRED BY THE RETROACTIVE
APPLICATION OF REPUBLIC ACT NO. 8179?
III.
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED [IN]
AWARDING DAMAGES TO FRANCISCO III AND WITHDRAWING THE AWARD
OF NOMINAL DAMAGES TO PETITIONERS BY THE TRIAL COURT?
Essentially, the fundamental issue that this Court is called upon to resolve
is who among the parties to this case has a better right to the disputed
RBA shares of stock.
Francisco Jr. and Victor contend that the consummated sale of the RBA
shares of stock by Gonzalez to Francisco Jr. gives the latter a superior right
over the same, since the transaction complied with all the elements of a
valid sale. Contrary to the ruling of the Court of Appeals, Francisco Jr. and
Victor claim that there was no provision in Republic Act No. 7353, prior to
its amendment, which explicitly prohibited any transfer of shares to
individuals who were not Philippine citizens, or which declared such a
transfer void. Hence, there was an implied recognition by the legislature
that to declare the nullity of such acts would be more disadvantageous and
harmful to the purposes of the law. Moreover, Francisco Jr. and Victor
contend that the passage of Republic Act No. 8179, An Act to Further
Liberalize Foreign Investment, cured whatever legal infirmity there may
have been in the purchase by Francisco Jr. of the RBA shares of stock from
Gonzalez. As Republic Act No. 8179 expressly creates and declares for the
first time a substantive right, then it may be given retroactive effect. The
Deed of Assignment between Francisco III and Gonzalez did not
777
778
_______________
36 Id., at pp. 24-25.

37 Id., at pp. 25-26.
38 Id., at pp. 374-395.
39 Id., at pp. 34-60.
777

778
I.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN DECLARING THE

SALE OF THE SHARES OF STOCK OF GONZALE[Z] TO FRANCISCO JR., NULL
AND VOID AB INITIO ON THE BASIS OF THE ALLEGED DISQUALIFICATION OF
FRANCISCO JR. UNDER REPUBLIC ACT NO. 7353?

confer upon Francisco III a vested interest that could be impaired by the
retroactive application of Republic Act No. 8179. The Deed was not only
executed later in time, but the check issued for its payment was also never
encashed. There was, therefore, a total absence of consideration, making
the said contract between Francisco III and Gonzalez inexistent.
The Court finds the Petition devoid of merit.
As the Court of Appeals declared, Francisco Jr. was disqualified from

acquiring Gonzalezs shares of stock in RBA. The argument of Francisco Jr.
and Victor that there was no specific provision in Republic Act No. 7353
which prohibited the transfer of rural bank shares to individuals who were
not Philippine citizens or declared such transfer void, is both erroneous and
unfounded.
disputed RBA shares by virtue of the foregoing contracts is a violation of

the clear and mandatory dictum of Republic Act No. 7353, which the Court
cannot countenance.
Section 4 of Republic Act No. 7353 explicitly provides:

Section4.x x xWith exception of shareholdings of corporations
organized primarily to hold equities in rural banks as provided for under
Section 12-C of Republic Act 337, as amended, and of Filipino-controlled
domestic banks, the capital stock of any rural bank shall be fully owned
and held directly or indirectly by citizens of the Philippines or corporations,
associations or cooperatives qualified under Philippine laws to own and
hold such capital stock: x x x. (Emphasis ours.)
Otherwise stated, the afore-quoted provision categorically provides that
only citizens of the Philippines can own and hold, directly or indirectly, the
capital stock of a rural bank, subject only to the exception also clearly
stated in the same provision. This was the very interpretation of Section 4
of Republic Act No. 7353 made by this Court in Bulos, Jr. v. Yasuma,40 on
the basis of which the Court disqualified therein respondent Yasuma, a
foreigner, from owning capital stock in the Rural Bank of Paraaque. In the
instant case, it is undisputed that when Gonzalez executed the Contract to
Sell and the Deed of Absolute Sale covering his RBA shares of stock in
favor of Francisco Jr., the latter was already a naturalized citizen of the
United States of America. Consequently, the acquisition by Francisco Jr. of
the
_______________
779
Even the subsequent enactment of Republic Act No. 8179 cannot benefit
Francisco Jr. It is true that under the Civil Code of the Philippines, laws shall
have no retroactive effect, unless the contrary is provided.41 But there are
settled exceptions to this general rule, such as when the statute is
CURATIVE or REMEDIAL in nature, or when it CREATES NEW RIGHTS.42
Francisco Jr. and Victor assert that, as an exception to the cardinal rule of
prospective application of laws, Republic Act No. 8179 may be retroactively
applied, since it creates for the first time a substantive right in favor of
natural-born citizens of the Philippines. Francisco Jr. and Victor, however,
overlooked the vital exception to the exception. While it is true that a law
creating new rights may be given retroactive effect, the same can only be
made possible if the new right does not prejudice or impair any vested
right.43
The Court upholds the finding of the Court of Appeals that Republic Act No.
8179 cannot be applied retroactively to the present case, as to do so would
prejudice the vested rights of Francisco III to the disputed RBA shares of
stock. Francisco III, who is undeniably a citizen of the Philippines, and who
is fully qualified to own shares of stock in a Philippine rural bank, had
acquired vested rights to the disputed RBA shares of stock by virtue of the
Deed of Assignment executed in his favor by Gonzalez.
It would not matter that Gonzalez executed the Contract to Sell in favor of
Francisco Jr. prior to the Deed of Assignment in favor of Francisco III. As
established in the previous discussion, the Contract to Sell between
Gonzalez and Francisco Jr. was void and without force and effect for being
contrary to law. It intended to effect a trans_______________
40 G.R. No. 164159, 17 July 2007, 527 SCRA 727.

779
41Art.4.Laws shall have no retroactive effect, unless the contrary is

provided.
42 Frivaldo v. Commission on Elections, 327 Phil. 521, 556; 257 SCRA 727,
754 (1996).
43 Rattan Art & Decorations, Inc. v. Collector of Internal Revenue, 121 Phil.
605, 611; 13 SCRA 626, 632 (1965).
780
44 See Chavez v. Presidential Commission on Good Government, 366 Phil.

863, 868-869; 307 SCRA 394, 399 (1999).
45 Expertravel and Tours, Inc. v. Court of Appeals, G.R. No. 152392, 26 May
2005, 459 SCRA 147, 162.
780
49 Article 2234 of the Civil Code provides:
fer, which was prohibited by Republic Act No. 7353. It is even irrelevant
that the terms of said Contract to Sell had been fully complied with and
performed by the parties thereto, and that a Deed of Absolute Sale was
already executed by Gonzalez in favor of Francisco Jr. A void agreement will
not be rendered operative by the parties alleged performance (partial or
full) of their respective prestations. A contract that violates the law is null
and void ab initio and vests no rights and creates no obligations. It
produces no legal effect at all.44
781
With respect to the award of damages, the Court agrees in the findings of
the Court of Appeals that Francisco III failed to establish his entitlement to
moral damages in view of the absence of proof that he endured physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, or any similar injury.45
As regards the grant of exemplary damages, we likewise uphold the ruling
of the appellate court that the same was not warranted under the
circumstances, as FRANCISCO III was not able to prove that he was entitled
to moral, temperate or compensatory damages. Exemplary damages are
moral, temperate, liquidated or compensatory damages.46 In contracts
and quasi-contracts, exemplary damages may be awarded if the defendant
acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.47 It cannot, however, be considered as a matter of right; the
court has to decide whether or not such damages should be adjudicated.48
Before the court may consider an award for exemplary damages, the
plaintiff must first show that he is entitled to moral, temperate or
compensatory damages; but it is not necessary that he prove the
monetary value thereof.49
As to the contention that the Court of Appeals erred in withdrawing the

award of nominal damages to the petitioners by the RTC, the Court finds
the same to be utterly misleading. The appellate court did not decree any
such withdrawal, as the RTC had not awarded any nominal damages in
favor of the petitioners in the first place.
_______________
Petition denied, assailed judgment and resolution affirmed in toto.

781
However, as Francisco III was indeed compelled to litigate and incur

expenses to protect his interests,50 the Court sustains the award by the
Court of Appeals of P20,000.00 as attorneys fees, plus costs of suit.
WHEREFORE, premises considered, the Petition for Review under Rule 45 of
the Rules of Court is hereby DENIED. The assailed Decision dated 31
January 2007 and Resolution dated 4 June 2007 of the Court of Appeals in
CA-G.R. CV No. 78424 are hereby AFFIRMED in toto. No costs.
SO ORDERED.
Ynares-Santiago (Chairperson), Austria-Martinez, Nachura and Reyes, JJ.,
concur.
_______________
Art.2234.While the amount of the exemplary damages need not be

proved, the plaintiff must show that he is entitled to moral, temperate or
compensatory damages before the court may consider the question of
whether or not exemplary damages should be awarded. In case liquidated
damages have been agreed upon, although no proof of loss is necessary in
order that such liquidated damages may be recovered, nevertheless,
before the court may consider the question of granting exemplary in
addition to the liquidated damages, the plaintiff must show that he would
be entitled to moral, temperate or compensatory damages were it not for
the stipulation for liquidated damages.
50 Article 2208 of the Civil Code provides:
Art.2208.In the absence of stipulation, attorneys fees and expenses of
litigation, other than judicial costs, cannot be recovered, except:
xxxx
(2)When the defendants act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest.
[Nunga, Jr. vs. Nunga III, 574 SCRA 760(2008)]
Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 119321 March 18, 1997

CATALINO F. BAEZ and ROMEO P. BUSUEGO, petitioners,
vs.
COURT OF APPEALS and REPUBLIC PLANTERS BANK, respondents.
BELLOSILLO, J.:
AYALA CORPORATION issued on 23 December 1987 BPI Check No. 707802
for P33,226,685.69 payable to PAL Employees' Savings and Loan
Association, Inc. (PESALA). The check with the words "FOR PAYEE'S
ACCOUNT ONLY" written on its face was delivered in trust to Catalino Baez
in his capacity as President of PESALA. However, on the same date, Baez
and his co-officers Romeo Busuego and Renato Lim deposited the check in
their joint account with respondent Republic Planters Bank, Cubao Branch,
which was not an official depositary bank of PESALA. Later, Baez,
Busuego and Lim withdrew the amount and failed to account for it to
PESALA.
On 21 April 1992, aside from a criminal case for estafa against its officers
Baez, Busuego and Lim, PESALA sued Republic Planters Bank (RPB) for
the face value of the check and P500,000.00 as damages for allowing the
deposit and encashment of the check despite the fact that it was a crossed
check payable only to the account of PESALA, to its great prejudice and in
violation of banking laws in the country. 1
On 14 March 1994 RPB moved for leave to file a third-party complaint
against Catalino Baez, Romeo Busuego, Renato Lim and Alberto Barican,
the latter as manager of RPB, Cubao Branch, alleging that they were solely
and exclusively responsible for the loss of the value of the check through
their misrepresentation which led the bank to believe that they were
authorized to deposit and withdraw the amount. The motion was granted.
Meanwhile on 6 April 1994 PESALA and RPB (by then known as PNBRB) 2 forged a compromise agreement under which PNB-RB agreed to pay
PESALA P20,226,685.00. PESALA, in turn, undertook to assist PNB-RB in
prosecuting the third-party defendants for the liability assumed by the
bank.
On 13 April 1994 the trial court approved the compromise.
Upon the foregoing amicable settlement, third-party defendant Lim moved
to dismiss the third-party complaint on the ground that it could not stand
on its own after the termination of the main complaint by compromise
since the third-party complaint was but an incident and a continuation of
the main case. Third-party defendants Baez and Busuego, aside from
adopting the ground invoked by defendant Lim, likewise moved to dismiss
on grounds of lis pendens, forum shopping, lack of jurisdiction and cause of
action.
On 14 July 1994 the trial court deferred action on the motion to dismiss
anchored on grounds of lis pendens and forum shopping, but denied the
motion outright anchored on grounds of lack of jurisdiction and termination
of the principal complaint. 3 The motion of third-party defendants to
reconsider the order was denied on 27 October 1994 since the compromise
between plaintiff PESALA and third-party plaintiff PNB-RB did not operate
to automatically dismiss the third-party complaint as the latter was
actually independent of, and separate and distinct from, the plaintiff's
complaint. 4
On 1 December 1994 petitioners Baez and Busuego instituted a special
civil action for certiorari with the Court of Appeals imputing grave abuse of
discretion on the part of the trial court in issuing the Orders of 14 July and
27 October 1994 attaching duplicate original copies thereof. On 14
December 1994 the Special Fifth Division of the Court of Appeals, without
necessarily giving due course to the petition, ordered respondents to
comment thereon.5 However, on 31 January 1995, another Resolution 6 was
issued by the appellate court, this time through its Special Eleventh
Division, dismissing the petition for failure of petitioners to attach certified
true copies of the questioned orders as required under Sec. 2, par. (a), Rule
6, of the Revised Internal Rules of the Court of Appeals. The motion for
reconsideration was denied. 7 Hence, this petition.
Two issues are presented before us: whether respondent Court of Appeals
erred in dismissing the special civil action for certiorari for failure of
petitioners to attach certified true copies, as opposed to duplicate
originals, of the questioned orders; and whether the earlier dismissal (by
virtue of compromise) of the main complaint warrants the automatic
dismissal of the third-party complaint filed in consequence thereof.
On the procedural issue, petitioners do not deny their failure to attach
certified true copies of the questioned Orders dated 14 July and 27 October
1994. However they contend that the duplicate originals thereof which
they attached to their petition constitute sufficient compliance with the
requirements of Sec. 2, par. (a), Rule 6, of the Revised Internal Rules of the
Court of Appeals 8 since Revised Circular No. 1-88 issued by the Supreme
Court itself allows either a clearly legible duplicate original or certified true
copy of the assailed decision, judgment, resolution or order to be attached
to the petition. 9 Thus, petitioners posit that Sec. 2, par. (a), Rule 6, of the
Revised Internal Rules of the Court of Appeals should not be read in a
"myopic" manner but, rather, liberally consistent and in conjunction with
SC Revised Circular No. 1-88.
On the other hand, respondent PNB-RB argues that Revised Circular No. 188 cannot be successfully invoked by petitioners since it pertains only to
requirements for petitions filed with the Supreme Court, not with the Court
of Appeals. In the latter case, its Revised Internal Rules, which mandate
that certified true copies of the questioned order must be attached to a
petition in special civil actions for certiorari, apply.
We had occasion to rule that the submission of a duplicate copy of the
questioned order of the trial court (bearing its seal) in a petition
for certiorari constitutes substantial compliance with the rule requiring
submission of the certified copies of the orders complained of. 10 However,
a similar liberal construction cannot be applied in favor of petitioners since
courts suspend their own rules or except a case from them only when
substantial justice so warrants, as when the merit of a party's cause is
apparent and outweighs consideration of non-compliance with certain
formal requirements. 11 To reiterate, a similar relaxation of procedural rules
is not warranted in the case at bench due to the lack of merit of
petitioners' cause.
Petitioners argue that the third-party complaint filed against them by PNBRB should have been immediately dismissed in view of the prior dismissal
of the main complaint filed against PNB-RB by PESALA. Since jurisdiction of
the trial court over the main action has been terminated, its jurisdiction
over the third-party complaint necessarily ended as well since the latter is
but a continuation of, or ancillary to, the main action.
The above contention is devoid of merit. Petitioners liken a third-party
complaint to a cross-claim and then, by analogy, apply the ruling in Ruiz
Jr. v. Court of Appeals 12 where the Court said that the dismissal of the
complaint divested the cross-claimants of whatever appealable interest
they might have had before and made the cross-claim itself no longer
viable. 13
A third-party complaint is indeed similar to a cross-claim, except only with
respect to the persons against whom they are directed. 14 However, the
ruling in Ruiz cannot be successfully invoked by petitioners. In Ruiz we
declared that the dismissal of the main action rendered the cross-claim no
longer viable only because the main action was categorically dismissed for
lack of cause of action. Hence, since defendants could no longer be held
liable under the main complaint, no reason existed for them anymore to
sue their co-party under the cross-claim.
In sharp contrast thereto, the termination of the main action between
PESALA and PNB-RB was not due to any finding that it was bereft of any
basis. On the contrary, further proceedings were rendered unnecessary
only because defendant (third-party plaintiff) PNB-RB, to avoid a protracted
litigation, voluntarily admitted liability in the amount of P20,226,685.00.
Hence, the termination of the main action between PESALA and PNB-RB
could not have rendered lifeless the third-party complaint filed against
petitioners, as it did the cross-claim in Ruiz Jr. v.Court of Appeals, since it
involved a finding of liability on the part of PNB-RB even if it be by
compromise.
Petitioners allege that it would be an injustice to them if they should be
made to carry the burden of contribution or indemnity for the liability
voluntarily assumed by respondent PNB-RB in the compromise agreement
to which they were never parties. But no injustice will result. A continuation
of the proceedings with respect to the third-party complaint will not ipso
facto subject petitioners, as third-party defendants, to liability as it will only
provide the parties with the occasion to litigate their respective claims and
defenses. Petitioners' assertion that they are not liable for the obligation
voluntarily assumed by PNB-RB in the compromise is but a defense to
resist the third-party complaint which they can properly raise in the course
of the trial and prove by whatever evidence they may have on the matter.
WHEREFORE, the petition is DENIED. The questioned Resolutions of the
Court of Appeals dated 31 January and 22 February 1995 are AFFIRMED,
with costs against petitioners.
SO ORDERED.
Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.
Footnotes
1 Docketed as Civil Case No. 92-60968, RTC-Br. 16, Manila.
2 Philippine National Bank-Republic Bank.
3 Rollo, pp. 74-75.
4 Id., p. 92.
5 Resolution penned by Justice Ricardo J. Francisco (now
Associate Justice of the Supreme Court) with Justices
Ramon A. Barcelona and Godardo A. Jacinto,
concurring; Rollo, p. 118.
6 Resolution penned by Associate Justice Pacita CanizaresNye with Justices Conchita Carpio-Morales and Bernardo LI.
Salas, concurring; Rollo, p. 159.
7 Resolution dated 22 February 1995; Id., pp. 160-161.
8 What should be Filed. The petition shall be filed in
seven (7) legible copies and a copy thereof shall be served
on each of the respondents, and must be accompanied by
a certified true copy of the decision or order complained
of and true copies of the pleadings and other pertinent
documents and papers (emphasis ours).
9 (3) Copies of judgment or resolution sought to be
reviewed. Petitions filed with the Supreme Court,
whether under Rule 45, Rule 65, R.A. No. 5440 or P.D. No.
1606 shall be accompanied by a clearly legible duplicate
original or certified true copy of the decision, judgment,
resolution or order subject thereof . . . .
10 Pizarro v. Court of Appeals, No. L-31979, 6 August 1980,
99 SCRA 72, 82.
11 Jose v. Court of Appeals, No. L-38581, 31 March 1976,
70 SCRA 257, 265; Alcaide v. Dela Merced, No. L-49028, 25
July 1981, 106 SCRA 41, 47; Maturan v. Araula, G.R. No.
57392, 30 January 1982, 111 SCRA 615, 618; Tan v.
Director of Forestry, No. L-24548, 27 October 1983, 125
SCRA 302, 317; Aznar III v. Bernard, G.R. No. 81190, 9 May
1988, 161 SCRA 276, 282-283; Yong Chan Kim v. People,
G.R. No. 84719, 10 August 1989, 176 SCRA 277, 285-286.
12 G.R. No. 101566, 17 August 1992, 212 SCRA 660.
13 Id., p. 664.
14 Regalado, Remedial Law Compendium, 1988 ed., vol. I,
p. 94.
The Lawphil Project - Arellano Law Foundation
vests in the Bangko Sentral ng Pilipinas (BSP) the supervision over

operations and activities of banks.The law vests in the BSP the
supervision over operations and activities of banks. The New Central Bank
Act provides: Section 25. Supervision and Examination.The Bangko
Sentral shall have supervision over, and conduct periodic or special
examinations of, banking institutions and quasi-banks, including their
subsidiaries and affiliates engaged in allied activities.
Same; Same; Same; Same; Same; Allegations regarding the questionable
loans are not ordinary intra-corporate matters; rather, they involve banking
activities which are, by law, regulated and supervised by the Bangko
Sentral ng Pilipinas (BSP).Koruga alleges that the dispute in the trial
court involves the manner with which the Directors (sic) have handled the
Banks affairs, specifically the fraudulent loans and dacion en pago
authorized by the Directors in favor of several dummy corporations known
to have close ties and are indirectly controlled by the Directors. Her
allegations, then, call for the examination of the allegedly questionable
loans. Whether these loans are covered by the prohibition on self-dealing is
a matter for the BSP to determine. These are not ordinary
_______________
* THIRD DIVISION.
50
50
G.R. No. 168332.June 19, 2009.*
ANA MARIA A. KORUGA, petitioner, vs. TEODORO O. ARCENAS, JR., ALBERT
C. AGUIRRE, CESAR S. PAGUIO, FRANCISCO A. RIVERA, and THE
HONORABLE COURT OF APPEALS, THIRD DIVISION, respondents.
G.R. No. 169053.June 19, 2009.*
TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO, and
FRANCISCO A. RIVERA, petitioners, vs. HON. SIXTO MARELLA, JR., Presiding
Judge, Branch 138, Regional Trial Court of Makati City, and ANA MARIA A.
KORUGA, respondents.
Banks and Banking; General Banking Law of 2000 (R.A. No. 8971); New
Central Bank Act; Bangko Sentral ng Pilipinas (BSP); Jurisdiction; The law

Koruga vs. Arcenas, Jr.
intra-corporate matters; rather, they involve banking activities which are,
by law, regulated and supervised by the BSP.
Same; Same; Same; Same; Same; The authority to determine whether a
bank is conducting business in an unsafe or unsound manner is also vested
in the Monetary Board.The authority to determine whether a bank is
conducting business in an unsafe or unsound manner is also vested in the
Monetary Board.
Same; Same; Same; Same; Same; Receivership; The appointment of a

receiver under Section 30 shall be vested exclusively with the Monetary
Board.Crystal clear in Section 30 is the provision that says the
appointment of a receiver under this section shall be vested exclusively
with the Monetary Board. The term exclusively connotes that only the
Monetary Board can resolve the issue of whether a bank is to be placed
under receivership and, upon an affirmative finding, it also has authority to
appoint a receiver. This is further affirmed by the fact that the law allows
the Monetary Board to take action summarily and without need for prior
hearing.
Same; Same; Same; Same; Same; Same; There is no doubt that the
Regional Trial Court (RTC) has no jurisdiction to hear and decide a suit that
seeks to place Banco Filipino under receivership.There is no doubt that
the RTC has no jurisdiction to hear and decide a suit that seeks to place
Banco Filipino under receivership.
Same; Same; Same; Same; Same; Same; Courts jurisdiction could only
have been invoked after the Monetary Board had taken action on the
matter and only on the ground that the action taken was in excess of
jurisdiction or with such grave abuse of discretion as to amount to lack or
excess of jurisdiction.The courts jurisdiction could only have been
invoked after the Monetary Board had taken action on the matter and only
on the ground that the action taken was in excess of jurisdiction or with
such grave abuse of discretion as to amount to lack or excess of
jurisdiction.
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari and PETITION for
review on certiorari of a decision of the Court of Appeals.
51
VOL. 590, JUNE 19, 2009

51
Bernas Law Office for Ana Maria A. Koruga.
Filemon L. Fernandez and Francisco A. Rivera for Teodoro O. Arcenas, Jr.

Abelardo L. Aportadera, Jr. for Dr. Conrado P. Banzo and Gen. Ramon E.
Montano.
Morales, Rojas & Risos-Vidal for Orlando O. Samson and Jovito N.
Hernandez.
NACHURA,J.:
Before this Court are two petitions that originated from a Complaint filed
by Ana Maria A. Koruga (Koruga) before the Regional Trial Court (RTC) of
Makati City against the Board of Directors of Banco Filipino and the
Members of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP)
for violation of the Corporation Code, for inspection of records of a
corporation by a stockholder, for receivership, and for the creation of a
management committee.
G.R. No. 168332
The first is a Petit6ion for Certiorari u6nder Rule 65 of the Rules of Court,
docketed as G.R. No. 168332, praying for the annulment of the Court of
Appeals (CA) Resolution1 in CA-G.R. SP No. 88422 dated April 18, 2005
granting the prayer for a Writ of Preliminary Injunction of therein
petitioners Teodoro O. Arcenas, Jr., Albert C. Aguirre, Cesar S. Paguio, and
Francisco A. Rivera (Arcenas, et al.).
Koruga is a minority stockholder of Banco Filipino Savings and Mortgage
Bank. On August 20, 2003, she filed a complaint before the Makati RTC
which was raffled to Branch 138, presided over by Judge Sixto Marella, Jr.2
Korugas complaint alleged:
_______________
1 Rollo (G.R. No. 168332), pp. 48-49.

2 Now a Justice of the Court of Appeals.
52
52

VOL. 590, JUNE 19, 2009
10.1Violation of Sections 31 to 34 of the Corporation Code (Code)
which prohibit self-dealing and conflicts of interest of directors and officers,
thus:
(a)For engaging in unsafe, unsound, and fraudulent banking practices
that have jeopardized the welfare of the Bank, its shareholders, who
includes among others, the Petitioner, and depositors. (sic)
53
10.3Receivership and Creation of a Management Committee pursuant to:
(b)For granting and approving loans and/or loaned sums of money to

six (6) dummy borrower corporations (Borrower Corporations) which, at
the time of loan approval, had no financial capacity to justify the loans.
(sic)
(a)Rule 59 of the 1997 Rules of Civil Procedure (Rules);
(c)For approving and accepting a dacion en pago, or payment of loans

with property instead of cash, resulting to a diminished future cumulative
interest income by the Bank and a decline in its liquidity position. (sic)
(d)Rule 1, Section 1(a)(2) of the Interim Rules;
(d)For knowingly giving favorable treatment to the Borrower

Corporations in which some or most of them have interests, i.e.
interlocking directors/officers thereof, interlocking ownerships. (sic)
(f)Rule 9 of the Interim Rules; and
(e)For employing their respective offices and functions as the Banks

officers and directors, or omitting to perform their functions and duties,
with negligence, unfaithfulness or abuse of confidence of fiduciary duty,
misappropriated or misapplied or ratified by inaction the misappropriation
or misappropriations, of (sic) almost P1.6 Billion Pesos (sic) constituting the
Banks funds placed under their trust and administration, by unlawfully
releasing loans to the Borrower Corporations or refusing or failing to
impugn these, knowing before the loans were released or thereafter that
the Banks cash resources would be dissipated thereby, to the prejudice of
the Petitioner, other Banco Filipino depositors, and the public.
On September 12, 2003, Arcenas, et al. filed their Answer raising, among
others, the trial courts lack of jurisdiction to take cognizance of the case.
They also filed a Manifestation and Motion seeking the dismissal of the
case on the following grounds: (a) lack of jurisdiction over the subject
matter;
10.2 Right of a stockholder to inspect the records of a corporation

(including financial statements) under Sections 74 and 75 of the Code, as
implemented by the Interim Rules;
(a)Unlawful refusal to allow the Petitioner from inspecting or otherwise
accessing the corporate records of the bank despite repeated demand in
writing, where she is a stockholder. (sic)
53
(b)Section 5.2 of R.A. No. 8799;

(c)Rule 1, Section 1(a)(1) of the Interim Rules;
(e)Rule 7 of the Interim Rules;
(g)The General Banking Law of 2000 and the New Central Bank Act.3
(b) lack of jurisdiction over the persons of the defendants;

(c) forum-shopping; and (d) for being a nuisance/harassment suit. They
then moved that the trial court rule on their affirmative defenses, dismiss
the intra-corporate case, and set the case for preliminary hearing.
In an Order dated October 18, 2004, the trial court denied the
Manifestation and Motion, ruling thus:
The result of the procedure sought by defendants Arcenas, et al. (sic) is
for the Court to conduct a preliminary hearing on the affirmative defenses
raised by them in their Answer. This [is] proscribed by the Interim Rules of
Procedure on Intracorporate (sic) Controversies because when a
preliminary hearing is conducted it is as if a Motion to Dismiss was filed
(Rule 16, Section 6, 1997 Rules of Civil Procedure). A Motion to Dismiss is a
prohibited pleading under the Interim Rules, for which reason, no favorable
consideration can be given to the Manifestation and Motion of defendants,
Arcenas, et al.
SO ORDERED.11
_______________
_______________
4 CA Rollo, p. 48.
3 Rollo (G.R. No. 168332), pp. 7-9.
5 Id., at pp. 52-60.
54
6 Id., at p. 50.
7 Id., at pp. 2-47.
54
8 Id., at pp. 95-97.
9 Rollo (G.R. No. 168332), p. 196.
10 Id., at pp. 197-198.
The Court finds no merit to (sic) the claim that the instant case is a
nuisance or harassment suit.
11 Id., at p. 49.
55
WHEREFORE, the Court defers resolution of the affirmative defenses raised

by the defendants Arcenas, et al.4
Arcenas, et al. moved for reconsideration5 but, on January 18, 2005, the
RTC denied the motion.6 This prompted Arcenas, et al. to file before the CA
a Petition for Certiorari and Prohibition under Rule 65 of the Rules of Court
with a prayer for the issuance of a writ of preliminary injunction and a
temporary retraining order (TRO).7
On February 9, 2005, the CA issued a 60-day TRO enjoining Judge Marella
from conducting further proceedings in the case.8
On February 22, 2005, the RTC issued a Notice of Pre-trial9 setting the case
for pre-trial on June 2 and 9, 2005. Arcenas, et al. filed a Manifestation and
Motion10 before the CA, reiterating their application for a writ of
preliminary injunction. Thus, on April 18, 2005, the CA issued the assailed
Resolution, which reads in part:
(C)onsidering that the Temporary Restraining Order issued by this Court
on February 9, 2005 expired on April 10, 2005, it is necessary that a writ of
preliminary injunction be issued in order not to render ineffectual whatever
final resolution this Court may render in this case, after the petitioners
shall have posted a bond in the amount of FIVE HUNDRED THOUSAND
(P500,000.00) PESOS.
VOL. 590, JUNE 19, 2009

55
Dissatisfied, Koruga filed this Petition for Certiorari under Rule 65 of the
Rules of Court. Koruga alleged that the CA effectively gave due course to
Arcenas, et al.s petition when it issued a writ of preliminary injunction
without factual or legal basis, either in the April 18, 2005 Resolution itself
or in the records of the case. She prayed that this Court restrain the CA
from implementing the writ of preliminary injunction and, after due
proceedings, make the injunction against the assailed CA Resolution
permanent.12
In their Comment, Arcenas, et al. raised several procedural and substantive
issues. They alleged that the Verification and Certification against ForumShopping attached to the Petition was not executed in the manner
prescribed by Philippine law since, as admitted by Korugas counsel
himself, the same was only a facsimile.
They also averred that Koruga had admitted in the Petition that she never
asked for reconsideration of the CAs April 18, 2005 Resolution, contending
that the Petition did not raise pure questions of law as to constitute an
exception to the requirement of filing a Motion for Reconsideration before a
Petition for Certiorari is filed.
They, likewise, alleged that the Petition may have already been rendered
moot and academic by the July 20, 2005 CA Decision,13 which denied their
Petition, and held that the RTC did not commit grave abuse of discretion in
issuing the assailed orders, and thus ordered the RTC to proceed with the
trial of the case.
Meanwhile, on March 13, 2006, this Court issued a Resolution granting the
prayer for a TRO and enjoining the Presiding Judge of Makati RTC, Branch
138, from proceeding with the hearing of the case upon the filing by
Arcenas, et al. of a
_______________
12 Id., at p. 40.
13 Penned by Associate Justice Eugenio S. Labitoria, with Associate Justices
Eliezer R. delos Santos and Arturo D. Brion (now a member of this Court),
concurring; id., at pp. 259-277.
G.R. No. 169053 is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court, with prayer for the issuance of a TRO and a writ of
preliminary injunction filed by Arcenas, et al.
In their Petition, Arcenas, et al. asked the Court to set aside the Decision14
dated July 20, 2005 of the CA in CA-G.R. SP No. 88422, which denied their
petition, having found no grave abuse of discretion on the part of the
Makati RTC. The CA said that the RTC Orders were interlocutory in nature
and, thus, may be assailed by certiorari or prohibition only when it is
shown that the court acted without or in excess of jurisdiction or with grave
abuse of discretion. It added that the Supreme Court frowns upon resort to
remedial measures against interlocutory orders.
Arcenas, et al. anchored their prayer on the following grounds: that, in
their Answer before the RTC, they had raised the issue of failure of the
court to acquire jurisdiction over them due to improper service of
summons; that the Koruga action is a nuisance or harassment suit; that
there is another case involving the same parties for the same cause
pending before the Monetary Board of the BSP, and this constituted forumshopping; and that jurisdiction over the subject matter of the case is
vested by law in the BSP.15
Arcenas, et al. assign the following errors:
_______________
56
14 Rollo (G.R. No. 169053), pp. 58-76.
56
15 Id., at pp. 8-9.

57

P50,000.00 bond. Koruga filed a motion to lift the TRO, which this Court
denied on July 5, 2006.
VOL. 590, JUNE 19, 2009

57
On the other hand, respondents Dr. Conrado P. Banzon and Gen. Ramon
Montao also filed their Comment on Korugas Petition, raising
substantially the same arguments as Arcenas, et al.
G.R. No. 169053
I.THE COURT OF APPEALS, IN FINDING NO GRAVE ABUSE OF DISCRETION

COMMITTED BY PUBLIC RESPONDENT REGIONAL TRIAL COURT OF MAKATI,
BRANCH 138, IN ISSUING THE ASSAILED ORDERS, FAILED TO CONSIDER
AND MERELY GLOSSED OVER THE MORE TRANSCENDENT ISSUES OF THE

LACK OF JURISDICTION ON THE PART OF SAID PUBLIC RESPONDENT OVER
THE SUBJECT MATTER OF THE CASE BEFORE IT, LITIS PENDENTIA AND
FORUM SHOPPING, AND THE CASE BELOW BEING A NUISANCE OR
HARASSMENT SUIT, EITHER ONE AND ALL OF WHICH GOES/GO TO RENDER
THE ISSUANCE BY PUBLIC RESPONDENT OF THE ASSAILED ORDERS A
GRAVE ABUSE OF DISCRETION.
manner prescribed by Philippine law and not certified by the Philippine

Consulate in the United States.
II.THE FINDING OF THE COURT OF APPEALS OF NO GRAVE ABUSE OF

DISCRETION COMMITTED BY PUBLIC RESPONDENT REGIONAL TRIAL COURT
OF MAKATI, BRANCH 138, IN ISSUING THE ASSAILED ORDERS, IS NOT IN
ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THIS
HONORABLE COURT.16
In view of that fact that the Petitioner is currently in the United States,
undersigned counsel is attaching a facsimile copy of the Verification and
Certification Against Forum-Shopping duly signed by the Petitioner and
notarized by Stephanie N. Goggin, a Notary Public for the Sate (sic) of
Washington. Upon arrival of the original copy of the Verification and
Certification as certified by the Office of the Philippine Consul, the
undersigned counsel shall immediately provide duplicate copies thereof to
the Honorable Court.17
Meanwhile, in a Manifestation and Motion filed on August 31, 2005, Koruga

prayed for, among others, the consolidation of her Petition with the Petition
for Review on Certiorari under Rule 45 filed by Arcenas, et al., docketed as
G.R. No. 169053. The motion was granted by this Court in a Resolution
dated September 26, 2005.
Our Ruling
This contention deserves scant consideration.

On the last page of the Petition in G.R. No. 168332, Korugas counsel
executed an Undertaking, which reads as follows:
Thus, in a Compliance18 filed with the Court on September 5, 2005,

petitioner submitted the original copy of the duly notarized and
authenticated Verification and Certification Against Forum-Shopping she
had executed.19 This Court noted and considered the Compliance
satisfactory in its Resolution dated November 16, 2005. There is, therefore,
no need to further belabor this issue.
Initially, we will discuss the procedural issue.
We now discuss the substantive issues in this case.
Arcenas, et al. argue that Korugas petition should be dismissed for its
defective Verification and Certification Against Forum Shopping, since only
a facsimile of the same was attached to the Petition. They also claim that
the Verification and Certification Against Forum-Shopping, allegedly
executed in Seattle, Washington, was not authenticated in the
First, we resolve the prayer to nullify the CAs April 18, 2005 Resolution.
_______________
16 Id., at pp. 17-18.

58
We hold that the Petition in G.R. No. 168332 has become moot and
academic. The writ of preliminary injunction being questioned had
effectively been dissolved by the CAs July 20, 2005 Decision. The
dispositive portion of the Decision reads in part:
_______________
17 Rollo (G.R. No. 168332), p. 44.

18 Id., at pp. 286-288.
19 Id., at pp. 290-292.
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59
VOL. 590, JUNE 19, 2009

59
20 Rollo (G.R. No. 169053), p. 75.
21 Republic Act (R.A.) No. 8791.

60
The case is REMANDED to the court a quo for further proceedings and to
resolve with deliberate dispatch the intra-corporate controversies and
determine whether there was actually a valid service of summons. If, after
hearing, such service is found to have been improper, then new summons
should be served forthwith.20
Accordingly, there is no necessity to restrain the implementation of the writ
of preliminary injunction issued by the CA on April 18, 2005, since it no
longer exists.
However, this Court finds that the CA erred in upholding the jurisdiction of,
and remanding the case to, the RTC.
The resolution of these petitions rests mainly on the determination of one
fundamental issue: Which body has jurisdiction over the Koruga Complaint,
the RTC or the BSP?
We hold that it is the BSP that has jurisdiction over the case.
A reexamination of the Complaint is in order.
Korugas Complaint charged defendants with violation of Sections 31 to 34
of the Corporation Code, prohibiting self-dealing and conflict of interest of
directors and officers; invoked her right to inspect the corporations records
under Sections 74 and 75 of the Corporation Code; and prayed for
Receivership and Creation of a Management Committee, pursuant to Rule
59 of the Rules of Civil Procedure, the Securities Regulation Code, the
Interim Rules of Procedure Governing Intra-Corporate Controversies, the
General Banking Law of 2000, and the New Central Bank Act. She accused
the directors and officers of Banco Filipino of engaging in unsafe, unsound,
and fraudulent banking practices, more particularly, acts that violate the
prohibition on self-dealing.
It is clear that the acts complained of pertain to the conduct of Banco
Filipinos banking business. A bank, as defined in the General Banking
Law,21 refers to an entity engaged in
_______________
60
the lending of funds obtained in the form of deposits.22 The banking
business is properly subject to reasonable regulation under the police
power of the state because of its nature and relation to the fiscal affairs of
the people and the revenues of the state. Banks are affected with public
interest because they receive funds from the general public in the form of
deposits. It is the Governments responsibility to see to it that the financial
interests of those who deal with banks and banking institutions, as
depositors or otherwise, are protected. In this country, that task is
delegated to the BSP, which pursuant to its Charter, is authorized to
administer the monetary, banking, and credit system of the Philippines. It
is further authorized to take the necessary steps against any banking
institution if its continued operation would cause prejudice to its
depositors, creditors and the general public as well.23
The law vests in the BSP the supervision over operations and activities of
banks. The New Central Bank Act provides:
Section25.Supervision and Examination.The Bangko Sentral shall
have supervision over, and conduct periodic or special examinations of,
banking institutions and quasi-banks, including their subsidiaries and
affiliates engaged in allied activities.24
Specifically, the BSPs supervisory and regulatory powers include:
4.1The issuance of rules of conduct or the establishment of standards of

operation for uniform application to all institutions or functions covered,
taking into consideration the distinctive character of the operations of
institutions and the substantive similarities of specific functions to which
such rules, modes or standards are to be applied;
_______________
22 R.A. No. 8791, Sec. 3 (3.1).

23 Central Bank of the Philippines v. Court of Appeals, G.R. No. 88353, May
8, 1992, 208 SCRA 652, 684-685.
It is well-settled in both law and jurisprudence that the Central Monetary

Authority, through the Monetary Board, is vested with exclusive authority
to assess, evaluate and determine the condition of any bank, and finding
such condition to be one of insolvency, or that its continuance in business
would involve a probable
_______________
24 R.A. No. 7653.

61
25 R.A. No. 8791, Sec. 4. (Emphasis supplied.)

26 Memorandum, Rollo (G.R. No. 169053), p. 717.
VOL. 590, JUNE 19, 2009
62
61
4.2The conduct of examination to determine compliance with laws and
regulations if the circumstances so warrant as determined by the Monetary
Board;
4.3Overseeing to ascertain that laws and Regulations are complied with;
4.4Regular investigation which shall not be oftener than once a year from
the last date of examination to determine whether an institution is
conducting its business on a safe or sound basis: Provided, That the
deficiencies/irregularities found by or discovered by an audit shall be
immediately addressed;
4.5Inquiring into the solvency and liquidity of the institution (2-D); or
4.6Enforcing prompt corrective action.25
Koruga alleges that the dispute in the trial court involves the manner with
which the Directors (sic) have handled the Banks affairs, specifically the
fraudulent loans and dacion en pago authorized by the Directors in favor of
several dummy corporations known to have close ties and are indirectly
controlled by the Directors.26 Her allegations, then, call for the
examination of the allegedly questionable loans. Whether these loans are
covered by the prohibition on self-dealing is a matter for the BSP to
determine. These are not ordinary intra-corporate matters; rather, they
involve banking activities which are, by law, regulated and supervised by
the BSP. As the Court has previously held:
62
loss to its depositors or creditors, forbid bank or non-bank financial
institution to do business in the Philippines; and shall designate an official
of the BSP or other competent person as receiver to immediately take
charge of its assets and liabilities.27
Correlatively, the General Banking Law of 2000 specifically deals with loans
contracted by bank directors or officers, thus:
SECTION36.Restriction on Bank Exposure to Directors, Officers,
Stockholders and Their Related Interests.No director or officer of any
bank shall, directly or indirectly, for himself or as the representative or
agent of others, borrow from 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 or incur any contractual liability to the bank except with the
written approval of the majority of all the directors of the bank, excluding
the director concerned: Provided, That such written approval shall not be
required for loans, other credit accommodations and advances granted to
officers under a fringe benefit plan approved by the Bangko Sentral. The
required approval shall be entered upon the records of the bank and a copy
of such entry shall be transmitted forthwith to the appropriate supervising
and examining department of the Bangko Sentral.
Dealings of a bank with any of its directors, officers or stockholders and

their related interests shall be upon terms not less favorable to the bank
than those offered to others.
The limit on loans, credit accommodations and guarantees prescribed

herein shall not apply to loans, credit accommodations and guarantees
extended by a cooperative bank to its cooperative shareholders.28
After due notice to the board of directors of the bank, the office of any
bank director or officer who violates the provisions of this Section may be
declared vacant and the director or officer shall be subject to the penal
provisions of the New Central Bank Act.
Furthermore, the authority to determine whether a bank is conducting

business in an unsafe or unsound manner is also vested in the Monetary
Board. The General Banking Law of 2000 provides:
The Monetary Board may regulate the amount of loans, credit

accommodations and guarantees that may be extended, directly or
indirectly, by a bank to its directors, officers, stockholders and their related
interests, as well as investments of such bank in enterprises owned or
controlled by said directors, officers, stockholders and their related
interests. However, the outstanding loans, credit accommodations
SECTION56.Conducting Business in an Unsafe or Unsound Manner.In

determining whether a particular act or omission, which is not otherwise
prohibited by any law, rule or regulation affecting banks, quasi-banks or
trust entities, may be deemed as conducting business in an unsafe or
unsound manner for purposes of this Section, the Monetary Board shall
consider any of the following circumstances:
_______________
56.1. The act or omission has resulted or may result in material loss or
damage, or abnormal risk or danger to the safety, stability, liquidity or
solvency of the institution;
27 Miranda v. Philippine Deposit Insurance Corporation, G.R. No. 169334,

September 8, 2006, 501 SCRA 288, 298.
56.2. The act or omission has resulted or may result in material loss or
damage or abnormal risk to the institution's depositors, creditors,
investors, stockholders or to the Bangko Sentral or to the public in general;
63
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VOL. 590, JUNE 19, 2009
28 Emphasis supplied.
63
64

and guarantees which a bank may extend to each of its stockholders,
directors, or officers and their related interests, shall be limited to an
amount equivalent to their respective unencumbered deposits and book
value of their paid-in capital contribution in the bank: Provided, however,
That loans, credit accommodations and guarantees secured by assets
considered as non-risk by the Monetary Board shall be excluded from such
limit: Provided, further, That loans, credit accommodations and advances
to officers in the form of fringe benefits granted in accordance with rules as
may be prescribed by the Monetary Board shall not be subject to the
individual limit.
The Monetary Board shall define the term related interests.
64
56.3. The act or omission has caused any undue injury, or has given any
unwarranted benefits, advantage or preference to the bank or any party in
the discharge by the director or officer of his duties and responsibilities
through manifest partiality, evident bad faith or gross inexcusable
negligence; or
56.4. The act or omission involves entering into any contract or transaction
manifestly and grossly disadvantageous to the bank, quasi-bank or trust
entity, whether or not the director or officer profited or will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in conducting its
business in an unsafe or unsound manner, the Monetary Board may,
without prejudice to the administrative sanctions provided in Section 37 of
the New Central Bank Act, take action under Section 30 of the same Act
and/or immediately exclude the erring bank from clearing, the provisions of
law to the contrary notwithstanding.
Finally, the New Central Bank Act grants the Monetary Board the power to
impose administrative sanctions on the erring bank:
Section37.Administrative Sanctions on Banks and Quasi-banks.
Without prejudice to the criminal sanctions against the culpable persons
provided in Sections 34, 35, and 36 of this Act, the Monetary Board may, at
its discretion, impose upon any bank or quasi-bank, their directors and/or
officers, for any willful violation of its charter or by-laws, willful delay in the
submission of reports or publications thereof as required by law, rules and
regulations; any refusal to permit examination into the affairs of the
institution; any willful making of a false or misleading statement to the
Board or the appropriate supervising and examining department or its
examiners; any willful failure or refusal to comply with, or violation of, any
banking law or any order, instruction or regulation issued by the Monetary
Board, or any order, instruction or ruling by the Governor; or any
commission of irregularities, and/or conducting business in an unsafe or
unsound manner as may be determined by the Monetary Board, the
following administrative sanctions, whenever applicable:
65
VOL. 590, JUNE 19, 2009

65
(a)fines in amounts as may be determined by the Monetary Board to be

appropriate, but in no case to exceed Thirty thousand pesos (P30,000) a
day for each violation, taking into consideration the attendant
circumstances, such as the nature and gravity of the violation or

irregularity and the size of the bank or quasi-bank;
(b)suspension of rediscounting privileges or access to Bangko Sentral
credit facilities;
(c)suspension of lending or foreign exchange operations or authority to
accept new deposits or make new investments;
(d)suspension of interbank clearing privileges; and/or
(e)revocation of quasi-banking license.
Resignation or termination from office shall not exempt such director or
officer from administrative or criminal sanctions.
The Monetary Board may, whenever warranted by circumstances,
preventively suspend any director or officer of a bank or quasi-bank
pending an investigation: Provided, That should the case be not finally
decided by the Bangko Sentral within a period of one hundred twenty (120)
days after the date of suspension, said director or officer shall be
reinstated in his position: Provided, further, That when the delay in the
disposition of the case is due to the fault, negligence or petition of the
director or officer, the period of delay shall not be counted in computing
the period of suspension herein provided.
The above administrative sanctions need not be applied in the order of
their severity.
Whether or not there is an administrative proceeding, if the institution
and/or the directors and/or officers concerned continue with or otherwise
persist in the commission of the indicated practice or violation, the
Monetary Board may issue an order requiring the institution and/or the
directors and/or officers concerned to cease and desist from the indicated
practice or violation, and may further order that immediate action be taken
to correct the conditions resulting from such practice or violation. The
cease and desist order shall be immediately effective upon service on the
respondents.
The respondents shall be afforded an opportunity to defend their action in
a hearing before the Monetary Board or any commit66
66
tee chaired by any Monetary Board member created for the purpose, upon
request made by the respondents within five (5) days from their receipt of
the order. If no such hearing is requested within said period, the order shall
be final. If a hearing is conducted, all issues shall be determined on the
basis of records, after which the Monetary Board may either reconsider or
make final its order.
The Governor is hereby authorized, at his discretion, to impose upon
banking institutions, for any failure to comply with the requirements of law,
Monetary Board regulations and policies, and/or instructions issued by the
Monetary Board or by the Governor, fines not in excess of Ten thousand
pesos (P10,000) a day for each violation, the imposition of which shall be
final and executory until reversed, modified or lifted by the Monetary Board
on appeal.29
Koruga also accused Arcenas, et al. of violation of the Corporation Codes
provisions on self-dealing and conflict of interest. She invoked Section 31 of
the Corporation Code, which defines the liability of directors, trustees, or
officers of a corporation for, among others, acquiring any personal or
pecuniary interest in conflict with their duty as directors or trustees, and
Section 32, which prescribes the conditions under which a contract of the
corporation with one or more of its directors or trusteesthe so-called
self-dealing directors30would be valid. She also alleged that Banco
Filipinos directors violated Sections 33 and 34 in approving the loans of
corporations with interlocking ownerships, i.e., owned, directed, or
managed by close associates of Albert C. Aguirre.
Sections 31 to 34 of the Corporation Code provide:
Section31.Liability of directors, trustees or officers.Directors or
trustees who wilfully and knowingly vote for or assent to patently unlawful
acts of the corporation or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any personal or pecuniary
interest in conflict with their duty
_______________
30 See Prime White Cement Corporation v. Honorable Intermediate

Appellate Court, et al., G.R. No. 68555, March 19, 1993, 220 SCRA 103.
67
VOL. 590, JUNE 19, 2009

67
as such directors or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its stockholders
or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in
violation of his duty, any interest adverse to the corporation in respect of
any matter which has been reposed in him in confidence, as to which
equity imposes a disability upon him to deal in his own behalf, he shall be
liable as a trustee for the corporation and must account for the profits
which otherwise would have accrued to the corporation.
Section32.Dealings of directors, trustees or officers with the
corporation.A contract of the corporation with one or more of its directors
or trustees or officers is voidable, at the option of such corporation, unless
all the following conditions are present:
1. That the presence of such director or trustee in the board meeting in
which the contract was approved was not necessary to constitute a
quorum for such meeting;
2.That the vote of such director or trustee was not necessary for the
approval of the contract;
3.That the contract is fair and reasonable under the circumstances; and
4.That in case of an officer, the contract has been previously authorized
by the board of directors.
Where any of the first two conditions set forth in the preceding paragraph
is absent, in the case of a contract with a director or trustee, such contract
may be ratified by the vote of the stockholders representing at least twothirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of
the members in a meeting called for the purpose: Provided, That full
disclosure of the adverse interest of the directors or trustees involved is
made at such meeting: Provided, however, That the contract is fair and
reasonable under the circumstances.
Section33.Contracts between corporations with interlocking directors.
Except in cases of fraud, and provided the contract is fair and reasonable
under the circumstances, a contract between two or more corporations
having interlocking directors shall not be invalidated on that ground alone:
Provided, That if the interest of the interlocking director in one corporation
is substantial and his interest in the other corporation or corporations is
merely nominal, he
68
Consequently, it is not the Interim Rules of Procedure on Intra-Corporate

Controversies,32 or Rule 59 of the Rules of Civil Procedure on Receivership,
that would apply to this case. Instead, Sections 29 and 30 of the New
Central Bank Act should be followed, viz.:
_______________
31 In Re: Petition for Assistance in the Liquidation of the Rural Bank of

Bokod (Benguet), Inc., PDIC v. Bureau of Internal Revenue, G.R. No.
158261, December 18, 2006, 511 SCRA 123, 141, citing Laureano v. Court
of Appeals, 381 Phil. 403, 411-412; 324 SCRA 414, 421 (2000).
32 A.M. No. 01-2-04-SC dated April 1, 2001.
68
69

shall be subject to the provisions of the preceding section insofar as the
latter corporation or corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the outstanding capital
stock shall be considered substantial for purposes of interlocking directors.
Section34.Disloyalty of a director.Where a director, by virtue of his
office, acquires for himself a business opportunity which should belong to
the corporation, thereby obtaining profits to the prejudice of such
corporation, he must account to the latter for all such profits by refunding
the same, unless his act has been ratified by a vote of the stockholders
owning or representing at least two-thirds (2/3) of the outstanding capital
stock. This provision shall be applicable, notwithstanding the fact that the
director risked his own funds in the venture.
Korugas invocation of the provisions of the Corporation Code is misplaced.
In an earlier case with similar antecedents, we ruled that:
The Corporation Code, however, is a general law applying to all types of
corporations, while the New Central Bank Act regulates specifically banks
and other financial institutions, including the dissolution and liquidation
thereof. As between a general and special law, the latter shall prevail
generalia specialibus non derogant.31
VOL. 590, JUNE 19, 2009

69
Section29.Appointment of Conservator.Whenever, on the basis of a

report submitted by the appropriate supervising or examining department,
the Monetary Board finds that a bank or a quasi-bank is in a state of
continuing inability or unwillingness to maintain a condition of liquidity
deemed adequate to protect the interest of depositors and creditors, the
Monetary Board may appoint a conservator with such powers as the
Monetary Board shall deem necessary to take charge of the assets,
liabilities, and the management thereof, reorganize the management,
collect all monies and debts due said institution, and exercise all powers
necessary to restore its viability. The conservator shall report and be
responsible to the Monetary Board and shall have the power to overrule or
revoke the actions of the previous management and board of directors of
the bank or quasi-bank.
xxxx
The Monetary Board shall terminate the conservatorship when it is satisfied
that the institution can continue to operate on its own and the
conservatorship is no longer necessary. The conservatorship shall likewise
be terminated should the Monetary Board, on the basis of the report of the
conservator or of its own findings, determine that the continuance in
business of the institution would involve probable loss to its depositors or
creditors, in which case the provisions of Section 30 shall apply.
Section30.Proceedings in Receivership and Liquidation.Whenever,
upon report of the head of the supervising or examining department, the
Monetary Board finds that a bank or quasi-bank:
(a)is unable to pay its liabilities as they become due in the ordinary
course of business: Provided, That this shall not include inability to pay
caused by extraordinary demands induced by financial panic in the
banking community;
(b)has insufficient realizable assets, as determined by the Bangko
Sentral, to meet its liabilities; or
(c)cannot continue in business without involving probable losses to its
depositors or creditors; or
(d)has willfully violated a cease and desist order under Section 37 that
has become final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution; in which cases, the Monetary
Board may summarily and without need for prior hearing forbid
representing the majority of the capital stock within ten (10) days from
receipt by the board of directors of the institution of the order directing
receivership, liquidation or conservatorship.
The designation of a conservator under Section 29 of this Act or the
appointment of a receiver under this section shall be vested exclusively
with the Monetary Board. Furthermore, the designation of a conservator is
not a precondition to the designation of a receiver.33
On the strength of these provisions, it is the Monetary Board that exercises
exclusive jurisdiction over proceedings for receivership of banks.
Crystal clear in Section 30 is the provision that says the appointment of a
receiver under this section shall be vested exclusively with the Monetary
Board. The term exclusively connotes that only the Monetary Board can
resolve the issue of whether a bank is to be placed under receivership and,
upon an affirmative finding, it also has authority to appoint a receiver. This
is further affirmed by the fact that the law allows the Monetary Board to
take action summarily and without need for prior hearing.
And, as a clincher, the law explicitly provides that actions of the Monetary
Board taken under this section or under Section 29 of this Act shall be final
and executory, and may
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71
VOL. 590, JUNE 19, 2009
the institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking
institution.
xxxx
The actions of the Monetary Board taken under this section or under
Section 29 of this Act shall be final and executory, and may not be
restrained or set aside by the court except on petition for certiorari on the
ground that the action taken was in excess of jurisdiction or with such
grave abuse of discretion as to amount to lack or excess of jurisdiction. The
petition for certiorari may only be filed by the stockholders of record
71
not be restrained or set aside by the court except on a petition for
certiorari on the ground that the action taken was in excess of jurisdiction
or with such grave abuse of discretion as to amount to lack or excess of
jurisdiction.
From the foregoing disquisition, there is no doubt that the RTC has no
jurisdiction to hear and decide a suit that seeks to place Banco Filipino
under receivership.
Koruga herself recognizes the BSPs power over the allegedly unlawful acts
of Banco Filipinos directors. The records of this case bear out that Koruga,
through her legal counsel, wrote the Monetary Board34 on April 21, 2003
to bring to its attention the acts she had enumerated in her complaint
before the RTC. The letter reads in part:
Corporate Secretary Francisco A. Rivera submitted the banks comments

essentially arguing that Korugas accusations lacked legal and factual
bases.37
xxxx
On the other hand, the BSP, in its Answer before the RTC, said that it had
been looking into Banco Filipinos activities. An October 2002 Report of
Examination (ROE) prepared by the Supervision and Examination
Department (SED) noted certain dacion payments, out-of-the-ordinary
expenses, among other dealings. On July 24, 2003, the Monetary Board
passed Resolution No. 1034 furnishing Banco Filipino a copy of the ROE
with instructions for the bank to file its comment or explanation within 30
to 90 days under threat of being fined or of being subjected to other
remedial actions. The ROE, the BSP said, covers substantially the same
matters raised in Korugas complaint. At the time of the filing of Korugas
complaint on August 20, 2003, the period for Banco Filipino to submit its
explanation had not yet expired.38
We urge you to look into the matter in your capacity as regulators. Our
clients, a minority stockholders, (sic) and many depositors of Banco Filipino
are prejudiced by a failure to regulate, and taxpayers are prejudiced by
accommodations granted by the BSP to Banco Filipino.35
Thus, the courts jurisdiction could only have been invoked after the
Monetary Board had taken action on the matter and only on the ground
that the action taken was in excess of jurisdiction or with such grave abuse
of discretion as to amount to lack or excess of jurisdiction.
In a letter dated May 6, 2003, BSP Supervision and Examination

Department III Director Candon B. Guerrero referred Korugas letter to
Arcenas for comment.36 On June 6, 2003, Banco Filipinos then Executive
Vice President and
Finally, there is one other reason why Korugas complaint before the RTC
cannot prosper. Given her own admissionand the same is likewise
supported by evidencethat she is merely a minority stockholder of Banco
Filipino, she would not have the standing to question the Monetary Boards
action. Section 30 of the New Central Bank Act provides:
Banco Filipino and the current members of its Board of Directors should be
placed under investigation for violations of banking laws, the commission
of irregularities, and for conducting business in an unsafe or unsound
manner. They should likewise be placed under preventive suspension by
virtue of the powers granted to the Monetary Board under Section 37 of
the Central Bank Act. These blatant violations of banking laws should not
go by without penalty. They have put Banco Filipino, its depositors and
stockholders, and the entire banking system (sic) in jeopardy.
_______________
34 Rollo (G.R. No. 169053), pp. 266-272.
The petition for certiorari may only be filed by the stockholders of record
receivership, liquidation or conservatorship.
35 Id., at pp. 271-272. (Citations omitted.)
_______________
36 Id., at p. 457.
72
37 Id., at pp. 459-462.

