[G.R. No. 128996.

February 15, 2002]

CARMEN LL. INTENGAN, ROSARIO LL. NERI, and RITA P. BRAWNER, petitioners, vs. COURT OF APPEALS, DEPARTMENT OF JUSTICE, AZIZ
RAJKOTWALA, WILLIAM FERGUSON, JOVEN REYES, and VIC LIM, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari, seeking the reversal of the Decision [1] dated July 8, 1996 of the former Fifteenth Division [2] of the
Court of Appeals in CA-G.R. SP No. 37577 as well as its Resolution [3] dated April 16, 1997 denying petitioners motion for reconsideration. The appellate
court, in its Decision, sustained a resolution of the Department of Justice ordering the withdrawal of informations for violation of Republic Act No. 1405
against private respondents.
The facts are:
On September 21, 1993, Citibank filed a complaint for violation of section 31, [4] in relation to section 144 [5] of the Corporation Code against two (2)
of its officers, Dante L. Santos and Marilou Genuino. Attached to the complaint was an affidavit [6] executed by private respondent Vic Lim, a vicepresident of Citibank. Pertinent portions of his affidavit are quoted hereunder:
2.1 Sometime this year, the higher management of Citibank, N.A. assigned me to assist in the investigation of certain anomalous/highly irregular
activities of the Treasurer of the Global Consumer Group of the bank, namely, Dante L. Santos and the Asst. Vice President in the office of Mr. Dante L.
Santos, namely Ms. Marilou (also called Malou) Genuino. Ms. Marilou Genuino apart from being an Assistant Vice President in the office of Mr. Dante L.
Santos also performed the duties of an Account Officer. An Account Officer in the office of Mr. Dante L. Santos personally attends to clients of the bank in
the effort to persuade clients to place and keep their monies in the products of Citibank, NA., such as peso and dollar deposits, mortgage backed
securities and money placements, among others.
xxx

xxx

xxx

4.1 The investigation in which I was asked to participate was undertaken because the bank had found records/evidence showing that Mr. Dante L.
Santos and Ms. Malou Genuino, contrary to their disclosures and the aforementioned bank policy, appeared to have been actively engaged in business
endeavors that were in conflict with the business of the bank. It was found that with the use of two (2) companies in which they have personal financial
interest, namely Torrance Development Corporation and Global Pacific Corporation, they managed or caused existing bank clients/depositors to divert
their money from Citibank, N.A., such as those placed in peso and dollar deposits and money placements, to products offered by other companies that
were commanding higher rate of yields. This was done by first transferring bank clients monies to Torrance and Global which in turn placed the monies
of the bank clients in securities, shares of stock and other certificates of third parties. It also appeared that out of these transactions, Mr. Dante L. Santos
and Ms. Marilou Genuino derived substantial financial gains.
5.1 In the course of the investigation, I was able to determine that the bank clients which Mr. Santos and Ms. Genuino helped/caused to divert their
deposits/money placements with Citibank, NA. to Torrance and Global (their family corporations) for subsequent investment in securities, shares of
stocks and debt papers in other companies were as follows:
xxx
b)

Carmen Intengan

xxx
d)

Rosario Neri

xxx
i)

Rita Brawner

All the above persons/parties have long standing accounts with Citibank, N.A. in savings/dollar deposits and/or in trust accounts and/or money
placements.
As evidence, Lim annexed bank records purporting to establish the deception practiced by Santos and Genuino. Some of the documents
pertained to the dollar deposits of petitioners Carmen Ll. Intengan, Rosario Ll. Neri, and Rita P. Brawner, as follows:
a) Annex A-6[7] - an Application for Money Transfer in the amount of US $140,000.00, executed by Intengan in favor of Citibank $ S/A No.
24367796, to be debited from her Account No. 22543341;
b) Annex A-7[8] - a Money Transfer Slip in the amount of US $45,996.30, executed by Brawner in favor of Citibank $ S/A No. 24367796,
to be debited from her Account No. 22543236; and
c) Annex A-9[9] - an Application for Money Transfer in the amount of US $100,000.00, executed by Neri in favor of Citibank $ S/A No.
24367796, to be debited from her Account No. 24501018.
In turn, private respondent Joven Reyes, vice-president/business manager of the Global Consumer Banking Group of Citibank, admits to having
authorized Lim to state the names of the clients involved and to attach the pertinent bank records, including those of petitioners. [10] He states that private

respondents Aziz Rajkotwala and William Ferguson, Citibank, N.A. Global Consumer Banking Country Business Manager and Country Corporate
Officer, respectively, had no hand in the disclosure, and that he did so upon the advice of counsel.
In his memorandum, the Solicitor General described the scheme as having been conducted in this manner:
First step: Santos and/or Genuino would tell the bank client that they knew of financial products of other companies that were yielding higher rates of
interests in which the bank client can place his money. Acting on this information, the bank client would then authorize the transfer of his funds from his
Citibank account to the Citibank account of either Torrance or Global.
The transfer of the Citibank clients deposits was done through the accomplishment of either an Application For Managers Checks or a Term Investment
Application in favor of Global or Torrance that was prepared/filed by Genuino herself.
Upon approval of the Application for Managers Checks or Term Investment Application, the funds of the bank client covered thereof were then deposited
in the Citibank accounts of Torrance and/or Global.
Second step: Once the said fund transfers had been effected, Global and/or Torrance would then issue its/ their checks drawn against its/their Citibank
accounts in favor of the other companies whose financial products, such as securities, shares of stocks and other certificates, were offering higher
yields.
Third step: On maturity date(s) of the placements made by Torrance and/or Global in the other companies, using the monies of the Citibank client, the
other companies would then. return the placements to Global and/orTorrance with the corresponding interests earned.
Fourth step: Upon receipt by Global and/or Torrance of the remittances from the other companies, Global and/or Torrance would then issue its/their own
checks drawn against their Citibank accounts in favor of Santos and Genuino.
The amounts covered by the checks represent the shares of Santos and Genuino in the margins Global and/or Torrance had realized out of the
placements [using the diverted monies of the Citibank clients] made with the other companies.
Fifth step: At the same time, Global and/or Torrance would also issue its/their check(s) drawn against its/their Citibank accounts in favor of the bank
client.
The check(s) cover the principal amount (or parts thereof) which the Citibank client had previously transferred, with the help of Santos and/or Genuino,
from his Citibank account to the Citibank account(s) of Global and/or Torrance for placement in the other companies, plus the interests or earnings his
placements in other companies had made less the spreads made by Global, Torrance, Santos and Genuino.
The complaints which were docketed as I.S. Nos. 93-9969, 93-10058 and 94-1215 were subsequently amended to include a charge
of estafa under Article 315, paragraph 1(b)[11] of the Revised Penal Code.
As an incident to the foregoing, petitioners filed respective motions for the exclusion and physical withdrawal of their bank records that were
attached to Lims affidavit.
In due time, Lim and Reyes filed their respective counter-affidavits. [12] In separate Memoranda dated March 8, 1994 and March 15, 1994 2nd
Assistant Provincial Prosecutor Hermino T. Ubana, Sr. recommended the dismissal of petitioners complaints. The recommendation was overruled by
Provincial Prosecutor Mauro M. Castro who, in a Resolution dated August 18, 1994,[13]directed the filing of informations against private respondents for
alleged violation of Republic Act No. 1405, otherwise known as the Bank Secrecy Law.
Private respondents counsel then filed an appeal before the Department of Justice (DOJ). On November 17, 1994, then DOJ Secretary Franklin
M. Drilon issued a Resolution[14] ordering,inter alia, the withdrawal of the aforesaid informations against private respondents. Petitioners motion for
reconsideration[15] was denied by DOJ Acting Secretary Demetrio G. Demetria in a Resolution dated March 6, 1995.[16]
Initially, petitioners sought the reversal of the DOJ resolutions via a petition for certiorari and mandamus filed with this Court, docketed as G.R. No.
119999-120001. However, the former First Division of this Court, in a Resolution dated June 5, 1995,[17] referred the matter to the Court of the Appeals,
on the basis of the latter tribunals concurrent jurisdiction to issue the extraordinary writs therein prayed for. The petition was docketed as CA-G.R. SP
No. 37577 in the Court of Appeals.
On July 8, 1996, the Court of Appeals rendered judgment dismissing the petition in CA-G.R. SP No. 37577 and declared therein, as follows:
Clearly, the disclosure of petitioners deposits was necessary to establish the allegation that Santos and Genuino had violated Section 31 of the
Corporation Code in acquiring any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence. To
substantiate the alleged scheme of Santos and Genuino, private respondents had to present the records of the monies which were manipulated by the
two officers which included the bank records of herein petitioners.
Although petitioners were not the parties involved in IS. No. 93-8469, their accounts were relevant to the complete prosecution of the case against
Santos and Genuino and the respondent DOJ properly ruled that the disclosure of the same falls under the last exception of R.A. No. 1405. That ruling is
consistent with the principle laid down in the case of Mellon Bank, N.A. vs. Magsino (190 SCRA 633) where the Supreme Court allowed the testimonies
on the bank deposits of someone not a party to the case as it found that said bank deposits were material or relevant to the allegations in the complaint.
Significantly, therefore, as long as the bank deposits are material to the case, although not necessarily the direct subject matter thereof, a disclosure of
the same is proper and falls within the scope of the exceptions provided for by R.A. No. 1405.
xxx

xxx

xxx

Moreover, the language of the law itself is clear and cannot be subject to different interpretations. A reading of the provision itself would readily reveal
that the exception or in cases where the money deposited or invested is the subject matter of the litigation is not qualified by the phrase upon order of
competent Court which refers only to cases of bribery or dereliction of duty of public officials.
Petitioners motion for reconsideration was similarly denied in a Resolution dated April 16, 1997. Appeal was made in due time to this Court.
The instant petition was actually denied by the former Third Division of this Court in a Resolution [18] dated July 16, 1997, on the ground that
petitioners had failed to show that a reversible error had been committed. On motion, however, the petition was reinstated [19] and eventually given due
course.[20]
In assailing the appellate courts findings, petitioners assert that the disclosure of their bank records was unwarranted and illegal for the following
reasons:
I.
IN BLATANT VIOLATION OF R.A. NO. 1405, PRIVATE RESPONDENTS ILLEGALLY MADE DISCLOSURES OF PETITIONERS CONFIDENTIAL
BANK DEPOSITS FOR THEIR SELFISH ENDS IN PROSECUTING THEIR COMPLAINT IN IS. NO. 93-8469 THAT DID NOT INVOLVE
PETITIONERS.
II.
PRIVATE RESPONDENTS DISCLOSURES DO NOT FALL UNDER THE FOURTH EXCEPTION OF R.A. NO. 1405 (i.e., in cases where the
money deposited or invested is the subject matter of the litigation), NOR UNDER ANY OTHER EXCEPTION:
(1)
PETITIONERS DEPOSITS ARE NOT INVOLVED IN ANY LITIGATION BETWEEN PETITIONERS AND RESPONDENTS. THERE IS NO
LITIGATION BETWEEN THE PARTIES, MUCH LESS ONE INVOLVING PETITIONERS DEPOSITS AS THE SUBJECT MATTER
THEREOF.
(2)
EVEN ASSUMING ARGUENDO THAT THERE IS A LITIGATION INVOLVING PETITIONERS DEPOSITS AS THE SUBJECT MATTER
THEREOF, PRIVATE RESPONDENTS DISCLOSURES OF PETITIONERS DEPOSITS ARE NEVERTHELESS ILLEGAL FOR WANT OF
THE REQUISITE COURT ORDER, IN VIOLATION OF R.A. NO. 1405.
III.
THEREFORE, PETITIONERS ARE ENTITLED TO PROSECUTE PRIVATE RESPONDENTS FOR VIOLATIONS OF R.A. NO. 1405 FOR HAVING
ILLEGALLY DISCLOSED PETITIONERS CONFIDENTIAL BANK DEPOSITS AND RECORDS IN IS. NO. 93-8469.
Apart from the reversal of the decision and resolution of the appellate court as well as the resolutions of the Department of Justice, petitioners pray
that the latter agency be directed to issue a resolution ordering the Provincial Prosecutor of Rizal to file the corresponding informations for violation of
Republic Act No. 1405 against private respondents.
The petition is not meritorious.
Actually, this case should have been studied more carefully by all concerned. The finest legal minds in the country - from the parties respective
counsel, the Provincial Prosecutor, the Department of Justice, the Solicitor General, and the Court of Appeals - all appear to have overlooked a single
fact which dictates the outcome of the entire controversy. A circumspect review of the record shows us the reason. The accounts in question are U.S.
dollar deposits; consequently, the applicable law is not Republic Act No. 1405 but Republic Act (RA) No. 6426, known as the Foreign Currency Deposit
Act of the Philippines, section 8 of which provides:
Sec. 8. Secrecy of Foreign Currency Deposits.- All foreign currency deposits authorized under this Act, as amended by Presidential Decree No. 1035, as
well as foreign currency deposits authorized under Presidential Decree No. 1034, are hereby declared as and considered of an absolutely confidential
nature and, except upon the written permission of the depositor, in no instance shall such foreign currency deposits be examined, inquired or looked into
by any person, government official bureau or office whether judicial or administrative or legislative or any other entity whether public or private: Provided,
however, that said foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.[21] (italics supplied)
Thus, under R.A. No. 6426 there is only a single exception to the secrecy of foreign currency deposits, that is, disclosure is allowed only upon the
written permission of the depositor. Incidentally, the acts of private respondents complained of happened before the enactment on September 29,
2001 of R.A. No. 9160 otherwise known as the Anti-Money Laundering Act of 2001.
A case for violation of Republic Act No. 6426 should have been the proper case brought against private respondents. Private respondents Lim and
Reyes admitted that they had disclosed details of petitioners dollar deposits without the latters written permission. It does not matter if that such
disclosure was necessary to establish Citibanks case against Dante L. Santos and Marilou Genuino. Lims act of disclosing details of petitioners bank
records regarding their foreign currency deposits, with the authority of Reyes, would appear to belong to that species of criminal acts punishable by
special laws, called malum prohibitum. In this regard, it has been held that:
While it is true that, as a rule and on principles of abstract justice, men are not and should not be held criminally responsible for acts committed by them
without guilty knowledge and criminal or at least evil intent xxx, the courts have always recognized the power of the legislature, on grounds of public

policy and compelled by necessity, the great master of things, to forbid in a limited class of cases the doing of certain acts, and to make their
commission criminal without regard to the intent of the doer. xxx In such cases no judicial authority has the power to require, in the enforcement of the
law, such knowledge or motive to be shown. As was said in the case of State vs. McBrayer xxx:
It is a mistaken notion that positive, willful intent, as distinguished from a mere intent, to violate the criminal law, is an essential ingredient in every
criminal offense, and that where there is the absence of such intent there is no offense; this is especially so as to statutory offenses. When the statute
plainly forbids an act to be done, and it is done by some person, the law implies conclusively the guilty intent, although the offender was honestly
mistaken as to the meaning of the law he violates. When the language is plain and positive, and the offense is not made to depend upon the positive,
willful intent and purpose, nothing is left to interpretation.[22]
Ordinarily, the dismissal of the instant petition would have been without prejudice to the filing of the proper charges against private respondents.
The matter would have ended here were it not for the intervention of time, specifically the lapse thereof. So as not to unduly prolong the settlement of the
case, we are constrained to rule on a material issue even though it was not raised by the parties. We refer to the issue of prescription.
Republic Act No. 6426 being a special law, the provisions of Act No. 3326,[23] as amended by Act No. 3763, are applicable:
SECTION 1. Violations penalized by special acts shall, unless otherwise provided in such acts, prescribe in accordance with the following rules: (a) after
a year for offences punished only by a fine or by imprisonment for not more than one month, or both: (b) after four years for those punished by
imprisonment for more than one month, but less than two years; (c) after eight years for those punished by imprisonment for two years or more, but less
than six years; and (d) after twelve years for any other offence punished by imprisonment for six years or more, except the crime of treason, which shall
prescribe after twenty years: Provided, however, That all offences against any law or part of law administered by the Bureau of Internal Revenue shall
prescribe after five years. Violations penalized by municipal ordinances shall prescribe after two months.
Violations of the regulations or conditions of certificates of public convenience issued by the Public Service Commission shall prescribe after two
months.
SEC. 2. Prescription shall begin to run from the day of the commission of the violation of the law, and if the same be not known at the time, from the
discovery thereof and the institution of judicial proceedings for its investigation and punishment.
The prescription shall be interrupted when proceedings are instituted against the guilty person, and shall begin to run again if the proceedings are
dismissed for reasons not constituting jeopardy.
A violation of Republic Act No. 6426 shall subject the offender to imprisonment of not less than one year nor more than five years, or by a fine of
not less than five thousand pesos nor more than twenty-five thousand pesos, or both. [24] Applying Act No. 3326, the offense prescribes in eight years.
[25]
Per available records, private respondents may no longer be haled before the courts for violation of Republic Act No. 6426. Private respondent Vic
Lim made the disclosure in September of 1993 in his affidavit submitted before the Provincial Fiscal. [26] In her complaint-affidavit,[27]Intengan stated that
she learned of the revelation of the details of her foreign currency bank account on October 14, 1993. On the other hand, Neri asserts that she
discovered the disclosure onOctober 24, 1993.[28] As to Brawner, the material date is January 5, 1994.[29] Based on any of these dates, prescription has
set in.[30]
The filing of the complaint or information in the case at bar for alleged violation of Republic Act No. 1405 did not have the effect of tolling the
prescriptive period. For it is the filing of the complaint or information corresponding to the correct offense which produces that effect. [31]
It may well be argued that the foregoing disquisition would leave petitioners with no remedy in law. We point out, however, that the confidentiality
of foreign currency deposits mandated by Republic Act No. 6426, as amended by Presidential Decree No. 1246, came into effect as far back as
1977. Hence, ignorance thereof cannot be pretended. On one hand, the existence of laws is a matter of mandatory judicial notice; [32] on the
other, ignorantia legis non excusat.[33] Even during the pendency of this appeal, nothing prevented the petitioners from filing a complaint charging the
correct offense against private respondents. This was not done, as everyone involved was content to submit the case on the basis of an alleged violation
of Republic Act No. 1405 (Bank Secrecy Law), however, incorrectly invoked.[34]
WHEREFORE, the petition is hereby DENIED. No pronouncement as to costs.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

G.R. No. 90027 March 3, 1993

CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,
vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
Dolorfino & Dominguez Law Offices for petitioner.
Danilo B. Banares for private respondent.

DAVIDE, JR., J.:

Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box with respect to its contents placed
by the latter one of bailor and bailee or one of lessor and lessee?
This is the crux of the present controversy.
On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao entered into an agreement whereby the
former purchased from the latter two (2) parcels of land for a consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment while
the balance was covered by three (3) postdated checks. Among the terms and conditions of the agreement embodied in a Memorandum of True and
Actual Agreement of Sale of Land were that the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the
owner's copies of the certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be deposited in a safety deposit box
of any bank. The same could be withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos upon full payment of the
purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent Security Bank and
Trust Company, a domestic banking corporation hereinafter referred to as the respondent Bank. For this purpose, both signed a contract of lease
(Exhibit "2") which contains, inter alia, the following conditions:
13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in
connection therewith. 1
After the execution of the contract, two (2) renter's keys were given to the renters one to Aguirre (for the petitioner) and the other to the Pugaos. A
guard key remained in the possession of the respondent Bank. The safety deposit box has two (2) keyholes, one for the guard key and the other for the
renter's key, and can be opened only with the use of both keys. Petitioner claims that the certificates of title were placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price of P225.00 per square meter which, as petitioner
alleged in its complaint, translates to a profit of P100.00 per square meter or a total of P280,500.00 for the entire property. Mrs. Ramos demanded the
execution of a deed of sale which necessarily entailed the production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos,
then proceeded to the respondent Bank on 4 October 1979 to open the safety deposit box and get the certificates of title. However, when opened in the
presence of the Bank's representative, the box yielded no such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew
her earlier offer to purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize the expected profit of P280,500.00. Hence, the
latter filed on 1 September 1980 a complaint 2 for damages against the respondent Bank with the Court of First Instance (now Regional Trial Court) of
Pasig, Metro Manila which docketed the same as Civil Case No. 38382.
In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner has no cause of action because of paragraphs 13 and 14 of the contract of
lease (Exhibit "2"); corollarily, loss of any of the items or articles contained in the box could not give rise to an action against it. It then interposed a
counterclaim for exemplary damages as well as attorney's fees in the amount of P20,000.00. Petitioner subsequently filed an answer to the
counterclaim. 4
In due course, the trial court, now designated as Branch 161 of the Regional Trial Court (RTC) of Pasig, Metro Manila, rendered a decision 5 adverse to
the petitioner on 8 December 1986, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered dismissing plaintiff's complaint.
On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay defendant the amount of FIVE THOUSAND
(P5,000.00) PESOS as attorney's fees.
With costs against plaintiff. 6
The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of the contract of lease, the Bank has no liability for the
loss of the certificates of title. The court declared that the said provisions are binding on the parties.
Its motion for reconsideration 7 having been denied, petitioner appealed from the adverse decision to the respondent Court of Appeals which docketed
the appeal as CA-G.R. CV No. 15150. Petitioner urged the respondent Court to reverse the challenged decision because the trial court erred in (a)
absolving the respondent Bank from liability from the loss, (b) not declaring as null and void, for being contrary to law, public order and public policy, the

provisions in the contract for lease of the safety deposit box absolving the Bank from any liability for loss, (c) not concluding that in this jurisdiction, as
well as under American jurisprudence, the liability of the Bank is settled and (d) awarding attorney's fees to the Bank and denying the petitioner's prayer
for nominal and exemplary damages and attorney's fees. 8
In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed decision principally on the theory that the contract (Exhibit "2")
executed by the petitioner and respondent Bank is in the nature of a contract of lease by virtue of which the petitioner and its co-renter were given
control over the safety deposit box and its contents while the Bank retained no right to open the said box because it had neither the possession nor
control over it and its contents. As such, the contract is governed by Article 1643 of the Civil Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price
certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine years shall be valid.
It invoked Tolentino vs. Gonzales 11 which held that the owner of the property loses his control over the property leased during the period of
the contract and Article 1975 of the Civil Code which provides:
Art. 1975. The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound to collect the latter
when it becomes due, and to take such steps as may be necessary in order that the securities may preserve their value and the
rights corresponding to them according to law.
The above provision shall not apply to contracts for the rent of safety deposit boxes.
and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain the contents of the box. The stipulation absolving
the defendant-appellee from liability is in accordance with the nature of the contract of lease and cannot be regarded as contrary to law, public
order and public policy." 12 The appellate court was quick to add, however, that under the contract of lease of the safety deposit box,
respondent Bank is not completely free from liability as it may still be made answerable in case unauthorized persons enter into the vault area
or when the rented box is forced open. Thus, as expressly provided for in stipulation number 8 of the contract in question:
8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank will
not be responsible for the contents of any safe rented from it. 13
Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August 1989, 15 petitioner took this recourse under Rule
45 of the Rules of Court and urges Us to review and set aside the respondent Court's ruling. Petitioner avers that both the respondent Court and the trial
court (a) did not properly and legally apply the correct law in this case, (b) acted with grave abuse of discretion or in excess of jurisdiction amounting to
lack thereof and (c) set a precedent that is contrary to, or is a departure from precedents adhered to and affirmed by decisions of this Court and precepts
in American jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its motion to reconsider the trial court's decision, the
brief submitted to the respondent Court and the motion to reconsider the latter's decision. In a nutshell, petitioner maintains that regardless of
nomenclature, the contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit governed by Title XII, Book IV of the Civil
Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of title pursuant to Article 1972 of the said Code
which provides:
Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the depositor, or to his heirs and
successors, or to the person who may have been designated in the contract. His responsibility, with regard to the safekeeping and
the loss of the thing, shall be governed by the provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that the depositary must observe.
Petitioner then quotes a passage from American Jurisprudence
wit:

17

which is supposed to expound on the prevailing rule in the United States, to

The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box or safe and the lessee takes
possession of the box or safe and places therein his securities or other valuables, the relation of bailee and bail or is created
between the parties to the transaction as to such securities or other valuables; the fact that the
safe-deposit company does not know, and that it is not expected that it shall know, the character or description of the property which
is deposited in such safe-deposit box or safe does not change that relation. That access to the contents of the safe-deposit box can
be had only by the use of a key retained by the lessee ( whether it is the sole key or one to be used in connection with one retained
by the lessor) does not operate to alter the foregoing rule. The argument that there is not, in such a case, a delivery of exclusive
possession and control to the deposit company, and that therefore the situation is entirely different from that of ordinary bailment,
has been generally rejected by the courts, usually on the ground that as possession must be either in the depositor or in the
company, it should reasonably be considered as in the latter rather than in the former, since the company is, by the nature of the
contract, given absolute control of access to the property, and the depositor cannot gain access thereto without the consent and
active participation of the company. . . . (citations omitted).
and a segment from Words and Phrases 18 which states that a contract for the rental of a bank safety deposit box in consideration of a fixed
amount at stated periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and public policy and should be declared null and void.
In support thereof, it cites Article 1306 of the Civil Code which provides that parties to a contract may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.

