Sept 23 Assignment BANKING

Concentrate on the Cases and the related provisions in the GBL.

We will gloss over equity investments.

I. Deposit, Loans and Other Operations

i. Powers of Universal banks (Section 23 and 29, GBL)
ii. Equity Investments (Universal Banks (Section 24, 25, 26, 27)
iii. Section 28 Equity Investment in Quasi Banks
iv. Section 29 Powers of a Commercial Bank
1. Powers of a corporation
2. Enumerated powers
3. Cases:
a. Reliance Commodities .v Daewoo Industries (GR 100831, Dec 17, 1993
b. Prudential Bank .v IAC, GR 74886, Dec. 8, 1992
c. Bank of America, NT v. CA, GR 105395, Dec, 10, 1993
v. Sections 30-32 Equity Investments of Commercial Banks

II. Provisions Applicable to All Banks, QBs and Trust Entities

i. Chapter III, Sections 33-46
ii. MORB, Section X201- X203 (Demand Deposits) and Section X303 (SBL)
iii. Check Section 32, Corporation Code on Self dealing transactions
iv. Cases:
1. People v. Go, G.R. No. 191015. August 6, 2014
2. Spouses Ginorella v. PNB, G.R. No. 194515. September 16, 2015.
3. Go v. Bangko Sentral, GR 178429, October 23, 2009
4. Soriano v. People, GR No. 162336, Feb 1, 2010
5. Central Bank v. CA, GR L-45710, October 3, 1985
6. PNB v. CA, GR No. 126908, Jan 16, 2003
7. Union Bank v. CA, GR 164910, Sept 30, 2005
8. Floirendo v. Metrobank, GR 148325. Sept 3, 2007
9. Macalinao v. BPI, GR No. 175490, Sept 17, 2009
10. Spouses Jonsay v. Solidbank, GR 206459, April 6, 2016
11. PNB v. Heirs of Benedicto & Azucena Alonday, GR 171865, October 12, 2016
G.R. No. L-100831 December 17, 1993
RELIANCE COMMODITIES, INC., petitioner,
vs.
DAEWOO INDUSTRIAL CO., LTD., respondent.
Ongkiko & Dizon Law Offices for petitioner.
Lao, Veloso-Lao & Lao for private respondent.

FELICIANO, J.:
On 9 January 1980, petitioner Reliance Commodities, Inc. ("reliance") and private respondent Daewoo Industrial Co., Ltd.
("Daewoo") entered into a contract of sale under the terms of which the latter undertook to ship and deliver to the former
2,000 metric tons of foundry pig iron for the price of US$404,000.00. Pursuant to this contract, Daewoo shipped from
Pohang, Republic of Korea, 2,000 metric tons of foundry pig iron on board the M/S Aurelio III under Bill of Lading No.
PIP-1 for carriage to and delivery in Manila to its consignee, Reliance. The shipment was fully paid for. Upon arrival in
Manila, the subject cargo was found to be short of 135.655 metric tons as only 1,864.345 metric tons were discharged and
delivered to Reliance.
On 2 May 1980, another contract was entered into between the same parties for the purchase of another 2,000 metric tons
of foundry pig iron. Daewoo acknowledged the short shipment of 135.655 metric tons under the 9 January 1980 contract
and, to compensate Reliance therefor, bound itself to reduce the price by US$1 to US$2 per metric ton of pig iron for
succeeding orders. This undertaking was made part of the 2 May 1980 contract. However, that contract was not
consummated and was later superseded by still another contract dated 31 July 1980.
The 31 July 1980 contract read as follows:
CONFIRMATION OF ORDER
SALES NOTE No. HSB-SN/S001-R
To Messrs: Reliance Commodities, Inc.
161, 9th Street, 10th Avenue
Caloocan City
Reference: HSB-PI/8019-R
Contracted through:
Order No.:
Commodity: Foundry Pig Iron
Spec.: JIS G 2202 Class 1-1C
Quantity: 2,000MT
Price: US $190.30/MT C&F Manila
Amount: US $380,600.00
Packing: Bare Loose
Shipment: August
Destination: Manila
Payment: By an irrevocable of sight letter of credit in favor of Daewoo Industrial Co., Ltd., 541 5th Street, namdaemunro,
Jung-Gu, Seoul, Korea.
Remarks: Other terms and conditions as per attached sheet.
We confirm our sales as specified herein. Subject to the terms and conditions set forth herein, this confirmation of order
("the Contract") constitutes a contract between Daewoo Industrial Co. Ltd. ("Seller") and the addressee ("Buyer"). Other
terms and conditions of the Contract are on the back hereof. If you find anything herein not in order, please let us know
immediately, if necessary by telex, cable or telegram. Kindly sign and return the duplicate after confirming the above.
Read and agreed to:
Name of addressee: Daewoo Industrial Co., Ltd.
By: (SGD) MR SAMUEL CHUASON By: (SGD) JA-HYUNG RYU
Date: July 31, 1980 Date: July 31, 19801
The attached sheet referred to above set out the following:
Reliance Commodities, Inc.
Our Reference No. HSB-PI/SO19-R
1. Invoicing: Actual Weight
2. Chemical Composition (%):
Carbon: 3.30 min. (aiming 3.80 min.)
Silicon: 2.21-2.60 (aiming 2.60)
Manganese: 0.30-1.00
Phosphorous: 0.45 max. (aiming 0.25 max.)
Sulfur: 0.05 max.
3. Quantity Tolerance: +10 percent of total quantity should be allowed.
4. Unit Weight: 5 kgs. + 1 kg. (one notch)
5. Broken pieces of twenty (20%) percent should be allowed.
6. All disputes, controversies, or differences which may arise between the parties, out of or in relation to or in connection
with this contract, or for the breach thereof, shall be finally settled by arbitration in Korea in accordance with the rules and
regulations of Korea commercial arbitration association or in the Philippines in accordance with the Philippine arbitration
rules.
7. Letter of credit should be opened on or before August 7, 1980.
8. Other terms and conditions, if necessary, are to be solved later by mutual agreement.
9. Mill sheets and copies of non-negotiable documents to be sent to buyer by airmail immediately after shipment.
10. This Sales Note No. HSB-SN/S001R cancels Sales Note No. HSB-SN/8001 dated May 2, 1980.2
On August 1, 1980, Reliance, through its Mrs. Samuel Chuason, filed with the China Banking Corporation, an application
for a Letter of Credit (L/C) in favor of Daewoo covering the amount of US$380,600.00. The application was endorsed to
the Iron and Steel Authority (ISA) or approval but the application was denied. Reliance was instead asked to submit purchase
orders from end-users to support its application for a Letter of Credit. However, Reliance was not able to raise purchase
orders for 2,000 metric tons. Reliance alleges that it was able to raise purchase orders for 1,900 metric tons. 3 Daewoo, upon
the other hand, contends that Reliance was only able to raise purchase orders for 900 metric tons. 4 An examination of the
exhibits 5 presented by Reliance in the trial court shows that only purchase orders for 900 metric tons were stamped
"Received" by the ISA. The other purchase orders for 1,000 metric tons allegedly sent by prospective end users to Reliance
were not shown to have been duly sent and exhibited to the ISA. Whatever the exact amount of the purchase orders was,
Daewoo rejected the proposed L/C for the reason that the covered quantity fell short of the contracted tonnage. Thus,
Reliance withdrew the application for the L/C on 14 August 1980.
Subsequently, Daewoo leaned that the failure of Reliance to open the L/C as stipulated in the 31 July 1980 contract was due
to the fact that as early as May 1980, Reliance has already exceeded its foreign exchange allocation for 1980. Because of
the failure of Reliance to comply with its undertaking under the 31 July 1980 contract, Daewoo was compelled to sell the
2,000 metric tons to another buyer at a lower price, to cut losses and expenses Daewoo had begun to incur due to its inability
to ship the 2000 metric tons to Reliance under their contract.
On 3 September 1980, Reliance, through its counsel, wrote Daewoo requesting payment of the amount of P226,370.48,
representing the value of the short delivery of 135.655 metric tons of foundry pig iron under the contract of 9 January 1980.
Not being heeded, Reliance filed an action for damages against Daewoo with the trial court. Daewoo responded, inter
alia, with a counterclaim for damages, contending that Reliance was guilty of breach of contract when it failed to open an
L/C as required in the 31 July 1980 contract.
After trial, the trial court ruled that:
(1) the 31 July 1980 contract did not extinguish Daewoo's obligation for short delivery pursuant to the 9 January 1980
contract and must therefore pay Reliance P226,370.48 representing the value of the short delivered goods plus interest and
attorney's fees; and
(2) Reliance is in turn liable for breach of contract for its failure to open a letter of credit in favor of Daewoo pursuant to
the 31 July 1980 contract and must therefore pay the latter P331,920.97 as actual damages with legal interest plus attorney's
fees.
Reliance appealed the second part of the trial court's judgment. Public respondent Court of Appeals found no merit in the
appeal and in affirming the decision of the trial court ruled that:
1) the trial court's finding that Reliance could not have opened the Letter of Credit in favor of Daewoo because it had already
exhausted its foreign exchange allocation at the time of its application, was amply supported by evidence; and
2) the opening of a letter of credit is not such a future and uncertain event as to make it a suspensive condition within the
contemplation of law; but, only mode of payment agreed upon by the parties, and a standard mode at that when one of the
parties to the transaction is a foreigner and the consideration is payable in foreign exchange.
In the present Petition for Review, Reliance assails the award of damages in favor of Daewoo. Reliance contends a) that its
failure to open a Letter of Credit was due to the failure of Daewoo to accept the purchase orders for 1,900 metric tons instead
of 2,000 metric tons; b) that the opening of the Letter of Credit was a condition precedent to the effectivity of the contract
between Reliance and Daewoo; and c) that since such condition had not occurred, the contract never came into existence
and, therefore, Reliance should not have been held liable for damages.
The issue before us is whether or not the failure of an importer (Reliance) to open a letter of credit on the date agreed upon
makes him liable to the exporter (Daewoo) for damages.
In addressing this issue, it is useful to recall the nature of a Letter of Credit, and the mechanics involved in applying for a
Letter of Credit.
The nature of a letter of credit was extensively discussed in Bank of America, NT & SA v. Court of Appeals, et al. 6by
Vitug, J. in the following terms:
A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales
of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid,
and a buyer, who wants to have control of the goods before paying. To break the impasse, the buyer may be required to
contract a bank to issue a letter of credit in favor of the seller so that, by virtue of the letter of credit, the issuing bank can
authorize the seller to draw drafts and engage to pay them upon their presentment simultaneously with the tender of
documents required by the letter of credit. The buyer and seller agree on what documents are to be presented for payment,
but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to the buyer.
Once the credit is established, the seller ships the goods to the buyer and in the process secures the required shipping
documents or documents of title. To get paid, the seller executes a draft and pays cash to the seller if it finds that the
documents submitted by the seller conform with what the letter of credit requires. The bank then obtains possession of the
documents upon paying the seller. The transaction is completed when the buyer reimburses the issuing bank and acquires
the documents entitling him to the goods. Under this arrangement, the seller gets paid only if he delivers the documents of
title over the goods, while the goods only after reimbursing the bank. 7 (footnotes omitted)
A letter of credit is one of the modes of payment, set out in Sec. 8, Central Bank Circular No. 1389, "Consolidated Foreign
Exchange Rules and Regulations," dated 13 April 1993, by which commercial banks sell foreign exchange to service
payments for, e.g., commodity imports. The primary purpose of the letter of credit is to substitute for and therefore support,
the agreement of the buyer/importer to pay money under a contract or other arrangement. 8 It creates in the seller/exporter
a secure expectation of payment.
A letter of credit transaction may thus be seen to be a composite of at least three (3) distinct but intertwined relationships
being concretized in a contract:
(a) One contract relationship links the party applying for the L/C (the account party or buyer or importer) and the party for
whose benefit the L/C is issued (the beneficiary or seller or exporter). In this contract, the account party, here Reliance,
agrees, among other things and subject to the terms and conditions of the contract, to pay money to the beneficiary, here
Daewoo.
(b) A second contract relationship is between the account party and the issuing bank. Under this contract, (sometimes called
the "Application and Agreement" or the "Reimbursement Agreement"), the account party among other things, applies to the
issuing bank for a specified L/C and agrees to reimburse the bank for amounts paid by that bank pursuant to the L/C.
(c) The third contract relationship is established between the issuing bank and the beneficiary, in order to support the
contract, under
(a) above, of the account party and the beneficiary to, inter alia, pay certain monies to the latter.
Certain other parties may be added to the foregoing, but the above three are the indispensable ones.
The issue raised in the Petition at bar relates principally to the first component contractual relation above: that between
account party or importer Reliance and beneficiary or exporter Daewoo.
Examining the actual terms of that relationship as set out in the 31 July 1980 contract quoted earlier (and not simply the
summary inaccurately rendered by the trial court), the Court considers that under that instrument, the opening of an L/C
upon application of Reliance was not a condition precedent for the birth of the obligation of Reliance to purchase foundry
pig iron from Daewoo. We agree with the Court of Appeals that Reliance and Daewoo, having reached "a meeting of minds"
in respect of the subject matter of the contract (2000 metric tons of foundry pig iron with a specified chemical composition),
the price thereof (US $380,600.00), and other principal provisions, "they had a perfected contract." 9 The failure of Reliance
to open, the appropriate L/C did not prevent the birth of that contract, and neither did such failure extinguish that contract.
The opening of the L/C in favor of Daewoo was an obligation of Reliance and the performance of that obligation by Reliance
was a condition of enforcement of the reciprocal obligation of Daewoo to ship the subject matter of the contract — the
foundry pig iron — to Reliance. But the contract itself between Reliance and Daewoo had already sprung into legal existence
and was enforceable.
The L/C provided for in that contract was the mode or mechanism by which payment was to be effected by Reliance of the
price of the pig iron. In undertaking to accept or pay the drafts presented to it by the beneficiary according to the tenor of
an L/C, and only later on being reimbursed by the account party, the issuing bank in effect extends a loan to the account
party. This loan feature, combined with the bank's undertaking to accept the beneficiary's drafts drawn on the bank,
constitutes the L/C as a mode of payment. 10 Logically, before the issuing bank open an L/C, it will take steps to ensure that
it would indeed be reimbursed when the time comes. Before an L/C can be opened, specific legal requirements must be
complied with.
The Central Bank of the Philippines has established the following requirements for opening a letter of credit:
All L/C's must be opened on or before the date of shipment with maximum validity of one (1) year. Likewise, only one L/C
should be opened for each import transaction. for purposes of opening an L/C, importers shall submit to the commercial
bank the following documents:
a) the duly accomplished L/C application;
b) firm offer/proforma invoice which shall contain information on the specific quantity of the importation, unit cost and
total cost, complete description/specification of the commodity and the Philippine Standard Commodity Classification
statistical code;
c) permits/clearances from the appropriate government agencies, whenever applicable; and
d) duly accomplished Import Entry Declaration (IED) form which shall serve as basis for payment of advance duties as
required under PD 1853. 11 (Emphasis supplied)
The need for permits or clearances from appropriate government agencies arises when regulated commodities are to be
imported. 12 Certain commodities are classified as "regulated commodities" for purposes of their importation, "for reasons
of public health and safety, national security, international commitments, and development/rationalization of local
industry." 13 The petitioner in the instant case entered into a transaction to import foundry pig iron, a regulated commodity.
In respect of the importation of this particular commodity, the Iron and Steel Authority (ISA) is the government agency
designated to issue the permit or clearance. 14 Prior to the issuance of such permit or clearance, ISA asks the buyer/importer
to comply with particular requirements, such as to show the availability of foreign exchange allocations. The issuance of an
L/C becomes, among other things, an indication of compliance by the buyer/importer with his own government's regulations
relating to imports and to payment thereof. 15
The records shows that the opening of the L/C in the instant case became very difficult because Reliance had exhausted its
dollar allocation. Reliance knew that it had already exceeded its dollar allocation for the year 1980 when it entered into the
31 July 1980 transaction with Daewoo. 16 As a rule, when the importer has exceeded its foreign exchange allocation, his
application would be denied. However, ISA could reconsider such application on a case to case basis. 17 Thus, in the instant
case, ISA required Reliance to support its application by submitting purchase orders from end-users for the same quantity
the latter wished to import. As earlier noted, Reliance was able to present purchase orders for only 900 metric tons of the
subject pig iron. 18 For having exceeded its foreign exchange allocation before it entered into the 31 July 1980 contract with
Daewoo, petitioner Reliance can hold only itself responsible. for having failed to secure end-users purchase orders
equivalent to 2,000 metric tons, only Reliance should be held responsible.
Daewoo rejected Reliance's proposed reduced tonnage. It had the right to demand compliance with the terms of the basic
contract and had no duty to accept any unilateral modification of that contract. Compliance with Philippine legal
requirements was the duty of Reliance; it is not disputed that ISA's requirements were legal and valid, and not arbitrary or
capricious. Compliance with such requirements, like keeping within one's dollar allocation and complying with the
requirements of ISA, were within the control of Reliance and not of Daewoo. The Court is compelled to agree with the
Court of Appeals that the non-opening of the L/C was due to the failure of Reliance to comply with its duty under the
contract.
We believe and so hold that failure of a buyer seasonably to furnish an agreed letter of credit is a breach of he contract
between buyer and seller. Where the buyer fails to open a letter of credit as stipulated, the seller or exporter is entitled to
claim damages for such breach. Damages for failure to open a commercial credit may, in appropriate cases, include the loss
of profit which the seller would reasonably have made had the transaction been carried out. 19
We hold, further, that the Court of Appeals committed no reversible error when it ruled that the damages incurred by Daewoo
were sufficiently proved with the testimony of Mr. Ricardo Fernandez and "the various documentary evidence showing the
loss suffered by the defendant when it was compelled to sell the subject goods at a lower price." 20
WHEREFORE, in view of the foregoing, the Petition for Review is hereby DENIED for lack of merit and the decision of
the Court of Appeals dated 8 February 1991 is hereby AFFIRMED. Costs against petitioner. SO ORDERED.
G.R. No. 74886 December 8, 1992
PRUDENTIAL BANK, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC. and ANACLETO R.
CHI, respondents.