38 CA Rollo, p. 460.
72
73
VOL. 590, JUNE 19, 2009

73
All the foregoing discussion yields the inevitable conclusion that the CA
erred in upholding the jurisdiction of, and remanding the case to, the RTC.
Given that the RTC does not have jurisdiction over the subject matter of
the case, its refusal to dismiss the case on that ground amounted to grave
abuse of discretion.
WHEREFORE, the foregoing premises considered, the Petition in G.R. No.
168332 is DISMISSED, while the Petition in G.R. No. 169053 is GRANTED.
The Decision of the Court of Appeals dated July 20, 2005 in CA-G.R. SP No.
88422 is hereby SET ASIDE. The Temporary Restraining Order issued by
this Court on March 13, 2006 is made PERMANENT. Consequently, Civil
Case No. 03-985, pending before the Regional Trial Court of Makati City, is
DISMISSED.
SO ORDERED.
Ynares-Santiago (Chairperson), Chico-Nazario, Velasco, Jr. and Peralta, JJ.,
concur.
Petition in G.R. No. 168332 dismissed, while petition in G.R. No. 169053
granted, CA decision in CA-G.R. SP No. 88422 set aside.
Note.Settled is the principle that a bank is bound by the acts, or failure to
act of its receiver. (Larrobis, Jr. vs. Philippine Veterans Bank, 440 SCRA 34
[2004])
o0o
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Koruga vs.
Arcenas, Jr., 590 SCRA 49(2009)]
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals

dated February 22, 2007 in CA-G.R. CEB-SP No. 00779 setting aside the
November 20, 2000 Order of the Commission on Settlement of Land
Problems in COSLAP Case No. IL-00-06-085 and the Writ of Execution dated
May 19, 2004 for having been issued without jurisdiction, and the
Resolution dated February 21, 2008 denying the motion for
reconsideration, are AFFIRMED.
SO ORDERED.
Chico-Nazario, Velasco, Jr., Nachura and Peralta, JJ., concur.
Petition denied, judgment and resolution affirmed.
Note.Administrative agencies like the Commission on the Settlement of
Land Problems (COSLAP) are tribunals of limited jurisdiction and as such
could wield only such as are specifically granted to them by the enabling
statutes. (Cayabyab vs. Gomez de Aquino, 532 SCRA 353 [2007])
o0o
G.R. No. 183141.September 18, 2009.*

EDGARDO H. CATINDIG, petitioner, vs. THE PEOPLE OF THE PHILIPPINES
and ATTY. DANIEL P. FANDIO, JR., respondents.
Interlocutory Orders; It is a fundamental principle that an order denying a
Motion to Dismiss is an interlocutory order, which neither terminates nor
finally disposes of a case, as it leaves something to be done by the court
before the case is finally decided on the merits.It is a fundamental
principle that an order denying a Mo_______________
* THIRD DIVISION.
750
denial of a motion to quash is considered proper in the interest of more

enlightened and substantial justice.
751
750
Catindig vs. People
tion to Dismiss is an interlocutory order, which neither terminates nor
finally disposes of a case, as it leaves something to be done by the court
before the case is finally decided on the merits. As such, the general rule is
that the denial of a Motion to Dismiss cannot be questioned in a special
civil action for certiorari, which is a remedy designed to correct errors of
jurisdiction and not errors of judgment. Neither can a denial of a Motion to
Dismiss be the subject of an appeal unless and until a final judgment or
order is rendered. In order to justify the grant of the extraordinary remedy
of certiorari, the denial of the Motion to Dismiss must have been tainted
with grave abuse of discretion amounting to lack or excess of jurisdiction.
Appeals; Certiorari; Where special circumstances clearly demonstrate the
inadequacy of an appeal, then the special civil action of certiorari may
exceptionally be allowed.There is grave abuse of discretion where a
power is exercised in an arbitrary, capricious, whimsical or despotic
manner by reason of passion or personal hostility, so patent and so gross
as to amount to evasion of positive duty or virtual refusal to perform a duty
enjoined by, or in contemplation of law. With the aforesaid definition, it
cannot be said that the trial court gravely abuse its discretion in finding
probable cause for the issuance of a warrant of arrest against the private
respondent and the other members of the Board of Directors of CWD, thus,
denying their Omnibus Motion. It bears emphasis that the trial court itself
carefully scrutinized the documents submitted by the parties and
personally evaluated the Resolution of the Ombudsman finding probable
cause for the filing of the Information against the private respondent and
the other members of the Board of Directors of CWD for violation of Section
3(e) of Republic Act No. 3019, as amended. After it was convinced that
probable cause exists to issue a warrant of arrest, it was only then that it
directed the issuance thereof. The aforesaid general rule, however, is not
absolute. Where special circumstances clearly demonstrate the inadequacy
of an appeal, then the special civil action of certiorari may exceptionally be
allowed. This Court categorically stated in Salonga v. Cruz Pao (134 SCRA
438 [1985]) that under certain situations, recourse to the extraordinary
legal remedies of certiorari, prohibition or mandamus to question the
VOL. 600, SEPTEMBER 18, 2009

751
Catindig vs. People
Administrative Law; Public Officers; The erroneous application and
enforcement of the law by public officers does not estop the Government
from making a subsequent correction of such errors.In Baybay Water
District v. Commission on Audit (374 SCRA 482 [2002]), this Court made a
categorical pronouncement that Presidential Decree No. 198, as amended,
expressly prohibits the grant of compensation other than the payment of
per diems, to directors of water districts. The erroneous application and
from making a subsequent correction of such errors. More specifically,
where there is an express provision of law prohibiting the grant of certain
benefits, the law must be enforced even if it prejudices certain parties due
to an error committed by public officials in granting the benefit. Practice,
without more, no matter how long continued, cannot give rise to any
vested right if it is contrary to law.
Same; Same; Anti-Graft and Corrupt Practices Act; This Court does not find
the act of the private respondent and the other members of the Board of
Directors of Calamba Water Districts (CWD) of passing resolutions granting
benefits and allowances to have been committed with manifest
impartiality, evident bad faith or gross inexcusable negligence.The
second element of violation of Section 3(e) of Republic Act No. 3019, as
amended, i.e., that the private respondent and the other members of the
Board of Directors of CWD acted with manifest partiality, evident bad faith
or inexcusable negligence, is absent. In Soriano v. Marcelo (592 SCRA 394
[2009]), citing Albert v. Sandiganbayan (580 SCRA 279 [2009]), this Court
discussed the second element, to wit: There is manifest partiality when
there is a clear, notorious, or plain inclination or predilection to favor one
side or person rather than another. Evident bad faith connotes not only
bad judgment but also palpably and patently fraudulent and dishonest
purpose to do moral obliquity or conscious wrongdoing for some perverse
motive or ill will. Evident bad faith contemplates a state of mind
affirmatively operating with furtive design or with some motive or selfinterest or ill will or for ulterior purposes. Gross inexcusable negligence
refers to negligence characterized by the want of even the slightest care,

acting or omitting to act in a situation where there is a duty to act, not
inadvertently but willfully and intentionally, with conscious indifference to
consequences insofar as other persons may be affected. (Emphases
supplied.) Based on the foregoing definitions, this Court does not find the
act of the
752
Directors of Local Water Districts, is not in conformity with Section 13 of

Presidential Decree No. 198, as amended. Therefore, in relying on LWUA
Resolution No. 313, Series of 1995 in passing several resolutions granting
the disputed benefits and allowances, the private respondent and the other
members of the Board of Directors of CWD acted in good faith, as they
were of the honest belief that LWUA Board Resolution No. 313, as
amended, was valid.
Same; Same; In the absence of manifest partiality, evident bad faith or
inexcusable negligence in passing several resolutions grant-
752
753

Catindig vs. People
private respondent and the other members of the Board of Directors of

CWD of passing resolutions granting benefits and allowances to have been
committed with manifest impartiality, evident bad faith or gross
inexcusable negligence.
753
Same; Same; In relying on Local Water Utilities Administration (LWUA)

Resolution No. 313, Series of 1995 in passing several resolutions granting
the disputed benefits and allowances, the private respondent and the other
members of the Board of Directors of Calamba Water Districts (CWD) acted
in good faith, as they were of the honest belief that LWUA Board Resolution
No. 313, as amended, was valid.It bears stressing that in granting those
benefits and allowances, the Board of Directors of CWD relied on
Resolution No. 313, Series of 1995, as amended by Resolution No. 39,
Series of 1996, entitled Policy Guidelines on Compensation and Other
Benefits to Water District Board of Directors, which was issued by the
LWUA itself, the body that oversees and regulates the operations of the
local water districts. The benefits granted by the said LWUA Resolution No.
313, Series of 1995, to the board of directors of water districts are the
following: rata, travel allowance, extraordinary and miscellaneous expense,
Christmas bonus, cash gift, uniform allowance, rice allowance,
medical/dental benefits and productivity incentive bonus. More so, at the
time that the private respondent and the other members of the Board of
Directors of CWD passed the resolutions from 1993-2001 granting benefits
and allowances, this Court had not yet decided Baybay Water District v.
Commission on Audit, 374 SCRA 482 (2002), which was promulgated only
in 2002. Also, it was only in De Jesus v. Commission on Audit (403 SCRA
666 [2003]), applying Baybay Water District v. Commission on Audit, that
this Court declared that LWUA Resolution No. 313, Series of 1995, which
grants compensation and other benefits to the members of the Board of
Catindig vs. People

ing benefits and allowances, there can be no probable cause to prosecute
the private respondent and the other members of the Board of Directors of
Calamba Water Districts (CWD) for violation of Section 3(e) of Republic Act
No. 3019, as amended.Bad faith is never presumed, while good faith is
always presumed; and the chapter on Human Relations of the Civil Code
directs every person, inter alia, to observe good faith, which springs from
the fountain of good conscience. In the absence of manifest partiality,
evident bad faith or inexcusable negligence in passing several resolutions
granting benefits and allowances, there can be no probable cause to
prosecute the private respondent and the other members of the Board of
Directors of CWD for violation of Section 3(e) of Republic Act No. 3019, as
amended. Consequently, there was also no probable cause for the issuance
of a warrant of arrest against them.
Ombudsman; As a general rule, courts do not interfere with the discretion
of the Ombudsman to determine whether there exists reasonable ground
to believe that a crime has been committed and that the accused is
probably guilty thereof and, thereafter, to file the corresponding
information with the appropriate courts.As a general rule, courts do not
interfere with the discretion of the Ombudsman to determine whether
there exists reasonable ground to believe that a crime has been committed
and that the accused is probably guilty thereof and, thereafter, to file the
corresponding information with the appropriate courts. There are, however,
well-recognized exceptions to this rule, such as those enumerated in
Brocka v. Enrile [G.R. Nos. 69863-65, December 10, 1990, 192 SCRA 183,
188-189].
Same; While it is the function of the Ombudsman to determine whether or
not the petitioner should be subjected to the expense, rigors and
embarrassment of trial, he cannot do so arbitrarily.This is not the first
time that we are dismissing a case for want of probable cause. In Cabahug
v. People [426 Phil. 490, 510; 376 SCRA 113, 132 (2002)], we took
exception to the Ombudsmans determination of probable cause and
accordingly dismissed the case against the accused before the
Sandiganbayan. Therein, we observed: While it is the function of the
Ombudsman to determine whether or/not the petitioner should be
subjected to the expense, rigors and embarrassment of trial, he cannot do
so arbitrarily. This seemingly exclusive and unilateral authority of the Om754
Section 13, Rule 13 and Section 5, Rule 43, of the Rules of Procedure, as
proof that copy of the said Petition had been served on the adverse party;
(3) the Petition does not contain any explanation of why a personal service
upon therein private respondent (now petitioner) was not resorted to
pursuant to Section 11, Rule 13; and therein petitioners failed to furnish
the Ombudsman and the Office of the Solicitor General (OSG) with a copy
of their Petition. Clearly from the foregoing, the dismissal of CA-G.R. SP No.
92474 was based on sheer technicality. Since no judgment on the merits
was rendered after consideration of the evidence or stipulation submitted
by the parties at the trial of the case, it falls short of one of the essential
requisites of res judicata, that the judgment should be one on the merits.
of Appeals.
Restituto M. Mendoza for petitioner.
754
755

Catindig vs. People
budsman must be tempered by the Court when powers of prosecution are

in danger of being used for persecution. Dismissing the case against the
accused for palpable want of probable cause not only spares her the
expense, rigors and embarrassment of trial, but also prevents needless
waste of the courts time and saves the precious resources of the
government.
755
Judgments; Res Judicata; Since no judgment on the merits was rendered

after consideration of the evidence or stipulation submitted by the parties
at the trial of the case, it falls short of one of the essential requisites of res
judicata, that the judgment should be one on the merits.Res judicata
exists when the following elements are present: (a) the former judgment
must be final; (b) the court that rendered it had jurisdiction over the parties
and the subject matter; (c) it must be a judgment on the merits; and (d)
there must bebetween the first and the second actionsidentity of
parties, subject matter, and cause of action. Emphasis must be given to
the fact that CA-G.R. No. 92474 was dismissed based on pure technicalities
and not on the merits, to wit: (1) therein petitioners (now private
respondents) counsels failed to indicate their respective Integrated Bar of
the Philippines (IBP) Official Receipt numbers, in violation of Bar Matter No.
1132; (2) the Petition did not contain an affidavit of service, as required by
Catindig vs. People

Joselito I. Fandio for private respondent.
CHICO-NAZARIO,J.:
This case is a Petition for Review on Certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure seeking to reverse and set aside the
Decision1 dated 14 September 2007 and Resolution2 dated 14 May 2008
of the Court of Appeals in CA-G.R. SP No. 96293. In its assailed Decision,
the Court of Appeals annulled and set aside the following Orders of the
Regional Trial Court (RTC) of Calamba City, Branch 35, in Criminal Case No.
13850-05-C for violation of Section 3(e),3 Republic Act No. 3019, as
amended, to wit: (1) Order dated 24 May 20064 directing the issuance of a
warrant of arrest against herein private respondent Atty. Daniel Fandio, Jr.
(Atty. Fandio) and his co-accused5 therein and their suspen_______________
1 Penned by Associate Justice Bienvenido L. Reyes with Associate Justices

Aurora Santiago-Lagman and Apolinario D. Bruselas, Jr., concurring; Rollo,
pp. 51-65.
Herein petitioner Catindig is an incumbent member of the Sangguniang

Pambayan of Calamba City, Laguna, while private respondent Atty. Fandio
is the duly elected Chairman of the Board of Directors of CWD.
2 Penned by Associate Justice Bienvenido L. Reyes with Associate Justices

Apolinario D. Bruselas, Jr. and Romeo F. Barza, concurring; id., at pp. 93-94.
The factual antecedents of this case are as follows:
3 SEC.3.Corrupt practices of public officers.In addition to acts or

omissions of public officers already penalized by existing law, the following
shall constitute corrupt practices of any public officer and are hereby
declared to be unlawful:
xxxx
(e) Causing any undue injury to any party, including the Government, or
giving any private party any unwarranted benefits, advantage or
preference in the discharge of his official administrative or judicial
functions through manifest partiality, evident bad faith or gross
inexcusable negligence. This provision shall apply to officers and
employees of offices or government corporations charged with the grant of
licenses or permits or other concessions.
4 Penned by Judge Romeo C. De Leon, Rollo, pp. 397-401.
5 The following are the co-accused of private respondent Atty. Fandio: (1)
Vivencio P. Leus, Vice-Chairman; (2) Sylvia V. Tan756
756
Catindig vs. People
sion pendente lite from their position as Chairman and members of the
Board of Directors of the Calamba Water Districts (CWD), respectively, for a
period of 60 days pursuant to Section 136 of Republic Act No. 3019, as
amended;7 and (2) Order dated 5 July 2006 denying the Motion for
Reconsideration of private respondent and his co-accused therein. In its
questioned Resolution, the Court of Appeals denied the Motion for
Reconsideration of petitioner Edgardo H. Catindig (Catindig).
Sometime in 2001, a team of auditors from the Commission on Audit (COA)

conducted a rate audit of CWD, Calamba, Laguna, covering its operations
and financial transactions for calendar year 2001. The audit was made to
determine the reasonableness of the water rate increase granted by the
Local Water Utilities Administration (LWUA) to the water districts to cover
Power Cost Adjustment (PCA) and Foreign Exchange Cost Adjustment
(FECA).
_______________
cangco, Corporate Secretary; and (3) Severino M. Arambulo, Press

Relations Officer (P.R.O).
6 SEC.13.Suspension and loss of benefits.Any incumbent public officer

against whom any criminal prosecution under a valid information under
this Act or under Title 7, Book II of the Revised Penal Code or for any
offense involving fraud upon government or public funds or property
whether as a simple or as a complex offense and in whatever stage of
execution and mode of participation, is pending in court, shall be
suspended from office. Should he be convicted by final judgment, he shall
lose all retirement or gratuity benefits under any law, but if he is acquitted,
he shall be entitled to reinstatement and to the salaries and benefits which
he failed to receive during suspension, unless in the meantime
administrative proceedings have been filed against him.
7 Also known as the Anti-Graft and Corrupt Practices Act.
757

757
Catindig vs. People
During the examination, the COA audit team found that the Board of
Directors of CWD passed several resolutions granting benefits and
allowances to officers, employees and members of its Board of Directors in
the total amount of P15,455,490.14 supposedly without legal basis and
beyond the allowable limit. The said amount was divided as follows: (1)
P4,378,908.58 granted to the Board of Directors of CWD over and above
per diems without legal basis; (2) P10,620,587.68 granted to CWD officers
and employees without legal basis; and (3) P455,993.88 granted to CWD
officers and employees in amounts over the authorized limits.
The aforesaid findings of the COA audit team were embodied in its Report
No. 2002-06.8 The COA audit team explained therein that the functions of
the members of the Board of Directors of the Water Districts were limited
to policy-making, as clearly stated in Section 189 of Presidential Decree No.
198, as amended. Moreover, even the LWUA, in its Resolution No. 313,
Series of 1995, acknowledged that directors of Water Districts a not
organic personnel, and that their function is limited only to policy-making.
Also, Section 1310 of Presidential Decree No. 198, as amended,
categorically provides that each member of the Board of Directors of the
Water Districts is entitled only to receive per diem, and no director shall
receive other compensation for services to the district. Thus, the COA audit
team stated in its audit report that the compensation, benefits and
allowances amounting to
_______________

Catindig vs. People
P4,378,908.58 received by the Board of Directors of CWD were in clear
violation of Section 13 of Presidential Decree No. 198, as amended. From
the said amount, only P366,300 was allowed, representing the per diem
per board meeting. Furthermore, the allowances granted to the officers
and employees of CWD amounting to P10,620,587.68 by a mere board
resolution issued by the Board of Directors of CWD were without basis, as
these are not authorized by law.
Accordingly, the audit team made the following recommendations: (1) that
the CWD make a re-evaluation of the benefits and allowances granted to
its Board of Directors, officers and employees to ensure that the same
were authorized and within the limits allowed under existing laws and
regulations; and (2) that the LWUA should adhere to the law, particularly
Presidential Decree No. 198, as amended, in regulating the grant of
benefits and allowances to the CWD Board of Directors, officials and
employees to ensure that the same are within the authorized limits.
On the basis thereof, petitioner filed on 7 July 2004 a Complaint before the
Office of the Ombudsman for Luzon (Ombudsman) against private
respondent and the other members of the Board of Directors of CWD for a
series of acts of gross violation of Section 3(i)11 of Republic Act No. 3019,
as
_______________
8 Rollo, pp. 227-236.

9 SEC.18.Functions Limited to Policy-Making.The function of the board
shall be to establish policy. The Board shall not engaged in the detailed
management of the district.
10 SEC.13.Compensation.Each director shall receive a per diem, to be
determined by the board, for each meeting of the board actually attended
by him, but no director shall receive per diems in any given month in
excess of the equivalent of the total per diems of four meetings in any
given month. No director shall receive other compensation for services to
the district.
758
758
11 SEC.3.Corrupt practices of public officers.In addition to acts or

xxxx
(i)Directly or indirectly becoming interested, for personal gain, or having
material interest in any transaction or act requiring the approval of a
board, panel or group of which he is a member, and which exercise of
discretion in such approval, even if he votes against the same or does not
participate in the action of the board, committee, panel or group.
Interest for personal gain shall be presumed against those public officers
responsible for the approval of manifestly
759

759
Catindig vs. People
amended, in conspiracy with one another, and in relation to their duties as
public officers of CWD, with a prayer for immediate preventive suspension
against all of them. The said Complaint was docketed as OMB-L-C-04-0709H.
After going over the records, the Ombudsman was convinced that the
findings of fact made by the COA audit team can sustain charges for
violation of Section 3(e) of Republic Act No. 3019, as amended, against
private respondent and the other members of the Board of Directors of
CWD. The Ombudsman then issued a Resolution12 dated 26 August 2005
recommending the filing of two Informations,13 both for violation of
Section 3(e) of Republic Act No. 3019, as amended, against private
respondent and the other members of the Board of Directors of CWD.14
Thereafter, two Informations, both dated 26 August 2005, were filed
against private respondent and the other members of the Board of
Directors of CWDboth for violation of Section 3(e) of Republic Act No.
3019, as amendedbefore the RTC of Calamba City. The first Information,
docketed as
_______________
unlawful, inequitable, or irregular transactions or acts by the board, panel

or group to which they belong.
12 Rollo, pp. 329-333.
13 Id., at pp. 368-373.
14 Herein private respondent Atty. Fandio and the two members of the
Board of Directors of CWD, namely, Vivencio P. Leus and Sylvia V.
Tancangco, elevated the Resolution dated 26 August 2005 of the Office of
the Deputy Ombudsman for Luzon to the Court of Appeals by way of a
Petition for Review under Rule 43 of the 1997 Revised Rules of Civil
Procedure. The said case was docketed as CA-G.R. SP No. 92474. On 28
December 2005, the Court of Appeals dismissed outrightly the Petition on

technical grounds. Private respondent Atty. Fandio and the two members
of the Board of Directors of CWD moved for the reconsideration of the said
Decision, but the same was denied for lack of merit in a Resolution dated 8
March 2006. On 29 March 2006, the said Decision dated 28 December
2005 of the Court of Appeals became final and executory as evidenced by
an Entry of Judgment. (See Rollo, pp. 85-91, 367).
760
760
Catindig vs. People
Criminal Case No. 13850-05-C,15 was raffled to Branch 35 of the RTC of
Calamba City; while the other Information, docketed as Criminal Case No.
13851-05-C16 was raffled to Branch 36 thereof.
The Information docketed as Criminal Case No. 13850-05-C, the subject of
this Petition, reads:
That on or about the period from 1993-2001, or sometime prior or
subsequent thereto, in the Municipality of Calamba, Province of Laguna,
Philippines, and within the jurisdiction of this Honorable Court, the abovenamed accused, [ATTY. FANDIO], VIVENCIO P. LEUS, SYLVIA V.
TANCANGCO, SEVERINO M. ARAMBULO, public officers, being members of
the Board of Directors of [CWD], while in the performance of their official
functions, committing the crime charged in relation to their office, and
taking advantage of the same, through manifest partiality, evident bad
faith or gross inexcusable negligence, did then and there willfully,
unlawfully and feloniously allow and grant unto themselves the total
amount of P4,378,908.00 as benefits consisting of directors fee, RATA,
extra and miscellaneous expense, mid-year productivity incentive,
anniversary incentive, 13th month pay, Christmas incentive, year-end
incentive, uniform allowance, medical and hospitalization, traveling and
per diem during official business and employers contribution to [Board of
Directors] share in the welfare/provident fund when in truth and in fact
they are not allowed by law because they are not organic personnel of the
water district whose functions are limited only to policy making and not in
the detailed management of the district, thereby causing undue injury to
the government in the aforestated amount.17 (Emphases supplied.)
On 12 December 2005, the private respondent and the other members of

the Board of Directors of CWD filed in Criminal Case No. 13850-05-C an
Omnibus Motion for Determination of the Existence of Probable Cause,
Motion to
_______________
15 Rollo, pp. 368-370.
Let a copy of this Order be furnished to the [CWD] for the implementation
of the suspension order.
The said [CWD] shall inform this Court of any action taken thereon within
ten (10) days from receipt thereof and its authorized official or duly
authorized representative shall advise this Court of the date of the actual
implementation of the suspension of the [private respondent and his coaccused therein] as well as the expiration of the sixtieth day hereof so that
the same may be lifted at the proper time.
16 Id., at pp. 371-373.
Send a copy of this order to the Office of the City Prosecutor and Atty.
Brion, Jr.20 (Emphases supplied.)
17 Id., at pp. 368-369.
_______________
761
18 Id., at pp. 374-382.
19 Id., at pp. 383-384.
761
20 Id., at p. 401.
Catindig vs. People
762
Dismiss for Lack of Probable Cause and Motion to Hold in Abeyance the
Issuance of Warrant of Arrest.18 Then, on 19 December 2005, they filed a
Supplemental Motion to their Omnibus Motion for Determination of the
Existence of Probable Cause, Motion to Dismiss for Lack of Probable Cause
and Motion to Hold in Abeyance the Issuance of Warrant of Arrest.19
762
On 24 May 2006, the RTC of Calamba City, Laguna, Branch 35, issued an
Order finding probable cause for the issuance of a warrant of arrest against
CWD. The dispositive portion of the Order reads:
WHEREFORE, premises considered, let a warrant for the arrest of the
[herein private respondent and the other members of the Board of
Directors of CWD] be issued.
Likewise, pursuant to Section 13, R.A. [No.] 3019, [as amended], this Court
hereby orders the suspension pendente lite of [the private respondent and
the other members of the Board of Directors of CWD] from their position as
members of the Board of Directors, Calamba Water Districts for a period of
sixty (60) days, to take effect immediately upon receipt hereof.

Catindig vs. People
The private respondent and the other members of the Board of Directors of
CWD moved for the reconsideration of the aforesaid Order, but the motion
was denied in the court a quos other Order dated 5 July 2006.
The private respondent was the only one who elevated the case to the
Court of Appeals via a Petition for Certiorari under Rule 65 of the 1997
Revised Rules of Civil Procedure. He challenged the aforesaid two Orders of
the court a quo for having been issued with grave abuse of discretion
amounting to lack or excess of jurisdiction, as the facts on record did not
establish prima facie probable cause; thus, Criminal Case No. 13850-05-C
should have been dismissed.
On 14 September 2007, the Court of Appeals rendered its Decision
granting the Petition of the private respondent, thereby annulling and
setting aside the two Orders dated 24 May 2006 and 5 July 2006 of the
court a quo.
The Court of Appeals stated in its Decision that the employees and officers,
including the Board of Directors of the CWD, had received the disputed
allowances and benefits long before this Court declared as illegal such
payment of additional compensation; thus, it could be reasonably
concluded that private respondent and his co-accused in the case below
received the same in good faith. The Court of Appeals also elucidated that
in prosecuting cases involving violation of Section 3(e) of Republic Act No.
3019, as amended, the public officers must have acted with manifest
partiality, evident bad faith or gross inexcusable negligence in performing
their legal duties. In the absence of bad faith, private respondent and his
co-accused in the case below cannot be held liable for violation of Section
3(e) of Republic Act No. 3019, as amended.
Aggrieved, petitioner moved for a reconsideration of the aforesaid Decision
of the Court of Appeals, but the motion was denied by the appellate court
in its Resolution dated 14 May 2008.
Hence, this Petition with the following assignment of errors:
763
DECEMBER 2005] LONG BEFORE THE PETITION IN QUESTION IN CA-G.R. SP

NO. 96293 WAS FILED WITH THIS HONORABLE COURT DATED [24 AUGUST
2006].
C
THE COURT OF APPEALS ERRED, IN GRAVE ABUSE OF ITS DISCRETION
WHEN IT FAILED TO NOTICE CERTAIN RELEVANT FACTS IN ITS QUESTIONED
DECISION AND RESOLUTION WHICH, IF PROPERLY CONSIDERED, WILL
JUSTIFY A DIFFERENT CONCLUSION THEREOF.
D
THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION
WHEN IT DID NOT UPHOLD THE ASSAILED TWO ORDERS IN QUESTION OF
THE TRIAL COURT.
Given the foregoing, the issues that must be resolved in this Petition are:
I. Whether the Court of Appeals erred in pronouncing that the private
respondent and the other members of the Board of Directors of the CWD
acted in good faith in receiving the disputed benefits and allowances
pursuant to LWUA Resolution No. 313, as amended, in a Petition for
Certiorari, which is meant only to correct errors of jurisdiction and grave
abuse of discretion.
764
763
Catindig vs. People
764
THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS JURISDICTION

WHEN IT RULED THE PETITION THEREIN BASED ON FACTUAL ISSUE RATHER
THAN ON THE ISSUE OF JURISDICTION OF THE TRIAL COURT, SINCE IT WAS
FOR CERTIORARI UNDER RULE 65 OF THE 1997 RULES OF CIVIL
PROCEDURE, AS AMENDED.
Catindig vs. People
B
THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION
WHEN IT DID NOT OUTRIGHTLY DISMISS THE PETITION IN QUESTION SINCE
THE ISSUES RAISED THEREIN WERE SUBSTANTIALLY THE SAME IN CA-G.R.
SP NO. 92474, WHICH IT ALREADY FINALLY DISMISSED OUTRIGHTLY ON [28
II. Whether the Court of Appeals erred in not outrightly dismissing CA-G.R.
SP No. 96293 on the ground of res judicata.
The present Petition is not impressed with merit.
Petitioner argues that a Petition for Certiorari under Rule 65 of the 1997
Revised Rules of Civil Procedure, which was used by the private respondent
in challenging the Orders dated 24 May 2006 and 5 July 2006 of the court a
quo, is intended only to correct errors of jurisdiction and grave abuse of
discretion or excess of jurisdiction committed by the trial court. It cannot
be used to correct an error of judgment or simple abuse of discretion. Also,
it cannot be legally used for any other purpose. Petitioner, thus, holds that
the Court of Appeals erred when it ruled not only on the issue of grave
abuse of discretion but also on the merits of the case, that is, by ruling that
CWD acted in good faith in receiving the disputed benefits and allowances
pursuant to LWUA Resolution No. 313.
At the outset, the Ombudsman recommended the filing of two Informations
with the RTC of Calamba City against the private respondent and the other
members of the Board of Directors of CWD for violation of Section 3(e) of
Republic Act No. 3019, as amended. One of the two Informations was
lodged before Branch 35 of the RTC of Calamba City, and is now the
subject of this Petition. After the Information was filed with the court a quo,
CWD conversely filed an Omnibus Motion for Determination of the
Existence of Probable Cause, Motion to Dismiss for Lack of Probable Cause
and Motion to Hold in Abeyance the Issuance of Warrant of Arrest. In
resolving the said Omnibus Motion, the trial court issued an Order dated 24
May 2006 finding probable cause for the issuance of a warrant of arrest
against the private respondent and the other members of the Board of
Directors of CWD. The trial court, thus, directed the issuance of a
765

765
Catindig vs. People
warrant of arrest and the suspension pendente lite of private respondent
and the other members of the Board of Directors of CWD. In effect, the trial
court denied the Omnibus Motion of the private respondent and the other
members of the Board of Directors of CWD, thus, sustaining the
Ombudsmans findings of probable cause against them for violation of
Section 3(e) of Republic Act No. 3019, as amended. The subsequent Motion
for Reconsideration of the private respondent and the other members of
the Board of Directors of CWD was denied in the trial courts Order dated 5
July 2006. Consequently, the private respondent filed a Petition for
Certiorari with the Court of Appeals questioning the aforesaid two Orders of
the court a quo.
It is a fundamental principle that an order denying a Motion to Dismiss is
an interlocutory order, which neither terminates nor finally disposes of a
case, as it leaves something to be done by the court before the case is

finally decided on the merits. As such, the general rule is that the denial of
a Motion to Dismiss cannot be questioned in a special civil action for
certiorari, which is a remedy designed to correct errors of jurisdiction and
not errors of judgment. Neither can a denial of a Motion to Dismiss be the
subject of an appeal unless and until a final judgment or order is rendered.
In order to justify the grant of the extraordinary remedy of certiorari, the
denial of the Motion to Dismiss must have been tainted with grave abuse
of discretion amounting to lack or excess of jurisdiction.21
There is grave abuse of discretion where a power is exercised in an
arbitrary, capricious, whimsical or despotic manner by reason of passion or
personal hostility, so patent and so gross as to amount to evasion of
positive duty or virtual re_______________
21 Lu Ym v. Nabua, G.R. No. 161309, 23 February 2005, 452 SCRA 298,

305-306.
766
766
Catindig vs. People
fusal to perform a duty enjoined by, or in contemplation of law.22
With the aforesaid definition, it cannot be said that the trial court gravely
abuse its discretion in finding probable cause for the issuance of a warrant
of arrest against the private respondent and the other members of the
Board of Directors of CWD, thus, denying their Omnibus Motion. It bears
emphasis that the trial court itself carefully scrutinized the documents
submitted by the parties and personally evaluated the Resolution of the
Ombudsman finding probable cause for the filing of the Information against
CWD for violation of Section 3(e) of Republic Act No. 3019, as amended.
After it was convinced that probable cause exists to issue a warrant of
arrest, it was only then that it directed the issuance thereof.
The aforesaid general rule, however, is not absolute. Where special

circumstances clearly demonstrate the inadequacy of an appeal, then the
special civil action of certiorari may exceptionally be allowed. This Court
categorically stated in Salonga v. Cruz Pao23 that under certain
situations, recourse to the extraordinary legal remedies of certiorari,
prohibition or mandamus to question the denial of a motion to quash is
considered proper in the interest of more enlightened and substantial
justice.24
After a careful review of the records, this Court finds that such special
circumstance obtains in the present case. Simply stated, the existing
evidence is insufficient to establish probable cause against the private
respondent to prosecute him for violation of Section 3(e) of Republic Act
No. 3019, as
_______________
22 Bayas v. Sandiganbayan, 440 Phil. 54, 71-72; 391 SCRA 415, 429
(2002).
23 G.R. No. L-59524, 18 February 1985, 134 SCRA 438, 448.
resulting in its issuance of a warrant of arrest against the private

respondent and the other members of the Board of Directors of CWD.
The findings of fact of the COA audit team revealed that the Board of
Directors of CWD passed several resolutions granting benefits and
allowances to its officers, employees and members of its Board of
Directors, including the private respondent. The said benefits and
allowances granted to the members of the Board of Directors of CWD
amounting to P4,378,908.58, are as follows: (1) directors fee; (2) RATA; (3)
extra and miscellaneous expense; (4) mid-year productivity incentive; (5)
anniversary incentive; (6) 13th month pay; (7) Christmas incentive; (8)
yearend incentive; (9) uniform allowance; (10) medical and hospitalization,
and traveling and per diem during official business; and (11) employers
contribution to the Board of Directors share in the welfare/provident fund.
The COA audit team in its audit report stated that the aforesaid benefits
and allowances granted to the members of the Board of Directors of CWD
were without basis. The COA audit team explained that the functions of the
members of the Board of Directors of Water Districts are limited only to
policy-making as provided for in Section 18, Presidential Decree No. 198,
as amended. Moreover, Section 13 of Presidential Decree No. 198, as
amended, explicitly states that the director
_______________
24 Principio v. Barrientos, G.R. No. 167025, 19 December 2005, 478 SCRA

639, 646.
767
25 425 Phil. 326; 374 SCRA 482 (2002).

768

767
Catindig vs. People
amended, vis--vis to establish probable cause for the issuance of a
warrant of arrest against him.
The Ombudsman, in arriving at the conclusion that probable cause exists
to prosecute the private respondent and the other members of the Board
of Directors of CWD for violation of Section 3(e) of Republic Act No. 3019,
as amended, relied heavily on the findings of fact of the COA audit team
and the ruling of this Court in Baybay Water District v. Commission on
Audit.25 Such finding of probable cause by the Ombudsman was affirmed
by the trial court in its two Orders dated 24 May 2006 and 5 July 2006
768
Catindig vs. People
of water districts shall receive no other compensation other than the per
diem.
In Baybay Water District v. Commission on Audit,26 this Court made a
categorical pronouncement that Presidential Decree No. 198, as amended,
expressly prohibits the grant of compensation other than the payment of
per diems, to directors of water districts. The erroneous application and
from making a subsequent correction of such errors. More specifically,

where there is an express provision of law prohibiting the grant of certain
benefits, the law must be enforced even if it prejudices certain parties due
to an error committed by public officials in granting the benefit. Practice,
without more, no matter how long continued, cannot give rise to any
vested right if it is contrary to law.
Despite the foregoing, this Court strongly holds that there was no probable
cause to prosecute the private respondent and the other members of the
Board of Directors of CWD for violation of Section 3(e) of Republic Act No.
3019, as amended, and to issue warrant of arrest against them.
Section 3(e) of Republic Act No. 3019, as amended, provides:
SEC.3.Corrupt practices of public officers.In addition to acts or
xxxx
(e)Causing any undue injury to any party, including the Government, or
giving any private party any unwarranted benefits, advantage or
preference in the discharge of his official, administrative or judicial
functions through manifest partiality, evident bad faith or gross
inexcusable negligence. This provision shall apply to officers and
employees of offices or government corporations charged with the grant of
licenses or permits or other concessions.
_______________
be a public officer discharging administrative, judicial or official functions;

(2) he must have acted with manifest partiality, evident bad faith or
inexcusable negligence; and (3) his action caused undue injury to any
party, including the government, or gave any private party an unwarranted
benefit, advantage or preference in the discharge of his functions.27
In the present case, the second element of violation of Section 3(e) of
Republic Act No. 3019, as amended, i.e., that the private respondent and
the other members of the Board of Directors of CWD acted with manifest
partiality, evident bad faith or inexcusable negligence, is absent.
In Soriano v. Marcelo,28 citing Albert v. Sandiganbayan,29 this Court
discussed the second element, to wit:
There is manifest partiality when there is a clear, notorious, or plain
inclination or predilection to favor one side or person rather than another.
Evident bad faith connotes not only bad judgment but also palpably and
patently fraudulent and dishonest purpose to do moral obliquity or
conscious wrongdoing for some perverse motive or ill will. Evident bad
faith contemplates a state of mind affirmatively operating with furtive
design or with some motive or self-interest or ill will or for ulterior
purposes. Gross inexcusable negligence refers to negligence
characterized by the want of even the slightest care, acting or omitting to
act in a situation where there is a duty to act, not inadvertently but willfully
and intentionally, with conscious indifference to consequences insofar as
other persons may be affected. (Emphases supplied.)
Based on the foregoing definitions, this Court does not find the act of the
private respondent and the other members of
_______________
26 Id.
769
27Soriano v. Marcelo, G.R. No. 160772, 13 July 2009, 592 SCRA 394.
28 Id.

769
29 G.R. No. 164015, 26 February 2009, 580 SCRA 279.

770
Catindig vs. People

From the aforequoted provisions, the elements of violation of Section 3(e)
of Republic Act No. 3019, as amended, are as follows: (1) the accused must
770
Catindig vs. People
771
the Board of Directors of CWD of passing resolutions granting benefits and

allowances to have been committed with manifest impartiality, evident bad
faith or gross inexcusable negligence.
Catindig vs. People
It bears stressing that in granting those benefits and allowances, the Board
of Directors of CWD relied on Resolution No. 313, Series of 1995, as
amended by Resolution No. 39, Series of 1996, entitled Policy Guidelines
on Compensation and Other Benefits to Water District Board of Directors,
which was issued by the LWUA itself, the body that oversees and regulates
the operations of the local water districts. The benefits granted by the said
LWUA Resolution No. 313, Series of 1995, to the board of directors of water
districts are the following: rata, travel allowance, extraordinary and
miscellaneous expense, Christmas bonus, cash gift, uniform allowance, rice
allowance, medical/dental benefits and productivity incentive bonus.30
More so, at the time that the private respondent and the other members of
the Board of Directors of CWD passed the resolutions from 1993-2001
granting benefits and allowances, this Court had not yet decided Baybay
Water District v. Commission on Audit, which was promulgated only in
2002. Also, it was only in De Jesus v. Commission on Audit,31 applying
Baybay Water District v. Commission on Audit, that this Court declared that
LWUA Resolution No. 313, Series of 1995, which grants compensation and
other benefits to the members of the Board of Directors of Local Water
Districts, is not in conformity with Section 13 of Presidential Decree No.
198, as amended.
Therefore, in relying on LWUA Resolution No. 313, Series of 1995 in passing
several resolutions granting the disputed benefits and allowances, the
private respondent and the other
_______________
members of the Board of Director of CWD acted in good faith, as they were
of the honest belief that LWUA Board Resolution No. 313, as amended, was
valid.
Bad faith is never presumed, while good faith is always presumed; and the
chapter on Human Relations of the Civil Code directs every person, inter
alia, to observe good faith, which springs from the fountain of good
conscience.32
In the absence of manifest partiality, evident bad faith or inexcusable
negligence in passing several resolutions granting benefits and allowances,
there can be no probable cause to prosecute the private respondent and
the other members of the Board of Directors of CWD for violation of Section
3(e) of Republic Act No. 3019, as amended. Consequently, there was also
no probable cause for the issuance of a warrant of arrest against them.
Clearly, where the evidence patently demonstrates the innocence of the
accused, as in this case, this Court finds no reason to continue with his
prosecution; otherwise, persecution amounting to grave and manifest
injustice would be the inevitable result.33
In Principio v. Barrientos,34 petitioner therein filed a motion with the trial
court praying that its motion for reconsideration filed with the Ombudsman
be given due course and thereafter, rule that no probable cause exists. The
trial court denied the said motion of the petitioner, thus, affirming the
finding of probable cause. Petitioner filed a Petition for Certiorari with the
Court of Appeals, but it dismissed the petition and affirmed the RTC. On
appeal to this Court via a Petition for Review on Certiorari, this Court
ratiocinated that:
At the outset, we reiterate the fundamental principle that an order
denying a motion to quash is interlocutory and therefore not
30 Molen, Jr. v. Commission on Audit, 493 Phil. 874, 883; 453 SCRA 769,
781 (2005).
_______________
31 451 Phil. 812, 822; 403 SCRA 666, 675 (2003).

771
32 Principio v. Barrientos, supra note 24.

33 Id.
34 Id., at pp. 645-651.
772
772
b. When necessary for the orderly administration of justice or to avoid

oppression or multiplicity of actions x x x;
c. When there is a pre-judicial question which is subjudice x x x;
773
Catindig vs. People

appealable, nor can it be the subject of a petition for certiorari. x x x The
proper procedure to be followed is to enter a plea, go to trial, and if the
decision is adverse, reiterate the issue on appeal from the final judgment.
x x x.
However, the general rule is not absolute. Where special circumstances
clearly demonstrate the inadequacy of an appeal, then the special civil
action of certiorari or prohibition may exceptionally be allowed. x x x.
After a careful review of the records, we find that such special
circumstance obtains in the case at bar. Simply stated, the existing
evidence is insufficient to establish probable cause against the petitioner
and therefore, the petition must be granted.
xxxx
Furthermore, the Ombudsman cannot impute bad faith on the part of the
petitioner on the assumption that he, together with other BSP officials, was
part of a cabal to apply pressure on RBSMI to sell out by subjecting it to
many impositions through the Monetary Board. Bad faith is never
presumed while good faith is always presumed x x x. Therefore, he who
claims bad faith must prove it. x x x The Ombudsman should have first
determined the facts indicating bad faith instead of relying on the tenuous
assumption that there was an orchestrated attempt to force RBSMI to sell
out.
As a general rule, courts do not interfere with the discretion of the
Ombudsman to determine whether there exists reasonable ground to
believe that a crime has been committed and that the accused is probably
guilty thereof and, thereafter, to file the corresponding information with the
appropriate courts. There are, however, well-recognized exceptions to this
rule, such as those enumerated in Brocka v. Enrile [G.R. Nos. 69863-65,
December 10, 1990, 192 SCRA 183, 188-189] to wit:
a. To afford adequate protection to the constitutional rights of the accused
x x x;

773
Catindig vs. People
d. When the acts of the officer are without or in excess of authority x x x;
e. Where the prosecution is under an invalid law, ordinance or regulation
x x x;
f. When double jeopardy is clearly apparent x x x;
g. Where the court has no jurisdiction over the offense x x x;
h. Where it is a case of persecution rather than prosecution x x x ;
i. Where the charges are manifestly false and motivated by the lust for
vengeance x x x;
j. When there is clearly no prima facie case against the accused and a
motion to quash on that ground has been denied x x x; and
k. Preliminary injunction has been issued by the Supreme Court to prevent
the threatened unlawful arrest of petitioners x x x.
This is not the first time that we are dismissing a case for want of
probable cause. In Cabahug v. People [426 Phil. 490, 510; 376 SCRA 113,
132 (2002)], we took exception to the Ombudsmans determination of
probable cause and accordingly dismissed the case against the accused
before the Sandiganbayan. Therein, we observed:
While it is the function of the Ombudsman to determine whether or/not the
petitioner should be subjected to the expense, rigors and embarrassment
of trial, he cannot do so arbitrarily. This seemingly exclusive and unilateral
authority of the Ombudsman must be tempered by the Court when powers
of prosecution are in danger of being used for persecution. Dismissing the
case against the accused for palpable want of probable cause not only
spares her the expense, rigors and embarrassment of trial, but also
prevents needless waste of the courts time and saves the precious
resources of the government. (Emphases supplied.)
therein petitioners failed to furnish the Ombudsman and the Office of the
Solicitor General (OSG) with a copy of their Petition.
_______________
Thus, the Court of Appeals did not err in granting the Petition for Certiorari
of the private respondent and in pronounc774
35 Avisado v. Rumbaua, 406 Phil. 704, 716; 354 SCRA 245, 255 (2001).
[Catindig vs. People, 600 SCRA 749(2009)]
774
Catindig vs. People
ing that he and the other members of the Board of Directors of CWD acted
in good faith.
Similarly, petitioner contends that the substantial facts and issues involved
in the Petition for Review in CA-G.R. SP No. 92474 were the same facts and
issues raised in the Petition for Certiorari in CA-G.R. SP No. 96293, the
subject of the present Petition. With the dismissal of the Petition for Review
in CA-G.R. SP No. 92474, which became final and executory on 29 March
2006, petitioner insists that the Court of Appeals should have also
dismissed outright the private respondents Petition for Certiorari in CAG.R. SP No. 96293 on the ground of res judicata.
Res judicata exists when the following elements are present: (a) the former
judgment must be final; (b) the court that rendered it had jurisdiction over
the parties and the subject matter; (c) it must be a judgment on the
merits; and (d) there must bebetween the first and the second actions
identity of parties, subject matter, and cause of action.35
Emphasis must be given to the fact that CA-G.R. No. 92474 was dismissed
based on pure technicalities and not on the merits, to wit: (1) therein
petitioners (now private respondents) counsels failed to indicate their
respective Integrated Bar of the Philippines (IBP) Official Receipt numbers,
in violation of Bar Matter No. 1132; (2) the Petition did not contain an
affidavit of service, as required by Section 13, Rule 13 and Section 5, Rule
43, of the Rules of Procedure, as proof that copy of the said Petition had
been served on the adverse party; (3) the Petition does not contain any
explanation of why a personal service upon therein private respondent
(now petitioner) was not resorted to pursuant to Section 11, Rule 13; and
VOL. 204, DECEMBER 11, 1991

767
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank
of the Philippines
G.R. No. 70054. December 11, 1991.*
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs. THE

MONETARY BOARD, CENTRAL BANK OF THE PHILIPPINES, JOSE B.
FERNANDEZ, CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO AND
RAMON V. TIAOQUI, respondents.
of the Philippines
G.R. No. 68878. December 11, 1991.*
G.R. No. 78894. December 11, 1991.*
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs. HON.

INTERMEDIATE APPELLATE COURT AND CELESTINA S. PAHIMUNTUNG,
assisted by her husband, respondents.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs. COURT OF

APPEALS, THE CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ,
JR., CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO AND RAMON
TIAOQUI, respondents.
G.R. Nos. 7725558. December 11,1991.*
G.R, No. 81303. December 11,1991.*
TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR DEVELOPMENT

CORPORATION, petitioners, vs. THE COURT OF APPEALS, The Executive
Judge of the Regional Trial Court of Cavite, Ex-Officio Sheriff REGALADO E.
EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P.
VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND GATMAITAN,
respondents.
G.R. No. 78766. December 11, 1991.*
EL GRANDE CORPORATION, petitioner, vs. THE COURT
EXECUTIVE JUDGE OF The Regional Trial Court and
REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND
CARLOTA P. VALENZUELA AND SYCIP, SALAZAR,
HERNANDEZ, respondents.
VALENZUELA, ARNULFO AURELLANO AND RAMON TIAOQUI, respondents.
OF APPEALS, THE
Ex-Officio Sheriff
MORTGAGE BANK,
FELICIANO AND
G.R. No. 78767. December 11,1991.*

METROPOLIS DEVELOPMENT CORPORATION, petitioner, vs. COURT OF
APPEALS, CENTRAL BANK OF THE PHILIP-PINES, JOSE B. FERNANDEZ, JR.,
CARLOTA P.
PILAR DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS,

HON. MANUEL M. COSICO, in his capacity as Presiding Judge of Branch 136
of the Regional Trial Court of Makati, CENTRAL BANK OF THE PHILIPPINES
AND CARLOTA P. VALENZUELA, respondents.
G.R. No. 81304. December 11, 1991.*
BF HOMES DEVELOPMENT CORPORATION, petitioner, vs. THE COURT OF
APPEALS, CENTRAL BANK AND CARLOTA P. VALENZUELA, respondents.
G.R. No. 90473. December 11, 1991.*
EL GRANDE DEVELOPMENT CORPORATION, petitioner, vs. THE COURT OF
APPEALS, THE EXECUTIVE JUDGE of the Regional Trial Court of Cavite,
CLERK OF COURT and ExOfficio Sheriff ADORACION VICTA, BANCO FILIPINO
SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SY CIP,
SALAZAR, HERNANDEZ AND GATMAITAN, respondents.
* EN BANC.
Remedial Law; Jurisdiction; Generally, courts have no supervising power

over the proceedings and actions of the administrative departments of the
government, exceptions.It is a well-recognized principle that
administrative and discretionary functions may not be interfered with by
the courts. In general, courts have no supervising power over the
proceedings and actions of the administrative departments of the
government. This is generally true with respect to acts
768
769
768
769
________________
of the Philippines
involving the exercise of judgment or discretion, and findings of fact. But
when there is a grave abuse of discretion which is equivalent to a
capricious and whimsical exercise of judgment or where the power is
exercised in an arbitrary or despotic manner, then there is a justification
for the courts to set aside the administrative determination reached.
Commercial Law; Banks and Banking; Section 29 of Republic Act No. 265
known as the Central Bank Act provides the person designated as receiver
to immediately take charge of the banks assets and liabilities, administer
the same for the benefit of its creditors and represent the bank personally
or through counsel as he may retain in all actions or proceedings for or
against the institution and to bring and foreclose mortgages in the name of
the bank.Section 29 of the Republic Act No. 265, as amended, known as
the Central Bank Act, provides that when a bank is forbidden to do
business in the Philippines and placed under receivership, the person
designated as receiver shall immediately take charge of the banks assets
and liabilities, as expeditiously as possible, collect and gather all the assets
and administer the same for the benefit of its creditors, and represent the
bank personally or through counsel as he may retain in all actions or
proceedings for or against the institution, exercising all the powers
necessary for these purposes including, but not limited to, bringing and
foreclosing mortgages in the name of the bank. If the Monetary Board shall
later determine and confirm that the banking institution is insolvent or
cannot resume business with safety to depositors, creditors and the
general public, it shall, if public interest requires, order its liquidation and
appoint nu liquidator who shall take over and continue the functions of the
receiver previously appointed by Monetary Board. The liquidator may, in
the name of the bank and with the assistance of counsel as he may retain,
institute such actions as may be necessary in the appropriate court to
collect and recover accounts and assets of such institution or defend any
action filed against the institution.
Same; Same; Same; Pendency of G.R. No. 70054 did not diminish the
powers and authority of the designated liquidator to effectuate and carry
on the administration of the bank.When the issue on the validity of the
closure and receivership of Banco Filipino bank was raised in G.R. No.
70054, the pendency of the case did not diminish the powers and authority
of the designated liquidator to effectuate and carry on the administration
of the bank. In fact when We adopted a resolution on August 25, 1985 and
issued a restraining order to respondents Monetary Board and Central
Bank, We enjoined merely
770
770
of the Philippines
further acts of liquidation. Such acts of liquidation, as explained in Sec. 29
of the Central Bank Act are those which constitute the conversion of the
assets of the banking institution to money or the sale, assignment or
disposition of the same to creditors and other parties for the purpose of
paying the debts of such institution. We did not prohibit however acts such
as receiving collectibles and receivables or paying off creditors claims and
other transactions pertaining to normal operations of a bank.
Same; Same; Same; In G.R. Nos. 68878, 7725568, 78766 and 90473, the
liquidator by himself or through counsel has the authority to bring actions
for foreclosure of mortgages executed by debtors in favor of the bank.
Clearly, in G.R. Nos. 68878, 7725568, 78766 and 90473, the liquidator by
himself or through counsel has the authority to bring actions for
foreclosure of mortgages executed by debtors in favor of the bank. In G.R.
No. 81303, the liquidator is likewise authorized to resist or defend suits
instituted against the bank by debtors and creditors of the bank and by
other private persons. Similarly, in G.R. No. 81304, due to the aforestated
reasons, the Central Bank cannot be compelled to fulfill financial
transactions entered into by Banco Filipino when the operations of the
latter were suspended by reason of its closure. The Central Bank possesses
those powers and functions only as provided for in Sec. 29 of the Central
Bank Act.
Same; Same; Same; Court held that the closure and receivership of
petitioner bank which was ordered by respondent Monetary Bank on
January 25, 1985 is null and void.While We recognize the actual closure
of Banco Filipino and the consequent legal effects thereof on its operations,
We cannot uphold the legality of its closure and thus, find the petitions in
G.R. Nos. 70054, 78767 and 78894 impressed with merit. We hold that the
closure and receivership of petitioner bank, which was ordered by
respondent Monetary Board on January 25, 1985, is null and void.
Same; Same; Same; The Monetary Board may order the cessation of
operation of a bank in the Philippines and place it under receivership upon
a finding of insolvency or when its continuance in business would involve
probable loss to its depositors or creditors.Based on the aforequoted

provision, the Monetary Board may order the cessation of operations of a
bank in the Philippines and place it under receivership upon a finding of
insolvency or when its continuance in business would involve probable loss
to its depositors or creditors. If the Monetary Board shall determine and
confirm within sixty (60) days that the
771

771
move to conclude prematurely that a bank is insolvent if the basis for such
conclusion is lacking and insufficient, especially if doubt exists as to
whether such bases or findings faithfully represent the real financial status
of the bank.
Same; Same; Same; Same; The power and authority of the Monetary Board
to close banks and liquidate them thereafter when public interest so
requires is an exercise of the police power of the state.We recognize the
fact that it is the responsibility of the Central Bank of the Philippines to
administer the monetary, banking and credit system of the country and
that its powers and functions shall be exercised by the Monetary Board
pursuant to Rep. Act No. 265, known as the Central Bank Act.
Consequently, the power and authority of the Monetary Board to close
banks and liquidate them thereafter when
of the Philippines
772
bank is insolvent or can no longer resume business with safety to its

depositors, creditors and the general public, it shall, if public interest will
be served, order its liquidation.
772
Same; Same; Same; Same; Mandatory requirements to be complied with

before a bank found to be insolvent is ordered closed and forbidden to do
business in the Philippines.There is no question that under Section 29 of
the Central Bank Act, the following are the mandatory requirements to be
complied with before a bank found to be insolvent is ordered closed and
forbidden to do business in the Philippines: Firstly, an examination shall be
conducted by the head of the appropriate supervising or examining
department or his examiners or agents into the condition of the bank;
secondly, it shall be disclosed in the examination that the condition of the
bank is one of insolvency, or that its continuance in business would involve
probable loss to its depositors or creditors; thirdly, the department head
concerned shall inform the Monetary Board in writing, of the facts; and
lastly, the Monetary Board shall find the statements of the department
head to be true.
Same; Same; Same; Same; Same; The examination contemplated in
Section 29 of the CB Act as a mandatory requirement was not completely
and fully complied with.It is evident from the foregoing circumstances
that the examination contemplated in Sec. 29 of the CB Act as a
mandatory requirement was not completely and fully complied with.
Despite the existence of the partial list of findings in the examination of the
bank, there were still highly significant items to be weighed and
determined such as the matter of valuation reserves, before these can be
considered in the financial condition of the bank. It would be a drastic

of the Philippines
public interest so requires is an exercise of the police power of the state.
Police power, however, may not be done arbitratrily or unreasonably and
could be set aside if it is either capricious, discriminatory, whimsical,
arbitrary, unjust or is tantamount to a denial of due process and equal
protection clauses of the Constitution.
Same; Same; Same; Same; Section 29 of RA 265 does not require a
previous hearing before the Monetary Board implements the closure of a
bank.However, as to the requirement of notice and hearing, Sec. 29 of
RA 265 does not require a previous hearing before the Monetary Board
implements the closure of a bank, since its action is subject to judicial
scrutiny as provided for under the same law.
Same; Same; Same; Same; Administrative due process does not mean that
the other important principles may be dispensed with.Notwithstanding
the foregoing, administrative due process does not mean that the other
important principles may be dispensed with, namely: the decision of the
administrative body must have something to support itself and the
evidence must be substantial. Substantial evidence is more than a mere
scintilla. It means such relevant evidence as a reasonable mind might

accept as adequate to support a conclusion.
Same; Same; Insolvency; Test of insolvency laid down in Section 29 of the
Central Bank Act is measured by determining whether the realizable assets
of a bank are less than its liabilities.The test of insolvency laid down in
Section 29 of the Central Bank Act is measured by determining whether
the realizable assets of a bank are less than its liabilities. Hence, a bank is
solvent if the fair cash value of all its assets, realizable within a reasonable
time by a reasonable prudent person, would equal or exceed its total
liabilities exclusive of stock liability; but if such fair cash value so realizable
is not sufficient to pay such liabilities within a reasonable time, the bank is
insolvent. (Gillian v. State, 194 N.E. 360, 363, 207 Ind. 661). Stated in other
words, the insolvency of a bank occurs when the actual cash market value
of its assets is insufficient to pay its liabilities, not considering capital stock
and surplus which are not liabilities for such purpose.
Same; Same; Same; Same; Court believes that the closure of the petitioner
bank was arbitrary and committed with grave abuse of discretion.ln view
of the foregoing premises, We believe that the closure of the petitioner
bank was arbitrary and committed with grave abuse of discretion. Granting
in gratia argumenti that the closure was
773