After the respondent Bank filed its comment, this Court gave due course to the petition and required the parties to simultaneously submit their respective
Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in Article
1643 of the Civil Code. However, We do not fully subscribe to its view that the same is a contract of deposit that is to be strictly governed by the
provisions in the Civil Code on deposit; 19the contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of
lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters the
petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the renters could open the box. On
the other hand, the respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a duplicate which was made
so that both renters could have access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article 1975, also relied upon by the respondent Court,
be invoked as an argument against the deposit theory. Obviously, the first paragraph of such provision cannot apply to a depositary of certificates,
bonds, securities or instruments which earn interest if such documents are kept in a rented safety deposit box. It is clear that the depositary cannot open
the box without the renter being present.
We observe, however, that the deposit theory itself does not altogether find unanimous support even in American jurisprudence. We agree with the
petitioner that under the latter, the prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer with respect to the
contents of the box is that of a bail or and bailee, the bailment being for hire and mutual benefit. 21 This is just the prevailing view because:
There is, however, some support for the view that the relationship in question might be more properly characterized as that of
landlord and tenant, or lessor and lessee. It has also been suggested that it should be characterized as that of licensor and licensee.
The relation between a bank, safe-deposit company, or storage company, and the renter of a safe-deposit box therein, is often
described as contractual, express or implied, oral or written, in whole or in part. But there is apparently no jurisdiction in which any
rule other than that applicable to bailments governs questions of the liability and rights of the parties in respect of loss of the
contents of safe-deposit boxes. 22 (citations omitted)
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the
United States has been adopted. Section 72 of the General Banking Act 23pertinently provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan
associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the
safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section asdepositories or as
agents. . . . 24 (emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds, documents and other
valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal
function. A contract of deposit may be entered into orally or in writing 25 and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish
such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order
or public policy. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil
Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor
of the agreement. 26 In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be
observed. 27Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence
or delay would be void for being contrary to law and public policy. In the instant case, petitioner maintains that conditions 13 and 14 of the questioned
contract of lease of the safety deposit box, which read:
13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in
connection therewith. 28
are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said provisions are
inconsistent with the respondent Bank's responsibility as a depositary under Section 72(a) of the General Banking Act. Both exempt the latter
from any liability except as contemplated in condition 8 thereof which limits its duty to exercise reasonable diligence only with respect to who
shall be admitted to any rented safe, to wit:
8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank will
not be responsible for the contents of any safe rented from it. 29
Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to assert that the Bank
has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is located in its premises and is

under its absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot open their
respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to the extent above stated, the foregoing
conditions in the contract in question are void and ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation is a
contractual one, may by special contract define their respective duties or provide for increasing or limiting the liability of the deposit
company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was such a
special contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; liability of the
deposit company will not be enlarged or restricted by words of doubtful meaning. The company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that of its agents or
servants, and if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for the purpose.
Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its own
negligence, the view has been taken that such a lessor may limits its liability to some extent by agreement or stipulation. 30 (citations
omitted)
Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should be dismissed, but on grounds quite different
from those relied upon by the Court of Appeals. In the instant case, the respondent Bank's exoneration cannot, contrary to the holding of the Court of
Appeals, be based on or proceed from a characterization of the impugned contract as a contract of lease, but rather on the fact that no competent proof
was presented to show that respondent Bank was aware of the agreement between the petitioner and the Pugaos to the effect that the certificates of title
were withdrawable from the safety deposit box only upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss of the
certificates of title was due to the fraud or negligence of the respondent Bank. This in turn flows from this Court's determination that the contract involved
was one of deposit. Since both the petitioner and the Pugaos agreed that each should have one (1) renter's key, it was obvious that either of them could
ask the Bank for access to the safety deposit box and, with the use of such key and the Bank's own guard key, could open the said box, without the
other renter being present.
Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had been established, the trial court erred in
condemning the petitioner to pay the respondent Bank attorney's fees. To this extent, the Decision (dispositive portion) of public respondent Court of
Appeals must be modified.
WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from the 4 July 1989 Decision of the respondent
Court of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the pronouncement We made above on the nature of the relationship between
the parties in a contract of lease of safety deposit boxes, the dispositive portion of the said Decision is hereby AFFIRMED and the instant Petition for
Review is otherwise DENIED for lack of merit.
No pronouncement as to costs.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.
Gutierrez, Jr., J., is on leave.

G.R. No. 102970 May 13, 1993

LUZAN SIA, petitioner,
vs.
COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents.
DAVIDE, JR., J.:
The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21 August 1991, 1reversing and setting aside the
Decision, dated 19 February 1990, 2 of Branch 47 of the Regional Trial Court (RTC) of Manila in Civil Case No. 87-42601, entitled "LUZAN
SIA vs. SECURITY BANK and TRUST CO.," is challenged in this petition for review on certiorari under Rule 45 of the Rules Court.
Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stamp collection of the plaintiff (petitioner herein) contained
in Safety Deposit Box No. 54 which had been rented from the defendant pursuant to a contract denominated as a Lease Agreement. 3 Judgment therein
was rendered in favor of the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant, Security Bank
& Trust Company, ordering the defendant bank to pay the plaintiff the sum of
a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;
b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral damages; and
c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and legal expenses.
The counterclaim set up by the defendant are hereby dismissed for lack of merit.
No costs.
SO ORDERED. 4
The antecedent facts of the present controversy are summarized by the public respondent in its challenged decision as follows:
The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at its Binondo Branch located at the
Fookien Times Building, Soler St., Binondo, Manila wherein he placed his collection of stamps. The said safety deposit box leased
by the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of the defendant bank at its aforesaid Binondo
Branch.
During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's premises, seeped into the safety
deposit box leased by the plaintiff and caused, according to the plaintiff, damage to his stamps collection. The defendant bank
rejected the plaintiff's claim for compensation for his damaged stamps collection, so, the plaintiff instituted an action for damages
against the defendant bank.
The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis of the "Rules and Regulations
Governing the Lease of Safe Deposit Boxes" (Exhs. "A-1", "1-A"), particularly paragraphs 9 and 13, which reads (sic):
"9. The liability of the Bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the safe by
any person other than the Renter, his authorized agent or legal representative;
xxx xxx xxx
"13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the control of the same. The Bank
has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection
therewith."
The defendant bank also contended that its contract with the plaintiff over safety deposit box No. 54 was one of lease and not of
deposit and, therefore, governed by the lease agreement (Exhs. "A", "L") which should be the applicable law; that the destruction of
the plaintiff's stamps collection was due to a calamity beyond obligation on its part to notify the plaintiff about the floodwaters that
inundated its premises at Binondo branch which allegedly seeped into the safety deposit box leased to the plaintiff.
The trial court then directed that an ocular inspection on (sic) the contents of the safety deposit box be conducted, which was done
on December 8, 1988 by its clerk of court in the presence of the parties and their counsels. A report thereon was then submitted on
December 12, 1988 (Records, p. 98-A) and confirmed in open court by both parties thru counsel during the hearing on the same
date (Ibid., p. 102) stating:
"That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan Sia and the Acting Branch Manager
Jimmy B. Ynion in the presence of the undersigned, plaintiff's and defendant's counsel. Said Safety Box when

opened contains two albums of different sizes and thickness, length and width and a tin box with printed word
'Tai Ping Shiang Roast Pork in pieces with Chinese designs and character."
Condition of the above-stated Items
"Both albums are wet, moldy and badly damaged.
1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in thick. The leaves of the album are attached to
every page and cannot be lifted without destroying it, hence the stamps contained therein are no longer visible.
2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch thick. Some of its pages can still be lifted. The stamps
therein can still be distinguished but beyond restoration. Others have lost its original form.
3. The tin box is rusty inside. It contains an album with several pieces of papers stuck up to the cover of the box. The condition of
the album is the second abovementioned album." 5
The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial court's decision to the public respondent Court of
Appeals. The appeal was docketed as CA-G.R. CV No. 26737.
In urging the public respondent to reverse the decision of the trial court, SBTC contended that the latter erred in (a) holding that the lease agreement is a
contract of adhesion; (b) finding that the defendant had failed to exercise the required diligence expected of a bank in maintaining the safety deposit box;
(c) awarding to the plaintiff actual damages in the amount of P20,000.00, moral damages in the amount of P100,000.00 and attorney's fees and legal
expenses in the amount of P5,000.00; and (d) dismissing the counterclaim.
On 21 August 1991, the respondent promulgated its decision the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED and instead the appellee's complaint is hereby DISMISSED. The
appellant bank's counterclaim is likewise DISMISSED. No costs.6
In reversing the trial court's decision and absolving SBTC from liability, the public respondent found and ruled that:
a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the terms and conditions of the contract of lease which the appellee (now
petitioner) had voluntarily and knowingly executed with SBTC;
b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit wherein the bank became a depositary of the
subject stamp collection; hence, as contended by SBTC, the provisions of Book IV, Title XII of the Civil Code on deposits do not apply;
c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC's liability:
9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the Safe by any
person other than the Renter, his authorized agent or legal representative.
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the control of the same. The Bank
has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection
therewith.
are valid since said stipulations are not contrary to law, morals, good customs, public order or public policy; and
d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining the safety deposit box; what was proven was
that the floods of 1985 and 1986, which were beyond the control of SBTC, caused the damage to the stamp collection; said floods were fortuitous events
which SBTC should not be held liable for since it was not shown to have participated in the aggravation of the damage to the stamp collection; on the
contrary, it offered its services to secure the assistance of an expert in order to save most of the stamps, but the appellee refused; appellee must then
bear the lose under the principle of "res perit domino."
Unsuccessful in his bid to have the above decision reconsidered by the public respondent, 7 petitioner filed the instant petition wherein he contends that:
I
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE RESPONDENT COURT WHEN IT RULED
THAT RESPONDENT SBTC DID NOT FAIL TO EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING THE SAFETY
DEPOSIT BOX OF THE PETITIONER CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST (sic) PROVING THE CONTRARY.
II

THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE RESPONDENT FROM ANY LIABILITY
WHATSOEVER BY REASON OF THE PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE AGREEMENT (EXHS. "A" AND "A-1").
III
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE AWARDS OF THE TRIAL COURT FOR ACTUAL
AND MORAL DAMAGES, INCLUDING ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR OF THE PETITIONER. 8
We subsequently gave due course the petition and required both parties to submit their respective memoranda, which they complied with. 9
Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required diligence expected of a bank maintaining such safety
deposit box . . . in the light of the environmental circumstance of said safety deposit box after the floods of 1985 and 1986." He argues that such a
conclusion is supported by the evidence on record, to wit: SBTC was fully cognizant of the exact location of the safety deposit box in question; it knew
that the premises were inundated by floodwaters in 1985 and 1986 and considering that the bank is guarded twenty-four (24) hours a day , it is safe to
conclude that it was also aware of the inundation of the premises where the safety deposit box was located; despite such knowledge, however, it never
bothered to inform the petitioner of the flooding or take any appropriate measures to insure the safety and good maintenance of the safety deposit box in
question.
SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of facts of the Court of Appeals, when supported by substantial
exidence, are not reviewable on appeal by certiorari. 10
The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity between the factual findings and conclusions of the
Court of Appeals and the trial court. 11 Such a disparity obtains in the present case.
As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease Agreement " covering Safe Deposit Box No. 54 (Exhibit "A
and "1") is just that a contract of lease and not a contract of deposit, and that paragraphs 9 and 13 thereof, which expressly limit the bank's liability
as follows:
9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the Safe by any
person other than the Renter, his autliorized agent or legal representative;
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the control of the same. The Bank
has no interest whatsoever said contents, except as herein provided, and it assumes absolutely no liability in connection
therewith. 12
are valid and binding upon the parties. In the challenged decision, the public respondent further avers that even without such a limitation of liability,
SBTC should still be absolved from any responsibility for the damage sustained by the petitioner as it appears that such damage was occasioned by a
fortuitous event and that the respondent bank was free from any participation in the aggravation of the injury.
We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be impressed with merit.
In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this Court explicitly rejected the contention that a contract for the use of
a safety deposit box is a contract of lease governed by Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a contract of
deposit to be strictly governed by the Civil Code provision on deposit; 14 it is, as We declared, a special kind of deposit. The prevailing rule in American
jurisprudence that the relation between a bank renting out safe deposit boxes and its customer with respect to the contents of the box is that of a
bailor and bailee, the bailment for hire and mutual benefit 15 has been adopted in this jurisdiction, thus:
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the
prevailing rule in the United States has been adopted. Section 72 of the General Banking Act [R.A. 337, as amended] pertinently
provides:
"Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan
associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the
safequarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section asdepositories or as
agents. . . ."(emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds,
documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but
related to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in writing (Art. 1969, Civil
Code] and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and

conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.
The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the
Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of diligence
required, that of a good father of a family is to be observed [Art. 1173, id.]. Hence, any stipulation exempting the depositary from any
liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law
and public policy. In the instant case, petitioner maintains that conditions 13 and l4 of the questioned contract of lease of the safety
deposit box, which read:
"13. The bank is a depositary of the contents of the safe and it has neither the possession nor control of the same.
"14. The bank has no interest whatsoever in said contents, except as herein expressly provided, and it assumes absolutely no
liability in connection therewith."
are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said
provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72 (a) of the General Banking
Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its duty to exercise
reasonable diligence only with respect to who shall be admitted to any rented safe, to wit:
"8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and
beyond this, the Bank will not be responsible for the contents of any safe rented from it."
Furthermore condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to assert that
the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is located in its
premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier,
renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to the
extent above stated, the foregoing conditions in the contract in question are void and ineffective. It has been said:
"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties,
since the relation is a contractual one, may by special contract define their respective duties or provide for
increasing or limiting the liability of the deposit company, provided such contract is not in violation of law or
public policy. It must clearly appear that there actually was such a special contract, however, in order to vary the
ordinary obligations implied by law from the relationship of the parties; liability of the deposit company will not
be enlarged or restricted by words of doubtful meaning. The company, in renting safe-deposit boxes, cannot
exempt itself from liability for loss of the contents by its own fraud or negligence or that, of its agents or
servants, and if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for
the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the
contents thereof through its own negligence, the view has been taken that such a lessor may limit its liability to
some extent by agreement or stipulation ."[10 AM JUR 2d., 466]. (citations omitted) 16
It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA Agro-Industrial Development Corp. are strikingly
similar to condition No. 13 in the instant case. On the other hand, both condition No. 8 in CA Agro-Industrial Development Corp. and condition No. 9 in
the present case limit the scope of the exercise of due diligence by the banks involved to merely seeing to it that only the renter, his authorized agent or
his legal representative should open or have access to the safety deposit box. In short, in all other situations, it would seem that SBTC is not bound to
exercise diligence of any kind at all. Assayed in the light of Our aforementioned pronouncements in CA Agro-lndustrial Development Corp., it is not at all
difficult to conclude that both conditions No. 9 and No. 13 of the "Lease Agreement" covering the safety deposit box in question (Exhibits "A" and "1")
must be stricken down for being contrary to law and public policy as they are meant to exempt SBTC from any liability for damage, loss or destruction of
the contents of the safety deposit box which may arise from its own or its agents' fraud, negligence or delay. Accordingly, SBTC cannot take refuge
under the said conditions.
Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of the stamp collection because the flooding was a
fortuitous event and there was no showing of SBTC's participation in the aggravation of the loss or injury. It states:
Article 1174 of the Civil Code provides:
"Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no person shall be responsible for those events which
could not be foreseen, or which, though foreseen, were inevitable.'
In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada Espaola 17 says: "In a legal sense and, consequently,
also in relation to contracts, a "caso fortuito" prevents (sic) 18 the following essential characteristics: (1) the cause of the unforeseen
ands unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human will; (2)
it must be impossible to foresee the event which constitutes the "caso fortuito," or if it can be foreseen, it must be impossible to
avoid; (3) the occurrence must be such as to render it impossible for one debtor to fulfill his obligation in a normal manner; and (4)
the obligor must be free from any participation in the aggravation of the injury resulting to the creditor." (cited in Servando vs.Phil.,
Steam Navigation Co., supra). 19
Here, the unforeseen or unexpected inundating floods were independent of the will of the appellant bank and the latter was not
shown to have participated in aggravating damage (sic) to the stamps collection of the appellee. In fact, the appellant bank offered
its services to secure the assistance of an expert to save most of the then good stamps but the appelle refused and let (sic) these
recoverable stamps inside the safety deposit box until they were ruined. 20

Both the law and authority cited are clear enough and require no further elucidation. Unfortunately, however, the public respondent failed to consider that
in the instant case, as correctly held by the trial court, SBTC was guilty of negligence. The facts constituting negligence are enumerated in the petition
and have been summarized in this ponencia. SBTC's negligenceaggravated the injury or damage to the stamp collection. SBTC was aware of the floods
of 1985 and 1986; it also knew that the floodwaters inundated the room where Safe Deposit Box No. 54 was located. In view thereof, it should have lost
no time in notifying the petitioner in order that the box could have been opened to retrieve the stamps, thus saving the same from further deterioration
and loss. In this respect, it failed to exercise the reasonable care and prudence expected of a good father of a family, thereby becoming a party to the
aggravation of the injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent Article 1170 of the Civil Code, which
reads:
Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof, are liable for damages,
thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in the language of the trial court, the "product of 27
years of patience and diligence" 21 caused the petitioner pecuniary loss; hence, he must be compensated therefor.
We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the relationship between the petitioner and SBTC is
based on a contract, either of them may be held liable for moral damages for breach thereof only if said party had acted fraudulently or in bad
faith. 22 There is here no proof of fraud or bad faith on the part of SBTC.
WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of the public respondent Court of Appeals of 21
August 1991 and 21 November 1991, respectively, in CA-G.R. CV No. 26737, are hereby SET ASIDE and the Decision of 19 February 1990 of Branch
47 of the Regional Trial Court of Manila in Civil Case No. 87-42601 is hereby REINSTATED in full, except as to the award of moral damages which is
hereby set aside.
Costs against the private respondent.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.

G.R. No. 189206

June 8, 2011

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,

vs.
THE HONORABLE 15th DIVISION OF THE COURT OF APPEALS and INDUSTRIAL BANK OF KOREA, TONG YANG MERCHANT BANK,
HANAREUM BANKING CORP., LAND BANK OF THE PHILIPPINES, WESTMONT BANK and DOMSAT HOLDINGS, INC., Respondents.
DECISION
PEREZ, J.:
The subject of this petition for certiorari is the Decision1 of the Court of Appeals in CA-G.R. SP No. 82647 allowing the quashal by the Regional Trial
Court (RTC) of Makati of a subpoena for the production of bank ledger. This case is incident to Civil Case No. 99-1853, which is the main case for
collection of sum of money with damages filed by Industrial Bank of Korea, Tong Yang Merchant Bank, First Merchant Banking Corporation, Land Bank
of the Philippines, and Westmont Bank (now United Overseas Bank), collectively known as "the Banks" against Domsat Holdings, Inc. (Domsat) and the
Government Service Insurance System (GSIS). Said case stemmed from a Loan Agreement,2 whereby the Banks agreed to lend United States (U.S.)
$11 Million to Domsat for the purpose of financing the lease and/or purchase of a Gorizon Satellite from the International Organization of Space
Communications (Intersputnik).3
The controversy originated from a surety agreement by which Domsat obtained a surety bond from GSIS to secure the payment of the loan from the
Banks. We quote the terms of the Surety Bond in its entirety.4
Republic of the Philippines
GOVERNMENT SERVICE INSURANCE SYSTEM
GENERAL INSURANCE FUND
GSIS Headquarters, Financial Center
Roxas Boulevard, Pasay City
G(16) GIF Bond 027461
SURETYBOND
KNOW ALL MEN BY THESE PRESENTS:
That we, DOMSAT HOLDINGS, INC., represented by its President as PRINCIPAL, and the GOVERNMENT SERVICE INSURANCE SYSTEM, as
Administrator of the GENERAL INSURANCE FUND, a corporation duly organized and existing under and by virtue of the laws of the Philippines, with
principal office in the City of Pasay, Metro Manila, Philippines as SURETY, are held and firmly bound unto the OBLIGEES: LAND BANK OF THE
PHILIPPINES, 7th Floor, Land Bank Bldg. IV. 313 Sen. Gil J. Puyat Avenue, Makati City; WESTMONT BANK, 411 Quintin Paredes St., Binondo, Manila:
TONG YANG MERCHANT BANK, 185, 2-Ka, Ulchi-ro, Chungk-ku, Seoul, Korea; INDUSTRIAL BANK OF KOREA, 50, 2-Ga, Ulchi-ro, Chung-gu, Seoul,
Korea; and FIRST MERCHANT BANKING CORPORATION, 199-40, 2-Ga, Euliji-ro, Jung-gu, Seoul, Korea, in the sum, of US $ ELEVEN MILLION
DOLLARS ($11,000,000.00) for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators,
successors and assigns, jointly and severally, firmly by these presents.
THE CONDITIONS OF THE OBLIGATION ARE AS FOLLOWS:
WHEREAS, the above bounden PRINCIPAL, on the 12th day of December, 1996 entered into a contract agreement with the aforementioned OBLIGEES
to fully and faithfully
Guarantee the repayment of the principal and interest on the loan granted the PRINCIPAL to be used for the financing of the two (2) year lease of a
Russian Satellite from INTERSPUTNIK, in accordance with the terms and conditions of the credit package entered into by the parties.
This bond shall remain valid and effective until the loan including interest has been fully paid and liquidated,
a copy of which contract/agreement is hereto attached and made part hereof;
WHEREAS, the aforementioned OBLIGEES require said PRINCIPAL to give a good and sufficient bond in the above stated sum to secure the full and
faithful performance on his part of said contract/agreement.
NOW, THEREFORE, if the PRINCIPAL shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions, and agreements
stipulated in said contract/agreements, then this obligation shall be null and void; otherwise, it shall remain in full force and effect.
WITNESS OUR HANDS AND SEALS this 13th day of December 1996 at Pasay City, Philippines.
DOMSAT HOLDINGS, INC.
Principal

GOVERNMENT SERVICE INSURANCE SYSTEM

General Insurance Fund

By:

By:

CAPT. RODRIGO A. SILVERIO

President

AMALIO A. MALLARI
Senior Vice-President
General Insurance Group

When Domsat failed to pay the loan, GSIS refused to comply with its obligation reasoning that Domsat did not use the loan proceeds for the payment of
rental for the satellite. GSIS alleged that Domsat, with Westmont Bank as the conduit, transferred the U.S. $11 Million loan proceeds from the Industrial
Bank of Korea to Citibank New York account of Westmont Bank and from there to the Binondo Branch of Westmont Bank. 5 The Banks filed a complaint
before the RTC of Makati against Domsat and GSIS.
In the course of the hearing, GSIS requested for the issuance of a subpoena duces tecum to the custodian of records of Westmont Bank to produce the
following documents:
1. Ledger covering the account of DOMSAT Holdings, Inc. with Westmont Bank (now United Overseas Bank), any and all documents, records,
files, books, deeds, papers, notes and other data and materials relating to the account or transactions of DOMSAT Holdings, Inc. with or
through the Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002, in his/her direct or indirect
possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise;
2. All applications for cashiers/ managers checks and bank transfers funded by the account of DOMSAT Holdings, Inc. with or through the
Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002, and all other data and materials covering said
applications, in his/her direct or indirect possession, custody or control (whether actual or constructive), whether in his/her capacity as
Custodian of Records or otherwise;
3. Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont Bank (now United Overseas Bank), any and all documents,
records, files, books, deeds, papers, notes and other data and materials relating to the account or transactions of Philippine Agila Satellite, Inc.
with or through the Westmont bank (now United Overseas Bank) for the period January 1997 to December 2002, in his/her direct or indirect
possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise;
4. All applications for cashiers/managers checks funded by the account of Philippine Agila Satellite, Inc. with or through the Westmont Bank
(now United Overseas Bank) for the period January 1997 to December 2002, and all other data and materials covering said applications, in
his/her direct or indirect possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records
or otherwise.6
The RTC issued a subpoena decus tecum on 21 November 2002.7 A motion to quash was filed by the banks on three grounds: 1) the subpoena is
unreasonable, oppressive and does not establish the relevance of the documents sought; 2) request for the documents will violate the Law on Secrecy
of Bank Deposits; and 3) GSIS failed to advance the reasonable cost of production of the documents.8 Domsat also joined the banks motion to quash
through its Manifestation/Comment.9 On 9 April 2003, the RTC issued an Order denying the motion to quash for lack of merit. We quote the pertinent
portion of the Order, thus:
After a careful consideration of the arguments of the parties, the Court did not find merit in the motion.
The serious objection appears to be that the subpoena is violative of the Law on Secrecy of Bank Deposit, as amended. The law declares bank deposits
to be "absolutely confidential" except: x x x (6) In cases where the money deposited or invested is the subject matter of the litigation.
The case at bench is for the collection of a sum of money from defendants that obtained a loan from the plaintiff. The loan was secured by defendant
GSIS which was the surety. It is the contention of defendant GSIS that the proceeds of the loan was deviated to purposes other than to what the loan
was extended. The quashal of the subpoena would deny defendant GSIS its right to prove its defenses.
WHEREFORE, for lack of merit the motion is DENIED.10
On 26 June 2003, another Order was issued by the RTC denying the motion for reconsideration filed by the banks.11 On 1 September 2003 however, the
trial court granted the second motion for reconsideration filed by the banks. The previous subpoenas issued were consequently quashed. 12 The trial
court invoked the ruling in Intengan v. Court of Appeals,13 where it was ruled that foreign currency deposits are absolutely confidential and may be
examined only when there is a written permission from the depositor. The motion for reconsideration filed by GSIS was denied on 30 December 2003.
Hence, these assailed orders are the subject of the petition for certiorari before the Court of Appeals. GSIS raised the following arguments in support of
its petition:
I.
Respondent Judge acted with grave abuse of discretion when it favorably considered respondent banks (second) Motion for Reconsideration dated July
9, 2003 despite the fact that it did not contain a notice of hearing and was therefore a mere scrap of paper.
II.
Respondent judge capriciously and arbitrarily ignored Section 2 of the Foreign Currency Deposit Act (RA 6426) in ruling in his Orders dated September 1
and December 30, 2003 that the US$11,000,000.00 deposit in the account of respondent Domsat in Westmont Bank is covered by the secrecy of bank
deposit.