DAVIDE, JR., J.:

Petitioner seeks to review and set aside the decision 1 of public respondent; Intermediate Appellate Court (now Court of
Appeals), dated 10 March 1986, in AC-G.R. No. 66733 which affirmed in toto the 15 June 1978 decision of Branch 9
(Quezon City) of the then Court of First Instance (now Regional Trial Court) of Rizal in Civil Case No. Q-19312. The latter
involved an action instituted by the petitioner for the recovery of a sum of money representing the amount paid by it to the
Nissho Company Ltd. of Japan for textile machinery imported by the defendant, now private respondent, Philippine Rayon
Mills, Inc. (hereinafter Philippine Rayon), represented by co-defendant Anacleto R. Chi.
The facts which gave rise to the instant controversy are summarized by the public respondent as follows:
On August 8, 1962, defendant-appellant Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan
for the importation of textile machineries under a five-year deferred payment plan (Exhibit B, Plaintiff's Folder of Exhibits,
p 2). To effect payment for said machineries, the defendant-appellant applied for a commercial letter of credit with the
Prudential Bank and Trust Company in favor of Nissho. By virtue of said application, the Prudential Bank opened Letter of
Credit No. DPP-63762 for $128,548.78 (Exhibit A, Ibid., p. 1). Against this letter of credit, drafts were drawn and issued
by Nissho (Exhibits X, X-1 to X-11, Ibid., pp. 65, 66 to 76), which were all paid by the Prudential Bank through its
correspondent in Japan, the Bank of Tokyo, Ltd. As indicated on their faces, two of these drafts (Exhibit X and X-1, Ibid.,
pp. 65-66) were accepted by the defendant-appellant through its president, Anacleto R. Chi, while the others were not
(Exhibits X-2 to X-11, Ibid., pp. 66 to 76).
Upon the arrival of the machineries, the Prudential Bank indorsed the shipping documents to the defendant-appellant which
accepted delivery of the same. To enable the defendant-appellant to take delivery of the machineries, it executed, by prior
arrangement with the Prudential Bank, a trust receipt which was signed by Anacleto R. Chi in his capacity as President (sic)
of defendant-appellant company (Exhibit C, Ibid., p. 13).
At the back of the trust receipt is a printed form to be accomplished by two sureties who, by the very terms and conditions
thereof, were to be jointly and severally liable to the Prudential Bank should the defendant-appellant fail to pay the total
amount or any portion of the drafts issued by Nissho and paid for by Prudential Bank. The defendant-appellant was able to
take delivery of the textile machineries and installed the same at its factory site at 69 Obudan Street, Quezon City.
Sometime in 1967, the defendant-appellant ceased business operation (sic). On December 29, 1969, defendant-appellant's
factory was leased by Yupangco Cotton Mills for an annual rental of P200,000.00 (Exhibit I, Ibid., p. 22). The lease was
renewed on January 3, 1973 (Exhibit J, Ibid., p. 26). On January 5, 1974, all the textile machineries in the defendant-
appellant's factory were sold to AIC Development Corporation for P300,000.00 (Exhibit K, Ibid., p. 29).
The obligation of the defendant-appellant arising from the letter of credit and the trust receipt remained unpaid and
unliquidated. Repeated formal demands (Exhibits U, V, and W, Ibid., pp. 62, 63, 64) for the payment of the said trust receipt
yielded no result Hence, the present action for the collection of the principal amount of P956,384.95 was filed on October
3, 1974 against the defendant-appellant and Anacleto R. Chi. In their respective answers, the defendants interposed identical
special defenses, viz., the complaint states no cause of action; if there is, the same has prescribed; and the plaintiff is guilty
of laches. 2
On 15 June 1978, the trial court rendered its decision the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered sentencing the defendant Philippine Rayon Mills, Inc. to pay plaintiff the sum
of P153,645.22, the amounts due under Exhibits "X" & "X-1", with interest at 6% per annum beginning September 15, 1974
until fully paid.
Insofar as the amounts involved in drafts Exhs. "X" (sic) to "X-11", inclusive, the same not having been accepted by
defendant Philippine Rayon Mills, Inc., plaintiff's cause of action thereon has not accrued, hence, the instant case is
premature.
Insofar as defendant Anacleto R. Chi is concerned, the case is dismissed. Plaintiff is ordered to pay defendant Anacleto R.
Chi the sum of P20,000.00 as attorney's fees.
With costs against defendant Philippine Rayon Mills, Inc.
SO ORDERED. 3
Petitioner appealed the decision to the then Intermediate Appellate Court. In urging the said court to reverse or modify the
decision, petitioner alleged in its Brief that the trial court erred in (a) disregarding its right to reimbursement from the private
respondents for the entire unpaid balance of the imported machines, the total amount of which was paid to the Nissho
Company Ltd., thereby violating the principle of the third party payor's right to reimbursement provided for in the second
paragraph of Article 1236 of the Civil Code and under the rule against unjust enrichment; (b) refusing to hold Anacleto R.
Chi, as the responsible officer of defendant corporation, liable under Section 13 of P.D No 115 for the entire unpaid balance
of the imported machines covered by the bank's trust receipt (Exhibit "C"); (c) finding that the solidary guaranty clause
signed by Anacleto R. Chi is not a guaranty at all; (d) controverting the judicial admissions of Anacleto R. Chi that he is at
least a simple guarantor of the said trust receipt obligation; (e) contravening, based on the assumption that Chi is a simple
guarantor, Articles 2059, 2060 and 2062 of the Civil Code and the related evidence and jurisprudence which provide that
such liability had already attached; (f) contravening the judicial admissions of Philippine Rayon with respect to its liability
to pay the petitioner the amounts involved in the drafts (Exhibits "X", "X-l" to "X-11''); and (g) interpreting "sight" drafts
as requiring acceptance by Philippine Rayon before the latter could be held liable thereon. 4
In its decision, public respondent sustained the trial court in all respects. As to the first and last assigned errors, it ruled that
the provision on unjust enrichment, Article 2142 of the Civil Code, applies only if there is no express contract between the
parties and there is a clear showing that the payment is justified. In the instant case, the relationship existing between the
petitioner and Philippine Rayon is governed by specific contracts, namely the application for letters of credit, the promissory
note, the drafts and the trust receipt. With respect to the last ten (10) drafts (Exhibits "X-2" to "X-11") which had not been
presented to and were not accepted by Philippine Rayon, petitioner was not justified in unilaterally paying the amounts
stated therein. The public respondent did not agree with the petitioner's claim that the drafts were sight drafts which did not
require presentment for acceptance to Philippine Rayon because paragraph 8 of the trust receipt presupposes prior
acceptance of the drafts. Since the ten (10) drafts were not presented and accepted, no valid demand for payment can be
made.
Public respondent also disagreed with the petitioner's contention that private respondent Chi is solidarily liable with
Philippine Rayon pursuant to Section 13 of P.D. No. 115 and based on his signature on the solidary guaranty clause at the
dorsal side of the trust receipt. As to the first contention, the public respondent ruled that the civil liability provided for in
said Section 13 attaches only after conviction. As to the second, it expressed misgivings as to whether Chi's signature on
the trust receipt made the latter automatically liable thereon because the so-called solidary guaranty clause at the dorsal
portion of the trust receipt is to be signed not by one (1) person alone, but by two (2) persons; the last sentence of the same
is incomplete and unsigned by witnesses; and it is not acknowledged before a notary public. Besides, even granting that it
was executed and acknowledged before a notary public, Chi cannot be held liable therefor because the records fail to show
that petitioner had either exhausted the properties of Philippine Rayon or had resorted to all legal remedies as required in
Article 2058 of the Civil Code. As provided for under Articles 2052 and 2054 of the Civil Code, the obligation of a guarantor
is merely accessory and subsidiary, respectively. Chi's liability would therefore arise only when the principal debtor fails to
comply with his obligation. 5
Its motion to reconsider the decision having been denied by the public respondent in its Resolution of 11 June
1986, 6 petitioner filed the instant petition on 31 July 1986 submitting the following legal issues:
I. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN DENYING
PETITIONER'S CLAIM FOR FULL REIMBURSEMENT AGAINST THE PRIVATE RESPONDENTS FOR THE
PAYMENT PETITIONER MADE TO NISSHO CO. LTD. FOR THE BENEFIT OF PRIVATE RESPONDENT UNDER
ART. 1283 OF THE NEW CIVIL CODE OF THE PHILIPPINES AND UNDER THE GENERAL PRINCIPLE AGAINST
UNJUST ENRICHMENT;
II. WHETHER OR NOT RESPONDENT CHI IS SOLIDARILY LIABLE UNDER THE TRUST RECEIPT (EXH. C);
III. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS OF RESPONDENT CHI HE IS LIABLE
THEREON AND TO WHAT EXTENT;
IV. WHETHER OR NOT RESPONDENT CHI IS MERELY A SIMPLE GUARANTOR; AND IF SO; HAS HIS
LIABILITY AS SUCH ALREADY ATTACHED;
V. WHETHER OR NOT AS THE SIGNATORY AND RESPONSIBLE OFFICER OF RESPONDENT PHIL. RAYON
RESPONDENT CHI IS PERSONALLY LIABLE PURSUANT TO THE PROVISION OF SECTION 13, P.D. 115;
VI. WHETHER OR NOT RESPONDENT PHIL. RAYON IS LIABLE TO THE PETITIONER UNDER THE TRUST
RECEIPT (EXH. C);
VII. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS RESPONDENT PHIL. RAYON IS
LIABLE TO THE PETITIONER UNDER THE DRAFTS (EXHS. X, X-1 TO X-11) AND TO WHAT EXTENT;
VIII. WHETHER OR NOT SIGHT DRAFTS REQUIRE PRIOR ACCEPTANCE FROM RESPONDENT PHIL. RAYON
BEFORE THE LATTER BECOMES LIABLE TO PETITIONER. 7
In the Resolution of 12 March 1990, 8 this Court gave due course to the petition after the filing of the Comment thereto by
private respondent Anacleto Chi and of the Reply to the latter by the petitioner; both parties were also required to submit
their respective memoranda which they subsequently complied with.
As We see it, the issues may be reduced as follows:
1. Whether presentment for acceptance of the drafts was indispensable to make Philippine Rayon liable thereon;
2. Whether Philippine Rayon is liable on the basis of the trust receipt;
3. Whether private respondent Chi is jointly and severally liable with Philippine Rayon for the obligation sought to be
enforced and if not, whether he may be considered a guarantor; in the latter situation, whether the case should have been
dismissed on the ground of lack of cause of action as there was no prior exhaustion of Philippine Rayon's properties.
Both the trial court and the public respondent ruled that Philippine Rayon could be held liable for the two (2) drafts, Exhibits
"X" and "X-1", because only these appear to have been accepted by the latter after due presentment. The liability for the
remaining ten (10) drafts (Exhibits "X-2" to "X-11" inclusive) did not arise because the same were not presented for
acceptance. In short, both courts concluded that acceptance of the drafts by Philippine Rayon was indispensable to make
the latter liable thereon. We are unable to agree with this proposition. The transaction in the case at bar stemmed from
Philippine Rayon's application for a commercial letter of credit with the petitioner in the amount of $128,548.78 to cover
the former's contract to purchase and import loom and textile machinery from Nissho Company, Ltd. of Japan under a five-
year deferred payment plan. Petitioner approved the application. As correctly ruled by the trial court in its Order of 6 March
1975: 9
. . . By virtue of said Application and Agreement for Commercial Letter of Credit, plaintiff bank 10 was under obligation to
pay through its correspondent bank in Japan the drafts that Nisso (sic) Company, Ltd., periodically drew against said letter
of credit from 1963 to 1968, pursuant to plaintiff's contract with the defendant Philippine Rayon Mills, Inc. In turn, defendant
Philippine Rayon Mills, Inc., was obligated to pay plaintiff bank the amounts of the drafts drawn by Nisso (sic) Company,
Ltd. against said plaintiff bank together with any accruing commercial charges, interest, etc. pursuant to the terms and
conditions stipulated in the Application and Agreement of Commercial Letter of Credit Annex "A".
A letter of credit is defined as an engagement by a bank or other person made at the request of a customer that the issuer
will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. 11Through a
letter of credit, the bank merely substitutes its own promise to pay for one of its customers who in return promises to pay
the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. 12 In
the instant case then, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for
payment. In fact, there was no need for acceptance as the issued drafts are sight drafts. Presentment for acceptance is
necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL). 13 The said
section reads:
Sec. 143. When presentment for acceptance must be made. — Presentment for acceptance must be made:
(a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix
the maturity of the instrument; or
(b) Where the bill expressly stipulates that it shall be presented for acceptance; or
(c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.
In no other case is presentment for acceptance necessary in order to render any party to the bill liable.
Obviously then, sight drafts do not require presentment for acceptance.
The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer; 14 this may be done in
writing by the drawee in the bill itself, or in a separate instrument. 15
The parties herein agree, and the trial court explicitly ruled, that the subject, drafts are sight drafts. Said the latter:
. . . In the instant case the drafts being at sight, they are supposed to be payable upon acceptance unless plaintiff bank has
given the Philippine Rayon Mills Inc. time within which to pay the same. The first two drafts (Annexes C & D, Exh. X &
X-1) were duly accepted as indicated on their face (sic), and upon such acceptance should have been paid forthwith. These
two drafts were not paid and although Philippine Rayon Mills
ought to have paid the same, the fact remains that until now they are still unpaid. 16
Corollarily, they are, pursuant to Section 7 of the NIL, payable on demand. Section 7 provides:
Sec. 7. When payable on demand. — An instrument is payable on demand —
(a) When so it is expressed to be payable on demand, or at sight, or on presentation; or
(b) In which no time for payment in expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or
indorsing it, payable on demand. (emphasis supplied)
Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at maturity of any accepted draft, bill of
exchange or indebtedness shall not be extinguished or modified" 17 does not, contrary to the holding of the public
respondent, contemplate prior acceptance by Philippine Rayon, but by the petitioner. Acceptance, however, was not even
necessary in the first place because the drafts which were eventually issued were sight drafts And even if these were not
sight drafts, thereby necessitating acceptance, it would be the petitioner — and not Philippine Rayon — which had to accept
the same for the latter was not the drawee. Presentment for acceptance is defined an the production of a bill of exchange to
a drawee for acceptance. 18The trial court and the public respondent, therefore, erred in ruling that presentment for
acceptance was an indispensable requisite for Philippine Rayon's liability on the drafts to attach. Contrary to both courts'
pronouncements, Philippine Rayon immediately became liable thereon upon petitioner's payment thereof. Such is the
essence of the letter of credit issued by the petitioner. A different conclusion would violate the principle upon which
commercial letters of credit are founded because in such a case, both the beneficiary and the issuer, Nissho Company Ltd.
and the petitioner, respectively, would be placed at the mercy of Philippine Rayon even if the latter had already received
the imported machinery and the petitioner had fully paid for it. The typical setting and purpose of a letter of credit are
described in Hibernia Bank and Trust Co.vs. J. Aron & Co., Inc., 19 thus:
Commercial letters of credit have come into general use in international sales transactions where much time necessarily
elapses between the sale and the receipt by a purchaser of the merchandise, during which interval great price changes may
occur. Buyers and sellers struggle for the advantage of position. The seller is desirous of being paid as surely and as soon
as possible, realizing that the vendee at a distant point has it in his power to reject on trivial grounds merchandise on arrival,
and cause considerable hardship to the shipper. Letters of credit meet this condition by affording celerity and certainty of
payment. Their purpose is to insure to a seller payment of a definite amount upon presentation of documents. The bank
deals only with documents. It has nothing to do with the quality of the merchandise. Disputes as to the merchandise shipped
may arise and be litigated later between vendor and vendee, but they may not impede acceptance of drafts and payment by
the issuing bank when the proper documents are presented.
The trial court and the public respondent likewise erred in disregarding the trust receipt and in not holding that Philippine
Rayon was liable thereon. In People vs. Yu Chai Ho, 20 this Court explains the nature of a trust receipt by quoting In re
Dunlap Carpet Co., 21 thus:
By this arrangement a banker advances money to an intending importer, and thereby lends the aid of capital, of credit, or of
business facilities and agencies abroad, to the enterprise of foreign commerce. Much of this trade could hardly be carried
on by any other means, and therefore it is of the first importance that the fundamental factor in the transaction, the banker's