773
of the Philippines
based on justified grounds to protect the public, the fact that petitioner
bank was suffering from serious financial problems should not
automatically lead to its liquidation. Section 29 of the Central Bank
provides that a closed bank may be reorganized or otherwise placed in
such a condition that it may be permitted to resume business with safety
to its depositors, creditors and the general public
MELENCIO-HERRERA, J., Dissenting opinion
Same; Same; Same; The matter of reopening, reorganization, or

rehabilitation of BF is not within the competence of the Court to ordain but
is better addressed to the Monetary Board and the Central Bank.The
matter of reopening, reorganization or rehabilitation of BF is not within the
competence of this Court to ordain but is better addressed to the Monetary
Board and the Central Bank considering the latters enormous infusion of
capital into BF to the tune of approximately P3.5 Billion in total
accommodations, after a thorough assessment of whether or not BF is,
indeed, possessed, as it stoutly contends, of sufficient assets and
capabilities with which to repay such huge indebtedness, and can operate
without loss to its many depositors and creditors.
GRIO-AQUINO, J., Dissenting opinion
Same; Same; Same; Court has neither the authority nor the competence to
determine whether or not and under what conditions BF should be
reorganized and reopened.This Court has neither the authority nor the
competence to determine whether or not, and under what conditions, BF
should be reorganized and reopened. That decision should be made by the
Central Bank and the Monetary Board, not by this Court
Same; Same; Same; Same; Dissenter does not find that the CBs Resolution
No. 75 ordering BF to cease banking operation and placing it under
receivership was plainly arbitrary and made in bad faith.In the light of
the results of the examination of BF by the Teodoro and Tiaoqui teams, I do
not find that the CBs Resolution No. 75 ordering BF to cease banking
operations and placing it under receivership was plainly arbitrary and
made in bad faith. The receivership was justified because BF was
insolvent and its continuance in business would cause loss to its depositors
and creditors.
PETITION to review the decision of the Court of Appeals.
774
774
of the Philippines
Panganiban, Benitez, Barinaga & Bautista Law Offices collaborating
counsel for petitioner.
Florencio T. Domingo, Jr. and Crisanto S. Cornejo for intervenors.
MEDIALDEA, J.:

775
Banco Filipino Savings & Mortgage Bank vs.4 Monetary Board, Central Bank
of the Philippines
since January 26, 1986 by the Central Bank pursuant to the resolution of
the Monetary Board.
G.R. Nos. 7725558
This refers to nine (9) consolidated cases concerning the legality of the
closure and receivership of petitioner Banco Filipino Savings and Mortgage
Bank (Banco Filipino for brevity) pursuant to the order of respondent
Monetary Board. Six (6) of these cases, namely, G.R. Nos. 68878, 77255
58, 78766, 81303, 81304 and 90473 involve the common issue of whether
or not the liquidator appointed by the respondent Central Bank (CB for
brevity) has the authority to prosecute as well as to defend suits, and to
foreclose mortgages for and in behalf of the bank while the issue on the
validity of the receivership and liquidation of the latter is pending
resolution in G.R. No. 70054. Corollary to this issue is whether the CB can
be sued to fulfill financial commitments of a closed bank pursuant to
Section 29 of the Central Bank Act On the other hand, the other three (3)
cases, namely, G.R. Nos. 70054, which is the main case, 78767 and 78894
all seek to annul and set aside M.B. Resolution No. 75 issued by
respondents Monetary Board and Central Bank on January 25, 1985.
The antecedent facts of each of the nine (9) cases are as follows:
G.R. No. 68878
This is a motion for reconsideration, filed by respondent Celestina
Pahimuntung, of the decision promulgated by this Court on April 8, 1986,
granting the petition for review on certiorari and reversing the questioned
decision of respondent appellate court, which annulled the writ of
possession issued by the trial court in favor of petitioner.
The respondent-movant contends that the petitioner has no more
personality to continue prosecuting the instant case considering that
petitioner bank was placed under receivership
775
Petitioners Top Management Programs Corporation (Top Management for

brevity) and Pilar Development Corporation (Pilar Development for brevity)
are corporations engaged in the business of developing residential
subdivisions.
Top Management obtained a loan of P4,836,000 from Banco Filipino as
evidenced by a promissory note dated January 7, 1982 payable in three
years from date. The loan was secured by real estate mortgage in its
various properties in Cavite. Likewise, Pilar Development obtained loans
from Banco Filipino between 1982 and 1983 in the principal amounts of
P6,000,000, P7,370,000 and P5,300,000 with maturity dates on December
28,1984, January 5, 1985 and February 16,1984, respectively. To secure the
loan, Pilar Development mortgaged to Banco Filipino various properties in
Dasmarias, Cavite.
On January 25, 1985, the Monetary Board issued a resolution finding Banco
Filipino insolvent and unable to do business without loss to its creditors and
depositors. It placed Banco Filipino under receivership of Carlota
Valenzuela, Deputy Governor of the Central Bank.
On March 22, 1985, the Monetary Board issued another resolution placing
the bank under liquidation and designating Valenzuela as liquidator. By
virtue of her authority as liquidator, Valenzuela appointed the law firm of
Sycip, Salazar, et al. to represent Banco Filipino in all litigations.
On March 26, 1985, Banco Filipino filed the petition for certiorari in G.R. No.
70054 questioning the validity of the resolutions issued by the Monetary
Board authorizing the receivership and liquidation of Banco Filipino.
In a resolution dated August 29, 1985, this Court in G.R. No. 70054
resolved to issue a temporary restraining order, effective during the same
period of 30 days, enjoining the respondents from executing further acts of
liquidation of the bank; that acts such as receiving collectibles and

receivables or paying off creditors claims and other transactions
pertaining to normal operations of a bank are not enjoined. The Central
Bank is
Monetary Board as liquidator of Banco Filipino, has no authority to proceed

with the foreclosure sale of petitioners properties on the ground that the
resolution of the issue on the validity of the closure and liquidation of
Banco Filipino is still pending with this Court in G.R. 70054.
776
G.R. No. 78766
776
Petitioner El Grande Development Corporation (El Grande for brevity) is

engaged in the business of developing residential subdivisions. It was
extended by respondent Banco Filipino a
777
of the Philippines
ordered to designate a comptroller for Banco Filipino.
Subsequently, Top Management failed to pay its loan on the due date.
Hence, the law firm of Sycip, Salazar, et al. acting as counsel for Banco
Filipino under authority of Valenzuela as liquidator, applied for extrajudicial foreclosure of the mortgage over Top Managements properties.
Thus, the Ex-Officio Sheriff of the Regional Trial Court of Cavite issued a
notice of extra-judicial foreclosure sale of the properties on December 16,
1985.
On December 9, 1985, Top Management filed a petition for injunction and
prohibition with the respondent appellate court docketed as CA-G.R. SP No.
07892 seeking to enjoin the Regional Trial Court of Cavite, the ex-officio
sheriff of said court and Sycip, Salazar, et al. from proceeding with
foreclosure sale. Similarly, Pilar Development defaulted in the payment of
its loans. The law firm of Sycip, Salazar, et al. filed separate applications
with the ex-officio sheriff of the Regional Trial Court of Cavite for the extrajudicial foreclosure of mortgage over its properties.
Hence, Pilar Development filed with the respondent appellate court a
petition for prohibition with prayer for the issuance of a writ of preliminary
injunction docketed as CA-G.R. SP Nos. 0896264 seeking to enjoin the
same respondents from enforcing the foreclosure sale of its properties. CAG.R. SP Nos. 07892 and 0896264 were consolidated and jointly decided.
On October 30, 1986, the respondent appellate court rendered a decision
dismissing the aforementioned petitions.
Hence, this petition was filed by the petitioners Top Management and Pilar
Development alleging that Carlota Valenzuela, who was appointed by the

777
of the Philippines
credit accommodation to finance its housing program. Hence, petitioner
was granted a loan in the amount of P8,034,130,00 secured by real estate
mortgages on its various estates located in Cavite.
On January 15, 1985, the Monetary Board forbade Banco Filipino to do
business, placed it under receivership and designated Deputy Governor
Carlota Valenzuela as receiver. On March 22, 1985, the Monetary Board
confirmed Banco Filipinos insolvency and designated the receiver Carlota
Valenzuela as liquidator.
When petitioner El Grande failed to pay its indebtedness to Banco Filipino,
the latter thru its liquidator, Carlota Valenzuela, initiated the foreclosure
with the Clerk of Court and Ex-officio sheriff of RTC Cavite. Subsequently,
on March 31, 1986, the exofficio sheriff issued the notice of extra-judicial
sale of the mort-gaged properties of El Grande scheduled on April 30,
1986.
In order to stop the public auction sale, petitioner El Grande filed a petition
for prohibition with the Court of Appeals alleging that respondent Carlota
Valenzuela could not proceed with the foreclosure of its mortgaged
properties on the ground that this Court in G.R. No. 70054 issued a
resolution dated August 29, 1985, which restrained Carlota Valenzuela
from acting as liquidator and allowed Banco Filipino to resume banking
operations only under a Central Bank comptroller.
On March 2, 1987, the Court of Appeals rendered a decision dismissing the

petition.
Hence this petition for review on certiorari was filed alleging that the
respondent court erred when it held in its decision that although Carlota P.
Valenzuela was restrained by this Honorable Court from exercising acts in
liquidation of Banco Filipino Savings 6, Mortgage Bank, she was not legally
precluded from foreclosing the mortgage over the properties of the
petitioner through counsel retained by her for the purpose.
G.R. No. 81303
On November 8, 1985, petitioner Pilar Development Corporation (Pilar
Development for brevity) filed an action against Banco Filipino, the Central
Bank and Carlota Valenzuela for specific performance, docketed as Civil
Case No. 12191. It
778
778
of the Philippines
appears that the former management of Banco Filipino appointed
Quisumbing 6, Associates as counsel for Banco Filipino. On June 12,1986
the said law firm filed an answer for Banco Filipino which confessed
judgment against Banco Filipino.
On June 17, 1986, petitioner filed a second amended complaint. The
Central Bank and Carlota Valenzuela, thru the law firm Sycip, Salazar,
Hernandez and Gatmaitan filed an answer to the complaint.
On June 23, 1986, Sycip, et al., acting for all the defendants including
Banco Filipino moved that the answer filed by Quisumbing 6, Associates for
defendant Banco Filipino be expunged from the records. Despite opposition
from Quisumbing 6, Associates, the trial court granted the motion to
expunge in an order dated March 17, 1987. Petitioner Pilar Development
moved to reconsider the order but the motion was denied.
Petitioner Pilar Development filed with the respondent appellate court a
petition for certiorari and mandamus to annul the order of the trial court.
The Court of Appeals rendered a decision dismissing the petition. A petition

was filed with this Court but was denied in a resolution dated March 22,
1988. Hence, this instant motion for reconsideration.
G.R. No. 81304
On July 9, 1985, petitioner BF Homes Incorporated (BF Homes for brevity)
filed an action with the trial court to compel the Central Bank to restore
petitioners financing facility with Banco Filipino.
The Central Bank filed a motion to dismiss the action. Petitioner BF Homes
in a supplemental complaint impleaded as defendant Carlota Valenzuela as
receiver of Banco Filipino Savings and Mortgage Bank.
On April 8, 1985, petitioner filed a second supplemental complaint to which
respondents filed a motion to dismiss.
On July 9, 1985, the trial court granted the motion to dismiss the
supplemental complaint on the grounds (1) that plaintiff has no contractual
relation with the defendants, and (2) that the Intermediate Appellate Court
in a previous decision in ACG.R. SP. No. 04609 had stated that Banco
Filipino has been ordered closed and placed under receivership pending
liquida779

779
of the Philippines
tion, and thus, the continuation of the facility sued for by the plaintiff has
become legally impossible and the suit has become moot.
The order of dismissal was appealed by the petitioner to the Court of
Appeals. On November 4, 1987, the respondent appellate court dismissed
the appeal and affirmed the order of the trial court.
Hence, this petition for review on certiorari was filed, alleging that the
respondent court erred when it found that the private respondents should
not be the ones to respond to the cause of action asserted by the
petitioner and the petitioner did not have any cause of action against the
respondents Central Bank and Carlota Valenzuela,
G.R. No. 90473

Petitioner El Grande Development Corporation (El Grande for brevity)
obtained a loan from Banco Filipino in the amount of P8,034,1 30.00,
secured by a mortgage over its five parcels of land located in Cavite which
were covered by Transfer Certificate of Title Nos. T-82187, T-109027, T132897, T-148377, and T-79371 of the Registry of Deeds of Cavite.
Corporation, Filipino Business Consultants, Tiu Family Group, LBH Inc. and
Anthony Aguirre.
Petitioner Bank had an approved emergency advance of P119.7 million
under M.B. Resolution No. 839 dated June 29, 1984. This was augmented
with a P3 billion credit line under M.B. Resolution No. 934 dated July 27,
1984.
When Banco Filipino was ordered closed and placed under receivership in
1985, the appointed liquidator of BF, thru its counsel Sycip, Salazar, et al.
applied with the ex-officio sheriff of the Regional Trial Court of Cavite for
the extrajudicial foreclosure of the mortgage constituted over petitioners
properties. On March 24, 1986, the ex-officio sheriff issued a notice of
extrajudicial foreclosure sale of the properties of petitioner.
On the same date, respondent Board issued M.B. Resolution No. 955
placing petitioner bank under conservatorship of Basilio Estanislao. He was
later replaced by Gilberto Teodoro as conservator on August 10, 1984. The
latter submitted a report dated January 8, 1985 to respondent Board on the
conservatorship of petitioner bank, which report shall hereinafter be
referred to as the Teodoro report.
Thus, petitioner filed with the Court of Appeals a petition for prohibition
with prayer for writ of preliminary injunction to enjoin the respondents from
foreclosing the mortgage and to nullify the notice of foreclosure.
Subsequently, another report dated January 23, 1985 was submitted to the
Monetary Board by Ramon Tiaoqui, Special Assistant to the Governor and
Head, SES Department II of the Central Bank, regarding the major findings
of examination on the financial condition of petitioner BF as of July 31,
1984. The report, which shall be referred to herein as the Tiaoqui Report
contained the following conclusion and recommendation:
On June 16, 1989, respondent Court of Appeals rendered a decision

dismissing the petition.
Not satisfied with the decision, petitioner filed the instant petition for
review on certiorari.
G.R. No. 70054
The examination findings as of July 31, 1984, as shown earlier, indicate

one of insolvency and illiquidity and further confirms the above conclusion
of the Conservator.
Banco Filipino Savings and Mortgage Bank was authorized to
All the foregoing provides sufficient justification for forbidding the bank
from engaging in banking.
780
Foregoing considered, the following are recommended:
780
of the Philippines
operate as such under M.B. Resolution No. 223 dated February 14, 1963. It
commenced operations on July 9, 1964. It has eighty-nine (89) operating
branches, forty-six (46) of which are in Manila, with more than three (3)
million depositors.
As of July 31, 1984, the list of stockholders showed the major stockholders
to be: Metropolis Development Corporation, Apex Mortgage and Loans
1. Forbid the Banco Filipino Savings 6, Mortgage Bank to do business in the

Philippines effective the beginning of office January 1985, pursuant to Sec.
29 of (R.A. No. 265, as amended;
2. Designate the Head of the Conservator Team at the bank, as Receiver of
Banco Filipino Savings & Mortgage Bank, to immediately take charge of the
assets and liabilities, as expeditiously as possible collect and gather all the
assets and ad
781
781
of the Philippines
minister the same for the benefit of all the creditors, and exercise all the
powers necessary for these purposes including but not limited to bringing
suits and foreclosing mortgages in the name of the bank.
3. The Board of Directors and the principal officers from Senior Vice
Presidents, as listed in the attached Annex A' be included in the watchlist
of the Supervision and Examination Sector until such time that they shall
have cleared themselves.
4. Refer to the Central Banks Legal Department and Office of Special
Investigation the report on the findings on Banco Filipino for investigation
and possible prosecution of directors, officers, and employees for activities
which led to its insolvent position. (pp. 6162, Rollo)
On January 25, 1985, the Monetary Board issued the assailed MB
Resolution No. 75 which ordered the closure of BF and which further
provides:
After considering the report dated January 8, 1985 of the Conservator for
Banco Filipino Savings and Mortgage Bank that the continuance in business
of the bank would involve probable loss to its depositors and creditors, and
after discussing and finding to be true the statements of the Special
Assistant to the Governor and Head, Supervision and Examination Sector
(SES) Department II as recited in his memorandum dated January 23, 1985,
that the Banco Filipino Savings 6, Mortgage Bank is insolvent and that its
continuance in business would involve probable loss to its depositors and
creditors, and in pursuance of Sec. 29 of R.A. 265, as amended, the Board
decided:
1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches
to do business in the Philippines;
2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor as Receiver
who is hereby directly vested with jurisdiction and authority to immediately
take charge of the banks assets and liabilities, and 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
mortgagee in the name of the bank;
3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the Governor,

and Mr. Ramon V. Tiaoqui, Special Assistant to the Governor and Head,
Supervision and Examination Sector Department II, as Deputy Receivers
who are likewise hereby directly vested with jurisdiction and authority to
do all things necessary or proper to carry out the functions entrusted to
them by the Receiver and other
782
782
of the Philippines
wise to assist the Receiver in carrying out the functions vested in the
Receiver by law or Monetary Board Resolutions;
4. To direct and authorize Management to do all other things and carry out
all other measures necessary or proper to implement this Resolution and to
safeguard the interests of depositors, creditors and the general public; and
5. In consequence of the foregoing, to terminate the conservatorship over
Banco Filipino Savings and Mortgage Bank. (pp. 10- 11, Rollo, Vol. I)
On February 2, 1985, petitioner BF filed a complaint docketed as Civil Case
No. 9675 with the Regional Trial Court of Makati to set aside the action of
the Monetary Board placing BF under receivership.
On February 28, 1985, petitioner filed with this Court the instant petition
for certiorari and mandamus under Rule 65 of the Rules of Court seeking to
annul the resolution of January 25, 1985 as made without or in excess of
jurisdiction or with grave abuse of discretion, to order respondents to
furnish petitioner with the reports of examination which led to its closure
and to afford petitioner BF a hearing prior to any resolution that may be
issued under Section 29 of R.A. 265, also known as Central Bank Act.
On March 19, 1985, Carlota Valenzuela, as Receiver and Arnulfo Aurellano
and Ramon Tiaoqui as Deputy Receivers of Banco Filipino submitted their
report on the receivership of BF to the Monetary Board, in compliance with
the mandate of Sec. 29 of R.A. 265 which provides that the Monetary Board
shall determine within sixty (60) days from date of receivership of a bank
whether such bank may be reorganized/permitted to resume business or
ordered to be
recommendation:
liquidated.
The
report
contained
the
following
In view of the foregoing and considering that the condition of the banking
institution continues to be one of insolvency, i.e., its realizable assets are
insufficient to meet all its liabilities and that the bank cannot resume
business with safety to its depositors, other creditors and the general
public, it is recommended that:
1. Banco Filipino Savings 6, Mortgage Bank be liquidated pursuant to
paragraph 3, Sec. 29 of RA No. 265, as amended;
2. The Legal Department, through the Solicitor General, be au
783

783
further acts of liquidation of a bank. Acts such as receiving collect-ibles and

receivables or paying off creditors claims and other transactions
pertaining to normal operations of a bank were not enjoined. The Central
Bank was also ordered to designate a comptroller for the petitioner BF. This
Court also ordered the consolidation of Civil Cases Nos. 8108, 9676 and
10183 in Branch 136 of the Regional Trial Court of Makati.
However, on September 12, 1985, this Court in the meantime suspended
the hearing it ordered in its resolution of August 29, 1985.
On October 8, 1985, this Court submitted a resolution ordering Branch 136
of the Regional Trial Court of Makati then presided over by Judge Ricardo
Francisco to conduct the hearing contemplated in the resolution of August
29, 1985 in the most expeditious manner and to submit its resolution to
this Court.
In the Courts resolution of February 19, 1987, the Court stated that the
hearing contemplated in the resolution of August 29, 1985, which is to
ascertain whether substantial admin784
of the Philippines
thorized to file in the proper court a petition for assistance in the
liquidation of the Bank;
3. The Statutory Receiver be designated as the Liquidator of said bank; and
4. Management be instructed to inform the stockholders of Banco Filipino
Savings 6, Mortgage Bank of the Monetary Boards decision to liquidate the
Bank. (p. 167, Rollo, Vol. I)
On July 23, 1985, petitioner filed a motion before this Court praying that a
restraining order or a writ of preliminary injunction be issued to enjoin
respondents from causing the dismantling of BF signs in its main office and
89 branches. This Court issued a resolution on August 8, 1985 ordering the
issuance of the aforesaid temporary restraining order.
On August 20, 1985, the case was submitted for resolution.
In a resolution dated August 29, 1985, this Court Resolved to direct the
respondents Monetary Board and Central Bank to hold hearings at which
the petitioner should be heard, and to terminate such hearings and submit
its resolution within thirty (30) days. This Court further resolved to issue a
temporary restraining order enjoining the respondents from executing
784
of the Philippines
istrative due process had been observed by the respondent Monetary
Board, may be expedited by Judge Manuel Cosico who now presides the
court vacated by Judge Ricardo Francisco, who was elevated to the Court of
Appeals, there being no legal impediment or justifiable reason to bar the
former from conducting such hearing. Hence, this Court directed Judge
Manuel Cosico to expedite the hearing and submit his report to this Court.
On February 20, 1988, Judge Manuel Cosico submitted his report to this
Court with the recommendation that the resolutions of respondents
Monetary Board and Central Bank authorizing the closure and liquidation of
petitioner BF be upheld.
On October 21,1988, petitioner BF filed an urgent motion to reopen
hearing to which respondents filed their comment on December 16, 1988.
Petitioner filed their reply to respondents comment of January 11,1989.
After having deliberated on the grounds raised in the pleadings, this Court
in its resolution dated August 3, 1989 declared that its intention as
expressed in its resolution of August 29, 1985 had not been faithfully
adhered to by the herein petitioner and respondents. The aforementioned
resolution had ordered a hearing on the reports that Ied respondents to
order petitioners closure and its alleged preplanned liquidation. This Court
noted that during the referral hearing however, a different scheme was
followed. Respondents merely submitted to the commissioner their findings
on the examinations conducted on petitioner, affidavits of the private
respondents relative to the findings, their reports to the Monetary Board
and several other documents in support of their position while petitioner
had merely submitted objections to the findings of respondents, counteraffidavits of its officers and also documents to prove its claims. Although
the records disclose that both parties had not waived cross-examination of
their deponents, no such cross-examination has been conducted. The
reception of evidence in the form of affidavits was followed throughout,
until the commissioner submitted his report and recommendations to the
Court. This Court also held that the documents pertinent to the resolution
of the instant petition are the Teodoro Report, Tiaoqui Report, Valenzuela,
Aurellano and Tiaoqui Report and the supporting documents which were
stockholders of petitioner bank for and on behalf of other stockholders of

petitioner; second, in G.R. No. 78894, filed by the same stockholders, and,
third, again in G.R. No. 70054 by BF Depositors Association and others
similarly situated. This Court, on March 1,1990, denied the aforesaid
motions for intervention.
785
1. That the TEODORO and TIAOQUI reports did not establish, in

accordance with Sec. 29 of the R.A. 265, as amended, BFs insolvency as of
July 31, 1984 or that its continuance in business thereafter would involve
probable loss to its depositors or creditors. On the contrary, the evidence
indicates that BF was solvent on July 31, 1984 and that on January 25,
1985, the day it was closed, its insolvency was

785
of the Philippines
made as the bases by the reporters of their conclusions contained in their
respective reports. This Court also Resolved in its resolution to re-open the
referral hearing that was terminated after Judge Cosico had submitted his
report and recommendation with the end in view of allowing petitioner to
complete its presentation of evidence and also for respondents to adduce
additional evidence, if so minded, and for both parties to conduct the
required cross-examination of witnesses/deponents, to be done within a
period of three months. To obviate all doubts on Judge Cosicos impartiality,
this Court designated a new hearing commissioner in the person of former
Judge Consuelo Santiago of the Regional Trial Court, Makati, Branch 149
(now Associate Justice of the Court of Appeals).
Three motions for intervention were filed in this case as follows: First, in
G.R. No. 70054 filed by Eduardo Rodriguez and Fortunato M. Dizon,
On January 28, 1991, the hearing commissioner, Justice Consuelo Santiago

of the Court of Appeals submitted her report and recommendation (to be
hereinafter called, Santiago Report) on the following issues stated
therein as follows:
1) Had the Monetary Board observed the procedural requirements laid
down in Sec. 29 of R.A. 265, as amended to justify the closure of the Banco
Filipino Savings and Mortgage Bank?
2) On the date of BFs closure (January 25, 1985) was its condition one of
insolvency or would its continuance in business involve probable loss to its
depositors or creditors?
The commissioner after evaluation of the evidence presented, found and
recommended the following:
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786
of the Philippines
not clearly es tablished;
2. That consequently, BFs closure on January 25, 1985, not having
satisfied the requirements prescribed under Sec. 29 of RA 265, as
amended, was null and void.
3. That accordingly, by way of correction, BF should be allowed to re-open

subject to such laws, rules and regulations that apply to its situation.
of the Philippines
Respondents thereafter filed a motion for leave to file objections to the

Santiago Report. In the same motion, respondents requested that the
report and recommendation be set for oral argument before the Court. On
February 7, 1991, this Court denied the request for oral argument of the
parties.
receivers had not authorized anyone to file the action. In a supplemental

motion to dismiss, the Central Bank cited the resolution of this Court dated
October 15, 1985 in G.R. No. 65723 entitled, Central Bank et al. v.
Intermediate Appellate Court whereby We held that a complaint
questioning the validity of the receivership established by the Central Bank
becomes moot and academic upon the initiation of liquidation proceedings.
On February 25, 1991, respondents filed their objections to the Santiago

Report. On March 5, 1991, respondents submitted a motion for oral
argument alleging that this Court is confronted with two conflicting reports
on the same subject, one upholding on all points the Monetary Boards
closure of petitioner, (Cosico Report dated February 19,1988) and the other
(Santiago Report dated January 25, 1991) holding that petitioners closure
was null and void because petitioners insolvency was not clearly
established before its closure; and that such a hearing on oral argument
will therefore allow the parties to directly confront the issues before this
Court.
On March 12,1991 petitioner filed its opposition to the motion for oral
argument. On March 20,1991, it filed its reply to respondents objections to
the Santiago Report.
On June 18, 1991, a hearing was held where both parties were heard on
oral argument before this Court. The parties, having submitted their
respective memoranda, the case is now submitted for decision.
G.R. No. 78767
On February 2, 1985, Banco Filipino filed a complaint with the trial court
docketed as Civil Case No. 9675 to annul the resolution of the Monetary
Board dated January 25, 1985, which ordered the closure of the bank and
placed it under receivership.
On February 14, 1985, the Central Bank and the receivers filed a motion to
dismiss the complaint on the ground that the
787

787
While the motion to dismiss was pending resolution, petitioner herein

Metropolis Development Corporation (Metropolis for brevity) filed a motion
to intervene in the aforestated civil case on the ground that as a
stockholder and creditor of Banco Filipino, it has an interest in the subject
of the action.
On July 19, 1985, the trial court denied the motion to dismiss and also
denied the motion for reconsideration of the order later filed by Central
Bank. On June 5, 1985, the trial court allowed the motion for intervention.
Hence, the Central Bank and the receivers of Banco Filipino filed a petition
for certiorari with the respondent appellate court alleging that the trial
court committed grave abuse of discretion in not dismissing Civil Case No.
9675.
On March 17, 1986, the respondent appellate court rendered a decision
annulling and getting aside the questioned orders of the trial court, and
ordering the dismissal of the complaint filed by Banco Filipino with the trial
court as well as the complaint in intervention of petitioner Metropolis
Development Corporation.
Hence this petition was filed by Metropolis Development Corporation
questioning the decision of the respondent appellate court.
G.R. No. 78894
On February 2, 1985, a complaint was filed with the trial court in the name
of Banco Filipino to annul the resolution of the Monetary Board dated
January 25, 1985 which ordered the closure of Banco Filipino and placed it
under receivership. The receivers appointed by the Monetary Board were
Carlota Valenzuela, Arnulfo Aurellano and Ramon Tiaoqui.
On February 14, 1985, the Central Bank and the receivers filed a motion to
dismiss the complaint on the ground that the
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receiver had not authorized anyone to file the action.
On March 22, 1985, the Monetary Board placed the bank under liquidation
and designated Valenzuela as liquidator and Aurellano and Tiaoqui as
deputy liquidators.
The Central Bank filed a supplemental motion to dismiss which was denied.
Hence, the latter filed a petition for certiorari with the respondent appellate
court to set aside the order of the trial court denying the motion to dismiss.
On March 17, 1986, the respondent appellate court granted the petition
and dismissed the complaint of Banco Filipino with the trial court
Thus, this petition for certiorari was filed with the petitioner contending
that a bank which has been closed and placed under receivership by the
Central Bank under Section 29 of RA 265 could file suit in court in its name
to contest such acts of the Central Bank, without the authorization of the
CB-appointed receiver.
After deliberating on the pleadings in the following cases:
1. In G.R. No. 68878, the respondents motion for reconsideration;
2. In G.R. Nos. 7725558, the petition, comment, reply, rejoinder and surrejoinder;
3. In G.R. No. 78766, the petition, comment, reply and rejoinder;
4. In G.R. No. 81303, the petitioners motion for reconsideration;
5. In G.R. No. 81304, the petition, comment and reply;
6. Finally, in G.R. No. 90473, the petition, comment and reply,
We find the motions for reconsideration in G.R. Nos. 68878 and 81303 and
the petitions in G.R. Nos. 7725558, 78766, 81304 and 90473 devoid of
merit.
Section 29 of the Republic Act No. 265, as amended known as the Central
Bank Act, provides that when a bank is forbidden to do business in the
Philippines and placed under receivership, the person designated as
receiver shall immediately take charge of the banks assets and liabilities,
as expeditiously as possible, collect and gather all the assets and
administer the same for the benefit of its creditors, and represent the bank
personally or through counsel as he may retain in all actions or
proceedings for or against the institution, exercising all the powers
necessary for these purposes including, but not limited to, bringing and
foreclosing mortgages in the name of the bank. If the
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of the Philippines
Monetary Board shall later determine and confirm that the banking
institution is insolvent or cannot resume business with safety to depositors,
creditors and the general public, it shall, if public interest requires, order its
liquidation and appoint a liquidator who shall take over and continue the
functions of the receiver previously appointed by Monetary Board. The
liquidator may, in the name of the bank and with the assistance of counsel
as he may retain, institute such actions as may be necessary in the
appropriate court to collect and recover accounts and assets of such
institution or defend any action filed against the institution.
When the issue on the validity of the closure and receivership of Banco
Filipino bank was raised in G.R. No. 70054, the pendency of the case did
not diminish the powers and authority of the designated liquidator to
effectuate and carry on the administration of the bank. In fact when We
adopted a resolution on August 25, 1985 and issued a restraining order to
respondents Monetary Board and Central Bank, We enjoined merely further
acts of liquidation. Such acts of liquidation, as explained in Sec. 29 of the
Central Bank Act are those which constitute the conversion of the assets of
the banking institution to money or the sale, assignment or disposition of
the same to creditors and other parties for the purpose of paying the debts
of such institution. We did not prohibit however acts such as receiving
collectibles and receivables or paying off creditors claims and other
transactions pertaining to normal operations of a bank. There is no doubt
that the prosecution of suits for collection and the foreclosure of mortgages
against debtors of the bank by the liquidator are among the usual and
ordinary transactions pertaining to the administration of a bank. Neither
did Our order in the same resolution dated August 25, 1985 for the
designation by the Central Bank of a comptroller for Banco Filipino alter the
powers and functions of the liquidator insofar as the management of the
assets of the bank is concerned. The mere duty of the comptroller is to
supervise accounts and finances undertaken by the liquidator and to
determine the propriety of the latters expenditures incurred in behalf of
the bank. Notwithstanding this, the liquidator is still empowered under the
law to continue the functions of the
790
790
petitioner bank, which was ordered by respondent Monetary Board on

January 25, 1985, is null and void.
It is a well-recognized principle that administrative and discretionary
functions may not be interfered with by the courts. In general, courts have
no supervising power over the proceedings and actions of the
administrative departments of the government. This is generally true with
respect to acts involving the exercise of judgment or discretion, and
findings of fact. But when there is a grave abuse of discretion which is
equivalent to a capricious and whimsical exercise of judgment or where the
power is exercised in an arbitrary or despotic manner, then there is a
justification for the courts to set aside the administrative determination
reached (Lim, Sr. v. Secretary of Agriculture and Natural Resources, L26990, August 31, 1970, 34 SCRA
791

of the Philippines
receiver in preserving and keeping intact the assets of the bank in
substitution of its former management, and to prevent the dissipation of its
assets to the detriment of the creditors of the bank. These powers and
functions of the liquidator in directing the operations of the bank in place
of the former management or former officials of the bank include the
retaining of counsel of his choice in actions and proceedings for purposes
of administration.
Clearly, in G.R. Nos. 68878, 7725558, 78766 and 90473, the liquidator by
himself or through counsel has the authority to bring actions for
foreclosure of mortgages executed by debtors in favor of the bank. In G.R.
No. 81303, the liquidator is likewise authorized to resist or defend suits
instituted against the bank by debtors and creditors of the bank and by
other private persons. Similarly, in G.R. No. 81304, due to the aforestated
reasons, the Central Bank cannot be compelled to fulfill financial
transactions entered into by Banco Filipino when the operations of the
latter were suspended by reason of its closure. The Central Bank possesses
those powers and functions only as provided for in Sec. 29 of the Central
Bank Act.
While We recognize the actual closure of Banco Filipino and the consequent
legal effects thereof on its operations, We cannot uphold the legality of its
closure and thus, find the petitions in G.R. Nos. 70054, 78767 and 78894
impressed with merit. We hold that the closure and receivership of

791
of the Philippines
751).
The jurisdiction of this Court is called upon, once again, through these
petitions, to undertake the delicate task of ascertaining whether or not an
administrative agency of the government, like the Central Bank of the
Philippines and the Monetary Board, has committed grave abuse of
discretion or has acted without or in excess of jurisdiction in issuing the
assailed order. Coupled with this task is the duty of this Court not only to
strike down acts which violate constitutional protections or to nullify
administrative decisions contrary to legal mandates but also to prevent
acts in excess of authority or jurisdiction, as well as to correct manifest
abuses of discretion committed by the officer or tribunal involved.
The law applicable in the determination of these issues is Section 29 of
Republic Act No. 265, as amended, also known as the Central Bank Act,
which provides:
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. The Board may, upon finding the
statements of the department head to be true, forbid the institution to do
business in the Philippines and 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
benefits of its creditors, and represent the bank personally or through
counsel as he may retain in all actions or proceedings for or against the
institution, exercising all the powers necessary for these purposes
including, but not limited to, bringing and foreclosing mortgages in the
name of the bank or non-bank financial intermediary performing quasibanking functions.
The Monetary Board shall thereupon determine within sixty days whether
the institution may be reorganized or otherwise placed in such a condition
so that it may be permitted to resume business with safety to its
depositors and creditors and the general public and shall prescribe the
conditions under which such resumption of busi
792
792
liabilities. The liquidator designated as hereunder provided shall, by the

Solicitor General, file a petition in the regional trial court reciting the
proceedings which have been taken and praying the assistance of the
court in the liquidation of such institutions. The court shall have jurisdiction
in the same proceedings to assist in the adjudication of the disputed claims
against the bank or non-bank financial intermediary performing quasibanking functions and in the enforcement of individual liabilities of the
stockholders and do all that is necessary to preserve the assets of such
institutions 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 and continue 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 institutions or non-bank financial intermediary performing quasibanking 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 and with the assistance
of counsel as he may retain, institute such actions as may be necessary in
the appropriate court to collect and recover accounts and assets of such
institution or defend any action filed against the institution: Provided,
However, That after having reasonably established all claims against the
institution, the liquidator may, with the approval of the court, effect partial
payments of such claims for assets of the institution in accordance with
their legal priority.
The assets of an institution under receivership or liquidation shall be

deemed in custodia legis in the hands of the receiver or liquidator and shall
from the moment of such receivership or liquida
of the Philippines
793
ness shall take place as well as the time for fulfillment of such conditions.
In such case, the expenses and fees in the collection and administration of
the assets of the institution shall be determined by the Board and shall be
paid to the Central Bank out of the assets of such institution.
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 which may, when warranted, involve disposition
of any or all assets in consideration for the assumption of equivalent
793
of the Philippines
tion, be exempt from any order of garnishment, levy, attachment, or
execution.
The provisions of any law to the contrary notwithstanding, the actions of

the Monetary Board under this Section, Section 28-A, and the second
paragraph of Section 34 of this Act shall be final and executory, and can be
set aside by a court only if there is convincing proof, after hearing, that the
action is plainly arbitrary and made in bad faith: Provided, That the same is
raised in an appropriate pleading filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from the
date the receiver, takes charge of the assets and liabilities of the bank or
non-bank financial intermediary performing quasi-banking functions or, in
case of conservatorship or liquidation, within ten (10) days from receipt of
notice by the said majority stockholders of said bank or non-bank financial
intermediary of the order of its placement under conservatorship or
liquidation. No restraining order or injunction shall be issued by any court
enjoining the Central Bank from implementing its actions under this
Section and the second paragraph of Section 34 of this Act in the absence
of any convincing proof that the action of the Monetary Board is plainly
arbitrary and made in bad faith and the petitioner or plaintiff files 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 cashiers 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.
x x x.
Based on the aforequoted provision, the Monetary Board may order the
cessation of operations of a bank in the Philippines and place it under
receivership upon a finding of insolvency or when its continuance in
business would involve probable loss to its depositors or creditors. If the
Monetary Board shall determine and confirm within sixty (60) days that the
bank is insolvent or can no longer resume business with safety to its
depositors, creditors and the general public, it shall, if public interest will
be served, order its liquidation.
794
794

of the Philippines
Specifically, the basic question to be resolved in G.R. Nos. 70054, 78767
and 78894 is whether or not the Central Bank and the Monetary Board
acted arbitrarily and in bad faith in finding and thereafter concluding that
petitioner bank is insolvent, and in ordering its closure on January 25,
1985.
As We have stated in Our resolution dated August 3, 1989, the documents
pertinent to the resolution of these petitions are the Teodoro Report,
Tiaoqui Report, and the Valenzuela, Aurellano and Tiaoqui Report and the
supporting documents made as bases by the supporters of their
conclusions contained in their respective reports. We will focus Our study
and discussion however on the Tiaoqui Report and the Valenzuela,
Aurellano and Tiaoqui Report. The former recommended the closure and
receivership of petitioner bank while the latter report made the
recommendation to eventually place the petitioner bank under liquidation.
This Court shall likewise take into consideration the findings contained in
the reports of the two commissioners who were appointed by this Court to
hold the referral hearings, namely the report by Judge Manuel Cosico
submitted February 20,1988 and the report submitted by Justice Consuelo
Santiago on January 28,1991.
There is no question that under Section 29 of the Central Bank Act, the
following are the mandatory requirements to be complied with before a
bank found to be insolvent is ordered closed and forbidden to do business
in the Philippines: Firstly, an examination shall be conducted by the head
of the appropriate supervising or examining department or his examiners
or agents into the condition of the bank; secondly, it shall be disclosed in
the examination that the condition of the bank is one of insolvency, or that
its continuance in business would involve probable loss to its depositors or
creditors; thirdly, the department head concerned shall inform the
Monetary Board in writing, of the facts; and lastly, the Monetary Board
shall find the statements of the department head to be true.
Anent the first requirement, the Tiaoqui report, submitted on January 23,
1985, revealed that the finding of insolvency of petitioner was based on
the partial list of exceptions and findings on the regular examination of the
bank as of July 31, 1984 conducted by the Supervision and Examination
Sector II of the
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corporations have large undeveloped real estate properties in the suburbs

which can be made answerable for the unsecured loans as well as the
Central Banks credit accommodations. A formal reply of the bank would
still be forthcoming. (pp. 5859, Rollo, Vol. I; emphasis ours)
796
Central Bank (p. 1, Tiaoqui Report).
796
On December 17, 1984, this list of exceptions and findings was submitted
to the petitioner bank (p. 6, Tiaoqui Report). This was attached to the letter
dated December 17, 1984, of examiner-in-charge Dionisio Domingo of SES
Department II of the Central Bank to Teodoro Arcenas, president of
petitioner bank, which disclosed that the examination of the petitioner
bank as to its financial condition as of July 31, 1984 was not yet completed
or finished on December 17, 1984 when the Central Bank submitted the
partial list of findings of examination to the petitioner bank. The letter
reads:
In connection with the regular examination of your institution as of July

31, 1984, we are submitting herewith a partial list of our
exceptions/findings for your comments.
Please be informed that we have not yet officially termina ted our
examination (tentatively scheduled last December 7, 1984) and that we
are still awaiting for the unsubmitted replies to our previous letters/
requests. Moreover, other findings /observations are still being summarized
including the classification of loans and other risk assets. These shall be
submitted to you in due time (p. 810, Rollo, Vol. III; emphasis ours).
It is worthy to note that a conference was held on January 21, 1985 at the
Central Bank between the officials of the latter and of petitioner bank.
What transpired and what was agreed upon during the conference was
explained in the Tiaoqui report
x x x The discussion centered on the substantial exposure of the bank to
the various entities which would have a relationship with the bank; the
manner by which some bank funds were made indirectly available to
several entities within the group; and the unhealthy financial status of
these firms in which the bank was additionally exposed through new funds
or refinancing accommodation including accrued interest.
Queried in the impact of these clean loans, on the bank solvency, Mr.
Dizon (BF Executive Vice President) intimated that, collectively, these
of the Philippines
Clearly, Tiaoqui based his report on an incomplete examination of
petitioner bank and outrightly concluded therein that the latters financial
status was one of insolvency or illiquidity. He arrived at the said conclusion
from the following facts: that as of July 31, 1984, total capital accounts
consisting of paid-in capital and other capital accounts such as surplus,
surplus reserves and undivided profits aggregated P351.8 million; that
capital adjustments, however, wiped out the capital accounts and placed
the bank with a capital deficiency amounting to P334.956 million; that the
biggest adjustment which contributed to the deficit is the provision for
estimated losses on accounts classified as doubtful and loss which was
computed at P600.4 million pursuant to the examination. This provision is
also known as valuation reserves which was set up or deducted against the
capital accounts of the bank in arriving at the latters financial condition.
Tiaoqui however admits the insufficiency and unreliability of the findings of
the examiner as to the setting up of recommended valuation reserves from
the assets of petitioner bank. He stated:
The recommended valuation reserves as bases for determining the
financial status of the bank would need to be discussed with the bank,
consistent with standard examination procedure, for which the bank would
in turn reply. Also, the examination has not been officially terminated. (p. 7.
Tiaoqui report; p. 59, Rollo, Vol. I)
In his testimony in the second referral hearing before Justice Santiago,
Tiaoqui testified that on January 21, 1985, he met with officers of petitioner
bank to discuss the advanced findings and exceptions made by Mr. Dionisio
Domingo which covered 70%-80% of the banks loan portfolio; that at that
meeting, Fortunato Dizon (BFs Executive Vice President) said that as
regards the unsecured loans granted to various corporations, said
corporations had large undeveloped real estate properties which could be

answerable for the said unsecured loans and that a reply from BF was
forthcoming; that he (Tiaoqui) however prepared his report despite the
absence of such reply; that he believed, as in fact it is stated in his report,
that despite the meeting on January 21, 1985, there was still a need to
discuss the recommended valuation reserves of petitioner bank and;
797
soon as possible (Manual of Examination Procedures, General Instruction,

p. 14). It is hard to understand how a period of four days after the
conference could be a reasonable opportunity for a bank to undertake a
responsive and corrective action on the partial list of findings of the
examiner-in-charge.
We recognize the fact that it is the responsibility of the Central Bank of the
Philippines to administer the monetary, banking and credit system of the
country and that its powers and functions shall be exercised by the
Monetary Board pursu798
797
of the Philippines
that he however, did not wait anymore for a discussion of the
recommended valuation reserves and instead prepared his report two days
after January 21, 1985 (pp. 33133314, Rollo).
Records further show that the examination of petitioner bank was officially
terminated only when Central Bank Examinerin-charge Dionisio Domingo
submitted his final report of examination on March 4, 1985.
It is evident from the foregoing circumstances that the examination
contemplated in Sec. 29 of the CB Act as a mandatory requirement was not
completely and fully complied with. Despite the existence of the partial list
of findings in the examination of the bank, there were still highly significant
items to be weighed and determined such as the matter of valuation
reserves, before these can be considered in the financial condition of the
bank. It would be a drastic move to conclude prematurely that a bank is
insolvent if the basis for such conclusion is lacking and insufficient,
especially if doubt exists as to whether such bases or findings faithfully
represent the real financial status of the bank.
The actuation of the Monetary Board in closing petitioner bank on January
25, 1985 barely four days after a conference with the latter on the
examiners partial findings on its financial position is also violative of what
was provided in the CB Manual of Examination Procedures. Said manual
provides that only after the examination is concluded, should a pre-closing
conference led by the examiner-in-charge be held with the
officers/representatives of the institution on the findings/exception, and a
copy of the summary of the findings/violations should be furnished the
institution examined so that corrective action may be taken by them as
798
of the Philippines
ant to Rep, Act No. 265, known as the Central Bank Act. Consequently, the
power and authority of the Monetary Board to close banks and liquidate
them thereafter when public interest so requires is an exercise of the police
power of the state. Police power, however, may not be done arbitratrily or
unreasonably and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust or is tantamount to a denial of
due process and equal protection clauses of the Constitution (Central Bank
v. Court of Appeals, Nos. L-5003132, July 27, 1981, 106 SCRA 143).
In the instant case, the basic standards of substantial due process were not
observed. Time and again, We have held in several cases, that the
procedure of administrative tribunals must satisfy the fundamentals of fair
play and that their judgment should express a well-supported conclusion.
In the celebrated case of Ang Tibay v. Court of Industrial Relations, 69 Phil.
635, this Court laid down several cardinal primary rights which must be
respected in a proceeding before an administrative body.
However, as to the requirement of notice and hearing, Sec. 29 of RA 265
does not require a previous hearing before the Monetary Board implements
the closure of a bank, since its action is subject to judicial scrutiny as
provided for under the same law (Rural Bank of Bato v. IAC, G.R No. 65642,
October 15, 1984, Rural Bank v. Court of Appeals, G.R. 61689, June
20,1988,162 SCRA 288).
Notwithstanding the foregoing, administrative due process does not mean

that the other important principles may be dispensed with, namely: the
decision of the administrative body must have something to support itself
and the evidence must be substantial. Substantial evidence is more than a
mere scintilla. It means such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion (Ang Tibay vs. CIR, supra).
Hence, where the decision is merely based upon pieces of documentary
evidence that are not sufficiently substantial and probative for the purpose
and conclusion they are pre-sented, the standard of fairness mandated in
the due process clause is not met. In the case at bar, the conclusion
arrived at by the respondent Board that the petitioner bank is in an illiquid
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of the Philippines
financial position on January 23, 1985, as to justify its closure on January
25, 1985 cannot be given weight and finality as the report itself admits the
inadequacy of its basis to support its conclusion.
The second requirement provided in Section 29, R.A. 265 before a bank
may be closed is that the examination should disclose that the condition of
the bank is one of insolvency.
As to the concept of whether the bank is solvent or not, the respondents
contend that under the Central Bank Manual of Examination Procedures,
Central Bank examiners must recommend valuation reserves, when
warranted, to be set up or deducted against the corresponding asset
account to determine the banks true condition or net worth. In the case of
loan accounts, to which practically all the questioned valuation reserves
refer, the manual provides that:
1. For doubtful loans, or loans the ultimate collection of which is doubtful
and in which a substantial loss is probable but not yet definitely
ascertainable as to extent, valuation reserves of fifty per cent (50%) of the
accounts should be recommended to be setup.
2. For loans classified as loss, or loans regarded by the examiner as
absolutely uncollectible or worthless, valuation reserves of one hundred
percent (100%) of the accounts should be recommended to be set up (p. 8,

Objections to Santiago report).
The foregoing criteria used by respondents in determining the financial
condition of the bank is based on Section 5 of RA 337, known as the
General Banking Act which states:
Sec. 5. The following terms shall be held to be synonymous and
interchangeable:
xxx
f. Unimpaired Capital and Surplus/ Combined capital accounts/ and Net
worth, which terms shall mean for the purposes of this Act, the total of the
unimpaired paid-in capital, surplus, and undivided profits net of such
valuation reserves as may be required by the Central Bank.
There is no doubt that the Central Bank Act vests authority upon the
Central Bank and Monetary Board to take charge and administer the
monetary and banking system of the country and this authority includes
the power to examine and deter800
800
of the Philippines
mine the financial condition of banks for purposes provided for by law,
such as for the purpose of closure on the ground of insolvency stated in
Section 29 of the Central Bank Act. But express grants of power to public
officers should be subjected to a strict interpretation, and will be construed
as conferring those powers which are expressly imposed or necessarily
implied (Floyd Mechem, Treatise on the Law of Public Offices and Officers,
p. 335).
In this case, there can be no clearer explanation of the concept of
insolvency than what the law itself states. Sec. 29 of the Central Bank Act
provides that insolvency under the Act, shall be understood to mean that
the realizable assets of a bank or a non-bank financial intermediary
performing quasi-banking functions as determined by the Central Bank are

insufficient to meet its liabilities.
Hence, the contention of the Central Bank that a banks true financial
condition is synonymous with the terms unimpaired capital and surplus,
combined capital accounts and net worth after deducting valuation
reserves from the capital, surplus and unretained earnings, citing Sec. 5 of
RA 337 is misplaced,
Firstly, it is clear from the law that a solvent bank is one in which its assets
exceed its liabilities. It is a basic accounting principle that assets are
composed of liabilities and capital. The term assets includes capital and
surplus (Exley v. Harris, 267 p. 970, 973, 126 Kan., 302). On the other
hand, the term capital includes common and preferred stock, surplus
reserves, surplus and undivided profits. (Manual of Examination
Procedures, Report of Examination on Department of Commercial and
Savings Banks, p. 3-C). If valuation reserves would be deducted from these
items, the result would merely be the networth or the unimpaired capital
and surplus of the bank applying Sec. 5 of RA 337 but not the total
financial condition of the bank.
Secondly, the statement of assets and liabilities is used in balance sheets.
Banks use statements of condition to reflect the amounts, nature and
changes in the assets and liabilities. The Central Bank Manual of
Examination Procedures provides a format or checklist of a statement of
condition to be used by examiners as guide in the examination of banks.
The, format
801
savings deposits, cashiers, managers and certified checks, borrowings,

due to head office, branches and agencies, other liabilities and deferred
credits (Manual of Examination Procedure, p. 9). The amounts stated in the
balance sheets or statements of condition including the computation of
valuation reserves when justified, are based however, on the assumption
that the bank or company will continue in business indefinitely, and
therefore, the networth shown in the statement is in no sense an indication
of the amount that might be realized if the bank or company were to be
liquidated immediately (Prentice Hall Encyclopedic Dictionary of Business
Finance, p. 48). Further, based on respondents submissions, the allowance
for probable losses on loans and discounts represents the amount set up
against current operations to provide for possible losses arising from noncollection of loans and advances, and this account is also referred to as
valuation reserve (p. 9, Objections to Santiago report). Clearly, the
statement of condition which contains a provision for recommended
valuation reserves should not be used as the ultimate basis to determine
the solvency of an institution for the purpose of termination of its
operations.
Respondents acknowledge that under the said CB manual, CB examiners
must recommend valuation reserves, when warranted, to be set up against
the corresponding asset account (p, 8, Objections to Santiago report).
Tiaoqui himself, as author of the report recommending the closure of
petitioner bank admits that the valuation reserves should still be discussed
with the petitioner bank in compliance with standard examination
procedure. Hence, for the Monetary Board to unilaterally deduct an
uncertain amount as valuation reserves from the assets of a bank and to
conclude therefrom without sufficient basis that the bank is insolvent,
would be totally unjust and unfair.
802

801
of the Philippines
enumerates the items which will compose the assets and liabilities of a
bank. Assets include cash and those due from banks, loans, discounts and
advances, fixed assets and other property owned or acquired and other
miscellaneous assets. The amount of loans, discounts and advances to be
stated in the statement of condition as provided for in the manual is
computed after deducting valuation reserves when deemed necessary. On
the other hand, liabilities are composed of demand deposits, time and
802
Banco Filipino Savings & Mortgage Bank us. Monetary Board, Central Bank
of the Philippines
The test of insolvency laid down in Section 29 of the Central Bank Act is
measured by determining whether the realizable assets of a bank are less
than its liabilities. Hence, a bank is solvent if the fair cash value of all its
assets, realizable within a reasonable time by a reasonable prudent
person, would equal or exceed its total liabilities exclusive of stock liability;
but if such fair cash value so realizable is not sufficient to pay such
liabilities within a reasonable time, the bank is insolvent. (Gillian v. State,
194 N.E. 360, 363, 207 Ind. 661). Stated in other words, the insolvency of a
bank occurs when the actual cash market value of its assets is insufficient
to pay its liabilities, not considering capital stock and surplus which are not
liabilities for such purpose (Exley v. Harris, 267 p. 970, 973, 126 Kan. 302;
Alexander v. Llewellyn, Mo. App., 70 S.W. 2n 115, 117).
In arriving at the computation of realizable assets of petitioner bank,
respondents used its books which undoubtedly are not reflective of the
actual cash or fair market value of its assets. This is not the proper
procedure contemplated in Sec. 29 of the Central Bank Act. Even the CB
Manual of Examination Procedures does not confine examination of a bank
solely with the determination of the books of the bank. The latter is part of
auditing which should not be confused with examination. Examination
appraises the soundness of the institutions assets, the quality and
character of management and determines the institutions compliance with
laws, rules and regulations. Audit is a detailed inspection of the
institutions books, accounts, vouchers, ledgers, etc. to determine the
recording of all assets and liabilities. Hence, examination concerns itself
with review and appraisal, while audit concerns itself with verification (CB
Manual of Examination Procedures, General Instructions, p. 5). This Court
however, is not in the position to determine how much cash or market
value shall be assigned to each of the assets and liabilities of the bank to
determine their total realizable value. The proper determination of these
matters by using the actual cash value criteria belongs to the field of factfinding expertise of the Central Bank and the Monetary Board.
Notwithstanding the fact that the figures arrived at by the respondent
Board as to assets and liabilities do not truly indicate their realizable value
as they were merely based on book value, We
Tiaoqui Report which recommended the liquidation of the bank by reason

of insolvency as of January 25, 1985.
The Tiaoqui report dated January 23, 1985, which was based on partial
examination findings on the banks condition as of July 31, 1984, states
that total liabilities of P5,282.1 million exceeds total assets of P4,947.2
million after deducting from the assets valuation reserves of P612.2
million. Since, as We have explained in our previous discussion that
valuation reserves can not be legally deducted as there was no truthful
and complete evaluation thereof as admitted by the Tiaoqui report itself,
then an adjustment of the figures will show that the liabilities of P5,282.1
million will not exceed the total assets which will amount to P5,559.4 if the
612.2 million allotted to valuation reserves will not be deducted from the
assets. There can be no basis therefore for both the conclusion of
insolvency and for the decision of the respondent Board to close petitioner
bank and place it under receivership.
Concerning the financial position of the bank as of January 25, 1985, the
date of the closure of the bank, the consolidated statement of condition
thereof as of the aforesaid date shown in the Valenzuela, Aurellano and
Tiaoqui report on the receivership of petitioner bank, dated March 19,
1985, indicates that total liabilities of 4,540.84 million does not exceed the
total assets of 4,981.53 million. Likewise, the consolidated statement of
condition of petitioner bank as of January 25, 1985 prepared by the Central
Bank Authorized Deputy Receiver Artemio Cruz shows that total assets
amounting to P4,981,522,996.22 even exceeds total liabilities amounting
to P4,540,836,834.15. Based on the foregoing, there was no valid reason
for the Valenzuela, Aurellano and Tiaoqui report to finally recommend the
liquidation of petitioner bank instead of its rehabilitation.
803
We take note of the exhaustive study and findings of the Cosico report on
the petitioner banks having engaged in unsafe, unsound and fraudulent
banking practices by the granting of huge unsecured loans to several
subsidiaries and related
804
803
of the Philippines
will however, take a look at the figures presented by the Tiaoqui Report in
concluding insolvency as of July 31, 1984 and at the figures presented by
the CB authorized deputy receiver and by the Valenzuela, Aurellano and
804
of the Philippines
companies, We do not see, however, that this has any material bearing on
the validity of the closure. Section 34 of the RA 265, Central Bank Act
empowers the Monetary Board to take action under Section 29 of the
Central Bank Act when a bank persists in carrying on its business in an
unlawful or unsafe manner. There was no showing whatsoever that the
bank had persisted in committing unlawful banking practices and that the
respondent Board had attempted to take effective action on the banks
alleged activities, During the period from July 27, 1984 up to January 25,
1985, when petitioner bank was under conservatorship no official of the
bank was ever prosecuted, suspended or removed for any participation in
unsafe and unsound banking practices, and neither was the entire
management of the bank replaced or substituted. In fact, in her testimony
during the second referral hearing, Carlota Valenzuela, CB Deputy
Governor, testified that the reason for petitioner banks closure was not
unsound, unsafe and fraudulent banking practices but the alleged
insolvency position of the bank (TSN, August 3, 1990, p. 3315, Rollo, Vol.
VIII).
Finally, another circumstance which point to the solvency of petitioner
bank is the granting by the Monetary Board in favor of the former a credit
line in the amount of P3 billion along with the placing of petitioner bank
under conservatorship by virtue of M.B. Resolution No. 955 dated July 27,
1984. This paved the way for the reopening of the bank on August 1,1984
after a selfimposed bank holiday on July 23, 1984.
On emergency loans and advances, Section 90 of RA 265 provides two
types of emergency loans that can be granted by the Central Bank to a
financially distressed bank:
Sec. 90. x x x. In periods of emergency or of imminent financial panic
which directly threaten monetary and banking stability, the Central Bank
may grant banking institutions extraordinary advances secured by any
assets which are defined as acceptable security by a concurrent vote of at
least five members of the Monetary Board, While such advances are
outstanding, the debtor institution may not expand the total volume of its
loans or investments without the prior authorization of the Monetary
Board.
The Central Bank may, at its discretion, likewise grant advances to
banking institutions, even during normal periods, for the purpose of
assisting a bank in a precarious financial condition or under serious
805

805
of the Philippines
financial pressures brought about by unforeseen events, or events which,
though foreseeable, could not be prevented by the bank concerned.
Provided, however, That the Monetary Board has ascertained that the bank
is not insolvent and has clearly realizable assets to secure the advances.
Provided, further, That a concurrent vote of at least five members of the
Monetary Board is obtained. (Emphasis ours)
The first paragraph of the aforequoted provision contemplates a situation
where the whole banking community is confronted with financial and
economic crisis giving rise to serious and widespread confusion among the
public, which may eventually threaten and gravely prejudice the stability of
the banking system. Here, the emergency or financial confusion involves
the whole banking community and not one bank or institution only. The
second situation on the other hand, provides for a situation where the
Central Bank grants a loan to a bank with uncertain financial condition but
not insolvent.
As alleged by the respondents, the following are the reasons of the Central
Bank in approving the resolution granting the P3 billion loan to petitioner
bank and the latters reopening after a brief self-imposed banking holiday:
WHEREAS, the closure by Banco Filipino Savings and Mortgage Bank of its
Banking offices on its own initiative has worked serious hardships on its
depositors and has affected confidence levels in the banking system
resulting in a feeling of apprehension among depositors and unnecessary
deposit withdrawals;
WHEREAS, the Central Bank is charged with the function of administering
the banking system;
WHEREAS, the reopening of Banco Filipino would require additional credit
resources from the Central Bank as well as an independent management
acceptable to the Central Bank;
WHEREAS, it is the desire of the Central Bank to rapidly diffuse the
uncertainty that presently exists;
x x x. (M.B. Min. No, 35 dated July 27, 1984 cited in Respondents

Objections to Santiago Report, p. 26; p. 3387, Rollo, Vol. IX; Emphasis
ours).
A perusal of the foregoing Whereas clauses unmistakably show that the
clear reason for the decision to grant the emergency loan to petitioner
bank was that the latter was suffering
806
806
permitted to resume business with safety to its depositors, creditors and

the general public.
We are aware of the Central Banks concern for the safety of Banco
Filipinos depositors as well as its creditors including itself which had
granted substantial financial assistance up to the time of the latters
closure. But there are alternatives to permanent closure and liquidation to
safeguard those interests as well as those of the general public for the
failure of Banco Filipino or any bank for that matter may be viewed as an
irreversible decline of the countrys entire banking system and
807

of the Philippines
from financial distress and severe bank run as a result of which it closed
on July 23, 1984 and that the release of the said amount is in accordance
with the Central Banks full support to meet Banco Filipinos depositors
withdrawal requirements (Excerpts of minutes of meeting on MB Min. No.
35, p. 25, Rollo, Vol. IX). Nothing therein shows that an extraordinary
emergency situation exists affecting most banks, not only as regards
petitioner bank. This Court thereby finds that the grant of the said
emergency loan was intended from the beginning to fall under the second
paragraph of Section 90 of the Central Bank Act, which could not have
occurred if the petitioner bank was not solvent. Where notwithstanding
knowledge of the irregularities and unsafe banking practices allegedly
committed by the petitioner bank, the Central Bank even granted financial
support to the latter and placed it under conservatorship, such actuation
means that petitioner bank could still be saved from its financial distress
by adequate aid and management reform, which was required by Central
Banks duty to maintain the stability of the banking system and the
preservation of public confidence in it (Ramos v. Central Bank, No. L-29352,
October 4, 1971, 41 SCRA 565).
In view of the foregoing premises, We believe that the closure of the
petitioner bank was arbitrary and committed with grave abuse of
discretion. Granting in gratia argumenti that the closure was based on
justified grounds to protect the public, the fact that petitioner bank was
suffering from serious financial problems should not automatically lead to
its liquidation. Section 29 of the Central Bank provides that a closed bank
may be reorganized or otherwise placed in such a condition that it may be

807
of the Philippines
ultimately, it may reflect on the Central Banks own viability. For one thing,
the Central Bank and the Monetary Board should exercise strict supervision
over Banco Filipino. They should take all the necessary steps not violative
of the laws that will fully secure the repayment of the total financial
assistance that the Central Bank had already granted or would grant in the
future.
ACCORDINGLY, decision is hereby rendered as follows:
1. The motion for reconsideration in G.R. Nos. 68878 and 81303, and the
petitions in G.R. Nos. 7725558, 78766, 81304 and 90473 are DENIED;
2. The petitions in G.R. No. 70054, 78767 and 78894 are GRANTED and the
assailed order of the Central Bank and the Monetary Board dated January
25, 1985 is hereby ANNULLED AND SET ASIDE. The Central Bank and the
Monetary Board are ordered to reorganize petitioner Banco Filipino Savings
and Mortgage Bank and allow the latter to resume business in the
Philippines under the comptrollership of both the Central Bank and the
Monetary Board and under such conditions as may be prescribed by the
latter in connection with its reorganization until such time that petitioner
bank can continue in business with safety to its creditors, depositors and
the general public.
SO ORDERED.
Narvasa (C.J.), Gutierrez, Jr., Cruz, Bidin and Regalado, JJ., concur.
Melencio-Herrera, J., See dissent.
Paras, J., No part. Son is one of the lawyers.
Feliciano, J., No part. One of parties represented by my former firm.
Padilla, J., No part; former director of Bank of P.I. which at one time
negotiated for the acquisition of Banco Filipino.
Grio-Aquino, J., Please see my separate dissenting opinion.
Davide, Jr., J., No part as one of the counsels was a former partner in a
Cebu-based law firm.
justification, considering its inability to meet the heavy withdrawals by its

depositors and to pay its liabilities as they fell due, to forbid the bank from
further engaging in banking.
The matter of reopening, reorganization or rehabilitation of BF is not within
the competence of this Court to ordain but is better addressed to the
Monetary Board and the Central Bank considering the latters enormous
infusion of capital into BF to the tune of approximately P3.5 Billion in total
accommodations, after a thorough assessment of whether or not BF is,
indeed, possessed, as it stoutly contends, of sufficient assets and
capabilities with which to repay such huge indebtedness, and can operate
without loss to its many depositors and creditors.
GRlO-AQUINO, J., Dissenting in part.
Romero, J., I join in the dissent of J. Aquino.