III.
Since both respondent banks and respondent Domsat have disclosed during the trial the US$11,000,000.00 deposit, it is no longer secret and
confidential, and petitioner GSIS right to inquire into what happened to such deposit can not be suppressed. 14
The Court of Appeals addressed these issues in seriatim.
The Court of Appeals resorted to a liberal interpretation of the rules to avoid miscarriage of justice when it allowed the filing and acceptance of the
second motion for reconsideration. The appellate court also underscored the fact that GSIS did not raise the defect of lack of notice in its opposition to
the second motion for reconsideration. The appellate court held that failure to timely object to the admission of a defective motion is considered a waiver
of its right to do so.
The Court of Appeals declared that Domsats deposit in Westmont Bank is covered by Republic Act No. 6426 or the Bank Secrecy Law. We quote the
pertinent portion of the Decision:
It is our considered opinion that Domsats deposit of $11,000,000.00 in Westmont Bank is covered by the Bank Secrecy Law, as such it cannot be
examined, inquired or looked into without the written consent of its owner. The ruling in Van Twest vs. Court of Appeals was rendered during the
effectivity of CB Circular No. 960, Series of 1983, under Sec. 102 thereof, transfer to foreign currency deposit account or receipt from another foreign
currency deposit account, whether for payment of legitimate obligation or otherwise, are not eligible for deposit under the System.
CB Circular No. 960 has since been superseded by CB Circular 1318 and later by CB Circular 1389. Section 102 of Circular 960 has not been reenacted in the later Circulars. What is applicable now is the decision in Intengan vs. Court of Appeals where the Supreme Court has ruled that the under
R.A. 6426 there is only a single exception to the secrecy of foreign currency deposits, that is, disclosure is allowed only upon the written permission of
the depositor. Petitioner, therefore, had inappropriately invoked the provisions of Central Bank (CB) Circular Nos. 343 which has already been
superseded by more recently issued CB Circulars. CB Circular 343 requires the surrender to the banking system of foreign exchange, including
proceeds of foreign borrowings. This requirement, however, can no longer be found in later circulars.
In its Reply to respondent banks comment, petitioner appears to have conceded that what is applicable in this case is CB Circular 1389. Obviously,
under CB 1389, proceeds of foreign borrowings are no longer required to be surrendered to the banking system.
Undaunted, petitioner now argues that paragraph 2, Section 27 of CB Circular 1389 is applicable because Domsats $11,000,000.00 loan from
respondent banks was intended to be paid to a foreign supplier Intersputnik and, therefore, should have been paid directly to Intersputnik and not
deposited into Westmont Bank. The fact that it was deposited to the local bank Westmont Bank, petitioner claims violates the circular and makes the
deposit lose its confidentiality status under R.A. 6426. However, a reading of the entire Section 27 of CB Circular 1389 reveals that the portion quoted by
the petitioner refers only to the procedure/conditions of drawdown for service of debts using foreign exchange. The above-said provision relied upon by
the petitioner does not in any manner prescribe the conditions before any foreign currency deposit can be entitled to the confidentiality provisions of R.A.
6426.15
Anent the third issue, the Court of Appeals ruled that the testimony of the incumbent president of Westmont Bank is not the written consent
contemplated by Republic Act No. 6426.
The Court of Appeals however upheld the issuance of subpoena praying for the production of applications for cashiers or managers checks by Domsat
through Westmont Bank, as well as a copy of an Agreement and/or Contract and/or Memorandum between Domsat and/or Philippine Agila Satellite and
Intersputnik for the acquisition and/or lease of a Gorizon Satellite. The appellate court believed that the production of these documents does not involve
the examination of Domsats account since it will never be known how much money was deposited into it or withdrawn therefrom and how much remains
therein.
On 29 February 2008, the Court of Appeals rendered the assailed Decision, the decretal portion of which reads:
WHEREFORE, the petition is partially GRANTED. Accordingly, the assailed Order dated December 30, 2003 is hereby modified in that the quashal of
the subpoena for the production of Domsats bank ledger in Westmont Bank is upheld while respondent court is hereby ordered to issue subpoena
duces tecum ad testificandum directing the records custodian of Westmont Bank to bring to court the following documents:
a) applications for cashiers or managers checks by respondent Domsat through Westmont Bank from January 1997 to December 2002;
b) bank transfers by respondent Domsat through Westmont Bank from January 1997 to December 2002; and
c) copy of an agreement and/or contract and/or memorandum between respondent Domsat and/or Philippine Agila Satellite and Intersputnik
for the acquisition and/or lease of a Gorizon satellite.
No pronouncement as to costs.16
GSIS filed a motion for reconsideration which the Court of Appeals denied on 19 June 2009. Thus, the instant petition ascribing grave abuse of
discretion on the part of the Court of Appeals in ruling that Domsats deposit with Westmont Bank cannot be examined and in finding that the banks
second motion for reconsideration in Civil Case No. 99-1853 is procedurally acceptable. 17
This Court notes that GSIS filed a petition for certiorari under Rule 65 of the Rules of Court to assail the Decision and Resolution of the Court of Appeals.
Petitioner availed of the improper remedy as the appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45 and not a

special civil action under Rule 65.18 Certiorari under Rule 65 lies only when there is no appeal, nor plain, speedy and adequate remedy in the ordinary
course of law. That action is not a substitute for a lost appeal in general; it is not allowed when a party to a case fails to appeal a judgment to the proper
forum.19 Where an appeal is available, certiorari will not prosper even if the ground therefor is grave abuse of discretion. Accordingly, when a party
adopts an improper remedy, his petition may be dismissed outright.20lauuphil
Yet, even if this procedural infirmity is discarded for the broader interest of justice, the petition sorely lacks merit.
GSIS insists that Domsats deposit with Westmont Bank can be examined and inquired into. It anchored its argument on Republic Act No. 1405 or the
"Law on Secrecy of Bank Deposits," which allows the disclosure of bank deposits in cases where the money deposited is the subject matter of the
litigation. GSIS asserts that the subject matter of the litigation is the U.S. $11 Million obtained by Domsat from the Banks to supposedly finance the lease
of a Russian satellite from Intersputnik. Whether or not it should be held liable as a surety for the principal amount of U.S. $11 Million, GSIS contends, is
contingent upon whether Domsat indeed utilized the amount to lease a Russian satellite as agreed in the Surety Bond Agreement. Hence, GSIS argues
that the whereabouts of the U.S. $11 Million is the subject matter of the case and the disclosure of bank deposits relating to the U.S. $11 Million should
be allowed.
GSIS also contends that the concerted refusal of Domsat and the banks to divulge the whereabouts of the U.S. $11 Million will greatly prejudice and
burden the GSIS pension fund considering that a substantial portion of this fund is earmarked every year to cover the surety bond issued.
Lastly, GSIS defends the acceptance by the trial court of the second motion for reconsideration filed by the banks on the grounds that it is pro forma and
did not conform to the notice requirements of Section 4, Rule 15 of the Rules of Civil Procedure. 21
Domsat denies the allegations of GSIS and reiterates that it did not give a categorical or affirmative written consent or permission to GSIS to examine its
bank statements with Westmont Bank.
The Banks maintain that Republic Act No. 1405 is not the applicable law in the instant case because the Domsat deposit is a foreign currency deposit,
thus covered by Republic Act No. 6426. Under said law, only the consent of the depositor shall serve as the exception for the disclosure of his/her
deposit.
The Banks counter the arguments of GSIS as a mere rehash of its previous arguments before the Court of Appeals. They justify the issuance of the
subpoena as an interlocutory matter which may be reconsidered anytime and that the pro forma rule has no application to interlocutory orders.
It appears that only GSIS appealed the ruling of the Court of Appeals pertaining to the quashal of the subpoena for the production of Domsats bank
ledger with Westmont Bank. Since neither Domsat nor the Banks interposed an appeal from the other portions of the decision, particularly for the
production of applications for cashiers or managers checks by Domsat through Westmont Bank, as well as a copy of an agreement and/or contract
and/or memorandum between Domsat and/or Philippine Agila Satellite and Intersputnik for the acquisition and/or lease of a Gorizon satellite, the latter
became final and executory.
GSIS invokes Republic Act No. 1405 to justify the issuance of the subpoena while the banks cite Republic Act No. 6426 to oppose it. The core issue is
which of the two laws should apply in the instant case.
Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by Presidential Decree No. 1792 in 1981 and further amended by
Republic Act No. 7653 in 1993. It now reads:
Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government
of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be
examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of
impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or
invested is the subject matter of the litigation.
Section 8 of Republic Act No. 6426, which was enacted in 1974, and amended by Presidential Decree No. 1035 and later by Presidential Decree No.
1246, provides:
Section 8. Secrecy of Foreign Currency Deposits. All foreign currency deposits authorized under this Act, as amended by Presidential Decree No.
1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, are hereby declared as and considered of an absolutely
confidential nature and, except upon the written permission of the depositor, in no instance shall foreign currency deposits be examined, inquired or
looked into by any person, government official, bureau or office whether judicial or administrative or legislative or any other entity whether public or
private; Provided, however, That said foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative body whatsoever. (As amended by PD No. 1035, and further amended by PD No. 1246,
prom. Nov. 21, 1977.)
On the one hand, Republic Act No. 1405 provides for four (4) exceptions when records of deposits may be disclosed. These are under any of the
following instances: a) upon written permission of the depositor, (b) in cases of impeachment, (c) upon order of a competent court in the case of bribery
or dereliction of duty of public officials or, (d) when the money deposited or invested is the subject matter of the litigation, and e) in cases of violation of
the Anti-Money Laundering Act (AMLA), the Anti-Money Laundering Council (AMLC) may inquire into a bank account upon order of any competent
court.22 On the other hand, the lone exception to the non-disclosure of foreign currency deposits, under Republic Act No. 6426, is disclosure upon the
written permission of the depositor.
These two laws both support the confidentiality of bank deposits. There is no conflict between them. Republic Act No. 1405 was enacted for the purpose
of giving encouragement to the people to deposit their money in banking institutions and to discourage private hoarding so that the same may be
properly utilized by banks in authorized loans to assist in the economic development of the country.23 It covers all bank deposits in the Philippines and no

distinction was made between domestic and foreign deposits. Thus, Republic Act No. 1405 is considered a law of general application. On the other
hand, Republic Act No. 6426 was intended to encourage deposits from foreign lenders and investors.24 It is a special law designed especially for foreign
currency deposits in the Philippines. A general law does not nullify a specific or special law. Generalia specialibus non derogant. 25 Therefore, it is beyond
cavil that Republic Act No. 6426 applies in this case.
Intengan v. Court of Appeals affirmed the above-cited principle and categorically declared that for foreign currency deposits, such as U.S. dollar
deposits, the applicable law is Republic Act No. 6426.
In said case, Citibank filed an action against its officers for persuading their clients to transfer their dollar deposits to competitor banks. Bank records,
including dollar deposits of petitioners, purporting to establish the deception practiced by the officers, were annexed to the complaint. Petitioners now
complained that Citibank violated Republic Act No. 1405. This Court ruled that since the accounts in question are U.S. dollar deposits, the applicable law
therefore is not Republic Act No. 1405 but Republic Act No. 6426.
The above pronouncement was reiterated in China Banking Corporation v. Court of Appeals,26 where respondent accused his daughter of stealing his
dollar deposits with Citibank. The latter allegedly received the checks from Citibank and deposited them to her account in China Bank. The subject
checks were presented in evidence. A subpoena was issued to employees of China Bank to testify on these checks. China Bank argued that the
Citibank dollar checks with both respondent and/or her daughter as payees, deposited with China Bank, may not be looked into under the law on
secrecy of foreign currency deposits. This Court highlighted the exception to the non-disclosure of foreign currency deposits, i.e., in the case of a written
permission of the depositor, and ruled that respondent, as owner of the funds unlawfully taken and which are undisputably now deposited with China
Bank, he has the right to inquire into the said deposits.
Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat, Westmont Bank cannot be legally compelled to disclose the
bank deposits of Domsat, otherwise, it might expose itself to criminal liability under the same act. 27
The basis for the application of subpoena is to prove that the loan intended for Domsat by the Banks and guaranteed by GSIS, was diverted to a
purpose other than that stated in the surety bond. The Banks, however, argue that GSIS is in fact liable to them for the proper applications of the loan
proceeds and not vice-versa. We are however not prepared to rule on the merits of this case lest we pre-empt the findings of the lower courts on the
matter.
The third issue raised by GSIS was properly addressed by the appellate court. The appellate court maintained that the judge may, in the exercise of his
sound discretion, grant the second motion for reconsideration despite its being pro forma. The appellate court correctly relied on precedents where this
Court set aside technicality in favor of substantive justice. Furthermore, the appellate court accurately pointed out that petitioner did not assail the defect
of lack of notice in its opposition to the second motion of reconsideration, thus it can be considered a waiver of the defect.
WHEREFORE, the petition for certiorari is DISMISSED. The Decision dated 29 February 2008 and 19 June 2009 Resolution of the Court of Appeals are
hereby AFFIRMED.
SO ORDERED.

FIRST PLANTERS
PAWNSHOP, INC.,
Petitioner,

G.R. No. 174134

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

- versus -

COMMISSIONER OF
INTERNAL REVENUE,
Respondent.

Promulgated:
July 30, 2008
x----------------------------------------------x
DECISION

AUSTRIA-MARTINEZ, J.:

First Planters Pawnshop, Inc. (petitioner) contests the deficiency value-added 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 reconsideration[8] which 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
Revenue[16] reiterates said ruling. It was theCTA'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 Nonbank 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 1997[26] 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.
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 that banks 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.[32]

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 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 ngPilipinas 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
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. InPhilippine 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 xx 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 over-emphasized 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 isMODIFIED 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.

SO ORDERED.

G.R. No. L-53194 March 14, 1988

PHILIPPINE NATIONAL BANK petitioner,
vs.
HON. ROMULO S. QUIMPO, Presiding Judge, Court of First Instance of Rizal, Branch XIV, and FRANCISCO S. GOZON II, respondents.
GANCAYCO, J.:
On July 3, 1973, Francisco S. Gozon II, who was a depositor of the Caloocan City Branch of the Philippine National Bank, went to the bank in his car
accompanied by his friend Ernesto Santos whom he left in the car while he transacted business in the bank. When Santos saw that Gozon left his check
book he took a check therefrom, filled it up for the amount of P5,000.00, forged the signature of Gozon, and thereafter he encashed the check in the
bank on the same day. The account of Gozon was debited the said amount. Upon receipt of the statement of account from the bank, Gozon asked that
the said amount of P5,000.00 should be returned to his account as his signature on the check was forged but the bank refused.
Upon complaint of private respondent on February 1, 1974 Ernesto Santos was apprehended by the police authorities and upon investigation he
admitted that he stole the check of Gozon, forged his signature and encashed the same with the Bank.
Hence Gozon filed the complaint for recovery of the amount of P5,000.00, plus interest, damages, attorney's fees and costs against the bank in the
Court of First Instance of Rizal. After the issues were joined and the trial on the merits ensued, a decision was rendered on February 4, 1980, the
dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff. The defendant is hereby condemned to return to plaintiff the
amount of P5,000.00 which it had unlawfully withheld from the latter, with interest at the legal rate from September 22, 1972 until the
amount is fully delivered. The defendant is further condemned to pay plaintiff the sum of P2,000.00 as attorney's fees and to pay the
costs of this suit.
Not satisfied therewith, the bank now filed this petition for review on certiorari in this Court raising the sole legal issue that
THE ACT OF RESPONDENT FRANCISCO GOZON, II IN PUTTING HIS CHECK BOOK CONTAINING THE CHECK IN QUESTION
INTO THE HANDS OF ERNESTO SANTOS WAS INDEED THE PROXIMATE CAUSE OF THE LOSS, THEREBY PRECLUDING
HIM FROM SETTING UP THE DEFENSE OF FORGERY OR WANT 0F AUTHORITY UNDER SECTION 23 OF THE NEGOTIABLE
INSTRUMENTS LAW, ACT NO. 3201
The petition is devoid of merit.
This Court reproduces with approval the disquisition of the court a quo as follows:
A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment
out of its own funds, and cannot ordinarily change the amount so paid to the account of the depositor whose name was forged' (San
Carlos Milling Co. vs. Bank of the P.I., 59 Phil. 59).
This rule is absolutely necessary to the circulation of drafts and checks, and is based upon the presumed negligence of the drawee
in failing to meet its obligation to know the signature of its correspondent. ... There is nothing inequitable in such a rule. If the paper
comes to the drawee in the regular course of business, and he, having the opportunity ascertaining its character, pronounces it to be
valid and pays it, it is not only a question of payment under mistake, but payment in neglect of duty which the commercial law places
upon him, and the result of his negligence must rest upon him (12 ALR 1901, citing many cases found in I Agbayani, supra).
Defendant, however, interposed the defense that it exercised diligence in accordance with the accepted norms of banking practice
when it accepted and paid Exhibit "A". It presented evidence that the check had to pass scrutiny by a signature verifier as well as an
officer of the bank.
A comparison of the signature (Exhibit "A-l") on the forged check (Exhibit "A") with plaintiffs exemplar signatures (Exhibits "5-N" and
"5-B") found in the PNB Form 35-A would immediately show the negligence of the employees of the defendant bank. Even a not too
careful comparison would immediately arrest one's attention and direct it to the graceful lines of plaintiffs exemplar signatures found
in Exhibits "5-A" and "5-B". The formation of the first letter "F" in the exemplars, which could be regarded as artistic, is completely
different from the way the same letter is formed in Exhibit "A-l". That alone should have alerted a more careful and prudent signature
verifier.
The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or the depositor on the check being encashed. 1 It is expected to
use reasonable business prudence in accepting and cashing a check presented to it.
In this case the findings of facts of the court a quo are conclusive. The trial court found that a comparison of the signature on the forged check and the
sample signatures of private respondent show marked differences as the graceful lines in the sample signature which is completely different from those
of the signature on the forged check. Indeed the NBI handwriting expert Estelita Santiago Agnes whom the trial court considered to be an "unbiased
scientific expert" indicated the marked differences between the signature of private respondent on the sample signatures and the questioned signature.
Notwithstanding the testimony of Col. Fernandez, witness for petitioner, advancing the opinion that the questioned signature appears to be genuine, the
trial court by merely examining the pictorial report presented by said witness, found a marked difference in the second "c" in Francisco as written on the

questioned signature as compared to the sample signatures, and the separation between the "s" and the "c" in the questioned signature while they are
connected in the sample signatures. 2
Obviously, petitioner was negligent in encashing said forged check without carefully examining the signature which shows marked variation from the
genuine signature of private respondent.
In reference to the allegation of the petitioner that it is the negligence of private respondent that is the cause of the loss which he suffered, the trial court
held:
The act of plaintiff in leaving his checkbook in the car while he went out for a short while can not be considered negligence sufficient
to excuse the defendant bank from its own negligence. It should be home in mind that when defendant left his car, Ernesto Santos,
a long time classmate and friend remained in the same. Defendant could not have been expected to know that the said Ernesto
Santos would remove a check from his checkbook. Defendant had trust in his classmate and friend. He had no reason to suspect
that the latter would breach that trust .
We agree.
Private respondent trustee Ernesto Santos as a classmate and a friend. He brought him along in his car to the bank and he left his personal belongings
in the car. Santos however removed and stole a check from his cheek book without the knowledge and consent of private respondent. No doubt private
respondent cannot be considered negligent under the circumstances of the case.
WHEREFORE, the petition is DISMISSED for lack of merit with costs against petitioner.
SO ORDERED.
Teehankee, C.J., Narvasa, Cruz and Grio-Aquino, JJ., concur.

BPI FAMILY BANK,

G.R. No. 148196

Petitioner,
- versus -

EDGARDO
BUENAVENTURA,
MYRNA
YOLANDA TICA,
Respondents.

LIZARDO

and

LIZARDO

and

x--------------------------x
EDGARDO
BUENAVENTURA,
MYRNA
YOLANDA TICA,
Petitioners,

- versus -

G.R. No. 148259

Present:
PUNO, Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
Promulgated:

BPI FAMILY BANK,

Respondent.

September 30, 2005

x----------------------------------------------------------- x
DECISION
AUSTRIA-MARTINEZ, J.:

Before us are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court assailing the Decision [1] of the Court of
Appeals (CA) dated November 27, 2000 in CA-G.R. CV No. 53962, which affirmed with modification the Decision dated August 11, 1995 of the Regional
Trial Court, Branch 25, Manila (Manila RTC); and the CA Resolution dated May 3, 2001, which denied the parties separate motions for reconsideration.