advance of money and credit, should receive the amplest protection. Accordingly, in order to secure that the banker shall be
repaid at the critical point — that is, when the imported goods finally reach the hands of the intended vendee — the banker
takes the full title to the goods at the very beginning; he takes it as soon as the goods are bought and settled for by his
payments or acceptances in the foreign country, and he continues to hold that title as his indispensable security until the
goods are sold in the United States and the vendee is called upon to pay for them. This security is not an ordinary pledge by
the importer to the banker, for the importer has never owned the goods, and moreover he is not able to deliver the possession;
but the security is the complete title vested originally in the bankers, and this characteristic of the transaction has again and
again been recognized and protected by the courts. Of course, the title is at bottom a security title, as it has sometimes been
called, and the banker is always under the obligation to reconvey; but only after his advances have been fully repaid and
after the importer has fulfilled the other terms of the contract.
As further stated in National Bank vs. Viuda e Hijos de Angel Jose, 22 trust receipts:
. . . [I]n a certain manner, . . . partake of the nature of a conditional sale as provided by the Chattel Mortgage Law, that is,
the importer becomes absolute owner of the imported merchandise as soon an he has paid its price. The ownership of the
merchandise continues to be vested in the owner thereof or in the person who has advanced payment, until he has been paid
in full, or if the merchandise has already been sold, the proceeds of the sale should be turned over to him by the importer or
by his representative or successor in interest.
Under P.D. No. 115, otherwise known an the Trust Receipts Law, which took effect on 29 January 1973, a trust receipt
transaction is defined as "any transaction by and between a person referred to in this Decree as the entruster, and another
person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests'
over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's
execution and delivery to the entruster of a signed document called the "trust receipt" wherein the entrustee binds himself
to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the
goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the
amount owing to the entruster or as appears in the trust receipt or the goods, instruments themselves if they are unsold or
not otherwise disposed of, in accordance with the terms and conditions specified in the trusts receipt, or for other purposes
substantially equivalent to any one of the following: . . ."
It is alleged in the complaint that private respondents "not only have presumably put said machinery to good use and have
profited by its operation and/or disposition but very recent information that (sic) reached plaintiff bank that defendants
already sold the machinery covered by the trust receipt to Yupangco Cotton Mills," and that "as trustees of the property
covered by the trust receipt, . . . and therefore acting in fiduciary (sic) capacity, defendants have willfully violated their duty
to account for the whereabouts of the machinery covered by the trust receipt or for the proceeds of any lease, sale or other
disposition of the same that they may have made, notwithstanding demands therefor; defendants have fraudulently
misapplied or converted to their own use any money realized from the lease, sale, and other disposition of said
machinery." 23 While there is no specific prayer for the delivery to the petitioner by Philippine Rayon of the proceeds of the
sale of the machinery covered by the trust receipt, such relief is covered by the general prayer for "such further and other
relief as may be just and equitable on the premises." 24 And although it is true that the petitioner commenced a criminal
action for the violation of the Trust Receipts Law, no legal obstacle prevented it from enforcing the civil liability arising
out of the trust, receipt in a separate civil action. Under Section 13 of the Trust Receipts Law, the failure of an entrustee to
turn over the proceeds of the sale of goods, documents or instruments covered by a trust receipt to the extent of the amount
owing to the entruster or as appear in the trust receipt or to return said goods, documents or instruments if they were not
sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under
the provisions of Article 315, paragraph 1(b) of the Revised Penal Code. 25 Under Article 33 of the Civil Code, a civil action
for damages, entirely separate and distinct from the criminal action, may be brought by the injured party in cases of
defamation, fraud and physical injuries. Estafa falls under fraud.
We also conclude, for the reason hereinafter discussed, and not for that adduced by the public respondent, that private
respondent Chi's signature in the dorsal portion of the trust receipt did not bind him solidarily with Philippine Rayon. The
statement at the dorsal portion of the said trust receipt, which petitioner describes as a "solidary guaranty clause", reads:
In consideration of the PRUDENTIAL BANK AND TRUST COMPANY complying with the foregoing, we jointly and
severally agree and undertake to pay on demand to the PRUDENTIAL BANK AND TRUST COMPANY all sums of money
which the said PRUDENTIAL BANK AND TRUST COMPANY may call upon us to pay arising out of or pertaining to,
and/or in any event connected with the default of and/or non-fulfillment in any respect of the undertaking of the aforesaid:
PHILIPPINE RAYON MILLS, INC.
We further agree that the PRUDENTIAL BANK AND TRUST COMPANY does not have to take any steps or exhaust its
remedy against aforesaid:
before making demand on me/us.
(Sgd.) Anacleto R. Chi
ANACLETO R. CHI 26
Petitioner insists that by virtue of the clear wording of the statement, specifically the clause ". . . we jointly and severally
agree and undertake . . .," and the concluding sentence on exhaustion, Chi's liability therein is solidary.
In holding otherwise, the public respondent ratiocinates as follows:
With respect to the second argument, we have our misgivings as to whether the mere signature of defendant-appellee Chi
of (sic) the guaranty agreement, Exhibit "C-1", will make it an actionable document. It should be noted that Exhibit "C-1"
was prepared and printed by the plaintiff-appellant. A perusal of Exhibit "C-1" shows that it was to be signed and executed
by two persons. It was signed only by defendant-appellee Chi. Exhibit "C-1" was to be witnessed by two persons, but no
one signed in that capacity. The last sentence of the guaranty clause is incomplete. Furthermore, the plaintiff-appellant also
failed to have the purported guarantee clause acknowledged before a notary public. All these show that the alleged guaranty
provision was disregarded and, therefore, not consummated.
But granting arguendo that the guaranty provision in Exhibit "C-1" was fully executed and acknowledged still defendant-
appellee Chi cannot be held liable thereunder because the records show that the plaintiff-appellant had neither exhausted
the property of the defendant-appellant nor had it resorted to all legal remedies against the said defendant-appellant as
provided in Article 2058 of the Civil Code. The obligation of a guarantor is merely accessory under Article 2052 of the
Civil Code and subsidiary under Article 2054 of the Civil Code. Therefore, the liability of the defendant-appellee arises
only when the principal debtor fails to comply with his obligation. 27
Our own reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is
only that of a guarantor. This is further bolstered by the last sentence which speaks of waiver of exhaustion, which,
nevertheless, is ineffective in this case because the space therein for the party whose property may not be exhausted was
not filled up. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor
before he may be held liable for the obligation. Petitioner likewise admits that the questioned provision is a solidary
guaranty clause, thereby clearly distinguishing it from a contract of surety. It, however, described the guaranty as solidary
between the guarantors; this would have been correct if two (2) guarantors had signed it. The clause "we jointly and severally
agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to the liability existing between
themselves. It does not refer to the undertaking between either one or both of them on the one hand and the petitioner on
the other with respect to the liability described under the trust receipt. Elsewise stated, their liability is not divisible as
between them, i.e., it can be enforced to its full extent against any one of them.
Furthermore, any doubt as to the import, or true intent of the solidary guaranty clause should be resolved against the
petitioner. The trust receipt, together with the questioned solidary guaranty clause, is on a form drafted and prepared solely
by the petitioner; Chi's participation therein is limited to the affixing of his signature thereon. It is, therefore, a contract of
adhesion; 28 as such, it must be strictly construed against the party responsible for its preparation. 29
Neither can We agree with the reasoning of the public respondent that this solidary guaranty clause was effectively
disregarded simply because it was not signed and witnessed by two (2) persons and acknowledged before a notary public.
While indeed, the clause ought to have been signed by two (2) guarantors, the fact that it was only Chi who signed the same
did not make his act an idle ceremony or render the clause totally meaningless. By his signing, Chi became the sole
guarantor. The attestation by witnesses and the acknowledgement before a notary public are not required by law to make a
party liable on the instrument. The rule is that contracts shall be obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present; however, when the law requires that a contract be in
some form in order that it may be valid or enforceable, or that it be proved in a certain way, that requirement is absolute and
indispensable. 30 With respect to a guaranty, 31 which is a promise to answer for the debt or default of another, the law
merely requires that it, or some note or memorandum thereof, be in writing. Otherwise, it would be unenforceable unless
ratified. 32 While the acknowledgement of a surety before a notary public is required to make the same a public document,
under Article 1358 of the Civil Code, a contract of guaranty does not have to appear in a public document.
And now to the other ground relied upon by the petitioner as basis for the solidary liability of Chi, namely the criminal
proceedings against the latter for the violation of P.D. No. 115. Petitioner claims that because of the said criminal
proceedings, Chi would be answerable for the civil liability arising therefrom pursuant to Section 13 of P.D. No. 115. Public
respondent rejected this claim because such civil liability presupposes prior conviction as can be gleaned from the phrase
"without prejudice to the civil liability arising from the criminal offense." Both are wrong. The said section reads:
Sec. 13. Penalty Clause. — The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or
instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or
to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust
receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph
one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal
Code. If the violation or offense is committed by a corporation, partnership, association or other juridical entities, the penalty
provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense.
A close examination of the quoted provision reveals that it is the last sentence which provides for the correct solution. It is
clear that if the violation or offense is committed by a corporation, partnership, association or other juridical entities, the
penalty shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the
offense. The penalty referred to is imprisonment, the duration of which would depend on the amount of the fraud as provided
for in Article 315 of the Revised Penal Code. The reason for this is obvious: corporations, partnerships, associations and
other juridical entities cannot be put in jail. However, it is these entities which are made liable for the civil liability arising
from the criminal offense. This is the import of the clause "without prejudice to the civil liabilities arising from the criminal
offense." And, as We stated earlier, since that violation of a trust receipt constitutes fraud under Article 33 of the Civil Code,
petitioner was acting well within its rights in filing an independent civil action to enforce the civil liability arising therefrom
against Philippine Rayon.
The remaining issue to be resolved concerns the propriety of the dismissal of the case against private respondent Chi. The
trial court based the dismissal, and the respondent Court its affirmance thereof, on the theory that Chi is not liable on the
trust receipt in any capacity — either as surety or as guarantor — because his signature at the dorsal portion thereof was
useless; and even if he could be bound by such signature as a simple guarantor, he cannot, pursuant to Article 2058 of the
Civil Code, be compelled to pay until
after petitioner has exhausted and resorted to all legal remedies against the principal debtor, Philippine Rayon. The records
fail to show that petitioner had done so 33 Reliance is thus placed on Article 2058 of the Civil Code which provides:
Art. 2056. The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the
debtor, and has resorted to all the legal remedies against the debtor.
Simply stated, there is as yet no cause of action against Chi.
We are not persuaded. Excussion is not a condition sine qua non for the institution of an action against a guarantor.
In Southern Motors, Inc. vs. Barbosa, 34 this Court stated:
4. Although an ordinary personal guarantor — not a mortgagor or pledgor — may demand the aforementioned exhaustion,
the creditor may, prior thereto, secure a judgment against said guarantor, who shall be entitled, however, to a deferment of
the execution of said judgment against him until after the properties of the principal debtor shall have been exhausted to
satisfy the obligation involved in the case.
There was then nothing procedurally objectionable in impleading private respondent Chi as a co-defendant in Civil Case
No. Q-19312 before the trial court. As a matter of fact, Section 6, Rule 3 of the Rules of Court on permissive joinder of
parties explicitly allows it. It reads:
Sec. 6. Permissive joinder of parties. — All persons in whom or against whom any right to relief in respect to or arising out
of the same transaction or series of transactions is alleged to exist, whether jointly, severally, or in the alternative, may,
except as otherwise provided in these rules, join as plaintiffs or be joined as defendants in one complaint, where any question
of law or fact common to all such plaintiffs or to all such defendants may arise in the action; but the court may make such
orders as may be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any
proceedings in which he may have no interest.
This is the equity rule relating to multifariousness. It is based on trial convenience and is designed to permit the joinder of
plaintiffs or defendants whenever there is a common question of law or fact. It will save the parties unnecessary work,
trouble and expense. 35
However, Chi's liability is limited to the principal obligation in the trust receipt plus all the accessories thereof including
judicial costs; with respect to the latter, he shall only be liable for those costs incurred after being judicially required to
pay. 36 Interest and damages, being accessories of the principal obligation, should also be paid; these, however, shall run
only from the date of the filing of the complaint. Attorney's fees may even be allowed in appropriate cases.37
In the instant case, the attorney's fees to be paid by Chi cannot be the same as that to be paid by Philippine Rayon since it
is only the trust receipt that is covered by the guaranty and not the full extent of the latter's liability. All things considered,
he can be held liable for the sum of P10,000.00 as attorney's fees in favor of the petitioner.
Thus, the trial court committed grave abuse of discretion in dismissing the complaint as against private respondent Chi and
condemning petitioner to pay him P20,000.00 as attorney's fees.
In the light of the foregoing, it would no longer necessary to discuss the other issues raised by the petitioner
WHEREFORE, the instant Petition is hereby GRANTED.
The appealed Decision of 10 March 1986 of the public respondent in AC-G.R. CV No. 66733 and, necessarily, that of
Branch 9 (Quezon City) of the then Court of First Instance of Rizal in Civil Case No. Q-19312 are hereby REVERSED and
SET ASIDE and another is hereby entered:
1. Declaring private respondent Philippine Rayon Mills, Inc. liable on the twelve drafts in question (Exhibits "X", "X-1" to
"X-11", inclusive) and on the trust receipt (Exhibit "C"), and ordering it to pay petitioner: (a) the amounts due thereon in
the total sum of P956,384.95 as of 15 September 1974, with interest thereon at six percent (6%) per annum from 16
September 1974 until it is fully paid, less whatever may have been applied thereto by virtue of foreclosure of mortgages, if
any; (b) a sum equal to ten percent (10%) of the aforesaid amount as attorney's fees; and (c) the costs.
2. Declaring private respondent Anacleto R. Chi secondarily liable on the trust receipt and ordering him to pay the face
value thereof, with interest at the legal rate, commencing from the date of the filing of the complaint in Civil Case No. Q-
19312 until the same is fully paid as well as the costs and attorney's fees in the sum of P10,000.00 if the writ of execution
for the enforcement of the above awards against Philippine Rayon Mills, Inc. is returned unsatisfied.
Costs against private respondents.
SO ORDERED.
G.R. No. 105395 December 10, 1993
BANK OF AMERICA, NT & SA, petitioners,
vs.
COURT OF APPEALS, INTER-RESIN INDUSTRIAL CORPORATION, FRANCISCO TRAJANO, JOHN DOE
AND JANE DOE, respondents.
Agcaoili & Associates for petitioner.
Valenzuela Law Center, Victor Fernandez and Ramon Guevarra for private respondents.