Nocon, J., No part. Did not participate in the deliberations.
808
808
Banco Filipino Savings & Mortgage Bank vs, Monetary Board, Central Bank
of the Philippines
MELENCIO-HERRERA, J., Dissenting:
Although these nine (9) Banco Filipino (BF) cases have been consolidated
under one ponencia, all of them except one, raise issues unrelated to the
receivership and liquidation of said bank, In fact, two of these cases (G.R.
No. 68878 and 81303) have already been decided by this Court and are
only awaiting the resolution of the motions for reconsideration filed therein.
Only G.R. No, 70054 Banco Filipino Savings and Mortgage Bank (BF) vs.
the Monetary Board (MB), Central Bank of the Philippines (CB), et al.," is an
original action for mandamus and
809

809
I join Mme. Justice Carolina G. Aquino in her dissent and vote to deny the
prayer, in G.R. No. 70054, to annul Monetary Board Resolution No. 75
placing Banco Filipino (BF) under receivership.
Even assuming that the BF was not, as alleged, in a literal state of
insolvency at the time of the passage of said Resolution, there was a
finding in the Teodoro report that, based on that Banks illiquidity, to have
allowed it to continue in operation would have meant probable loss to
depositors and creditors. That is also a ground for placing the bank under
receivership, as a first step, pursuant to Section 29 of the Central Bank Act
(Rep. Act No. 265, as amended). The closure of BF, therefore, can not be
said to have been arbitrary or made in bad faith. There was sufficient
of the Philippines
certiorari filed in this Court by former officials of BF to annul the Monetary
Board Resolution No. 75 dated January 25, 1985 (ordering the closure of
Banco Filipino [BF] and appointing Carlota Valenzuela as receiver of the
bank) on the ground that the resolution was issued without affording BF a
hearing on the reports on which the Monetary Board based its decision to
close the bank, hence, without administrative due process"1 The prayer of
the petition reads:
WHEREFORE, petitioner respectfully prays that a writ of mandamus be

issued commanding respondents immediately to furnish it copies of the
reports of examination of BF employed by respondent Monetary Board to
support its Resolution of January 25, 1985 and thereafter to afford it a
hearing prior to any resolution that may be issued under Section 29 of R.A.
265, meanwhile annulling said Resolution of January 25, 1985 by writ of
certiorari as made without or in excess of jurisdiction or with grave abuse
of discretion.
So as to expedite proceedings, petitioner prays that the assessment of
the damages respondents should pay it be deferred and referred to
commissioners.
Petitioner prays for such other remedy as the Court may deem just and
equitable in the premises.
Quezon City for Manila, February 28, 1985." (p. 8, Rollo I.)
and the prayer of the Supplement to Petition reads:
WHEREFORE, in addition to its prayer for mandamus and certiorari
contained in its original petition, petitioner respectfully prays that Sections
28-A and 29 of the Central Bank charter (R.A. 265) including its
amendatory Presidential Decrees Nos. 72, 1771, 1827 and 1937 be
annulled as unconstitutional.
Quezon City for Manila, March 4, 1985." (p. 11-G, Rollo I.)
The other eight (8) cases merely involve transactions of BF with third
persons and certain related corporations which had defaulted an their
loans and sought to prohibit the extrajudicial foreclosure of the mortgages
on their properties by the receiver of BF. These eight (8) cases are:
1. G.R. No. 68878 BF vs. Intermediate Appellate Court and Celestina
Pahimutang involves the repossession by BF of a
________________
1 P. 3, Petition.
810
810

of the Philippines
house and lot which the buyer (Pahimutang) claimed to have completely
paid for on the installment plan. The appellate courts judgment for the
buyer was reversed by this Court. The buyers motion for reconsideration is
awaiting resolution by this Court;
2. G.R. Nos. 7725558, Top Management Programs Corporation and Pilar
Development Corporation us. Court of Appeals, et al. (CA-G.R, SP No.
07892) and Pilar Development Corporation vs. Executive Judge, RTC,
Cavite (CA-G.R. SP Nos. 0896264) is a consolidated petition for review of
the Court of Appeals joint decision dismissing the petitions for prohibition
in which the petitioners seek to prevent the receiver/liquidator of BF from
extrajudicially foreclosing the P4.8 million mortgage on Top Managements
properties and the P18.67 million mortgage on Pilar Development
properties. The Court of Appeals dismissed the petitions on October 30,
1986 on the ground that the functions of the liquidator, as receiver under
Section 29 (R.A. 265), include taking charge of the insolvents assets and
administering the same for the benefit of its creditors and of bringing suits
and foreclosing mortgages in the name of the bank;
3. G.R. No. 78766, El Grande Corporation vs. Court of Appeals, et al.," is
an appeal from the Court of Appeals decision in CA-G.R. SP No. 08809
dismissing El Grandes petition for prohibition to prevent the foreclosure of
BFs P8 million mortgage on El Grandes properties;
4. G.R. No. 78894, Banco Filipino Savings and Mortgage Bank vs. Court of
Appeals, et al. is an appeal of BFs old management (using the name of
BF) from the decision of the Court of Appeals in CA-G.R, SP No. 07503
entitled, Central Bank, et al. vs. Judge Zoilo Aguinaldo, et al. dismissing
the complaint of BF" to annul the receivership, for no suit may be brought
or defended in the name of the bank except by its receiver;
5. G.R. No. 87867, Metropolis Development Corporation vs. Court of
Appeals (formerly AC-G.R. No. 07503, Central Bank, et al. vs. Honorable
Zoilo Aguinaldo, et al.) is an appeal of the intervenor (Metropolis) from the
same Court of Appeals decision subject of G.R. No. 78894, which also
dismissed Metropolis
811

811
812
of the Philippines
complaint in intervention on the ground that a stockholder (Metropolis)

may not bring suit in the name of BF while the latter is under receivership,
without the authority of the receiver;
6. G.R. No. 81303, Pilar Development Corporation vs. Court of Appeals, et
al. is an appeal from the decision dated October 22, 1987 of the Court of
Appeals in CA-G.R. SP No. 12368, Pilar Development Corporation, et al. vs,
Honorable Manuel Cosico, et al.," dismissing the petition for certiorari
against Judge Manuel Cosico, Br. 136, RTC, Makati, who dismissed the
complaint filed by Pilar Development Corporation against BF, for specific
performance of certain developer contracts. An answer filed by Norberto
Quisumbing and Associates, as BFs supposed counsel, virtually confessed
judgment in favor of Pilar Development. On motion of the receiver, the
answer was expunged and the complaint was dismissed. On a petition for
certiorari in this Court, we held that: As liquidator of BF by virtue of a valid
appointment from the Central Bank, private respondent Carlota Valenzuela
has the authority to direct the operation of the bank in substitution of the
former management, which authority includes the retainer of counsel to
represent it in bringing or resisting suits in connection with such liquidation
and, in the case at bar, to take the proper steps to prevent collusion, to the
prejudice of the legitimate creditors, between BF and the petitioners herein
which appear to be owned and controlled by the same interest controlling
BF" (p. 49, Rollo). The petitioners motion for reconsideration of that
decision is pending resolution.
7. G.R. No. 81304, BF Homes Development Corporation vs. Court of
Appeals, et al. is an appeal from the decision dated November 4, 1987 of
the Court of Appeals in CA-G.R. CV No. 08565 affirming the trial courts
order dismissing BF Homes action to compel the Central Bank to restore
the financing facilities of BF, because the plaintiff (BF Homes) has no cause
of action against the CB.
8. G.R. No. 90473, El Grande Development Corporation vs. Court of
Appeals, et al. is a petition to review the decision dated June 6, 1989 in
CA-G.R. SP No. 08676 dismissing El Grandes petition for prohibition to stop
foreclosure proceed812
of the Philippines
ings against it by the receiver of BF.
As previously stated, G.R. No. 70054 BF vs. Monetary Board, et al.," is an
original special civil action for certiorari and mandamus filed in this Court
by the old management of BF, through their counsel, N.J. Quisumbing 6,
Associates, using the name of the bank and praying for the annulment of
MB Resolution No, 75 which ordered the closure of BF and placed it under
receivership. It is a forum-shopping case because it was filed here on
February 28, 1985 three weeks after they had filed on February 2, 1985
Civil Case No. 9675 Banco Filipino vs. Monetary Board, et al. in the
Regional Trial Court of Makati, Br. 143 (presided over by Judge Zoilo
Aguinaldo) for the same purpose of securing a declaration of the nullity of
MB Resolution No. 75 dated January 25, 1985.
On August 25, 1985, this Court ordered the transfer and consolidation of
Civil Case No. 9675 (to annul the receivership) from Br. 143 to Br. 136
(Judge Manuel Cosico) of the Makati Regional Trial Court where Civil Case
No. 8108 (to annul the conservatorship) and Civil Case No. 10183 (to annul
the liquidation) of BF were and are still pending. All these three (3) cases
were archived on June 30, 1988 by Judge Cosico pending the resolution of
G.R. No. 70054 by this Court.
Because of my previous participation, as a former member of the Court of
Appeals, in the disposition of AC-G.R. No. 02617 (now G.R. No. 68878) and
AC-G.R. SP No. 07503 (now G.R. Nos. 78767 and 78894), I am taking no
part in G.R. Nos. 68878, 78767 and 78894. It may be mentioned in this
connection that neither in AC-G.R. SP No. 02617, nor in AC-G.R. SP No.
07503, did the Court of Appeals rule on the constitutionality of Sections 28A and 29 of Republic Act 265 (Central Bank Act), as amended, and the
validity of MB Resolution No. 75, for those issues were not raised in the
Court of Appeals.
I concur with the ponencia insofar as it denies the motion for
reconsideration in G.R. No. 81303, and dismisses the petitions for review in
G.R. Nos. 7725558, 78766, 81304, and 90473.
I respectfully dissent from the majority opinion in G.R. No. 70054 annulling
and setting aside MB Resolution No. 75 and ordering the respondents,
Central Bank of the Philippines and the Monetary Board
813

813
of the Philippines
to reorganize petitioner Banco Filipino Savings and Mortgage Bank, and
allow the latter to resume business in the Philippines under the
comptrollership of both the Central Bank and the Monetary Board and
under such conditions as may be prescribed by the latter until such time
that petitioner bank can continue in business with safety to its creditors,
depositors and the general public.
for I believe that this Court has neither the authority nor the competence
to determine whether or not, and under what conditions, BF should be
reorganized and reopened, That decision should be made by the Central
Bank and the Monetary Board, not by this Court.
All that we may determine in this case is whether the actions of the Central
Bank and the Monetary Board in closing BF and placing it under
receivership were plainly arbitrary and made in bad faith.
Section 29 of Republic Act No. 265 provides:
Section 29. Proceedings upon insolvency.Whenever, upon examination
by the head of the appropriate supervising and examining department or
his examiners or agents into the condition of any banking institution, 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 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 banking institution.
The Monetary Board shall thereupon determine within sixty days whether
the institution may be reorganized or otherwise placed in such a condition
so that it may be permitted to resume business with safety to its
depositors and creditors and the general public and shall prescribe the
conditions under which such resumption of business shall take place as
well as the time for fulfillment of such conditions. In such case, the
expenses and fees in the collection and administration of the assets of the
institution shall be determined by the Board and shall be paid to the
Central Bank out of the assets of
814
814
of the Philippines
such banking institution.
If the Monetary Board shall determine and confirm within the said period
that the banking ins titution 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
court in the liquidation of the banking institutions. The court shall have
jurisdiction in the same proceedings to adjudicate disputed claims against
the bank and enforce individual liabilities of the stockholders and do all
that is necessary to preserve the assets of the banking institution and to
implement the liquidation plan approved by the Monetary Board. The
Monetary Board shall designate an official of the Central Bank 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 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 bank and he may, in
the name of the banking institution, institute such actions as may be
necessary in the appropriate court to collect and recover accounts and

assets of the banking 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 cashiers 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
815

815
of the Philippines
dissolution of the restraining order or injunction contemplated in this
section.
Insolvency, under this Act, shall be understood to mean the inability of a
banking institution 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 caused by extraordinary demands induced by financial panic commonly evidenced by a
run on the banks in the banking community.
The determinative factor in the closure, receivership, and liquidation of a
bank is the finding, upon examination by the SES of the Central Bank, that
its condition is one of insolvency, or that its continuance in business

would involve probable loss to its depositors and creditors. (Sec. 29, R.A.
265.) It should be pointed out that insolvency is not the only statutory
ground for the closure of a bank. The other ground is when its
continuance in business would involve probable loss to its depositors and
creditors.
Was BF insolvent i.e., unable to pay its liabilities as they fell due in the
usual and ordinary course of business, on and for some time before
January 25, 1985 when the Monetary Board issued Resolution No. 75
closing the bank and placing it under receivership? Would its continued
operation involve probable loss to its depositors and creditors?
The answer to both questions is yes. Both the conservator Gilberto Teodoro
and the head of the SES (Supervision and Examination Sector) Ramon V.
Tiaoqui opined that BFs continuance in business would cause probable
loss to depositors and creditors. Tiaoqui further categorically found that BF
was insolvent. Why was this so?
The Teodoro and Tiaoqui reports as well as the report of the receivers,
Carlota Valenzuela, Arnulfo B. Aurellano and Ramon V. Tiaoqui, showed that
since the end of November 1983 BF had already been incurring chronic
reserve deficiencies and experiencing severe liquidity problems. So much
so, that it had become a substantial borrower in the call loans market
and in June 1984 it obtained a P30 million emergency loan from the Central
Bank. (p. 2, Receivers Report.) Additional emergency loans (a total of
P119.7 millions) were extended by the Central
816
816
of the Philippines
Bank to BF that month (MB Res. No. 839 dated June 29,1984). On July
12,1984, BFs chairman, Anthony Aguirre, offered to turn over the
administration of the affairs of the bank to the Central Bank (Aguirres
letter to Governor Jose Fernandez, Annex 7 of Manifestation dated May 3,
1991). On July 23, 1984, unable to meet heavy deposit withdrawals, BFs
management motu proprio, without obtaining the conformity of the Central
Bank, closed the bank and declared a bank holiday. On July 27, 1984, the
CB, responding to BFs pleas for additional financial assistance, granted BF

a P3 billion credit line (MB Res. No. 934 of July 27, 1984) to enable it to
reopen and resume business on August 1,1984. P2.3601 billions of the
credit line were availed of by the end of 1984 exclusive of an overdraft of
P932.4 millions (p. 2, Tiaoqui Report). Total accommodations granted to BF
amounted to P3.4122 billions (p. 19, Cosico Report).
1. BF had been continually deficient in liquidity reserves (Teodoro Report).

The bank had been experiencing a severe drop in liquidity levels. The ratio
of liquid assets to deposits and borrowings plunged from about 20% at
end-1983, to about 8.6% by end-May 1984, much below the statutory
requirements of 24% for demand deposits/deposit substitutes and 14% for
savings and time deposits. (p. 2, Tiaoqui Report.)
Presumably to assure that the financial assistance would be properly used,

the MB appointed Basilio Estanislao as conservator of the bank. A
conservatorship team of 78 examiners and accountants was assigned at
the bank to keep track of its activities and ascertain its financial condition
(p. 8, Tiaoqui Report):
2. Deficiencies in average daily legal reserves rose from P63.0 million.

during the week of November 2126, 1983 to a high of P435.9 million
during the week of June 1115, 1984 (pp. 23, Tiaoqui Report).
Accumulated penalties on reserve deficiencies amounted to P37.4 million
by July 31, and rose to P48 million by the end of 1984. (Tiaoqui Report.)
Estanislao resigned after two weeks for health reasons. He was succeeded
by Gilberto Teodoro as conservator in August, 1984 up to January 8, 1985.
3. Deposit levels, which were at P3,845 million at end-May 1984 (its last
normal month), dropped to P935 million at the end of November 1984 or
a loss of P2,910 million. This represented an average monthly loss of P485
million vs. an average monthly gain of P26 million during the first 5 months
of 1984. (pp. 23, Tiaoqui Report.)
Besides the conservatorship team, Teodoro hired financial consultants

Messrs. Tirso G. Santillan, Jr. and Plorido P. Casuela to make an analysis of
BFs financial condition. Teodoro also engaged the accounting firm of Sycip,
Gorres, Velayo and Company to make an asset evaluation, The Philippine
Appraisal Company (PAC) appraised BFs real estate properties, acquired
assets, and collaterals held. On January 9, 1985, Teodoro submitted his
Report. Three weeks later, on January 23, 1985, Tiaoqui also submitted his
Report. Both reports showed that, in violation of Section 37 of the General
Banking Act (R.A. 337):2
________________
2 Sec. 37. All savings and mortgage banks shall maintain on deposit with
the Central Bank of the Philippines such reserves against their deposit
liabilities as the Monetary Board shall determine in accordance with the
pertinent provisions of the Central Bank Act.
817
4. Deposits had declined at the rate of P20 million during the month of
December 1984, but expenses of about P17 million per month were
required to maintain the banks operations. (p. 5, Teodoro Report.)
5. Based on the projected outlook, the Banks average yield on assets of
16.3% p.a., was insufficient to meet the average cost of funds of 19.5%
p.a. and operating expenses of 4.8% p.a. (p. 5 Teodoro Report.)
6. An imprudently large proportion of assets were locked into long-term
applications. (Teodoro Report)
7. BF overextended itself in lending to the real estate industry, committing
as much as 52% of its peso deposits to its affiliates or related accounts to
which it continued lending even when it was already suffering from
liquidity stresses. (Teodoro Report.) This was done in violation of Section 38
of the General Banking Act (R.A. 337).3
________________

817
of the Philippines
3 Sec. 38. Whenever there is a call by depositors of a savings bank for

repayment of their deposits and the call so made shall result in reducing its
legal reserves below the amount required by the Monetary Board, such
bank shall not make any new loans or investment of the funds of
depositors or earnings of such funds until the call of the depositors has
been satisfied and its legal reserves have been restored to the required
minimum.
818
818
of the Philippines
(b) Other properties (collaterals) supposedly worth P711 million could not
be evaluated by PAC because the details submitted by the bank were
insufficient;
(c) While P674 million in loans were supposedly guaranteed by the Home
Financing Corporation (HFC), the latter confirmed only P427 million. P247
million in loans were not guaranteed by HPC. (Teodoro Report.)
(d) Per SGVs report, loans totalling P1.882 million includ________________
8. During the period of marked decline in liquidity levels the loan portfolio
grew by P417.3 million in the first five months of 1984and by another
P105.1 million in the next two months. (pp. 23, Tiaoqui Report.)
4 Sec. 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 x x x.
9. The loan portfolio stood at P3.679 billion at the end of July 1984, 56.2%
of it channeled to companies whose stockholders, directors and officers
were related to the officers, directors, and some stockholders of BF. (p. 8,
Tiaoqui Report.) Here again BF violated the General Banking Act (R.A.
337).4
819
10. Some of the loans were used to acquire preferred stocks of BF. Between
September 17, 1983 and February 10,1984, P49.9 million of preferred nonconvertible stocks were issued. About 85% or P42.4 million was paid out of
the proceeds of loans to stockholders/ borrowers with relationship to the
bank (Annex D). Around P18.8 million were issued in the name of an entity
other than the purchaser of the stocks. (Tiaoqui Report.)
819
11. Loans amounting to some P69.3 million were granted simply to pay-off
old loans including accrued interest, as an accommodation for the direct
maturing loans of some firms and as a way of paying-off loans of other
borrower firms which have their own credit lines with the bank. These
helped to make otherwise delinquent loans appear current and
deceptively improved the quality of the loan portfolio. (Tiaoqui Report.)
of the Philippines
ing accrued interest, were secured by collateral worth only P1.54 billion.
Hence, BFs unsecured exposure amounted to P586.2 million. BF Homes,
Inc., a related company which has filed with the SEC a petition for
suspension of payments, owes P502 million to BF.
13. BF had been suffering heavy losses.
a) For the eleven (11) months ended November 30, 1984, the estimated
net loss was P372.6 Million;
12. Examination of the collaterals for the loan accounts of 63 major

borrowers and 32 other selected borrowers as of July 31, 1984, showed
that:
b) For the twelve (12) months from November 1984, the projected net loss
would be P390.7 Million and would continue unabated; (p. 2, Teodoro
Report)
(a) 2,658 TCTs which BF evaluated to be worth P1,487 million were

appraised by PAC to be worth only P1,196 million, hence, deficient by P291
million,
c) Around 71.7% of the total accommodations of P2.0677 billions to the

related/linked entities were adversely classified. Close to 33.7% or P697.1
millions were clean loans or against PNs (promissory notes) of these
entities. Of the latter, 52.6% were classified as loss. (p. 5, Tiaoqui Report)
d)The banks financial condition as of date of examination, after setting up

the additional valuation reserves of P612.2 millions and accumulated net
loss of P48.2 millions, indicates one of insolvency. Total liabilities of
P5,282.1 million exceeds total assets of P4,947.2 million by 6.8%. Total
capital account of P334.9 million) is deficient by P322.7 million against the
mini-mum capital required of P657.6 million (Annex F). Capital to risk
assets ratio is negative 10.38%.
e) Total loans and investment portfolio amounted to P3,914.3 millions
(gross), of which P194.0 millions or 5.0% were past due and P1,657.1
millions or 42.3% were adversely classified (SubstandardP1,011.4
millions; DoubtfulP274.6 millions and LossP371.1 millions). Accounts
adversely classified included unmatured loan of P1,482.0 million to entities
related with each other and to the bank, several of which showed
distressed conditions. (p. 7, Tiaoqui Report.)
Teodoros conclusion was that the continuance of the bank in business
would involve probable loss to its depositors and creditors. He
recommended that the Monetary Board take a more effective and
responsible action to protect the depositors and creditors x x x in the light
of the banks worsening condition. (p. 5, Teodoro Report.)
On January 23, 1985, Tiaoqui submitted his report to the Monetary Board.
Like Teodoro, Tiaoqui believed that the prin820
820
of the Philippines
cipal cause of the banks failure was that in violation of the General
Banking Law and CB rules and regulations, BFs major stockholders,
directors and officers, through their related companies: (i.e. companies
owned or controlled by them of their relatives) had been borrowing huge
chunks of the money of the depositors. His Conclusion and
Recommendations were:
The Conservator, in his report to the Monetary Board dated January 8,
1985, has stated that the continuance of the bank in business would
involve probable loss to its depositors and creditors. It has recommended

that a more effective action be taken to protect depositors and creditors.
The examination findings as of July 31, 1984 as shown earlier, indicate
one of insolvency and illiquidity and further confirms the above conclusion
of the Conservator.
All the foregoing provides sufficient justification for forbidding the bank
from further engaging in banking.
Foregoing considered, the following are recommended:
1. Forbid the Banco Filipino Savings 6, Mortgage Bank to do business in
the Philippines effective the beginning of office on January, 1985, pursuant
to Sec. 29 of R.A. No. 265, as amended;
2. Designate the Head of the Conservator Team at the bank, as Receiver
of Banco Filipino Savings 6, Mortgage Bank, to immediately take charge of
the assets and liabilities, as expeditiously as possible collect and gather all
the assets and administer the same for the benefit of all the creditors, and
exercise all the powers necessary for these purposes including but not
limited to bringing suits and foreclosing mortgages in the name of the
bank.
3. The Board of directors and the principal officers from Senior Vice
President, as listed in the attached Annex A' be included in the watchlist of
the Supervision and Examination Sector until such time that they shall
have cleared themselves.
4. Refer to the Central Banks Legal Department and Office of Special
Investigation the report on the findings on Banco Filipino for investigation
and possible prosecution of directors, officers and employees for activities
which led to its insolvent position. (pp. 910, Tiaoqui Report.)
On January 25, 1985 or two days after the submission of Tiaoquis Report,
and three weeks after it received Teodoros
821

821
of the Philippines
Report, the Monetary Board, then composed of:

Chairman: Jose B. Fernandez, Jr.
CB Governor
Supervision and Examination Sector Department II, as Deputy Receivers

who are likewise
822
Members:
1. Cesar E.A. Virata, Prime Minister 6, Concurrently Minister of Finance
2. Roberto V. Ongpin, Minister of Trade 6, Industry 6, Chairman of Board of
Investment
3. Vicente B. Valdepeas, Jr., Minister of Economic Planning 6, Director
General of NEDA
4. Cesar A. Buenaventura, President of Filipinas Shell Petroleum Corp. (p.
37, Annual Report 1985)
issued Resolution No. 75 closing BF and placing it under receivership. The
MB Resolution reads as follows:
After considering the report dated January 8, 1985 of the Conservator for
Banco Filipino Savings and Mortgage Bank that the continu-ance in
business of the bank would involve probable loss to its depositors and
creditors, and after discussing and finding to be true the statements of the
Special Assistant to the Governor and Head, Supervision and Examination
Sector (SES) Department II, as recited in his memorandum dated January
23, 1985, that the Banco Filipino Savings and Mortgage Bank is insolvent
and that its continuance in business would involve probable loss to its
depositors and creditors, and in pursuance of Section 29 of R.A. No. 265, as
amended, the Board decided:
1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches
to do business in the Philippines;
2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor, as Receiver
who is hereby directly vested with jurisdiction and authority to immediately
take charge of the banks assets and liabilities, and as expeditiously as
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;
3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the Governor,
and Mr. Ramon V. Tiaoqui, Special Assistant to the Governor and Head,
822
of the Philippines
hereby directly vested with jurisdiction and authority to do all things
necessary or proper to carry out the functions entrusted to them by the
Receiver and otherwise to assist the Receiver in carrying out the functions
vested in the Receiver by law or Monetary Board resolutions;
4. To direct and authorize Management to do all other things and carry out
all other measures necessary or proper to implement this Resolution and to
safeguard the interests of depositors/creditors and the general public; and
5. In consequence of the foregoing, to terminate the conservatorship over
Banco Filipino Savings and Mortgage Bank. (pp. 126127, Rollo l.)
On March 19, 1985, the receiver, Carlota Valenzuela, and the deputy
receivers, Arnulfo B. Aurellano and Ramon V. Tiaoqui, submitted a report to
the Monetary Board as required in Section 29, 2nd paragraph of R.A. 265
which provides that within sixty (60) days from date of the receivership,
the Monetary Board shall determine whether the bank may be reorganized
and permitted to resume business, or be liquidated. The receivers
recommended that BF be placed under litigation. For, among other things,
they found that:
1. BF had been suffering a capital deficiency of P336.5 million as of July 31,
1984 (pp. 2 and 4, Receivers Report).
2. The banks weekly reserve deficiencies averaged P1 46.67 million from
November 25, 1983 up to March 16,1984, rising to a peak of P338.09
million until July 27, 1984. Its reserve deficiencies against deposits and
deposit substitutes began on the week ending June 15, 1984 up to
December 7, 1984, with average daily reserve deficiencies of P2.98 million.
3. Estimated losses or unbooked valuation reserves for loans to entities
with relationships to certain stockholders/ directors and officers of the bank
amounted to P600.5 million. Combined with other adjustments in the

amount of P73.2 million, they will entirely wipe out the banks entire capital
account and leave a capital deficiency of P336.5 million. The bank was
already insolvent on July 31, 1984. The capital deficiency increased to
P908.4 million as of January 25, 1985 on account of unbooked penalties for
deficiencies in legal reserves (P49.07 million), unbooked interest on
overdrawings, emergency ad
823

823
of the Philippines
unable to meet the heavy cash withdrawals of its depositors and pay its
liabilities to its creditors, the biggest of them being the Central Bank,
hence, the Monetary Board correctly found its condition to be one of
insolvency.
All the discussion in the Santiago Report concerning the banks assets and
liabilities as determinants of BFs solvency or insolvency is irrelevant and
inconsequential, for under Section 29 of Rep. Act. 265, a banks insolvency
is not determined by its excess of liabilities over assets, but by its inability
to pay its liabilities as they fall due in the ordinary course of business and
it was abundantly shown that BF was unable to pay its liabilities to
depositors for over a six-month-period before it was
824
824
vance of P569.49 million from Central Bank, and additional valuation

reserves of P124.5 million. (pp. 34, Receivers Report.)
The Receivers further noted that
of the Philippines
After BF was closed as of January 25, 1985, there were no collections from
loans granted to firms related to each other and to BF classified as
doubtful or loss, there were no substantial improvements on other loans
classified doubtful or loss; there was no further increase in the value of
assets owned/acquired supported by new appraisals and there was no
infusion of additional capital such that the estimated realizable assets of
BF remained at P3,909.23, (millions) while the total liabilities amounted to
P5,159.44 (millions). Thus, BF remains insolvent with estimated deficiency
to creditors of P1,250.21 (millions),
Moreover, there were no efforts on the part of the stockholders of the
bank to improve its financial condition and the possibility of rehabilitation
has become more remote. (p. 8, Receivers Report.)
In the light of the results of the examination of BF by the Teodoro and
Tiaoqui teams, I do not find that the CBs Resolution No. 75 ordering BF to
cease banking operations and placing it under receivership was plainly
arbitrary and made in bad faith. The receivership was justified because BF
was insolvent and its continuance in business would cause loss to its
depositors and creditors. Insolvency, as defined in Rep. Act Act 265, means
the inability of a banking institution to pay its liabilities as they fall due in
the usual and ordinary course of business. Since June 1984, BF had been
placed under receivership.

Even if assets and liabilities were to be factored into a formula for
determining whether or not BF was already insolvent on or before January
25, 1985, the result would be no different. The banks assets as of the end
of 1984 amounted to P4.891 billions (not P6 billions) according to the
Report signed and submitted to the CB by BFs own president, and its total
liabilities were P4.478 billions (p. 58, Cosico Report). While Aguirres Report
showed BF ahead with a net worth of P412.961 millions, said report did not
make any provision for estimated valuation reserves amounting to P600.5
millions, (50% of face value of doubtful loans and 100% of face value of
loss accounts) which BF had granted to its related/linked companies. The
estimated valuation reserves of P600.5 millions plus BFs admitted
liabilities of P4.478 billions, put together, would wipe out BFs realizable
assets of P4.891 billions and confirm its insolvent condition to the tune of
P187.538 millions.
BFs and Judge (now CA Justice) Consuelo Y. Santiagos argument that
valuation reserves should not be considered because the matter was not
discussed by Tiaoqui with BF officials is not well taken for:
(1) The records of the defaulting debtors were in the possession of BF.
(2) The adversely classified loans were in fact included in the List of
Exceptions and Findings (of irregularities and violations of laws and CB
rules and regulations) prepared by the SES, a copy of which was furnished
BF on December 17, 1984;
(3) A conference on the matter was held on January 21, 1985 with senior
officials of BF headed by EVP F. Dizon,. (pp. 1415, Cosico Report.) BF did
not formally protest against the CBs estimate of valuation reserves. The
CB could not wait forever for BF to respond for the CB had to act with
reasonable promptness to protect the depositors and creditors of BF
because the bank continued to operate.
(4) Subsequent events proved correct the SES classification of the loan
accounts as doubtful or loss because as of January 25, 1985 none of
the loans, except three, had been paid either partially or in full, even if
they had already matured (p. 53, Cosico Report).
825
bank was insolvent and could not continue in business without probable
loss to its depositors or creditors, and what had not been examined was
negligible and would not have materially altered the result. In any event,
the official termination of the examination with the submission by the Chief
Examiner of his report to the Monetary Board in March 1985, did not
contradict, but in fact confirmed, the findings in the Tiaoqui Report,
The responsibility of administering the Philippine monetary and banking
systems is vested by law in the Central Bank whose duty it is to use the
powers granted to it under the law to achieve the objective, among others,
of maintaining monetary stability in the country (Sec. 2, Rep. Act 265). I do
not think it would be proper and advisable for this Court to interfere with
the CBs exercise of its prerogative and duty to discipline banks which have
persistently engaged in illegal, unsafe, unsound and fraudulent banking
practices causing tremendous losses and unimaginable anxiety and
prejudice to depositors and creditors and generating widespread distrust
and loss of confidence in the banking system. The damage to the banking
system and to the depositing public is bigger when the bank, like Banco
826

825
826
of the Philippines
The recommended provision for valuation reserves of P600.5 millions for

doubtful and loss accounts was a proper factor to consider in the
capital adjustments of BF and was in accordance with accounting rules.
For, if the uncollectible loan accounts would be entered in the assets
column as receivables, without a corresponding entry in the liabilities
column for estimated losses or valuation reserves arising from their
uncollectability, the result would be a gravely distorted picture of the
financial condition of BF.
BFs strange argument that it was not insolvent for otherwise the CB would
not have given it financial assistance does not merit serious consideration
for precisely BF needed financial assistance because it was insolvent.
Tiaoquis admission that the examination of BF had not yet been officially
terminated when he submitted his report on January 23, 1985 did not
make the action of the Monetary Board of closing the bank and appointing
receivers for it, plainly arbitrary and in bad faith. For what had been
examined by the SES was more than enough to warrant a finding that the
GSIS vs. Civil Service Commission

Filipino, is big. With 89 branches nationwide, 46 of them in Metro Manila
alone, pumping the hard-earned savings of 3 million depositors into the
bank, BF had no reason to go bankrupt if it were properly managed. The
Central Bank had to infuse almost P3.5 billions into the bank in its
endeavor to save it. But even this financial assistance was misused, for
instead of satisfying the depositors demands for the withdrawal of their
money, BF channeled and diverted a substantial portion of the funds into
the coffers of its related/linked companies. Up to this time, its officers,
directors and major stockholders have neither repaid the Central Banks
P3.5 billion financial assistance, nor put up adequate collaterals therefor,
nor submitted a credible plan for the rehabilitation of the bank. What
authority has this Court to require the Central Bank to reopen and
rehabilitate the bank, and in effect risk more of the Governments money
in the moribund bank? I respectfully submit that that decision is for the
Central Bank, not for this Court, to make.
WHEREFORE, I vote to dismiss the petition for certiorari and mandamus in

G.R. No. 70054 for lack of merit.
Motion for reconsideration in G.R. Nos. 68878 and 81303, and petitions in
G.R. Nos. 7725558, 78766, 81304 and 90473, denied; petitions in G.R.
Nos. 70054, 76767 and 78894, granted and the order annulled and set
aside.
o0o
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Banco
Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of the
Philippines, 204 SCRA 767(1991)]
Mandamus; Writ does not lie if there is another remedy.The writ of

mandamus will not lie to compel the officials of the Central Bank to
prosecute violations of banking laws since the petitioner's plain, adequate
and speedy remedy is to file complaints for such violations in the fiscal's
office.
592
Perez vs. Monetary Board
No. L-23307. June 30, 1967.
DAMASO P. PEREZ and REPUBLIC BANK, ETC., ET AL., petitionersappellants, vs. MONETARY BOARD, THE SUPERINTENDENT OF BANKS,
CENTRAL BANK OF THE PHILIPPINES and SECRETARY OF JUSTICE,
respondents-appellees. AURORA R. RECTO, MIGUEL CANIZARES, LEON
ANCHETA, PABLO ROMAN, VICTORIA B. ROMAN and NORBERTO J.
QUISUMBING, intervenors-appellees.
Central Bank; No specific duty to prosecute violators of banking laws.
Although the Central Bank and its respondent officials may have the duty
under the Central Bank Act and the General Banking Law to cause the
prosecution of alleged violators of banking laws, yet, there is nothing in
said laws that imposes a clear and specific duty on the former to undertake
the actual prosecution of the latter.
Pleading and Practice; Interlocutory orders; Such orders may be set aside.
The order denying a motion to dismiss is interlocutory. The lower court
was not estopped to set it aside because purely interlocutory orders are
subject to alteration, modification or reversal before the rendition of the
final judgment on the merits,
APPEAL from an order of dismissal rendered by the Court of First Instance
of Manila.

C. D. Baizas & Associates and Halili, Bolinao & Associates for
petitioners-appellants.
593
VOL. 20, JUNE 30, 1967

593
Same; Nature of Central Bank.The Central Bank is a government

corporation created principally to administer the monetary and banking
system of the Republic. It is not a prosecution agency like the fiscal's office.
Being an artificial person, the Central Bank is limited to its statutory
powers. Its power to sue and be sued refers to civil cases only. For the
officials of the Central Bank to do the actual prosecuting themselves would
be tantamount to performing an ultra vires act.
Criminal Procedure; Mandamus.Mandamus does not lie to compel a

prosecuting officer to prosecute a criminal case in court.
N. J. Quisumbing and E. Quisumbing-Fernando for intervenor sappellees,
Same; Private persons may initiate prosecution of public offenses.

Violations of banking laws are public offenses. Their prosecution is a matter
of public interest. Private persons can denounce such violations to the
prosecuting authorities.
BENGZON, J.P., J.:
Natalio M. Balboa, F. E. Evangelista and Severo Malvar for respondentappellee Central Bank.
Solicitor General Arturo A. Alafriz and Solicitor C. S. Gaddi for
respondent-appellee Secretary of Justice.
Petitioner-appellant Damaso P. Perez, for himself and in a derivative

capacity on behalf of the Republic Bank, instituted mandamus proceedings
in the Court of First Instance of Manila on June 23, 1962, against the
Monetary Board, the Superintendent of Banks, the Central Bank and the
Secretary of Justice. His object was to compel these respondents to
prosecute, among others, Pablo Roman and several other Republic Bank
officials for violations of the General Banking Act (specifically secs. 76-78
and 83 thereof) and the Central Bank Act, and for falsification of public or
commercial documents in connection with certain alleged anomalous loans
amounting to P1,303,400.00 authorized by Roman and the other bank
officials.
Respondents assailed, in their respective answers, the propriety of
mandamus. The Secretary of Justice claimed that it was not their specific
duty to prosecute the persons denounced by Perez. The Central Bank and
its respondent officials, on the other hand, averred that they had already
done their duty under the law by referring to the special prosecutors of the
Department of Justice for criminal investigation and prosecution those
cases involving the alleged anomalous loans.1
On July 10, 1962, respondents moved for the dismissal of the petition for
lack of cause of action. Petitioners opposed. The lower court denied the
motion.
Subsequently, herein intervenors-appellees, as the incumbent directors of
the Board of the Republic Bank, filed a motion to intervene in the
proceedings. Petitioners opposed the motion but the lower court approved
the same.
On January 20,1964, the Monetary Board of the Central Bank passed
Resolution No. 81 granting the request of
_______________
1 See Annexes 5, 7 and 7-A CBP of respondents'. answer.
Republic Bank for credit accommodations to cover the unusual withdrawal

of deposits by its depositors in view of the fact that said Bank was under
investigation then by the authorities. The grant, however, was conditioned
upon the execution by the management and controlling stockholders of the
Republic Bank of a voting trust agreement in favor of a Board of Trustees to
be chosen by the latter with the approval of the Central Bank.
Pursuant to this resolution, Pablo Roman and his family, as the controlling
stockholders of Republic Bank, executed a voting trust agreement in favor
of a board of trustees composed of former Chief Justice Ricardo Paras, Hon.
Miguel Cuaderno and Mr. Felix de la Costa. Subsequently, or on March 13,
1964, this agreement was superseded by another one with 'the Philippine
National Bank as the trustee.2
In view of these developments, the intervenors-appellees filed a motion to
dismiss before the lower court claiming that the ouster of Pablo Roman and
his family from the management of the Republic Bank effected by the
voting trust agreement rendered the mandamus case moot and academic.
Respondents-appellees also filed motion to dismiss in which they again
raised the impropriety of mandamus. Acting upon the two motions and the
oppositions thereto filed by petitioners, the lower court granted the
motions and dismissed the case. Hence, this appeal.
Appellants, contending that the ouster of Pablo Roman from Republic
Bank's management and control has not altered or rendered moot the
issues in the case, argue that the remedy of mandamus lies3 to compel
respondents to prosecute the aforementioned Pablo Roman and company.
Addressing Ourselves directly to this issue raised on the propriety of the
petition for mandamus, We rule that petitioners cannot seek by mandamus
to compel respondents to prosecute criminally those alleged violators of
the banking laws. Although the Central Bank and its respondent officials
may have the duty under the Central Bank Act and the General Banking
Act to cause the prosecution of
_______________
594
2 See Annex "A" of petitioners-appellants' brief.
594
3 I.e., that in their petition, pars. 6-10 and 12 specially, a cause of action
for mandamus is stated.
595
VOL. 20, JUNE 30, 1967
6 Sec. 4, Republic Act 265.
595
7 See Records, p. 40.
8 Gonzales vs. Court of First Instance, 63 Phil. 846; Dimaunahan vs. Hon.
Aranas, 74 Phil. 455; People vs. Natoza, L-8917, Dec. 24, 1956.
those alleged violators, yet We find nothing in said laws that imposes a
clear, specific duty on the former to do the actual prosecution of the latter.
The Central Bank is a government corporation created principally to
administer the monetary and banking system of the Republic,4 not a
prosecution agency5 like the f iscal's office. Being an artificial person, the
Central Bank is limited to its statutory powers and the nearest power to
which prosecution of violators of banking laws may be attributed is its
power to sue and be sued.6 But this corporate power of litigation evidently
refers to civil cases only.
The Central Bank and its respondent of f icials have already done all they
could, within the confines of their powers, to cause the prosecution of
those persons denounced by Perez. Annexes 5 to 7-C CBP of respondents'
answer and even petitioners' opposition to the first motion to dismiss7
show that the cases of the alleged anomalous loans had already been
referred by the Central Bank to the special prosecutors of the Department
of Justice for criminal investigation and prosecution. For respondents to do
the actual prosecuting themselves, as petitioners would have it, would be
tantamount to an ultra vires act already.
As for the Secretary of Justice, while he may have the power to prosecute
through the office of the Solicitor Generalcriminal cases, yet it is settled
rule that mandamus will not lie to compel a prosecuting officer to
prosecute a criminal case in court.8
Moreover, it does not appear from the law that only the Central Bank or its
respondent officials can cause the prosecution of alleged violations of
banking laws. Said violations constitute a public offense, the prosecution of
which is a matter of public interest and hence, anyoneeven private
individualscan denounce such violations before the prosecuting
authorities. Since Perez himself
_______________
4 Sec. 2, Republic Act 265.

5 See: People vs. Tan, L-9275, June 30, 1960.
596
596
Esperat vs. Avila
could cause the filing of criminal complaints against those allegedly
involved in the anomalous loans, if any, then he has a plain, adequate and
speedy remedy in the ordinary course of law, which makes mandamus
against respondents improper.
But petitioners-appellants would insist that the impropriety of mandamus
could no longer be raised before the lower court for the second time since
it had already been invoked in a previous motion to dismiss which was
denied. This is untenable. The lower court was not estopped from changing
its opinion while it was under its jurisdiction to do so and on the same
ground of lack of cause of action raised before, because the former order
was purely interlocutory and thus remained constantly subject to
alteration, modification or reversal by it before the rendition of final
judgment on its merits.9
Wherefore, the order of dismissal appealed from is, as it is hereby,
affirmed. Costs against petitioner-appellant Perez. So ordered.
Concepcion, C J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez and
Castro, JJ., concur.
Order of dismissal affirmed.
Notes.See Republic Bank vs. Cuaderno, L-22399, March 30, 1967, 19
Supreme Court Reports Annotated 671 which is related to the foregoing
Perez case.
The rule that a private person may initiate the prosecution of public
offenses was followed in Hernandez vs. Albano, 59 O.G. 1910.
oOo
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Perez vs.
Monetary Board, 20 SCRA 592(1967)]
VOL. 20, JUNE 30, 1967

507
Central Bank vs. Morfe
No. L-20119. June 30, 1967.
CENTRAL BANK OF THE PHILIPPINES, petitioner, vs. THE HONORABLE
JUDGE JESUS P. MORFE and FlRST MUTUAL SAVING AND LOAN
ORGANIZATION, INC., respondents.
Constitutional Law; Reasonableness of search and seizure.It cannot be

gainsaid that the constitutional injunction against unreasonable searches
and seizures seeks to forestall, not purely abstract or imaginary evils, but
specific and concrete ones. In the very nature of things, unreasonableness
is a condition dependent upon the circumstances surrounding each case, in
much the same way as the question whether or not "probable cause"
exists is one which must be decided in the light of the conditions obtaining
in given situations.
Same; Sufficiency of deposition.The deposition of a member of the
Intelligence Division of the Central Bank, that, after close observation and
investigation, the office of a savings and loan association, illegally engaged
in banking activities, is being unlawfully used, is sufficient for the issuance
of a search warrant. The issuance of said warrant would not constitute a
grave abuse of discretion, amounting to lack of jurisdiction or excess of
jurisdiction. The failure of the deponent to mention particular individuals
does not necessarily prove that he had no personal knowledge of specific
illegal transactions of the savings and loans association, for the witness
might be
CONCEPCION, C.J.:
This is an original action for certiorari, prohibition and injunction, with

preliminary injunction, against an order of the Court of First Instance of
Manila, the dispositive part of which reads:
"WHEREFORE, upon the petitioner filing an injunction bond in the amount
of P3,000.00, let a writ of preliminary preventive and/or mandatory
injunction issue, restraining the respondents, their agents or
representatives, from further searching the premises and properties and
from taking custody of the various documents and papers of the petitioner
corporation, whether in its main office or in any of its branches; and
ordering the respondent Central Bank and/or its co-respondents to return
to the petitioner within five (5) days from service on respondents of the
writ of preventive and/or mandatory injunction, all the books, documents,
and papers so far seized from the petitioner pursuant to the aforesaid
search warrant."
508
Upon the filing of the petition herein and of the requisite bond, we issued,
on August 14, 1962, a writ of preliminary injunction restraining and
prohibiting respondents herein from enforcing the order above quoted.
508
The main respondent in this case, the First Mutual Savings and Loan
Organization, Inc.hereinafter referred to as the Organizationis a
registered non-stock corporation, the main purpose of which, according to
its Articles of Incorporation, dated February 14, 1961, is "to encourage x x
x and implement savings and thrift among its members, and to extend f
inancial assistance in the f orm of loans," to them. The Organization has
three (3) classes

acquainted with specific transactions even if the names of the individuals
concerned are unknown to him.
Banks; Compliance with legal requirements.The law requiring compliance
with certain requirements before anybody can engage in banking obviously
seeks to protect the public against actual, as well as potential, injury.
ORIGINAL ACTION in the Supreme Court. Certiorari and prohibition with
preliminary injunction.
509
VOL. 20, JUNE 30, 1967

509

Natalio M. Balboa, F. E. Evangelista and Mariano Abaya for petitioner.
Halili, Bolinao, Bolinao & Associates for respondents.
of "members,"1 namely: (a) founder memberswho originally joined the

organization and have signed the preincorporation paperswith the
exclusive right to vote and be voted for ; (b) participating memberswith
"no right to vote or be voted for"to which category all other members
belong; except (c) honorary members, so made by the board of trustees,

"at the exclusive discretion" thereofdue to "assistance, honor, prestige
or help extended in the propagation" of the objectives of the Organization
without any pecuniary expenses on the part of said honorary members.
On February 14, 1962, the legal department of the Central Bank of the
Philippineshereinafter referred to as the Bankrendered an opinion to
the effect that the Organization and others of similar nature are banking
institutions, falling within the purview of the Central Bank Act.2 Hence, on
April 1 and 3, 1963, the Bank caused to be published in the newspapers
the following:
"ANNOUNCEMENT
"To correct any wrong impression which recent newspaper reports on

'savings and loan associations' may have created in the minds of the public
and other interested parties, as well as to answer numerous inquiries from
the public, the Central Bank of the Philippines wishes to announce that all
'savings and loan associations' now in operation and other organizations
using different corporate names, but engaged in operations similar in
nature to said 'associations' HAVE NEVER BEEN AUTHORIZED BY THE
MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES TO ACCEPT
DEPOSIT OF FUNDS FROM THE PUBLIC NOR TO ENGAGE IN THE BANKING
BUSINESS NOR TO PERFORM ANY BANKING ACTIVITY OR FUNCTION IN THE
PHILIPPINES.
"Such institutions violate Section 2 of the General Banking Act, Republic
Act No. 837, should they engage in the 'lending of funds obtained from the
public through the receipts of deposits or the sale of bonds, securities or
obligations of any kind' without authority from the Monetary Board. Their
activities and operations are not supervised by the Superintendent of
Banks and persons dealing with such institutions do so at their risk.
"CENTRAL BANK OF THE PHILIPPINES"
_______________
510
510
Moreover, on April 23, 1962, the Governor of the Bank directed the
coordination of "the investigation and gathering of evidence on the
activities of the savings and loan associations which are operating contrary
to law." Soon thereafter, or on May 18, 1962, a member of the intelligence
division of the Bank filed with the Municipal Court of Manila a verified
application for a search warrant against the Organization, alleging that
"after close observation and personal investigation, the premises at No.
2745 Rizal Avenue, Manila"in which the offices of the Organization were
housed"are being used unlawfully," because said Organization is illegally
engaged in banking activities, "by receiving deposits of money for deposit,
disbursement, saf ekeeping or otherwise or transacts the business of a
savings and mortgage bank and/or building and loan association x x x
without having first complied with the provisions of Republic Act No. 337"
and that the articles, papers, or effects enumerated in a list attached to
said application, as Annex A thereof,3 are kept in said premises, and
"being- used or intended to be used in the commission of a felony, to wit:
violation of Sections 2 and 6 of Republic Act No. 337."4 Said articles,
papers or effects are described in the aforementioned Annex A, as follows:
"I. BOOKS OF ORIGINAL ENTRY
(1) General Journal
(2) Columnar Journal or Cash Book
(a) Cash Receipts Journal or Cash Receipt Book
(b) Cash Disbursements Journal or Cash Disbursement Book
"II. BOOKS OF FINAL ENTRY
1 Pursuant to the by-laws of the Organization, as amended on March 29,

1967.
2 Republic Act No. 338.
(1) General Ledger

(2) Individual Deposits and Loans Ledgers
(3) Other Subsidiary Ledgers
"III. OTHER ACCOUNTING RECORDS
(16) Minutes BookBoard of Directors
(1) Application for Membership
"IV. FINANCIAL STATEMENTS
(2) Signature Card
(1) Income and Expenses Statements
(3) Deposit Slip
(2) Balance Sheet or Statement of Assets and Liabilities
(4) Passbook Slip
"V. OTHERS
(5) Withdrawal Slip
(1) Articles of Incorporation
(6) Tellers Daily Deposit Report
(2) By-Laws
_______________
(3) Prospectus, Brochures, Etc.
3 P. 106, Rollo.
4 Annex 6 to Annex E, p. 105 of the Rollo.
511
VOL. 20, JUNE 30, 1967

511
(7) Application for Loan Credit Statement
(8) Credit Report
(9) Solicitor's Report
(10) Promissory Note
(11) Indorsement
(4) And other documents and articles which are being used or intended to
be used in unauthorized banking activities and operations contrary to law."
Upon the filing of said application, on May 18,1962, Hon. Roman Cancino,
as Judge of the said municipal court, issued the warrant above referred to,5
commanding the search of the aforesaid premises at No. 2745 Rizal
Avenue, Manila, and the seizure of the f oregoing articles, there being
"good and sufficient reasons to believe" upon examination, under oath, of
a detective of the Manila Police Department and said intelligence off icer of
the Bankthat the Organization has under its control, in the address given,
the aforementioned articles, which are the subject of the offense adverted
to above or intended to be used as means for the commission of said
offense.
Forthwith, or on the same date, the Organization commenced Civil Case
No. 50409 of the Court of First Instance of Manila, an original action for
"certiorari, prohibition, with writ of preliminary injunction and/or writ of
preliminary mandatory injunction," against said municipal court, the Sheriff
of Manila. the Manila Police Department, and the Bank, to annul the
aforementioned search warrant, upon the ground that, in issuing the same,
the municipal court had acted "with grave abuse of discretion, without
_______________
(12) Co-makers' Statements