The factual background of the case is as follows:

On May 23, 1990, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.), all officers of the International Baptist
Church and International Baptist Academy in Malabon, Metro Manila, filed a complaint for Reinstatement of Current Account/Release of Money plus
Damages against BPI Family Bank (BPI-FB) before the Manila RTC, docketed as Civil Case No. 90-53154. [2]

They alleged that: on August 30, 1989, they accepted from Amado Franco BPI-FB Check No. 129004 dated August 29, 1989 in the amount
of P500,000.00, jointly issued by Eladio Teves and Joseph Teves; [3] they opened Current Account No. 807-065314-0 with the BPI-FB Branch at Bonifacio
Market, Edsa, Caloocan City and deposited the check as initial deposit; the check was subsequently cleared and the amount was credited to their
Current
Account; on September 3, 1989, they drew a check in the amount of P10,171.50 and pursuant to normal banking procedure the check was honored and
debited from their Current Account, leaving a balance of P490,328.50; on September 4, 1989, they drew another check in the amount of P46,189.60;
instead of debiting the said amount against their Current
Account, it was debited, without their knowledge and consent, against their Savings Account No. 08-95332-5 with the same branch; on September 9,
1989, they drew a check forP91,270.00 which, upon presentment for payment, was dishonored for the reason account closed, in spite of the balance in
the Current Account of P490,328.50; they thereafter learned from BPI-FB that their Current Account had been frozen upon instruction of Severino P.
Coronacion, Vice-President of BPI-FB on the ground that the source of fund was illegal or unauthorized; they demanded the reinstatement of the
account, but BPI-FB refused.

On June 20, 1990, BPI-FB filed a motion to dismiss on the ground of litis pendentia, alleging that there is a pending case for recovery of sum
of money arising from the BPI-FB Check No. 129004 dated August 29, 1989 before the Regional Trial Court (RTC), Branch 146, Makati [4] and
Buenaventura is one of the defendants therein.[5] Buenaventura, et al. opposed the motion to dismiss on the ground that there is no identity of parties,
rights asserted and reliefs prayed between the two cases.[6]

On October 10, 1990, the Manila RTC denied the motion to dismiss, ruling that there can be no res judicata between the two cases since the
parties are different and the causes of action are not the same.[7]

On December 10, 1990, BPI-FB filed its answer alleging that: the check received by Buenaventura, et al. from Amado Franco was drawn by
Eladio Teves and Joseph Teves against the Current Account of the Tevesteco Arrastre Stevedoring Co., Inc. (Tevesteco); the funds in the said Tevesteco
account allegedly consisted mainly of funds in the amount of P80,000,000.00 transferred to it from another account belonging to the First Metro
Investment Corporation (FMIC); such transfer of funds was effected on the basis of an Authority to Debit bearing the signatures of certain officers of
FMIC; upon its investigation, BPI-FB found that the signatures in the Authority to Debit were forged; before this, however, Tevesteco had already issued
several checks against its Current Account, one of which is the BPI-FB Check No. 129004 received by Buenaventura, et al.from Amado Franco, after
a series of indorsements; it has the right to consider the Current Account of Buenaventura, et al., which is funded from BPI-FB Check No. 129004, as
closed and to refuse any further withdrawal from the same; assuming that the forgery claim of FMIC is untrue and incorrect, it is the right of the BPI-FB,
as a matter of protecting its interests, to freeze their account or to hold it in suspense and not to allow any withdrawals therefrom in the meantime that
the issue of forgery remains unsettled; FMIC has instituted another civil action, presently pending appeal, against BPI-FB and several other defendants
for the recovery of the P80,000,000.00 transferred from the formers account to Tevestecos account.[8]

Following trial on the merits, on August 11, 1995, the Manila RTC rendered its decision, finding that: BPI-FB had no right to unilaterally freeze
the deposits of Buenaventura, et al. since the latter had no participation in any fraud that may have attended the prior fund transfers from FMIC to
Tevesteco; as holders in good faith and for value of the BPI-FB Check No. 129004, their rights to the sum embodied in the said check should have been
respected; BPI-FBs unilateral action of freezing the Current Account amounted to an unlawful confiscation of their property without due process. The
dispositive portion of the RTC decision reads as follows:

WHEREFORE, in view of the foregoing judgment is rendered in favor of the plaintiff and against the defendant bank and
the latter is ordered as follows:
1. To pay the plaintiff the sum of P490,328.50 representing the balance of the plaintiffs deposit under Account No. 807065-313-0 which was unlawfully frozen by the bank and finally debited against said account with legal rate of interest from date of
closure;
2. To pay the sum of P200,000.00 as moral damages;
3. To pay the amount of P200,000.00 as exemplary damages to serve as an example and lesson to serve as a deterrent
for similar action which the bank may take against its depositors in the future;
4. To pay the sum of P50,000.00 as attorneys fees.
SO ORDERED.[9]

Dissatisfied, BPI-FB appealed to the CA. It alleged that: the case should have been dismissed for lack of cause of action because it is the
International Baptist Academy which is the owner of the funds deposited with BPI-FB and therefore the real party-in-interest, although the account is in
the name of Buenaventura, et al.; the RTC should not have ordered the payment of the balance of the Current Account of Buenaventura, et al. because
the latter were interested only in the reinstatement of their Current Account; the provisions of the Negotiable Instruments Law should not have been

applied by the RTC to support its position that Buenaventura, et al. are the owners of the funds in their Current Account; BPI-FB is entitled to freeze the
account of Buenaventura, et al. and to disallow any withdrawals therefrom as a measure to protect its interest; BPI-FB, not Buenaventura, et al., is
entitled to damages.
On November 27, 2000, the CA affirmed the decision of the Manila RTC, holding that BPI-FB did not act in accordance with law. [10] It ruled
that the relationship between the bank and the depositor is that of debtor and creditor and, as such, BPI-FB could not lawfully refuse to make payments
on the checks drawn and issued by Buenaventura, et al., provided only that there are funds available in the latters deposit. It further declared that BPIFB is not justified in freezing the amounts deposited by Buenaventura, et al. for suspicion of being illegal or unauthorized as a result of the claimed
fraud perpetuated against FMIC because: (a) it has not been sufficiently shown that the funds in the account of Buenaventura, et al. were derived
exclusively from the alleged P80,000,000.00 unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted
exclusively of the said P80,000,000.00 debited from FMICs account; and (b) there is no clear proof of any involvement of Buenaventura, et al., the
International Baptist Church or International Baptist Academy in the alleged irregularities attending the fund transfer from FMIC to Tevesteco.

The CA also found unmeritorious BPI-FBs claim that Buenaventura, et al. have no cause of action since the International Baptist Academy is
the real party-in-interest. It held that since it is undisputed that it is the Current Account of Buenaventura, et al. which was frozen and closed by BPI-FB,
then the former are the parties-in-interest in the reopening of the said account. It found no error in the Manila RTCs order that BPI-FB pay the amount
of P490,328.50 plus interest directly to Buenaventura, et al. since the reinstatement of the Current Account would mean the same thing as the payment
of the balance; Buenaventura, et al. would necessarily have the right to withdraw their deposit if and when they see it fit. Furthermore, the CA held that
the RTCs disposition falls under the general prayer of Buenaventura, et al. for such other reliefs as may be just and equitable under the attendant
circumstances.

With regard to award of damages, the CA sustained the award of moral damages and attorneys fees, holding that BPI-FBs actuations were
established to have caused Buenaventura, et al. to incur the distrust of their Baptist brethren, besides suffering mental anguish, serious anxiety,
wounded feelings, and moral shock but found no basis for the award of exemplary damages of P200,000.00 for lack of showing that BPI-FB was not
animated by any wanton, fraudulent, reckless, oppressive or malevolent intent.

Both parties filed separate motions for reconsideration. Buenaventura, et al. sought reconsideration of the deletion of the award of exemplary
[11]

damages.

On the other hand, BPI-FB reiterated its argument that the International Baptist Academy is the real party-in-interest. It also assailed the

findings and conclusions of the CA.[12]

On May 3, 2001, the CA denied both motions for reconsideration.[13]

Hence, the present two consolidated petitions for review on certiorari.

In G.R No. 148196, BPI-FB ascribes six errors upon the CA, to wit:

I.
The Honorable Court of Appeals committed a reversible error in holding that the respondents are the real partiesin-interest in this case contrary to the admissions of respondents themselves that it is the International Baptist Academy who is the
owner of the funds in question and hence it is and out to be the real party in interest in this case.
II.
The Honorable Court of Appeals committed a grave abuse of discretion in not dismissing respondents complaint
for lack of cause of action.
III.
The Honorable Court of Appeals committed a reversible error in NOT holding, based on a misapprehension of facts
that BPI-FB is entitled to freeze respondents account and to disallow any withdrawal therefrom as a measure to protect its interest.

IV.
The Honorable Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that
it has not been sufficiently shown that the funds in deposit with BPI-FB under the name of the respondents were derived exclusively
from the alleged 80 million pesos unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco
consisted exclusively of the said 80 million pesos debited from FMICs account.
V.
The Honorable Court of Appeals committed a grave abuse of discretion in NOT upholding the position of BPI-FB on
the freezing of respondents current account when it held that there was no clear proof of any involvement by the respondents with
the alleged irregularities attending the fund transfer from FMIC to Tevesteco.
VI.
The Honorable Court of Appeals committed a grave abuse of discretion, in holding, in effect, that there is nothing
wrong with the Lower Courts order directing BPI-FB to pay to respondents directly the balance of their account plus interest
although their prayer in their complaint was only to reinstate their current account.[14]

Anent the first and second grounds, BPI-FB maintains that the complaint should have been dismissed for lack of cause of action because
Buenaventura et al. admit that the International Baptist Academy is the owner of the funds in question and therefore the real party-in-interest to
prosecute the action.

On the third ground, BPI-FB asserts that it has the right to consider the account of Buenaventura, et al. as frozen and to refuse any
withdrawals
from the same because of the forgery claim of FMIC. Assuming the forgery claim of FMIC is true and correct, the amount transferred from FMICs
account to Tevestecos account is the money of BPI-FB under the principle that a bank is deemed to have disbursed its own funds. It submits that as an
original owner who is restored in possession of stolen property, it has a better right over such property than a mere transferee no matter how innocent
the latter may be.

Concerning the fourth ground, BPI-FB submits that ample proof was presented by it that the deposit under the name of Tevesteco consisted
exclusively of theP80,000,000.00 debited from FMICs account and the funds in deposit with BPI-FB under the name of Buenaventura, et al. were
derived exclusively from the P80,000,000.00 unlawfully transferred from the funds of FMIC.

With regard to the fifth ground, BPI-FB concedes that there is no clear proof of any involvement by Buenaventura, et al. in the alleged
irregularities attending the fund transfer from FMIC to Tevesteco. It insists, however, that the freezing of the account was triggered by the forgery claim
of FMIC and the unauthorized fund transfer to Tevesteco based on the principle that a bank is deemed to have disbursed its own funds, and not its
depositors, where the authority for such disbursement is a forgery and null and void. It had the right to set up its ownership of the money as against that
of Buenaventura, et al. and to refuse to return the same to them.

As to the sixth ground, BPI-FB points out that Buenaventura, et al. originally prayed in the alternative for the reinstatement of their Current
Account or for payment of the balance remaining in said account but they subsequently chose to delete that portion praying for the payment of the
balance of their account. It submits that Buenaventura, et al.deliberately did this to sidestep the other pending case filed against the suspected
perpetrators of the fraud, including Amado Franco and Buenaventura, before RTC, Branch 146, Makati.

In G.R. No. 148259, Buenaventura, et al. anchor their petition on a sole ground, to wit:

The Honorable Court of Appeals has decided the case in a way not in accord with law and applicable jurisprudence in the
deletion of the award of exemplary damages granted by the court a quo.[15]

They submit that BPI-FB acted in a wanton, reckless, oppressive and malevolent manner in freezing, and subsequently closing, their account
without prior notification. They insist that BPI-FB failed in its obligation, as an entity engaged in business affected with public interest, to treat the
accounts of its depositors with meticulous care, having in mind the fiduciary nature of their relationship. Moreover, as if to compound its reckless
conduct, BPI-FB declared itself the owner of the money which the depositors have placed in its care, freezing and later closing the depositors account,
all before due notice and without first giving the latter the opportunity to properly present their side or at least sufficient time to direct their course of
action, like refraining from issuing any check, to eventually save themselves from any embarrassment and/or possible criminal prosecution for estafa or
violation of Batas Pambansa Blg. 22.

We rule in favor of Buenaventura, et al.

It is elementary that it is only in the name of a real party-in-interest that a civil suit may be prosecuted. Under Section 2, Rule 3 of the Rules of
Civil Procedure, a real party-in-interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of
the suit. "Interest" within the meaning of the rule means material interest, an interest in issue and to be affected by the decree, as distinguished from
mere interest in the question involved, or a mere incidental interest. [16] One having no right or interest to protect cannot invoke the jurisdiction of the
court as a party plaintiff in an action.[17] To qualify a person to be a real party-in-interest in whose name an action must be prosecuted, he must appear to
be the present real owner of the right sought to be enforced. [18] Since a contract may be violated only by the parties thereto as against each other, in an
action upon that contract, the real parties-in-interest, either as plaintiff or as defendant, must be parties to the said contract. [19]

In the present case, Buenaventura, et al. are the real parties-in-interest. They are the parties who contracted with BPI-FB with regard to the
Current Account. While the funds were used for purposes of the International Baptist Church and the International Baptist Academy, it must be noted that
the Current Account is in the name of Buenaventura,et al. They are the signatories of the check which was dishonored by BPI-FB upon presentment and
the ones who will be held accountable for the nonpayment or dishonor of any check they issued. Thus, they are the real parties-in-interest to enforce the
terms of the contract of deposit with BPI-FB.

Furthermore, BPI-FB has no unilateral right to freeze the current account of Buenaventura, et al. based on the suspicion that the funds in the
latters account are illegal or unauthorized having been sourced from the
unlawful transfer of funds from the account of FMIC to Tevesteco and disallow any withdrawal therefrom to allegedly protect its interest.

Needless to stress, the contract between a bank and its depositor is governed by the provisions of the Civil Code on simple loan. [20] Thus,
there is a debtor-creditor relationship between a bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the
bank money and the bank agrees to pay the depositor on demand. The savings or current deposit agreement between the bank and the depositor is the
contract that determines the rights and obligations of the parties.

Every bank that issues checks for the use of its customers should know whether or not the drawer's signature thereon is genuine, whether
there are sufficient funds in the drawers account to cover checks issued, and it should be able to detect alterations, erasures, superimpositions or
intercalations thereon, for these instruments are prepared, printed and issued by itself, it has control of the drawer's account, and it is supposed to be
familiar with the drawer's signature. It should possess appropriate detecting devices for uncovering forgeries and/or alterations on these instruments.
Unless a forgery or alteration is attributable to the fault or negligence of the drawer himself, the remedy of the drawee bank that negligently clears a
forged and/or altered check for payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss. [21]
There is nothing inequitable in such a rule for if in the regular course of business the check comes to the drawee bank which, having the
opportunity to ascertain its character, pronounces it to be valid and pays it, as in this case, it is not only a question of payment under mistake, but
payment in neglect of duty which the commercial law places upon it, and the result of its negligence must rest upon it. [22]

Having been negligent in detecting the forgery prior to clearing the check, BPI-FB should bear the loss and cant shift the blame to
Buenaventura, et al. having failed to show any participation on their part in the forgery. BPI-FB fails to point any circumstance which should have put
Buenaventura, et al. on inquiry as to the why and wherefore of the possession of the check by Amado Franco. Buenaventura, et al. were not privies to
any transaction involving FMIC, Tevesteco or Franco. They thus had no obligation to ascertain from Franco what the nature of the latters title to the
checks was, if any, or the nature of his possession. They cannot be guilty of gross neglect amounting to legal absence of good faith, absent any showing
that there was something amiss about Francos acquisition or possession of the check, which was payable to bearer.[23]

Thus, the fact that the funds in deposit with BPI-FB under the name of Buenaventura, et al. were allegedly derived exclusively from the
alleged P80,000,000.00 unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco consisted allegedly exclusively of
the said P80,000,000.00 debited from FMICs account is immaterial. These circumstances cannot be used against a party not privy to the forgery.

There is no merit to the claim that the CA erred in affirming the RTCs order directing BPI-FB to pay the balance of their account plus interest
although the prayer was only to reinstate their Current Account. The complaint does contain a general prayer for such other relief as may be just and
equitable in the premises. And this general prayer is broad enough to justify extension of a remedy different from or together with the specific remedy
sought.[24] Indeed, a court may grant relief to a party, even if the party awarded did not pray for it in his pleadings.[25]

As to the prayer of Buenaventura, et al. for exemplary damages, the Court finds that the CA erred in deleting the award of exemplary
damages. The law allows the grant of exemplary damages to set an example for the public good. [26] The business of a bank is affected with public
interest; thus, it makes a sworn profession of diligence and meticulousness in giving irreproachable service. [27] For this reason, the bank should guard
against injury attributable to negligence or bad faith on its part. [28] The award of exemplary damages is proper as a warning to BPI-FB and all concerned
not to recklessly disregard their obligation to exercise the highest and strictest diligence in serving their depositors. However, the award should be in a
reduced amount of P50,000.00 since exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against
or as a negative incentive to curb socially deleterious actions. [29]
In summation, the Court reminds BPI-FB that the banking sector must at all times maintain a high level of meticulousness, always having in
mind the fiduciary nature of its relationship with its depositors. [30] This fiduciary relationship means that the banks obligation to observe high standards
of integrity and performance is deemed written into every deposit agreement between a bank and its depositor. Failure to comply with this standard
shall render a bank liable to its depositors for damages.

WHEREFORE, the petition in G.R. No. 148196 is DENIED and the petition in G.R. No. 148259 is GRANTED. The assailed Decision dated
November 27, 2000 and Resolution dated May 3, 2001 of the Court of Appeals in CA-G.R. CV No. 53962, which affirmed with modification the Decision
rendered by the Regional Trial Court, Branch 25, Manila, dated August 11, 1995 in Civil Case No. 90-53154, are hereby AFFIRMED with
the MODIFICATION that BPI Family Bank is directed to pay Buenaventura, et al.the amount of P50,000.00 as exemplary damages. Costs against BPI
Family Bank.

SO ORDERED.

[G.R. No. 117416. December 8, 2000]

Avelina G. Ramoso, Renato B. Salvatierra, Benefrido M. Cruz, Leticia L. Medina, Pelagio Pascual, Domingo P. Santiago, Amado S. Veloira,
Concepcion F. Blaylock, in their own behalf and in behalf of numerous other persons similarly situated, Commercial Credit Corp. of
North Manila, Commercial Credit Corp. of Cagayan Valley, Commercial Credit Corp. of Olongapo City, and Commercial Credit Corp.
of Quezon City, petitioners, vs. Court of Appeals, General Credit Corp. (Formerly Commercial Credit Corp.), CCC Equity Corp.,
Resource and Finance Corp., Generoso G. Villanueva and Leonardo B. Alejandrino, and Securities and Exchange
Commission, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari assails the decision[1] of the Court of Appeals dated October 8, 1993, and its resolution [2] dated September 22,
1994 in CA G.R. SP No. 29225, which affirmed the Securities and Exchange Commissions decision stating thus:
WHEREFORE, the appealed decision of the hearing officer in SEC Case No. 2581 is hereby MODIFIED as follows:
1. Piercing the veil of corporate fiction among GCC, CCC Equity and the franchise companies - Commercial Credit Corporation of North
Manila, Commercial Credit Corporation of Cagayan Valley, Commercial Credit Corporation of Olongapo City, and Commercial Credit
Corporation of Quezon City - is not proper for being without merit; and
2. The declaration that petitioning franchise corporations and individual petitioners are not liable for the payment of bad accounts assigned
to, and discounted by GCC is SET ASIDE for being in excess of jurisdiction. [3]
The facts of this case as gleaned from the records are as follows:
On March 11, 1957, Commercial Credit Corporation was registered with SEC as a general financing and investment corporation. CCC made
proposals to several investors for the organization of franchise companies in different localities. The proposed trade names and indicated areas
were: (a) Commercial Credit Corporation - Cagayan Valley; (b) Commercial Credit Corporation - Olongapo City; and (c) Commercial Credit Corporation
- Quezon City.
Petitioners herein invested and bought majority shares of stocks, while CCC retained minority holdings. Management contracts were executed
between each franchise company and CCC, under the following terms and conditions: (1) The franchise company shall be managed by CCCs resident
manager. (2) Management fee equivalent to 10% of net profit before taxes shall be paid to CCC. (3) All expenses shall be borne by the franchise
company, except the salary of the resident manager and the cost of credit investigation. (4) CCC shall set prime rates for discounting or rediscounting of
receivables. Apart from these, each investor was required to sign a continuing guarantee for bad accounts that might be incurred by CCC due to
discounting activities.
In 1974, CCC attempted to obtain a quasi-banking license from Central Bank of the Philippines. But there was a hindrance because Section 1326
of CBs Manual of Regulations for Banks and Other Financial Intermediaries, states:
Sec. 1326. General Policy. Dealings of a bank with any of its directors, officers or stockholders and their related interests should be in the regular course
of business and upon terms not less favorable to the bank than those offered to others. (Emphasis supplied)
The above DOSRI regulation and set guidelines are entitled to make sure that lendings by banks or other financial institutions to its own directors,
officers, stockholders or related interests are above board. In view of said hindrance, what CCC did was divest itself of its shareholdings in the franchise
companies. It incorporated CCC Equity to take over the administration of the franchise companies under new management contracts. In the meantime,
CCC continued providing a discounting line for receivables of the franchise companies through CCC Equity. Thereafter, CCC changed its name to
General Credit Corporation (GCC).
The companies operations were on course until 1981, when adverse media reports unraveled anomalies in the business of GCC. Upon
investigation, petitioners allegedly discovered the dissipation of the assets of their respective franchise companies. Among the alleged fraudulent
schemes by GCC involved transfer or assignment of its uncollectible notes and accounts; utilization of spurious commercial papers to generate paper
revenues; and release of collateral in connivance with unauthorized loans. Furthermore, GCC allegedly divested itself of its assets through a
questionable offset of receivables arrangement with one of its creditors, Resource and Finance Corporation.
On February 24, 1984, petitioners filed a suit against GCC, CCC Equity and RFC. Petitioners prayed for (1) receivership, (2) an order directing
GCC and CCC Equity solidarily to pay petitioners and depositors for the losses they sustained, and (3) nullification of the agreement between GCC and
RFC.
On June 6, 1984, all respondents, except CCC Equity, filed a motion to dismiss asserting that SEC lacked jurisdiction, and that petitioners were
not the real parties in interest. Both motions, for receivership and for dismissal, were subsequently denied by the hearing officer.
On February 23, 1990, the hearing officer ordered piercing the corporate veil of GCC, CCC Equity, and the franchise companies. He later
declared that GCC was not liable to individual petitioners for the losses, since as investors they assumed the risk of their respective investments. The
franchise companies and the individual petitioners were held not liable to GCC for the bad accounts incurred by the latter through the discounting
process. The decretal portion of his order reads:
WHEREFORE, judgment is hereby rendered, as follows:

1. Declaring GCC, CCC-Equity and the franchised companies - Commercial Credit Corporation of North Manila, Commercial Credit
Corporation of Cagayan Valley, Commercial Credit Corporation of Olongapo City and Commercial Credit Corporation of Quezon City as one corporation;
2. Declaring that the petitioning franchised companies are not liable for the payment of bad accounts assigned to, and discounted by GCC;
3. Declaring the individual petitioners who executed continuing guaranties to secure the obligation of the franchised companies to GCC
arising from the discounting accounts should not be held liable thereon;
4. Declaring that GCC is not liable to individual petitioners for the investments they made in the franchised companies;
5. Dismissing the petition with respect to respondent Resource Finance Corporation, Generoso Villanueva and Leonardo Alejandrino. [4]
In an en banc decision, dated October 6, 1992, the SEC reversed the ruling of its hearing officer. Petitioners appealed to the Court of
Appeals. On October 8, 1993, the appellate court affirmed respondent SECs decision. Petitioners moved for a reconsideration, but it was denied on
September 22, 1994.
Hence, the instant petition raising the following issues:
I.

WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO RULE THAT GCCS FRAUD UPON PETITIONERS AND
MISMANAGEMENT OF THE FRANCHISE COMPANIES WARRANT THE PIERCING OF ITS VEIL OF CORPORATE FICTION.

II. WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO RULE THAT ONLY THE SEC HAS JURISDICTION OVER
THE ISSUE OF WHETHER INDIVIDUAL PETITIONERS MAY BE HELD LIABLE ON THE SURETY AGREEMENTS FOR BAD
ACCOUNTS INCURRED BY GCC THROUGH THE DISCOUNTING PROCESS.
III.WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO REVERSE AND SET ASIDE THE 06, OCTOBER 1992 SEC
DECISION.
Petitioners pray for the piercing of the corporate fiction of GCC, CCC Equity, RFC and the franchise companies. They allege that (1) GCC was the
alter-ego of CCC Equity and the franchise companies; (2) GCC created CCC Equity to circumvent CBs DOSRI Regulation; and (3) GCC mismanaged
the franchise companies. Ultimately, petitioners pray that the SEC en bancreinstate the decision of the hearing officer absolving individual investors of
their respective liabilities attached to the continuing guaranty of bad debts. They pray that should the afore-stated companies be considered as one,
then petitioners liabilities should be nullified.
SEC en banc decided against the petitioners, saying:
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the
fiction of the corporate entity of the instrumentality may be disregarded... [T]he control and breach of duty must proximately cause the injury or unjust
loss for which the complaint is made.
The test may be stated as follows:
In any given case, except express agency, estoppel, or direct tort, three elements must be proved:
1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence
of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of the statutory or other positive
legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and
3. the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the corporate veil.[5]
The SEC stated further that:
The second element required for the application of the instrumentality rule is not present in this case. Upon close scrutiny of the various testamentary
and documentary evidence presented during trial, it may be observed that petitioners claim of dissipation of assets and resources belonging to the
franchise companies has not been reasonably supported by said evidence at hand with the Commission. In fact, the disputed decision of the hearing
officer dealt mainly with the aspect of control exercised by GCC over the franchise companies without a concrete finding of fraud on the part of the
former to the prejudice of individual petitioners interests. As previously discussed, mere control on the part of GCC through CCC Equity over the
operations and business policies of the franchise companies does not necessarily warrant piercing the veil of corporate fiction without proof of fraud. In
order to determine whether or not the control exercised by GCC through CCC Equity over the franchise companies was used to commit fraud or wrong,
to violate a statutory or other positive legal duty, or dishonest and unjust act in contravention of petitioners legal rights, the circumstances that caused
the bankruptcy of the franchise companies must be taken into consideration.[6]
As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to the contrary appears. When the notion of
legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of
persons.[7] Also, the corporate entity may be disregarded in the interest of justice in such cases as fraud that may work inequities among members of the
corporation internally, involving no rights of the public or third persons. In both instances, there must have been fraud, and proof of it. For the
separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. [8] It cannot be presumed.[9]
We agree with the findings of the SEC concurred in by the appellate court that there was no fraud nor mismanagement in the control exercised by
GCC and by CCC Equity, over the franchise companies. Whether the existence of the corporation should be pierced depends on questions of facts,
appropriately pleaded. Mere allegation that a corporation is the alter ego of the individual stockholders is insufficient. The presumption is that the

stockholders or officers and the corporation are distinct entities. The burden of proving otherwise is on the party seeking to have the court pierce the veil
of the corporate entity.[10] In this, petitioner failed.
Petitioners contend that the issue of whether the investors may be held liable on the surety agreements for bad accounts incurred by GCC through
the discounting process cannot be isolated from the fundamental issue of validly piercing GCCs corporate veil. They argue that since these surety
agreements are intra-corporate matters, only the SEC has the specialized knowledge to evaluate whether fraud was perpetrated.
We note, however, that petitioners signed the continuing guaranty of the franchise companies bad debts in their own personal
capacities. Consequently, they are responsible for their individual acts. The liabilities of petitioners as investors arose out of the regular financing
venture of the franchise companies. There is no evidence that these bad debts were fraudulently incurred. Any taint of bad faith on the part of GCC in
enticing investors may be resolved in ordinary courts, inasmuch as this is in the nature of a contractual relationship. Changing petitioners subsidiary
liabilities by converting them to guarantors of bad debts cannot be done by piercing the veil of corporate identity.
Private respondents claim they had actually filed collection cases against most, if not all, of the petitioners to enforce the suretyship liability on
accounts discounted with then CCC (now GCC). [11] In such cases, the trial court may determine the validity of the promissory notes and the
corresponding guarantee contracts. The existence of the corporate entities need not be disregarded.
On the matter of jurisdiction, we agree with the Court of Appeals when it held that:
. . . [T]he ruling of the hearing officer in relation to the liabilities of the franchise companies and individual petitioners for the bad accounts incurred by
GCC through the discounting process would necessary entail a prior interpretation of the discounting agreements entered into between GCC and the
various franchise companies as well as the continuing guaranties executed to secure the same. A judgment on the aforementioned liabilities incurred
through the discounting process must likewise involve a determination of the validity of the said discounting agreements and continuing guaranties in
order to properly pass upon the enforcement or implementation of the same. It is crystal clear from the aforecited authorities and jurisprudence[12] that
there is no need to apply the specialized knowledge and skill of the SEC to interpret the said discounting agreements and continuing guaranties
executed to secure the same because the regular courts possess the utmost competence to do so by merely applying the general principles laid down
under civil law on contracts.
xxx
The matter of whether the petitioners must be held liable on their separate suretyship is one that belongs to the regular courts. As the respondent SEC
notes in its comment, the franchised companies accounts discounted by GCC would arise even if there is no intra-corporate relationship between the
parties. In other words, the controversy did not arise out of the parties relationships as stockholders. The Court agrees. This matter is better left to the
regular courts in which the private respondents have filed suits to enforce the suretyship agreements allegedly executed by the petitioners. [13]
Not every conflict between a corporation and its stockholders involves corporate matters that only the SEC can resolve. In Viray vs. Court of
Appeals, 191 SCRA 308, 323 (1990), we stressed that a contrary interpretation would dissipate the powers of the regular courts and distort the meaning
and intent of PD No. 902-A.
It is true that the trend is toward vesting administrative bodies like the SEC with the power to adjudicate matters coming under their particular
specialization, to insure a more knowledgeable solution of the problems submitted to them. This would also relieve the regular courts of a substantial
number of cases that would otherwise swell their already clogged dockets. But as expedient as this policy may be, it should not deprive the courts of
justice of their power to decide ordinary cases in accordance with the general laws that do not require any particular expertise or training to interpret and
apply. Otherwise, the creeping take-over by the administrative agencies of the judicial power vested in the courts would render the Judiciary virtually
impotent in the discharge of the duties assigned to it by the Constitution.
Finally, we note that petitioners were given ample opportunity to present evidence in support of their claims. But mere allegations do not constitute
convincing evidence. We find no sufficient reason to overturn the decisions of both the SEC and the appellate court.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision and resolution of the Court of Appeals dated October 8,
1993 and September 22, 1994, respectively, are AFFIRMED. Costs against petitioners.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

G.R. No. 166859

June 26, 2006

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO, JR., AGRICULTURAL CONSULTANCY SERVICES, INC., ARCHIPELAGO
REALTY CORP., BALENTE RANCH, INC., BLACK STALLON RANCH, INC., CHRISTENSEN PLANTATION COMPANY, DISCOVERY REALTY
CORP., DREAM PASTURES, INC., ECHO RANCH, INC., FAR EAST RANCH, INC., FILSOV SHIPPING COMPANY, INC., FIRST UNITED
TRANSPORT, INC., HABAGAT REALTY DEVELOPMENT, INC., KALAWAKAN RESORTS, INC., KAUNLARAN AGRICULTURAL CORP., LABAYUG
AIR TERMINALS, INC., LANDAIR INTERNATIONAL MARKETING CORP., LHL CATTLE CORPORATION, LUCENA OIL FACTORY, INC., MEADOW
LARK PLANTATIONS, INC., METROPLEX COMMODITIES, INC., MISTY MOUNTAIN AGRICULTURAL CORP., NORTHEAST CONTRACT
TRADERS, INC., NORTHERN CARRIERS CORPORATION, OCEANSIDE MARITIME ENTERPRISES, INC., ORO VERDE SERVICES, INC.,
PASTORAL FARMS, INC., PCY OIL MANUFACTURING CORP., PHILIPPINE TECHNOLOGIES, INC., PRIMAVERA FARMS, INC., PUNONG-BAYAN
HOUSING DEVELOPMENT CORP., PURA ELECTRIC COMPANY INC., RADIO AUDIENCE DEVELOPERS INTEGRATED ORGANIZATION, INC.,
RADYO PILIPINO CORPORATION, RANCHO GRANDE, INC., REDDEE DEVELOPERS, INC., SAN ESTEBAN DEVELOPMENT CORP., SILVER
LEAF PLANTATIONS, INC., SOUTHERN SERVICE TRADERS, INC., SOUTHERN STAR CATTLE CORP., SPADE ONE RESORTS CORP.,
UNEXPLORED LAND DEVELOPERS, INC., VERDANT PLANTATATIONS, INC., VESTA AGRICULTURAL CORP. AND WINGS RESORTS
CORPORATION, Respondents.
RESOLUTION
CARPIO MORALES, J.:
For resolution is the Urgent Motion for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction which was filed by petitioner,
Republic of the Philippines, during the pendency of its Petition for Certiorari before this Court challenging the denial by public respondent, the
Sandiganbayan, of its Motion for Partial Summary Judgment in Civil Case No. 0033-F (the civil case).
In support of its present urgent motion, petitioner pleads that the issue it raised in its Petition for Certiorari whether public respondent committed grave
abuse of discretion in denying its Motion for Partial Summary Judgment must first be resolved, as a continuation of the proceedings in the civil case
by public respondent might be rendered unnecessary in the event that its Petition before this Court is resolved in its favor.
The mere elevation of an interlocutory matter to this Court through a petition for Certiorari under Rule 65 of the Rules of Court, like in the present case,
does not by itself merit a suspension of the proceedings before a public respondent, unless a temporary restraining order or a writ of preliminary
injunction has been issued against the public respondent. Rule 65, Section 7 of the Rules of Court so provides:
SECTION 7. Expediting proceedings; injunctive relief. The court in which the petition [for Certiorari, Prohibition and Mandamus] is filed may issue
orders expediting the proceedings, and it may also grant a temporary restraining order or a writ of preliminary injunction for the preservation of the rights
of the parties pending such proceedings. The petition shall not interrupt the course of the principal case unless a temporary restraining order or a writ of
preliminary injunction has been issued against the public respondent from further proceeding in the case. (Emphasis and underscoring supplied)
The burden is thus on the petitioner in a petition for Certiorari, Prohibition and Mandamus to show that there is a meritorious ground for the issuance of a
temporary restraining order or writ of preliminary injunction for the purpose of suspending the proceedings before the public respondent. 1 Essential for
granting injunctive relief is the existence of an urgent necessity for the writ in order to prevent serious damage. 2
The Court finds that petitioner has failed to discharge the burden. The ground on which it bases its urgent motion is the alleged futility of proceeding with
the trial of the case. This assertion, however, is speculative, anchored on the mere supposition that the petition would be decided in its favor.
There is thus, in this case, a marked absence of any urgent necessity for the issuance of a temporary restraining order or writ of preliminary injunction.
It is gathered though that even prior to the filing of the instant motion, public respondent suspended the proceedings in the civil case, the absence of any
temporary restraining order or writ of preliminary injunction from this Court notwithstanding. Thus, petitioner brought to this Courts attention private
respondents insistence to have the civil case set for trial by public respondent, citing private respondents filing of a "Motion Reiterating Motion to Set
Case for Trial" dated June 27, 2005, "Second Motion Reiterating Motion to Set Case for Trial" dated October 26, 2005, and "Manifestation and Motion
Reiterating Motion to Set Case for Trial" dated December 8, 2005.3
The earlier quoted Section 7 of Rule 65 provides the general rule that the mere pendency of a special civil action for Certiorari commenced in relation to
a case pending before a lower court or court of origin does not stay the proceedings therein in the absence of a writ of preliminary injunction or
temporary restraining order.4
There are of course instances where even if there is no writ of preliminary injunction or temporary restraining order issued by a higher court, it would be
proper for a lower court or court of origin to suspend its proceedings on the precept of judicial courtesy. As this Court explained in Eternal Gardens
Memorial Park v. Court of Appeals:5
Although this Court did not issue any restraining order against the Intermediate Appellate Court to prevent it from taking any action with regard to its
resolutions respectively granting respondents' motion to expunge from the records the petitioner's motion to dismiss and denying the latter's motion to
reconsider such order, upon learning of the petition, the appellate court should have refrained from ruling thereon because its jurisdiction was
necessarily limited upon the filing of a petition for certiorari with this Court questioning the propriety of the issuance of the above-mentioned
resolutions. Due respect for the Supreme Court and practical and ethical considerations should have prompted the appellate court to wait for the final
determination of the petition before taking cognizance of the case and trying to render moot exactly what was before this court x x x (Emphasis and
underscoring supplied)
A reading of Eternal Gardens Memorial Park shows that the appellate courts failure to observe judicial courtesy which was frowned upon by this Court
lay in its recall of its (the appellate courts) Orders expunging from the records the Motion to Dismiss filed by the therein petitioner, which Orders

were the orders being questioned before this Court via a petition for Certiorari and Mandamus. Such act of the appellate court tended to render moot
and academic the said petition. No parity of circumstances obtains in the present case, however, where merely setting the case for trial would not have
the effect of rendering the present petition moot.
This Court explained, however, that the rule on "judicial courtesy" applies where "there is a strong probability that the issues before the higher court
would be rendered moot and moribund as a result of the continuation of the proceedings in the lower court [or court of origin]". 6
A final word. This Court takes notice that in most cases where its interlocutory orders are challenged before this Court, public respondent,
Sandiganbayan, suspends proceedings in the cases in which these assailed interlocutory orders are issued despite the non-issuance by this Court of a
temporary restraining order or writ of preliminary injunction and the absence of a strong probability that the issues raised before this Court would be
rendered moot by a continuation of the proceedings before it (Sandiganbayan).
WHEREFORE, the URGENT MOTION FOR ISSUANCE OF TEMPORARY RESTRAINING ORDER AND/OR WRIT OF PRELIMINARY INJUNCTION
filed by petitioner REPUBLIC OF THE PHILIPPINES is DENIED.
The SANDIGANBAYAN is, however, ORDERED,in light of the foregoing discussion, to continue the proceedings in Civil Case No. 0033-F, as well as in
all other cases where its interlocutory orders are on challenge before this Court but no Temporary Restraining Order or Writ of Preliminary Injunction has
been issued and there is no strong probability that the issues raised before this Court would be rendered moot and moribund.
SO ORDERED.

HILARIO P. SORIANO,

G.R. No. 162336

Petitioner,

- versus -

Present:

PEOPLE OF THE PHILIPPINES,

CARPIO, J., Chairperson,
BANGKO SENTRAL NG
CORONA,*
PILIPINAS (BSP), PHILIPPINE
BRION,
DEPOSIT INSURANCE
DEL CASTILLO, and
CORPORATION (PDIC), PUBLIC
PEREZ, JJ.
PROSECUTOR ANTONIO C.
BUAN, and STATE
PROSECUTOR ALBERTO R.
Promulgated:
FONACIER,
Respondents. [1]
February 1, 2010
x-------------------------------------------------------------------x
DECISION
DEL CASTILLO, J.:

A bank officer violates the DOSRI[2] law when he acquires bank funds for his personal benefit, even if such acquisition was facilitated by a fraudulent loan
application. Directors, officers, stockholders, and their related interests cannot be allowed to interpose the fraudulent nature of the loan as a defense to escape culpability
for their circumvention of Section 83 of Republic Act (RA) No. 337.[3]
Before us is a Petition for Review on Certiorari[4] under Rule 45 of the Rules of Court, assailing the September 26, 2003 Decision[5] and the February 5,
2004 Resolution[6] of the Court of Appeals (CA) in CA-G.R. SP No. 67657. The challenged Decision disposed as follows:
WHEREFORE, premises considered, the instant petition for certiorari is hereby DENIED.[7]

Factual Antecedents
Sometime in 2000, the Office of Special Investigation (OSI) of the Bangko Sentral ng Pilipinas (BSP), through its officers,[8] transmitted a letter[9] dated March 27,
2000 to Jovencito Zuo, Chief State Prosecutor of the Department of Justice (DOJ). The letter attached as annexes five affidavits,[10] which would allegedly serve as bases
for filing criminal charges for Estafa thru Falsification of Commercial Documents, in relation to Presidential Decree (PD) No. 1689, [11] and for Violation of Section 83 of RA
337, as amended by PD 1795,[12] against, inter alia,petitioner herein Hilario P. Soriano. These five affidavits, along with other documents, stated that spouses Enrico and
Amalia Carlos appeared to have an outstanding loan of P8 million with the Rural Bank of San Miguel (Bulacan), Inc. (RBSM), but had never applied for nor received such
loan; that it was petitioner, who was then president of RBSM, who had ordered, facilitated, and received the proceeds of the loan; and that the P8 million loan had never
been authorized by RBSM's Board of Directors and no report thereof had ever been submitted to the Department of Rural Banks, Supervision and Examination Sector of
the BSP. The letter of the OSI, which was not subscribed under oath, ended with a request that a preliminary investigation be conducted and the corresponding criminal
charges be filed against petitioner at his last known address.

Acting on the letter-request and its annexes, State Prosecutor Albert R. Fonacier proceeded with the preliminary investigation. He issued a subpoena with the
witnesses affidavits and supporting documents attached, and required petitioner to file his counter-affidavit. In due course, the investigating officer issued a Resolution
finding probable cause and correspondingly filed two separate informations against petitioner before the Regional Trial Court (RTC) of Malolos, Bulacan. [13]

The first Information,[14] dated November 14, 2000 and docketed as Criminal Case No. 237-M-2001, was for estafa through falsification of commercial documents,
under Article 315, paragraph 1(b), of the Revised Penal Code (RPC), in relation to Article 172 of the RPC and PD 1689. It basically alleged that petitioner and his coaccused, in abuse of the confidence reposed in them as RBSM officers, caused the falsification of a number of loan documents, making it appear that one Enrico Carlos
filled up the same, and thereby succeeded in securing a loan and converting the loan proceeds for their personal gain and benefit. [15] The information reads:
That in or about the month of April, 1997, and thereafter, in San Miguel, Bulacan, and within the jurisdiction of this Honorable Court, the
said accused HILARIO P. SORIANO and ROSALINDA ILAGAN, as principals by direct participation, with unfaithfulness or abuse of confidence
and taking advantage of their position as President of the Rural Bank of San Miguel (Bulacan), Inc. and Branch Manager of the Rural Bank of San
Miguel San Miguel Branch [sic], a duly organized banking institution under Philippine Laws, conspiring, confederating and mutually helping one

another, did then and there, willfully and feloniously falsify loan documents consisting of undated loan application/information sheet, credit proposal
dated April 14, 1997, credit proposal dated April 22, 1997, credit investigation report dated April 15, 1997, promissory note dated April 23, 1997,
disclosure statement on loan/credit transaction dated April 23, 1997, and other related documents, by making it appear that one Enrico Carlos filled
up the application/information sheet and filed the aforementioned loan documents when in truth and in fact Enrico Carlos did not participate in the
execution of said loan documents and that by virtue of said falsification and with deceit and intent to cause damage, the accused succeeded in
securing a loan in the amount of eight million pesos (PhP8,000,000.00) from the Rural Bank of San Miguel San Ildefonso branch in the name of
Enrico Carlos which amount of PhP8 million representing the loan proceeds the accused thereafter converted the same amount to their own
personal gain and benefit, to the damage and prejudice of the Rural Bank of San Miguel San Ildefonso branch, its creditors, the Bangko Sentral ng
Pilipinas, and the Philippine Deposit Insurance Corporation.
CONTRARY TO LAW.[16]

The other Information[17] dated November 10, 2000 and docketed as Criminal Case No. 238-M-2001, was for violation of Section 83 of RA 337, as amended by
PD 1795. The said provision refers to the prohibition against the so-called DOSRI loans. The information alleged that, in his capacity as President of RBSM, petitioner
indirectly secured an P8 million loan with RBSM, for his personal use and benefit, without the written consent and approval of the bank's Board of Directors, without
entering the said transaction in the bank's records, and without transmitting a copy of the transaction to the supervising department of the bank. His ruse was facilitated by
placing the loan in the name of an unsuspecting RBSM depositor, one Enrico Carlos.[18] The information reads:
That in or about the month of April, 1997, and thereafter, and within the jurisdiction of this Honorable Court, the said accused, in his
capacity as President of the Rural Bank of San Miguel (Bulacan), Inc., did then and there, willfully and feloniously indirectly borrow or secure a loan
with the Rural Bank of San Miguel San Ildefonso branch, a domestic rural banking institution created, organized and existing under Philippine laws,
amounting to eight million pesos (PhP8,000,000.00), knowing fully well that the same has been done by him without the written consent and
approval of the majority of the board of directors of the said bank, and which consent and approval the said accused deliberately failed to obtain and
enter the same upon the records of said banking institution and to transmit a copy thereof to the supervising department of the said bank, as required
by the General Banking Act, by using the name of one depositor Enrico Carlos of San Miguel, Bulacan, the latter having no knowledge of the said
loan, and one in possession of the said amount of eight million pesos (PhP8,000,000.00), accused converted the same to his own personal use and
benefit, in flagrant violation of the said law.
CONTRARY TO LAW.[19]

Both cases were raffled to Branch 79 of the RTC of Malolos, Bulacan.[20]

On June 8, 2001, petitioner moved to quash[21] these informations on two grounds: that the court had no jurisdiction over the offense charged, and that the facts
charged do not constitute an offense.

On the first ground, petitioner argued that the letter transmitted by the BSP to the DOJ constituted the complaint and hence was defective for failure to comply with
the mandatory requirements of Section 3(a), Rule 112 of the Rules of Court, such as the statement of address of petitioner and oath and subscription. [22] Moreover,
petitioner argued that the officers of OSI,who were the signatories to the letter-complaint, were not authorized by the BSP Governor, much less by the Monetary Board, to
file the complaint. According to petitioner, this alleged fatal oversight violated Section 18, pars. (c) and (d) of the New Central Bank Act (RA 7653).

On the second ground, petitioner contended that the commission of estafa under paragraph 1(b) of Article 315 of the RPC is inherently incompatible with the
violation of DOSRI law (as set out in Section 83 [23] of RA 337, as amended by PD 1795),[24] hence a person cannot be charged for both offenses. He argued that a violation
of DOSRI law requires the offender toobtain a loan from his bank, without complying with procedural, reportorial, or ceiling requirements. On the other hand, estafa under
par. 1(b), Article 315 of the RPC requires the offender to misappropriate or convert something that he holds in trust, or on commission, or for administration, or under
any other obligation involving the duty to return the same.[25]

Essentially, the petitioner theorized that the characterization of possession is different in the two offenses. If petitioner acquired the loan as DOSRI, he owned
the loaned money and therefore, cannot misappropriate or convert it as contemplated in the offense of estafa. Conversely, if petitioner committed estafa, then he merely
held the money in trust for someone else and therefore, did not acquire a loan in violation of DOSRI rules.

Ruling of the Regional Trial Court

In an Order[26] dated August 8, 2001, the trial court denied petitioner's Motion to Quash for lack of merit. The lower court agreed with the prosecution that the
assailed OSI letter wasnot the complaint-affidavit itself; thus, it need not comply with the requirements under the Rules of Court. The trial court held that the affidavits, which
were attached to the OSI letter, comprised the complaint-affidavit in the case. Since these affidavits were duly subscribed and sworn to before a notary public, there was
adequate compliance with the Rules. The trial court further held that the two offenses were separate and distinct violations, hence the prosecution of one did not pose a
bar to the other.[27]

Petitioners Motion for Reconsideration was likewise denied in an Order dated September 5, 2001.[28]

Aggrieved, petitioner filed a Petition for Certiorari[29] with the CA, reiterating his arguments before the trial court.

Ruling of the Court of Appeals

The CA denied the petition on both issues presented by petitioner.