VITUG, J.:
A "fiasco," involving an irrevocable letter of credit, has found the distressed parties coming to court as adversaries in seeking
a definition of their respective rights or liabilities thereunder.
On 05 March 1981, petitioner Bank of America, NT & SA, Manila, received by registered mail an Irrevocable Letter of
Credit No. 20272/81 purportedly issued by Bank of Ayudhya, Samyaek Branch, for the account of General Chemicals, Ltd.,
of Thailand in the amount of US$2,782,000.00 to cover the sale of plastic ropes and "agricultural files," with the petitioner
as advising bank and private respondent Inter-Resin Industrial Corporation as beneficiary.
On 11 March 1981, Bank of America wrote Inter-Resin informing the latter of the foregoing and transmitting, along with
the bank's communication,
the latter of credit. Upon receipt of the letter-advice with the letter of credit, Inter-Resin sent Atty. Emiliano Tanay to Bank
of America to have the letter of credit confirmed. The bank did not. Reynaldo Dueñas, bank employee in charge of letters
of credit, however, explained to Atty. Tanay that there was no need for confirmation because the letter of credit would not
have been transmitted if it were not genuine.
Between 26 March to 10 April 1981, Inter-Resin sought to make a partial availment under the letter of credit by submitting
to Bank of America invoices, covering the shipment of 24,000 bales of polyethylene rope to General Chemicals valued at
US$1,320,600.00, the corresponding packing list, export declaration and bill of lading. Finally, after being satisfied that
Inter-Resin's documents conformed with the conditions expressed in the letter of credit, Bank of America issued in favor of
Inter-Resin a Cashier's Check for P10,219,093.20, "the Peso equivalent of the draft (for) US$1,320,600.00 drawn by Inter-
Resin, after deducting the costs for documentary stamps, postage and mail issuance." 1 The check was picked up by Inter-
Resin's Executive Vice-President Barcelina Tio. On 10 April 1981, Bank of America wrote Bank of Ayudhya advising the
latter of the availment under the letter of credit and sought the corresponding reimbursement therefor.
Meanwhile, Inter-Resin, through Ms. Tio, presented to Bank of America the documents for the second availment under the
same letter of credit consisting of a packing list, bill of lading, invoices, export declaration and bills in set, evidencing the
second shipment of goods. Immediately upon receipt of a telex from the Bank of Ayudhya declaring the letter of credit
fraudulent, 2 Bank of America stopped the processing of Inter-Resin's documents and sent a telex to its branch office in
Bangkok, Thailand, requesting assistance in determining the authenticity of the letter of credit. 3 Bank of America kept
Inter-Resin informed of the developments. Sensing a fraud, Bank of America sought the assistance of the National Bureau
of Investigation (NBI). With the help of the staff of the Philippine Embassy at Bangkok, as well as the police and customs
personnel of Thailand, the NBI agents, who were sent to Thailand, discovered that the vans exported by Inter-Resin did not
contain ropes but plastic strips, wrappers, rags and waste materials. Here at home, the NBI also investigated Inter-Resin's
President Francisco Trajano and Executive Vice President Barcelina Tio, who, thereafter, were criminally charged for estafa
through falsification of commercial documents. The case, however, was eventually dismissed by the Rizal Provincial Fiscal
who found no prima facieevidence to warrant prosecution.
Bank of America sued Inter-Resin for the recovery of P10,219,093.20, the peso equivalent of the draft for US$1,320,600.00
on the partial availment of the now disowned letter of credit. On the other hand, Inter-Resin claimed that not only was it
entitled to retain P10,219,093.20 on its first shipment but also to the balance US$1,461,400.00 covering the second
shipment.
On 28 June 1989, the trial court ruled for Inter-Resin, 4 holding that:
(a) Bank of America made assurances that enticed Inter-Resin to send the merchandise to Thailand; (b) the telex declaring
the letter of credit fraudulent was unverified and self-serving, hence, hearsay, but even assuming that the letter of credit was
fake, "the fault should be borne by the BA which was careless and negligent" 5 for failing to utilize its modern means of
communication to verify with Bank of Ayudhya in Thailand the authenticity of the letter of credit before sending the same
to Inter-Resin; (c) the loading of plastic products into the vans were under strict supervision, inspection and verification of
government officers who have in their favor the presumption of regularity in the performance of official functions; and (d)
Bank of America failed to prove the participation of Inter-Resin or its employees in the alleged fraud as, in fact, the
complaint for estafa through falsification of documents was dismissed by the Provincial Fiscal of Rizal.6
On appeal, the Court of Appeals 7 sustained the trial court; hence, this present recourse by petitioner Bank of America.
The following issues are raised by Bank of America: (a) whether it has warranted the genuineness and authenticity of the
letter of credit and, corollarily, whether it has acted merely as an advising bank or as a confirming bank; (b) whether Inter-
Resin has actually shipped the ropes specified by the letter of credit; and (c) following the dishonor of the letter of credit by
Bank of Ayudhya, whether Bank of America may recover against Inter-Resin under the draft executed in its partial availment
of the letter of credit.8
In rebuttal, Inter-Resin holds that: (a) Bank of America cannot, on appeal, belatedly raise the issue of being only an advising
bank; (b) the findings of the trial court that the ropes have actually been shipped is binding on the Court; and, (c) Bank of
America cannot recover from Inter-Resin because the drawer of the letter of credit is the Bank of Ayudhya and not Inter-
Resin.
If only to understand how the parties, in the first place, got themselves into the mess, it may be well to start by recalling
how, in its modern use, a letter of credit is employed in trade transactions.
A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales
of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid,
and a buyer, who wants to have control of the goods before paying. 9 To break the impasse, the buyer may be required to
contract a bank to issue a letter of credit in favor of the seller so that, by virtue of the latter of credit, the issuing bank can
authorize the seller to draw drafts and engage to pay them upon their presentment simultaneously with the tender of
documents required by the letter of credit. 10 The buyer and the seller agree on what documents are to be presented for
payment, but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to the buyer.
Once the credit is established, the seller ships the goods to the buyer and in the process secures the required shipping
documents or documents of title. To get paid, the seller executes a draft and presents it together with the required documents
to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds that the documents submitted
by the seller conform with what the letter of credit requires. The bank then obtains possession of the documents upon paying
the seller. The transaction is completed when the buyer reimburses the issuing bank and acquires the documents entitling
him to the goods. Under this arrangement, the seller gets paid only if he delivers the documents of title over the goods, while
the buyer acquires said documents and control over the goods only after reimbursing the bank.
What characterizes letters of credit, as distinguished from other accessory contracts, is the engagement of the issuing bank
to pay the seller of the draft and the required shipping documents are presented to it. In turn, this arrangement assures the
seller of prompt payment, independent of any breach of the main sales contract. By this so-called "independence principle,"
the bank determines compliance with the letter of credit only by examining the shipping documents presented; it is precluded
from determining whether the main contract is actually accomplished or not. 11
There would at least be three (3) parties: (a) the buyer, 12 who procures the letter of credit and obliges himself to reimburse
the issuing bank upon receipts of the documents of title; (b) the bank issuing the letter of credit, 13 which undertakes to pay
the seller upon receipt of the draft and proper document of titles and to surrender the documents to the buyer upon
reimbursement; and, (c) the seller, 14 who in compliance with the contract of sale ships the goods to the buyer and delivers
the documents of title and draft to the issuing bank to recover payment.
The number of the parties, not infrequently and almost invariably in international trade practice, may be increased. Thus,
the services of an advising (notifying) bank 15 may be utilized to convey to the seller the existence of the credit; or, of
a confirming bank 16 which will lend credence to the letter of credit issued by a lesser known issuing bank; or, of a paying
bank, 17 which undertakes to encash the drafts drawn by the exporter. Further, instead of going to the place of the issuing
bank to claim payment, the buyer may approach another bank, termed the negotiating bank, 18 to have the draft discounted.
Being a product of international commerce, the impact of this commercial instrument transcends national boundaries, and
it is thus not uncommon to find a dearth of national law that can adequately provide for its governance. This country is no
exception. Our own Code of Commerce basically introduces only its concept under Articles 567-572, inclusive, thereof. It
is no wonder then why great reliance has been placed on commercial usage and practice, which, in any case, can be justified
by the universal acceptance of the autonomy of contract rules. The rules were later developed into what is now known as
the Uniform Customs and Practice for Documentary Credits ("U.C.P.") issued by the International Chamber of Commerce.
It is by no means a complete text by itself, for, to be sure, there are other principles, which, although part of lex mercatoria,
are not dealt with the U.C.P.
In FEATI Bank and Trust Company v. Court of Appeals, 19 we have accepted, to the extent of their pertinency, the
application in our jurisdiction of this international commercial credit regulatory set of rules. 20 In Bank of Phil. Islands v. De
Nery, 21 we have said that the observances of the U.C.P. is justified by Article 2 of the Code of Commerce which expresses
that, in the absence of any particular provision in the Code of Commerce, commercial transactions shall be governed by
usages and customs generally observed. We have further observed that there being no specific provisions which govern the
legal complexities arising from transactions involving letters of credit not only between or among banks themselves but
also between banks and the seller or the buyer, as the case may be, the applicability of the U.C.P. is undeniable.
The first issue raised with the petitioner, i.e., that it has in this instance merely been advising bank, is outrightly rejected by
Inter-Resin and is thus sought to be discarded for having been raised only on appeal. We cannot agree. The crucial point of
dispute in this case is whether under the "letter of credit," Bank of America has incurred any liability to the "beneficiary"
thereof, an issue that largely is dependent on the bank's participation in that transaction; as a mere advising or notifying
bank, it would not be liable, but as a confirming bank, had this been the case, it could be considered as having incurred that
liability. 22
In Insular Life Assurance Co. Ltd. Employees Association — Natu vs. Insular Life Assurance Co., Ltd., 23 the Court said:
Where the issues already raised also rest on other issues not specifically presented, as long as the latter issues bear relevance
and close relation to the former and as long as they arise from the matters on record, the court has the authority to include
them in its discussion of the controversy and to pass upon them just as well. In brief, in those cases where questions not
particularly raised by the parties surface as necessary for the complete adjudication of the rights and obligations of the
parties, the interests of justice dictate that the court should consider and resolve them. The rule that only issues or theories
raised in the initial proceedings may be taken up by a party thereto on appeal should only refer to independent, not
concomitant matters, to support or oppose the cause of action or defense. The evil that is sought to be avoided, i.e., surprise
to the adverse party, is in reality not existent on matters that are properly litigated in the lower court and appear on record.
It cannot seriously be disputed, looking at this case, that Bank of America has, in fact, only been an advising, not confirming,
bank, and this much is clearly evident, among other things, by the provisions of the letter of credit itself, the petitioner bank's
letter of advice, its request for payment of advising fee, and the admission of Inter-Resin that it has paid the same. That
Bank of America has asked Inter-Resin to submit documents required by the letter of credit and eventually has paid the
proceeds thereof, did not obviously make it a confirming bank. The fact, too, that the draft required by the letter of credit is
to be drawn under the account of General Chemicals (buyer) only means the same had to be presented to Bank of Ayudhya
(issuing bank) for payment. It may be significant to recall that the letter of credit is an engagement of the issuing bank, not
the advising bank, to pay the draft.
No less important is that Bank of America's letter of 11 March 1981 has expressly stated that "[t]he enclosure is solely an
advise of credit opened by the abovementioned correspondent and conveys no engagement by us." 24This written reservation
by Bank of America in limiting its obligation only to being an advising bank is in consonance with the provisions of U.C.P.
As an advising or notifying bank, Bank of America did not incur any obligation more than just notifying Inter-Resin of the
letter of credit issued in its favor, let alone to confirm the letter of credit. 25 The bare statement of the bank employees,
aforementioned, in responding to the inquiry made by Atty. Tanay, Inter-Resin's representative, on the authenticity of the
letter of credit certainly did not have the effect of novating the letter of credit and Bank of America's letter of advise, 26 nor
can it justify the conclusion that the bank must now assume total liability on the letter of credit. Indeed, Inter-Resin itself
cannot claim to have been all that free from fault. As the seller, the issuance of the letter of credit should have obviously
been a great concern to it. 27 It would have, in fact, been strange if it did not, prior to the letter of credit, enter into a contract,
or negotiated at the every least, with General Chemicals. 28 In the ordinary course of business, the perfection of contract
precedes the issuance of a letter of credit.
Bringing the letter of credit to the attention of the seller is the primordial obligation of an advising bank. The view that Bank
of America should have first checked the authenticity of the letter of credit with bank of Ayudhya, by using advanced mode
of business communications, before dispatching the same to Inter-Resin finds no real support in U.C.P. Article 18 of the
U.C.P. states that: "Banks assume no liability or responsibility for the consequences arising out of the delay and/or loss in
transit of any messages, letters or documents, or for delay, mutilation or other errors arising in the transmission of any
telecommunication . . ." As advising bank, Bank of America is bound only to check the "apparent authenticity" of the letter
of credit, which it did. 29 Clarifying its meaning, Webster's Ninth New Collegiate Dictionary 30 explains that the word
"APPARENT suggests appearance to unaided senses that is not or may not be borne out by more rigorous examination or
greater knowledge."
May Bank of America then recover what it has paid under the letter of credit when the corresponding draft for partial
availment thereunder and the required documents were later negotiated with it by Inter-Resin? The answer is yes. This kind
of transaction is what is commonly referred to as a discounting arrangement. This time, Bank of America has acted
independently as a negotiating bank, thus saving Inter-Resin from the hardship of presenting the documents directly to Bank
of Ayudhya to recover payment. (Inter-Resin, of course, could have chosen other banks with which to negotiate the draft
and the documents.) As a negotiating bank, Bank of America has a right to recourse against the issuer bank and until
reimbursement is obtained, Inter-Resin, as the drawer of the draft, continues to assume a contingent liability thereon. 31
While bank of America has indeed failed to allege material facts in its complaint that might have likewise warranted the
application of the Negotiable Instruments Law and possible then allowed it to even go after the indorsers of the draft, this