(13) Chattel Mortgage Contracts
(14) Real Estate Mortgage Contracts
(15) Trial Balance
5 P. 107, Rollo.
512
512
513
and 6 of said Act.6 Yet respondent Judge found the searches and seizures
in question to be unreasonable, through the f ollowing process of
reasoning: the deposition given in support of the application for a search
warrant states that the deponent personally knows that the premises of
the Organization, at No. 2745 Rizal Avenue, Manila,7 were being used
jurisdiction and/or in excess of jurisdiction" because: (a) "said search

warrant is a roving commission, general in its terms x x x;" (b) "the use of
the word 'and others' in the search warrant x x x permits the unreasonable
search and seizure of documents which have no relation whatsoever to any
specific criminal act x x x;" and (c) "no court in the Philippines has any
jurisdiction to try a criminal case against a corporation x x x."
The Organization, likewise, prayed that, pending hearing of the case on the
merits, a writ of preliminary injunction be issued ex parte restraining the
aforementioned search and seizure, or, in the alternative, if the acts
complained of have been partially performed, that a writ of preliminary
mandatory injunction be forthwith issued exparte, ordering the
preservation of the status quo of the parties, as well as the immediate
return to the Organization of the documents and papers so far seized
under the search warrant in question. After due hearing, on the petition for
said injunction, respondent, Hon. Jesus P. Morfe, Judge, who presided over
the branch of the Court of First Instance of Manila to which said Case No.
50409 had been assigned, issued, on July 2, 1962, the order complained of.
Within the period stated in said order, the Bank moved for a
reconsideration thereof, which was denied on August 7, 1962. Accordingly,
the Bank commenced, in the Supreme Court, the present action, against
Judge Morfe and the Organization, alleging that respondent Judge had
acted with grave abuse of discretion and in excess of his jurisdiction in
issuing the order in question.
At the outset, it should be noted that the action taken by the Bank, in
causing the aforementioned search to be made and the articles above
listed to be seized, was predicated upon the theory that the Organization
was illegally engaged in bankingby receiving money f or deposit,
disbursement, safekeeping or otherwise, or transacting the business of a
savings and mortgage bank and/or building and loan association,without
first complying with the provisions of R.A. No. 337, and that the order
complained of assumes that the Organization had violated sections 2
513
VOL. 20, JUNE 30, 1967
_______________
6 "Section 2. Only duly authorized persons and entities may engage in the
lending of funds obtained from the public through the receipt of deposits or
the sale of bonds securities or obligations of any kind, and all entities
regularly conducting such operations shall be considered as banking
institutions and shall be subject to the provisions of this Act, of the Central
Bank Act, and of other pertinent laws. The terms 'banking institution' and
'bank,' as used in this Act, are synonymous and interchangeable and
specifically include banks, banking institutions. commercial banks. savings
banks, mortgage banks, trust companies, building and loan associations,
branches and agencies in the Philippines of foreign banks, hereinafter
called Philippine branches, and all other corporations, companies,
partnerships, and associations performing banking functions in the
Philippines.
"Persons and entities which receive deposits only occasionally shall not be
considered as banks, but such persons and entities shall be subject to
regulations by the Monetary Board of the Central Bank; nevertheless, in no
case may the Central Bank authorize the drawing of checks against
deposits not maintained in banks, or branches or agencies thereof.
"The Monetary Board may similarly regulate the activities of persons and
entities which act as agents of banks."
7 "Section 6. No person, association or corporation not conducting the
business of a commercial banking corporation, trust corporation, savings
and mortgage bank, or building and loan association, as defined in this Act,
shall advertise or hold itself out as being engaged in the business of such
bank, corporation or association, or use in connection with its business title
the word or words 'bank,' 'banking,' 'banker,' 'building and loan
association,' 'trust company,' or other words of similar import, or solicit or
receive deposits of money for deposit, disbursement, safekeeping, or
otherwise, or transact in any manner the business of any such bank,
corporation or association, without having first complied with the

provisions of this Act in so far as it relates to commercial banking
corporations, trust corporations, savings and mortgage banks, or building
and loan associations, as the case may be. For any violation of the
provisions of this section by a corporation, the officers and directors
thereof shall be jointly and severally liable. Any violation of the provisions
of the section shall be punished by a fine
the question whether or not "probable cause" exists is one which must be
decided in the light of the conditions obtaining in given situations.
514
_______________
514
of five hundred pesos for each day during which such violation is continued
or repeated, and in default of the payment thereof, subsidiary
imprisonment as prescribed by law."
515
unlawfully for banking purposes. Respondent Judge deduced, from this

premise, that the deponent "knows specific banking transactions of the
petitioner with specific persons/' and, then concluded, that said deponent
"x x x could have, if he really knew of actual violation of the law, applied
for a warrant to search and seize only books" or records:
VOL. 20, JUNE 30, 1967
"covering the specific purportedly illegal banking transactions of the

petitioner with specific persons who are the supposed victims of said illegal
banking transactions according to his knowledge. To authorize and seize all
the records listed in Annex A to said application for search warrant, without
reference to specific alleged victims of the purported illegal banking
transactions, would be to harass the petitioner, and its officers with a
roving commission or fishing expedition for evidence which could be
discovered by normal intelligence operations or inspection (not seizure) of
books and records pursuant to Section 4 of Republic Act No. 337 x x x."
The concern thus shown by respondent Judge for the civil liberty involved
is, certainly, in line with the function of courts, as ramparts of justice and
liberty, and deserves the greatest encouragement and warmest
commendation. It lives up 'to the highest traditions of the Philippine Bench,
which underlies the people's faith in and adherence to the Rule of Law and
the democratic principles in this part of the World.
At the same time, it cannot be gainsaid that the Constitutional injunction
against unreasonable searches and seizures seeks to forestall, not purely
abstract or imaginary evils, but specif ic and concrete ones. Indeed,
unreasonableness is, in the very nature of things, a condition dependent
upon the circumstances surrounding each case, in much the same way as
Referring particularly to the one at bar, it is not clear from the order
complained of whether respondent Judge opined that the above mentioned
statement of the deponentto the effect that the Organization was
engaged in the transactions mentioned in his depositiondeserved cre-
515
Judge Cancino, who issued the warrant, on the credibility of said
statement, would not justify the conclusion that said municipal Judge had
committed a grave abuse of discretion, amounting to lack of jurisdiction or
excess of jurisdiction. Upon the other hand, the failure of the witness to
mention particular individuals does not necessarily prove that he had no
personal knowledge of specific illegal transactions of the Organization, for
the witness might be acquainted with specific transactions, even if the
names of the individuals concerned were unknown to him.
Again, the aforementioned order would seem to assume that an illegal
banking transaction, of the kind contemplated in the contested action of
the officers of the Bank, must always connote the existence of a "victim." If
this term is used to denote a party whose interests have been actually
injured, then the assumption is not necessarily justified. The law requiring
compliance with certain requirements bef ore anybody can engage in
banking obviously seeks to protect the public against actual, as well as
potential, injury. Similarly, we are not aware of any rule limiting the use of
warrants to papers or eff ects which cannot be secured otherwise. ,
The line of reasoning of respondent Judge might, perhaps, be justified if the

acts imputed to the Organization consisted of isolated transactions, distinct
and different from the type of business in which it is generally engaged. In
such case, it may be necessary to specify or identify the parties involved in
said isolated transactions, so that the search and seizure be limited to the
records pertinent thereto. Such, however, is not the situation confronting
us. The records suggest clearly that the transactions objected to by the
Bank constitute the general pattern of the business of the Organization.
Indeed, the main purpose thereof, according to its By-laws, is "to extend
financial assistance, in the form of loans, to its members," with f unds
deposited by them.
It is true, that such funds are referred toin the Articles of Incorporation
and the By-lawsas their "savings," and that the depositors thereof are
designated as "members," but, even a cursory examination of said
docu515
516
however, in the light of the circumstances obtaining in this case, that the
Municipal Judge did not commit a grave abuse of discretion in finding that
there was probable cause that the Organization had violated Sections 2
and 6 of the aforesaid law and in issuing the warrant in question, and that,
accordingly, and in line with Alvarez vs. Court of First Instance (64 Phil. 33),
the search and seizure complained of have not been proven to be
unreasonable.
Wherefore, the order of respondent Judge dated July 2, 1962, and the writ
of preliminary mandatory injunction issued in compliance therewith are
hereby annulled, and the writ of preliminary injunction issued by this Court
on August 14, 1962, accordingly, made permanent, with costs against
respondent First Mutual Savings and Loan Organization, Inc. It is so
ordered.
Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ.,
concur.
Dizon, J., did not take part.
517
516
ments will readily show that anybody can be a depositor and thus be a
"participating member." In other words, the Organization is, in effect, open
to the "public" for deposit accounts, and the funds so raised may be lent by
the Organization. Moreover, the power to so dispose of said funds is placed
under the exclusive authority of the "founder members/' and "participating
members" are expressly denied the right to vote or be voted for, their
"privileges and benefits," if any, being limited to those which the board of
trustees may, in its discretion, determine from time to time. As a
consequence, the "membership" of the "participating members" is purely
nominal in nature. This situation is fraught, precisely, with the very
dangers or evils which Republic Act No. 337 seeks to f orestall, by exacting
compliance with the requirements of said Act, before the transactions in
question could be undertaken.
It is interesting to note, also, that the Organization does not seriously
contest the main facts, upon which the action of the Bank is based. The
principal issue raised by the Organization is predicated upon the theory
that the aforementioned transactions of the Organization do not amount to
"banking," as the term is used in Republic Act No. 337. We are satisfied,
VOL. 20, JUNE 30, 1967

517
Embroidery and Apparel Control and Inspection Board vs. Cloribel
Petition granted; order and writ of injunction set aside.
Note.See notes under Stonehill vs. Diokno, L-19550, June 19, 1967. See
also Republic vs. Security Credit and Acceptance Corporation, L-20583, Jan.
23, 1967 as to corporation engaged in illegal banking.
oOo [Central Bank vs. Morfe, 20 SCRA 507(1967)]
Rural Bank of San Miguel, Inc. vs. Monetary Board, Bangko Sentral ng
Pilipinas
G.R. No. 150886. February 16, 2007.*
RURAL BANK OF SAN MIGUEL, INC. and HILARIO P. SORIANO, in his capacity
as majority stockholder in the Rural Bank of San Miguel, Inc., petitioners,
vs. MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS and PHILIPPINE
DEPOSIT INSURANCE CORPORATION, respondents.
Banks and Banking; Statutory Construction; It is well-settled that the
closure of a bank may be considered as an exercise of police power; Action
of the Monetary Board (MB) on this matter is final and executory.It is
well-settled that the closure of a bank may be considered as an exercise of
police power. The action of the MB on this matter is final and executory.
Such exercise may nonetheless be subject to judicial inquiry and can be set
aside if found to be in excess of jurisdiction or with such grave abuse of
discretion as to amount to lack or excess of jurisdiction.
Same; Same; Petitioners reliance on Banco Filipino which was decided
under RA 265 was misplaced; In RA 7653, only a report of the head of the
supervising or examining department is necessary.Thus in Banco
Filipino, we ruled that an examination [conducted] by the head of the
appropriate supervising or examining department or his examiners or
agents into the condition of the bank is necessary before the MB can
order its closure. However, RA 265, including Section 29 thereof, was
expressly repealed by RA 7653 which took effect in 1993. Resolution No.
105 was issued on January 21, 2000. Hence, petitioners reliance on Banco
Filipino which was decided
_______________
* FIRST DIVISION.
155
VOL. 516, FEBRUARY 16, 2007

155
154
Pilipinas
under RA 265 was misplaced. In RA 7653, only a report of the head of the
supervising or examining department is necessary. It is an established
rule in statutory construction that where the words of a statute are clear,
plain and free from ambiguity, it must be given its literal meaning and
applied without attempted interpretation.
Same; Same; Court cannot look for or impose another meaning on the
term report or to construe it as synonymous with examination; It is
clear from the words used in Section 30 that RA 7653 no longer requires
that an examination be made before the Monetary Board (MB) can issue a
closure order.This Court cannot look for or impose another meaning on
the term report or to construe it as synonymous with examination.
From the words used in Section 30, it is clear that RA 7653 no longer
requires that an examination be made before the MB can issue a closure
order. We cannot make it a requirement in the absence of legal basis.
Same; Same; The purpose of the law is to make the closure of a bank
summary and expeditious in order to protect public interest; Prior notice
and hearing are no longer required before a bank can be closed.Using
the literal meaning of report does not lead to absurdity, contradiction or
injustice. Neither does it defeat the intent of the legislators. The purpose of
the law is to make the closure of a bank summary and expeditious in order
to protect public interest. This is also why prior notice and hearing are no
longer required before a bank can be closed.
of Appeals.
This is a petition for review on certiorari1 of a decision2 and resolution3 of

the Court of Appeals (CA) dated March 28, 2000 and November 13, 2001,
respectively, in CA-G.R. SP No. 57112.
Petitioner Rural Bank of San Miguel, Inc. (RBSM) was a domestic
corporation engaged in banking. It started operations in 1962 and by year
2000 had 15 branches in Bulacan.4 Petitioner Hilario P. Soriano claims to
be the majority stockholder of its outstanding shares of stock.5
On January 21, 2000, respondent Monetary Board (MB), the governing
board of respondent Bangko Sentral ng Pilipinas (BSP), issued Resolution
No. 105 prohibiting RBSM from doing business in the Philippines, placing it
under receivership and designating respondent Philippine Deposit
Insurance Corporation (PDIC) as receiver:
On the basis of the comptrollership/monitoring report as of October 31,
1999 as reported by Mr. Wilfredo B. Domo-ong, Director, Department of
Rural Banks, in his memorandum dated January 20, 2000, which report
showed that [RBSM] (a) is unable to pay its liabilities as they become due
in the ordinary course of business; (b) cannot continue in business without
involving probable losses to its depositors and creditors; that the
management of the bank had been accordingly informed of the need to
infuse additional capital to place the bank in a solvent financial condition
and was given adequate time within which to make the required infusion
and that no infusion of adequate fresh capital was made, the Board
decided as follows:
_______________
Lamberto A. Gongales, Jr. for petitioners.

M.M. Lazaro and Associates for respondent.
156
156
2 Penned by Associate Justice Eugenio S. Labitoria (now retired) and

concurred in by Associate Justices Bernardo P. Abesamis (now retired) and
Elvi John S. Asuncion of the Thirteenth Division of the Court of Appeals;
Rollo, pp. 32-50.
3 Id., pp. 52-57.
Pilipinas
4 Id., pp. 6 and 33.
CORONA, J.:
5 Id., p. 6.
157
8 Id., p. 38 Section 1, Rule 17 states:

157
Pilipinas
1. To prohibit the bank from doing business in the Philippines and to place
its assets and affairs under receivership in accordance with Section 30 of
[RA 7653];
Dismissal upon notice by plaintiff.A complaint may beZ dismissed by the

plaintiff by a filing a notice of dismissal at any time before service of the
answer or of a motion for summary judgement. Upon such notice being
field, the court shall issue an order confirming the dismissal. Unless
otherwise stated in the notice, the dismissal is without prejudice, except
that a notice operates as an adjudication upon the merits when filed by a
plaintiff who has once dismissed in a competent court an action based on
or including the same claim.
158
2. To designate the [PDIC] as receiver of the bank;
158
xxx
xxx
x x x"6
On January 31, 2000, petitioners filed a petition for certiorari and

prohibition in the Regional Trial Court (RTC) of Malolos, Branch 22 to nullify
and set aside Resolution No. 105.7 However, on February 7, 2000,
petitioners filed a notice of withdrawal in the RTC and, on the same day,
filed a special civil action for certiorari and prohibition in the CA. On
February 8, 2000, the RTC dismissed the case pursuant to Section 1, Rule
17 of the Rules of Court.8
The CA's finding of facts were as follows.
"To assist its impaired liquidity and operations, the RBM was granted
emergency loans on difeerent occasions in the aggregate amount of P375
[million].
As early as November 18, 1998 Land Bank of the Phillipines (LBP) advised
RBSM that it will terminate the clearing of RBSM's failure to replinish its
Special Clearing Demand Deposit with LBP. The BSP interceded with LBP
not to terminate the clearing arrangement of RBSM to protect the interests
of RBSM's depositors and creditors.
___________________
6 Id., p. 93.
7 Docketed as Civil Case No. 66-M-2000; id., p. 187.
Pilipinas
After a year, or on November 29, 1999, the LBP informed the BSP of the
termination of the clearing facility of RBSM to take effect on December 29,
1999, in view of the clearing problems of RBSM.
On December 28, 1999, the MB approved the release of P26.189 [million]
which is the last tranche of the P375 million emergency loan for the sole
purpose of servicing and meeting the withdrawals of its depositors. Of the
P26.180 million, x x x P12.6 million xxx was not used to service
withdrawals [and] remains unaccounted for as admitted by [RBSMs
Treasury Officer and Officer-in-Charge of Treasury]. Instead of servicing
withdrawals of depositors, RBSM paid Forcecollect Professional Solution,
Inc. and Surecollect Professional, Inc., entities which are owned and
controlled by Hilario P. Soriano and other RBSM officers.
On January 4, 2000, RBSM declared a bank holiday. RBSM and all of its 15
branches were closed from doing business. Alarmed and disturbed by the
unilateral declaration of bank holiday, [BSP] wanted to examine the books
and records of RBSM but encountered problems.
Meanwhile, on November 10, 1999, RBSMs designated comptroller, Ms.
Zenaida Cabais of the BSP, submitted to the Department of Rural Banks,
BSP, a Comptrollership Report on her findings on the financial condition
and operations of the bank as of October 31, 1999. Another set of findings
was submitted by said comptroller [and] this second report reflected the
financial status of RBSM as of December 31, 1999.
The findings of the comptroller on the financial state of RBSM as of October
31, 1999 in comparison with the financial condition as of December 31,
1999 is summed up pertinently as follows:
FINANCIAL CONDITION OF RBSM
Capital Infusion
P5,000,000.00
(On Dec. 20, 1999)
As of Oct. 31, 1999

As of Dec. 31, 1999
159
Total obligations/
159
Liabilities
P1,076,863,000.00
Pilipinas
1,009,898,000.00
Actual Breakdown of Total Obligations:
Realizable Assets
1) Deposits of 20,000 depositors P578,201,000.00
898,588,000.00
2) Borrowings from BSP P320,907,000.00
796,930,000.00
3) Unremitted withholding and gross receipt taxes P57,403,000.00.9
Deficit
Based on these comptrollership reports, the director of the Department of

Rural Banks Supervision and Examination Sector, Wilfredo B. Domo-ong,
made a report to the MB dated January 20, 2000.10 The MB, after
evaluating and deliberating on the findings and recommendation of the
Department of Rural Banks Supervision and Examination Sector, issued
Resolution No. 105 on January 21, 2000.11 Thereafter, PDIC implemented
the closure order and took over the management of RBSMs assets and
affairs.
178,275,000.00
212,968,000.00
Cash on Hand
101,441.547.00
8,266,450.00
Required Capital Infusion
P252,120,000.00
In their petition12 before the CA, petitioners claimed that respondents MB

and BSP committed grave abuse of discretion in issuing Resolution No. 105.
The petition was dismissed by the CA on March 28, 2000. It held, among
others, that the decision of the MB to issue Resolution No. 105 was based
on the findings and recommendations of the Department of Rural Banks
Supervision and Examination Sector, the comptroller reports as of October

31, 1999 and December 31, 1999 and the declaration of a bank holiday.
Such could be considered as substantial evidence.13
Pertinently, on June 9, 2000, on the basis of reports prepared by PDIC
stating that RBSM could not resume business with sufficient assurance of
protecting the interest of its depositors, creditors and the general public,
the MB passed
_______________
9 Id., pp. 33-36.

10 Id., pp. 375-426.
11 Id., pp. 33-37.
13 Rollo, p. 43.
160
160
was issued. This case essentially boils down to one core issue: whether
Section 30 of RA 7653 (also known as the New Central Bank Act) and
applicable jurisprudence require a current and complete examination of the
bank before it can be closed and placed under receivership.
Section 30 of RA 7653 provides:
SECTION 30. Proceedings in Receivership and Liquidation.Whenever,
upon report of the head of the supervising or examining department, the
Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course
of business: Provided, That this shall not include inability to pay caused by
extraordinary demands induced by financial panic in the banking
community;
(b) has insufficient realizable assets, as determined by the [BSP] to meet
its liabilities; or
(c) cannot continue in business without involving probable losses to its
depositors or creditors; or
_______________
14 Id., p. 172.
15 Rural Bank of Buhi, Inc. v. Court of Appeals, G.R. No. L61689, 20 June
1988, 162 SCRA 288, 303.
Rural Bank of San Miguel, Inc. vs. Monetary Board,Bangko Sentral ng

Pilipinas
16 Section 30, RA 7653.
Resolution No. 966 directing PDIC to proceed with the liquidation of RBSM
under Section 30 of RA 7653.14
17 Id.
161
Hence this petition.

It is well-settled that the closure of a bank may be considered as an
exercise of police power.15 The action of the MB on this matter is final and
executory.16 Such exercise may nonetheless be subject to judicial inquiry
and can be set aside if found to be in excess of jurisdiction or with such
grave abuse of discretion as to amount to lack or excess of jurisdiction.17
Petitioners argue that Resolution No. 105 was bereft of any basis
considering that no complete examination had been conducted before it

161
Pilipinas
(d) has willfully violated a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution; in which cases, the Monetary
Board may summarily and without need for prior hearing forbid the
institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking
institution.
"x x x
xxx
xxx
The actions of the Monetary Board taken under this section or under
Section 29 of this Act shall be final and executory, and may not be
restrained or set aside by the court except on petition for certiorari on the
ground that the action taken was in excess of jurisdiction or with such
grave abuse of discretion as to amount to lack or excess of jurisdiction. The
petition for certiorari may only be filed by the stockholders of record
receivership, liquidation or conservatorship." (Emphasis supplied)
xxx
xxx
xxx
Petitioners contend that there must be a current, thorough and complete

examination before a bank can be closed under Section 30 of RA 7653.
They argue that this section should be harmonized with Sections 25 and 28
of the same law:
"SECTION 25.Supervision and Examination.The [BSP] shall have
supervision over, and conduct periodic or special examinations of, banking
institutions and quasi-banks, including their subsidiaries and affiliates
engaged in allied activities.
xxx
xxx
xxx
SECTION 28.Examination and Fees.The supervising and examining

department head, personally or by deputy, shall examine the books of
every banking institution once in every twelve (12) months, and at such
other time as the Monetary Board by an affirmative vote of five (5)
members may deem expedient and to make a report on the same to the
Monetary Board:Provided that there shall be an interval of at least twelve
(12) months between annual examinations." (Emphasis supplied)
162
162
Pilipinas
xxx
xxx
xxx
According to the petitioners, it is clear from these provisions that the

report of the supervising or examining department required under
Section 30 refers to the report on the examina tion of the bank which,
under Section 28, must be made to the MB after the supervising or
examining head conducts an examination mandated by Sections 25 and
28.18 They cite Banco Filipino Savings & Mortgage Bank v. Monetary
Board, Central Bank of the Philippines19 wherein the Court ruled:
There is no question that under Section 29 of the Central Bank Act, the
following are the mandatory requirements to be complied with before a
bank found to be insolvent is ordered closed and forbidden to do business
in the Philippines: Firstly, an exami nationshall be conducted by the head
of the appropriate supervising or examining department or his examiners
or agents into the condition of the bank; secondly, it shall be dis closed in
the examination that the condition of the bank is one of insolvency, or that
its continuance in business would involve probable loss to its depositors or
creditors; thirdly, the department head concerned shall inform the
Monetary Board in writing, of the facts; and lastly, the Monetary Board
shall find the statements of the department head to be true.20 (Emphasis
supplied)
Petitioners assert that an examination is necessary and not a mere report,
otherwise the decision to close a bank would be arbitrary.
Respondents counter that RA 7653 merely requires a report of the head of
the supervising or examining department. They maintain that the term
report under Section 30 and the word examination used in Section 29
of the old law are not synonymous. Examination connotes in-depth
analysis, evaluation, inquiry or investigation while report connotes a
_______________
18 Rollo, pp. 13-14.

19 G.R. No. 70054, 11 December 1991, 204 SCRA 767.
20 Id., p. 794.
163
21 Rollo, pp. 368-369.
22 Supra note 15, at p. 302; and Central Bank of the Philippines v. Court of
Appeals, G.R. No. 76118, 30 March 1993, 220 SCRA 536, 548.
164
163
Pilipinas
164
simple disclosure or narration of facts for informative pur poses.21
Petitioners contention has no merit. Banco Filipino and other cases

petitioners cited22 were decided using Section 29 of the old law (RA 265):
Pilipinas
SECTION 29. Proceedings upon insolvency.Whenever, upon examination

by the head of the appropriate supervising or examining department or his
intermediary perform ing quasi-banking functions, it shall be disclosed that
inform the Monetary Board of the facts. The Board may, upon find ing the
a person of recognized competence in banking or finance, as receiver to
benefits of its creditors, and represent the bank personally or through
counsel as he may retain in all actions or proceedings for or against the
institution, exercising all the powers necessary for these purposes
including, but not lim ited to, bringing and foreclosing mortgages in the
name of the bank or non-bank financial intermediary performing quasibanking func tions.(Emphasis supplied)
condition of the bank23 is necessary before the MB can order its closure.
xxx
xxx
xxx
Thus in Banco Filipino, we ruled that an examination [conducted] by the

head of the appropriate supervising or examining department or his
examiners or agents into the
_______________
However, RA 265, including Section 29 thereof, was expressly repealed by

RA 7653 which took effect in 1993. Resolution No. 105 was issued on
January 21, 2000. Hence, petitioners reliance on Banco Filipino which was
decided under RA 265 was misplaced.
In RA 7653, only a report of the head of the supervising or examining
department is necessary. It is an established rule in statutory construction
that where the words of a statute are clear, plain and free from ambiguity,
it must be given its literal meaning and applied without attempted
interpretation:24
This plain meaning rule or verba legis derived from the maxim index
animi sermo est (speech is the index of intention) rests on the valid
presumption that the words employed by the legislature in a statute
correctly express its intention or will and preclude the court from
construing it differently. The legislature is presumed to know the meaning
of the words, to have used words advisedly, and to have expressed its
intent by use of such words as are found in the statute. Verba legis non est
recedendum, or from the words of a statute there should be no
departure.25
The word report has a definite and unambiguous meaning which is
clearly different from examination. A report, as a noun, may be defined
as something that gives information or a usually detailed account or
statement.26 On the other
_______________
23 Supra note 19 at p. 794.
27 Id.
24 National Food Authority (NFA) v. Masada Security Agency, Inc., G.R. No.
163448, 8 March 2005, 453 SCRA 70, 79; Philippine National Bank v.
Garcia, Jr., G.R. No. 141246, 9 September 2002, 388 SCRA 485, 487, 491.
28 Ursua v. Court of Appeals, G.R. No. 112170, 10 April 1996, 256 SCRA
147, 152, citations omitted.
25 National Food Authority (NFA) v. Masada Security Agency, Inc., id.,

citations omitted.
26 Websters Third New International Dictionary (1993).
165

165
Pilipinas
29 Central Bank of the Philippines v. Court of Appeals, supra note 22, at p.

544; Banco Filipino Savings & Mortgage Bank v. Monetary Board, Central
Bank of the Philippines, supra note 19 at p. 798; Rural Bank of Buhi, Inc. v.
Court of Appeals, supra note 22, at p. 303.
In Rural Bank of Buhi, we stated:
x x x [D]ue process does not necessarily require a prior hearing; a hearing
or an opportunity to be heard may be subsequent to the closure. One can
just imagine the dire consequences of a prior hearing: bank runs would be
the order of the day, resulting in panic and hysteria. In the process,
fortunes may be wiped out and disillusionment will run the gamut of the
entire banking community.
166
hand, an examination is a search, investigation or scrutiny.27

This Court cannot look for or impose another meaning on the term report
or to construe it as synonymous with examination. From the words used
in Section 30, it is clear that RA 7653 no longer requires that an
examination be made before the MB can issue a closure order. We cannot
make it a requirement in the absence of legal basis.
Indeed, the court may consider the spirit and reason of the statute, where
a literal meaning would lead to absurdity, contradiction, injustice, or would
defeat the clear purpose of the lawmakers.28 However, these problems are
not present here. Using the literal meaning of report does not lead to
absurdity, contradiction or injustice. Neither does it defeat the intent of the
legislators. The purpose of the law is to make the closure of a bank
summary and expeditious in order to protect public interest. This is also
why prior notice and hearing are no longer required before a bank can be
closed.29
Laying down the requisites for the closure of a bank under the law is the
prerogative of the legislature and what its wis_______________
166
Pilipinas
dom dictates. The lawmakers could have easily retained the word
examination (and in the process also preserved the jurisprudence
attached to it) but they did not and instead opted to use the word report.
The insistence on an examination is not sanctioned by RA 7653 and we
would be guilty of judicial legislation were we to make it a requirement
when such is not supported by the language of the law.
What is being raised here as grave abuse of discretion on the part of the
respondents was the lack of an examination and not the supposed
arbitrariness with which the conclusions of the director of the Department
of Rural Banks Supervision and Examination Sector had been reached in
the report which became the basis of Resolution No. 105.
The absence of an examination before the closure of RBSM did not mean
that there was no basis for the closure order. Needless to say, the decision
of the MB and BSP, like any other administrative body, must have
something to support itself and its findings of fact must be supported by
substantial evidence. But it is clear under RA 7653 that the basis need not
arise from an examination as required in the old law.
We thus rule that the MB had sufficient basis to arrive at a sound
conclusion that there were grounds that would justify RBSMs closure. It
relied on the report of Mr. Domo-ong, the head of the supervising or
examining department, with the findings that: (1) RBSM was unable to pay
its liabilities as they became due in the ordinary course of business and (2)
that it could not continue in business without incurring probable losses to
its depositors and creditors.30 The report was a 50-page memorandum
detailing the facts supporting those grounds, an extensive chronology of
events revealing the
_______________
Having dispensed with the issue decisive of this case, it becomes

unnecessary to resolve the other minor issues raised.31
WHEREFORE, the petition is hereby DENIED. The March 28, 2000 decision
and November 13, 2001 resolution of the Court of Appeals in CA-G.R. SP
No. 57112 are AFFIRMED. Costs against petitioners.
SO ORDERED.
concur.
Petition denied, judgment and resolution affirmed.
Note.When the law is clear, the function of courts is simple application.
(AB Leasing and Finance Corporation vs. Commissioner of Internal
Revenue, 405 SCRA 380 [2003])
o0o
30 Incidentally, the declaration of a bank holiday (done by RBSM in January

4, 2000) is also a ground for the closure of a bank by the MB under Section
53 of RA 8791 or the General Banking Law of 2000. However, RA 8791
became effective only on June 13, 2000 and consequently is not applicable
to this case.
_______________
167
31

167
Pilipinas
multitude of problems which faced RBSM and the recommendations based
on those findings.
In short, MB and BSP complied with all the requirements of RA 7653. By
relying on a report before placing a bank under receivership, the MB and
BSP did not only follow the letter of the law, they were also faithful to its
spirit, which was to act expeditiously. Accordingly, the issuance of
Resolution No. 105 was untainted with arbitrariness.
1) Whether petitioner Hilario P. Soriano has legal personality to file this

petition;
2) Whether petitioners are guilty of forum shopping;
3) Whether petitioners failed to formally offer their evidence/documents in
the CA; Rollo, pp. 326, 330, 364.
168 [Rural Bank of San Miguel, Inc. vs. Monetary Board, Bangko Sentral ng
Pilipinas, 516 SCRA 154(2007)]
_______________
* FIRST DIVISION
289

289
288
Miranda vs. Philippine Deposit Insurance Corporation
denial of due process and equal protection clauses of the Constitution.
Same; Disputed claims refer to all claims, whether they be against the
assets of the insolvent bank, for specific performance, breach of contract,
damages, or whatever.Disputed claims refer to all claims, whether they
be against the assets of the insolvent bank, for specific performance,
breach of contract, damages, or whatever. Petitioners claim which
involved the payment of the two cashiers checks that were not honored by
Prime Savings Bank due to its closure falls within the ambit of a claim
against the assets of the insolvent bank. The issuance of the cashiers
checks by Prime Savings Bank to the petitioner created a debtor/creditor
relationship between them. This disputed claim should therefore be lodged
in the liquidation proceedings by the petitioner as creditor, since the
closure of Prime Savings Bank has rendered all claims subsisting at that
time moot which can best be threshed out by the liquidation court and not
the regular courts.
G.R. No. 169334. September 8, 2006.*

LETICIA G. MIRANDA, petitioner, vs. PHILIPPINE DEPOSIT INSURANCE
CORPORATION, BANGKO SENTRAL NG PILIPINAS and PRIME SAVINGS BANK,
respondents.
Jurisdictions; Banks and Banking; Regular courts do not have jurisdiction
over actions filed by claimants against an insolvent bank, unless there is a
clear showing that the action taken by the BSP, through the Monetary
Board in the closure of financial institutions was in excess of jurisdiction, or
with grave abuse of discretion.The claim lodged by the petitioner
qualifies as a disputed claim subject to the jurisdiction of the liquidation
court. Regular courts do not have jurisdiction over actions filed by
claimants against an insolvent bank, unless there is a clear showing that
the action taken by the BSP, through the Monetary Board in the closure of
financial institutions was in excess of jurisdiction, or with grave abuse of
discretion.
Banks and Banking; The power and authority of the Monetary Board to
close banks and liquidate them thereafter when public interest so requires
is an exercise of the police power of the State. The power and authority
of the Monetary Board to close banks and liquidate them thereafter when
public interest so requires is an exercise of the police power of the State.
Police power, however, is subject to judicial inquiry. It may not be exercised
arbitrarily or unreasonably and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust, or is tantamount to a
Same; It is well-settled in both law and jurisprudence that the Central

Monetary Authority, through the Monetary Board, is vested with exclusive
authority to assess, evaluate, and determine the condition of any bank.It
is well-settled in both law and jurisprudence that the Central Monetary
would involve a probable loss to its depositors or creditors, forbid bank or
non-bank financial institution to do business in the Philippines; and shall
designate an official of the BSP or other competent person as receiver to
immediately take charge of its assets and liabilities.
Same; In Central Bank of the Philippines v. Dela Cruz, 191 SCRA 346
(1990), we held that the actions of the Monetary Board in proceedings on
insolvency are explicitly declared by the law to be final and executory
they may not be set aside, or restrained, or enjoined by the courts, except
upon convincing proof that the action is plainly arbitrary and made in bad
faith.In Central Bank of the Philippines v. De la Cruz, 191 SCRA 346
(1990), we held that the actions of the Monetary Board in proceedings on
insolvency are explicitly declared by law to be final and executory. They
may not
290
290
government agencies mandated by law to determine the financial viability

of banks and quasi-banks, and facilitate receivership and liquidation of
closed financial institutions, upon a factual determination of the latters
insolvency.
Same; The BSP, through the Monetary Board was well within its discretion
to exercise this power granted by law to issue a resolution suspending the
interbank clearing privileges of Prime Savings Bank, having made a factual
determination that the bank had deficient cash reserves deposited before
the BSP.As correctly pointed out by the Court of Appeals, the BSP should
not be held liable on the crossed cashiers checks for it was not a party to
the issuance of the
291

be set aside, or restrained, or enjoined by the courts, except upon
convincing proof that the action is plainly arbitrary and made in bad faith.
Same; As clearly laid down in Ong v. Court of Appeals, 253 SCRA 105
(1996), the rationale behind the judicial liquidation is intended to prevent
multiplicity of actions against the insolvent bank.As clearly laid down in
Ong v. Court of Appeals, 253 SCRA 105 (1996), the rationale behind judicial
liquidation is intended to prevent multiplicity of actions against the
insolvent bank. It is a pragmatic arrangement designed to establish due
process and orderliness in the liquidation of the bank, to obviate the
proliferation of litigations and to avoid injustice and arbitrariness. The
lawmaking body contemplated that for convenience, only one court, if
possible, should pass upon the claims against the insolvent bank and that
the liquidation court should assist the Superintendent of Banks and
regulate his operations.
Same; Solidary liability cannot attach to the BSP, in its capacity as
government regulator of banks, and the PDIC as statutory receiver under
R.A. No. 7653, because they are the principal government agencies
mandated by law to determine the financial viability of banks and quasibanks, and facilitate receivership and liquidation of closed financial
institutions, upon a factual determination of the latters insolvency.
Regarding the third issue, it is only Prime Savings Bank that is liable to pay
for the amount of the two cashiers checks. Solidary liability cannot attach
to the BSP, in its capacity as government regulator of banks, and the PDIC
as statutory receiver under R.A. No. 7653, because they are the principal

291
same; nor can it be held liable for imposing the sanctions on Prime Savings
Bank which indirectly affected Miranda, since it is mandated under Sec. 37
of R.A. No. 7653 to act accordingly. The BSP, through the Monetary Board
was well within its discretion to exercise this power granted by law to issue
a resolution suspending the interbank clearing privileges of Prime Savings
Bank, having made a factual determination that the bank had deficient
cash reserves deposited before the BSP. There is no showing that the BSP
abused this discretionary power conferred upon it by law.
Same; Both BSP and PDIC cannot therefore be held directly and solidarily
liable for the payment of the two cashiers checks.Co-respondent PDIC
was impleaded as a party-litigant only in its representative capacity as the
receiver/liquidator of Prime Savings Bank. Both BSP and PDIC cannot
therefore be held directly and solidarily liable for the payment of the two
cashiers checks. Sole liability rests with Prime Savings Bank.
Same; In the absence of fraud, the purchase of cashiers check, like the
purchase of a draft on a correspondent bank, creates the relation of
creditor and debtor.In the absence of fraud, the purchase of a cashiers
check, like the purchase of a draft on a correspondent bank, creates the
relation of creditor and debtor, not that of principal and agent, with the
result that the purchaser or holder thereof is not entitled to a preference
over general creditors in the assets of the bank issuing the check, when it
fails before payment of the check.
Office of the General Counsel for respondent Bangko Sentral ng

Pilipinas.
Same; In a situation involving the element of fraud, where a cashiers

check is purchased from a bank at a time when it is insolvent, as its
officers know or are bound to know by the exercise of reasonable diligence,
it has been held that the purchase as entitled to a preference in the assets
of the bank on its liquidation before the check is paid.In a situation
involving the element of fraud, where a cashiers check is purchased from
a bank at a time when it is insolvent, as its officers know or are bound to
know by the exercise of reasonable diligence, it has been held that the
purchase is entitled to a preference in the assets of the bank on its
liquidation before the check is paid.
Office of the General Counsel for respondent Philippine Deposit

Insurance Corporation.
292
YNARES-SANTIAGO, J.:
This Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeks a reversal of the Decision1 of the Court of Appeals dated February
23, 2005 in CA-G.R. CV No. 77556 which reversed and set aside the
Decision2 of the Regional Trial Court of Santiago City, Branch 35, in Civil
Case No. 35_______________
292
1 Rollo, pp. 62-67. Penned by Associate Justice Roberto A. Barrios and

concurred in by Associate Justices Amelita G. Tolentino and Vicente S.E.
Veloso.
Same; Section 31 of the New Central Bank Act which provides that [I]n
case of liquidation of a bank or quasi-bank, after payment of the cost of
proceedings, including reasonable expenses and fees of the receiver to be
allowed by the court, the receiver shall pay the debts of such institutions,
under order of the court, in accordance with the rules on concurrence and
preference of credit as provided in the Civil Code, should apply.In the
distribution of assets of Prime Savings Bank, Section 31 of the New Central
Bank Act which provides that [i]n case of liquidation of a bank or quasibank, after payment of the cost of proceedings, including reasonable
expenses and fees of the receiver to be allowed by the court, the receiver
shall pay the debts of such institution, under order of the court, in
accordance with the rules on concurrence and preference of credit as
provided in the Civil Code, should apply.
2 Id., at pp. 29-37. Penned by Judge Demetrio D. Calinag, Jr.
of Appeals.
Petitioner Leticia G. Miranda was a depositor of Prime Savings Bank,

Santiago City Branch. On June 3, 1999, she withdrew substantial amounts
from her account, but instead of cash she opted to be issued a crossed
cashiers check. She was thus issued cashiers check no. 0000000518 in
the sum of P2,500,000.00 and cashiers check no. 0000000514 in the
amount of P3,002,000.00.4

Earnest A. Soberano for petitioner.
293

293
2844 and the July 7, 2005 Resolution denying petitioners Motion for
Reconsideration.3
Petitioner deposited the two checks into her account in another bank on
the same day, however, Bangko Sentral ng Pilipinas (BSP) suspended the
clearing privileges of Prime Savings Bank effective 2:00 p.m. of June 3,
1999. The two checks of petitioner were returned to her unpaid.5
On June 4, 1999, Prime Savings Bank declared a bank holiday. On January
7, 2000, the BSP placed Prime Savings Bank under the receivership of the
Philippine Deposit Insurance Corporation (PDIC).6
Petitioner filed a civil action for sum of money in the Regional Trial Court of
Santiago City, Isabela to recover the funds from her unpaid checks against
Prime Savings Bank, PDIC and the BSP. Judgment on the pleadings was
rendered on March 1, 2001, the dispositive portion of which reads:
WHEREFORE, judgment is rendered against defendants namely: Philippine
Deposit Insurance Corporation, Bangko Sentral ng Pilipinas and Prime
Bank, to pay jointly and solidarily the amount of P5,502,000.00 to the
plaintiff.
SO ORDERED.7
_______________
to the right of petitioner to file her claim before the court designated to
adjudicate on claims against Prime Savings Bank. The dispositive portion of
the appellate courts decision dated February 23, 2005 thus reads:
WHEREFORE, the appeal is GRANTED and the decision appealed from is
REVERSED and SET ASIDE and the case is DISMISSED, without prejudice to
the right of Miranda to file her claim before the court designated to
adjudicate on claims against Prime Savings Bank.
SO ORDERED.8
Petitioners motion for reconsideration was denied,9 hence, this petition.
The issues presented by the petitioner before this Court can be
summarized as follows: (1) Whether the two cashiers checks operate as an
assignment of funds in the hands of the petitioner; (2) Whether the claim
lodged by the petitioner is a disputed claim under Section 30 of Republic
Act (R.A.) No. 7653, otherwise known as the New Central Bank Act, and
therefore, under the jurisdiction of the liquidation court; and (3) Whether
the respondents are solidarily liable to the petitioner.
3 Id., at pp. 69-71.
Petitioner contends that she ceased to be a depositor upon withdrawal of

her deposit and the issuance of the two cashiers checks to her. As a holder
in due course of the cashiers checks as defined under Sections 52 and 191
of the Negotiable Instruments Law, she is an assignee of the funds of Prime
Savings Bank as drawer thereof and entitled to its immediate payment.10
4 Id., at pp. 38-39.
_______________
5 Id., at p. 39.
6 Id.
8 Id., at p. 67.
7 Id., at p. 37.
9 Id., at p. 70.
294
10 Id., at pp. 8-9.

295
294
295
On appeal, the Court of Appeals reversed the trial court and ruled in favor
of the PDIC and BSP, dismissing the case against them, without prejudice
Petitioner next argues that the present claim is not a disputed claim in
contemplation of Section 30 of the New Central Bank Act. Since disputed
claims refer to all claims, whether they be against the assets of the
insolvent bank, for specific performance, breach of contract, or damages, it
is manifest that petitioners claim cannot fall within the purview of a
disputed claim because she is recovering assigned funds which are
segregated monies of Prime Savings Bank.11
Petitioner further states that by the mere issuance of the cashiers check,
the funds represented by the check are transferred from the credit of the
maker to that of the payee or holder. Hence, petitioner alleges that she
cannot be placed on the same footing with the ordinary creditors of the
bank because Section 30 of R.A. No. 7653 is for equality among creditors.
She avers that she is not a creditor thus is entitled to the immediate
payment of her claim, pursuant to Section 189 of the Negotiable
Instruments Law and existing jurisprudence. She argues that putting her on
equal footing with ordinary creditors, would contravene the provisions of
the Negotiable Instruments Law and would greatly diminish her rights as a
holder in due course of said two cashiers checks.12
Petitioner also argues that respondents PDIC and BSP contrary to Sections
185 and 189 of the Negotiable Instruments Law have caused damage to
the petitioner and should be held solidarily liable by indemnifying the
petitioner for the value of the two cashiers checks.13
Respondents, on the other hand, state that the mere issuance of the
cashiers checks did not operate as assignment of funds in favor of the
petitioner. They argue that even prior to the issuance of the cashiers
checks, the bank was already cash-strapped, which negates petitioners
claim that there
_______________

was an assignment of funds in her favor.14 There can be no assignment of
funds when there is no funds to speak of in the first place.
They likewise argue that the cashiers checks issued to petitioner were not
certified but crossed, hence, there was no assignment of funds made by
the cashier or manager of respondent Prime Savings Bank-Santiago City
Branch as it had insufficient funds to meet the said checks either in its
cash vault or with respondent BSP to clear the said checks.15
Respondents argue that the instant case involves a disputed claim of sum
of money against a closed financial institution. Sections 30 and 31 of R.A.
No. 7653, exclusively vests the authority to assess, evaluate and
determine the condition of any bank with the BSP, while the PDIC has the
primary responsibility of acting as receiver or liquidator of the closed
financial institution.16 Since the relationship between petitioner and Prime
Savings Bank is one of creditor and debtor, petitioner should file her claim
with the liquidation court constituted precisely for purposes of adjudicating
claims against the bank in accordance with the rules on concurrence and
preference of credits.17
Respondent PDIC alleges that it was impleaded in its representative
capacity as the receiver/liquidator of the closed institution, therefore, it has
no direct, personal and solidary liability for the payment of the two
cashiers checks. Its involvement came about only because a bank under
receivership or liquidation cannot sue or be sued except through its
receiver or liquidator.18
Respondent BSP also insists that not being a party to the said checks nor
for imposing sanctions on co-respondent
_______________
11 Id., at p. 15.
12 Id., at p. 16.
13 Id., at pp. 17-18.
296
14 Id., at p. 110.
15 Id., at p. 57.
16 Id., at pp. 100-101.
17 Id., at p. 107.
296
18 Id., at p. 111.
297
298
298
297
Prime Savings Bank, is not liable on the said crossed cashiers checks.19
Disputed claims refer to all claims, whether they be against the assets of
the insolvent bank, for specific performance, breach of contract, damages,
or whatever.22 Petitioners claim which involved the payment of the two
cashiers checks that were not honored by Prime Savings Bank due to its
closure falls within the ambit of a claim against the assets of the insolvent
bank. The issuance of the cashiers checks by Prime Savings Bank to the
petitioner created a debtor/creditor relationship between them. This
disputed claim should therefore be lodged in the liquidation proceedings by
the petitioner as creditor, since the closure of Prime Savings Bank has
rendered all claims subsisting at that time moot which can best be
threshed out by the liquidation court and not the regular courts.
Anent the first issue, the two cashiers checks issued by Prime Savings
Bank do not constitute an assignment of funds in the hands of the
petitioner as there were no funds to speak of in the first place. The bank
was financially insolvent for sometime, even before the issuance of the
checks on June 3, 1999. As the Court of Appeals correctly ruled, the
issuance of the cashiers checks to petitioner did not constitute an
assignment of funds, of which there was practically none at the time these
were issued, as the bank was in dire financial straits for some time.20
As regards the second issue, the claim lodged by the petitioner qualifies as
a disputed claim subject to the jurisdiction of the liquidation court. Regular
courts do not have jurisdiction over actions filed by claimants against an
insolvent bank, unless there is a clear showing that the action taken by the
BSP, through the Monetary Board in the closure of financial institutions was
in excess of jurisdiction, or with grave abuse of discretion.
The power and authority of the Monetary Board to close banks and
liquidate them thereafter when public interest so requires is an exercise of
the police power of the State. Police power, however, is subject to judicial
inquiry. It may not be exercised arbitrarily or unreasonably and could be
set aside if it is either capricious, discriminatory, whimsical, arbitrary,
unjust, or is tantamount to a denial of due process and equal protection
clauses of the Constitution.21
_______________
It is well-settled in both law and jurisprudence that the Central Monetary

would involve a probable loss to its depositors or creditors, forbid bank or
non-bank financial institution to do business in the Philippines; and shall
designate an official of the BSP or other competent person as receiver to
immediately take charge of its assets and liabilities.23
In Central Bank of the Philippines v. De la Cruz,24 we held that the actions
of the Monetary Board in proceedings on insolvency are explicitly declared
by law to be final and executory. They may not be set aside, or
restrained, or enjoined by the courts, except upon convincing proof that
the action is plainly arbitrary and made in bad faith.
_______________
19 Id., at p. 59.
20 Rollo, p. 65.
21 Banco Filipino Savings and Mortgage Bank v. Monetary Board, Central
Bank of the Philippines, G.R. Nos. 70054, 68878, 77255-58, 78766, 78767,
78894, 81303, 81304, 90473, December 11, 1991, 204 SCRA 767, 798.
22 Ong v. Court of Appeals, 323 Phil. 126, 131; 253 SCRA 105, 109 (1996).
23 R.A. No. 7653, Secs. 30 and 31. See also Central Bank of the Philippines
v. Court of Appeals, G.R. No. 76118, March 30, 1993, 220 SCRA 536, 543.
24 G.R. No. 59957, November 12, 1990, 191 SCRA 346, 354.
299
discretion, impose upon any bank or quasi-bank, their directors and/or

officers, for any willful violation of its charter or by-laws x x x the following
administrative sanctions, whenever applicable:
xxxx
(d) suspension of interbank clearing privileges;
299
300

Hence, as clearly laid down in Ong v. Court of Appeals,25 the rationale
behind judicial liquidation is intended to prevent multiplicity of actions
against the insolvent bank. It is a pragmatic arrangement designed to
establish due process and orderliness in the liquidation of the bank, to
obviate the proliferation of litigations and to avoid injustice and
arbitrariness. The lawmaking body contemplated that for convenience,
only one court, if possible, should pass upon the claims against the
insolvent bank and that the liquidation court should assist the
Superintendent of Banks and regulate his operations.
Regarding the third issue, it is only Prime Savings Bank that is liable to pay
for the amount of the two cashiers checks. Solidary liability cannot attach
to the BSP, in its capacity as government regulator of banks, and the PDIC
as statutory receiver under R.A. No. 7653, because they are the principal
government agencies mandated by law to determine the financial viability
of banks and quasi-banks, and facilitate receivership and liquidation of
closed financial institutions, upon a factual determination of the latters
insolvency.
As correctly pointed out by the Court of Appeals, the BSP should not be
held liable on the crossed cashiers checks for it was not a party to the
issuance of the same; nor can it be held liable for imposing the sanctions
on Prime Savings Bank which indirectly affected Miranda, since it is
mandated under Sec. 37 of R.A. No. 7653 to act accordingly.26 The BSP,
_______________
25 Supra note 22 at p. 133; p. 110.

26 Sec. 37. Administrative Sanctions on Banks and Quasibanks.Without
prejudice to the criminal sanctions against the culpable persons provided
in Sections 34, 35, and 36 of this Act, the Monetary Board may, at its
300
through the Monetary Board was well within its discretion to exercise this
power granted by law to issue a resolution suspending the interbank
clearing privileges of Prime Savings Bank, having made a factual
determination that the bank had deficient cash reserves deposited before
the BSP. There is no showing that the BSP abused this discretionary power
conferred upon it by law.
In addition, co-respondent PDIC was impleaded as a party-litigant only in
its representative capacity as the receiver/ liquidator of Prime Savings
Bank. Both BSP and PDIC cannot therefore be held directly and solidarily
liable for the payment of the two cashiers checks. Sole liability rests with
Prime Savings Bank.
In the absence of fraud, the purchase of a cashiers check, like the
purchase of a draft on a correspondent bank, creates the relation of
creditor and debtor, not that of principal and agent, with the result that the
purchaser or holder thereof is not entitled to a preference over general
creditors in the assets of the bank issuing the check, when it fails before
payment of the check. However, in a situation involving the element of
fraud, where a cashiers check is purchased from a bank at a time when it
is insolvent, as its officers know or are bound to know by the exercise of
reasonable diligence, it has been held that the purchase is entitled to a
preference in the assets of the bank on its liquidation before the check is
paid.27
As correctly found by the Court of Appeals:
Prime Savings as a bank did not collapse overnight but was hemorrhaging
and in financial extremis for some time, a fact which could not have gone
unnoticed by the bank officers. They could not
_______________
SO ORDERED.
Panganiban (C.J., Chairperson), Austria-Martinez, Callejo, Sr. and ChicoNazario, JJ., concur.
Petition denied, judgment and resolution affirmed with modification.
_______________
xxxx
27 11 Am. Jur. 2d, 1146, pp. 237-238 (1997).
301

301
have issued in good faith checks for the total sum of P5,502,000.00
knowing that the banks coffers could not meet this.28
Clearly, there was fraud or the intent to deceive when the two cashiers
checks dated June 3, 1999 were issued by Prime Savings Bank to the
petitioner.
In the distribution of assets of Prime Savings Bank, Section 31 of the New
Central Bank Act which provides that [i]n case of liquidation of a bank or
quasi-bank, after payment of the cost of proceedings, including reasonable
expenses and fees of the receiver to be allowed by the court, the receiver
shall pay the debts of such institution, under order of the court, in
accordance with the rules on concurrence and preference of credit as
provided in the Civil Code, should apply.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals
dated February 23, 2005 and the Resolution dated July 7, 2005, in CA-G.R.
CV No. 77556, are AFFIRMED with the MODIFICATION that petitioner Leticia
G. Miranda is entitled to a preference in the assets of Prime Savings Bank
in its liquidation for the amounts of P3,002,000.00 and P2,500,000.00,
respectively stated in Cashiers Check No. 0000000514 and 0000000518
dated June 3, 1999 in the proceedings before the liquidation court
designated to adjudicate on all claims against Prime Savings Bank, in
accordance with the rules on concurrence and preference of credits as
provided in the Civil Code.
28 Rollo, p. 41.
302
302
Office of the President vs. Buenaobra
Note.Under Section 28-A of the Central Bank Act, the Monetary Board
may place a bank under the control of a conservator when it finds that the
bank is continuously unable or unwilling to maintain a condition of
solvency or liquidity. (Producers Bank of the Philippines vs. National Labor
Relations Commission, 355 SCRA 489 [2001])
o0o
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Miranda
vs. Philippine Deposit Insurance Corporation, 501 SCRA 288(2006)]
VOL. 106, JULY 27, 1981

143
Central Bank vs. Court of Appeals
Nos. L-50031-32. July 27, 1981.*
CENTRAL BANK OF THE PHILIPPINES, petitioner, vs. HONORABLE COURT OF
APPEALS, ISIDRO E. FERNANDEZ, and JESUS R. JAYME, respondents.
Remedial Law; Civil Procedure; Judgments; Law applied in the disposition of
a question in an appealed judgment shall be the law prevailing at the time
of such disposition of the case.Indeed, the appellate court, in reviewing a
judgment on appeal, should dispose of a question according to the law
prevailing at the time of such disposi________________
* SECOND DIVISION
144
144
145
Central Bank us. Court of Appeals

tion and not according to the law prevailing at the time of the rendition of
the appealed judgment. Accordingly, Section 29 of Republic Act No. 265, as
amended by Presidential Decree No. 1007, should be applied.
VOL. 106, JULY 27, 1981
Mercantile Law; Banks; Action of Monetary Board forbidding a bank from

doing business and ordering its liquidation is clearly arbitrarily and made in
bad faith; Reasons; Case at bar.The petition filed however, should not be
dismissed for while there may not be gross and evident bad faith on the
part of the Central Bank and Eagle Broadcasting Corporation to sustain the
award of damages to Fernandez and Jayme, as ordered by the trial court,
the action of the Monetary Board in forbidding PROVIDENT from doing
business in the Philippines and ordering its liquidation is clearly arbitrary
and as made in bad faith. The arbitrariness and bad faith of the petitioner
is evident from the fact that it pressured Fernandez and Jayme into
relinquishing the management and control of PROVIDENT to the Iglesia ni
Kristo (INK) which did not have any intention of restoring the bank into its
former sound financial condition but whose interest was merely to recover
its deposits from PROVIDENT, and, thereafter, allowing the Iglesia Ni Kristo
to mismanage PROVIDENT until the bank's financial deterioration and
subsequent closure.
Same; Same; Same; Power of Judicial review of Supreme Court; Estoppel;

Validity of exercise of police power by the Central Bank in closure and
liquidation of a bank subject to judicial scrutiny; Reasons; Central Bank in
promissory estoppel for having committed itself to support the bank and
restore it to its former sound financial position, but failed to do so.While
the closure and liquidation of a bank may be considered an exercise of
police power, the validity of such exercise of police power is subject to
judicial inquiry and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust, or a denial of the due process
and equal protection clauses of the Constitution. In the cases under
consideration, it is not disputed that the Central Bank had committed itself
to support PROVIDENT and restore it to its former sound financial position
provided that Fernandez and Jayme should relinquish and give up its
control and management of the bank to the Iglesia Ni Kristo, and
thereafter, whimsically withdrew such support to the detriment of
PROVIDENT.
Same; Same; Questions of fact; Appreciation of certain facts is a question
of fact not properly cognizable on appeal; Reason.We
145
believe that the judgment complained of is based upon substantial

evidence and that the trial court had not overlooked, nor misinterpreted
certain facts and circumstances of weight in making its findings, so that
the respondent appellate court did not commit any error in affirming the
said judgment. Besides, the issue of whether or not certain alleged facts
should be appreciated is a question of fact, not properly cognizable on
appeal, since it involves an examination of the probative value of the
evidence presented by the parties.
PETITION to review on certiorari the decision of the Court of Appeals.

CONCEPCION, JR., J.:
REVIEW on certiorari of the judgment of the respondent appellate court

which affirmed the decision of the Court of First Instance of Manila in Sp.
Proc. No. 88415, entitled: "Isidro Fernandez, et al., petitioners, versus
Central Bank of the Philippines, et al., respondents;" and Sp. Proc. No.
89219, entitled: "In re: Liquidation of Provident Savings Bank, Central Bank
of the Philippines, petitioner," setting aside Resolution No. 1766 of the
Monetary Board of the Philippines, dated September 15, 1972, which
forbade the Provident Savings Bank from doing business in the Philippines.
It is not disputed that the Provident Savings Bank, hereinafter referred to
as PROVIDENT, for short, was incorporated after the Central Bank had
approved its establishment under Monetary Board Resolution No. 572,
dated May 3, 1963. Its Articles of Incorporation was registered with the
Securities and Exchange Commission on October 31, 1963. PROVIDENT
was granted authority to operate by the Monetary Board on December 4,
1963 and started business on December 9, 1963 with principal office at
Villalobos St., Quiapo, Manila. Within four (4) years of operation,
PROVIDENT had established six (6) extension offices within the greater
Manila area.
PROVIDENT has an authorized capital of P10 million, divided into 100,000
shares of common stock with a par value of P100.00 each. At the time of
its incorporation, 25% of the
146
146
stock was subscribed and paid for by its incorporators. There were
subsequent subscriptions received so that by the end of 1967 the total
paid up capital of the bank amounted to P6.7 million out of the aggregate
P7.5 million subscribed shares of stock. The herein private respondents,
Isidro E. Fernandez and Jesus R. Jayme, are the majority and controlling
stockholders thereof, holding 41% and 22%, respectively, of the total
subscribed capital stock of the bank.
A major portion of PROVIDENT's loanable funds was granted to directors,
officers and stockholders and their related interests and the bank was
cautioned to avoid concentration of credits and to adopt a policy where
loans would be granted to a larger number of borrowers who had no
financial interest in the bank.1
In September, 1968, a number of savings banks, PROVIDENT among

others, experienced a bank run which was triggered off by adverse
publicity in the newspapers, radio, and television of investigations
conducted by Congress that some banks were unable to pay deposit
withdrawals. In view of the unusually heavy withdrawals, PROVIDENT had
no recourse but to request emergency loans from the Central Bank to meet
the demands of the depositors. The Monetary Board, however, denied
these requests for emergency loans. PROVIDENT, therefore, had to borrow
from other banks, foremost of which is the Banco Filipino Mortgage and
Savings Bank which granted PROVIDENT advances up to P8 million, on the
security of real estate properties and a pledge of P4.074 million worth of
shares of stock representing about 60% of the outstanding shares of stock
of PROVIDENT owned by Fernandez and Jayme. But, these loans were not
enough to meet the demands of the depositors. As a result, PROVIDENT
was forced to temporarily close its doors to the public on September
12,1968.
Subsequently, however, the Central Bank extended emergency loans to
PROVIDENT in order to stop the bank run and to prevent the bank run from
eroding the confidence of the public in the banking system, thus enabling
PROVIDENT
_______________
1 Record on Appeal, pp. 463-466.