On the first issue, the CA determined that the BSP letter, which petitioner characterized to be a fatally infirm complaint, was not actually a complaint, but a
transmittal or cover letter only. This transmittal letter merely contained a summary of the affidavits which were attached to it. It did not contain any averment of personal
knowledge of the events and transactions that constitute the elements of the offenses charged. Being a mere transmittal letter, it need not comply with the requirements of
Section 3(a) of Rule 112 of the Rules of Court.[30]

The CA further determined that the five affidavits attached to the transmittal letter should be considered as the complaint-affidavits that charged petitioner with
violation of Section 83 of RA 337 and for Estafa thru Falsification of Commercial Documents. These complaint-affidavits complied with the mandatory requirements set out
in the Rules of Court they were subscribed and sworn to before a notary public and subsequently certified by State Prosecutor Fonacier, who personally examined the
affiants and was convinced that the affiants fully understood their sworn statements.[31]

Anent the second ground, the CA found no merit in petitioner's argument that the violation of the DOSRI law and the commission of estafa thru falsification of
commercial documents are inherently inconsistent with each other. It explained that the test in considering a motion to quash on the ground that the facts charged do not
constitute an offense, is whether the facts alleged, when hypothetically admitted, constitute the elements of the offense charged. The appellate court held that this test was
sufficiently met because the allegations in the assailed informations, when hypothetically admitted, clearly constitute the elements of Estafa thru Falsification of Commercial
Documents and Violation of DOSRI law.[32]

Petitioners Motion for Reconsideration[33] was likewise denied for lack of merit.

Hence, this petition.

Issues

Restated, petitioner raises the following issues[34] for our consideration:

I
Whether the complaint complied with the mandatory requirements provided under Section 3(a), Rule 112 of the Rules of Court and
Section 18, paragraphs (c) and (d) of RA 7653.
II
Whether a loan transaction within the ambit of the DOSRI law (violation of Section 83 of RA 337, as amended) could also be the subject of
Estafa under Article 315 (1) (b) of the Revised Penal Code.
III
Is a petition for certiorari under Rule 65 the proper remedy against an Order denying a Motion to Quash?
IV
Whether petitioner is entitled to a writ of injunction.

Our Ruling

The petition lacks merit.

First Issue:
Whether the complaint complied with the mandatory requirements provided under Section 3(a), Rule 112 of the Rules of Court and
Section 18, paragraphs (c) and (d) of
Republic Act No. 7653
Petitioner moved to withdraw the first issue from the instant petition

On March 5, 2007, the Court noted[35] petitioner's Manifestation and Motion for Partial Withdrawal of the Petition[36] dated February 7, 2007. In the said motion,
petitioner informed the Court of the promulgation of a Decision entitled Soriano v. Hon. Casanova,[37] which also involved petitioner and similar BSP letters to the
DOJ. According to petitioner, the said Decision allegedly ruled squarely on the nature of the BSP letters and the validity of the sworn affidavits attached thereto. For this
reason, petitioner moved for the partial withdrawal of the instant petition insofar as it involved the issue of whether or not a court can legally acquire jurisdiction over a
complaint which failed to comply with the mandatory requirements provided under Section 3(a), Rule 112 of the Rules of Court and Section 18, paragraphs (c) and (d) of
RA 7653.[38]

Given that the case had already been submitted for resolution of the Court when petitioner filed his latest motion, and that all respondents had presented their
positions and arguments on the first issue, the Court deems it proper to rule on the same.
In Soriano v. Hon. Casanova, the Court held that the affidavits attached to the BSP
transmittal letter complied with the mandatory requirements under the Rules of Court.

To be sure, the BSP letters involved in Soriano v. Hon. Casanova[39] are not the same as the BSP letter involved in the instant case. However, the BSP letters
in Soriano v. Hon. Casanova and the BSP letter subject of this case are similar in the sense that they are all signed by the OSI officers of the BSP, they were not sworn to
by the said officers, they all contained summaries of their attached affidavits, and they all requested the conduct of a preliminary investigation and the filing of corresponding

criminal charges against petitioner Soriano. Thus, the principle of stare decisis dictates that the ruling in Soriano v. Hon. Casanova be applied in the instant case once a
question of law has been examined and decided, it should be deemed settled and closed to further argument. [40]

We held in Soriano v. Hon. Casanova, after a close scrutiny of the letters transmitted by the BSP to the DOJ, that these were not intended to be the complaint,
as envisioned under the Rules. They did not contain averments of personal knowledge of the events and transactions constitutive of any offense. The letters merely
transmitted for preliminary investigation the affidavits of people who had personal knowledge of the acts of petitioner. We ruled that these affidavits, not the letters
transmitting them, initiated the preliminary investigation. Since these affidavits were subscribed under oath by the witnesses who executed them before a notary public,
then there was substantial compliance with Section 3(a), Rule 112 of the Rules of Court.

Anent the contention that there was no authority from the BSP Governor or the Monetary Board to file a criminal case against Soriano, we held that the
requirements of Section 18, paragraphs (c) and (d) of RA 7653 did not apply because the BSP did not institute the complaint but merely transmitted the affidavits of the
complainants to the DOJ.

We further held that since the offenses for which Soriano was charged were public crimes, authority holds that it can be initiated by any competent person with
personal knowledge of the acts committed by the offender. Thus, the witnesses who executed the affidavits clearly fell within the purview of any competent person who
may institute the complaint for a public crime.

The ruling in Soriano v. Hon. Casanova has been adopted and elaborated upon in the recent case of Santos-Concio v. Department of Justice.[41] Instead of a
transmittal letter from the BSP, the Court in Santos-Concio was faced with an NBI-NCR Report, likewise with affidavits of witnesses as attachments. Ruling on the validity
of the witnesses sworn affidavits as bases for a preliminary investigation, we held:
The Court is not unaware of the practice of incorporating all allegations in one document denominated as complaint-affidavit. It does not
pronounce strict adherence to only one approach, however, for there are cases where the extent of ones personal knowledge may not cover the
entire gamut of details material to the alleged offense. The private offended party or relative of the deceased may not even have witnessed the
fatality, in which case the peace officer or law enforcer has to rely chiefly on affidavits of witnesses. The Rules do not in fact preclude the attachment
of a referral or transmittal letter similar to that of the NBI-NCR. Thus, in Soriano v. Casanova, the Court held:
A close scrutiny of the letters transmitted by the BSP and PDIC to the DOJ shows that these were not intended to
be the complaint envisioned under the Rules. It may be clearly inferred from the tenor of the letters that the officers merely
intended to transmit the affidavits of the bank employees to the DOJ. Nowhere in the transmittal letters is there any averment
on the part of the BSP and PDIC officers of personal knowledge of the events and transactions constitutive of the criminal
violations alleged to have been made by the accused. In fact, the letters clearly stated that what the OSI of the BSP and the
LIS of the PDIC did was to respectfully transmit to the DOJ for preliminary investigation the affidavits and personal knowledge
of the acts of the petitioner. These affidavits were subscribed under oath by the witnesses who executed them before a notary
public. Since the affidavits, not the letters transmitting them, were intended to initiate the preliminary investigation, we
hold that Section 3(a), Rule 112 of the Rules of Court was substantially complied with.
Citing the ruling of this Court in Ebarle v. Sucaldito, the Court of Appeals correctly held that a complaint for purposes
of preliminary investigation by the fiscal need not be filed by the offended party. The rule has been that, unless the offense
subject thereof is one that cannot be prosecuted de oficio, the same may be filed, for preliminary investigation
purposes, by any competent person. The crime of estafa is a public crime which can be initiated by any competent
person. The witnesses who executed the affidavits based on their personal knowledge of the acts committed by the
petitioner fall within the purview of any competent person who may institute the complaint for a public crime. x x
x (Emphasis and italics supplied)
A preliminary investigation can thus validly proceed on the basis of an affidavit of any competent person, without the referral document, like
the NBI-NCR Report, having been sworn to by the law enforcer as the nominal complainant. To require otherwise is a needless exercise. The cited
case of Oporto, Jr. v. Judge Monserate does not appear to dent this proposition. After all, what is required is to reduce the evidence into
affidavits, for while reports and even raw information may justify the initiation of an investigation, the preliminary investigation stage can be held only
after sufficient evidence has been gathered and evaluated which may warrant the eventual prosecution of the case in court.[42]

Following the foregoing rulings in Soriano v. Hon. Casanova and Santos-Concio v. Department of Justice, we hold that the BSP letter, taken together with the
affidavits attached thereto, comply with the requirements provided under Section 3(a), Rule 112 of the Rules of Court and Section 18, paragraphs (c) and (d) of RA 7653.
Second Issue:

Whether a loan transaction within the ambit of the DOSRI law (violation of Section 83 of RA 337, as amended) could be the subject of
Estafa under Article 315 (1) (b) of the
Revised Penal Code

The second issue was raised by petitioner in the context of his Motion to Quash Information on the ground that the facts charged do not constitute an offense.
[43]

It is settled that in considering a motion to quash on such ground, the test is whether the facts alleged, if hypothetically admitted, would establish the essential elements

of the offense charged as defined by law. The trial court may not consider a situation contrary to that set forth in the criminal complaint or information. Facts that constitute
the defense of the petitioner[s] against the charge under the information must be proved by [him] during trial. Such facts or circumstances do not constitute proper grounds
for a motion to quash the information on the ground that the material averments do not constitute the offense. [44]

We have examined the two informations against petitioner and we find that they contain allegations which, if hypothetically admitted, would establish the essential
elements of the crime of DOSRI violation and estafa thru falsification of commercial documents.

In Criminal Case No. 238-M-2001 for violation of DOSRI rules, the information alleged that petitioner Soriano was the president of RBSM; that he was able to
indirectly obtain a loan from RBSM by putting the loan in the name of depositor Enrico Carlos; and that he did this without complying with the requisite board approval,
reportorial, and ceiling requirements.

In Criminal Case No. 237-M-2001 for estafa thru falsification of commercial documents, the information alleged that petitioner, by taking advantage of his position
as president of RBSM, falsified various loan documents to make it appear that an Enrico Carlos secured a loan of P8 million from RBSM; that petitioner succeeded in
obtaining the loan proceeds; that he later converted the loan proceeds to his own personal gain and benefit; and that his action caused damage and prejudice to RBSM, its
creditors, the BSP, and the PDIC.

Significantly, this is not the first occasion that we adjudge the sufficiency of similarly worded informations. In Soriano v. People,[45] involving the same petitioner in
this case (but different transactions), we also reviewed the sufficiency of informations for DOSRI violation and estafa thru falsification of commercial documents, which were
almost identical, mutatis mutandis, with the subject informations herein. We held in Soriano v. People that there is no basis for the quashal of the informations as they
contain material allegations charging Soriano with violation of DOSRI rules and estafa thru falsification of commercial documents.

Petitioner raises the theory that he could not possibly be held liable for estafa in concurrence with the charge for DOSRI violation. According to him, the DOSRI
charge presupposes that he acquired a loan, which would make the loan proceeds his own money and which he could neither possibly misappropriate nor convert to the
prejudice of another, as required by the statutory definition of estafa.[46] On the other hand, if petitioner did not acquire any loan, there can be no DOSRI violation to speak
of. Thus, petitioner posits that the two offenses cannot co-exist. This theory does not persuade us.

Petitioners theory is based on the false premises that the loan was extended to him by the bank in his own name, and that he became the owner of the loan
proceeds. Both premises are wrong.

The bank money (amounting to P8 million) which came to the possession of petitioner was money held in trust or administration by him for the bank, in his

fiduciary capacity as the President of said bank. [47] It is not accurate to say that petitioner became the owner of the P8 million because it was the proceeds of a loan. That
would have been correct if the bank knowingly extended the loan to petitioner himself. But that is not the case here. According to the information for estafa, the loan was
supposed to be for another person, a certain Enrico Carlos; petitioner, through falsification, made it appear that said Enrico Carlos applied for the loan when in fact he

(Enrico Carlos) did not. Through such fraudulent device, petitioner obtained the loan proceeds and converted the same. Under these circumstances, it cannot be said
that petitioner became the legal owner of the P8 million. Thus, petitioner remained the banks fiduciary with respect to that money, which makes it capable of
misappropriation or conversion in his hands.

The next question is whether there can also be, at the same time, a charge for DOSRI violation in such a situation wherein the accused bank officer
did not secure a loan in his own name, but was alleged to have used the name of another person in order to indirectly secure a loan from the bank. We answer this in the
affirmative. Section 83 of RA 337 reads:
Section 83. No director or officer of any banking institution shall, either directly or indirectly, for himself or as the representative or agent
of others, borrow any of the deposits of funds of such bank, nor shall he become a guarantor, indorser, or surety for loans from such bank to others ,
or in any manner be an obligor for moneys borrowed from the bank or loaned by it, except with the written approval of the majority of the directors of
the bank, excluding the director concerned. Any such approval shall be entered upon the records of the corporation and a copy of such entry shall
be transmitted forthwith to the Superintendent of Banks. The office of any director or officer of a bank who violates the provisions of this section shall
immediately become vacant and the director or officer shall be punished by imprisonment of not less than one year nor more than ten years and by a
fine of not less than one thousand nor more than ten thousand pesos. x x x

The prohibition in Section 83 is broad enough to cover various modes of borrowing. [48] It covers loans by a bank director or officer (like herein petitioner) which are made
either: (1) directly, (2) indirectly, (3) for himself, (4) or as the representative or agent of others. It applies even if the director or officer is a mere guarantor, indorser or surety
for someone else's loan or is in any manner an obligor for money borrowed from the bank or loaned by it. The covered transactions are prohibited unless the approval,
reportorial and ceiling requirements under Section 83 are complied with. The prohibition is intended to protect the public, especially the depositors, [49] from the
overborrowing of bank funds by bank officers, directors, stockholders and related interests, as such overborrowing may lead to bank failures. [50] It has been said that
banking institutions are not created for the benefit of the directors [or officers]. While directors have great powers as directors, they have no special privileges as individuals.
They cannot use the assets of the bank for their own benefit except as permitted by law. Stringent restrictions are placed about them so that when acting both for the bank
and for one of themselves at the same time, they must keep within certain prescribed lines regarded by the legislature as essential to safety in the banking business. [51]

A direct borrowing is obviously one that is made in the name of the DOSRI himself or where the DOSRI is a named party, while an indirect borrowing includes
one that is made by a third party, but the DOSRI has a stake in the transaction. [52] The latter type indirect borrowing applies here. The information in Criminal Case 238M-2001 alleges that petitioner in his capacity as President of Rural Bank of San Miguel San Ildefonso branch x x x indirectly borrow[ed] or secure[d] a loan with
[RBSM] x x x knowing fully well that the same has been done by him without the written consent and approval of the majority of the board of directors x x x, and which
consent and approval the said accused deliberately failed to obtain and enter the same upon the records of said banking institution and to transmit a copy thereof to the
supervising department of the said bank x x x by using the name of one depositor Enrico Carlos x x x, the latter having no knowledge of the said loan, and once in
possession of the said amount of eight million pesos (P8 million), [petitioner] converted the same to his own personal use and benefit.[53]

The foregoing information describes the manner of securing the loan as indirect; names petitioner as the benefactor of the indirect loan; and states that the
requirements of the law were not complied with. It contains all the required elements [54] for a violation of Section 83, even if petitioner did not secure the loan in his own
name.

The broad interpretation of the prohibition in Section 83 is justified by the fact that it even expressly covers loans to third parties where the third parties are aware
of the transaction (such as principals represented by the DOSRI), and where the DOSRIs interest does not appear to be beneficial but even burdensome (such as in cases
when the DOSRI acts as a mere guarantor or surety). If the law finds it necessary to protect the bank and the banking system in such situations, it will surely be illogical for
it to exclude a case like this where the DOSRI acted for his own benefit, using the name of an unsuspecting person. A contrary interpretation will effectively allow a DOSRI
to use dummies to circumvent the requirements of the law.
In sum, the informations filed against petitioner do not negate each other.

Third Issue:
Is a Rule 65 petition for certiorari the proper remedy against
an Order denying a Motion to Quash?

This issue may be speedily resolved by adopting our ruling in Soriano v. People,[55] where we held:
In fine, the Court has consistently held that a special civil action for certiorari is not the proper remedy to assail the denial of a motion to
quash an information. The proper procedure in such a case is for the accused to enter a plea, go to trial without prejudice on his part to present the
special defenses he had invoked in his motion to quash and if after trial on the merits, an adverse decision is rendered, to appeal therefrom in the
manner authorized by law. Thus, petitioners should not have forthwith filed a special civil action for certiorari with the CA and instead, they should
have gone to trial and reiterated the special defenses contained in their motion to quash. There are no special or exceptional circumstances in the
present case that would justify immediate resort to a filing of a petition for certiorari. Clearly, the CA did not commit any reversible error, much less,
grave abuse of discretion in dismissing the petition.[56]
Fourth Issue:
Whether petitioner is entitled to a writ of injunction

The requisites to justify an injunctive relief are: (1) the right of the complainant is clear and unmistakable; (2) the invasion of the right sought to be protected is
material and substantial; and (3) there is an urgent and paramount necessity for the writ to prevent serious damage. A clear legal right means one clearly founded in or
granted by law or is enforceable as a matter of law. Absent any clear and unquestioned legal right, the issuance of an injunctive writ would constitute grave abuse of
discretion.[57] Caution and prudence must, at all times, attend the issuance of an injunctive writ because it effectively disposes of the main case without trial and/or due
process.[58] In Olalia v. Hizon,[59] the Court held as follows:
It has been consistently held that there is no power the exercise of which is more delicate, which requires greater caution, deliberation
and sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction. It is the strong arm of equity that should never be
extended unless to cases of great injury, where courts of law cannot afford an adequate or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the freedom of action of the [complainant] and should not be granted
lightly or precipitately. It should be granted only when the court is fully satisfied that the law permits it and the emergency demands it.

Given this Court's findings in the earlier issues of the instant case, we find no compelling reason to grant the injunctive relief sought by petitioner.

WHEREFORE, the petition is DENIED. The assailed September 26, 2003 Decision as well as the February 5, 2004 Resolution of the Court of Appeals in CAG.R. SP No. 67657 are AFFIRMED. Costs against petitioner.

SO ORDERED.

RE:
REQUEST
OF POLICE
DIRECTOR
GENERALAVELINO I. RAZON FOR AUTHORITY TO
DELEGATE THE ENDORSEMENT OF APPLICATION
FOR SEARCH WARRANT.

A.M. No. 08-4-4-SC

Present:

PUNO, C.J.,
QUISUMBING,
YNARES-SANTIAGO,
CARPIO,
CORONA,
CARPIO MORALES,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA,
LEONARDO-DE CASTRO,
BRION,
PERALTA, and
BERSAMIN, JJ.

Promulgated:

July 7, 2009
x--------------------------------------------------x

RESOLUTION

CHICO-NAZARIO, J.:

Before Us are two communications; the first letter,[1] dated 19 March 2008, was sent by then Police Director General Avelino I. Razon, Jr.
(P/Dir. Gen. Razon), Chief, Philippine National Police (PNP); and the second one,[2] dated 25 November 2008, from Police Director General Jesus
A. Verzosa (P/Dir. Gen. Verzosa), the succeeding Chief of the PNP. Both letters were addressed to then Court Administrator Zenaida N. Elepao,
and involved the procedural requirement that applications for search warrant filed before Regional Trial Courts (RTCs) of Manila and Quezon
City should be personally endorsed by heads of the PNP, National Bureau of Investigation (NBI), and the Anti-Crime Task Force (ACTAF) of the
Armed Forces of the Philippines (AFP).

The 19 March 2008 letter of then P/Dir. Gen. Razon manifested his apprehension that

[R]ecently that the concerned Executive Regional Trial Court Judges have required that the applications for search warrants in
accordance with the [Section 12, Chapter V of the Guidelines on the Selection and Appointment of Executive Judges] need to be
endorsed personally by the undersigned otherwise the application would not be acted upon.
The undersigned (P/Dir. Gen. Razon), due to the numerous demands of his office, may not be able to act expeditiously on
the required endorsements of application for search warrant. Any unnecessary delay in the application, especially on cases which
require immediate search and seizure of any contraband, would not serve the purpose for which the search warrant was applied for
and render the ends of justice nugatory.[3]

In connection thereto, P/Dir. Gen. Razon requested that

[He] be allowed to delegate the endorsement of the application for search warrant to the Director of the Directorate for Investigation
and Detective Management (PDIR JEFFERSON P. SORIANO), in view of his inherent investigative functions and as Commander of
the Task Force USIG and Anti-Illegal Drugs Special Operations Task Force. [4]

Acting upon the foregoing letter, Court Administrator Elepano recommended to Chief Justice Reynato S. Puno, through a Memorandum
dated 28 March 2008, that leave be granted allowing P/Dir. Gen. Razon to delegate the authority to endorse the applications for search warrant,
based on the following considerations

Being the chief of the PNP, General Razon oversees the operations of the entire police force all over the Philippines, and in the
discharge of his duties and responsibilities, he is expected to be very mobile. His constant official and ceremonial functions compel
him to be out of his office most of the time. Such situation poses a problem in terms of expediting the filing of application for search
warrant by the PNP in the Regional Trial Courts of Manila and Quezon City because of the requirement under Section 12 of A.M.
No. 03-8-02, the compliance of which is dependent upon the presence of General Razon in his office. Delegating the authority to
endorse is a legal and viable option to address this problem and to ensure the speedy filing of applications for search warrant by the
PNP.[5]

Court Administrator Elepanos above-quoted recommendation, however, carried a qualification, i.e., that the matter of whether this
requirement may be relaxed such that the endorsement of applications for search warrant may be delegated to a subordinate officer should be
resolved insofar as it applies only to General Razon; preceding from the assumption that the concern of General Razon [was] peculiar to him
alone since the heads of the other agencies have no problem in complying with the requirement in question.

In a Resolution dated 15 April 2008, the Court granted the request of P/Dir. Gen. Razon, to wit:

The Court Resolved, upon the recommendation of Court Administrator Zenaida N. Elepao, to GRANT the request of
Police Director General Avelino I. Razon, Chief, Philippine National Police (PNP), to delegate the authority to endorse the
applications for search warrant to be filed in the Regional trial Courts of Manila and Quezon City to the Director of the Directorate for
Investigation and Detective Management of the PNP in connection with Section 12 of the Guidelines on the Selection and
Appointment of Executive Judges (A.M. No. 03-8-02-SC).[6]

Thereafter, on 25 November 2008, the PNP, this time under the headship P/Dir. Gen. Verzosa, asked the Court for clarification x x x
regarding the construction on the duration or effectivity [7] of the 15 April 2008 Resolution of the Court. The necessity for clarification resulted from
an incident that occurred on 11 November 2008, wherein the application for search warrant filed by the Anti-Illegal Drugs Special Operations Task

Force (AIDSOTF), as endorsed by the Director for Investigation and Detective Management (DIDM), Police Chief Superintendent Raul M. Bacalzo,
[8]

was denied by Executive Judge Reynaldo Ros of the Manila RTC, on the ground that the authority to delegate was already inoperative for it only

applies to the incumbency of PDG AVELINO I. RAZON, JR. being the requesting party. [9] P/Dir. Gen. Verzosa, thus, asked of the Court that

Should the [15 April 2008 Resolution of the Court] be rendered moot by mere change of PNP leadership, the undersigned
formally requests for the issuance of a Resolution granting continuing authority delegating to the Director, DIDM the endorsement of
SW application in behalf of the Chief, PNP before the said courts to withstand future changes of officers. [10]

The Court directed the Court Administrator and the Chief Attorney to comment on P/Dir. Gen. Verzosas request.

In a Memorandum dated 19 December 2008, the Office of the Court Administrator (OCA), through incumbent Court Administrator, Jose P.
Perez, recommended that the current Chief of the PNP, as well as all his successors thereafter, should be allowed to delegate to the Director of the
DIDM, PNP, the authority to endorse applications for search warrant which are to be filed before the RTCs of Manila and Quezon City.

The Office of the Chief Attorney (OCAT), on the other hand, observed in its Comment, submitted on 13 March 2009, that

Since Section 12, Chapter V of the Guidelines for Executive Judges appear to be the hindrance to immediate action on
applications for search warrant in the cases mentioned therein, and to make the delegation applicable to all heads of law
enforcement agencies regardless of the holder of those positions, it may be best for the Court to amend that guideline. Thereby, a
change in leadership in the PNP would not require the incumbent PNP Chief to seek the authority of the Court to delegate his
function to endorse an application for search warrant. The amendment may also achieve the reason for and purpose of the
requested continuing authority, especially because the authority of the PNP Chief to delegate functions is expressly recognized by
Section 26 of Republic Act No. 6975.