failure, 32/ nonetheless, does not preclude petitioner bank's right (as negotiating bank) of recovery from Inter-Resin itself.
Inter-Resin admits having received P10,219,093.20 from bank of America on the letter of credit and in having executed the
corresponding draft. The payment to Inter-Resin has given, as aforesaid, Bank of America the right of reimbursement from
the issuing bank, Bank of Ayudhya which, in turn, would then seek indemnification from the buyer (the General Chemicals
of Thailand). Since Bank of Ayudhya disowned the letter of credit, however, Bank of America may now turn to Inter-Resin
for restitution.
Between the seller and the negotiating bank there is the usual relationship existing between a drawer and purchaser of drafts.
Unless drafts drawn in pursuance of the credit are indicated to be without recourse therefore, the negotiating bank has the
ordinary right of recourse against the seller in the event of dishonor by the issuing bank . . . The fact that the correspondent
and the negotiating bank may be one and the same does not affect its rights and obligations in either capacity, although a
special agreement is always a possibility . . . 33
The additional ground raised by the petitioner, i.e., that Inter-Resin sent waste instead of its products, is really of no
consequence. In the operation of a letter of credit, the involved banks deal only with documents and not on goods described
in those documents. 34
The other issues raised in then instant petition, for instance, whether or not Bank of Ayudhya did issue the letter of credit
and whether or not the main contract of sale that has given rise to the letter of credit has been breached, are not relevant to
this controversy. They are matters, instead, that can only be of concern to the herein parties in an appropriate recourse
against those, who, unfortunately, are not impleaded in these proceedings.
In fine, we hold that —
First, given the factual findings of the courts below, we conclude that petitioner Bank of America has acted merely as
a notifying bank and did not assume the responsibility of a confirming bank; and
Second, petitioner bank, as a negotiating bank, is entitled to recover on Inter-Resin's partial availment as beneficiary of the
letter of credit which has been disowned by the alleged issuer bank.
No judgment of civil liability against the other defendants, Francisco Trajano and other unidentified parties, can be made,
in this instance, there being no sufficient evidence to warrant any such finding.
WHEREFORE, the assailed decision is SET ASIDE, and respondent Inter-Resin Industrial Corporation is ordered to refund
to petitioner Bank of America NT & SA the amount of P10,219,093.20 with legal interest from the filing of the complaint
until fully paid.
No costs.
SO ORDERED.
G.R. No. 191015 August 6, 2014
PEOPLE OF THE PHILIPPINES Petitioner,
vs.
JOSE C. GO, AIDA C. DELA ROSA, and FELECITAS D. NECOMEDES,** Respondents.
DECISION
DEL CASTILLO, J.:
The power of courts to grant demurrer in criminal cases should be exercised with great caution, because not only the rights
of the accused - but those of the offended party and the public interest as well - are involved. Once granted, the accused is
acquitted and the offended party may be left with no recourse. Thus, in the resolution of demurrers, judges must act with
utmost circumspection and must engage in intelligent deliberation and reflection, drawing on their experience, the law and
jurisprudence, and delicately evaluating the evidence on hand.
This Petition for Review on Certiorari1 seeks to set aside the September 30, 2009 Decision2 of the Court of Appeals (CA)
in CA-G.R. SP No. 101823, entitled "People of the Philippines, Petitioner, versus Hon. Concepcion Alarcon-Vergara et al.,
Respondents," as well as its January 22, 2010 Resolution3 denying reconsideration of the assailed judgment.
Factual Antecedents
The following facts appear from the account of the CA:
On October 14, 1998, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) issued Resolution No. 1427 ordering
the closure of the Orient Commercial Banking Corporation (OCBC) and placing such bank under the receivership of the
Philippine Deposit Insurance Corporation (PDIC). PDIC, as the statutory receiver of OCBC, effectively took charge of
OCBC’s assets and liabilities in accordance withits mandate under Section 30 of Republic Act 7653.
xxxx
While all the aforementioned events were transpiring, PDIC began collecting on OCBC’s past due loans receivable by
sending demand letters to its borrowers for the immediate settlement oftheir outstanding loans. Allegedly among these
borrowers of OCBC are Timmy’s, Inc. and Asia Textile Mills, Inc. which appeared to have obtained a loanof [P]10 Million
each. A representative of Timmy’s, Inc. denied being granted any loan by OCBC and insisted that the signatures on the loan
documents were falsified. A representative of Asia Textile Mills, Inc. denied having applied, much less being granted, a
loan by OCBC.
The PDIC conducted an investigation and allegedly came out with a finding that the loans purportedly in the names of
Timmy’s, Inc. and Asia Textile Mills, Inc. were released in the form of manager’schecks in the name of Philippine
Recycler’s and Zeta International, Inc. These manager’s checks were then allegedly deposited to the savings account of the
private respondent Jose C. Go with OCBC and, thereafter, were automatically transferred to his current account in order to
fund personal checks issued by him earlier.
On September 24, 1999, PDIC filed a complaint4 for two (2) counts of Estafa thru Falsification of CommercialDocuments
in the Office of the City Prosecutor of the City of Manila against the private respondents in relation to the purported loans
of Timmy’s, Inc.and Asia Textile Mills, Inc. On November 22, 2000, after finding probable cause, the Office of the City
Prosecutor of the City of Manila filed Informations5 against the private respondents which were docketed as Criminal Case
Nos. 00-187318 and 00-187319 in the RTC in Manila.
Upon being subjected to arraignment by the RTC in Manila, the private respondents pleaded not guilty to the criminal cases
filed against them. A pretrial was conducted. Thereafter, trial of the cases ensued and the prosecution presented its evidence.
After the presentation of all of the prosecution’s evidence, the private respondents filed a Motion for Leave to File Demurrer
to Evidence and a Motion for Voluntary Inhibition. The presiding judge granted the private respondents’ Motion for
Voluntary Inhibition and ordered the case to be re-raffled to another branch. The case was subsequently re-raffled to the
branch of the respondent RTC judge.6
In an Order dated December 19, 2006, the respondent RTC judge granted the private respondents’ Motion for Leave to File
Demurrer to Evidence. On January 17, 2007, the private respondents filed their Demurrer to Evidence 7praying for the
dismissal of the criminal cases instituted against them due to the failure of the prosecution to establish their guilt beyond
reasonable doubt.
On July 2, 2007, an Order8 was promulgated by the respondent RTC judge finding the private respondents’ Demurrer to
Evidence to be meritorious, dismissing the Criminal Case Nos. 00-187318 and 00-187319 and acquitting all of the accused
in these cases. On July20, 2007, the private prosecutor in Criminal Case Nos. 00-187318 and 00-187319 moved for a
reconsideration of the July 2, 2007 Order but the same was denied by the respondent RTC judge in an Order 9 dated October
19, 2007.10
Surprisingly, and considering thathundreds of millions of Orient Commercial Banking Corporation (OCBC) depositors’
money appear to have been lost – which must have contributed to the bank’s being placed under receivership, no motion
for reconsideration of the July 2, 2007 Order granting respondents’ demurrer to evidence was filed by the handling public
prosecutor, Manila Prosecutor Marlo B. Campanilla (Campanilla). Only complainant Philippine Deposit Insurance
Corporation (PDIC) filed a Motion for Reconsideration, and the same lacked Campanilla’s approval and/or conformé; the
copy of the Motion for Reconsideration filed with the RTC11 does not bear Campanilla’s approval/conformé; instead,it
indicates thathe was merely furnished with a copy of the motion by registered mail.12 Thus, while the prosecution’s copy of
PDIC’sMotion for Reconsideration13 bore Campanilla’s subsequent approval and conformity, that which was actually filed
by PDIC with the RTC on July 30, 2007 did not contain the public prosecutor’s written approval and/or conformity.
Ruling of the Court of Appeals
On January 4, 2008, the prosecution, through the Office of the Solicitor General (OSG), filed anoriginal Petition for
Certiorari14 with the CA assailing the July 2, 2007 Order of the trial court. Itclaimed that the Order was issued with grave
abuse of discretion amounting to lackor excess of jurisdiction; that it was issued with partiality; that the prosecution was
deprived of its day in court; and that the trial court disregarded the evidence presented, which undoubtedly showed that
respondents committed the crime of estafa through falsification ofcommercial documents.
On September 30, 2009, the CA issued the assailed Decision with the following decretal portion: WHEREFORE, in view
of the foregoing premises, the petition filed in this case is hereby DENIED and the assailed Orders of the respondent RTC
judge are AFFIRMED and deemed final and executory.
SO ORDERED.15
Notably, in dismissing the Petition, the appellate court held that the assailed July 2, 2007 Order of the trial court became
final since the prosecution failed to move for the reconsideration thereof, and thus double jeopardy attached. The CA
declared thus –
More important than the fact that double jeopardy already attaches is the fact that the July 2, 2007 Order of the trial court
has already attained finality. This Order was received by the Office of the City Prosecutor of Manila on July 3, 2007 and by
the Private Prosecutor on July 5, 2007. While the Private Prosecutor filed a Motion for Reconsideration of the said Order,
the Public Prosecutor did not seek for the reconsideration thereof. It is the Public Prosecutor who has the authority to file a
Motion for Reconsideration of the said order and the Solicitor General who can file a petition for certiorari with respect to
the criminal aspect of the cases. The failure of the Public Prosecutor to file a Motion for Reconsideration on or before July
18, 2007 and the failure of the Solicitor General to file a Petition for Certiorarion or before September 1, 2007 made the
order of the trial court final.
As pointed out by the respondents, the Supreme Court ruled categorically on this matter in the case of Mobilia Products,
Inc. vs. Umezawa (452 SCRA 736), as follows:
"In a criminal case in which the offended party is the State, the interest of the private complainant or the offended party is
limited to the civil liabilityarising therefrom. Hence, if a criminal case is dismissed by the trial court or if there is an acquittal,
a reconsideration of the order of dismissal or acquittal may be undertaken, whenever legally feasible, insofar as the criminal
aspect thereof is concerned and may be made only by the public prosecutor; or in the case of an appeal, by the State only,
through the OSG. The private complainant or offended party may not undertake such motion for reconsideration or appeal
on the criminal aspect ofthe case. However, the offended party or private complainant may file a motion for reconsideration
of such dismissal or acquittal or appeal therefrom but only insofar as the civil aspect thereof is concerned. In so doing, the
private complainant or offended party need not secure the conformity of the public prosecutor. If the court denies his motion
for reconsideration, the private complainant or offended party may appeal or file a petition for certiorarior mandamus, if
grave abuse amounting to excess or lack of jurisdiction is shown and the aggrieved party has no right of appeal or given an
adequate remedy in the ordinary course of law."16
In addition, the CA ruled that the prosecution failed to demonstrate that the trial court committed grave abuse of discretion
in granting the demurrer, or that it was denied its day in court; that on the contrary, the prosecution was afforded every
opportunity to present its evidence, yet it failed to prove that respondents committed the crime charged.
The CA further held that the prosecution failed to present a witness who could testify, based on personal knowledge, that
the loan documents were falsified by the respondents; that the prosecution should not have relied on "letters and unverified
ledgers," and it "should have trailed the money from the beginning to the end;" 17 that while the documentary
evidenceshowed that the signatures in the loan documents were falsified, it has not been shown who falsified them. It added
that since only two of the alleged 13 manager’s checks were being questioned, there arose reasonable doubt as to whether
estafa was committed, as to these two checks; instead, there is an "inescapable possibility that an honest mistake was made
in the preparation of the two questioned manager’s checks since these checks were made out to the names of different payees
and not in the names of the alleged applicants of the loans."18 The appellate court added –
x x x Finally, the petitioner failed to present evidence on where the money went after they were deposited to the checking
account of the private respondent Jose C. Go. There is only a vague reference that the money was used to fund the personal
checks earlier issued by x x x Go. The petitioner should have gone further and identified who were the recipients of these
personal checks and if these personal checks were negotiated and honored. With all the resources of the public prosecutor’s
office, the petitioner should have done a better job of prosecuting the cases filed against the private respondents. It isa shame
that all the efforts of the government will go for naught due to the negligence of the public prosecutors in tying up the chain
of evidence in a criminal case.19
As a final point, the CA held that if errors were made inthe appreciation of evidence, these are mere errors of judgment –
and not errors of jurisdiction – which may no longer be reviewed lest respondents be placed in double jeopardy.
The OSG moved for reconsideration, but in the assailed January 22, 2010 Resolution, the CA stood its ground. Hence, the
instant Petition was instituted.
Issues
In the Petition, it is alleged that –
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT –
(a) NO GRAVE ABUSE OF DISCRETION WAS COMMITTED BY RESPONDENT RTC JUDGE IN GRANTING THE
DEMURRER TO EVIDENCE;
(b) THE ORDER OF ACQUITTAL HAS ALREADY ATTAINED FINALITY WHEN IT WAS NOT CHALLENGED IN
A TIMELY AND APPROPRIATE MANNER; AND
(c) THE LOWER COURT MERELY COMMITTED ERRORS OF JUDGMENT AND NOT OF JURISDICTION.20
Petitioner’s Arguments
Petitioner argues that the public prosecutor actually filed a Motion for Reconsideration of the assailed July 2,2007 Order of
the trial court granting respondents’ demurrer – that is, by "joining"the private prosecutor PDIC in the latter’s July 20, 2007
Motion for Reconsideration. Nonetheless,it admitted that while it joined PDIC in the latter’s July 20, 2007 Motion for
Reconsideration, it had only until July 18, 2007 within which to seek reconsideration since it received the order on July 3,
2007, while the private prosecutor received a copy of the Order only on July 5, 2007; it pleads thatthe two-day delay in
filing the motion should not prejudice the interests of the State and the People.
Petitioner assumes further that, since it was belated in its filing of the required Motion for Reconsideration, it may have
been tardy as well in the filing of the Petition for Certiorariwith the CA, or CA-G.R. SP No. 101823. Still, it begs the Court
to excuse its mistake in the nameof public interest and substantial justice, and in order to maintain stability in the banking
industry given that the case involved embezzlement of large sums ofdepositors’ money in OCBC.
Petitioner goes on to argue that the CAerred in affirming the trial court’s finding that demurrer was proper. It claims that it
was able to prove the offense charged, and it has shown that respondents were responsible therefor.
In its Reply,21 petitioner claims thatthe July 2, 2007 Order of the trial court granting respondents’ demurrer was null and
void to begin with, and thus it could not have attained finality. It adds thatcontrary to respondents’ submission, the private
prosecutor’s Motion for Reconsideration contained the public prosecutor’s written conformity, and that while it may be
saidthat the public prosecutor’s motion was two days late, still the trial court took cognizance thereof and passed upon its
merits; by so doing, the trial court thus validatedthe public prosecutor’s action of adopting the private prosecutor’sMotion
for Reconsideration as his own. This being the case, it should therefore besaid that the prosecution’s resultant Petition for
Certiorariwith the CA on January 4, 2008 was timely filed within the required 60-day period, counted from November 5,