147
VOL. 106, JULY 27, 1981

147
to reopen on September 16, 1968. The Hon. Alfonso Calalang, then
Governor of the Central Bank, together with other high officials of the
Central Bank, visited the premises of PROVIDENT soon after its reopening
and assured the public that PROVIDENT was sound and had the full backing
of the Central Bank.
Then followed a series of emergency releases. But, the assistance given to
PROVIDENT was not sufficient to meet and service the unusually heavy
withdrawals of deposits. Fernandez and Jayme appealed to the Central

Bank for continued assistance. At one time, Fernandez and Jayme were
summoned to the Central Bank for a conference with the Governor and
Deputy Governor and were introduced to representatives of the Iglesia Ni
Kristo (INK) which had a sizeable deposit of P5.5 million with PROVIDENT
and was having difficulty in withdrawing the same. Central Bank Deputy
Governor Amado Brias voiced the decision of the Central Bank that unless
Fernandez and Jayme relinquished and turned over the management and
control of PROVIDENT to the Iglesia Ni Kristo, the Central Bank would not
further support and assist the distressed PROVIDENT. Governor Brias, in
turn, persuaded the representatives of the Iglesia Ni Kristo, headed by
Rogelio Manalo, that the only way they could withdraw their deposit was to
take control and management of PROVIDENT. Left with no other alternative,
but to accede, and in order to protect their investment, Fernandez and
Jayme reluctantly executed a Memorandum Agreement with the Eagle
Broadcasting Corporation, a company identified with the Iglesia Ni Kristo,
on December 6, 1968. The parties therein made the following
commitments:
1. That the Iglesia Ni Kristo will convert its time deposit with the Bank in
the amount of P5.5 million into voting preferred shares of stock;
2. That the stockholders will cause the amendment of the Articles of
Incorporation to increase the capital stock by creating voting preferred
shares of stock at a par value of P70.00 per shares;
3. That the Iglesia Ni Kristo shall purchase from Fernandez and Jayme
group 53,000 shares of stock within the period of six months;
of payments on loans of the Fernandez and Jayme group shall be complied

with.2
Immediately thereafter, a special meeting of the stockholders of
PROVIDENT was convened and the Articles of Incorporation of the bank
was amended to comply with the terms and stipulations contained in the
Memorandum Agreement. A Voting Trust Agreement was, likewise,
executed in favor of the Eagle Broadcasting Corporation on certain shares
of stock owned by Reynaldo Panopio, a stockholder identified with the
Fernandez and Jayme group, after which Fernandez and Jayme withdrew
from the management of PROVIDENT in favor of the Iglesia Ni Kristo group
effective December 1, 1968.
Following the transfer of management of PROVIDENT to the Iglesia Ni
Kristo, the Central Bank forthwith released additional loans to PROVIDENT
at a much reduced rate of interest of 10% instead of the 12% interest
charged on previous loans. PROVIDENT was further allowed to resume its
lending activities. At the time of the transfer of the management to the
Iglesia Ni Kristo the net worth of PROVIDENT was P7.2 million.3
The Eagle Broadcasting Corporation, however, did not comply with its
commitment to purchase 53,000 common shares of stock and to convert
its deposits into equity. Instead, the new management of PROVIDENT
caused the conversion of the deposits of Iglesia Ni Kristo into "bills
payable" earning 12% interest, which were subsequently withdrawn.4
PROVIDENT, under the new management, also failed to comply with the
Monetary Board directives relative to the rehabilitation of the
________________
148
2 Id., p. 317.
148
4. That the Fernandez and Jayme group shall execute a voting trust
agreement in favor of the Iglesia Ni Kristo group to subsist only until the
amendment to the Articles of Incorporation shall have been registered with
the Securities and Exchange Commission; and
5. That the Iglesia Ni Kristo group shall not foreclose mortgages securing
loans of various borrowers until after four years, provided that the schedule
3 Id, p. 68, par. 8(d) of Answer of Central Bank.

4 Id., p. 257.
149
VOL. 106, JULY 27, 1981

149
bank so that it restored the interest rate of 12% on outstanding loans.5

Various irregularities detrimental to PROVIDENT were also perpetrated by
the new management despite the presence of resident Central Bank
examiners.6 The Iglesia Ni Kristo likewise facilitated or caused the
assignment and mortgage of PROVIDENT's various assets, receivables, and
interests in favor of the Eagle Broadcasting Corporation.7
In view of the deteriorating financial condition of PROVIDENT, the Deputy
Governor of the Central Bank separately met with the representatives of
the Iglesia Ni Kristo and the majority stockholders of the bank to discuss
with them the urgency of finding a solution to PROVIDENT's financial
difficulties. Both parties were requested to submit their proposals
pertaining to the continued operation and management of the bank. In his
letter dated October 15, 1971, Rogelio W. Manalo, President and Chairman
of the Board of Directors of PROVIDENT submitted a set of proposals
consisting of three (3) courses of action, namely: conversion of the P4
million "bills payable" of the Iglesia Ni Kristo to equity; staggered payment
to the Iglesia Ni Kristo of the balance of its deposits; and prepayment of
borrowings of majority stockholders at the rate of P300,000.00 monthly.
But, these proposals were rejected by the Monetary Board on January 7,
1972 (Res. No. 6).8
On August 22, 1972, Rogelio W. Manalo resigned as Chairman and
President of PROVIDENT, giving rise to large withdrawals from its big
depositors which the bank could not readily meet. PROVIDENT had to seek
assistance from other banks, the Savings Bankers Association of the
Philippines, and other sources to prevent the recurrence of another bank
run.9 But, the financial condition of PROVIDENT continued to worsen, so
that on September 15, 1972, the Monetary Board, after "considering
further that the principal stockholders and/or the Iglesia Ni Kristo/Eagle
Broadcasting
________________
5 Id, pp. 251-253.

6 Id., p. 869-870; 871-877.
7 Id, p. 486.
8 Id., pp. 499-501.
9 Id., pp. 256-257.
150
150
Corporation group have not come up with concrete and substantial
proposals towards the rehabilitation of the Provident Savings Bank, which
proposals were required of them in the conference held in September of
1971; and in pursuance of Section 29 of Republic Act No. 265, decided as
follows:
" 'a) To forbid the Provident Savings Bank to do business in the Philippines;
b) To instruct the Superintendent of Banks to take charge, in the name of
the Monetary Board, of the assets of the Provident Savings Bank;
c) To instruct the Superintendent of Banks to take such further action as
may be necessary pursuant to Section 29 of Republic Act No. 265; and
d) To refer the subject memoranda of the Superintendent of Banks and all
pertinent reports of the examiners of the Department of Supervision and
Examination to the Central Bank Legal Counsel for appropriate legal
action(s).' "10
Pursuant thereto, the Central Bank instructed its Legal Counsel on
September 25, 1972:
"1) To request the Solicitor General to file, pursuant to the last paragraph
of Section 29 of Republic Act No. 265, a petition in the Court of First
Instance reciting the proceedings which have been taken and praying the
assistance and supervision of the court in the liquidation of the affairs of
the Provident Savings Bank; and
2) To take such other action as may be appropriate and legal to safeguard
the interests of the Bank's creditors."11
Consequently, on September 28, 1972, Fernandez and Jayme filed a
petition for certiorari, prohibition and mandamus and/or specific
performance, with preliminary injunction, against the Central Bank and
Eagle Broadcasting Corporation, with the Court of First Instance of Manila,
docketed therein as Sp. Proc. No. 88415, to annul and set aside the said
Monetary Board Resolution No. 1766, dated September 15, 1972 and to
restrain the Central Bank from liquidating PRO________________
10 Id., pp. 291-292.

11 Id., p. 294.
151
obligation to reorganize and rehabilitate the Provident Savings Bank,

following the precedent set in the case of the reorganization or
rehabilitation of the Republic Bank and the course of action expected to be
taken in the implementation of the final decision of the Supreme Court in
the case of RAMOS vs. CENTRAL BANK, 41 SCRA 565, with respect to the
Overseas Bank of Manila, within two (2) years from finality of this decision.
"Respondent Central Bank and Eagle Broadcasting Corporation are hereby
ordered to pay the petitioners, jointly and severally:
1. The amount of P600,000.00 as actual damages;
________________
VOL. 106, JULY 27, 1981

151
VIDENT, and, instead, to order the Central Bank to comply with its
commitments to the petitioners and reorganize and rehabilitate
PROVIDENT in the manner it did to the Overseas Bank of Manila, as well as
for damages and costs.12
The Central Bank answered that PROVIDENT was insolvent and its
condition warranted closure under Sec. 29 of Republic Act No. 265.
Eagle Broadcasting Corporation, upon the other hand, blames both the
Central Bank and Fernandez and Jayme for the failure of PROVIDENT.
12 Id., pp. 2-24.

13 Id., pp. 393-418.
14 Id., pp. 640-641.
152
152
On December 11, 1972, the Central Bank filed a Petition for Assistance and
Supervision in Liquidation of the Provident Savings Bank with the Court of
First Instance of Manila, docketed therein as Sp. Proc. No. 89219, entitled:
"In re: Liquidation of the Provident Savings Bank; Central Bank of the
Philippines, petitioner."13
2. The amount of P50,000.00 as moral damages;
Upon motion, the two cases were heard jointly,14 and on February 20,
1974, judgment was rendered, as follows:
The Central Bank and the Eagle Broadcasting Corporation,16 and after
appropriate proceedings, the herein respondent Court of Appeals rendered
the disputed decision on January 22, 1979, the dispositive portion of which
reads, as follows:
WHEREFORE, the writs prayed for in the amended petition, except the writ
of mandamus, are hereby granted, and Resolution No. 1766 dated
September 15, 1972 of the Monetary Board of respondent Central Bank
as well as any and all resolutions issued in pursuance thereof, are hereby
annulled and set aside; and said respondent Central Bank is ordered to
desist from liquidating PROVIDENT and is ordered to specifically perform its
3. The amount of P25,000.00 as exemplary damages; and

4. The amount of P50,000.00 attorney's fees plus costs."15
"WHEREFORE, the decision appealed from is hereby affirmed, but modified

to exclude the award of damages and attorney's fees. Costs de oficio.17
Hence, the present recourse:
1. The petitioner claims that the respondent Court of Appeals erred in not
applying Presidential Decree No. 1007, dated September 22, 1976, which
amended Section 29 of Republic Act No. 265 during the pendency of the
appeal. and should have dismissed the petition of Fernandez and Jayme in
view of the findings of the said appellate court that there is no clear proof
of gross and evident bad faith on the part of the petitioner and the Eagle
Broadcasting Corporation. In support of its contention, the petitioner
invokes the case of Lucas Ramirez vs. The Hon. Court of Appeals, et al. 18
Indeed, the appellate court, in reviewing a judgment on appeal, should
dispose of a question according to the law prevailing at the time of such
disposition and not according to the law prevailing at the time of the
rendition of the appealed judgment. Accordingly, Section 29 of Republic Act
No. 265, as amended by Presidential Decree No. 1007, should be applied.
Monetary Board in forbidding PROVIDENT from doing business in the

Philippines and ordering its liquidation is clearly arbitrary and was made in
bad faith.
The arbitrariness and bad faith of the petitioner is evident from the fact
that it pressured Fernandez and Jayme into relinquishing the management
and control of PROVIDENT to the Iglesia Ni Kristo (INK) which did not have
any intention of restoring the bank into its former sound financial condition
but whose interest was merely to recover its deposits from PROVIDENT,
and, thereafter allowing the Iglesia Ni Kristo to mismanage PROVIDENT
until the bank's financial deterioration and subsequent closure. As the trial
court said:
17 Rollo, pp. 33-64.
"Having decided in 1968 that PROVIDENT was salvageable and could be

permitted to continue in business with its support, provided there is
change in management and introduction of reforms, the CB should have
been vigilant in its overseeing of the faithful compliance by the parties of
the terms of the Memorandum Agreement, as well as in supervising and
controlling the operations of the bank under the management of EAGLE.
The persuasive, nay, compulsory, powers of the CB to accomplish these
cannot be doubted. The CB exercises such control of private banks under
its broad powers that it can decree life or death of any bank by simply
withholding from it the facilitates that it normally accords banks. It was in
the exercise of these powers by the CB that the Fernandez/Jayme group
was constrained to give up the management and control of PROVIDENT in
1968 because the CB threatened to discontinue support of the bank unless
management is transferred to EAGLE.
18 G.R. No. L-23587, June 10, 1976, 71 SCRA 231.
"To recapitulate, the CB:
153
1. Failed to exact compliance by EAGLE of its obligations under the

Memorandum Agreement.
Under this section, as amended, the action of the Monetary Board in

ordering the closure and liquidation of an insolvent bank is final and
executory and can be set aside only if there is
________________
15 Id., pp. 815-906.

16 Id, pp. 907, 909.
VOL. 106, JULY 27, 1981
2. Failed to exercise the necessary supervision over EAGLE's management

which could have checked EAGLE's excuses or abuses.
153
154

convincing proof that the action is plainly arbitrary and made in bad faith.
154
The petition filed, however, should not be dismissed for while there may
not be gross and evident bad faith on the part of the Central Bank and
Eagle Broadcasting Corporation to sustain the award of damages to
Fernandez and Jayme, as ordered by the trial court, the action of the

3. Failed to enforce other reforms necessary to restore PROVIDENT to its

former sound financial condition.
4. Failed to extend the support and assistance necessary to make
reorganization and rehabilitation of PROVIDENT a reality.
"Illustrative of how PROVIDENT was being treated unfairly by the CB, one
needs take note only of the discrepancy in the interest rates on emergency
loans being exacted by the CB. Under the Fernandez/Jayme management
of PROVIDENT, it was 12% per annum. When management was transferred
to EAGLE, the medium chosen by the CB for purposes of reorganization,
interest was reduced to 10% per annum. When the conditions at
PROVIDENT continued to deteriorate under EAGLE's management, interest
rates were again raised to 12%. And yet, the CB proposed to extend to
Banco Filipino, a solid and non-distressed bank which was a creditor of
PROVIDENT, an emergency loan under Sec. 90 of the CB Act of up to
P7,000,000.00 'if it so desires at an interest rate to be determined by
Management but in no case lower than 4 per cent p.a.' (Par. a-1, p. 3, Exh.
'9 CBP'), which is the Memorandum dated September 14, 1972 of Governor
Gregorio Licaros to the Monetary Board. "19
The trial court further said:
"The penalties paid by PROVIDENT in its deficiency plus the 12% interests
in its emergency loan greatly contributed to the deterioration of
PROVIDENT's net worth. The CB is supposed to help a distressed bank, but
in the case of PROVIDENT, the CB imposed an interest of 12% on its
emergency loans. In so doing, the CB, instead of helping improve the
situation of PROVIDENT, actually aggravated further its financial position.
And what is most amazing, while this is being done to a bank in distress,
the CB was willing to give loans to a well-off bank, the Banco Filipino, loans
at an interest of only 4%."20
Besides, the Central Bank has already rehabilitated similarly distressed
banks, the Republic Bank and the Overseas Bank of Manila, among several
others, so that it would be unjust to PROVIDENT to be deprived of the
Central Bank's continued support.
________________
19 Record on Appeal, pp. 894-896.

20 Id., p. 901.
155
VOL. 106, JULY 27, 1981

155
2. The petitioner next claims that the Court of Appeals erred in not holding
that there can be no estoppel against the petitioner in view of the latter's
valid exercise of police power by its lawful overseeing of Provident Savings
Bank.
The contention is without merit. While the closure and liquidation of a bank
may be considered an exercise of police power, the validity of such
exercise of police power is subject to judicial inquiry and could be set aside
if it is either capricious, discriminatory, whimsical, arbitrary, unjust or a
denial of the due process and equal protection clauses of the Constitution.
In the cases under consideration, it is not disputed that the Central Bank
had committed itself to support PROVIDENT and restore it to its former
sound financial position provided that Fernandez and Jayme should
relinquish and give up its control and management of the bank to the
Iglesia Ni Kristo, and thereafter, whimsically withdrew such support to the
detriment of PROVIDENT. In the case of Ramos vs. Central Bank,21 where
the Central Bank committed itself to the continued operation of, and
rehabilitation of the Overseas Bank of Manila, and later on reneged on that
promise, the Court therein ruled:
"Even in the absence of contract, the record plainly shows that the CB
made express representations to petitioners herein that it would support
the OBM, and avoid its liquidation if the petitioners would execute (a) the
Voting Trust Agreement turning over the management of OBM to the CB or
its nominees, and (b) mortgage or assign their properties to the Central
Bank to cover the overdraft balance of OBM. The petitioners having
complied with these conditions and parted with value to the profit of the
CB (which thus acquired additional security for its own advances), the CB
may not now renege on its representations and liquidate the OBM, to the
detriment of its stockholders, depositors and other creditors, under the rule
of promissory estoppel (19 Am. Jur., pp. 657-658, 28 Am. Jur. 2d, 656-657;
Ed. Note. 115 ALR, 157).
"The broad general rule to the effect that a promise to do or not to do
something in the future does not work an estoppel must be qualified, since
there are numerous cases in which an estoppel has been predicated on

promises or assurances as to future contract. The
________________
21 G.R. No. L-29352, Oct. 4, 1971, 41 SCRA 565.

156
At any rate, the fact that the directors, officers, and stockholders of
PROVIDENT had been extended loans by the bank which may have caused
its insolvency, is of little importance since these loans were already known
to and taken into consideration by the Central Bank when it decided in
1968 to allow PROVIDENT to continue in business. In the case of Ramos vs.
Central Bank,22 the Court said:
"The CB excuses itself by pleading that the OBM officers had resorted to
non-recording of time deposits in the Bank's books and
________________
156
doctrine of 'promissory estoppel' is by no means new, although the name
has been adopted only in comparatively recent years. According to that
doctrine, an estoppel may arise from the making of a promise, even
though without consideration, if it was intended that the promise should be
relied upon and in fact it was relied upon, and if a refusal to enforce it
would be virtually to sanction the perpetration of fraud or would result in
other injustice. In this respect, the reliance by the promisee is generally
evidenced by action or forbearance on his part, and the idea has been
expressed that such action of forbearance would reasonably have been
expected by the promissor. Mere omission by the promisee to do whatever
the promissor pro mised to do has been held insufficient 'forbearance' to
give rise to a promissory estoppel.' (19 Am. Jur. loc cit.)."
3. Finally, the petitioner claims that the Court of Appeals erred in not
appreciating certain facts, mainly PROVIDENT's anomalous grant of
substantial loans to its own directors, officers, stockholders, and related
interests, which caused its insolvency, thereby rendering the remedy of
liquidation proper and rehabilitation improper.
The contention is without merit. We believe that the judgment complained
of is based upon substantial evidence and that the trial court had not
overlooked, nor misinterpreted certain facts and circumstances of weight
in making its findings, so that the respondent appellate court did not
commit any error in affirming the said judgment. Besides, the issue of
whether or not certain alleged facts should be appreciated is a question of
fact, not properly cognizable on appeal, since it involves an examination of
the probative value of the evidence presented by the parties.
22 Supra.
157
VOL. 106, JULY 27, 1981

157
diverting such deposits to accounts controlled by certain bank officials, and
other irregularities. It is well to note, however, that these unrecorded'
deposits were revealed to the CB as early as 25 September 1967 by the
then President of the OBM, Mr. Martin Oliva, who had no hand in such
irregularities and who informed the Superintendent of Banks that time
deposits worth P43,188,009.29 had not been reported to the OBM
directors. In fact, on 29 September 1967, the CB had already ordered its
examiners to investigate the Bank's records and determine the parties
responsible. Notwithstanding knowledge of these irregularities, the CB did
not withdraw its promised support, and insisted on the execution of the
Voting Trust Agreement on 20 November 1967. Such attitude imports that,
in its opinion, the irregularities disclosed were not to be blamed on the
OBM itself or its depositors and creditors, but on the officials responsible;
and further, that the OBM could still be saved by adequate aid and
management reform, which was required by CB's duty to maintain the
stability of the banking system and the preservation of public confidence in
it."
WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED.
Without pronouncement as to costs.
SO ORDERED.
Barredo (Chairman), Fernandez,* Abad Santos and De Castro, JJ., concur.
Decision affirmed.
Notes.Where a suit for recovery of a bank deposit was filed after the
bank has been declared insolvent by the Central Bank, a judgment in favor
of the depositor cannot be considered a preferred credit under Article
2244(14) (b) of the Civil Code. (Central Bank of the Philippines vs. Morfe,
63 SCRA 114). .
In escheat proceedings for reversion of bank deposits dormant for ten
years or more to the State, it is the depositors and
________________
* Justice Ramon C. Fernandez, a member of the First Division, was

designated to sit in the Second Division, in lieu of Justice Ramon C. Aquino,
who took no part.
Estoppel has its origin in equity and, being based on moral and natural
justice, finds applicability wherever and whenever the special
circumstances of the case so demand. (Castrillo vs. Court of Appeals, 10
SCRA 549; Beronilla vs. GSIS, 36 SCRA 44).
Estoppel cannot give validity to an act that is prohibited by law or is
against public policy. (Republic vs. Go Bon Lee, 1 SCRA 1166).
The rule that a grantee is estopped to deny the title of his grantor is
correct only if limited to the property actually conveyed and to the time of
conveyance. (Iriola vs. Felices, 30 SCRA 203).
Appellant is in estoppel to question the juridical personality of appellee or
its right to sue him where he entered into a contract with appellee and
took advantage of the benefits derived therefrom. (Mendoza vs. Rodriguez
& Co., 23 SCRA 767).
The doctrine of estoppel does not apply against the Government suing in
its capacity as sovereign or asserting governmental rights. (Republic vs.
PLDT, 26 SCRA 620; Republic vs. Philippine Rabbit Bus Lines, 32 SCRA 211).
o0o
158
159
158
creditors who are the real parties in interest and not the bank in which the
deposits were made. Consequently, only said depositors and creditors and
not the bank concerned can move for dismissal of the escheat proceedings
on the ground of improper venue. (Republic vs. Court of First Instance, 68
SCRA 231).
The Central Bank has no obligation to pay the deposit of a depositor made
in a bank found insolvent. (Serrano vs. Central Bank of the Philippines, 96
SCRA 96).
Claims to recovery of time deposits from a distressed bank and recovery of
damages not proper in actions for mandamus and prohibition but should
be ventilated in the Court of First Instance. (Serrano us. Central Bank of the
Philippines, 96 SCRA 96).
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Central
Bank vs. Court of Appeals, 106 SCRA 143(1981)]
Contracts; An offer becomes ineffective upon the death, civil inter-diction,

insanity, or insolvency of either party before acceptance is conveyed.
Under Article 1323 of the Civil Code, an offer becomes ineffective upon the
death, civil interdiction, insanity, or insolvency of either party before
acceptance is conveyed. The reason for this is that: [T]he contract is not
perfected except by the concurrence of two wills which exist and continue
until the moment that they occur. The contract is not yet perfected at any
time before acceptance is conveyed; hence, the disappearance of either
party or his loss of capacity before perfection prevents the contractual tie
from being formed.
Same; Banks and Banking; Insolvency; Receivership; Receivership is
equivalent to an injunction to restrain the bank officers from intermed-dling
with the property of the bank in any way.It has been said that where
upon the insolvency of a bank a receiver therefore is appointed, the assets
of the bank pass beyond its control into the possession and control of the
receiver whose duty it is to administer the assets for the benefit of the
creditors of the bank. Thus, the appointment of a receiver operates to
suspend the authority of the bank and of its directors and officers over its
property and effects, such authority being reposed in the receiver, and in
this respect, the receivership is equivalent to an injunction to restrain the
bank officers from intermeddling with the property of the bank in any way.
Same; Same; Same; Same; Where a bank became insolvent before its
acceptance of an offer came to the knowledge of the offeror, the offer
became ineffective.In a nutshell, the insolvency of a bank and the
consequent appointment of a receiver restrict the banks capacity to act,
especially in relation to its property. Applying Article 1323 of the Civil Code,
Ongs offer to purchase the subject lots became ineffective because the
PVB became insolvent before the banks acceptance of the offer came to
his knowledge. Hence, the purported contract of sale
VOL. 244, MAY 26, 1995
_______________
395
Villanueva vs. Court of Appeals
G.R. No. 114870. May 26, 1995.*
MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and MERCEDITA
VILLANUEVA-TIRADOS, petitioners, vs. COURT OF APPEALS, CENTRAL BANK
OF THE PHILIPPINES, ILDEFONSO C. ONG, and PHILIPPINE VETERANS BANK,
respondents.
* FIRST DIVISION.
396
396

between them did not reach the stage of perfection. Corollarily, he cannot
invoke the resolution of the bank approving his bid as basis for his alleged
right to buy the disputed properties.

Antonio M. Albano for petitioners.
Wilfredo I. Untalan and Mariano Y. Navarro for the Philippine Veterans
Bank.
Linzag, Arcilla & Associates Law Office for private respondent.
Armando L. Suratos, Aloysius C. Alday, Sr., Vicente S. Aquino and
Alexander Ang for respondent Central Bank.
DAVIDE, JR., J.:
Do petitioners have a better right than private respondent Ildefonso Ong to

purchase from the Philippine Veterans Bank (PVB) the two parcels of land
described as Lot No. 210-D-1 and Lot No. 210-D-2 situated at Muntinglupa,
Metro Manila, containing an area of 529 and 300 square meters,
respectively? This is the principal legal issue raised in this petition.
In its decision of 27 January 1994 in CA-G.R. CV No. 35890,1 the Court of
Appeals held for Ong, while the trial court, Branch 39 of the Regional Trial
Court (RTC) of Manila, ruled for the petitioners in its joint decision of 31
October 1991 in Civil Case No. 87-425502 and Sp. Proc. No. 85-32311.3
________________
1 Annex A of Petition; Rollo, 33-38. Per Francisco, R., J., with the
concurrence of Guingona, S., and Verzola, E., JJ.
2 Entitled, Ildefonso C. Ong vs. Central Bank of the Philippines, et al.
3 Entitled, In the Matter of the Petition for Liquidation of the Philippine

Veterans Bank, Central Bank of the Philippines, Petitioner; Miguela
Villanueva, et al., Claimants. Annex D of Petition; Rollo, 63-71. Per Judge
Benjamin A.G. Vega.
397
VOL. 244, MAY 26, 1995

397
The operative antecedent facts are set forth in the challenged decision as
follows:
The disputed lots were originally owned by the spouses Celestino
Villanueva and Miguela Villanueva, acquired by the latter during her
husbands sojourn in the United States since 1968. Sometime in 1975,
Miguela Villanueva sought the help of one Jose Viudez, the then Officer-inCharge of the PVB branch in Makati if she could obtain a loan from said
bank. Jose Viudez told Miguela Villanueva to surrender the titles of said lots
as collaterals. And to further facilitate a bigger loan, Viudez, in connivance
with one Andres Sebastian, swayed Miguela Villanueva to execute a deed
of sale covering the two (2) disputed lots, which she did but without the
signature of her husband Celestino. Miguela Villanueva, however, never got
the loan she was expecting. Subsequent attempts to contact Jose Viudez
proved futile, until Miguela Villanueva thereafter found out that new titles
over the two (2) lots were already issued in the name of the PVB. It
appeared upon inquiry from the Registry of Deeds that the original titles of
these lots were canceled and new ones were issued to Jose Viudez, which
in turn were again canceled and new titles issued in favor of Andres
Sebastian, until finally new titles were issued in the name of PNB [should
be PVB] after the lots were foreclosed for failure to pay the loan granted in
the name of Andres Sebastian.
Miguela Villanueva sought to repurchase the lots from the PVB after being
informed that the lots were about to be sold at auction. The PVB told her
that she can redeem the lots for the price of P110,416.00. Negotiations for
the repurchase of the lots nevertheless were stalled by the filing of
liquidation proceedings against the PVB on August of 1985. Plaintiffappellant [Ong] on the other hand expounds on his claim over the disputed
lots in this manner:
In October 1984, plaintiff-appellant offered to purchase two pieces of

land that had been acquired by PVB through foreclosure. To back-up
plaintiff-appellants offer he deposited the sum of P10,000.00.
In 23 November 1984, while appellant was still abroad, PVB approved
his subject offer under Board Resolution No. 10901-84. Among the
conditions imposed by PVB is that: The purchase price shall be
P110,000.00 (less deposit of P10,000.00) payable in cash within fifteen
(15) days from receipt of approval of the offer.
In mid-April 1985, appellant returned to the country. He immediately
verified the status of his offer with the PVB, now under the control of CB,
where he was informed that the same
398
398
The efforts of Miguela Villanueva to reacquire the property began on 8 June

1983 when she offered to purchase the lots for P60,000.00 with a 20%
downpayment and the balance payable in five years on a quarterly
amortization basis.5
Her offer not having been accepted,6 Miguela Villanueva increased her bid
to P70,000.00. It was only at this time that she disclosed to the bank her
private transactions with Jose Viudez.7
After this and her subsequent offers were rejected,8 Miguela sent her
sealed bid of P110,417.00 pursuant to the written advice of the vice
president of the PVB.9
The PVB was placed under receivership pursuant to Monetary Board (MB)
Resolution No. 334 dated 3 April 1985 and later, under liquidation pursuant
to MB Resolution No. 612 dated 7 June 1985. Afterwards, a petition for
liquidation was filed with the RTC of Manila, which was docketed as Sp.
Proc.
_______________

had already been approved. On 16 April 1985, appellant formally informed
CB of his desire to pay the subject balance provided the bank should
execute in his favor the corresponding deed of conveyance. The letter was
not answered.
Plaintiff-appellant sent follow-up letters that went unheeded, the last of
which was on 21 May 1987. On 26 May 1987, appellants payment for the
balance of the subject properties were accepted by CB under Official
Receipt #0816.
On 17 September 1987, plaintiff-appellant through his counsel, sent a
letter to CB demanding for the latter to execute the corresponding deed of
conveyance in favor of appellant. CB did not bother to answer the same.
Hence, the instant case.
While appellants action for specific performance against CB was
pending, Miguela Villanueva and her children filed their claims with the
liquidation court. (Appellants Brief, pp. 3-4).4
From the pleadings, the following additional or amplificatory facts are
established:
4 Rollo, 34-36.
5 Exhibit J, Annex N of Petition; Id., 91.
6 Exhibit K, Annex O, Id.; Id., 92.
7 Exhibit N, Annex R, Id.; Id., 94.
8 Exhibits O & Q, Annexes S & U of Petition; Rollo, 95, 97.
9 Exhibit Q.
399
VOL. 244, MAY 26, 1995

399
No. 85-32311 and assigned to Branch 39 of the said court.
On 26 May 1987, Ong tendered the sum of P100,000.00 representing the

balance of the purchase price of the litigated lots.10 An employee of the
PVB received the amount conditioned upon approval by the Central Bank
liquidator.11 Ongs demand for a deed of conveyance having gone
unheeded, he filed on 23 October 1987 with the RTC of Manila an action for
specific performance against the Central Bank.12 It was raffled to Branch
47 thereof. Upon learning that the PVB had been placed under liquidation,
the presiding judge of Branch 47 ordered the transfer of the case to Branch
39, the liquidation court.13
On 15 June 1989, then Presiding Judge Enrique B. Inting issued an order
allowing the purchase of the two lots at the price of P150,000.00.14 The
Central Bank liquidator of the PVB moved for the reconsideration of the
order asserting that it is contrary to law as the disposal of the lots should
be made through public auction.15
On 26 July 1989, Miguela Villanueva filed her claim with the liquidation
court. She averred, among others, that she is the lawful and registered
owner of the subject lots which were mortgaged in favor of the PVB thru
the falsification committed by Jose Viudez, the manager of the PVB Makati
Branch, in collusion with Andres Sebastian; that upon discovering this
fraudulent transaction, she offered to purchase the property from the bank;
and that she reported the matter to the PC/INP Criminal Investigation
Service Command, Camp Crame, and after investigation, the CIS officer
recommended the filing of a complaint for estafa through falsification of
public documents against Jose Viudez and Andres Sebastian. She then
asked that the lots be excluded from the assets of the PVB and be
conveyed back to her.16 Later, in view of the death of her husband, she
_______________
10 Original Records (OR), Civil Case No. 87-42550, 8.

11 Id.
12 Id., 1.
13 Id., 32-33.
14 Id., 117.
15 OR, 119.
16 Annex W of Petition; Rollo, 100-103.
400
400
amended her claim to include her children, herein petitioners Mercedita
Villanueva-Tirados and Richard Villanueva.17
On 31 October 1991, the trial court rendered judgment18 holding that
while the board resolution approving Ongs offer may have created in his
favor a vested right which may be enforced against the PVB at the time or
against the liquidator after the bank was placed under liquidation
proceedings, the said right was no longer enforceable, as he failed to
exercise it within the prescribed 15-day period. As to Miguelas claim, the
court ruled that the principle of estoppel bars her from questioning the
transaction with Viudez and the subsequent transactions because she was
a co-participant thereto, though only with respect to her undivided one-half
(1/2) conjugal share in the disputed lots and her one-third (1/3) hereditary
share in the estate of her husband.
Nevertheless, the trial court allowed her to purchase the lots if only to
restore their status as conjugal properties. It further held that by reason of
estoppel, the transactions having been perpetrated by a responsible officer
of the PVB, and for reasons of equity, the PVB should not be allowed to
charge interest on the price of the lots; hence, the purchase price should
be the PVBs claim as of 29 August 1984 when it considered the sealed
bids, i.e., P110,416.20, which should be borne by Miguela Villanueva alone.
The dispositive portion of the decision of the trial court reads as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Setting aside the order of this court issued on June 15, 1989 under the
caption Civil Case No. 87-42550 entitled Ildefonso Ong vs. Central Bank of
the Phils., et al.;
2. Dismissing the claim of Ildefonso Ong over the two parcels of land
originally covered by TCT No. 438073 and 366364 in the names of Miguela
Villanueva and Celestino Villanueva, respectively which are now covered by
TCT No. 115631 and 115632 in the name of the PVB;
_______________
17 OR, 20.
18 Id., 241 et seq.; Annex D of Petition; Rollo, 63-71. Per Judge Benjamin
A.G. Vega.
401
WHEREFORE, premises considered, the assailed decision is hereby

REVERSED and SET ASIDE, and a new one entered ordering the disputed
lots be awarded in favor of plaintiff-appellant Ildefonso Ong upon
defendant-appellee Central Banks execution of the corresponding deed of
sale in his favor.20 In support thereof, the Court of Appeals declared that
Ongs failure to pay the balance within the prescribed period was
excusable because the PVB neither notified him of the approval of his bid
nor answered his letters manifesting his readiness to pay the balance, for
which reason he could not have known when
_______________
VOL. 244, MAY 26, 1995

401
19 Decision of the trial court, 9; Rollo, 71.
20 Rollo, 38.
3. Declaring the Deed of Absolute Sale bearing the signature of Miguela

Villanueva and the falsified signature of Celestino [sic] Viudez under date
May 6, 1975 and all transactions and related documents executed
thereafter referring to the two lots covered by the above stated titles as
null and void;
402
4. Ordering the Register of Deeds of Makati which has jurisdiction over the
two parcels of land in question to re-instate in his land records, TCT No.
438073 in the name of Miguela Villanueva and TCT No. 366364 in the
name of Celestino Villanueva who were the registered owners thereof, and
to cancel all subsequent titles emanating therefrom; and
5. Ordering the Liquidator to reconvey the two lots described in TCT No.
115631 and 115632 and executing the corresponding deed of conveyance
of the said lots upon the payment of One Hundred Ten Thousand Four
Hundred Sixteen and 20/100 (P110,416.20) Pesos without interest and less
the amount deposited by the claimant, Miguela Villanueva in connection
with the bidding where she had participated and conducted by the PVB on
August 29, 1984.
Cost against Ildefonso Ong and the PVB.
SO ORDERED.19
Only Ong appealed the decision to the Court of Appeals. The appeal was
docketed as CA-G.R. CV No. 35890. In its decision of 27 January 1994, the
Court of Appeals reversed the decision of the trial court and ruled as
follows:
402
to reckon the 15-day period prescribed under its resolution. It went further
to suggest that the Central Bank was in estoppel because it accepted
Ongs late payment of the balance. As to the petitioners claim, the Court
of Appeals stated:
The conclusion reached by the lower court favorable to Miguela Villanueva
is, as aptly pointed out by plaintiff-appellant, indeed confusing. While the
lower courts decision declared Miguela Villanueva as estopped from
recovering her proportionate share and interest in the two (2) disputed lots
for being a co-participant in the fraudulent scheme perpetrated by Jose
Viudez and Andres Sebastiana factual finding which We conform to and
which Miguela Villanueva does not controvert in this appeal by not filing
her appellees brief, yet it ordered the reconveyance of the disputed lots to
Miguela Villanueva as the victorious party upon her payment of
P110,416.20. Would not estoppel defeat the claim of the party estopped? If
so, which in fact must be so, would it not then be absurd or even defiant
for the lower court to finally entitle Miguela Villanueva to the disputed lots
after having been precluded from assailing their subsequent conveyance in
favor of Jose Viudez by reason of her own negligence and/or complicity

therein? The intended punitive effect of estoppel would merely be a dud if
this Court leaves the lower courts conclusion unrectified.21
Tribunal may announce as to whom said lands may be awarded without

any touch of preference in favor of one or the other party litigant in the
instant case.28
Their motion for reconsideration22 having been denied,23 the petitioners

filed this petition for review on certiorari.24
In support of their contention that the Court of Appeals gravely erred in

holding that Ong is better entitled to purchase the disputed lots, the
petitioners maintain that Ong is a disqualified bidder, his bid of
P110,000.00 being lower than the starting price of P110,417.00 and his
deposit of P10,000.00 being less than the required 10% of the bid price;
that Ong failed to pay the balance of the price within the 15-day period
from notice of the approval of his bid; and that his offer of payment is
ineffective since it was conditioned on PVBs execution of the deed of
absolute sale in his favor.
Subsequently, the respondent Central Bank apprised this Court that the
PVB was no longer under receivership or liquidation and that the PVB has
been back in operation since 3 August 1992. It then prayed that it be
dropped from this case or at least be substituted by the PVB, which is the
real party in interest.25
In its Manifestation and Entry of Appearance, the PVB declared that it
submits to the jurisdiction of this Court and that it has no objection to its
inclusion as a party respondent in this case in lieu of the Central Bank.26
The petitioners did not object to the
_______________
21 Rollo, 36.
22 Annex B of Petition; Id., 39 et seq.
23 Annex C, Id.; Id., 61-62.
24 Id., 7 et seq.
25 Rollo, 106-107, 129-130.
On the other hand, Ong submits that his offer, though lower than Miguela
Villanuevas bid by P417.00, is much better, as the same is payable in
cash, while Villanuevas bid is payable in installment; that his payment
could not be said to have been made after the expiration of the 15-day
period because this period has not even started to run, there being no
notice yet of the approval of his offer; and that he has a legal right to
compel the PVB or its liquidator to execute the corresponding deed of
conveyance.
There is no doubt that the approval of Ongs offer constitutes an
acceptance, the effect of which is to perfect the contract of sale upon
notice thereof to Ong.29 The peculiar circumstances in this case, however,
pose a legal obstacle to his claim of a better right and deny support to the
conclusion of the Court of Appeals.
26 Id., 136-137.
Ong did not receive any notice of the approval of his offer. It was only
sometime in mid-April 1985 when he returned from the United States and
inquired about the status of his bid that he
403
_______________
27 Id., 131 et seq.
403
28 Id., 149.
VOL. 244, MAY 26, 1995
29 Article 1475, Civil Code. Valencia vs. RFC, 103 Phil. 444 [1958]; Central
Bank of the Philippines vs. Court of Appeals, 63 SCRA 431
substitution.27
Later, in its Comment dated 10 October 1994, the PVB stated that it
submits to and shall abide by whatever judgment this Honorable Supreme
[1975].
404
404
came to know of the approval.
It must be recalled that the PVB was placed under receivership pursuant to
the MB Resolution of 3 April 1985 after a finding that it was insolvent,
illiquid, and could not operate profitably, and that its continuance in
business would involve probable loss to its depositors and creditors. The
PVB was then prohibited from doing business in the Philippines, and the
receiver appointed was directed 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.
Under Article 1323 of the Civil Code, an offer becomes ineffective upon the
death, civil interdiction, insanity, or insolvency of either party before
acceptance is conveyed. The reason for this is that:
[T]he contract is not perfected except by the concurrence of two wills
which exist and continue until the moment that they occur. The contract is
not yet perfected at any time before acceptance is conveyed; hence, the
disappearance of either party or his loss of capacity before perfection
prevents the contractual tie from being formed.30
It has been said that where upon the insolvency of a bank a receiver
therefor is appointed, the assets of the bank pass beyond its control into
the possession and control of the receiver whose duty it is to administer
the assets for the benefit of the creditors of the bank.31 Thus, the
appointment of a receiver operates to suspend the authority of the bank
and of its directors and officers over its property and effects, such authority
being reposed in the receiver, and in this respect, the receivership is
equivalent to an injunction to restrain the bank officers from intermeddling
with the property of the bank in any way.32
Section 29 of the Central Bank Act, as amended, provides thus:
_______________
30 ARTURO M. TOLENTINO, Civil Code of the Philippines, vol. IV, 463 [1985
ed.], citing 2-I Ruggiero 283 and 5 Salvat 34-35.
31 10 Am Jur 2d Banks, 764 [1963].
32 65 Am Jur 2d Receivers, 146 [1963].
405
VOL. 244, MAY 26, 1995

405
SEC. 29. Proceedings upon insolvency.Whenever, upon examination by
the head of the appropriate supervising or examining department or his
intermediary performing quasi-banking functions, it shall be disclosed that
inform the Monetary Board of the facts. The Board may, upon finding the
a person of recognized competence in banking or finance as receiver to
benefit of its creditors . . . exercising all the powers necessary for these
purposes . . . .
...
The assets of an institution under receivership or liquidation shall be
deemed in custodia legis in the hands of the receiver or liquidator and
shall, from the moment of such receivership or liquidation, be exempt from
any order of garnishment, levy, attachment, or execution.
In a nutshell, the insolvency of a bank and the consequent appointment of
a receiver restrict the banks capacity to act, especially in relation to its
property. Applying Article 1323 of the Civil Code, Ongs offer to purchase
the subject lots became ineffective because the PVB became insolvent
before the banks acceptance of the offer came to his knowledge. Hence,
the purported contract of sale between them did not reach the stage of
perfection. Corollarily, he cannot invoke the resolution of the bank
approving his bid as basis for his alleged right to buy the disputed
properties.
Nor may the acceptance by an employee of the PVB of Ongs payment of
P100,000.00 benefit him since the receipt of the payment was made
subject to the approval by the Central Bank liquidator of the PVB thus:
Payment for the purchase price of the former property of Andres Sebastian
per approved BR No. 10902-84 dated 11/13/84, subject to the approval of
CB liquidator.33
Respondent Philippine Veterans Bank is further directed to return to private

respondent Ildefonso C. Ong the amount of P100,000.00.
No pronouncement as to costs.
SO ORDERED.
Padilla (Chairman), Bellosillo and Kapunan, JJ., concur.
Quiason, J., On official leave.
Petition granted, challenged decision set aside.
33 OR, 8.
Notes.An action for nullification of a Special Power of Attorney and other

documents based on an allegation of forgery is not a claim under Section
6(c) of Presidential Decree No. 902-A which provides for suspension of all
actions for claims against corporations, partnerships or associations under
management or receivership. (Finasia Investments and Finance
Corporation vs. Court of Appeals, 237 SCRA 446 [1994])
406
_______________
406
34 Memorandum of the Central Bank, 3; Id., 130.
407
_______________

This payment was disapproved on the ground that the subject property
was already in custodia legis, and hence, disposable only by public auction
and subject to the approval of the liquidation court.34
VOL. 244, MAY 26, 1995
The Court of Appeals therefore erred when it held that Ong had a better
right than the petitioners to the purchase of the disputed lots.
Pecson vs. Court of Appeals
Considering then that only Ong appealed the decision of the trial court, the
PVB and the Central Bank, as well as the petitioners, are deemed to have
fully and unqualifiedly accepted the judgment, which thus became final as
to them for their failure to appeal.
WHEREFORE, the instant petition is GRANTED and the challenged decision
of the Court of Appeals of 27 January 1994 in CA-G.R. CV No. 35890 is
hereby SET ASIDE. The decision of Branch 39 of the Regional Trial Court of
Manila of 31 October 1991 in Civil Case No. 87-42550 and Sp. Proc. No. 8532311 is hereby REINSTATED.
407
A Central Bank Circular cannot repeal a law as it is only a law that can
repeal another law. (Palanca vs. Court of Appeals, 238 SCRA 593 [1994])
o0o
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Villanueva
vs. Court of Appeals, 244 SCRA 395(1995)]
_______________
VOL. 455, APRIL 6, 2005
* THIRD DIVISION.
97
98
Abacus Real
Corporation
Estate
Development
Center,
Inc.
vs.
Manila
Banking
G.R. No. 162270. April 6, 2005.*

ABACUS REAL ESTATE DEVELOPMENT CENTER, INC., petitioner, vs. THE
MANILA BANKING CORPORATION, respondent.
Appeals; It is not the function of the Supreme Court to analyze or weigh all
over again the evidence or premises supportive of such factual
determination.It is evident that the issue raised by petitioner relates to
the correctness of the factual finding of the Court of Appeals as to the
precise date when respondent filed its motion for reconsideration before
the trial court. Such issue, however, is beyond the province of this Court to
review. It is not the function of the Court to analyze or weigh all over again
the evidence or premises supportive of such factual determination. The
Court has consistently held that the findings of the Court of Appeals and
other lower courts are, as a rule, accorded great weight, if not binding
upon it, save for the most compelling and cogent reasons. As nothing in
the record indicates any of such exceptions, the factual conclusion of the
appellate court that respondent filed its appeal on time, supported as it is
by substantial evidence, must be affirmed.
Banks and Banking; Receivership; The appointment of a receiver operates
to suspend the authority of a bank and of its directors and officers over its
property and effects, such authority being reposed in the receiver, and in
this respect, the receivership is equivalent to an injunction to restrain the
bank officers from intermeddling with the property of the bank in any way.
There can be no quibbling that respondent Manila Bank was under
receivership, pursuant to Central Banks MB Resolution No. 505 dated May
22, 1987, at the time the late Vicente G. Puyat granted the exclusive
option to purchase to the Laureano group of investors. Owing to this
defining reality, the appellate court was correct in declaring that Vicente G.
Puyat was without authority to grant the exclusive option to purchase the
lot and building in question. The invocation by the appellate court of the
following pronouncement in Villanueva vs. Court of Appeals was apropos,
to say the least: . . . the assets of the bank pass beyond its control into the
possession and control of the receiver whose duty it
98
Abacus Real
Corporation
Estate
Development
Center,
Inc.
vs.
Manila
Banking
is to administer the assets for the benefit of the creditors of the bank.
Thus, the appointment of a receiver operates to suspend the authority of
the bank and of its directors and officers over its property and effects, such
authority being reposed in the receiver, and in this respect, the
receivership is equivalent to an injunction to restrain the bank officers from
intermeddling with the property of the bank in any way. With respondent
bank having been already placed under receivership, its officers, inclusive
of its acting president, Vicente G. Puyat, were no longer authorized to
transact business in connection with the banks assets and property.
Clearly then, the exclusive option to purchase granted by Vicente G.
Puyat was and still is unenforceable against Manila Bank.
Same; Same; The receiver only has authority to administer the properties
of the bank for the benefit of the creditors.The receiver appointed by the
Central Bank to take charge of the properties of Manila Bank only had
authority to administer the same for the benefit of its creditors. Granting or
approving an exclusive option to purchase is not an act of administration,
but an act of strict ownership, involving, as it does, the disposition of
property of the bank. Not being an act of administration, the so-called
approval by Atty. Renan Santos amounts to no approval at all, a bank
receiver not being authorized to do so on his own.
of Appeals.

Fernando R. Arguelles, Jr. for petitioner.
Jose S. Songco and Cesar Edwin T. Jayme for respondent.

GARCIA, J.:
Thru this appeal by way of a petition for review on certiorari under Rule 45
of the Rules of Court, petitioner Abacus Real Estate Development Center,
Inc. seeks to set aside the following issuances of the Court of Appeals in
CA-G.R. CV No. 64877, to wit:
On November 11, 1988, the Central Bank, by virtue of Monetary Board

(MB) Resolution No. 505, ordered the liquidation of Manila Bank and
designated Atty. Renan V. Santos as Liquidator. The liquidation, however,
was held in abeyance pending the outcome of the earlier suit filed by
Manila Bank regarding the legality of its closure. Consequently, the
designation of Atty. Renan V. Santos as Liquidator was amended by the
Central Bank on December 22, 1988 to that of Statutory Receiver.
_______________
99
1 Penned by Associate Justice Lucas B. Bersamin, with Associate Justices
Ruben T. Reyes and Elvi John S. Asuncion, concurring.
VOL. 455, APRIL 6, 2005
2 Rollo, pp. 93-99.
99
100
Abacus Real
Corporation
Estate
Development
Center,
Inc.
vs.
Manila
Banking
1.Decision dated May 26, 2003,1 reversing an earlier decision of the

Regional Trial Court at Makati City, Branch 59, in an action for specific
performance and damages thereat commenced by the petitioner against
the herein respondent Manila Banking Corporation; and
2.Resolution of February 17, 2004,2 denying petitioners motion for
reconsideration.
100
Abacus Real
Corporation
Estate
Development
Center,
Inc.
vs.
Manila
Banking
Respondent Manila Banking Corporation (Manila Bank, for brevity), owns a

1,435-square meter parcel of land located along Gil Puyat Avenue
Extension, Makati City and covered by Transfer Certificate of Title (TCT) No.
132935 of the Registry of Deeds of Makati. Prior to 1984, the bank began
constructing on said land a 14-storey building. Not long after, however, the
bank encountered financial difficulties that rendered it unable to finish
construction of the building.
In the interim, Manila Banks then acting president, the late Vicente G.
Puyat, in a bid to save the banks investment, started scouting for possible
investors who could finance the completion of the building earlier
mentioned. On August 18, 1989, a group of investors, represented by
Calixto Y. Laureano (hereafter referred to as Laureano group), wrote
Vicente G. Puyat offering to lease the building for ten (10) years and to
advance the cost to complete the same, with the advanced cost to be
amortized and offset against rental payments during the term of the lease.
Likewise, the letter-offer stated that in consideration of advancing the
construction cost, the group wanted to be given the exclusive option to
purchase the building and the lot on which it was constructed.
On May 22, 1987, the Central Bank of the Philippines, now Bangko Sentral
ng Pilipinas, ordered the closure of Manila Bank and placed it under
receivership, with Feliciano Miranda, Jr. being initially appointed as
Receiver. The legality of the closure was contested by the bank before the
proper court.
Since no disposition of assets could be made due to the litigation

concerning Manila Banks closure, an arrangement was thought of whereby
the property would first be leased to Manila Equities Corporation (MEQCO,
for brevity), a whollyowned subsidiary of Manila Bank, with MEQCO
thereafter subleasing the property to the Laureano group.
The petition is casts against the following factual backdrop:
In a letter dated August 30, 1989, Vicente G. Puyat accepted the Laureano
groups offer and granted it an exclusive option to purchase the lot and
building for One Hundred Fifty Million Pesos (P150,000,000.00). Later, or on
October 31, 1989, the building was leased to MEQCO for a period of ten
(10) years pursuant to a contract of lease bearing that date. On March 1,
1990, MEQCO subleased the property to petitioner Abacus Real Estate
Development Center, Inc. (Abacus, for short), a corporation formed by the
Laureano group for the purpose, under identical provisions as that of the
October 31, 1989 lease contract between Manila Bank and MEQCO.
Civil Case No. 96-1638 and raffled to Branch 59 of the court, plaintiff
Abacus prayed for a judgment ordering Manila Bank, inter alia, to sell,
transfer and convey unto it for P150,000,000.00 the land and building in
dispute free from all liens and encumbrances, plus payment of damages
and attorneys fees.
The Laureano group was, however, unable to finish the building due to the
economic crisis brought about by the failed December 1989 coup attempt.
On account thereof, the Laureano group offered its rights in Abacus and its
exclusive option to purchase to Benjamin Bitanga (Bitanga hereinafter),
for
In an Order dated April 15, 1996, the trial court granted the motion to
dismiss filed by the Estate of Vicente G. Puyat, but denied that of Manila
Bank and directed the latter to file its answer.
101
Before plaintiff Abacus could adduce evidence but after pre-trial, defendant
Manila Bank filed a Motion for Partial
_______________
VOL. 455, APRIL 6, 2005
3 Rollo, pp. 138-146.
101
Abacus Real
Corporation
Subsequently, defendant Manila Bank, followed a month later by its codefendant Estate of Vicente G. Puyat, filed separate motions to dismiss the
complaint.
102
Estate
Development
Center,
Inc.
vs.
Manila
Banking
Twenty Million Five Hundred Thousand Pesos (P20,500,000.00). Bitanga

would later allege that because of the substantial amount involved, he first
had to talk with Atty. Renan Santos, the Receiver appointed by the Central
Bank, to discuss Abacus offer. Bitanga further alleged that, over lunch,
Atty. Santos then verbally approved his entry into Abacus and his take-over
of the sublease and option to purchase.
On March 30, 1990, the Laureano group transferred and assigned to
Bitanga all of its rights in Abacus and the exclusive option to purchase
the subject land and building.
On September 16, 1994, Abacus sent a letter to Manila Bank informing the
latter of its desire to exercise its exclusive option to purchase. However,
Manila Bank refused to honor the same.
Such was the state of things when, on November 10, 1995, in the Regional
Trial Court (RTC) at Makati, Abacus Real Estate Development Center, Inc.
filed a complaint3 for specific performance and damages against Manila
Bank and/or the Estate of Vicente G. Puyat. In its complaint, docketed as
102
Abacus Real
Corporation
Estate
Development
Center,
Inc.
vs.
Manila
Banking
Summary Judgment, followed by a Supplement to Motion for Partial

Summary Judgment. While initially opposed, Abacus would later join Manila
Bank in submitting the case for summary judgment.
Eventually, in a decision dated May 27, 1999,4 the trial court rendered
judgment for Abacus in accordance with the latters prayer in its complaint,
thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiff as follows:
1. Ordering the defendant [Manila Bank] to immediately sell to plaintiff the
parcel of land and building, with an area of 1,435 square meters and
covered by TCT No. 132935 of the Makati Registry of Deeds, situated along
Sen. Gil J. Puyat Ave. in Makati City, at the price of One Hundred Fifty
Million (P150,000.000.00) Pesos in accordance with the said exclusive
option to purchase, and to execute the appropriate deed of sale therefor in
favor of plaintiff;
2. Ordering the defendant [Manila Bank] to pay plaintiff the amount of Two
Million (P2,000,000.00) Pesos representing reasonable attorneys fees;
3. Ordering the DISMISSAL of defendants counterclaim, for lack of merit;
and
4. With costs against the defendant.
SO ORDERED.
Its motion for reconsideration of the aforementioned decision having been
denied by the trial court in its Order of Au-gust 17, 1999,5 Manila Bank
then went on to the Court of Appeals whereat its appellate recourse was
docketed as CA-G.R. CV No. 64877.
As stated at the threshold hereof, the Court of Appeals, in a decision dated
May 26, 2003,6 reversed and set aside the appealed decision of the trial
court, thus:
_______________
The Decision dated May 27, 1999 of the Regional Trial Court of Makati City,
Branch 59 is REVERSED and SET ASIDE.
Cost of the appeal to be paid by the appellee.
SO ORDERED.
On June 25, 2003, Abacus filed a Motion for Reconsideration, followed, with
leave of court, by an Amended Motion for Reconsideration. Pending
resolution of its motion for reconsideration, as amended, Abacus filed a
Motion to Dismiss Appeal,7 therein praying for the dismissal of Manila
Banks appeal from the RTC decision of May 27, 1999, contending that said
appeal was filed out of time.
In its Resolution of February 17, 2004,8 the appellate court denied Abacus
aforementioned motion for reconsideration.
Hence, this recourse by petitioner Abacus Real Estate Development Center,
Inc.
As we see it, two (2) issues commend themselves for the resolution of the
Court, namely:
WHETHER OR NOT RESPONDENT BANKS APPEAL TO THE COURT OF
APPEALS WAS FILED ON TIME; and
WHETHER OR NOT PETITIONER ABACUS HAS ACQUIRED THE RIGHT TO
PURCHASE THE LOT AND BUILDING IN QUESTION.
4 Rollo, pp. 101-125.
We rule for respondent Manila Bank on both issues.
5 Rollo, pp. 126-137.
Addressing the first issue, petitioner submits that respondent banks

appeal to the Court of Appeals from the adverse decision of the trial court
was belatedly filed. Elaborating thereon, petitioner alleges that respondent
bank received a copy of the May 27, 1999 RTC decision on June 22, 1999,
6 Rollo, pp. 83-91.

103
_______________
VOL. 455, APRIL 6, 2005
7 Rollo, pp. 1102-1112.
103
Abacus Real
Corporation
Estate
Development
Center,
Inc.
vs.
Manila
Banking
WHEREFORE, finding serious reversible error, the appeal is GRANTED.
8 See Note 2, supra.

104
104
105
Abacus Real
Corporation
Abacus Real
Corporation
Estate
Development
Center,
Inc.
vs.
Manila
Banking
hence, petitioner had 15 days, or only up to July 7, 1999 within which to

take an appeal from the same decision or move for a reconsideration
thereof. Petitioner alleges that respondent furnished the trial court with a
copy of its Motion for Reconsideration only on July 7, 1999, the last day for
filing an appeal. Under Section 3, Rule 41 of the 1997 Rules of Civil
Procedure, the period of appeal shall be interrupted by a timely motion for
new trial or reconsideration. Since, according to petitioner, respondent
filed its Motion for Reconsideration on the last day of the period to appeal,
it only had one (1) more day within which to file an appeal, so much so that
when it received on August 23, 1999 a copy of the trial courts order
denying its Motion for Reconsideration, respondent bank had only up to
August 24, 1999 within which to file the corresponding appeal. As
respondent bank appealed the decision of the trial court only on August 25,
1999, petitioner thus argues that respondents appeal was filed out of
time.
As a counterpoint, respondent alleges that it sent the trial court a copy of
its Motion for Reconsideration on July 6, 1999, through registered mail.
Having sent a copy of its Motion for Reconsideration to the trial court with
still two (2) days left to appeal, respondent then claims that its filing of an
appeal on August 25, 1999, two (2) days after receiving the Order of the
trial court denying its Motion for Reconsideration, was within the
reglementary period.
Estate
Development
Center,
Inc.
vs.
Manila
Banking
Secondly, the appellants manifestation filed in the RTC personally on July

7, 1999 contains the following self-explanatory statements, to wit:
2. Defendant [Manila Bank] also filed with this Honorable Court a Motion
for Reconsideration of the Decision dated 27 May 1999 promulgated by
this Honorable Court in this case, and served a copy thereof to the plaintiff,
by registered mail yesterday, 6 July 1999, due to lack of material time and
messenger to effect personal service and filing.
3. In order for this Honorable Court to be able to review defendant [Manila
Banks] Motion for Reconsideration without awaiting the mailed copy,
defendant [Manila Bank] is now furnishing this Honorable Court with a copy
of said motion, as well as the entry of appearance, by personal service.
The aforecited reference in the manifestation to the mailing of the motion
for reconsideration on July 6, 1999, in light of the handwritten annotations
adverted to herein, renders beyond doubt the appellants insistence of
filing through registered mail on July 6, 1999.
Agreeing with respondent, the appellate court declared that respondents

appeal was filed on time. Explained that court in its Resolution of February
17, 2004, denying petitioners motion for reconsideration:
Thirdly, the registry return cards attached to the envelopes separately

addressed and mailed to the RTC and the appellees counsel, found in
pages 728 and 729 of the rollo, indicate that the contents were the motion
for reconsideration and the formal entry of appearance. Although the
appellee argues that the handwritten annotations of what were contained
by the envelopes at the time of mailing was easily self-serving, the fact
remains that the envelope addressed to the appellees counsel appears
thereon to have been received on July 6, 1999 (7/6/99), which enhances
the probability of the motion for reconsideration being mailed, hence filed,
on July 6, 1999, as claimed by the appellant.
Firstly, the file copy of the motion for reconsideration contains the written
annotations Registry Receipt No. 1633 Makati P.O. 7-6-99 in its page 13.
The presence of the annotations proves that the motion for reconsideration
was truly filed by registered mail on July 6, 1999 through registry receipt
no. 1633.
Fourthly, the certification issued on October 2, 2003 by Atty. Jayme M. Luy,

Branch Clerk of Court, Branch 59, RTC in Makati City, has no consequence
because Atty. Luy based his data only on page 3 of the 1995 Civil Case
Docket Book without reference to the original records which were already
with the Court of Appeals.
105
Fifthly, since the appellant received the denial of the motion for
reconsideration on August 23, 1999, it had until August 25, 1999 within
which to perfect its appeal from the decision of the RTC because 2 days
remained in its reglementary period to appeal. It is not
VOL. 455, APRIL 6, 2005
106
9 PT&T vs. Court of Appeals, 412 SCRA 263 (2003).