The Court finds the observations and recommendations of the OCA and OCAT to be well taken.

At present, Sec. 12, Chapter V of A.M. No. 03-8-02-SC, entitled Guidelines on the Selection and Appointment of Executive Judges and
Defining their Powers, Prerogatives and Duties, dictates that

SEC. 12. Issuance of search warrants in special criminal cases by the Regional Trial Courts of Manila and Quezon City.
The Executive Judges and, whenever they are on official leave of absence or are not physically present in the station, the ViceExecutive Judges of the RTCs of Manila and Quezon City shall have authority to act on applications filed by the National Bureau of
Investigation (NBI), the Philippine National Police (PNP) and the Anti-Crime Task Force (ACTAF), for search warrants involving
heinous crimes, illegal gambling, illegal possession of firearms and ammunitions as well as violations of the Comprehensive
Dangerous Drugs Act of 2002, he Intellectual Property Code, the Anti-Money Laundering Act of 2001, the Tariff and Customs Code,
as amended, and other relevant laws that may hereafter be enacted by Congress, and included herein by the Supreme Court.
The applications shall be personally endorsed by the heads of such agencies and shall particularly describe therein the
places to be searched and/or the property or things to be seized as prescribed in the Rules of Court. The Executive Judges and
Vice-Executive Judges concerned shall issue the warrants, if justified, which may be served in places outside the territorial
jurisdiction of the said courts.
The Executive Judges and the authorized Judges shall keep a special docket book listing names of Judges to whom the
applications are assigned, the details of the applications and the results of the searches and seizures made pursuant to the warrants
issued.
This Section shall be an exception to Section 2 of Rule 126 of the Rules of Court.[11] (Emphasis supplied.)

From a cursory reading of the aforementioned provision of A.M. No. 03-8-02-SC, it is crystal that applications for search warrant to be
filed before the RTCs of Manila and Quezon City must be essentially approved in person by the heads of the following agencies: the PNP, NBI, and
ACTAF of the AFP. Accordingly, in the incident recounted in the 25 November 2008 letter of P/Dir. Gen. Verzosa, Judge Ros correctly denied the
application for search warrant of the PNP for being defective. The authority granted by the Court to P/Dir. Gen. Razon to delegate to the Director of
DIDM, PNP, the endorsement of applications for search warrant to be filed before the RTCs of Manila and Quezon City, was personal to P/Dir. Gen.
Razon. It cannot be invoked by P/Dir. Gen. Razons successor.

Nevertheless, the Court acknowledges that, to be efficient in the campaign to fight crime, the PNP Chief must not be tied to his desk.
Recent developments and trends in criminality require the PNP Chief to be mobile, so that he will be effective in the performance of several
functions and responsibilities attendant to his position. That being the case, there will be instances when documents demanding the PNP Chiefs
immediate attention and signature will not be acted upon right away. One such document may be an application for a search warrant, the
immediate endorsement of which is a must in order for the PNP to be effective and responsive in the conduct of its criminal investigation. It is,
therefore, evident that for the PNP to function more effectively and efficiently in its campaign against criminality, the safeguard in Sec. 12, Chapter
V of A.M. No. 03-8-02-SC,i.e., requiring the PNP Chiefs personal endorsement of an application for search warrant, calls for a review.

As correctly observed by the OCAT, the very specific requirement under Sec. 12, Chap. V of A.M. No. 03-8-02-SC that the heads of the
PNP, NBI, and ACTAF of the AFP, personally endorse applications of search warrants to be filed before the RTCs of Manila and Quezon City
deters the delegation of said duty even to their authorized representatives. Hence, as suggested,[12] A.M. No. 03-8-02-SC must be amended
to delete the word personally in the second paragraph of Sec. 12, Chap. V thereof. However, as to the proposal of the OCAT to insert the
phrase or their respective duly authorized officials as provided by law, the Court is of the view that the abridged phrase or their respective
duly authorized officials is more than sufficient to serve the intended purpose. The phrase as provided by law is a mere surplus since, as
correctly pointed out by the OCAT, it may be presumed that the delegation of authority by the head of the agency concerned is in accordance with
law.[13]

The aforementioned amendments of Sec. 12, Chap. V of A.M. No. 03-8-02-SC, will not only enable the Chief of the PNP, but the heads of
the NBI and ACTAF of the AFP, as well, to delegate to their duly authorized representatives the duty to endorse applications for search warrant to
be filed before the RTCs of Manila and Quezon City.

NOW, THEREFORE, BE IT RESOLVED, as it is hereby Resolved, in accordance with the following discussion, that:

(1) The request of P/Dir. Gen. Jesus A. Verzosa for leave to delegate to the Director of the DIDM, PNP, the authority to endorse
applications for search warrants to be filed before the RTCs of Manila and Quezon City, is hereby GRANTED in accordance with Sec. 12, Chapter
V of A.M. No. 03-8-02-SC, as it is hereinafter amended; and

(2) Sec. 12, Chapter V of the Guidelines on the Selection and Appointment of Executive Judges and Defining their Powers, Prerogatives
and Duties, as embodied in A.M. No. 03-8-02-SC, as approved by the Court in its Resolution of 27 January 2004, is hereby AMENDED to read as
follows:
SEC. 12. Issuance of search warrants in special criminal cases by the Regional Trial Courts of Manila and Quezon City.
The Executive Judges and, whenever they are on official leave of absence or are not physically present in the station, the ViceExecutive Judges of the RTCs of Manila and Quezon City shall have authority to act on applications filed by the National Bureau of
Investigation (NBI), the Philippine National Police (PNP) and the Anti-Crime Task Force (ACTAF), for search warrants involving
heinous crimes, illegal gambling, illegal possession of firearms and ammunitions as well as violations of the Comprehensive
Dangerous Drugs Act of 2002, the Intellectual Property Code, the Anti-Money Laundering Act of 2001, the Tariff and Customs Code,
as amended, and other relevant laws that may hereafter be enacted by Congress, and included herein by the Supreme Court.
The applications shall be endorsed by the heads of such agencies or their respective duly authorized officials and shall
particularly describe therein the places to be searched and/or the property or things to be seized as prescribed in the Rules of Court.
The Executive Judges and Vice-Executive Judges concerned shall issue the warrants, if justified, which may be served outside the
territorial jurisdiction of the said courts.
The Executive Judges and the authorized Judges shall keep a special docket book listing names of Judges to whom the
applications are assigned, the details of the applications and the results of the searches and seizures made pursuant to the warrants
issued.
This Section shall be an exception to Section 2 of Rule 126 of the Rules of Court. (Emphasis supplied.)

This amendment shall apply to all current, as well as succeeding heads of the PNP, NBI, and ACTAF of the AFP. It shall take effect on 20
July 2009 and shall be published in a newspaper of general circulation in the Philippines not later than 5 July 2009.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 154522

May 5, 2006

REPUBLIC OF THE PHILIPPINES, Represented by the ANTI-MONEY LAUNDERING COUNCIL, Petitioner,

vs.
CABRINI GREEN & ROSS, INC., MICHAEL J. FINDLAY and JANE GELBERG, Respondents,
x----------------------------------x
G.R. No. 154694

May 5, 2006

REPUBLIC OF THE PHILIPPINES, Represented by the ANTI-MONEY LAUNDERING COUNCIL, Petitioner,

vs.
R.A.B. REALTY, INC., MULTINATIONAL TELECOM INVESTORS CORPORATION, ROSARIO A. BALADJAY and SATURNINO M.
BALADJAY, Respondents,
x----------------------------------x
G.R. No. 155554

May 5, 2006

REPUBLIC OF THE PHILIPPINES, Represented by the ANTI-MONEY LAUNDERING COUNCIL, Petitioner,

vs.
MARIO N. MISA, MICHAEL Z. LAFUENTE, JESUS SILVERIO, REYNALDO NICHOLAS and REX D. JAO,Respondents,
x----------------------------------x
G.R. No. 155711

May 5, 2006

REPUBLIC OF THE PHILIPPINES, Represented by the ANTI-MONEY LAUNDERING COUNCIL, Petitioner,

vs.
ALBERTO DE LOS REYES, LORENZO CASTRO, HERMIE DE VERA, EDUARDO LAZO and DANILO LIWAG,Respondents.
RESOLUTION
CORONA, J.:
In the exercise of its power under Section 10 of RA 9160,1 the Anti-Money Laundering Council (AMLC) issued freeze orders against various bank
accounts of respondents. The frozen bank accounts were previously foundprima facie to be related to the unlawful activities of respondents.
Under RA 9160, a freeze order issued by the AMLC is effective for a period not exceeding 15 days unless extended "upon order of the court."
Accordingly, before the lapse of the period of effectivity of its freeze orders, the AMLC2 filed with the Court of Appeals (CA)3 various petitions for
extension of effectivity of its freeze orders.1avvphil.net
The AMLC invoked the jurisdiction of the CA in the belief that the power given to the CA to issue a temporary restraining order (TRO) or writ of injunction
against any freeze order issued by the AMLC carried with it the power to extend the effectivity of a freeze order. In other words, the AMLC interpreted the
phrase "upon order of the court" to refer to the CA.
However, the CA disagreed with the AMLC and dismissed the petitions. It uniformly ruled that it was not vested by RA 9160 with the power to extend a
freeze order issued by the AMLC.4
Hence, these consolidated petitions5 which present a common issue: which court has jurisdiction to extend the effectivity of a freeze order?
During the pendency of these petitions, or on March 3, 2003, Congress enacted RA 9194 (An Act Amending Republic Act No. 9160, Otherwise Known as
the "Anti-Money Laundering Act of 2001").6 It amended Section 10 of RA 9160 as follows:
SEC. 7. Section 10 of [RA 9160] is hereby amended to read as follows:
SEC. 10. Freezing of Monetary Instrument or Property. The Court of Appeals, upon application ex parte by the AMLC and after determination that
probable cause exists that any monetary instrument or property is in any way related to an unlawful activity as defined in Sec. 3(i) hereof, may issue a
freeze order which shall be effective immediately. The freeze order shall be for a period of twenty (20) days unless extended by the court.7(emphasis
supplied)

Section 12 of RA 9194 further provides:

SEC 12. Transitory Provision. Existing freeze orders issued by the AMLC shall remain in force for a period of thirty (30) days after the effectivity of this
Act, unless extended by the Court of Appeals. (emphasis supplied)
On April 3, 2003, the Office of the Solicitor General (OSG) filed a "Very Urgent Motion to Remand Cases to the Honorable Court of Appeals (with Prayer
for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction)."8 The OSG prayed for the remand of these cases to the CA pursuant
to RA 9194. It also asked for the issuance of a TRO on the ground that the freeze orders would be automatically lifted on April 22, 2003 by operation of
law and the money or deposits in the concerned bank accounts may be taken out of the reach of law enforcement authorities. The OSG further
manifested that pending in the CA were 29 other cases involving the same issue. It requested that these cases be included in the coverage of the TRO
prayed for.
On April 21, 2003, the Court issued a TRO in these cases and in all other similar cases pending before all courts in the Philippines. Respondents, the
concerned banks, and all persons acting in their behalf were directed to give full force and effect to existing freeze orders until further orders from this
Court.
On May 5, 2003, the OSG informed the Court that on April 22, 2003 the CA issued a resolution in CA-G.R. SP No. 69371 (the subject of G.R. No.
154694) granting the petition for extension of freeze orders.9 Hence, the OSG prayed for the dismissal of G.R. No. 154694 for being moot. It also
reiterated its earlier prayer for the remand of G.R. Nos. 154522, 155554 and 155711 to the CA.
The amendment by RA 9194 of RA 9160 erased any doubt on the jurisdiction of the CA over the extension of freeze orders. As the law now stands, it is
solely the CA which has the authority to issue a freeze order as well as to extend its effectivity. It also has the exclusive jurisdiction to extend existing
freeze orders previously issued by the AMLC vis--vis accounts and deposits related to money-laundering activities.
WHEREFORE, G.R. No. 154694 is hereby DISMISSED for being moot while G.R. Nos. 154522, 155554 and 155711 are REMANDED to the Court of
Appeals for appropriate action. Pending resolution by the Court of Appeals of these cases, the April 21, 2003 temporary restraining order is
hereby MAINTAINED.
No costs.
SO ORDERED.

G.R. No. 170281

January 18, 2008

REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEY LAUNDERING COUNCIL, petitioner,

vs.
GLASGOW CREDIT AND COLLECTION SERVICES, INC. and CITYSTATE SAVINGS BANK, INC., respondents.
DECISION
CORONA, J.:
This is a petition for review1 of the order2 dated October 27, 2005 of the Regional Trial Court (RTC) of Manila, Branch 47, dismissing the complaint for
forfeiture3 filed by the Republic of the Philippines, represented by the Anti-Money Laundering Council (AMLC) against respondents Glasgow Credit and
Collection Services, Inc. (Glasgow) and Citystate Savings Bank, Inc. (CSBI).
On July 18, 2003, the Republic filed a complaint in the RTC Manila for civil forfeiture of assets (with urgent plea for issuance of temporary restraining
order [TRO] and/or writ of preliminary injunction) against the bank deposits in account number CA-005-10-000121-5 maintained by Glasgow in CSBI.
The case, filed pursuant to RA 9160 (the Anti-Money Laundering Act of 2001), as amended, was docketed as Civil Case No. 03-107319.
Acting on the Republics urgent plea for the issuance of a TRO, the executive judge 4 of RTC Manila issued a 72-hour TRO dated July 21, 2003. The
case was thereafter raffled to Branch 47 and the hearing on the application for issuance of a writ of preliminary injunction was set on August 4, 2003.
After hearing, the trial court (through then Presiding Judge Marivic T. Balisi-Umali) issued an order granting the issuance of a writ of preliminary
injunction. The injunctive writ was issued on August 8, 2003.
Meanwhile, summons to Glasgow was returned "unserved" as it could no longer be found at its last known address.
On October 8, 2003, the Republic filed a verified omnibus motion for (a) issuance of alias summons and (b) leave of court to serve summons by
publication. In an order dated October 15, 2003, the trial court directed the issuance of alias summons. However, no mention was made of the motion for
leave of court to serve summons by publication.
In an order dated January 30, 2004, the trial court archived the case allegedly for failure of the Republic to serve the alias summons. The Republic filed
an ex parte omnibus motion to (a) reinstate the case and (b) resolve its pending motion for leave of court to serve summons by publication.
In an order dated May 31, 2004, the trial court ordered the reinstatement of the case and directed the Republic to serve the alias summons on Glasgow
and CSBI within 15 days. However, it did not resolve the Republics motion for leave of court to serve summons by publication declaring:
Until and unless a return is made on the alias summons, any action on [the Republics] motion for leave of court to serve summons by
publication would be untenable if not premature.
On July 12, 2004, the Republic (through the Office of the Solicitor General [OSG]) received a copy of the sheriffs return dated June 30, 2004 stating that
the alias summons was returned "unserved" as Glasgow was no longer holding office at the given address since July 2002 and left no forwarding
address.
Meanwhile, the Republics motion for leave of court to serve summons by publication remained unresolved. Thus, on August 11, 2005, the Republic filed
a manifestation and ex parte motion to resolve its motion for leave of court to serve summons by publication.
On August 12, 2005, the OSG received a copy of Glasgows "Motion to Dismiss (By Way of Special Appearance)" dated August 11, 2005. It alleged that
(1) the court had no jurisdiction over its person as summons had not yet been served on it; (2) the complaint was premature and stated no cause of
action as there was still no conviction for estafa or other criminal violations implicating Glasgow and (3) there was failure to prosecute on the part of the
Republic.
The Republic opposed Glasgows motion to dismiss. It contended that its suit was an action quasi in rem where jurisdiction over the person of the
defendant was not a prerequisite to confer jurisdiction on the court. It asserted that prior conviction for unlawful activity was not a precondition to the
filing of a civil forfeiture case and that its complaint alleged ultimate facts sufficient to establish a cause of action. It denied that it failed to prosecute the
case.
On October 27, 2005, the trial court issued the assailed order. It dismissed the case on the following grounds: (1) improper venue as it should have been
filed in the RTC of Pasig where CSBI, the depository bank of the account sought to be forfeited, was located; (2) insufficiency of the complaint in form
and substance and (3) failure to prosecute. It lifted the writ of preliminary injunction and directed CSBI to release to Glasgow or its authorized
representative the funds in CA-005-10-000121-5.
Raising questions of law, the Republic filed this petition.
On November 23, 2005, this Court issued a TRO restraining Glasgow and CSBI, their agents, representatives and/or persons acting upon their orders
from implementing the assailed October 27, 2005 order. It restrained Glasgow from removing, dissipating or disposing of the funds in account no. CA005-10-000121-5 and CSBI from allowing any transaction on the said account.

The petition essentially presents the following issue: whether the complaint for civil forfeiture was correctly dismissed on grounds of improper venue,
insufficiency in form and substance and failure to prosecute.
The Court agrees with the Republic.
The Complaint Was Filed
In The Proper Venue
In its assailed order, the trial court cited the grounds raised by Glasgow in support of its motion to dismiss:
1. That this [c]ourt has no jurisdiction over the person of Glasgow considering that no [s]ummons has been served upon it, and it has not
entered its appearance voluntarily;
2. That the [c]omplaint for forfeiture is premature because of the absence of a prior finding by any tribunal that Glasgow was engaged in
unlawful activity: [i]n connection therewith[,] Glasgow argues that the [c]omplaint states no cause of action; and
3. That there is failure to prosecute, in that, up to now, summons has yet to be served upon Glasgow.5
But inasmuch as Glasgow never questioned the venue of the Republics complaint for civil forfeiture against it, how could the trial court have dismissed
the complaint for improper venue? In Dacoycoy v. Intermediate Appellate Court6 (reiterated in Rudolf Lietz Holdings, Inc. v. Registry of Deeds of
Paraaque City),7 this Court ruled:
The motu proprio dismissal of petitioners complaint by [the] trial court on the ground of improper venue is plain error. (emphasis
supplied)
At any rate, the trial court was a proper venue.
On November 15, 2005, this Court issued A.M. No. 05-11-04-SC, the Rule of Procedure in Cases of Civil Forfeiture, Asset Preservation, and Freezing of
Monetary Instrument, Property, or Proceeds Representing, Involving, or Relating to an Unlawful Activity or Money Laundering Offense under RA 9160,
as amended (Rule of Procedure in Cases of Civil Forfeiture). The order dismissing the Republics complaint for civil forfeiture of Glasgows account in
CSBI has not yet attained finality on account of the pendency of this appeal. Thus, the Rule of Procedure in Cases of Civil Forfeiture applies to the
Republics complaint.8 Moreover, Glasgow itself judicially admitted that the Rule of Procedure in Cases of Civil Forfeiture is "applicable to the instant
case."9
Section 3, Title II (Civil Forfeiture in the Regional Trial Court) of the Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 3. Venue of cases cognizable by the regional trial court. A petition for civil forfeiture shall be filed in any regional trial court of the
judicial region where the monetary instrument, property or proceeds representing, involving, or relating to an unlawful activity or to
a money laundering offense are located; provided, however, that where all or any portion of the monetary instrument, property or proceeds
is located outside the Philippines, the petition may be filed in the regional trial court in Manila or of the judicial region where any portion of the
monetary instrument, property, or proceeds is located, at the option of the petitioner. (emphasis supplied)
Under Section 3, Title II of the Rule of Procedure in Cases of Civil Forfeiture, therefore, the venue of civil forfeiture cases is any RTC of the judicial
region where the monetary instrument, property or proceeds representing, involving, or relating to an unlawful activity or to a money laundering offense
are located. Pasig City, where the account sought to be forfeited in this case is situated, is within the National Capital Judicial Region (NCJR). Clearly,
the complaint for civil forfeiture of the account may be filed in any RTC of the NCJR. Since the RTC Manila is one of the RTCs of the NCJR, 10 it was a
proper venue of the Republics complaint for civil forfeiture of Glasgows account.
The Complaint Was Sufficient In Form And Substance
In the assailed order, the trial court evaluated the Republics complaint to determine its sufficiency in form and substance:
At the outset, this [c]ourt, before it proceeds, takes the opportunity to examine the [c]omplaint and determine whether it is sufficient in form and
substance.
Before this [c]ourt is a [c]omplaint for Civil Forfeiture of Assets filed by the [AMLC], represented by the Office of the Solicitor General[,] against
Glasgow and [CSBI] as necessary party. The [c]omplaint principally alleges the following:
(a) Glasgow is a corporation existing under the laws of the Philippines, with principal office address at Unit 703, 7 th Floor, Citystate Center
[Building], No. 709 Shaw Boulevard[,] Pasig City;
(b) [CSBI] is a corporation existing under the laws of the Philippines, with principal office at Citystate Center Building, No. 709 Shaw
Boulevard, Pasig City;
(c) Glasgow has funds in the amount of P21,301,430.28 deposited with [CSBI], under CA 005-10-000121-5;
(d) As events have proved, aforestated bank account is related to the unlawful activities of Estafa and violation of Securities Regulation Code;

(e) The deposit has been subject of Suspicious Transaction Reports;

(f) After appropriate investigation, the AMLC issued Resolutions No. 094 (dated July 10, 2002), 096 (dated July 12, 2002), 101 (dated July 23,
2002), and 108 (dated August 2, 2002), directing the issuance of freeze orders against the bank accounts of Glasgow;
(g) Pursuant to said AMLC Resolutions, Freeze Orders Nos. 008-010, 011 and 013 were issued on different dates, addressed to the
concerned banks;
(h) The facts and circumstances plainly showing that defendant Glasgows bank account and deposit are related to the unlawful activities of
Estafa and violation of Securities Regulation Code, as well as to a money laundering offense [which] [has] been summarized by the AMLC in
its Resolution No. 094; and
(i) Because defendant Glasgows bank account and deposits are related to the unlawful activities of Estafa and violation of Securities
Regulation Code, as well as [to] money laundering offense as aforestated, and being the subject of covered transaction reports and eventual
freeze orders, the same should properly be forfeited in favor of the government in accordance with Section 12, R.A. 9160, as amended. 11
In a motion to dismiss for failure to state a cause of action, the focus is on the sufficiency, not the veracity, of the material allegations. 12 The
determination is confined to the four corners of the complaint and nowhere else.13
In a motion to dismiss a complaint based on lack of cause of action, the question submitted to the court for determination is the sufficiency of
the allegations made in the complaint to constitute a cause of action and not whether those allegations of fact are true, for said motion must
hypothetically admit the truth of the facts alleged in the complaint.
The test of the sufficiency of the facts alleged in the complaint is whether or not, admitting the facts alleged, the court could render
a valid judgment upon the same in accordance with the prayer of the complaint.14 (emphasis ours)
In this connection, Section 4, Title II of the Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 4. Contents of the petition for civil forfeiture. - The petition for civil forfeiture shall be verified and contain the following allegations:
(a) The name and address of the respondent;
(b) A description with reasonable particularity of the monetary instrument, property, or proceeds, and their location; and
(c) The acts or omissions prohibited by and the specific provisions of the Anti-Money Laundering Act, as amended, which are
alleged to be the grounds relied upon for the forfeiture of the monetary instrument, property, or proceeds; and
[(d)] The reliefs prayed for.
Here, the verified complaint of the Republic contained the following allegations:
(a) the name and address of the primary defendant therein, Glasgow;15
(b) a description of the proceeds of Glasgows unlawful activities with particularity, as well as the location thereof, account no. CA-005-10000121-5 in the amount of P21,301,430.28 maintained with CSBI;
(c) the acts prohibited by and the specific provisions of RA 9160, as amended, constituting the grounds for the forfeiture of the said proceeds.
In particular, suspicious transaction reports showed that Glasgow engaged in unlawful activities of estafa and violation of the Securities
Regulation Code (under Section 3(i)(9) and (13), RA 9160, as amended); the proceeds of the unlawful activities were transacted and
deposited with CSBI in account no. CA-005-10-000121-5 thereby making them appear to have originated from legitimate sources; as such,
Glasgow engaged in money laundering (under Section 4, RA 9160, as amended); and the AMLC subjected the account to freeze order and
(d) the reliefs prayed for, namely, the issuance of a TRO or writ of preliminary injunction and the forfeiture of the account in favor of the
government as well as other reliefs just and equitable under the premises.
The form and substance of the Republics complaint substantially conformed with Section 4, Title II of the Rule of Procedure in Cases of Civil Forfeiture.
Moreover, Section 12(a) of RA 9160, as amended, provides:
SEC. 12. Forfeiture Provisions.
(a) Civil Forfeiture. When there is a covered transaction report made, and the court has, in a petition filed for the purpose ordered seizure of
any monetary instrument or property, in whole or in part, directly or indirectly, related to said report, the Revised Rules of Court on civil
forfeiture shall apply.
In relation thereto, Rule 12.2 of the Revised Implementing Rules and Regulations of RA 9160, as amended, states:

RULE 12
Forfeiture Provisions
xxx xxx xxx
Rule 12.2. When Civil Forfeiture May be Applied. When there is a SUSPICIOUS TRANSACTION REPORT OR A COVERED
TRANSACTION REPORT DEEMED SUSPICIOUS AFTER INVESTIGATION BY THE AMLC, and the court has, in a petition filed for the
purpose, ordered the seizure of any monetary instrument or property, in whole or in part, directly or indirectly, related to said report, the
Revised Rules of Court on civil forfeiture shall apply.
RA 9160, as amended, and its implementing rules and regulations lay down two conditions when applying for civil forfeiture:
(1) when there is a suspicious transaction report or a covered transaction report deemed suspicious after investigation by the AMLC and
(2) the court has, in a petition filed for the purpose, ordered the seizure of any monetary instrument or property, in whole or in part, directly or
indirectly, related to said report.
It is the preliminary seizure of the property in question which brings it within the reach of the judicial process. 16 It is actually within the courts possession
when it is submitted to the process of the court.17 The injunctive writ issued on August 8, 2003 removed account no. CA-005-10-000121-5 from the
effective control of either Glasgow or CSBI or their representatives or agents and subjected it to the process of the court.
Since account no. CA-005-10-000121-5 of Glasgow in CSBI was (1) covered by several suspicious transaction reports and (2) placed under the control
of the trial court upon the issuance of the writ of preliminary injunction, the conditions provided in Section 12(a) of RA 9160, as amended, were satisfied.
Hence, the Republic, represented by the AMLC, properly instituted the complaint for civil forfeiture.
Whether or not there is truth in the allegation that account no. CA-005-10-000121-5 contains the proceeds of unlawful activities is an evidentiary matter
that may be proven during trial. The complaint, however, did not even have to show or allege that Glasgow had been implicated in a conviction for, or the
commission of, the unlawful activities of estafa and violation of the Securities Regulation Code.
A criminal conviction for an unlawful activity is not a prerequisite for the institution of a civil forfeiture proceeding. Stated otherwise, a finding of guilt for
an unlawful activity is not an essential element of civil forfeiture.
Section 6 of RA 9160, as amended, provides:
SEC. 6. Prosecution of Money Laundering.
(a) Any person may be charged with and convicted of both the offense of money laundering and the unlawful activity as herein defined.
(b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation under this
Act without prejudice to the freezing and other remedies provided. (emphasis supplied)
Rule 6.1 of the Revised Implementing Rules and Regulations of RA 9160, as amended, states:
Rule 6.1. Prosecution of Money Laundering
(a) Any person may be charged with and convicted of both the offense of money laundering and the unlawful activity as defined under Rule
3(i) of the AMLA.
(b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any offense or violation under the
AMLA without prejudice to the application ex-parte by the AMLC to the Court of Appeals for a freeze order with respect to the monetary
instrument or property involved therein andresort to other remedies provided under the AMLA, the Rules of Court and other pertinent
laws and rules. (emphasis supplied)
Finally, Section 27 of the Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 27. No prior charge, pendency or conviction necessary. No prior criminal charge, pendency of or conviction for an unlawful
activity or money laundering offense is necessary for the commencementor the resolution of a petition for civil forfeiture. (emphasis
supplied)
Thus, regardless of the absence, pendency or outcome of a criminal prosecution for the unlawful activity or for money laundering, an action for civil
forfeiture may be separately and independently prosecuted and resolved.
There Was No Failure
To Prosecute
The trial court faulted the Republic for its alleged failure to prosecute the case. Nothing could be more erroneous.

Immediately after the complaint was filed, the trial court ordered its deputy sheriff/process server to serve summons and notice of the hearing on the
application for issuance of TRO and/or writ of preliminary injunction. The subpoena to Glasgow was, however, returned unserved as Glasgow "could no
longer be found at its given address" and had moved out of the building since August 1, 2002.
Meanwhile, after due hearing, the trial court issued a writ of preliminary injunction enjoining Glasgow from removing, dissipating or disposing of the
subject bank deposits and CSBI from allowing any transaction on, withdrawal, transfer, removal, dissipation or disposition thereof.
As the summons on Glasgow was returned "unserved," and considering that its whereabouts could not be ascertained despite diligent inquiry, the
Republic filed a verified omnibus motion for (a) issuance of alias summons and (b) leave of court to serve summons by publication on October 8, 2003.
While the trial court issued an aliassummons in its order dated October 15, 2003, it kept quiet on the prayer for leave of court to serve summons by
publication.
Subsequently, in an order dated January 30, 2004, the trial court archived the case for failure of the Republic to cause the service of alias summons. The
Republic filed an ex parte omnibus motion to (a) reinstate the case and (b) resolve its pending motion for leave of court to serve summons by
publication.
In an order dated May 31, 2004, the trial court ordered the reinstatement of the case and directed the Republic to cause the service of
the alias summons on Glasgow and CSBI within 15 days. However, it deferred its action on the Republics motion for leave of court to serve summons
by publication until a return was made on the aliassummons.
Meanwhile, the Republic continued to exert efforts to obtain information from other government agencies on the whereabouts or current status of
respondent Glasgow if only to save on expenses of publication of summons. Its efforts, however, proved futile. The records on file with the Securities
and Exchange Commission provided no information. Other inquiries yielded negative results.
On July 12, 2004, the Republic received a copy of the sheriffs return dated June 30, 2004 stating that the aliassummons had been returned "unserved"
as Glasgow was no longer holding office at the given address since July 2002 and left no forwarding address. Still, no action was taken by the trial court
on the Republics motion for leave of court to serve summons by publication. Thus, on August 11, 2005, the Republic filed a manifestation and ex
parte motion to resolve its motion for leave of court to serve summons by publication.
It was at that point that Glasgow filed a motion to dismiss by way of special appearance which the Republic vigorously opposed. Strangely, to say the
least, the trial court issued the assailed order granting Glasgows motion.
Given these circumstances, how could the Republic be faulted for failure to prosecute the complaint for civil forfeiture? While there was admittedly a
delay in the proceeding, it could not be entirely or primarily ascribed to the Republic. That Glasgows whereabouts could not be ascertained was not only
beyond the Republics control, it was also attributable to Glasgow which left its principal office address without informing the Securities and Exchange
Commission or any official regulatory body (like the Bureau of Internal Revenue or the Department of Trade and Industry) of its new address. Moreover,
as early as October 8, 2003, the Republic was already seeking leave of court to serve summons by publication.
In Marahay v. Melicor,18 this Court ruled:
While a court can dismiss a case on the ground of non prosequitur, the real test for the exercise of such power is whether, under the
circumstances, plaintiff is chargeable with want of due diligence in failing to proceed with reasonable promptitude. In the absence of a
pattern or scheme to delay the disposition of the case or a wanton failure to observe the mandatory requirement of the rules on the
part of the plaintiff, as in the case at bar, courts should decide to dispense with rather than wield their authority to dismiss.
(emphasis supplied)
We see no pattern or scheme on the part of the Republic to delay the disposition of the case or a wanton failure to observe the mandatory requirement
of the rules. The trial court should not have so eagerly wielded its power to dismiss the Republics complaint.
Service Of Summons
May Be By Publication
In Republic v. Sandiganbayan,19 this Court declared that the rule is settled that forfeiture proceedings are actionsin rem. While that case involved
forfeiture proceedings under RA 1379, the same principle applies in cases for civil forfeiture under RA 9160, as amended, since both cases do not
terminate in the imposition of a penalty but merely in the forfeiture of the properties either acquired illegally or related to unlawful activities in favor of the
State.
As an action in rem, it is a proceeding against the thing itself instead of against the person. 20 In actions in rem orquasi in rem, jurisdiction over the person
of the defendant is not a prerequisite to conferring jurisdiction on the court, provided that the court acquires jurisdiction over the res.21 Nonetheless,
summons must be served upon the defendant in order to satisfy the requirements of due process.22 For this purpose, service may be made by
publication as such mode of service is allowed in actions in rem and quasi in rem.23
In this connection, Section 8, Title II of the Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 8. Notice and manner of service. - (a) The respondent shall be given notice of the petition in the same manner as service of summons under Rule
14 of the Rules of Court and the following rules:
1. The notice shall be served on respondent personally, or by any other means prescribed in Rule 14 of the Rules of Court;

2. The notice shall contain: (i) the title of the case; (ii) the docket number; (iii) the cause of action; and (iv) the relief prayed for; and
3. The notice shall likewise contain a proviso that, if no comment or opposition is filed within the reglementary period, the court shall hear the
case ex parte and render such judgment as may be warranted by the facts alleged in the petition and its supporting evidence.
(b) Where the respondent is designated as an unknown owner or whenever his whereabouts are unknown and cannot be
ascertained by diligent inquiry, service may, by leave of court, be effected upon him by publication of the notice of the
petition in a newspaper of general circulation in such places and for such time as the court may order. In the event that the
cost of publication exceeds the value or amount of the property to be forfeited by ten percent, publication shall not be required.
(emphasis supplied)
WHEREFORE, the petition is hereby GRANTED. The October 27, 2005 order of the Regional Trial Court of Manila, Branch 47, in Civil Case No. 03107319 is SET ASIDE. The August 11, 2005 motion to dismiss of Glasgow Credit and Collection Services, Inc. is DENIED. And the complaint for
forfeiture of the Republic of the Philippines, represented by the Anti-Money Laundering Council, is REINSTATED.
The case is hereby REMANDED to the Regional Trial Court of Manila, Branch 47 which shall forthwith proceed with the case pursuant to the provisions
of A.M. No. 05-11-04-SC. Pending final determination of the case, the November 23, 2005 temporary restraining order issued by this Court is
hereby MAINTAINED.
SO ORDERED.
Puno, C.J., Chairperson, Sandoval-Gutierrez, Azcuna, Leonardo-de Castro, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 184122

January 20, 2010

BANK OF THE PHILIPPINE ISLANDS, INC., Petitioner,

vs.
SPS. NORMAN AND ANGELINA YU and TUANSON BUILDERS CORPORATION represented by PRES. NORMAN YU, Respondents.
DECISION
ABAD, J.:
This case is about the propriety of a summary judgment in resolving a documented claim of alleged excessive penalty charges, interest, attorneys fees,
and foreclosure expenses imposed in an extrajudicial foreclosure of mortgage.
The Facts and the Case
Respondents Norman and Angelina Yu (the Yus), doing business as Tuanson Trading, and Tuanson Builders Corporation (Tuanson Builders) borrowed
various sums totaling P75 million from Far East Bank and Trust Company. For collateral, they executed real estate mortgages over several of their
properties,1 including certain lands in Legazpi City owned by Tuanson Trading.2 In 1999, unable to pay their loans, the Yus and Tuanson Builders
requested a loan restructuring,3 which the bank, now merged with Bank of the Philippine Islands (BPI), granted. 4 By this time, the Yus loan balance
stood at P33,400,000.00. The restructured loan used the same collaterals, with the exception of Transfer Certificate of Title 40247 that secured a loan
of P1,600,000.5
Despite the restructuring, however, the Yus still had difficulties paying their loan. They asked BPI to release some of the mortgaged lands since their total
appraised value far exceeded the amount of the remaining debt. When BPI ignored their request, the Yus withheld payments on their amortizations.
Thus, BPI extrajudicially foreclosed6 the mortgaged properties in Legazpi City and in Pili, Camarines Sur. But the Yus sought by court action against BPI
and the winning bidder, Magnacraft Development Corporation (Magnacraft), the annulment of the foreclosure sale.
In the course of the proceedings, however, the Yus and Magnacraft entered into a compromise agreement7 that affirmed the latters ownership of three
out of the 10 parcels of land that were auctioned. By virtue of this agreement, the court dismissed the complaint against Magnacraft, 8 without prejudice to
the Yus filing a new one against BPI.
On October 24, 2003 the Yus filed their new complaint before the Regional Trial Court (RTC) of Legazpi City, Branch 1, in Civil Case 10286 against BPI
for recovery of alleged excessive penalty charges, attorneys fees, and foreclosure expenses that the bank caused to be incorporated in the price of the
auctioned properties.91avvphi1
In its answer,10 BPI essentially admitted the foreclosure of the mortgaged properties for P39,055,254.95, broken down as follows: P33,283,758.73 as
principal debt; P2,110,282.78 as interest; and P3,661,213.46 as penalty charges.11 BPI qualified that the total of P39,055,254.95 corresponded only to
the Yus debt as of date of filing of the petition.12 The notice of the auction sale said that the total was "inclusive of interest, penalty charges, attorneys
fee and expenses of this foreclosure."13
BPI further admitted that its bid of P45,090,566.41 for all the auctioned properties was broken down as follows:14

Principal

P 32,188,723.0
7

Interest

2,763,088.93

Penalty Charges

5,568.649.09

Sub-total

P 40,520,461.0
9

Add: 10% Attorneys Fees

4,052,046.11

Litigation Expenses & Interest 446,726.74

Cost of Publication & Interest

71,332.47

TOTAL.

P 45,090,566.4
1

BPI also admitted that Magnacraft submitted the highest and winning bid of P45,500,000.00.15 The sheriff turned over this amount to BPI.16 According to
BPI, it in turn remitted to the Clerk of Court the P409,433.59 difference between its bid price and that of Magnacrafts. 17 Although the proceeds of the
sale exceeded the P39,055,254.95 stated in the notice of sale by P6,035,311.46,18 the bid amount increased because it now included litigation expenses
and attorneys fees as well as interests and penalties as recomputed.19
BPI admitted that it also pushed through with the second auction for the sale of a lot in Pili, Camarines Sur that secured a remaining debt
of P5,562,000.20 BPI made the lone bid21 of P1,701,934.09.22
The Yus had three causes of action against BPI.
First. The bank imposed excessive penalty charges and interests: over P5 million in penalty charges computed at 36% per annum compared
to the 12% per annum that the Court fixed in the cases of State Investment House, Inc. v. Court of Appeals23 and Ruiz v. Court of Appeals.24 In
addition, BPI collected a 14% yearly interest on the principal, bringing the combined penalty charges and interest to 50% of the principal per
annum.
Second. BPI also imposed a charge of P4,052,046.11 in attorneys fees, the equivalent of 10% of the principal, interest, and penalty charges.
Third. BPI did not provide documents to support its claim for foreclosure expenses of P446,726.74 and cost of publication of P518,059.21.
As an alternative to their three causes of action, the Yus claimed that BPI was in estoppel to claim more than the amount stated in its published notices.
Consequently, it must turn over the excess bid of P6,035,311.46.
After pre-trial, the Yus moved for summary judgment,25 pointing out that based on the answer,26 the common exhibits of the parties,27 and the answer to
the written interrogatories to the sheriff,28 no genuine issues of fact exist in the case. The Yus waived their claim for moral damages so the RTC can
dispose of the case through a summary judgment.29
Initially, the RTC granted only a partial summary judgment. It reduced the penalty charge of 36% per annum 30 to 12% per annum until the debt would
have been fully paid but maintained the attorneys fees as reasonable considering that BPI already waived the P1,761,511.36 that formed part of the
attorneys fees and reduced the rate of attorneys fees it collected from 25% to 10% of the amount due. The RTC ruled that facts necessary to resolve
the issues on penalties and fees had been admitted by the parties thus dispensing with the need to receive evidence.31
Still, the RTC held that it needed to receive evidence for the resolution of the issues of (1) whether or not the foreclosure and publication expenses were
justified; (2) whether or not the foreclosure of the lot in Pili, Camarines Sur, was valid given that the proceeds of the foreclosure of the properties in
Legazpi City sufficiently covered the debt; and (3) whether or not BPI was entitled to its counterclaim for attorneys fees, moral damages, and exemplary
damages.32
The Yus moved for partial reconsideration.33 They argued that, since BPI did not mark in evidence any document in support of the foreclosure expenses
it claimed, it may be assumed that the bank had no evidence to prove such expenses. As regards their right to the pro-rating of their debt among the
mortgaged properties, the Yus pointed out that BPI did not dispute the fact that the proceeds of the sale of the properties in Legazpi City fully satisfied
the debt. Thus, the court could already resolve without trial the issue of whether or not the foreclosure of the Pili property was valid.
Further, the Yus sought reconsideration of the reduction of penalty charges and the allowance of the attorneys fees. They claimed that the penalty
charges should be deleted for violation of Republic Act (R.A.) 3765 or the Truth in Lending Act. BPIs disclosure did not state the rate of penalties on late
amortizations. Also, the Yus asked the court to reduce the attorneys fees from 10% to 1% of the amount due. On January 3, 2006 the RTC reconsidered
its earlier decision and rendered a summary judgment:34
1. Deleting the penalty charges imposed by BPI for non-compliance with the Truth in Lending Act;
2. Reducing the attorneys fees to 1% of the principal and interest;
3. Upholding the reasonableness of the foreclosure expenses and cost of publication, both with interests;
4. Reiterating the turnover by the Clerk of Court to the Yus of the excess in the bid price;
5. Deleting the Yus claim for moral damages they having waived it;
6. Denying the Yus claim for attorneys fees for lack of basis; and
7. Dismissing BPIs counterclaim for moral and exemplary damages and for attorneys fees for lack of merit considering that summary
judgment has been rendered in favor of the Yus.
BPI appealed the decision to the Court of Appeals (CA) in CA-G.R. CV 86577. But the CA rendered judgment on January 23, 2008, affirming the RTC
decision in all respects. And when BPI asked for reconsideration,35 the CA denied it on July 14, 2008,36 hence, the banks recourse to this Court.
The Issues Presented
BPI presents the following issues:

1. Whether or not the case presented no genuine issues of fact such as to warrant a summary judgment by the RTC; and
2. Where summary judgment is proper, whether or not the RTC and the CA a) correctly deleted the penalty charges because of BPIs alleged
failure to comply with the Truth in Lending Act; b) correctly reduced the attorneys fees to 1% of the judgment debt; and c) properly dismissed
BPIs counterclaims for moral and exemplary damages, attorneys fees, and litigation expenses.
The Courts Rulings
One. A summary judgment is apt when the essential facts of the case are uncontested or the parties do not raise any genuine issue of fact. 37 Here, to
resolve the issue of the excessive charges allegedly incorporated into the auction bid price, the RTC simply had to look at a) the pleadings of the parties;
b) the loan agreements, the promissory note, and the real estate mortgages between them; c) the foreclosure and bidding documents; and d) the
admissions and other disclosures between the parties during pre-trial. Since the parties admitted not only the existence, authenticity, and genuine
execution of these documents but also what they stated, the trial court did not need to hold a trial for the reception of the evidence of the parties.
BPI contends that a summary judgment was not proper given the following issues that the parties raised: 1) whether or not the loan agreements
between them were valid and enforceable; 2) whether or not the Yus have a cause of action against BPI; 3) whether or not the Yus are proper parties in
interest; 4) whether or not the Yus are estopped from questioning the foreclosure proceeding after entering into a compromise agreement with
Magnacraft; 5) whether or not the penalty charges and fees and expenses of litigation and publication are excessive; and 6) whether or not BPI violated
the Truth in Lending Act.38
But these are issues that could be readily resolved based on the facts established by the pleadings and the admissions of the parties. 39 Indeed, BPI has
failed to name any document or item of fact that it would have wanted to adduce at the trial of the case. A trial would have been such a great waste of
time and resources.
Two. Both the RTC and CA decisions cited BPIs alleged violation of the Truth in Lending Act and the ruling of the Court in New Sampaguita Builders
Construction, Inc. v. Philippine National Bank40 to justify their deletion of the penalty charges. Section 4 of the Truth in Lending Act states that:
SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing
setting forth, to the extent applicable and in accordance with rules and regulations prescribed by the Board, the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident
to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid
balance of the obligation.
Penalty charge, which is liquidated damages resulting from a breach,41 falls under item (6) or finance charge. A finance charge "represents the amount to
be paid by the debtor incident to the extension of credit."42 The lender may provide for a penalty clause so long as the amount or rate of the charge and
the conditions under which it is to be paid are disclosed to the borrower before he enters into the credit agreement.
In this case, although BPI failed to state the penalty charges in the disclosure statement, the promissory note that the Yus signed, on the same date as
the disclosure statement, contained a penalty clause that said: "I/We jointly and severally, promise to further pay a late payment charge on any overdue
amount herein at the rate of 3% per month." The promissory note is an acknowledgment of a debt and commitment to repay it on the date and under the
conditions that the parties agreed on.43 It is a valid contract absent proof of acts which might have vitiated consent. 44
The question is whether or not the reference to the penalty charges in the promissory note constitutes substantial compliance with the disclosure
requirement of the Truth in Lending Act.45 The RTC and CA relied on the ruling in New Sampaguita as authority that the non-disclosure of the penalty
charge renders its imposition illegal. But New Sampaguita is not attended by the same circumstances. What New Sampaguita disallowed, because it
was not mentioned either in the disclosure statement or in the promissory note, was the unilateral increase in the rates of penalty charges that the
creditor imposed on the borrower. Here, however, it is not shown that BPI increased the rate of penalty charge that it collected from the Yus. 46
The ruling that is more in point is that laid down in The Consolidated Bank and Trust Corporation v. Court of Appeals, 47 a case cited in New Sampaguita.
The Consolidated Bank ruling declared valid the penalty charges that were stipulated in the promissory notes.48 What the Court disallowed in that case
was the collection of a handling charge that the promissory notes did not contain.
The Court has affirmed that financial charges are amply disclosed if stated in the promissory note in the case of Development Bank of the Philippines v.
Arcilla, Jr.49 The Court there said, "Under Circular 158 of the Central Bank, the lender is required to include the information required by R.A. 3765 in the
contract covering the credit transaction or any other document to be acknowledged and signed by the borrower. In addition, the contract or document

shall specify additional charges, if any, which will be collected in case certain stipulations in the contract are not met by the debtor." In this case, the
promissory notes signed by the Yus contained data, including penalty charges, required by the Truth in Lending Act. They cannot avoid liability based on
a rigid interpretation of the Truth in Lending Act that contravenes its goal.
Nonetheless, the courts have authority to reduce penalty charges when these are unreasonable and iniquitous. 50Considering that BPI had already
received over P2.7 million in interest and that it seeks to impose the penalty charge of 3% per month or 36% per annum on the total amount due
principal plus interest, with interest not paid when due added to and becoming part of the principal and also bearing interest at the same ratethe Court
finds the ruling of the RTC in its original decision51 reasonable and fair. Thus, the penalty charge of 12% per annum or 1% per month52 is imposed.
Three. As for the award of attorneys fee, it being part of a partys liquidated damages, the same may likewise be equitably reduced. 53 The CA correctly
affirmed the RTC Order54 to reduce it from 10% to 1% based on the following reasons: (1) attorneys fee is not essential to the cost of borrowing, but a
mere incident of collection;55(2) 1% is just and adequate because BPI had already charged foreclosure expenses; (3) attorneys fee of 10% of the total
amount due is onerous considering the rote effort that goes into extrajudicial foreclosures.
WHEREFORE, the Court DENIES the petition and AFFIRMS the Court of Appeals Decision in CA-G.R. CV 86577 dated January 23, 2008 subject to the
RESTORATION of the penalty charge of 12% per annum or 1% per month of the amount due computed from date of nonpayment or November 25,
2001.
SO ORDERED.