2007,or the date the public prosecutor received the trial court’s October 19, 2007 Order denying the Motion for
Reconsideration.
Petitioner submits further that a Petition for Certiorariwas the only available remedy against the assailed Orders of the trial
court, since the granting of a demurrer in criminal cases is tantamount to an acquittal and is thus immediately final and
executory. It adds that the denial of its right to due process is apparent since the trial court’s grant of respondents’ demurrer
was purely capricious and done with evident partiality, despite the prosecution having adduced proof beyond reasonable
doubt that they committed estafa through falsification of commercial documents. Petitioner thus prays that the assailed CA
dispositions be reversed and that Criminal Case Nos. 00-187318 and 00-187319 be reinstated for further proceedings.
Respondents’ Arguments
Praying that the Petition be denied, respondents Jose C. Go (Go), Aida C. Dela Rosa (Dela Rosa), and Felecitas D.
Necomedes (Nicomedes) – the accused in Criminal Case Nos. 00-187318 and 00-187319 – argue in their Comment22 that
the trial court’s grant of their demurrer to evidence amounts to an acquittal; any subsequent prosecution for the same offense
would thus violate their constitutional right against double jeopardy. They add thatsince the public prosecutor failed to
timely move for the reconsideration of the trial court’s July 2, 2007 Order, it could not have validly filed an original Petition
for Certiorariwith the CA. Nor can it be said that the prosecution and the private prosecutor jointly filed the latter’s July 20,
2007 Motion for Reconsideration with the trial court because the public prosecutor’s copy of PDIC’smotion was merely
sent through registered mail. Therefore if it were true that the public prosecutor gave his approval or conformity to the
motion, he did so only afterreceiving his copy of the motion through the mail, and not at the time the private prosecutor
actually filed its Motion for Reconsideration with the trial court.
Next, respondents submit that petitioner was not deprived of its day in court; the grant of their demurrer to evidence is based
on a fair and judicious determination of the facts and evidence bythe trial court, leading it to conclude that the prosecution
failed to meet the quantum of proof required to sustain a finding of guilt on the part of respondents. They argue thatthere is
no evidence to show that OCBC released loan proceeds to the alleged borrowers, Timmy’s, Inc. and Asia Textile Mills,
Inc., and that these loan proceeds were then deposited in the account of respondent Go. Since no loans were granted to the
two borrowers, then there is nothing for Go to misappropriate. With respect to the two manager’s checks issued to Philippine
Recycler’s Inc. and Zeta International, respondents contend that these may not beconsidered to be the loan proceeds
pertaining to Timmy’s, Inc. and Asia Textile Mills, Inc.’s loan application because these checks were not in the name of the
alleged borrowers Timmy’s, Inc.and Asia Textile Mills, Inc. as payees. Besides, these two checks were never negotiated
with OCBC, either for encashmentor deposit, since they did not bear the respective indorsements or signatures and account
numbers of the payees; thus, they could not be considered to havebeen negotiated nor deposited with Go’s account with
OCBC.
Next, respondents argue that the cash deposit slip used to deposit the alleged loan proceeds in Go’s OCBC account is
questionable, since under banking procedure, a cash deposit slip may not be used to deposit checks. Moreover, it has not
been shown who prepared the said cash deposit slip. Respondents further question the validity and authenticity of the other
documentary evidence presented, such as the Subsidiary Ledger, Cash Proof,23 Schedule of Returned Checks and Other
Cash Items (RTCOCI), etc.
Finally, respondents claim that not all the elementsof the crime of estafa under Article 315, par. 1(b) of the Revised Penal
Code have been established; specifically, it has not been shown that Goreceived the alleged loan proceeds, and that a demand
was made upon him for the return thereof.
Our Ruling
The Court grants the Petition.
Criminal Case Nos. 00-187318 and 00-187319 for estafa through falsification of commercial documents against the
respondents are based on the theory that in 1997, fictitious loans in favor of two entities – Timmy’s, Inc. and Asia Textile
Mills, Inc. – were approved, after which two manager’s checks representing the supposed proceeds of these fictitious loans
were issued but made payable to two different entities – Philippine Recycler’sInc. and ZetaInternational – without any
documents issued by the supposed borrowers Timmy’s, Inc. and Asia Textile Mills, Inc. assigning the supposedloan
proceeds tothe two payees. Thereafter, these two manager’s checks – together with several others totaling
₱120,819,475.0024 – were encashed, and then deposited in the OCBC Savings Account No. 00810-00108-0 of Go. Then,
several automatic transfer deposits were made from Go’s savings account to his OCBC Current Account No. 008-00-
000015-0 which were then used to fund Go’s previously dishonored personal checks.
The testimonial and documentary evidenceof the prosecution indicate that OCBC, a commercial bank, was ordered closed
by the BSP sometime in October 1998. PDIC was designated as OCBC receiver, and it took over the bank’s affairs, assets
and liabilities, records, and collected the bank’s receivables.
During efforts to collect OCBC’s pastdue loan receivables, PDIC as receiver sent demand letters to the bank’s debtor-
borrowers on record, including Timmy’s, Inc. and Asia Textile Mills, Inc. which appeared to have obtained unsecured loans
of ₱10 million each, and which apparently remained unpaid. In response to the demand letters, Timmy’s, Inc. and Asia
Textile Mills, Inc. denied having obtained loans from OCBC. Timmy’s, Inc., through its designated representative, claimed
that while it is true that it applied for an OCBC loan, it no longer pursued the application after it was granted a loan by
another bank. When the OCBC loan documents were presented to Timmy’s, Inc.’s officers, it was discovered that the
signatures therein of the corporate officers were forgeries. In their defense and to clarify matters, Timmy’s, Inc.’s corporate
officers executed affidavits and furnished official documents such as their passports and the corporation’s Articles of
Incorporation containing their respectivesignatures to show PDIC that their purported signatures in the OCBC loan
documents were forgeries. After its investigation into the matter, PDIC came to the conclusion that the signatures on the
Timmy’s, Inc. loan documents were indeed falsified.25
On the other hand, in a written reply26 to PDIC’s demand letter, Asia Textile Mills, Inc. vehemently denied thatit applied
for a loan with OCBC. On this basis, PDIC concluded that the AsiaTextile Mills, Inc.loan was likewise bogus. Moreover,
PDIC discovered other bogus loans in OCBC.
Through the falsified loan documents, the OCBC Loan Committee – composed of Go, who was likewise OCBCPresident,
respondent Dela Rosa (OCBC Senior Vice President, or SVP, and Chief Operating Officer, or COO), Arnulfo Aurellano
and Richard Hsu – approved a ₱10 million unsecured loan purportedly in favor of Timmy’s, Inc. After deducting finance
charges, advance interest and taxes, DelaRosa certified a net loan proceeds amounting to ₱9,985,075.00 covered by
Manager’s Check No. 000000334727 dated February 5, 1997.28 The face of the check bears the notation "Loan proceeds of
CL-484," the alpha numeric code ("CL-484")of which refers to the purported loan of Timmy’s, Inc.29 However, the payee
thereof was not the purported borrower, Timmy’s, Inc., but a certain "Zeta International". Likewise, on even date, Manager’s
Check No. 000000334030 for ₱9,985,075.00 was issued, and on its face is indicated "Loan proceeds of CL-477", which
alpha numeric code ("CL-477") refers to the purported loan of AsiaTextile Mills, Inc.31 Manager’s Check No. 0000003340
was made payable not to Asia Textile Mills, Inc., but to "Phil. Recyclers Inc."
On the same day that the subject manager’s checks were issued, or on February 5, 1997, it appears that the two checks –
together with other manager’s checks totaling ₱120,819,475.00– were encashed; on the face ofthe checks, the word "PAID"
was stamped, and at the dorsal portion thereof there were machine validations showing thatManager’s Check No.
0000003347 was presented at 6:16 p.m., while Manager’s Check No. 0000003340 was presented at 6:18 p.m.32
After presentment and encashment, the amount of ₱120,819,475.00 – which among others included the ₱9,985,075.00
proceeds of the purported Timmy’s, Inc. loan and the ₱9,985,075.00 proceeds of the supposed Asia Textile Mills, Inc. loan
– was deposited in Go’s OCBC Savings Account No. 00810-00108-0 at OCBC Recto Branch, apparently on instructions of
respondent Dela Rosa.33 The deposit is covered by OCBC Cash Deposit Slip34 dated February 5, 1997, with the
corresponding machine validation thereon indicating that the deposit was made at 6:19 p.m. 35 The funds were credited to
Go’s savings account.36
It appears that previously, or on February 4, 1997, seven OCBC checks issued by Go from his personal OCBC Current
Account No. 008-00-000015-0 totaling ₱145,488,274.48 were dishonored for insufficiency of funds.37 After Manager’s
Check Nos. 0000003340 and 0000003347, along with several other manager’s checks, were encashed and the proceeds
thereof deposited in Go’s OCBC Savings Account No. 00810-00108-0 withautomatic transferfeature to his OCBC Current
Account No. 008-00-000015-0, funds were automatically transferred from the said savings account to the current account,
which atthe time contained only a total amountof ₱26,332,303.69. Go’sOCBC Current Account No. 008-00-000015-0 was
credited with ₱120,819,475.00, and thereafter the account registered a balance of ₱147,151,778.69. The seven previously
dishonored personal checks were thenpresented for clearing, and were subsequently cleared that sameday, or on February
5, 1997.38 Apparently, they were partly funded by the ₱120,819,475.00manager’s check deposits – which include Manager’s
Check Nos. 0000003340 and 0000003347.
During the examination and inquiry into OCBC’s operations, oron January 28, 1998, Go issued and sent a letter 39 to the
BSP, through Maria Dolores Yuviengco, Director of the Departmentof Commercial Banks, specifically requesting that the
BSP refrain from sending any communication to Timmy’s, Inc. and Asia Textile Mills, Inc., among others. He manifested
that he was "willing to assume the viability and full payment"of the accounts under investigation and examination, including
the Timmy’s, Inc. and AsiaTextile Mills, Inc. accounts.
Demurrer to the evidence40 is "an objection by one of the parties in an action, to the effect that the evidence which his
adversary produced is insufficient in point of law, whether true or not, to make out a case or sustain the issue. The party
demurring challenges the sufficiencyof the whole evidence to sustain a verdict. The court, in passing upon the sufficiency
of the evidence raised in a demurrer, is merely required to ascertain whether there is competent or sufficient evidence to
sustain the indictment or to support a verdict of guilt. x x x Sufficient evidence for purposes of frustrating a demurrer thereto
is such evidence in character, weight or amount as will legally justify the judicial or official action demanded according to
the circumstances. To be considered sufficient therefore, the evidence must prove: (a) the commission of the crime, and (b)
the precise degree of participation therein by the accused." 41 Thus, when the accused files a demurrer, the court must
evaluate whether the prosecution evidence is sufficient enough to warrant the conviction of the accused beyond reasonable
doubt.42
"The grant or denial of a demurrer to evidence is left to the sound discretion of the trial court, and its ruling on the matter
shall not be disturbed in the absence of a grave abuse of such discretion."43 As to effect, "the grant of a demurrer to evidence
amounts to an acquittal and cannot be appealed because it would place the accused in double jeopardy. The order is
reviewable only by certiorariif it was issued with grave abuse of discretion amounting tolack or excess of
jurisdiction."44 When grave abuse of discretion is present, an order granting a demurrer becomes null and void.
As a general rule, an order granting the accused’s demurrer to evidence amounts to an acquittal. There are certain exceptions,
however, as when the grant thereof would not violate the constitutional proscription on double jeopardy. For instance, this
Court ruled that when there is a finding that there was grave abuse of discretion on the part of the trial court in dismissing a
criminal case by granting the accused’s demurrer to evidence,its judgment is considered void, as this Court ruled in People
v. Laguio, Jr.:
By this time, it is settled that the appellate court may review dismissal orders of trial courts granting an accused’s demurrer
to evidence. This may be done via the special civil action of certiorariunder Rule 65 based on the ground of grave abuse of
discretion, amounting to lack or excess of jurisdiction. Such dismissal order, being considered void judgment, does not
result in jeopardy. Thus, when the order of dismissal is annulled or set aside by an appellate court in an original special civil
action via certiorari, the right of the accused against double jeopardy is not violated.
In the instant case, having affirmed the CA finding grave abuse of discretion on the part of the trial court when it granted
the accused’s demurrer to evidence, we deem its consequent order of acquittal void.45
Grave abuse of discretion is defined as "that capricious or whimsical exercise of judgment which is tantamount to lack of
jurisdiction. ‘The abuse of discretion must be patent and gross as to amount to an evasion of a positive duty or a virtual
refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as where the power is exercised in an
arbitrary and despotic manner by reason of passion and hostility.’ The party questioning the acquittal of an accused should
be able toclearly establish that the trial court blatantly abused its discretion such that it was deprived of its authority to
dispense justice."46
In the exercise of the Court’s "superintending control over inferior courts, we are to be guided by all the circumstances of
each particular case ‘as the ends of justice may require.’ So it is that the writ will be granted where necessary to prevent a
substantial wrong or to do substantial justice."47
Guided by the foregoing pronouncements, the Court declaresthat the CA grossly erred in affirming the trial court’s July 2,
2007 Order granting the respondent’s demurrer, which Order was patently null and void for having been issued with grave
abuse of discretion and manifest irregularity, thus causing substantial injury to the banking industry and public
interest.1avvphi1 The Court finds that the prosecution has presented competent evidence to sustain the indictment for the
crime of estafa through falsification of commercial documents, and that respondents appear to be the perpetrators thereof.
In evaluating the evidence, the trial court effectively failed and/or refused to weigh the prosecution’s evidence against the
respondents, which it was duty-bound to do as a trier of facts; considering that the case involved hundreds of millions of
pesos of OCBC depositors’ money – not to mention that the banking industry is impressed with public interest, the trial
court should have conducted itself with circumspection and engaged in intelligent reflection in resolving the issues.
The elements of estafa through abuse ofconfidence under Article 315, par. 1(b) of the Revised Penal Code 48 are: "(a) that
money,goods or other personal property is received by the offender in trust oron commission, or for administration, or under
any other obligation involving the duty to make delivery of or to return the same; (b) that there be misappropriation
orconversion of such money or property by the offender, or denial on his part of such receipt; (c) that such misappropriation
or conversion or denial is to the prejudice of another; and (d) there is demand by the offended party to the offender." 49
Obviously, a bank takes its depositors’ money as a loan, under an obligation to return the same; thus, the term "demand
deposit."
The contract between the bank and its depositor is governed by the provisions of the Civil Code on simpleloan. Article 1980
of the Civil Code expressly provides that "x x x savingsx x x deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan." There is a debtor-creditor relationship between the bank and its
depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees
to pay the depositor on demand. x x x50
Moreover, the banking laws impose high standards on banks in view of the fiduciary nature of banking."This fiduciary
relationship means that the bank’s obligation to observe ‘high standards ofintegrity and performance’ is deemed written into
every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a family."51
In Soriano v. People,52 it was held that the President of a bank is a fiduciary with respect to the bank’s funds, and he holds