10 Ibay vs. Court of Appeals, 212 SCRA 160 (1992).
106
11 Republic vs. Court of Appeals, 349 SCRA 451 (2001).
107
Abacus Real
Corporation
Estate
Development
Center,
Inc.
vs.
Manila
Banking
VOL. 455, APRIL 6, 2005
disputed that the appellant filed its notice of appeal and paid the appellate
court docket fees on August 25, 1999.
107
These circumstances preponderantly demonstrate that the appellants

appeal was not late by one day. (Emphasis in the original)
Abacus Real
Corporation
Petitioner would, however, contest the above findings of the appellate

court, stating, among other things, that if it were true that respondent filed
its Motion for Reconsideration by registered mail and then furnished the
trial court with a copy of said Motion the very next day, then the rollo
should have had two copies of the Motion for Reconsideration in question.
Respondent, on the other hand, insists that it indeed filed a Motion for
Reconsideration on July 6, 1999 through registered mail.
Puyat had no authority to act for and represent Manila Bank, the latter
having been placed under receivership by the Central Bank at the time of
the granting of the exclusive option to purchase.
It is evident that the issue raised by petitioner relates to the correctness of

the factual finding of the Court of Appeals as to the precise date when
respondent filed its motion for reconsideration before the trial court. Such
issue, however, is beyond the province of this Court to review. It is not the
function of the Court to analyze or weigh all over again the evidence or
premises supportive of such factual determination.9 The Court has
consistently held that the findings of the Court of Appeals and other lower
courts are, as a rule, accorded great weight, if not binding upon it,10 save
for the most compelling and cogent reasons.11 As nothing in the record
indicates any of such exceptions, the factual conclusion of the appellate
court that respondent filed its appeal on time, supported as it is by
substantial evidence, must be affirmed.
Going to the second issue, petitioner insists that the option to purchase the
lot and building in question granted to it by the late Vicente G. Puyat, then
acting president of Manila Bank, was binding upon the latter. On the other
hand, respondent has consistently maintained that the late Vicente G.
_______________
Estate
Development
Center,
Inc.
vs.
Manila
Banking
There can be no quibbling that respondent Manila Bank was under

receivership, pursuant to Central Banks MB Resolution No. 505 dated May
22, 1987, at the time the late Vicente G. Puyat granted the exclusive
option to purchase to the Laureano group of investors. Owing to this
defining reality, the appellate court was correct in declaring that Vicente G.
Puyat was without authority to grant the exclusive option to purchase the
lot and building in question. The invocation by the appellate court of the
following pronouncement in Villanueva vs. Court of Appeals12 was
apropos, to say the least:
. . . the assets of the bank pass beyond its control into the possession and
control of the receiver whose duty it is to administer the assets for the
benefit of the creditors of the bank. Thus, the appointment of a receiver
operates to suspend the authority of the bank and of its directors and
officers over its property and effects, such authority being reposed in the
receiver, and in this respect, the receivership is equivalent to an injunction
to restrain the bank officers from intermeddling with the property of the
bank in any way.
With respondent bank having been already placed under receivership, its
officers, inclusive of its acting president, Vicente G. Puyat, were no longer
authorized to transact business in connection with the banks assets and
property. Clearly then, the exclusive option to purchase granted by
Vicente G. Puyat was and still is unenforceable against Manila Bank.13
Petitioner, however, asseverates that the exclusive option to purchase

was ratified by Manila Banks receiver, Atty.
_______________
12 244 SCRA 395 (1995).

13 Article 1317, Civil Code; Yao Ka Sin Trading vs. Court of Appeals, 209
SCRA 763 (1992).
Clearly, the receiver appointed by the Central Bank to take charge of the
properties of Manila Bank only had authority to administer the same for the
benefit of its creditors. Granting or approving an exclusive option to
purchase is not an act of administration, but an act of strict ownership,
involving, as it does, the disposition of property of the bank. Not being an
act
_______________
108
14 R.A. No. 265, as amended by PD 72 and PD 1007, the law applicable at

that time.
108
Abacus Real
Corporation
powers necessary for these purposes including, but not limited to, bringing
suits and foreclosing mortgages in the name of the banking institution.
(Emphasis supplied)
Estate
Development
Center,
109
Inc.
vs.
Manila
Banking
Renan Santos, during a lunch meeting held with Benjamin Bitanga in March
1990.
VOL. 455, APRIL 6, 2005

109
Petitioners argument is tenuous at best. Concededly, a contract

unenforceable for lack of authority by one of the parties may be ratified by
the person in whose name the contract was executed. However, even
assuming, in gratia argumenti, that Atty. Renan Santos, Manila Banks
receiver, approved the exclusive option to purchase granted by Vicente
G. Puyat, the same would still be of no force and effect.
Abacus Real
Corporation
Section 29 of the Central Bank Act, as amended,14 pertinently provides:
For sure, Congress itself has recognized that a bank receiver only has
powers of administration. Section 30 of the New Central Bank Act15
expressly provides that [t]he receiver shall immediately gather and take
charge of all the assets and liabilities of the institution, administer the
same for the benefit of its creditors, and exercise the general powers of a
receiver under the Revised Rules of Court but shall not, with the exception
of administrative expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution . . .
Sec. 29. Proceedings upon insolvency.Whenever, upon examination by

the head of the appropriate supervising and examining department or his
examiners or agents into the condition of any banking institution, 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 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
Estate
Development
Center,
Inc.
vs.
Manila
Banking
of administration, the so-called approval by Atty. Renan Santos amounts

to no approval at all, a bank receiver not being authorized to do so on his
own.
In all, respondent banks receiver was without any power to approve or

ratify the exclusive option to purchase granted by the late Vicente G.
Puyat, who, in the first place, was himself bereft of any authority, to bind
the bank under such exclusive option. Respondent Manila Bank may not
thus be compelled to sell the land and building in question to petitioner

Abacus under the terms of the latters exclusive option to purchase.
WHEREFORE, the instant petition is DENIED and the challenged issuances
of the Court of Appeals AFFIRMED. Costs against petitioner.
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Abacus
Real Estate Development Center, Inc. vs. Manila Banking Corporation, 455
SCRA 97(2005)]
SO ORDERED.
Panganiban (Chairman),
Morales, JJ., concur.
Sandoval-Gutierrez,
Corona
and
Carpio-
Petition denied, challenged decision and resolution affirmed.

Notes.A receiver is a person appointed by the court in behalf of all the
parties to the action for the purpose of promoting and conserving the
property in litigation and prevent
_______________
15 R.A. No. 7653.

110
110
Montebon vs. Tanglao-Dacanay
ing its possible destruction or dissipation, if it were left in the possession of
any of the parties. (Commodities Storage & Ice Plant Corporation vs. Court
of Appeals, 274 SCRA 439 [1997])
Receivership, which is admittedly a harsh remedy, should be granted with
extreme caution, such as when properties of a partnership are in danger of
being damaged or lost on account of certain acts of the appointed
manager in liquidation. (Sy vs. Court of Appeals, 313 SCRA 328 [1999])
o0o
752
Manalo vs. Court of Appeals
G.R. No. 141297. October 8, 2001.*
DOMINGO R. MANALO, petitioner, vs. COURT OF APPEALS (Special Twelfth
Division) and PAIC SAVINGS AND MORTGAGE BANK, respondents.
Banks and Banking; Insolvency; Liquidation Court; Jurisdiction; The
exclusive jurisdiction of the liquidation court pertains only to the
adjudication of claims against the bankit does not cover the reverse
situation where it is the bank which files a claim against another person or
legal entity.Petitioner apparently failed to appreciate the correct meaning
and import of the above-quoted law. The legal provision only finds
operation in cases where there are claims against an insolvent bank. In
fine, the exclusive jurisdiction of the liquidation court pertains only to the
adjudication of claims against the bank. It does not cover the reverse
situation where it is the bank which files a claim against another person or
legal entity.
Same; Same; Same; Same; The requirement that all claims against the
bank under liquidation be pursued in the liquidation proceedings filed by
the Central Bank is intended to prevent multiplicity of actions against the
insolvent bank and designed to establish due process and orderliness in
the liquidation of the bank.This interpretation of Section 29 becomes
more obvious in the light of its intent. The requirement that all claims
against the bank be pursued in the liquidation proceedings filed by the
Central Bank is intended to prevent multiplicity of actions against the
insolvent bank and designed to establish due process and orderliness in
the liquidation of the bank, to obviate the proliferation of litigations and to
avoid injustice and arbitrariness. The lawmaking body contemplated that
for convenience, only one court, if possible, should pass upon the claims
against the insolvent bank and that the liquidation court should assist the
Superintendents of Banks and regulate his operations.
Same; Foreclosure of Mortgage; Writs of Possession; Jurisdiction; Act 3135,
entitled An Act to Regulate the Sale of Property Under Special Powers
Inserted In or Annexed To Real Estate Mortgages, mandates that
jurisdiction over a Petition for Writ of Possession lies with the court of the
province, city, or municipality where the property subject thereof is
situated.To be sure, the liquidator took the proper course of action when
it applied for a writ in the Pasay City RTC. Act 3135, entitled An Act to
Regulate the Sale of Property Under Special Powers Inserted In or Annexed
To Real
______________
* FIRST DIVISION.
753
VOL. 366, OCTOBER 8, 2001

753
Estate Mortgages, mandates that jurisdiction over a Petition for Writ of

Possession lies with the court of the province, city, or municipality where
the property subject thereof is situated. This is sanctioned by Section 7 of
the said Act, thus: Section 7. In any sale made under the provisions of this
Act, the purchaser may petition the Court of First Instance of the province
or place where the property or any part thereof is situated, to give him
possession thereof during the redemption period, furnishing bond in an
amount equivalent to the use of the property for a period of twelve
months, to indemnify the debtor in case it be shown that the sale was
made without violating the mortgage or without complying with the
requirements of this Act. x x x (emphasis supplied)
Actions; Pleadings and Practice; Forum Shopping; The Supreme Court has
laid down the yardstick to determine whether a party violated the rule
against forum shopping as where the elements of litis pendentia are
present or where a final judgment in one case will amount to res judicata in
the other.Anent petitioners auxiliary contention that respondent should
be held guilty of forum shopping for not filing the case in the liquidation
court, suffice it to state here that the doctrine only ponders situations
where two (or more) cases are pending before different tribunals. Well to
point, we have laid down the yardstick to determine whether a party
violated the rule against forum shopping as where the elements of litis
pendentia are present or where a final judgment in one case will amount to
res judicata in the other. Inasmuch as the case at bar is the only one filed
by the respondent for the issuance of a writ of possession over the subject
property, there is no occasion for the doctrine to apply.
Banks and Banking; Liquidation; A bank which had been ordered closed by
the monetary board retains its juridical personality which can sue and be
sued through its liquidator.Petitioner next casts doubt on the capacity of
the respondent to continue litigating the petition for the issuance of the
writ. He asserts that, being under liquidation, respondent bank is already a
dead corporation that cannot maintain the suit in the RTC. Hence, no writ
may be issued in its favor. The argument is devoid of merit. A bank which
had been ordered closed by the monetary board retains its juridical
personality which can sue and be sued through its liquidator. The only
limitation being that the prosecution or defense of the action must be done
through the liquidator. Otherwise, no suit for or against an insolvent entity
would prosper. In such situation, banks in liquidation would lose what justly
belongs to them through a mere technicality.
Actions; Prejudicial Questions; Words and Phrases; A prejudicial question is
one which arises in a case the resolution of which is a logical
754
754
antecedent of the issue involved therein, and the cognizance of which
pertains to another tribunal.A prejudicial question is one which arises in a
case the resolution of which is a logical antecedent of the issue involved
therein, and the cognizance of which pertains to another tribunal. It
generally comes into play in a situation where a civil action and a criminal
action are both pending and there exists in the former an issue which must
be preemptively resolved before the criminal action may proceed, because
howsoever the issue raised in the civil action is resolved would be
determinative juris et de jure of the guilt or innocence of the accused in
the criminal case. The rationale behind the principle of prejudicial question
is to avoid two conflicting decisions.
Same; Same; A case where the issue is whether the purchaser in the
extrajudicial foreclosure proceedings, may be compelled to have the
property repurchased or resold to the mortgagors successor-in-interest
can proceed separately and take its own direction independent of another
case where the issue is whether the purchaser in the extrajudicial
foreclosure proceedings, is entitled to a writ of possession after the
statutory period for redemption has expired.At any rate, it taxes our
imagination why the questions raised in Case No. 98-0868 must be
considered determinative of Case No. 9011. The basic issue in the former is
whether the respondent, as the purchaser in the extrajudicial foreclosure
proceedings, may be compelled to have the property repurchased or resold
to a mortgagors successor-in-interest (petitioner); while that in the latter is
merely whether the respondent, as the purchaser in the extrajudicial
foreclosure proceedings, is entitled to a writ of possession after the
statutory period for redemption has expired. The two cases, assuming both
are pending, can proceed separately and take their own direction
independent of each other.
Same; Intervention; Words and Phrases; Intervention is a remedy by which
a third party, not originally impleaded in the proceedings, becomes a
litigant therein to enable him to protect or preserve a right or interest
which may be affected by such proceeding.Intervention is a remedy by
which a third party, not originally impleaded in the proceeding, becomes a
litigant therein to enable him to protect or preserve a right or interest
which may be affected by such proceeding. The pertinent provision is
stated in Section 1, Rule 19 of the 1997 Rules of Civil Procedure, thus:

Section 1. Who may intervene.A person who has a legal interest in the
matter in litigation, or in the success of either of the parties, or an interest
against both, or is so situated as to be adversely affected by a distribution
or other disposition of property in the custody of the court or of an officer
thereof may, with leave of court, be allowed to intervene in the action. The
court shall consider whether or not the intervention will unduly delay or
prejudice the adjudi755

755
cation of the rights of the original parties, and whether or not the
intervenors rights may be fully protected in a separate proceeding.
Same; Same; The allowance or disallowance of a motion to intervene is
addressed to the sound discretion of the court.Intervention is not a
matter of right but may be permitted by the courts only when the statutory
conditions for the right to intervene is shown. Thus, the allowance or
disallowance of a motion to intervene is addressed to the sound discretion
of the court. In determining the propriety of letting a party intervene in a
case, the tribunal should not limit itself to inquiring whether a person (1)
has a legal interest in the matter in litigation; (2) or in the success of either
of the parties; (3) or an interest against both; (4) or when is so situated as
to be adversely affected by a distribution or other disposition of property in
the custody of the court or of an officer thereof. Just as important, as we
have stated in Big Country Ranch Corporation v. Court of Appeals, is the
function to consider whether or not the intervention will unduly delay or
prejudice the adjudication of the rights of the original parties, and whether
or not the intervenors rights may be fully protected in a separate
proceeding.
Same; Same; Pleadings and Practice; The motion to intervene must be filed
before the rendition of judgment, otherwise it will not be warranted
anymore.The period within which a person may intervene is also
restricted. Section 2, Rule 19 of the 1997 Rules of Civil Procedure requires:
Section 2. Time to intervene.The motion to intervene may be filed at
any time before the rendition of judgment by the trial court, x x x After
the lapse of this period, it will not be warranted anymore. This is because,
basically, intervention is not an independent action but is ancillary and

supplemental to an existing litigation.
Same; Same; Foreclosure of Mortgage; Writs of Possession; The issuance of
an Order granting the Writ of Possession is in essence a rendition of
judgment within the purview of Section 2, Rule 19.In the first place,
petitioners Ex-parte Permission to File a Motion to Intervene was
submitted to the RTC only on June 25, 1998. At that stage, the lower court
had already granted respondents petition for the writ in an Order dated
April 21, 1998. It had issued the Writ of Possession on April 24, 1998.
Petitioners motion then was clearly out of time, having been filed only at
the execution stage. For that reason alone, it must meet the consequence
of denial. While it is true that on May 8, 1998, Vargas and S. Villanueva
Enterprises moved to quash the writ, that did not in any way affect the
nature of the RTCs Order as an adjudication on the merits. The issuance
756
Sales; It is axiomatic that one can not transmit what one does not have.
Being herself bereft of valid title and rights, Vargas can not legitimately
convey any to some other person. She could not have lawfully sold the
land to Angsico nor leased it to petitioner for her own account. It is
axiomatic that one can not transmit what one does not have. It ought to
follow that petitioner could not have acquired any right or interest from
Vargas.

Mauricio C. Ulep for petitioner.
The Chief Legal Counsel for private respondent.
PUNO, J.:
756
of the Order is in essence a rendition of judgment within the purview of
Section 2, Rule 19.
Same; Same; Same; Same; After the consolidation of title in the buyers
name, for failure of the mortgagor to redeem, the writ of possession
becomes a matter of rightits issuance to a purchaser in an extrajudicial
foreclosure is merely a ministerial function.Allowing petitioner to
intervene, furthermore, will serve no other purpose but to unduly delay the
execution of the writ, to the prejudice of the respondent. This cannot be
countenanced considering that after the consolidation of title in the buyers
name, for failure of the mortgagor to redeem, the writ of possession
becomes a matter of right. Its issuance to a purchaser in an extrajudicial
foreclosure is merely a ministerial function. As such, the court neither
exercises its official discretion nor judgment. If only to stress the writs
ministerial character, we have, in previous cases, disallowed injunction to
prohibit its issuance, just as we have held that issuance of the same may
not be stayed by a pending action for annulment of mortgage or the
foreclosure itself.
This petition for certiorari seeks the review of the Decision of the Court of
Appeals in C A.-G.R. SP No. 50341 promulgated December 23, 1999, which
affirmed an Order issued by the Regional Trial Court, Branch 112, Pasay
City, in Civil Case No. 9011 dated December 9, 1998.
757

757
On July 19, 1983, S. Villanueva Enterprises, represented by its president,
Therese Villanueva Vargas, obtained a loan of three million pesos
(P3,000,000.00) and one million pesos (1,000,000.00) from the respondent
PAIC Savings and Mortgage Bank and the Philippine American Investments
Corporation (PAIC), respectively. To secure payment of both debts, Vargas
executed in favor of the respondent and PAIC a Joint First Mortgage1 over
two parcels of land registered under her name. One of the lots, located in
Pasay City with an area of nine hundred nineteen square meters (919 sq.
m.) and covered by TCT No. 6076, is the subject of the present case.
Section 2 of the mortgage contract states that the properties mortgaged
therein shall include all buildings and improvements existing on the

mortgaged property at the time of the execution of the mortgage contract
and thereafter.2
S. Villanueva Enterprises defaulted in paying the amortizations due.
Despite repeated demands from the respondent, it failed to settle its loan
obligation. Accordingly, respondent instituted extrajudicial foreclosure
proceedings over the mortgaged lots. On August 22, 1984, the Pasay City
property was sold at a public auction to the respondent itself, after
tendering the highest bid. The respondent then caused the annotation of
the corresponding Sheriffs Certificate of Sale3 on the title of the land on
December 4, 1984. After the lapse of one year, or the statutory period
extended by law to a mortgagor to exercise his/her right of redemption,
title was consolidated in respondents name for failure of Vargas to
redeem.
On October 29, 1986, the Central Bank of the Philippines filed a Petition4
for assistance in the liquidation of the respondent with the Regional Trial
Court. The petition was given due course in an Order5 dated May 19, 1987.
It appears that from the years 1986 to 1991, Vargas negotiated with the
respondent (through its then liquidator, the Central
_______________
1 Annex 1. Comment; Rollo, p. 181-201.

2 Id., p. 183.
3 Annex 2, Comment; Rollo; pp. 200-201.
Bank) for the repurchase of the foreclosed property. The negotiations,

however, fizzled out as Vargas cannot afford the repurchase price fixed by
the respondent based on the appraised value of the land at that time. On
October 4, 1991, Vargas filed a case for annulment of mortgage and
extrajudicial foreclosure sale before Branch 116 of the Pasay City Regional
Trial Court. On July 22, 1993, the court rendered a decision6 dismissing the
complaint and upholding the validity of the mortgage and foreclosure sale.
On appeal, the appellate court upheld the assailed judgment and declared
the said mortgage and foreclosure proceedings to be in accord with law.7
This decision of the Court of Appeals subsequently became final and
executory when we summarily dismissed Vargass Petition for Review on
Certiorari for having been filed beyond the reglementary period.8
In the meantime, on June 22, 1992, respondent petitioned the Regional
Trial Court, Branch 112, of Pasay City, herein court a quo, for the issuance
of a writ of possession for the subject property in Civil Case No. 9011. This
is in view of the consolidation of its ownership over the same as mentioned
earlier. Vargas and S. Villanueva Enterprises, Inc. filed their opposition
thereto. After which, trial ensued.
During the pendency of Civil Case No. 9011 (for the issuance of a writ of
possession), Vargas, on December 23, 1992, executed a Deed of Absolute
Sale9 selling, transferring, and conveying ownership of the disputed lot in
favor of a certain Armando Angsico. Notwithstanding this sale, Vargas, still
representing herself to be the lawful owner of the property, leased the
same to petitioner Domingo R. Manalo on August 25, 1994. Pertinent
provisions of the lease agreement10 state:
3. (a) The lease is for a period often year lease (sic), involving 450 square
meters, a portion of the above 919 square meter property.
_______________
4 Annex Q, Petition; Rollo, pp. 110-117.

5 Rollo, p. 118.
758
6 Rollo, p. 132.
7 Decision, CA-G.R. No. 44391, Annex 4, Comment; Rollo, pp 204-210.
8 Resolution, G.R. No. 130747, Annex 5, Comment; Rollo, p. 211.
758
9 Deed of Absolute Sale, Rollo, p. 105.

10 Contract of Lease, Annex C, Rollo, pp. 43-44.
759
14 Writ of Possession, Annex E, Petition; Rollo, p. 46.

15 Motion to Quash Writ of Possession, Annex F, Petition; Rollo, p. 48.
759
16 Permission to File Ex-parte Motion to Intervene, Annex G, Petition;

Rollo, p. 53.

x x x (d) The LESSEE has to introduce into the said 450 square meter
premises improvements thereon (sic) consisting of one story building to
house a Karaoke Music Restaurant Business, which improvements
constructed therof (sic), upon the termination of the lease contract, by said
LESSEE be surrendered in favor of the LESSOR (sic).11
Later, on June 29, 1997, Armando Angsico, as buyer of the property,
assigned his rights therein to petitioner.12
On April 21, 1998, the court a quo granted the petition for the issuance of
the Writ of Possession.13 The writ was subsequently issued on April 24,
1998, the pertinent portion of which reads:14
NOW THEREFORE you are hereby commanded that you cause oppositors
THERESE VILLANUEVA VARGAS and S. VILLANUEVA ENTERPRISES, INC. and
any and all persons claiming rights or title under them, to forthwith vacate
and surrender the possession of subject premises in question known as
that parcel of land and improvements covered by TCT No. 6076 of the
Registry of Deeds of Pasay City; you are hereby further ordered to take
possession and deliver to the petitioner PAIC SAVINGS AND MORTGAGE
BANK the subject parcel of land and improvements.
Shortly, on May 8, 1998, S. Villanueva Enterprises and Vargas moved for its
quashal.15 Thereafter on June 25, 1998, petitioner, on the strength of the
lease contract and Deed of Assignment made in his favor, submitted a
Permission to File an Ex-parte Motion to Intervene.16 It bears mentioning,
however, that before petitioner sought intervention in the present case, he
had separately instituted a Complaint for Mandamus, docketed as Civil
Case No. 98________________
11 Ibid.
12 Deed of Assignment and Transfer of Rights, Rollo, p. 136.
13 Order, Annex D, Petition; Rollo, p. 45.
760
760
0868 before another branch17 of the Pasay City RTC to compel PAIC Bank
to allow him to repurchase the subject property.
On October 7, 1998, the court a quo denied the Motion to Quash and
Motion to Intervene filed respectively by Vargas and petitioner.18 A Motion
for Reconsideration and a Supplemental Motion for Reconsideration were
filed by the petitioner which, however, were similarly denied on December
9, 1998.
Petitioner then sought relief with the Court of Appeals, filing therein a
Petition for Certiorari. While this was awaiting resolution, he entered into
another lease agreement,19 this time with the respondent, represented by
its liquidator, over the same 450 sq. m. portion of the lot. The contract
fixed a period of one month beginning January 28, 1999, renewable for
another month at the exclusive option of the lessor, respondent PAIC Bank.
On December 23, 1999, the appellate court rendered the impugned
Decision, dismissing the petition, thus:
All told, WE find the Order, subject of the instant Petition for Certiorari and
Prohibition, to be not without rational bases and we observe that the court
a quo, in issuing its questioned Order, committed no grave abuse of
discretion amounting to lack of jurisdiction.
WHEREFORE, the Petition for Certiorari and Prohibition is hereby
DISMISSED and the assailed December 9, 1998 Order is AFFIRMED in all
respects.
SO ORDERED.20
Hence, this appeal, where petitioner raises and argues the following legal
issues:
I. Whether or not public respondent acted without or in excess of its
jurisdiction and/or was patently in error when it affirmed the denial of
petitioners motion for intervention, despite the fact that he has a legal
interest, being a lessee and an assignee of the property subject matter of
this case.
III. Whether or not the public respondent committed grave abuse of

discretion and/or was patently in error in affirming the ruling of the trial
court, totally disregarding the arguments raised in petitioners
supplemental motion for reconsideration only through a minute order and
without taking into consideration the fact that there is a pending action in
another court (RTC, Pasay City, Branch 231) which presents a prejudicial
question to the case at bar.
_______________
IV. Whether or not the petitioner is estopped from questioning private

respondents ownership when it entered into a contract of lease involving
the property in question.21
17 Branch 231.
We will first resolve the jurisdictional and procedural questions raised by

the petitioner.
18 Order, Annex J, Petition; Rollo, p. 75.
I.
19 Contract of Lease, Annex 7, Comment; Rollo, p. 213.
Petitioner postulates that the lower court should have dismissed

respondents Ex-Parte Petition for Issuance of Writ of Possession in Civil
Case No. P-9011 for want of jurisdiction over the subject matter of the
claim. The power to hear the same, he insists, exclusively vests with the
Liquidation Court pursuant to Section 29 of Republic Act No. 265, otherwise
known as The Central Bank Act.22 He then cites our decision in Valenzuela
v. Court of Appeals,23 where we held that if there is a judicial liquidation
of an insolvent bank, all claims against the bank should be filed in the
liquidation
20 Decision, CA-G.R. SP No. 50341, Annex A, Petition; Rollo, p. 42.

761

761
II. Whether or not the public respondent committed grave abuse of
discretion when it held that what are required to be instituted before the
liquidation court are those claims against the insolvent banks only
considering that the private respondent bank is legally dead due to
insolvency and considering further that there is already a liquidation court
(Regional Trial Court of Makati, Branch 57, docketed as Spec. Pro. No. M1280) which is exclusively vested with jurisdiction to hear all matters and
incidents on liquidation pursuant to Section 29, Republic Act No. 265,
otherwise known as The Central Bank Act, as amended.
________________
21 Petition; Rollo, pp. 8-9.

22 Amended by R.A. No. 7653, otherwise known as The New Central Bank
Act.
23 168 SCRA 623 (1988).
762
762
proceeding. For going to another court, the respondent, he accuses, is

guilty of forum shopping.
These contentions can not pass judicial muster. The pertinent portion of
Section 29 states:
x x x The liquidator designated as hereunder provided shall, by the
Solicitor General, file a petition in the Regional Trial Court reciting the
court in the liquidation of such institution. The court shall have jurisdiction
in the same proceedings to assist in the adjudication of disputed claims
against the bank or non-bank financial intermediary performing quasibanking functions and the enforcement of individual liabilites 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, x x x24 (emphasis supplied.)
Petitioner apparently failed to appreciate the correct meaning and import
of the above-quoted law. The legal provision only finds operation in cases
where there are claims against an insolvent bank. In fine, the exclusive
jurisdiction of the liquidation court pertains only to the adjudication of
claims against the bank. It does not cover the reverse situation where it is
the bank which files a claim against another person or legal entity.
This interpretation of Section 29 becomes more obvious in the light of its
intent. The requirement that all claims against the bank be pursued in the
liquidation proceedings filed by the Central Bank is intended to prevent
multiplicity of actions against the insolvent bank and designed to establish
due process and orderliness in the liquidation of the bank, to obviate the
proliferation of litigations and to avoid injustice and arbitrariness.25 The
lawmaking body contemplated that for convenience, only one court, if
possible, should pass upon the claims against the insolvent bank and that
the liquidation court should assist the Superintendents of Banks and
regulate his operations.26
_______________
24 Now Section 30, The New Central Bank Act.

25 Ong v. CA, 253 SCRA 105 (1996).
26 Central Bank of the Philippines, et al. vs. CA, et al., 163 SCRA 482
(1988).
763

763
It then ought to follow that petitioners reliance on Section 29 and the
Valenzuela case is misplaced. The Petition for the Issuance of a Writ of
Possession in Civil Case No. 9011 is not in the nature of a disputed claim
against the bank. On the contrary, it is an action instituted by the
respondent bank itself for the preservation of its asset and protection of its
property. It was filed upon the instance of the respondents liquidator in
order to take possession of a tract of land over which it has ownership
claims.
To be sure, the liquidator took the proper course of action when it applied
for a writ in the Pasay City RTC. Act 3135,27 entitled An Act to Regulate the
Sale of Property Under Special Powers Inserted In or Annexed To Real
Estate Mortgages, mandates that jurisdiction over a Petition for Writ of
Possession lies with the court of the province, city, or municipality where
the property subject thereof is situated. This is sanctioned by Section 7 of
the said Act, thus:
Section 7. In any sale made under the provisions of this Act, the purchaser
may petition the Court of First Instance of the province or place where the
property or any part thereof is situated, to give him possession thereof
during the redemption period, furnishing bond in an amount equivalent to
the use of the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without violating the
mortgage or without complying with the requirements of this Act. x x x28
(emphasis supplied)
Since the land subject of this controversy is located in Pasay City, then the
citys RTC should rightly take cognizance of the case, to the exclusion of
other courts.
Anent petitioners auxiliary contention that respondent should be held
guilty of forum shopping for not filing the case in the liquidation court,
suffice it to state here that the doctrine only ponders situations where two
(or more) cases are pending before different tribunals.29 Well to point, we
have laid down the yardstick to determine whether a party violated the
rule against forum shopping
_______________
27 As amended by Act 4118.
assistance of counsel as he may retain, institute such actions as may be

necessary in the appropriate court to collect and recover accounts and
assests of such institution or defend any action filed against the
institution.33 (emphasis supplied.)
28 Act 3135.
It is therefore beyond dispute that respondent was legally capacitated to

petition the court a quo for the issuance of the writ.
29 Carlet v. CA, 275 SCRA 97 (1997).
_______________
764
764
as where the elements of litis pendentia are present or where a final
judgment in one case will amount to res judicata in the other.30 Inasmuch
as the case at bar is the only one filed by the respondent for the issuance
of a writ of possession over the subject property, there is no occasion for
the doctrine to apply.
30 First Philippine International Bank v. Court of Appeals, 252 SCRA 259

(1996).
31 See Hernandez v. Rural Bank of Lucena, Inc., 81 SCRA 75 (1978), citing
Wauer v. Bank of Pendleton, 65 S.W. 2nd 167.
32 See Gelano v. CA, 103 SCRA 90 (1981).
33 See note No. 22.
765
Petitioner next casts doubt on the capacity of the respondent to continue

litigating the petition for the issuance of the writ. He asserts that, being
under liquidation, respondent bank is already a dead corporation that
cannot maintain the suit in the RTC. Hence, no writ may be issued in its
favor.
The argument is devoid of merit. A bank which had been ordered closed by
the monetary board retains its juridical personality which can sue and be
sued through its liquidator. The only limitation being that the prosecution
or defense of the action must be done through the liquidator.31 Otherwise,
no suit for or against an insolvent entity would prosper. In such situation,
banks in liquidation would lose what justly belongs to them through a mere
technicanty.32
II.
That the law allows a bank under liquidation to participate in an action can
be clearly inferred from the third paragraph of the same Section 29 of The
Central Bank Act earlier quoted, which authorizes or empowers a liquidator
to institute actions, thus:
x x x and he (liquidator) may in the name of the bank or non-bank
financial intermediary performing quasi-banking functions and with the
765
Petitioner likewise proffers one other procedural obstacle, which is the

pendency of Civil Case No. 98-0868 in Branch 231 of Pasay City RTC. The
said action is the complaint he filed against the respondent for the latter to
receive and accept the redemption price of eighteen million pesos for the
subject property. He argues that the primary issue therein constitutes a
prejudicial question in relation to the present case in that if the Court
therein will grant petitioners prayer, then this will necessarily negate the
possessory writ issued by the court a quo.
Again, we are not persuaded. A prejudicial question is one which arises in a
case the resolution of which is a logical antecedent of the issue involved
therein, and the cognizance of which pertains to another tribunal.34 It
generally comes into play in a situation where a civil action and a criminal
action are both pending and there exists in the former an issue which must
be preemptively resolved before the criminal action may proceed, because
howsoever the issue raised in the civil action is resolved would be
determinative juris et de jure of the guilt or innocence of the accused in
the criminal case. The rationale behind the principle of prejudicial question
is to avoid two conflicting decisions.35
Here, aside from the fact that Civil Case No. 98-0868 and the present one
are both civil in nature and therefore no prejudicial question can arise from
the existence of the two actions,36 it is apparent that the former action
was instituted merely to frustrate the Courts ruling in the case at bar
granting the respondent the right to possess the subject property. It is but
a canny and preemptive maneuver on the part of the petitioner to delay, if
not prevent, the execution of a judgment adverse to his interests. It bears
stressing that the complaint for mandamus was filed only on May 7, 1998,
sixteen days after the lower court granted respondents petition and
thirteen days after it issued the writ. It cannot then possibly prejudice a
decided case.
_______________
34 Tuanda v. Sandiganbayan, 249 SCRA 342 (1995).
writ of possession after the statutory period for redemption has expired.
The two cases, assuming both are pending, can proceed separately and
take their own direction independent of each other.
III.
Having disposed of the jurisdictional and procedural issues, we now come
to the merits of the case. Petitioner seeks intervention in this case by
virtue of the lease agreement and the deed of assignment executed in his
favor by the mortgagor (Vargas) and an alleged buyer (Angsico) of the
land, respectively. He posits that as a lessee and assignee in possession of
the foreclosed real estate, he automatically acquires interest over the
subject matter of the litigation. This interest is coupled with the fact that
he introduced improvements thereon, consisting of a one-storey building
which houses a karaoke-music restaurant, allegedly to the tune of fifteen
million pesos (P15,000,000.00). Enforcing the writ, he adds, without
hearing his side would be an injustice to him.
Intervention is a remedy by which a third party, not originally impleaded in
the proceeding, becomes a litigant therein to enable him to protect or
preserve a right or interest which may be affected by such proceeding.37
The pertinent provision is stated in Section 1, Rule 19 of the 1997 Rules of
Civil Procedure, thus:
36 Carlos v. CA, 268 SCRA 25 (1997).
Section 1. Who may intervene.A person who has a legal interest in the
matter in litigation, or in the success of either of the parties, or an interest
against both, or is so situated as to be adversely affected by a distribution
or other disposition of property in the custody of the court or
766
_______________
766
37 First Philippine Holdings Corporation v. Sandiganbayan, 253 SCRA 30

(1996).
35 Ibid.

At any rate, it taxes our imagination why the questions raised in Case No.
98-0868 must be considered determinative of Case No. 9011. The basic
issue in the former is whether the respondent, as the purchaser in the
extrajudicial foreclosure proceedings, may be compelled to have the
property repurchased or resold to a mortgagors successor-in-interest
(petitioner); while that in the latter is merely whether the respondent, as
the purchaser in the extrajudicial foreclosure proceedings, is entitled to a
767

767
of an officer thereof may, with leave of court, be allowed to intervene in

the action. The court shall consider whether or not the intervention will
unduly delay or prejudice the adjudication of the rights of the original
parties, and whether or not the intervenors rights may be fully protected
in a separate proceeding.38
43 Lim v. Pacquing, 240 SCRA 649 (1995).
Intervention is not a matter of right but may be permitted by the courts

only when the statutory conditions for the right to intervene is shown.39
Thus, the allowance or disallowance of a motion to intervene is addressed
to the sound discretion of the court.40 In determining the propriety of
letting a party intervene in a case, the tribunal should not limit itself to
inquiring whether a person (1) has a legal interest in the matter in
litigation; (2) or in the success of either of the parties; (3) or an interest
against both; (4) or when is so situated as to be adversely affected by a
distribution or other disposition of property in the custody of the court or of
an officer thereof.41 Just as important, as we have stated in Big Country
Ranch Corporation v. Court of Appeals,42 is the function to consider
whether or not the intervention will unduly delay or prejudice the
adjudication of the rights of the original parties, and whether or not the
intervenors rights may be fully protected in a separate proceeding.
768
The period within which a person may intervene is also restricted. Section
2, Rule 19 of the 1997 Rules of Civil Procedure requires:
Section 2. Time to intervene.The motion to intervene may be filed at
any time before the rendition of judgment by the trial court, x x x
After the lapse of this period, it will not be warranted anymore. This is
because, basically, intervention is not an independent action but is
ancillary and supplemental to an existing litigation.43
_______________
38 Rule 19, id.

39 Firestone Ceramics, Inc. v. CA, 313 SCRA 522 (1999).
40 Pagtalunan v. Tamayo, 183 SCRA 252 (1990).
41 Batama Farmers Cooperative Marketing Association, Inc. v. Rosal, 42
SCRA 408 (1971).
42 227 SCRA 161 (1993).
768

Taking into account these fundamental precepts, we rule that the petitioner
may not properly intervene in the case at bar. His insistence to participate
in the proceeding is an unfortunate case of too little, too late.
In the first place, petitioners Ex-parte Permission to File a Motion to
Intervene was submitted to the RTC only on June 25, 1998. At that stage,
the lower court had already granted respondents petition for the writ in an
Order dated April 21, 1998. It had issued the Writ of Possession on April 24,
1998. Petitioners motion then was clearly out of time, having been filed
only at the execution stage. For that reason alone, it must meet the
consequence of denial. While it is true that on May 8, 1998, Vargas and S.
Villanueva Enterprises moved to quash the writ, that did not in any way
affect the nature of the RTCs Order as an adjudication on the merits. The
issuance of the Order is in essence a rendition of judgment within the
purview of Section 2, Rule 19.
Allowing petitioner to intervene, furthermore, will serve no other purpose
but to unduly delay the execution of the writ, to the prejudice of the
respondent. This cannot be countenanced considering that after the
consolidation of title in the buyers name, for failure of the mortgagor to
redeem, the writ of possession becomes a matter of right.44 Its issuance to
a purchaser in an extrajudicial foreclosure is merely a ministerial
function.45 As such, the court neither exercises its official discretion nor
judgment.46 If only to stress the writs ministerial character, we have, in
previous cases, disallowed injunction to prohibit its issuance,47 just as we
have held that issuance of the same may not be stayed by a pending
action for annulment of mortgage or the foreclosure itself.48
Even if he anchors his intervention on the purported interest he has over
the land and the improvements thereon, petitioner, still, should not be
allowed to do so. He admits that he is a mere lessee and assignee.
Whatever possessory rights he holds only emanate
________________
_______________
44 Tarnate v. CA, 241 SCRA 254 (1995).
45 Vaca v. CA, 234 SCRA 146 (1994).
49 Union Bank v. CA, 311 SCRA 795 (1999).
46 A.G. Development Corporation v. CA, 281 SCRA 155 (1997).
50 R.A. 337, as amended.
47 Kho v. CA, 203 SCRA 160 (1991).
51 Likewise, Section 6 of Act 3135 states:
48 PNB v. Adil, 118 SCRA 110 (1982).
Section 6. In all cases in which an extrajudicial sale is made under the

special power herein before referred to, the debtor, his successors in
interest or any judicial creditor or judgment creditor of said debtor, or any
person having a lien on the property subsequent to the mortgage or deed
of trust under which the property was sold, may redeem the same at any
time within the term of one year from and after the date of the sale. x x x
(emphasis supplied)
769

769
770

from that of Vargas, from whom he leased the lot, and from whom his
assignor/predecessor-in-interest bought it. Therein lies the precariousness
of his title. Petitioner cannot validly predicate his supposed interest over
the property in litigation on that of Vargas, for the simple reason that as
early as December 4, 1985, the latter has already been stripped of all her
rights over the land when she, as mortgagor, failed to redeem it. A
mortgagor has only one year within which to redeem her foreclosed real
estate.49 After that period, she loses all her interests over it. This is in
consonance with Section 78 of the General Banking Act,50 viz.:
x x x In the event of foreclosure, whether judicially or extrajudicially, of
any mortgage on real estate which is security for any loan granted before
the passage of this Act or the provisions of this Act, the mortgagor or
debtor whose real property has been sold at public auction, judicially or
extrajudicially, for the full or partial payment of an obligation to any bank,
banking or credit institution, within the purview of this Act shall have the
right, within one year after the sale of the real estate mortgage as a result
of the foreclosure of the respective mortgage, to redeem the property by
paying the amount fixed by the court in the order or execution x x x.51
(emphasis supplied.)
Being herself bereft of valid title and rights, Vargas can not legitimately
convey any to some other person. She could not have lawfully sold the
land to Angsico nor leased it to petitioner for her own account. It is
axiomatic that one can not transmit what one
770
does not have.52 It ought to follow that petitioner could not have acquired
any right or interest from Vargas.
Withal, all is not lost for the petitioner. He can still fully protect his rights in
Civil Case No. 98-0868 or the complaint for mandamus he filed before
Branch 231 of the Pasay City RTC. There, he can ventilate his side to a
fuller extent as that would be the more appropriate venue for elucidating
whatever legal basis he alleges in compelling the respondent to sell to him
the currently disputed land.
IV.
This brings us to petitioners final point. He briefly asserts that his act of
entering into a lease contract with the respondent should not affect his
right to redeem the subject property.
The possible legal implication of the lease on the petitioners act of trying
to redeem the disputed lot is a question which, in our opinion, can best be
resolved in the mandamus complaint. Whether the agreement must be
construed as a waiver on his part of exercising his purported right of

redemption is an issue best left for the court therein to decide. Whether by
acknowledging the legality of the respondents claim and title over the
land at the time of the execution of the contract, he likewise perpetually
barred himself from redeeming the same is a matter which can be
addressed most aptly in that pending action. Hence, there is presently no
need for us to squarely rule on this ultimate point.
On the opposite end of the spectrum is rehabilitation which connotes a

reopening or reorganization. Rehabilitation contemplates a continuance of
corporate life and activities in an effort to restore and reinstate the
corporation to its former position of successful operation and solvency.
(Philippine Veterans Bank Employees Union [N.U.B.E.] vs. Vega, 360 SCRA
33 [2001])
o0o
IN VIEW WHEREOF, finding no cogent reason to disturb the assailed

Decision, the instant petition is hereby DENIED.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Pardo and Ynares-Santiago, JJ., concur.
Kapunan, J., On official leave.
Petition denied.
_______________
52 See also Mathay v. CA, 295 SCRA 556 (1998), which held that [n]o one
can transfer a greater right to another than he himself has.
771

771
Office of the Court Administrator vs. Aragon
Notes.The outcome of the civil case for annulment of marriage has no
bearing upon the determination of the accuseds innocence or guilt in the
criminal case for bigamy, because all that is required for the charge of
bigamy to prosper is that the first marriage be subsisting at the time the
second marriage is contracted. (Te vs. Court of Appeals, 346 SCRA 327
[2000])
Liquidation, in corporation law, connotes a winding up or settling with
creditors and debtors. It is the winding up of a corporation so that assets
are distributed to those entitled to receive them. It is the process of
reducing assets to cash, discharging liabilities and dividing surplus or loss.
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Manalo vs.
Court of Appeals, 366 SCRA 752(2001)]
board or officer exercising judicial or quasi-judicial functions has acted

without or in excess of his jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, and there is no appeal, or
any plain, speedy, and adequate remedy in the ordinary course of the law,
a person aggrieved thereby may file a verified
_______________
* FIRST DIVISION.
355

355
Aguilar vs. Manila Banking Corporation
354
G.R. No. 157911. September 19, 2006.*
SPOUSES MANUEL A. AGUILAR and YOLANDA C. AGUILAR, petitioners, vs.
THE MANILA BANKING CORPORATION, respondent.
Actions; Certiorari; Motions for Reconsideration; The filing of a motion for
reconsideration is a condition sine qua non to the institution of a special
civil action for certiorari.Prefatorily, the Court notes that the petition for
certiorari before the CA should have been dismissed outright since
petitioners failed to file a motion for reconsideration from the RTC Omnibus
Order dated May 24, 2002. Section 1 of Rule 65 of the 1997 Rules of Civil
Procedure provides: SECTION 1. Petition for certiorari.When any tribunal,
petition in the proper court, alleging the facts with certainty and praying
that judgment be rendered annulling or modifying the proceedings of such
tribunal, board or officer, and granting such incidental reliefs as law and
justice may require. . . . (Emphasis supplied) The plain and adequate
remedy referred to in the rule is a motion for reconsideration of the
assailed decision or order. The purpose for this requirement is to grant an
opportunity for the court or agency to correct any actual or perceived error
attributed to it by the re-examination of the legal and factual
circumstances of the case without the intervention of a higher court. Thus,
the filing of a motion for reconsideration is a condition sine qua non to the
institution of a special civil action for certiorari.
Same; Same; Same; Exceptions.While jurisprudence has recognized
several exceptions to the rule, such as: (a) where the order is a patent
nullity, as where the court a quo has no jurisdiction; (b) where the
questions raised in the certiorari proceedings have been duly raised and
passed upon by the lower court, or are the same as those raised and
passed upon in the lower court; (c) where there is an urgent necessity for
the resolution of the question and any further delay would prejudice the
interests of the Government or of the petitioner or the subject matter of
the action is perishable; (d) where, under the circumstances, a motion for
reconsideration would be useless; (e) where petitioner was deprived of due
process and there is extreme urgency for relief; (f) where, in a criminal
case, relief from an order of arrest is urgent and the granting of such relief
by the trial court is improbable; (g) where the proceedings in the lower
court are a nullity for lack of due process; (h) where the proceedings was
ex parte or in which the petitioner had no opportunity to object; and (i)
where the issue raised is one purely of law or where public interest is
involved, none of these exceptions apply here.
Same; Same; Same; Certiorari cannot be resorted to as a shield from the
adverse consequences of petitioners own omission to file the required
motion for reconsideration.The petitioners not only failed to explain their
failure to file a motion for reconsideration before the RTC, they also failed
to show sufficient justification for dispensing with the requirement. A
motion for reconsideration is not only expected to be but would actually
have provided an adequate and more speedy remedy than the petition for
certiorari. Certiorari cannot be
356
dismissed their petition for review on certiorari for violation of the rule on
hierarchy of courts and for failure to show special and important reasons or
exceptional and compelling circumstances that justify a disregard of the
rule. This Courts Resolution became final and executory on January 16,
2001. Thus, petitioners are bound thereby. The question of prescription has
been settled with finality and may no longer be resurrected by petitioners.
It is not subject to review or reversal in any court, even this Court.
Same; Motions for Reconsideration; Res Judicata; Law of the case does not
have the finality of the doctrine of res judicata, and applies only to that one
case, whereas res judicata forecloses parties or privies in one case by what
has been done in another case.The CA failed to consider this principle of
law of the case, which is totally different from the concept of res judicata.
In Padillo v. Court of Appeals, 371 SCRA 27 (2001), the Court distinguished
the two as follows: x x x Law of the case does not have the finality of the
doctrine of res judicata, and applies only to that one case, whereas res
357
356
357
resorted to as a shield from the adverse consequences of petitioners own

omission to file the required motion for reconsideration.
Same; Same; Same; Words and Phrases; The principle of law of the case
means that whatever is once irrevocably established as the controlling
legal rule or decision between the same parties in the same case continues
to be the law of the case, whether correct on general principles or not, so
long as the facts on which such decision was predicated continue to be the
facts of the case before the court.Petitioners are barred from raising the
issue on the prescription of execution of the decision by mere motion
under the principle of the law of the case, which is the practice of courts
in refusing to reopen what has been decided. It means that whatever is
once irrevocably established as the controlling legal rule or decision
between the same parties in the same case continues to be the law of the
case, whether correct on general principles or not, so long as the facts on
which such decision was predicated continue to be the facts of the case
before the court. The law of the case on the issue of prescription of the
execution of the decision by mere motion or applicability of Section 6, Rule
39 of the Rules of Court has been settled in the Order dated March 20,
2000 of RTC Branch 165. Upon denial of petitioners motion for
reconsideration, they erroneously sought review with this Court which
judicata forecloses parties or privies in one case by what has been done in
another case. In the 1975 case of Comilang v. Court of Appeals (Fifth
Division.), a further distinction was made in this manner: The doctrine of
law of the case is akin to that of former adjudication, but is more limited in
its application. It relates entirely to questions of law, and is confined in its
operation to subsequent proceedings in the same case. The doctrine of res
judicata differs therefrom in that it is applicable to the conclusive
determination of issues of fact, although it may include questions of law,
and although it may apply to collateral proceedings in the same action or
general proceeding, it is generally concerned with the effect of an
adjudication in a wholly independent proceeding.
Same; Certiorari; Res Judicata; Res judicata or bar by prior judgment is a
doctrine which holds that a matter that has been adjudicated by a court of
competent jurisdiction must be deemed to have been finally and
conclusively settled if it arises in any subsequent litigation between the
same parties and for the same cause.To elucidate further, res judicata or
bar by prior judgment is a doctrine which holds that a matter that has been
adjudicated by a court of competent jurisdiction must be deemed to have
been finally and conclusively settled if it arises in any subsequent litigation

between the same parties and for the same cause. The four requisites for
res judicata to apply are: (a) the former judgment or order must be final;
(b) it must have been rendered by a court having jurisdiction over the
subject matter and the parties; (c) it must be a judgment or an order on
the merits; and (d) there must be, between the first and the second
actions, identity of parties, of subject matter and of cause of action. The
fourth requisite is wanting in the present case. There is only one case
involved. There is no second independent proceeding or subsequent
litigation between the parties. The present petition concerns subsequent
proceedings in the same case, with petitioners raising the same issue long
settled by a prior appeal.
Same; Forum Shopping; The principle of forum shopping should apply by
analogy to a case involving the principle of law of the case.On the matter
of forum shopping, while the Court has held that forum shopping exists
only where the elements of litis pendentia are present or where a final
judgment in one case will amount to res judicata in another, it must be
recalled that the doctrines of law of the case and res judicata are founded
on a public policy against re358
358
Motion with the same RTC Branch 165. However, they moved for the
inhibition of the presiding judge hearing the issue not only once, but twice,
both motions granted in their favor and the case was successively raffled
and assigned to two different branches of RTC Pasig, first to Branch 268
and then to Branch 167, which ruled against petitioners. Through the
motions for inhibition of the presiding judges and the assignment of the
case to different branches of the same court, petitioners sought to obtain
from one branch a ruling more favorable than the ruling of another branch.
They deliberately sought a friendly branch of the same court to grant them
the relief that they wanted, despite the finality of the resolution of one
branch on the matter. This is a permutation of forum shopping. It trifles
with the courts, abuses their processes, degrades the administration of
justice, and congests court dockets. Be it remembered that the grave evil
sought to be avoided by the rules against forum shopping is the rendition
by two competent tribunals of two separate, and contradictory decisions.
Unscrupulous party-litigants, taking advantage of a variety of competent
tribunals, may repeatedly try their luck in several different fora until a
favorable result is reached. This would make a complete mockery of the
judicial system.
Same; Pleadings and Practice; To consider an argument raised belatedly in
a pleading filed in the appellate court, especially in the executory stage of
the proceedings, would amount to trampling on the basic principles of fair
play, justice and due process.Petitioners are
359

opening that which has previously been decided. Both doctrines share the
policy consideration of putting an end to litigation. Thus, the principle of
forum shopping should apply by analogy to a case involving the principle
of law of the case.
359
Same; Same; The act of the petitioners of filing motions for inhibition of the
presiding judges and the assignment of the case to different branches of
the same court, seeking to obtain from one branch a ruling more favorable
than the ruling of another branch, deliberately seeking a friendly branch of
the same court to grant them the relief that they wanted, despite the
finality of the resolution of one branch on the matter, is a permutation of
forum shopping.Petitioners first raised before RTC Branch 165 the issue
of prescription of the execution of the decision by mere motion. Said RTC
Branch 165 ruled against petitioners and the courts order thereon became
final and executory. Petitioners raised the issue again in an Omnibus

barred from raising arguments concerning the inequity of the acceleration
clause of the Compromise Agreement since they only raised it for the first
time before the CA in their Petition for Certiorari in CA-G.R. SP No. 71849.
To consider the argument raised belatedly in a pleading filed in the
appellate court, especially in the executory stage of the proceedings,
would amount to trampling on the basic principles of fair play, justice and
due process.
Banks and Banking; Receivership; When a bank is placed under
receivership, it would only not be able to do new business, that is, to grant
new loans or to accept new deposits but the receiver is in fact obliged to
collect debts owing to the bank, which debts form part of the assets of the
bank.It would be absurd to adopt petitioners position that they are not
obliged to pay interest on their obligation when respondent was placed
under receivership. When a bank is placed under receivership, it would
only not be able to do new business, that is, to grant new loans or to
accept new deposits. However, the receiver of the bank is in fact obliged to
bank. Thus, petitioners obligation to pay interest subsists even when
respondent was placed under receivership. The respondents receivership
is an extraneous circumstance and has no effect on petitioners obligation.
Actions; Where a party did not pursue an issue after his motion was
denied, nor raise the same in his petition for review, he is deemed to have
abandoned his claim and he cannot be allowed to revive the issue as it is
offensive to basic rules of fair play, justice and due process.On the claim
of novation, petitioners raised it for the first time before RTC Branch 165 in
their Ex Parte Motion to Recall the Courts Order dated December 5, 1991
but they did not pursue the matter after their ex parte motion was denied.
They did not raise said issue in their motion for reconsideration or in their
first petition for review on certiorari with this Court in G.R. No. 144719.
Thus, they are deemed to have abandoned their claim of novation. They
cannot be allowed to revive the issue as it is offensive to basic rules of fair
play, justice and due process.
Novation; The established rule is that novation is never presumedit must
be clearly and unequivocally shown.The Court cannot see how novation
can take place considering that the surrounding circumstances negate the
same. The established rule is
360
360
Judgments; Due Process; Without a doubt, the present case is an instance

where the due process routine vigorously pursued by petitioners is but a
clear-cut devise meant to perpetually forestall execution of an otherwise
final and executory decision.Without a doubt, the present case is an
instance where the due process routine vigorously pursued by petitioners
is but a clear-cut devise meant to perpetually forestall execution of an
otherwise final and executory decision. Aside from clogging court dockets,
the strategy is deplorably a common course resorted to by losing litigants
in the hope of evading manifest obligations. The Court condemns this
outrageous abuse of the judicial process by the petitioners and their
counsels.
Same; It is an important fundamental principle in the judicial system that
every litigation must come to an endaccess to the courts is guaranteed
but there must be a limit thereto.It is an important fundamental principle
in the judicial system that every litigation must come to an end. Access to
the courts is guaranteed. But there must be a limit thereto. Once a
litigants rights have been adjudicated in a valid and final judgment of a
competent court, he should not be granted an unbridled license to come
back for another try. The prevailing party should not be harassed by
subsequent suits. For, if endless litigations were to be encouraged, then
unscrupulous litigants will multiply to the detriment of the administration
of justice.
Same; It is the duty of a counsel to advise his client, ordinarily a layman on
the intricacies and vagaries of the law, on the merit or lack of merit of his
casea lawyer must resist the whims and ca-prices of his client, and
temper his clients propensity to litigate.The Court reminds petitioners
counsel of the duty of lawyers who, as officers of the court, must see to it
that the orderly administration of justice must not be unduly impeded. It is
the duty of a counsel to advise his client, ordinarily a layman on the
intricacies and vagaries of the law, on the merit or lack of merit of his case.
If he finds that
361

that novation is never presumed; it must be clearly and unequivocally
shown. Novation will not be allowed unless it is clearly shown by express
agreement, or by acts of equal import. Thus, to effect an objective
novation it is imperative that the new obligation expressly declares that
the old obligation is thereby extinguished or that the new obligation be on
every point incompatible with the new one.

361
his clients cause is defenseless, then it is his bounden duty to advise the
latter to acquiesce and submit, rather than traverse the incontrovertible. A
lawyer must resist the whims and caprices of his client, and temper his
clients propensity to litigate. A lawyers oath to uphold the cause of justice
is superior to his duty to his client; its primacy is indisputable.
Same; Unjustified delay in the enforcement of a judgment sets at naught
the role of courts in disposing justiciable controversies with finality.Verily,
by the undue delay in the execution of a final judgment in their favor,
respondents have suffered an injustice. The Court views with disfavor the
unjustified delay in the enforcement of the final decision and orders in the
present case. Once a judgment becomes final and executory, the
prevailing party should not be denied the fruits of his victory by some
subterfuge devised by the losing party. Unjustified delay in the
enforcement of a judgment sets at naught the role of courts in disposing
justiciable controversies with finality.
of Appeals.