the same in trust or for administration for the bank’s benefit. From this, it may beinferred that when such bank president
makes it appear through falsification that an individual or entity applied for a loan when in fact such individual or entity did
not, and the bank president obtains the loan proceeds and converts the same, estafa is committed.
Next, regarding misappropriation, the evidence tends to extablish that Manager’s Check Nos.0000003340 and 0000003347
were encashed, using the bank’s funds which clearly belonged to OCBC’s depositors, and then deposited in Go’s OCBC
Savings Account No. 00810-00108-0 at OCBC Recto Branch – although he was not the named payee therein. Next, the
money was automatically transferred to Go’s OCBC Current Account No. 008-00-000015-0 and used to fund his seven
previously-issued personal checks totaling ₱145,488,274.48, which checks were dishonored the day before. Simply put, the
evidence strongly indicates that Go converted OCBC funds to his own personal use and benefit. "The words ‘convert’ and
‘misappropriate’ connote an act of using or disposing of another’s property as if it were one’s own, or of devoting it to a
purpose or use different from that agreed upon. To misappropriate for one’s own use includes not only conversion to one’s
personal advantage, but also every attempt to dispose of the property of another without right. x x x In proving the element
of conversion or misappropriation, a legal presumption of misappropriation arises when the accused fails to deliver the
proceeds of the sale or to return the items to be sold and fails to give an account of their whereabouts.Thus, the
merepresumption of misappropriation or conversion is enough to conclude thata probable cause exists for the indictment x
x x."53
As to the third element of estafa, there is no question that as a consequence of the misappropriation of OCBC’s funds, the
bank and its depositors have been prejudiced; the bank has been placed under receivership, and the depositors’ money is no
longer under their unimpeded disposal.
Finally, on the matter of demand, while it has not been shown that the bank demanded the return of the funds, it has
nevertheless been held that "[d]emand is not an element of the felony or a condition precedent tothe filing of a criminal
complaint for estafa. Indeed, the accusedmay be convicted ofthe felony under Article 315, paragraph 1(b) of the Revised
Penal Code if the prosecution proved misappropriation or conversion by the accused of the money or property subject of
the Information. In a prosecution for estafa, demand is not necessary where there is evidence of misappropriation or
conversion."54 Thus, strictly speaking, demand is not an element of the offense of estafa through abuse of confidence; even
a verbal query satisfies the requirement.55 Indeed, in several past rulings of the Court, demand was not even included as
anelement of the crime of estafa through abuse of confidence, orunder paragraph 1(b).56
On the other hand, the elements of the crime of falsification of commercial document under Art. 172 57 are: "(1) that the
offender is a private individual; (2) that the offender committed any of the acts of falsification; and (3) that the act of
falsification is committed ina commercial document."58 As to estafa through falsification of public, official or commercial
documents, it has been held that –
The falsification of a public, official, or commercial document may be a means of committing Estafa, because before the
falsified document is actually utilized to defraud another, the crime of Falsification has already been consummated, damage
or intent to cause damage not being an element of the crime of falsification of public, official or commercial document. In
other words, the crime of falsification has already existed. Actually utilizing that falsified public, official or commercial
document todefraud another is estafa. But the damage is caused by the commission of Estafa, not by the falsification of the
document. Therefore, the falsification of the public, official or commercial document is only a necessary means to commit
the estafa.59
Simulating OCBC loan documents – such as loan applications, credit approval memorandums, and the resultant promissory
notes and other credit documents – by causing it to appear that persons have participated in any act or proceeding when they
did not in fact so participate, and by counterfeiting or imitating their handwriting or signatures constitute falsification of
commercial and public documents.
As to the respondents’ respective participation in the commission of the crime, suffice it to state that as the beneficiary of
the proceeds, Go is presumed to be the author of the falsification. The fact that previously, his personal checks totaling
₱145,488,274.48 were dishonored, and the day after, the amount of ₱120,819,475.00 was immediately credited to his
account, which included funds from the encashment of Manager’s Check Nos. 0000003340 and 0000003347 or the loan
proceeds of the supposed Timmy’s, Inc. and Asia Textile Mills, Inc. accounts, bolsters this view. "[W]henever someone has
in his possession falsified documents [which he used to] his advantage and benefit, the presumption that he authored it
arises."60
x x x This is especially true if the use or uttering of the forged documents was so closely connected in time with the forgery
that the user or possessor may be proven to have the capacity of committing the forgery, or to have close connection with
the forgers, and therefore, had complicity in the forgery.
In the absence of a satisfactory explanation, one who is found in possession of a forged document and who used or uttered
it is presumed to be the forger.
Certainly, the channeling of the subjectpayments via false remittances to his savings account, his subsequent withdrawals
of said amount as well as his unexplained flight at the height of the bank’s inquiry into the matter more than sufficiently
establish x x x involvement in the falsification.61
Likewise, Dela Rosa’s involvement inthe scheme has been satisfactorily shown. As OCBC SVP and COO and member of
the OCBC Loan Committee, she approved the purported Timmy’s, Inc.loan, and she certified and signed the February 2,
1997 OCBC Disclosure Statement and other documents.62 She likewise gave specific instructions to deposit the proceeds
of Manager’s Check Nos. 0000003340 and 0000003347, among others, in Go’s OCBC Savings Account No. 00810-00108-
0 at OCBC Recto Branch.63 Finally, she was a signatory to the two checks.64
On the other hand, respondent Nicomedes as OCBC Senior Manager for Corporate Accounts – Account Management
Group, among others prepared the Credit Approval Memorandum and recommended the approval of the loans.65
In granting the demurrer, the trial court – in its assailed July 2, 2007 Order – concluded that based on the evidence adduced,
the respondents could not have falsified the loan documents pertaining toTimmy’s, Inc. and Asia Textile Mills, Inc. since
the individuals who assert that their handwriting and signatures were forged were not presented incourt to testify on such
claim; that the prosecution witnesses – Honorio E. Franco, Jr. (Franco) of PDIC, the designated Assisting Deputy Liquidator
of OCBC, and Virginia Rowella Famirin (Famirin), Cashier of OCBC Recto Branch – were not present when the loan
documents were executed and signed, and thus have no personal knowledge of the circumstances surrounding the alleged
falsification; and as high-ranking officers of OCBC, respondents could not be expected to have prepared the saiddocuments.
The evidence, however, suggests otherwise; it shows that respondents had a direct hand in the falsification and creation of
fictitious loans. The loan documents were even signed by them. By disregarding what is evident in the record, the trial court
committed substantial wrong that frustrates the ends of justice and adversely affects the public interest. The trial court’s act
was so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined by law.
An act of a court or tribunal may only be considered as committed in grave abuse of discretion when the same was performed
in a capricious or whimsical exercise of judgment which is equivalent to lack of jurisdiction. The abuse of discretion must
be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined by law,
or to act at all in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of
passion and personal hostility. x x x66
On the charge of estafa, the trial court declared that since the payees of Manager’s Check Nos. 0000003340 and 0000003347
were not Asia Textile Mills, Inc. and Timmy’s, Inc., respectively, but other entities– Phil. Recyclers Inc. and Zeta
International, and there are no documents drawn by the borrowers assigning the loan proceeds to these two entities, then it
cannot besaid that there were loan proceeds released to these borrowers. The trial court added that it is doubtful that the two
manager’s checks were presented and negotiated for deposit in Go’s savings account, since theydo not contain the required
indorsements of the borrowers, the signatures of the tellers and individuals/payees who received the checks and the proceeds
thereof, and the respective account numbers of the respondents; and the checks were presented beyond banking hours. The
trial court likewise held that the fact that a cash deposit slip – and not a check deposit slip – was used to allegedly deposit
the checks raised doubts as to the truth of the allegation that the manager’s checks were deposited and credited to Go’s
savings account.
The CA echoed the trial court’s observations, adding that the evidence consisted of mere "letters and unverifiedledgers"
which were thus insufficient; that there was an "inescapable possibility that an honest mistake was made" in the preparation
and issuance of Manager’s CheckNos. 0000003340 and 0000003347, since these two checks are claimed to be just a few of
several checks – numbering thirteen in all – the rest of which werenever questioned by the receiver PDIC. The appellate
court added that the prosecution should have presented further evidence as to where the money went after being deposited
inGo’s savings and current accounts, identifying thus the recipients of Go’spersonal checks.
What the trial and appellate courts disregarded, however, is that the OCBC funds ended up in the personal bank accountsof
respondent Go, and were used to fund his personal checks, even as he was not entitled thereto. These, if not rebutted, are
indicative ofestafa, as may be seen from the afore-cited Sorianocase.
The bank money (amounting to ₱8million) 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. It is not accurate to say that
petitioner became the owner of the ₱8 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 infact 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 ₱8 million. Thus, petitioner remained the bank’s fiduciary with respect to that
money, which makes it capable of misappropriation or conversion in his hands.67
Thus, it is irrelevant that the proceeds of the supposed loans were made payable to entities other than the alleged
borrowers.1âwphi1 Besides, the manager’s checks themselves indicate that they were the proceeds of the purported
Timmy’s, Inc.’s and Asia Textile Mills, Inc.’s loans, through the alpha numeric codes specifically assigned to them that are
printed on the face of the checks; the connection between the checks and the purported loans is thus established. In the same
vein, the CA’s supposition that there is an "inescapable possibility that an honest mistake was made inthe preparation of the
two questioned manager’s checks" is absurd; even so, the bottom line is that they were encashed using bank funds, and the
proceeds thereof were deposited in Go’s bank savings and current accounts and used to fund his personal checks.
Furthermore, as correctly pointed outby petitioner, it issuperfluous to require that the recipients of Go’s personal checks be
identified. For purposes of proving the crime, it has been shown that Goconverted bank funds to his own personal use when
they were deposited in his accounts and his personal checks were cleared and the funds were debited from his
account.1âwphi1 This suffices. Likewise, the Court agrees that the prosecution’s reliance on the supposed loan documents,
subsidiary ledgers, deposit slip, cash proof, RTCOCI and other documents was proper. They are both public and private
documents which may be received in evidence; notably, petitioner’s documentary evidence was admitted in full by the trial
court.68 With respect to evidence consisting of private documents, the presumption remains that "therecording of private
transactions has been fair and regular, and that the ordinary course of business has been followed." 69
Go’s January 28, 1998 letter to the BSP stating that he was "willing to assume the viabilityand full payment" of the accounts
under examination – which included the Timmy’s, Inc. and Asia Textile Mills, Inc. accounts, among others – is an offer of
compromise, and thus an implied admission of guilt under Rule 130, Section 27 of the Revised Rules on Evidence.70
In addition, appellant’s act of pleading for his sister-in-law’s forgiveness may be considered as analogous to an attempt to
compromise, which in turn can be received as an implied admission ofguilt under Section 27, Rule 130 x x x.71
As a result of the Court’s declaration of nullity of the assailed Orders of the trial court, any dissection of the truly
questionable actions of Prosecutor Campanilla – which should merit appropriate disciplinary action for they reveal a patent
ignorance of procedure, if not indolence or a deliberate intention to bungle his own case – becomes unnecessary. It is
conceded that the lack of Campanilla’s approval and/or conforméto PDIC’s Motion for Reconsideration should have
rendered the trial court’s assailed Ordersfinal and executory were it not for the fact that they were inherently null and void;
Campanilla’s irresponsible actions almost cost the People its day in court and their right to exact justice and retribution, not
to mention that they could have caused immeasurable damage to the banking industry. Just the same, "[a] void judgment or
order has no legal and binding effect, force or efficacy for any purpose. In contemplation of law, it is non-existent. Such
judgment or order may be resisted in any action or proceeding whenever it is involved. It is not even necessary to take any
steps to vacate or avoid a void judgment or final order; it may simply be ignored."72 More appropriately, the following must
be cited:
x x x Clearly, the assailed Order of Judge Santiago was issued in grave abuse of discretion amounting to lack of jurisdiction.
A void order is no order at all. It cannot confer any right or be the source of any relief. This Court is not merely a court of
law; it is likewise a court of justice.
To rule otherwise would leave the private respondent without any recourse to rectify the public injustice brought about by
the trial court's Order, leaving her with only the standing to file administrative charges for ignorance of the law against the
judge and the prosecutor. A party cannot be left without recourse to address a substantive issue in law.73
Finally, it must be borne in mind that "[t]he granting of a demurrer to evidence should x x x be exercised with caution,
taking into consideration not only the rights of the accused, but also the right of the private offended party to be vindicated
of the wrongdoing done against him, for if it is granted, the accused is acquitted and the private complainant is generally
left with no more remedy. In such instances, although the decision of the court may be wrong, the accused can invoke his
right against double jeopardy. Thus, judges are reminded to be more diligent and circumspect in the performance of their
duties as members of the Bench xx x."74
WHEREFORE, the Petition is GRANTED. The September 30, 2009 Decision and January 22, 2010 Resolution of the Court
of Appeals are REVERSED and SET ASIDE. The July 2, 2007 and October 19, 2007 Orders of the Regional Trial Court
of Manila, Branch 49 in Criminal Case Nos. 00-187318 and 00-187319 are declared null and void, and the said cases are
ordered REINSTATED for the continuation of proceedings.
SO ORDERED.
G.R. No. 194515, September 16, 2015
SPOUSES OSCAR AND GINA GIRONELLA, Petitioners, v. PHILIPPINE NATIONAL BANK, Respondent.
DECISION
PEREZ, J.:
We have here a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision1 dated 27
August 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 83870 which reversed and set aside the Decision2 of the
Regional Trial Court (RTC), Branch 44, Dagupan City in Civil Case No. 2000-0099-D. The RTC granted the complaint of
petitioners, the Spouses Oscar and Gina Gironella (Spouses Gironella), against respondent Philippine National Bank
(PNB) for: (1) the proper construction of events between the parties relative to the proposed Restructuring Agreement; (2)
fraud, gross negligence, and/or at the very least, abuse of right under Article 19, 20 and 21 of the Civil Code; and (3)
corollary thereto, payment of actual and compensatory damages, moral damages, attorney's fees and litigation expenses.