Tabaquero, Villafane, Albano & Associates for petitioner.
Puyat, Jacinto & Santos for respondent.
The sad and lamentable spectacle that this case presents, that is, the
execution of a final and executory decision forestalled by perpetual dilatory
tactics employed by a litigant, makes a blatant mockery of justice. The
Court cannot countenance, and in fact, condemns, the outrageous abuse of
the judicial process by Spouses Manuel A. Aguilar and Yolanda C. Aguilar
(petitioners) and their counsel.
Before the Court is a Petition for Review on Certiorari under Rule 45 of the
1997 Rules of Civil Procedure assailing the
362

Decision1 dated October 29, 2002 of the Court of Appeals (CA) in CA-G.R.
SP No. 71849 which dismissed petitioners Petition for Certiorari, and the
CA Resolution2 dated April 29, 2003 which denied petitioners Motion for
Reconsideration.
The procedural antecedents and factual background of the case are as
follows:
Sometime in 1979, petitioners obtained a P600,000.00 loan from the
Manila Banking Corporation (respondent), secured by a real estate
mortgage over their 419-square meter property located at No. 8 Pia St.,
Valle Verde, Pasig City, covered by Transfer Certificate of Title (TCT) No.
11082. When petitioners failed to pay their obligation, the mortgaged
property was extra-judicially foreclosed. Respondent was the winning
bidder at public auction sale on May 20, 1982. Consequently, a Certificate
of Sale was issued in its favor on June 23, 1982.
Subsequently, on May 30, 1983, instead of redeeming the property,
petitioners filed a complaint for annulment of the foreclosure sale of the
property before the Regional Trial Court, Branch 165, Pasig City (RTC
Branch 165), docketed as Civil Case No. 49793. While the case was
pending, the parties entered into a compromise agreement.3
Under the Compromise Agreement dated January 23, 1987, the petitioners
admitted the validity of the extra-judicial foreclosure and agreed to
purchase the property from respondent for P2,548,000.00. Parties agreed
that the amount of P100,000.00 shall be payable upon execution of the
agreement and the balance of P2,448,000.00, which shall earn twenty-six
percent (26%) interest per annum, shall be payable in eighteen
installments from February 23, 1987 to July 27, 1988. They further agreed
that in case of default: (a) all out_______________
1 Penned by Associate Justice Eugenio S. Labitoria (now retired) and

concurred in by Associate Justices Renato C. Dacudao and Danilo B. Pine
(now retired), CA Rollo, p. 495.
2 CA Rollo, p. 618.
362
3 Id., at p. 44.
363
5 Id., at p. 49.
6 Id., at p. 52.
7 Id., at p. 53.
363
8 Id.
364
standing installments and/or interest thereon shall be immediately due; (b)

petitioners shall immediately vacate the property and deliver possession
thereof to respondent; (c) respondent shall be entitled to register all
documents needed to transfer title over the property in their favor; and, (d)
respondent shall be entitled to ask for the execution of the judgment or an
ancillary remedy necessary to place it in possession of the property. On
January 30, 1987, RTC Branch 165 adopted and approved the Compromise
Agreement.4
Petitioners failed to pay the balance of P2,448,000.00 within the eighteeninstallment period from February 23, 1987 to July 27, 1988. A year and
three months later, or on October 20, 1989, respondent filed a Motion for
Issuance of Writ of Execution to enforce the Decision dated January 30,
1987.5
On November 28, 1989, RTC Branch 165 issued an Order granting the
motion and issuing a writ of execution: (a) directing petitioners to
immediately vacate the property and surrender possession to the
respondent; (b) directing the Register of Deeds of Metro Manila, District II
to register any and all documents needed to transfer title over the property
to respondent and to issue a new certificate of title respondents favor free
from any liens, adverse claims and/or encumbrances; (c) issuing a writ of
possession in respondents favor to place it in possession of the property.6
However, on January 22, 1990, petitioners filed a Manifestation praying for
deferment of the enforcement of the writ of execution until July 31, 1990
because petitioners have a pending proposal for the settlement of their
judgment debt.7 The manifestation was with the conformity of
respondents.8 On
_______________
4 Id., at p. 40.
364
January 24, 1990, RTC Branch 165 issued an Order granting the motion and
holding in abeyance the enforcement of the writ of execution until July 31,
1990.9 However, no settlement was reached by the parties during the
period.
One year and four months later, petitioners still failed to settle their
judgment debt. Consequently, respondent filed on December 2, 1991 a
Manifestation reiterating its motion for the issuance of a writ of
execution.10 On December 5, 1991, RTC Branch 165 issued an Order
granting the manifestation and directing the issuance of a writ of execution
to enforce the Decision dated January 30, 1987.11
To evade the implementation of the writ, petitioners filed on December 20,
1991 an Ex Parte Motion to Recall the Courts Order dated December 5,
1991 claiming that their obligation was novated by the Letter dated June 7,
1991 from respondents Statutory Receiver.12 In said letter, respondents
Statutory Receiver approved the purchase of the property on installment
basis over a three-year period at an interest rate of twelve per cent (12%)
with P481,265.00 due on September 30, 1991, P481,265.00 due on
September 30, 1992, and P724,064.79 due on September 30, 1993.13
On December 2, 1992, respondent filed a Manifestation and Motion for
Issuance of Alias Writ of Execution manifesting that the Letter dated June
7, 1991 did not novate the Decision dated January 30, 1987 but was a
mere accommodation of the petitioners request for a liberal mode of
payment of their account and petitioners still failed to comply with such
approved mode of payment.14
_______________
10 Id., at p. 56.
several extensions of time to pay their account, filed dilatory motions and
pleadings and it would be a blatant injustice to allow them to profit from
the delays they deliberately caused to escape completely and absolutely
the satisfaction of their admitted and confessed obligation by sheer literal
adherence to technicality.18
11 Id., at p. 58.
_______________
9 Id., at p. 55.
12 Id., at p. 59.
13 Id., at p. 61.
15 Id., at p. 246.
14 Id., at p. 240.
16 Id., at p. 62.
365
17 Id., at p. 72.
18 Id., at p. 68.
366
365
366
On December 14, 1992, petitioners filed their Comment and Manifestation

praying for a humanitarian and liberal judicial dispensation since that they
have been paying their obligations to respondent despite delay due to
financial restraints for family subsistence and their childrens educational
expenses.15
On February 1, 2000, respondent filed an Urgent Ex Parte Manifestation

praying for resolution of the pending incidents.16 On March 3, 2000,
petitioners filed their Opposition claiming that Section 6, Rule 39 of the
Rules of Court bars execution, by mere motions, of judgment which is more
than five years old. On March 14, 2000, respondent filed its Reply stating
that the peculiar circumstances of the case warrant its exclusion from the
scope of said Rule.
On March 20, 2000, RTC Branch 165 issued its Order which resolved the
pending motions with the Court. With respect to petitioners ex parte
motion to recall, the Court said that for failure to comply with Sections 4, 5
and 6 of Rule 15 of the Revised Rules of Court and considering the nature
of petitioners motion, it treated petitioners motion as a mere scrap of
paper.17 As to respondents motion for issuance of a writ of execution, it
granted the same, holding that Section 6, Rule 39 of the Rules of Court
does not apply since the delay in the execution of the judgment was due to
petitioners who made several alternative payment proposals, requested

On March 30, 2000, petitioners filed their Motion for Reconsideration19 but
RTC Branch 165 denied it in its Order dated May 30, 2000.20
On June 20, 2000, petitioners filed a Notice of Appeal21 but RTC Branch
165 denied it in its Order dated August 21, 2000 on the ground that an
order of execution is not appealable.22
Thereafter, petitioners filed a six-page Petition for Review on Certiorari with
this Court, docketed as G.R. No. 144719, reiterating that the Decision
dated January 30, 1987 can no longer be executed on mere motion since it
is more than five years old. 23
In a Resolution dated October 11, 2000, the First Division of this Court
denied the petition for violation of the rule on hierarchy of courts and
failure to show special and important reasons or exceptional and
compelling circumstances that justify a disregard of the rule.24 Petitioners
filed a Motion for Reconsideration but the Court denied it with finality in its
Resolution dated December 11, 2000.25
Since the Resolution in G.R. No. 144719 became final and executory on
January 16, 2001, RTC Branch 165 issued a writ of execution on February
19, 2001 to enforce the Decision dated January 30, 1987.26 On February
23, 2001, the Sheriff issued a Notice for Compliance of the said writ.27
Undaunted by their previous setbacks, petitioners filed on March 6, 2001 in
RTC Branch 165 an Omnibus Motion to
_______________
19 Id., at p. 99.
20 Id., at p. 102.
21 Id., at p. 104.
Defendant29 based on Section 10, Rule 39 of the 1997 Rules of Civil

Procedure. On March 19, 2001, respondent filed its Opposition (to
petitioners Omnibus Motion) and Motion to Cite Plaintiffs in Contempt
claiming that the Omnibus Motion is nothing but petitioners desperate
attempt to thwart or delay the payment of their obligations and they
should be declared guilty of indirect contempt for their improper conduct
calculated to impede, obstruct and degrade the administration of
justice.30
On May 2, 2001, petitioners filed an Urgent Motion for Inhibition.31 While
RTC Branch 165 Presiding Judge Marietta A. Legaspi denied the motion for
inhibition in her Order dated June 5, 2001, she voluntarily inhibited herself
from further participating in the case to show that she has no interest
therein.32 Respondent filed a Motion for Partial Reconsideration33 to no
avail.34 The case was re-raffled and was assigned to Branch 268 presided
by Judge Amelia C. Manalastas.
23 Entitled, Manuel Aguilar and Yolanda Aguilar v. The Manila Banking

Corporation, Annex J of the Comment, Id., at p. 262.
On September 17, 2001 and January 4, 2002, respondent filed two Motions
to Resolve Pending Incidents.35 Despite the fact that Judge Manalastas has
not actively participated in the case since she has not acted on the
pending incidents,
24 CA Rollo, p. 106.
_______________
22 Id., at p. 105.
25 Id., at p. 107.
26 Id., at p. 77.
28 Id., at p. 82.
27 Id., at p. 79.
29 Id., at p. 359.
367
30 Id., at p. 108.
31 Id., at p. 134.
32 Id., at p. 136.
367
33 Id., at p. 140.
34 Id., at p. 148.
quash the Writ of Execution insisting anew on their novation and

prescription theories.28 They also moved for consignation of the amount of
their obligation under the Letter dated June 7, 1991 of respondents
Statutory Receiver.
35 Id., at pp. 154 and 164.
On March 14, 2001, respondent filed an Ex Parte Motion for Order to Divest
Plaintiffs Title and to Direct the Register of Deeds to Transfer Title to
368
368
41 Id., at p. 426.
369
petitioners filed on February 5, 2002 a Motion for Inhibition.36 A day later,

on February 6, 2002, Judge Manalastas granted the motion for inhibition.37
Thus, the case was again re-raffled and was assigned to Branch 167
presided by Judge Jesus G. Bersamira. On February 13, 2002, respondent
filed again a Motion to Resolve Pending Incidents.38
On March 22 and 26, 2002, both parties filed separate Urgent Motions to
Resolve the case.39 Subsequently, petitioners filed a Manifestation and
Motion that the Letter dated June 7, 1991 be marked as their exhibit.40
RTC Branch 167 in its Order dated April 30, 2002 admitted the exhibit over
the objections of respondent.41
On May 24, 2002, RTC Branch 167 rendered its Omnibus Order denying the
Omnibus Motion to quash the writ of execution and for consignation, as
well as the motion to cite petitioners in contempt and the ex parte motion
for an order to divest petitioners title to respondent. It held that there was
no novation because there was no incompatibility between the Letter
dated June 7, 1991 and the Decision dated January 30, 1987 with the
former only providing for a more liberal scheme of payment and grant of
reduced interest; that petitioners claim that respondents receivership and
the Letter dated June 7, 1991 are supervening events which rendered the
execution unjust and impossible is unavailing since there is nothing on
record to indicate that such circumstances resulted in unfairness and
injustice to petitioners if execution of judgment is carried out; that
petitioners claim that the judgment could no longer be executed by mere
motion after the five-year period had elapsed from its finality is specious
since any interruption or delay occasioned by petitioners will ex-
369
tend the time within which the judgment may be executed by motion.42
No motion for reconsideration was filed by the petitioners. Accordingly, RTC
Branch 167 issued a Writ of Execution on July 4, 2002.43 On July 23, 2002,
the Sheriff issued the Notice for Compliance of the said writ.44
Petitioners filed on July 26, 2002 a petition for certiorari with the CA,
docketed as CA-G.R. SP No. 71849.45 They reiterated that the Decision
dated January 30, 1987 cannot be executed by mere motion filed on
February 1, 2000 since more than five years have elapsed.
On October 29, 2002, the CA denied the petition for certiorari.46 It held
that since the delays were occasioned by petitioners own initiative and for
their own advantage, the five-year period allowed for the enforcement of
the judgment by motion have been interrupted or suspended.
On November 13, 2002, petitioners filed a Motion for Reconsideration47
but the CA denied it in its Resolution dated April 29, 2003.48
Hence, the present petition anchored on the following grounds:
36 Id., at p. 168.
1. THE HONORABLE COURT OF APPEALS ERRED IN NOT RECOGNIZING THAT

PRESCRIPTION HAS SET IN IN THIS CASE CONSIDERING THAT MORE THAN
FIVE (5) YEARS, NAY, MORE THAN TEN (10) YEARS, HAD ELAPSED SINCE
THE DECISION BASED ON COMPROMISE AGREEMENT BECAME FINAL AND
EXECUTORY.
37 Id., at p. 170.
_______________
_______________
38 Id., at p. 400.
39 Id., at pp. 171 and 175.
42 Id., at p. 32.
40 Id., at p. 424.
43 Id., at p. 35.
44 Id., at p. 39.
45 Id., at p. 2.
46 Supra note 1.
47 Id., at p. 507.
receivership is relieved of its obligation to pay interest on the deposits of

its depositors, they (petitioners) are also not obliged to pay interest on a
loan due it and interest shall commence again only after respondents
resumption of banking operations.
_______________
48 Supra note 2.
370
49 Rollo, pp. 16-17.

371
370
EVENTS AND CIRCUMSTANCES IN THIS CASE HAVE TRANSPIRED AFTER THE
DECISION HAD BECOME FINAL AND EXECUTORY THAT WARRANTS AND
CALLS FOR STAY OR PRECLUSION OF EXECUTION, CONSIDERING THAT THE
LETTER-APPROVAL OF THE STATUTORY RECEIVER OF RESPONDENT
PARTAKES OF AN EXCEPTION TO THE GENERAL RULE WHICH HAS BEEN
CONSISTENTLY UPHELD BY THIS HONORABLE SUPREME COURT.
THE LETTER APPROVAL OF THE STATUTORY RECEIVER NOVATED THE
COMPROMISE AGREEMENT AND DECISION BASED ON COMPROMISE
AGREEMENT.
THE EQUITIES OF THE CASE FAVOR HEREIN PETITIONERS.49
Anent the first ground, petitioners reiterate that under Section 6 of Rule 39,
Rules of Court, the execution of the judgment by mere motion was barred
by prescription, given that more than five years had lapsed since the
Decision dated January 30, 1987 became final and executory and they
cannot be faulted for the delay as they have done nothing that warrants
the conclusion that they employed unscrupulous machinations and dilatory
tactics.
As to the second ground, petitioners argue that respondents receivership
is a supervening event that rendered execution of the Decision dated
January 30, 1987 impossible, if not unjust; that since a bank under

371
On the third ground, petitioners maintain that the Letter dated June 7,
1991 of respondents Statutory Receiver novated the Decision dated
January 30, 1987 considering the substantial differences in their principal
terms and conditions.
On the fourth ground, petitioners aver that the acceleration clause
provision of the Compromise Agreement is iniquitous and void for being
violative of morals and public policy.
In their Comment, respondent contends that the present petition should be
dismissed outright because it is barred by res judicata or the final
judgment of this Court in G.R. No. 144719 and petitioners engaged in
forum-shopping by deliberately failing to state that they previously filed
G.R. No. 144719 where the issue of prescription was raised. Even if the
petition is given due course, respondent argues that execution of the
Decision dated January 30, 1987 is not barred by prescription; that
respondents receivership and the Letter dated June 7, 1991 of
respondents Statutory Receiver are not circumstances that would render
the execution of the judgment unjust, inequitable or even merit a stay of
execution; that the Letter dated June 7, 1991 of respondents Statutory
Receiver did not novate the Decision dated January 30, 1987 since there
was no intent to novate petitioners judgment obligation.50
In Reply, petitioners argue that res judicata is not applicable since the
minute Resolution of the Court in G.R. No. 144719: (a) does not operate as
adjudication on the merits, (b) was not rendered with jurisdiction over the
parties; and (c) involved different subject matters and causes of action.51
In the Resolution dated May 15, 2003, upon motion of petitioner, the Court
directed the parties to maintain the status quo until further orders from
this Court.52
any actual or perceived error attributed to it by the re-examination of the

legal and factual circumstances of the case53 without the intervention of a
higher court.54 Thus, the filing of a motion for reconsideration is a
condition sine qua non to the institution of a special civil action for
certiorari.
_______________
_______________
50 Id., at p. 173.
53 Estate of Salvador Serra Serra v. Heirs of Primitivo Hernaez, G.R. No.

142913, August 9, 2005, 466 SCRA 120, 127; Interorient Maritime
Enterprises, Inc. v. National Labor Relations Commission, 330 Phil. 493,
503; 261 SCRA 757, 765 (1996).
51 Id., at p. 648.
52 Id., at p. 163.
372
372
54 S/G Luna v. National Labor Relations Commission, 336 Phil. 963, 969;
270 SCRA 227, 233 (1997); Villarama v. National Labor Relations
Commission, G.R. No. 106341, September 2, 1994, 236 SCRA 280, 287.
373

The petition is bereft of merit.
Prefatorily, the Court notes that the petition for certiorari before the CA
should have been dismissed outright since petitioners failed to file a
motion for reconsideration from the RTC Omnibus Order dated May 24,
2002. Section 1 of Rule 65 of the 1997 Rules of Civil Procedure provides:
SECTION 1. Petition for certiorari.When any tribunal, board or officer
exercising judicial or quasi-judicial functions has acted without or in excess
of his jurisdiction, or with grave abuse of discretion amounting to lack of or
excess of jurisdiction, and there is no appeal, or any plain, speedy, and
adequate remedy in the ordinary course of the law, a person aggrieved
thereby may file a verified petition in the proper court, alleging the facts
with certainty and praying that judgment be rendered annulling or
modifying the proceedings of such tribunal, board or officer, and granting
such incidental reliefs as law and justice may require . . . . (Emphasis
supplied)
The plain and adequate remedy referred to in the rule is a motion for
reconsideration of the assailed decision or order. The purpose for this
requirement is to grant an opportunity for the court or agency to correct

373
While jurisprudence has recognized several exceptions to the rule, such as:
(a) where the order is a patent nullity, as where the court a quo has no
jurisdiction; (b) where the questions raised in the certiorari proceedings
have been duly raised and passed upon by the lower court, or are the
same as those raised and passed upon in the lower court; (c) where there
is an urgent necessity for the resolution of the question and any further
delay would prejudice the interests of the Government or of the petitioner
or the subject matter of the action is perishable; (d) where, under the
circumstances, a motion for reconsideration would be useless; (e) where
petitioner was deprived of due process and there is extreme urgency for
relief; (f) where, in a criminal case, relief from an order of arrest is urgent
and the granting of such relief by the trial court is improbable; (g) where
the proceedings in the lower court are a nullity for lack of due process; (h)
where the proceedings was ex parte or in which the petitioner had no
opportunity to object; and (i) where the issue raised is one purely of law or
where public interest is involved,55 none of these exceptions apply here.
In the present case, the petitioners not only failed to explain their failure to
file a motion for reconsideration before the RTC, they also failed to show
sufficient justification for dispensing with the requirement. A motion for
reconsideration is not only expected to be but would actually have
provided an adequate and more speedy remedy than the petition for
certiorari.56 Certiorari cannot be resorted to as a shield
_______________
55 Tan, Jr. v. Sandiganbayan, 354 Phil. 463, 469-470; 292 SCRA 452, 457
(1998); Tan v. Court of Appeals, 341 Phil. 570, 576-578; 275 SCRA 568,
574-575 (1997).
56 Alcosero v. National Labor Relations Commission, 351 Phil. 368, 378;
288 SCRA 129, 137 (1998); Plaza v. Hon. Mencias and Filipinas Motor
Services, Inc., 116 Phil. 875, 879; 6 SCRA 562 (1962).
374
of Court has been settled in the Order dated March 20, 2000 of RTC Branch
165. Upon denial of petitioners motion for reconsideration, they
erroneously sought review with this Court which dismissed their petition for
review on certiorari for violation of the rule on hierarchy of courts and for
failure to show special and important reasons or exceptional and
compelling circumstances that justify a disregard of the rule.59 This
Courts Resolution became final and executory on January 16, 2001. Thus,
petitioners are bound thereby. The question of prescription has been
settled with finality and may no longer be resurrected
_______________
57 Seagull Shipmanagement and Transport, Inc. v. National Labor Relations

Commission, 388 Phil. 906, 912; 333 SCRA 236, 241 (2000); Alcosero v.
National Labor Relations Commission, supra.
58 Padillo v. Court of Appeals, 422 Phil. 334, 351; 371 SCRA 27, 41 (2001).
59 Supra note 24.
374
375

from the adverse consequences of petitioners own omission to file the
required motion for reconsideration.57
In any case, even if petitioners procedural faux pas is ignored, their
contentions on the substantive aspect of the case fail to invite judgment in
their favor.
Petitioners are barred from raising the issue on the prescription of
execution of the decision by mere motion under the principle of the law of
the case, which is the practice of courts in refusing to reopen what has
been decided. It means that whatever is once irrevocably established as
the controlling legal rule or decision between the same parties in the same
case continues to be the law of the case, whether correct on general
principles or not, so long as the facts on which such decision was
predicated continue to be the facts of the case before the court.58
The law of the case on the issue of prescription of the execution of the
decision by mere motion or applicability of Section 6, Rule 39 of the Rules

375
by petitioners. It is not subject to review or reversal in any court, even this
Court.
The CA failed to consider this principle of law of the case, which is totally
different from the concept of res judicata. In Padillo v. Court of Appeals,60
the Court distinguished the two as follows:
x x x Law of the case does not have the finality of the doctrine of res
judicata, and applies only to that one case, whereas res judicata forecloses
parties or privies in one case by what has been done in another case. In
the 1975 case of Comilang v. Court of Appeals (Fifth Division.), a further
distinction was made in this manner:
The doctrine of law of the case is akin to that of former adjudication, but is
more limited in its application. It relates entirely to questions of law, and is
confined in its operation to subsequent proceedings in the same case. The

doctrine of res judicata differs therefrom in that it is applicable to the
conclusive determination of issues of fact, although it may include
questions of law, and although it may apply to collateral proceedings in the
same action or general proceeding, it is generally concerned with the
effect of an adjudication in a wholly independent proceeding.61
To elucidate further, res judicata or bar by prior judgment is a doctrine
which holds that a matter that has been adjudicated by a court of
competent jurisdiction must be deemed to have been finally and
conclusively settled if it arises in any subsequent litigation between the
same parties and for the same cause.62 The four requisites for res judicata
to apply are: (a) the former judgment or order must be final; (b) it must
have been rendered by a court having jurisdiction over the
_______________
60 Supra note 58.
On the matter of forum shopping, while the Court has held that forum
shopping exists only where the elements of litis pendentia are present or
where a final judgment in one case will amount to res judicata in
another,64 it must be recalled that the doctrines of law of the case and res
judicata are founded on a public policy against reopening that which has
previously been decided.65 Both doctrines share the policy consideration
of putting an end to litigation.66 Thus, the principle of forum shopping
should apply by analogy to a case involving the principle of law of the
case.
Moreover, although forum shopping exists when, as a result of an adverse
opinion in one forum, a party seeks a favorable opinion, other than by
appeal or certiorari, in another, or when a party institutes two or more suits
in different courts, either simultaneously or successively, in order to ask
the courts to rule on the same or related causes and/or to grant the same
or substantially the same reliefs on the supposition that one or the other
court would make a favorable disposition or increase a partys chances of
obtaining a
_______________
61 Id., at p. 352; pp. 42-43.

62 Equitable Philippine Commercial International Bank v. Court of Appeals,
G.R. No. 143556, March 16, 2004, 425 SCRA 544, 553; Development Bank
of the Philippines v. Court of Appeals, G.R. No. 110203, May 9, 2001, 357
SCRA 626, 632.
63 De la Cruz v. Joaquin, G.R. No. 162788, July 28, 2005, 464 SCRA 576,
589; Bardillon v. Barangay Masili of Calamba, Laguna, 450 Phil. 521, 529;
402 SCRA 440, 446 (2003).
376
64 De la Cruz v. Joaquin, supra; Tolentino v. Natanauan, G.R. No. 135441,

November 20, 2003, 416 SCRA 273, 282.
376
subject matter and the parties; (c) it must be a judgment or an order on
the merits; and (d) there must be, between the first and the second
actions, identity of parties, of subject matter and of cause of action.63 The
fourth requisite is wanting in the present case. There is only one case
involved. There is no second independent proceeding or subsequent
litigation between the parties. The present petition concerns subsequent
proceedings in the same case, with petitioners raising the same issue long
settled by a prior appeal.
65 46 Am Jur 2d, Judgments, 520, citing Rail N Ranch Corp. v. State, 7

Ariz. App. 558, 441 P2d 786.
66 Id.
377

377
favorable decision or action,67 the peculiar circumstances attendant in this
case bate out a situation akin to forum shoppingthere is only one court
involved, RTC Pasig City, but the issue of prescription was ultimately
resolved by two different branches thereofBranches 165 and 167.
Petitioners first raised before RTC Branch 165 the issue of prescription of
the execution of the decision by mere motion. Said RTC Branch 165 ruled
against petitioners and the courts order thereon became final and
executory. Petitioners raised the issue again in an Omnibus Motion with the
same RTC Branch 165. However, they moved for the inhibition of the
presiding judge hearing the issue not only once, but twice, both motions
granted in their favor and the case was successively raffled and assigned
to two different branches of RTC Pasig, first to Branch 268 and then to
Branch 167, which ruled against petitioners.
Through the motions for inhibition of the presiding judges and the
assignment of the case to different branches of the same court, petitioners
sought to obtain from one branch a ruling more favorable than the ruling of
another branch. They deliberately sought a friendly branch of the same
court to grant them the relief that they wanted, despite the finality of the
resolution of one branch on the matter. This is a permutation of forum
shopping. It trifles with the courts, abuses their processes, degrades the
administration of justice, and congests court dockets.68
Be it remembered that the grave evil sought to be avoided by the rules
against forum shopping is the rendition by two competent tribunals of two
separate, and contradictory decisions. Unscrupulous party-litigants, taking
advantage of a
_______________
67 Villaluz v. Ligon, G.R. No. 143721, August 31, 2005, 468 SCRA 486, 499;
Top Rate Construction & Gen. Services, Inc. v. Paxton Development
Corporation, 457 Phil. 740, 748; 410 SCRA 604, 605-606 (2003).
variety of competent tribunals, may repeatedly try their luck in several

different fora until a favorable result is reached. This would make a
complete mockery of the judicial system.69
As to petitioners arguments on the inequity of the acceleration clause of
the Compromise Agreement, respondents receivership as a supervening
event, and novation of the Compromise Agreement by the Letter dated
June 7, 1991, the Court holds that these were raised as mere afterthought.
If petitioners sincerely believed in the merits of their arguments, they
should have raised them at the earliest opportunity and pursued their
ultimate resolution. However, petitioners did not.
Petitioners are barred from raising arguments concerning the inequity of
the acceleration clause of the Compromise Agreement since they only
raised it for the first time before the CA in their Petition for Certiorari70 in
CA-G.R. SP No. 71849. To consider the argument raised belatedly in a
pleading filed in the appellate court, especially in the executory stage of
the proceedings, would amount to trampling on the basic principles of fair
play, justice and due process.
In addition, after adopting and agreeing to the terms and conditions of the
Compromise Agreement, petitioners cannot be permitted to subsequently
make a complete volte face and attack the validity of the said agreement
when they miserably failed to comply with its provisions. Our law and
policy do not sanction such a somersault. Whats more, petitioners also
failed to comply with the reduced purchase amount and interest rate
granted in the Letter dated June 7, 1991. They can hardly evoke judicial
compassion.
On the arguments relating to the effect of respondents receivership,
petitioners brought this matter for the first time
_______________
68 Villaluz v. Ligon, supra note 67.

378
378
69 Guaranteed Hotels, Inc. v. Baltao, G.R. No. 164338, January 17, 2005,
448 SCRA 738, 746; TF Ventures, Inc. v. Matsuura, G.R. No. 154177, June 9,
2004, 431 SCRA 526, 531.
70 Supra note 45.
379

379
73 Garcia v. Llamas, G.R. No. 154127, December 8, 2003, 417 SCRA 292,
294; Agro Conglomerates, Inc. v. Court of Appeals, 401 Phil. 644, 656; 348
SCRA 450, 459 (2000).
380
in RTC Branch 165 in their Omnibus Motion dated March 5, 2001, fourteen
years after respondent was placed under receivership and was ordered to
close operation in 1987. The belated invocation of such circumstance
speaks strongly of the staleness of their claim.
Besides, it would be absurd to adopt petitioners position that they are not
obliged to pay interest on their obligation when respondent was placed
under receivership. When a bank is placed under receivership, it would
only not be able to do new business, that is, to grant new loans or to
accept new deposits. However, the receiver of the bank is in fact obliged to
bank.71 Thus, petitioners obligation to pay interest subsists even when
respondent was placed under receivership. The respondents receivership
is an extraneous circumstance and has no effect on petitioners obligation.
On the claim of novation, petitioners raised it for the first time before RTC
Branch 165 in their Ex Parte Motion to Recall the Courts Order dated
December 5, 199172 but they did not pursue the matter after their ex
parte motion was denied. They did not raise said issue in their motion for
reconsideration or in their first petition for review on certiorari with this
Court in G.R. No. 144719. Thus, they are deemed to have abandoned their
claim of novation. They cannot be allowed to revive the issue as it is
offensive to basic rules of fair play, justice and due process.
Moreover, the Court cannot see how novation can take place considering
that the surrounding circumstances negate the same. The established rule
is that novation is never presumed; it must be clearly and unequivocally
shown.73 Nova_______________
71 Provident Savings Bank v. Court of Appeals, G.R. No. 97218, May 17,
1993, 222 SCRA 125, 131-132.
72 Supra note 12.
380
tion will not be allowed unless it is clearly shown by express agreement, or
by acts of equal import. Thus, to effect an objective novation it is
imperative that the new obligation expressly declares that the old
obligation is thereby extinguished or that the new obligation be on every
point incompatible with the new one.74
In the present case, there is no clear intent of the parties to make the
Letter dated June 7, 1991 completely supersede and abolish the
Compromise Agreement adopted and approved by the RTC in its Decision
dated January 30, 1987. Petitioners were merely granted a more liberal
scheme of payment and reduced rate of interest but the conditions relating
to the consequences of default in payment remained, such that when
petitioners failed to comply with the approved mode of payment in the
Letter dated June 7, 1991, respondents were entitled to call for
enforcement of the Decision dated January 30, 1987 and eject petitioners
from the property. The well-settled rule is that, with respect to obligations
to pay a sum of money, the obligation is not novated by an instrument that
expressly recognizes the old, changes only the terms of payment, adds
other obligations not incompatible with the old ones, or the new contract
merely supplements the old one.75 Hence, there is no merit to petitioners
claim of novation.
Without a doubt, the present case is an instance where the due process
routine vigorously pursued by petitioners is but a clear-cut devise meant to
perpetually forestall execution of an otherwise final and executory
decision. Aside from clogging court dockets, the strategy is deplorably a
common course resorted to by losing litigants in the hope of evading
manifest
_______________
74 CIVIL CODE, Art. 1292; Ajax Marketing & Development Corporation v.

Court of Appeals, G.R. No. 118585, September 14, 1995, 248 SCRA 222,
227.
75 Spouses Reyes v. BPI Family Savings Bank, Inc., G.R. Nos. 149840-41,
March 31, 2006, 486 SCRA 276; Garcia, Jr. v. Court of Appeals, G.R. No. L80201, November 20, 1990, 191 SCRA 493, 502.
381
There should be a greater awareness on the part of litigants and counsels

that the time of the judiciary, much more so of this Court, is too valuable to
be wasted or frittered away by efforts, far from commendable, to evade
the operation of a decision final and executory, especially so, where, as
shown in the present case, the clear and manifest absence of any right
calling for vindication, is quite obvious and indisputable.
_______________
76 Ferinion v. Sta. Romana, 123 Phil. 191, 195; 16 SCRA 370, 374-375
(1966).
381
77 Perez v. Lantin, 133 Phil. 219, 226; 24 SCRA 291, 298 (1968).
382
obligations. The Court condemns this outrageous abuse of the judicial

process by the petitioners and their counsels.
It is an important fundamental principle in the judicial system that every
litigation must come to an end. Access to the courts is guaranteed. But
there must be a limit thereto. Once a litigants rights have been
adjudicated in a valid and final judgment of a competent court, he should
not be granted an unbridled license to come back for another try. The
prevailing party should not be harassed by subsequent suits. For, if endless
litigations were to be encouraged, then unscrupulous litigants will multiply
to the detriment of the administration of justice.76
The Court reminds petitioners counsel of the duty of lawyers who, as
officers of the court, must see to it that the orderly administration of justice
must not be unduly impeded. It is the duty of a counsel to advise his client,
ordinarily a layman on the intricacies and vagaries of the law, on the merit
or lack of merit of his case. If he finds that his clients cause is defenseless,
then it is his bounden duty to advise the latter to acquiesce and submit,
rather than traverse the incontrovertible. A lawyer must resist the whims
and caprices of his client, and temper his clients propensity to litigate. A
lawyers oath to uphold the cause of justice is superior to his duty to his
client; its primacy is indisputable.77
382
Verily, by the undue delay in the execution of a final judgment in their
favor, respondents have suffered an injustice. The Court views with
disfavor the unjustified delay in the enforcement of the final decision and
orders in the present case. Once a judgment becomes final and executory,
the prevailing party should not be denied the fruits of his victory by some
subterfuge devised by the losing party.78 Unjustified delay in the
enforcement of a judgment sets at naught the role of courts in disposing
justiciable controversies with finality.
WHEREFORE, the present petition is DENIED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. SP No. 71849 are AFFIRMED.
The status quo order issued by this Court on May 15, 2003 is LIFTED. The
Regional Trial Court, Branch 167, Pasig City, is directed to issue the
corresponding writ of execution and the Sheriff of the court is ordered to
enforce the same to its ultimate conclusion. Triple costs against petitioners.
SO ORDERED.
Panganiban (C.J., Chairperson), Ynares-Santiago, Callejo, Sr. and ChicoNazario, JJ., concur.
Petition denied, assailed decision and resolution affirmed.

Notes.Novation is never presumed, and the animus novandi, whether
totally or partially, must appear by express agreement of the parties, or by
their acts that are too clear and unmistakable. In order to change the
person of the debtor, the old one must be expressly released from the
obligation, and the third person or new debtor must assume the
VOL. 222, MAY 17, 1993
_______________
Provident Savings Bank vs. Court of Appeals
125
G.R. No. 97218. May 17, 1993.*

78 Natalia Realty, Inc. v. Court of Appeals, 440 Phil. 1, 28; 391 SCRA 370,
392 (2002); Nasser v. Court of Appeals, 314 Phil. 871, 883; 245 SCRA 20,
29 (1995).
383

383
Pea vs. Government Service Insurance System (GSIS)
formers place in the relation. (Philippine Savings Bank vs. Maalac, Jr., 457
SCRA 203 [2005])
With the appointment of a management receiver, all claims and
proceedings against the corporation, including labor claims, are deemed
suspended during the existence of the receivershipthe labor arbiter, the
NLRC, as well as the Court of Appeals should not proceed to resolve
complaints for illegal dismissal and should instead direct the employees to
lodge their claims before the duly-appointed receiver. (Clarion Printing
House, Inc. vs. National Labor Relations Commission, 461 SCRA 272
[2005])
o0o
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Aguilar vs.
Manila Banking Corporation, 502 SCRA 354(2006)]
PROVIDENT SAVINGS BANK, petitioner, vs. COURT OF APPEALS, Former

SPECIAL EIGHTH DIVISION and WILSON CHUA, respondents.
Commercial Law; Banks and Banking; Foreclosure proceeding is deemed
embraced by the phrase doing business as contemplated in Section 34 of
the General Banking Act.The question which immediately crops up is
whether a foreclosure proceeding falls within the purview of the phrase
doing business. In Mentholatum Co., Inc., et al. vs. Mangaliman, et al. (72
Phil. 524 [1941]; Moreno, Philippine Law Dictionary, Second ed., 1972, p.
186), the term was construed by Justice Laurel to refer to: . . . a continuity
of commercial dealings and arrangements, and contemplates to that
extent, the performance of acts or words or the exercise of some of the
functions normally incident to, and in progressive prosecution of, the
purpose and object of its organization. (p. 528; italics ours.) Withal, we
believe that a foreclosure is deemed embraced by the phrase doing
business as a preparatory measure to acquiring or holding property for
petitioner as a savings bank under Section 34 of the General Banking Act.
Same; Same; Civil Law; Prescription; The prescriptive period to institute the
foreclosure proceeding was legally interrupted when the mortgagee-bank
was placed under receivership with express prohibition from transacting
business, a circumstance considered as force majeure.Having arrived at
the conclusion that a foreclosure is part of a banks business activity which
could not have been pursued by the receiver then because of the
circumstances discussed in the Central Bank case, we are thus convinced
that the prescriptive period was legally interrupted by fuerza mayor in
1972 on account of the prohibition imposed by the Monetary Board against
petitioner from transacting business, until the directive of the Board was
nullified in 1981. Indeed, the period during which the obligee was
prevented by a caso fortuito from enforcing his right is not reckoned
against him (Article 1154, New Civil Code).
Same; Same; Same; Same; A written communication, seeking authority to

assume the mortgage loans, is deemed an express acknowledgment of the
obligation which has the effect of interrupting the period
_______________
* THIRD DIVISION.
reacted to private respondents offer to pay the loan (p. 39, Rollo). What
seems to have escaped respondent courts attention was the condition
imposed by petitioner that it will grant private respondents request if the
latter will also shoulder the obligation incurred by Lorenzo Guarin in his
capacity as president of the corporation (p. 37, Rollo). The consent of
petitioner to the substitution, as credit, was thus erroneously appreciated.
PETITION for certiorari of the decision of the Court of Appeals.
126
126
of prescription to foreclose.Consequently, when the closure of petitioner
was set aside in 1981, the period of ten years within which to foreclose
under Article 1142 of the New Civil Code began to run again and, therefore,
the action filed on August 21, 1986 to compel petitioner to release the
mortgage carried with it the mistaken notion that petitioners own suit for
foreclosure had prescribed. What exacerbates the situation is the letter of
private respondent requesting petitioner on August 6, 1986 that private
respondent be allowed to pay the loan secured by the mortgage as a result
of the Deed of Sale executed by the Guarins in his favor on July 10, 1986
(pp. 36-37, Rollo). In point of law, this written communication is
synonymous to an express acknowledgment of the obligation and had the
effect of interrupting the period of prescription for the second time (Article
1155, New Civil Code; Osmea vs. Rama, 14 Phil. 99 [1909]; 4 Tolentino,
supra at p. 50). And this piece of document necessarily estops private
respondent from setting up prescription vis-a-vis his unfounded supposition
that acknowledgment of the debt is of no moment because the right of
petitioner to foreclose had long prescribed in 1977 (p. 13, Petition; p. 7,
Comment; pp. 19 and 58, Rollo).
Civil Law; Novation; The conditional acceptance made by the petitioner as
to private respondents offer to assume the mortgage obligation negates
the existence of novation through substitution of debtors, when the latter
refused to comply with the condition imposed by the petitioner.Contrary
to respondent courts perception of the existence of novation, the evidence
at hand does not buttress a finding along this line from the mere fact that
petitioner supposedly did not question the substitution when the bank
Gonzales, Batiller, Bilog & Associates for petitioner.

Resty R. Villanueva for private respondent.
127
VOL. 222, MAY 17, 1993

127
MELO, J.:
The error, if error it be, of respondent Court of Appeals which petitioner

seeks to rectify via the petition for certiorari before us refers to respondent
courts major conclusion arrived at in CA-G.R. CV No. 21312 (Javellana (P),
Kalalo, Dayrit, JJ.) barring petitioner from foreclosing the subject realty on
account of prescription. Petitioner begs to differ, insisting that the period
during which it was placed under receivership by the Central Bank is akin
to a caso fortuito and should not thus be reckoned against it.
Both petitioner and private respondent accepted the synthesized factual
backdrop formulated by respondent court, to wit:
This is an appeal by both plaintiff and defendant from the decision of the
Regional Trial Court of the National Capital Judicial Region, Branch CLXIX,
Malabon, dated 29 September 1988, in Civil Case No. 977-NW, which
directed plaintiff-appellant to pay defendant-appellant the personal
obligation of the spouses Guarin to defendant-appellant in the amount of
P62,500.00, together with the interest, penalties, and bank charges due
thereon, and ordering defendant-appellant thereafter to: (1) release the
real estate mortgage executed by the spouses Lorenzo K. Guarin and
Liwayway J. Guarin in favor of defendant bank on 16 February 1967; (2)
return or surrender to plaintiff-appellant, as successor-in-interest of the
spouses Guarin, the latters Owners Duplicate of Title No. 177014; (3) pay
plaintiff-appellant P20,000.00 as and for attorneys fees; and, (4) pay the
costs of suit.
The established facts are:
On 16 February 1967, the spouses Lorenzo K. Guarin and Liwayway J.
Guarin (Guarins) obtained a loan from defendant-appellant in the amount
of P62,500.00, payable on or before 20 June 1967. As security for the loan,
they executed a real estate mortgage in favor of defendant-appellant over
a parcel of land covered by TCT No. 177014. (Exhs. C and D)
In September, 1972, defendant-appellant was placed under receivership by
the Central Bank of the Philippines until 27 July 1981 when the receivership
was set aside by the Honorable Supreme Court.
On 11 December 1984, Lorenzo K. Guarin, in reply to the letter of latters
counsel informing that the mortgaged property would be sold at public
auction on 27 December 1984, assured he and his wife had every intention
of paying their obligation and requesting for a recomputation of their
account and a postponement of the foreclosure sale. (Exh. 1)
On 10 February 1986, the Guarins received a Statement of
128
128
Account from defendant-appellant showing two outstanding accounts as of
15 February 1986. One was the account of Lorenzo K. Guarin in the amount
of P591,088.80, and the other was the account of L.K. Guarin
Manufacturing Co., Inc. in the amount of P6,287,380.27. (Attachment to
Exh. 2)
On 26 February 1986, Lorenzo K. Guarin wrote defendant-appellant stating

that he was ready and willing to pay his obligation in the total amount of
P591,088.80 as recomputed by defendant-appellant whenever defendantappellant was ready to receive the payment and inquiring as to when his
mortgaged title would be available for him to pick up. (Exh. 2)
Defendant-appellant replied on 27 February 1986 that Lorenzo K. Guarin
may make payment at its office in Makati, Metro Manila, but that the
mortgaged title could not be released to him even after the payment of the
obligation of P591,088.80 as it also served as security for the indebtedness
of L.K. Guarin Manufacturing Co., Inc., to defendant-appellant which was
undertaken by Lorenzo K. Guarin in his personal capacity and as president
of the corporation. (Exh. 3)
On 20 May 1986, plaintiff-appellant wrote defendant-appellant saying that
the mortgaged property of the Guarins had been offered to him as
payment of the judgment he obtained against the Guarins in Civil Case No.
Q-47465 entitled, Wilson Chua vs. Lorenzo K. Guarin, and requesting for
defendant-appellants conformity to the assignment and expressing his
willingness to pay for the obligation of Mr. Guarin so that the title could be
released by defendant-appellant. (Exh. 4)
On 10 July 1986, the Guarins and plaintiff-appellant executed a Deed of
Absolute Sale With Assumption of Mortgage whereby the Guarins sold the
mortgaged property to plaintiff-appellant for the sum of P250,000.00 and
plaintiff-appellant undertook to assume the mortgage obligation of the
Guarins with defendant-appellant which as of 15 February 1985 amounted
to P591,088.80. (Exh. B)
On 5 August 1986, plaintiff-appellant informed defendant-appellant that as
a result of the judgment in Civil Case No. Q-47645, the mortgaged property
had been sold to him by the Guarins, as evidenced by the Deed of Sale
enclosed for the guidance and information of defendant-appellant. He
requested that he be allowed to pay the loan secured by the mortgage,
otherwise, he would be constrained to bring the matter to court. (Exh. 5) In
reply, defendant-appellant, on 11 August 1986, informed plaintiff-appellant
that his request could be granted if he would settle the obligation of L.K.
Guarin Manufacturing Co., Inc., as well and enclosing with the reply a copy
of defendant-appellants letter to Mr. Guarin dated 27 February 1986. (Exh.
6)
On 3 August 1987, counsel for plaintiff-appellant addressed a letter to
defendant-appellant informing that plaintiff-appellant had
129
VOL. 222, MAY 17, 1993

129
purchased the mortgaged property from the Guarins and requesting that
the owners copy of TCT No. 177014 in the possession of defendantappellant be released to him so that he can register the sale and have the
title to the property transferred in his name. He, likewise, informed
defendant-appellant that it had lost whatever right of action had against
the Guarins because of prescription. (Exh. E) Defendant-appellant replied
on 10 August 1987 stating the reasons why they could not comply with
plaintiff-appellants demands. (Exh. F)
On 21 August 1986, plaintiff-appellant filed a complaint against defendantappellant to compel the latter to: (1) release the real estate mortgage
executed by the Guarins in favor of defendant-appellant on 16 February
1967; (2) return or surrender to plaintiff-appellant, as successor-in-interest
of the Guarins, the latters owners duplicate of TCT No. 177014; and, (3)
pay plaintiff-appellant P2,750,000.00 as actual and/or consequential
damages, moral damages as may be proved during the trial, exemplary
damages as may be reasonably assessed by the court, and attorneys fees
of P50,000.00. Defendant-appellant answered the complaint traversing the
material allegations thereof and setting up special and affirmative
defenses. After trial, judgment was rendered as stated in the opening
paragraph hereof from which both parties appealed . . . (pp. 35-37, Rollo.)
Concerning the challenge posed by Provident Savings Bank against the
personality of Wilson Chua to initiate the action to compel the release of
the real estate mortgage and the delivery of the owners duplicate copy of
the certificate of title, respondent court noted that Wilson Chua can be
considered a real-party-in-interest because he is the successor-in-interest
of the Guarins who is naturally entitled to the realty as against the socalled right of Provident Savings Bank, as mortgagee, to foreclose the
mortgage which had become stale through sheer lapse of time. The matter
of novation in the form of substitution of debtor without the corresponding
acquiescence of the mortgagee was viewed by respondent court to be
legally inconsequential due to the demeanor of the mortgagee-bank in
requiring Wilson Chua to pay the indebtedness of Lorenzo Guarin, posterior
to the change of obligors, which act was construed as equivalent to
consent.
To the question of whether petitioner can still foreclose the subject realty,
respondent court gave a negative response on account of the absence of
proof to indicate that the bank was precluded from collecting indebtedness
while it was under re130
130
ceivership from September, 1972 until July 20, 1981. Thus, there was no
legal interruption of the prescriptive period to speak of, said respondent
court, which intervened between June 20, 1967, the date the mortgage
matured, and June 20, 1977 the last day within which petitioner could have
foreclosed the mortgage.
Respondent court did not also heed the suggestion of the petitioner bank
to interpret Wilson Chuas assumption of the mortgage on July 10, 1986 as
tantamount to an explicit acknowledgment that the obligation was
outstanding and had not yet prescribed.
As a result of these observations, respondent court reversed the decision
of the trial court insofar as it ordered Wilson Chua to pay the sum of
P591,088.80 to the bank and affirmed the other dispositions made by the
court of origin (p. 42, Rollo).
Following the unfavorable judgment, the bank filed a motion for
reconsideration and a motion for new trial premised on newly discovered
evidence relative to a statement of account unearthed by the banks
liaison officer from the loose folders on October 18, 1990 which it believed
to be of legal significance to the case. But respondent court was
unperturbed, observing that the vital piece of document could have been
located in the course of trial had the slightest degree of prudence been
exercised, considering that the statement of account sprouted the same
day the liaison officer was advised to take an inventory of the records (p.
45, Rollo ).
Hence, the petition at bar.
Consistent with its theory premised on fuerza mayor, petitioner insists that
it can not be blamed for not lifting a finger, so to speak, during the period
when it was enjoined by the Central Bank on September 15, 1972 from
transacting business until this Court affirmed on July 27, 1981 the decision
of the Court of Appeals annulling the proscription against petitioner in
Central Bank vs. Court of Appeals (106 SCRA 143 [1981]). We are not
unaware of the rule laid down in Teal Motor Co. vs. Court of First Instance of
Manila (51 Phil. 549 [1928]; Martin, Commentaries and Jurisprudence on
the Philippine Commercial Laws, 1986 Revised ed., p. 125) that the
appointment of a receiver does not dissolve the corporation nor does it
interfere with the exercise of its corporate rights. But this principle is, of
course, applicable to a situation where there is no restraint imposed on the
corporation, unlike in the case at bar where petitioner Provident Savings
131
Section 29 of the General Banking Act (6 Fletcher, 206; 3 Agbayani,

Commentaries and Jurisprudence on the Commercial Laws of the
Philippines, 1990 ed., p. 325).
When a bank is prohibited from continuing to do business by the Central
Bank and a receiver is appointed for such bank, that bank would not be
able to do new business, i.e., to grant new loans or to accept new deposits.
However, the receiver of the bank is in fact obliged to collect debts owing
to the bank, which debts form part of the assets of the bank. The receiver
must assemble the assets and pay the obligation of the bank under
receivership, and take steps to prevent dissipation of such assets.
Accordingly, the receiver of the bank is obliged to collect pre-existing debts
due to the bank, and in connection therewith, to foreclose mortgages
132
VOL. 222, MAY 17, 1993

131
132
Bank was specifically forbidden and immobilized from doing business in the
Philippines on September 15, 1972 through Monetary Board Resolution No.
1766 until 1981 when the decision in Central Bank vs. Court of Appeals
(supra, at p. 150) was rendered. The question which immediately crops up
is whether a foreclosure proceeding falls within the purview of the phrase
doing business. In Mentholatum Co., Inc., et al. vs. Mangaliman, et al. (72
Phil. 524 [1941]; Moreno, Philippine Law Dictionary, Second ed., 1972, p.
186), the term was construed by Justice Laurel to refer to:
. . . a continuity of commercial dealings and arrangements, and

contemplates to that extent, the performance of acts or words or the
exercise of some of the functions normally incident to, and in progressive
prosecution of, the purpose and object of its organization. (p. 528;
underscoring ours.)
Withal, we believe that a foreclosure is deemed embraced by the phrase
doing business as a preparatory measure to acquiring or holding
property for petitioner as a savings bank under Section 34 of the General
Banking Act. Like any other banking institution, petitioner is vested with
the usual attributes and powers of a corporation under Section 36 of the
Corporation Code (Vitug, Pandect of Commercial Law and Jurisprudence,
1990 ed., p. 475). The prerogative of a bank to foreclose is implicit from
and is even necessary to enforce collection of secured debts under
Sections 36(11) and 45 of the Corporation Code, in conjunction with
securing such debts. This is not to ignore The Philippine Trust Co. vs. HSBC
(67 Phil. 204 [1939], for in that case, the Court simply rejected the
objections of certain creditors to the report of a receiver, that is, objections
that the receiver did not report the collections made before the beginning
of his receivership. It would follow that the bank is bound by the acts, or
failure to act, of the receiver. At the same time, the receiver is liable to the
bank for culpable or negligent failure to collect the assets of such bank and
to safeguard said assets.
Having arrived at the conclusion that a foreclosure is part of a banks
business activity which could not have been pursued by the receiver then
because of the circumstances discussed in the Central Bank case, we are
thus convinced that the prescriptive period was legally interrupted by
fuerza mayor in 1972 on account of the prohibition imposed by the
Monetary Board against petitioner from transacting business, until the
directive of the Board was nullified in 1981. Indeed, the period during
which the obligee was prevented by a caso fortuito from enforcing his right
is not reckoned against him (Article 1154, New Civil Code). When
prescription is interrupted, all the benefits acquired so far from the
possession cease and when prescription starts anew, it will be entirely a
new one. This concept should not be equated with suspension where the
past period is included in the computation being added to the period after
prescription is resumed (4 Tolentino, Commentaries and Jurisprudence on

the Civil Code of the Philippines, 1991 ed., pp. 18-19). Consequently, when
the closure of petitioner was set aside in 1981, the period often years
within which to foreclose under Article 1142 of the New Civil Code began to
run again and, therefore, the action filed on August 21, 1986 to compel
petitioner to release the mortgage carried with it the mistaken notion that
petitioners own suit for foreclosure had prescribed. What exacerbates the
situation is the letter of private respondent requesting petitioner on August
6, 1986 that private respondent be allowed to pay the loan secured by the
mortgage as a result of the Deed of Sale executed by the Guarins in his
favor on July 10, 1986 (pp. 36-37, Rollo). In point of law, this written
communication is synonymous to an express acknowledgment of the
obligation and had the effect of interrupting the period of prescription for
the second time (Article 1155, New Civil Code; Osmea vs. Rama, 14 Phil.
99 [1909]; 4 Tolentino,
request if the latter will also shoulder the obligation incurred by Lorenzo
Guarin in his capacity as president of the corporation (p. 37, Rollo). The
consent of petitioner to the substitution, as creditor, was thus erroneously
appreciated.
133
Petition granted.
VOL. 222, MAY 17, 1993

133
supra at p. 50). And this piece of document necessarily estops private
respondent from setting up prescription vis-a-vis his unfounded supposition
that acknowledgment of the debt is of no moment because the right of
petitioner to foreclose had long prescribed in 1977 (p. 13, Petition; p. 7,
Comment; pp. 19 and 58, Rollo).
Contrary to respondent courts perception of the existence of novation, the
evidence at hand does not buttress a finding along this line from the mere
fact that petitioner supposedly did not question the substitution when the
bank reacted to private respondents offer to pay the loan (p. 39, Rollo).
What seems to have escaped respondent courts attention was the
condition imposed by petitioner that it will grant private respondents
With the conclusions reached, we need not discuss the other issues raised
in the petition.
WHEREFORE, the petition is hereby GRANTED. The decision dated August
31, 1990, including the resolution dated February 6, 1991 of respondent
court are hereby set aside and another one entered dismissing Wilson
Chuas complaint. No special pronouncement is made as to costs.
Bidin, Davide, Jr. and Romero, JJ., concur.
Feliciano, J., In the result.
Note.Section 29 of Republic Act No. 265 known as the Central Bank Act
provides the person designated as receiver to immediately take charge of
the banks assets and liabilities, administer the same for the benefit of its
creditors and represent the bank personally or through counsel as he may
retain in all actions or proceedings for or against the institution and to
bring and foreclose mortgages in the name of the bank (Banco Filipino
Savings & Mortgage Bank vs. Monetary Board, Central Bank of the
Philippines, 204 SCRA 767).
o0o
134
Copyright 2011 Central Book Supply, Inc. All rights reserved. [Provident
Savings Bank vs. Court of Appeals, 222 SCRA 125(1993)]

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Notes.

G.R. No. 179901.April 14, 2008.*

VOL. 551, APRIL 14, 2008

channeling idle savings to profitable investments. Banks operate (and earn

bank must ascertain that the debtor is capable of fulfilling his

VOL. 551, APRIL 14, 2008

Banco De Oro-EPCI, Inc. vs. JAPRL Development Corporation

Banco De Oro-EPCI, Inc. vs. JAPRL Development Corporation

Same; Same; Corporate Rehabilitation; Judicial Notice; Protecting the

by law or by rules and regulations of the Monetary Board to enable the

After evaluating the financial statements of respondent JAPRL Development

7 Id., pp. 62-66.

1 Under Rule 45 of the Rules of Court.

16.If any of the following Events of Default shall have occurred:

2 Penned by Associate Justice Jose L. Sabio, Jr. and concurred in by

3 Dated August 31, 2007. Id., p. 60.

b.The Entrustee shall default in the due performance or observance of

VOL. 551, APRIL 14, 2008

4 Id., pp. 62-63.

any of the terms, conditions or stipulations, of any agreement, contract or

Entruster or any of its subsidiary or affiliate is a party or privy, whether

j.Any adverse circumstance occurs, which in the reasonable opinion of

Id., pp. 65-66.

9 JAPRLs outstanding liabilities were broken down as follows:

SUPREME COURT REPORTS ANNOTATED

Banco De Oro-EPCI, Inc. vs. JAPRL Development Corporation

SP Proc. No. Q-03-064

Because the petition was sufficient in form and substance,

VOL. 551, APRIL 14, 2008

the petition, issue an Order: (a) applying a Rehabilitation Receiver and

Banco De Oro-EPCI, Inc. vs. JAPRL Development Corporation

eventually rejected by the Quezon City RTC in an order dated May 9,

Because JAPRL ignored its demand for payment, petitioner filed a

VOL. 551, APRIL 14, 2008

24 Annex M, id., pp. 102-103.

28 Annex Q, id., pp. 124-125.

25 Annex N, id., pp. 104-112.

29 Annex R, id., p. 130.

26 Annex, O, id., pp. 113-115.

30 Annex S, id., pp. 131-134.

31 Annex T, id., p. 135.

32 Under Rule 65 of the Rules of Court.

SUPREME COURT REPORTS ANNOTATED

33 Respondents motion for reconsideration was pending in the Makati RTC

RTC SEC Case No. 68-2008-C

34 Annex U, Rollo, pp. 136-149.

In view of the said order, respondents hastily moved to suspend the

VOL. 551, APRIL 14, 2008

37 Id., pp. 10-35.

The petition shall be dismissed if no rehabilitation is approved by the court

SUPREME COURT REPORTS ANNOTATED

Banco De Oro-EPCI, Inc. vs. JAPRL Development Corporation

VOL. 551, APRIL 14, 2008

More importantly, when respondents moved for the suspension of

Banco De Oro-EPCI, Inc. vs. JAPRL Development Corporation

Respondents abused procedural technicalities (albeit unsuccessfully) for

Banco De Oro-EPCI, Inc. vs. JAPRL Development Corporation

48 Valdepeas, id., p. 125.

49 The Bangko Sentral ng Pilipinas (BSP) controls bank lending by imposing

50 Valdepeas, supra note 47 at pp. 125-126.

VOL. 551, APRIL 14, 2008

collection incurred by the Entruster, and liquidated damages equal to