First, the bare and undisputed facts.

In separate Credit Agreements respectively dated 11 November 1991 and 16 January 1992, the Spouses Gironella
obtained two (2) loans from PNB in the amounts of Php7,500,000.00 and Php2,000,000.00 for the construction of the
Dagupan Village Hotel and Sports Complex. The loans were co-terminus, both payable on installments and secured by the
same real estate mortgage over a parcel of land covered by Transfer Certificate of Title (TCT) No. 56059 in favor of the
creditor, PNB.

In May 1992, seeking to expand their hotel operations, the Spouses Gironella again applied for another loan with PNB in
the amount of Php5,800,000.00 for the construction of a restaurant bar and the purchase of a generator set.

From these front events, the dealings between the parties turned into the present case.

The Spouses Gironella began to default in paying their prior two (2) loans. They would aver, in their complaint until this
petition, that their default in payment is attributable to PNB whose representatives and officers made them believe that
their Php5,800,000.00 loan application would be approved and directed them to proceed with their expansion plans. To
that end and with the full knowledge of the PNB's officers and representatives, the Spouses Gironella used the income
generated by the hotel for the construction of the restaurant bar and purchase of the generator set while the
Php5,800,000.00 loan was pending and still being processed. In their Complaint, the Spouses Gironella alleged:
[PNB's] officers and representatives, gave their assurance to the [Spouses Gironella] that the said loan will be approved by
[PNB] and even directed the [Spouses Gironella] to make use of the- funds being generated by Dagupan Village Hotel for
the said purposes, which the [Spouses Gironella] did, but seriously affected the servicing of their first loan. [The Spouses
Gironella] then proposed a restructuring of their first loan and after a series of meetings, offers and counter offers, the
[Spouses Gironella] accepted the offer of [PNB] to their proposed program (sic) to restructure the loan which for all
intents and purposes was already perfected.3
From the period of February 1993 to 2 October 1995, the Spouses Gironella paid a total of Php4,219,000.00 on their first
two loans of Php9,500,000.00. In January and April 1998, the Spouses Gironella likewise paid PNB Php1,000,000.00 and
Php1,650,000.00. They maintain that all these payments were made to effect the restructuring of their loans with PNB.

Meanwhile, in separate instances, on 29 May 1996 and 17 April 1998, while the parties were negotiating and discussing
the restructuring of the Spouses Gironella's loans, PNB made a couple of attempts to foreclose the mortgaged property. It
filed a Petition for the Extra-Judicial Foreclosure thereof and subsequently, a Notice of Extra-Judicial Foreclosure Sale.
However, the final foreclosure of the mortgaged property was stalled because of the continuing negotiations between the
parties for the restructuring of the loans.
By the year 2000, negotiations for the restructuring of the Spouses Gironella's loans was still ongoing and remained
indefinite. On 25 January 2000, after several exchange of correspondence, PNB wrote the Spouses Gironella and
proposed, thus:
May we now have your written final conformity with the proposed restructuring of your account by way of:
Capitalization of the P9,485,620.00, part of the accrued interest as of December 14, 1999 for consolidation with the
outstanding P9,500,000.00 unpaid principal to aggregate P14,380,000.00;ChanRoblesVirtualawlibrary

Restructuring of this P14,380,000.00 into a fully secured 10 year term loan payable quarterly under the following
scheme;ChanRoblesVirtualawlibrary

- grace period on the payment of the principal only for Eight (8) quarters.
- amortization for the 1st to 8th quarters be based on accrued interest due.
- amortization from the 9th up to the 39th quarter to be based on a 15-year payment scheme with balloon payment on the
40th quarter.

Restructuring of P8,120,000.00, the other part of the accrued interest as of December 14, 2000, on clean basis to be
payable quarterly for five (5) years with amortization from 1st to 19th quarters based on a 15-year payment scheme and
balloon payment on the 20th quarter.

Interest, net of capitalization, to be paid from December 14. 1999 up to date of implementation,
This proposed restructuring is still subject for evaluation and approval of higher management and therefore
tentative in nature.4 (Emphasis Supplied)
In a letter dated 7 February 2000, the Spouses Gironella gave a qualified acceptance of PNB's proposed restructuring,
specifically referring to specific terms in the 25 January 2000 proposal of PNB.

However, in its 8 March 2000 letter, PNB rejected finally the counter offer of the Spouses Gironella for the restructuring
of their loan.

On 25 July 2000, PNB re-filed its Petition for Extra-Judicial Foreclosure of the mortgaged property.

Forthwith, the Spouses Gironella filed the Complaint before the RTC with prayer for issuance of a Temporary Restraining
Order (TRO) and preliminary injunction to enjoin enforcement of the original credit agreements, and security therefor,
between the parties. Effectively, the Spouses Gironella sought to enjoin the foreclosure of the mortgaged property.

On 4 and 28 September 2000, the RTC issued the prayed for TRO and Writ of Preliminary injunction.

Subsequently, the RTC granted the Complaint of the Spouses Gironella ruling that there was a perfected and binding
restructured credit agreement, the terms contained in the 25 January 2000 and 7 February 2000 written exchanges of the
parties:
WHEREFORE, judgment is rendered in favor of [petitioners] Oscar Gironella and Gina F. Gironella and against
[respondent] Philippine National Bank, as follows:chanRoblesvirtualLawlibrary

1. On the first and third causes of action, judgment is rendered ordering [PNB] to pay [the Spouses Gironella], the
following:chanRoblesvirtualLawlibrary

a) P5,000,000.00 and P100,000.00 a month as actual and compensatory damages;ChanRoblesVirtualawlibrary

b) P2,000,000.00 as moral damages;ChanRoblesVirtualawlibrary

c) P500,000.00 as and for Attorney's fees, plus P10,000.00 for every conference or hearing as Appearance Fees; and

d) P250,000.00 as litigation expenses.

2. On the second cause of action, the [c]ourt declares the restructuring of the subject loan pursuant to the letter of [PNB]
dated January 25, 2000, Exhibit U for [the Spouses Gironella], and Exhibit 2 for [PNB], and [the Spouses Gironella's]
letter dated February 7, 2000, Exhibit V for the [Spouses Gironella], and Exhibit 3 for [PNB], as perfected and binding
upon the parties.

[PNB] is ordered to pay the costs of suit.5

On Motion for Partial Reconsideration and/or Clarification filed by the Spouses Gironella, the RTC clarified that the
payment of Php100,000.00 a month as actual and compensatory damages is reckoned from the filing of the Amended
Complaint on 25 September 2002. In addition, the RTC declared permanent the writ of preliminary injunction it had
previously issued, effectively enjoining the enforcement of the original credit agreements and the accessory contract, the
real estate mortgage over the land covered by TCT No. 56059.

Posthaste, PNB appealed to the CA questioning the trial court's ruling. PNB argued that the exchange of correspondence
between the parties, specifically the 25 January 2000 and 7 February 2000 letters, did not constitute a perfected and
binding restructuring agreement since there was no express acceptance by either party of the other's counter-offer. PNB
averred that it, in fact, finally rejected the restructuring proposal of the Spouses Gironella on 8 March 2000.

The appellate court granted the appeal of PNB and reversed the ruling of the trial court. The CA ruled that the Spouses
Gironella, apart from their bare allegations, failed to present evidence required in civil cases, i.e. by a preponderance of
evidence, to establish their claim that PNB fraudulently and in gross negligence and/or, in abuse of right, gave them false
hopes and assurances that their third loan would be approved in violation of Articles 19, 20 and 21 of the Civil Code
thereby entitling them to damages. The appellate court ruled, thus:
In civil cases, he who alleges a fact has the burden of proving it by a preponderance of evidence. Aside from the surmises
of [the Spouses Gironella] that they were given false hope and assurances by [PNB's] officers, the [Spouses Gironella] in
this case failed to show proof preponderant enough to sway this [c]ourt in their favor.

As compared to the other transactions and negotiation entered into between the parties herein which were very much
documented, the [Spouses Gironella] failed to present any documentary evidence relevant to their claims of fraud, gross
negligence, and abuse of right against the [PNB's] officers. The records of the instant case are wanting of any proof that
would substantiate the [Spouses Gironella's] claim that they were assured by [PNB's] officers that the additional loan
application will be approved and that it was agreed upon that the income of the hotel will be used for the construction of
the disco-restaurant and the purchase of the generator set for the meantime.

It must also be noted that [the Spouses Gironella] contracted two previous loans from [PNB] even before the additional
loan subject of this case was applied for. Thus, not being their first time to enter into a loan with a bank, the [Spouses
Gironella] are already very much aware of the process being observed in obtaining a loan from such kind of institution.
Gina Gironella even wrote in her 7 August 1992 letter to Mr. Alfredo S. Besa, Manager of the PNB Dagupan Branch, that:
Dear Mr. Besa:chanRoblesvirtualLawlibrary

I was very much elated over the information relayed to me by my father, thru our Resident Manager, William Crossly,
regarding the profound concern and interest shown by your Vice-President for Northern Luzon Branches Pedrito D.
Torres towards the Dagupan Village Hotel and Sports Center. I understand that VP Torres was also convinced that the
construction of the additional function hall and night club would, indeed, upgrade the revenue-earning capacity of the
hotel, thus reportedly giving his assent for the immediate commencement of the project.

In this connection, therefore, may I reiterate our appeal manifested in our previous letters for the approval of our
additional loan application with which to underwrite the above project which was started almost two months ago, and the
purchase of a 125 ... generating set.
In the above letter, [petitioner] Gina Gironella appears to be mindful that a formal approval is necessary for their
application to be considered as finally approved. Thus, when the [Spouses Gironella] undertook to initiate the construction
of the disco-restaurant and the purchase of the generator set even without the formal approval of their additional loan, the
[Spouses Gironella] did it at their own risk.6
On the finding of the trial court that the correspondence between the parties embodied in the 25 January 2000 and 7
February 2000 letters of PNB and the Spouses Gironella, respectively, constituted the restructuring agreement, the
appellate court found that there was no final agreement reached by the parties where the offer was certain and acceptance
thereof by the other party was absolute. The appellate court held that, in this case, a qualified acceptance equated to a
counter-offer and, at that point, there was no absolute and unqualified acceptance which is identical in all respects with
that of the offer so as to produce consent or meeting of the minds.

Hence, this appeal by certiorari of the Spouses Gironella insisting on the correctness of the trial court's ruling.

We deny the petition and affirm the appellate court's ruling.

The Spouses Gironella claim fraud, gross negligence and/or, at the very least, abuse of right in violation of Articles 19, 20
and 21 of the Civil Code when PNB, essentially, twice did not approve their loan applications: (1) the additional loan of
Php5,800,000.00 for their businesses' expansion plans, and (2) restructuring of their original credit agreements, despite
purported assurances and representations of approval by PNB's officers and representatives. The Spouses Gironella
maintain that these actuations of PNB through its officers and representatives constituted fraud, gross negligence and/or
abuse of right in its dealings thus entitling the Spouses Gironella to damages, actual and compensatory, moral, attorney's
fees and litigation expenses.

Incredibly, the RTC adopted in full the stance and allegations of the Spouses Gironella, without a shred of evidence or
reference thereto in the ratiocination of its ruling:
It should be noted that [PNB's] act of continuously giving positive assurances to the [Spouses Gironella] and giving them
false hopes that the additional loan will be approved and eventually informing them later that the same was disapproved
by the higher management is a clear indication of fraud and gross negligence. If it were not for [PNB's] continuous
assurances that the loan will be approved, the [Spouses Gironella] would not have participated in the negotiations with
PNB officers and representatives, thus dispensing with the preparation and submission of various documents, financial
reports and other demands. The [c]ourt agrees with the stand of the [Spouses Gironella] that if it were for [PNB's]
directive to direct the use of the funds generated by the hotel to construct [the] disco-restaurant purchase of the generator
set (sic), the servicing and/or payment of the original loan should not have been affected. The records would show that
[PNB] misled the [Spouses Gironella] into believing that the additional loan of 5.8 Million Pesos would be approved. It
should be stated in this connection that the payments for the first loan Php9,500,000.00 would have come from the funds
generated by the hotel. There is no doubt that the [Spouses Gironella] applied for an additional loan of P5,800,000.00 for
the purpose of constructing the disco-restaurant and purchase of generator set. The hotel fund was used for the above-cited
purpose and that was the reason instead of using the same to pay [the Spouses Gironella's] obligation relative to the
Php9,500,000.00 loan. [The Spouses Gironella's] acted in good faith when they used the money to construct the disco-
restaurant and purchase the generator set because of the false assurances of [PNB] that the amount of Php5,800,000.00
loan would be approved.7
The appellate court correctly did not give imprimatur to the foregoing ruling of the trial court given that nowhere therein
does the trial court refer to evidence to support its conclusions.
First. As plaintiffs, the Spouses Gironella had the duty, the burden of proof, to present evidence, required by law, on the
facts in issue necessary to establish their claim.8 The trial court did not even name the bank officers and representatives
who gave "false hopes and assurances" to the Spouses Gironella. The trial court could have easily specified the
representations and statements of the bank officers and representatives which the Spouses Gironella heavily relied upon.
The Spouses Gironella's lack of evidence is further highlighted by the trial court's non-sequitur statement that "[i]f it were
not for [PNB's] continuous assurances that the loan will be approved, the [Spouses Gironella] would not have participated
in the negotiations with PNB officers and representatives, thus dispensing with the preparation and submission of various
documents, financial reports and other demands."9
Second. The foregoing statement fails to take into consideration the three (3) distinct stages of a contract: (1) preparation
or negotiation, (2) perfection, and finally, (3) consummation.10 At that point where the Spouses Gironella were applying
for the additional loan of Php5,800,000.00, that involved the negotiation stage for a contract separate from the first two
credit agreements which were consolidated into one, secured by the same real estate mortgage over TCT No. 56059, both
payable on installment and with the same term. Necessarily, the Spouses Gironella as debtors applying for an. additional
loan, ought to participate in the negotiations thereof and await PNB's assessment and processing of their additional loan
application.

Discussion on the succeeding stages of a contract shall be done anon in relation to the alleged restructuring agreement.

Third. We find difficulty in accepting the Spouses Gironella's insistence that PNB's officers and representatives repeatedly
assured them that their additional loan will be approved, apparently, without qualification. In approving loans, credit
accommodations and guarantees, PNB, as a bank, must still comply with banking laws and conduct business in a safe and
sound manner. Ultimately, PNB to comply with the General Banking Act11 as amended, the old statute and precursor to
the present General Banking Law,12 must assess compliance by the Spouses Gironella with specific legal banking
requirements such as the Single Borrower's Limit.13 Clearly, approval of the Spouses Gironella's additional loan is not
contingent solely on the purported representations of PNB's officers as claimed by the former.

Fourth. From these very same bare allegations of the Spouses Gironella, the trial court, in upholding their stance,
considered the assurances given by PNB's officers that the additional loan will be approved as the evidence itself of PNB's
supposed commission of fraud. In short, the Spouses Gironella proffer as evidence of fraud their own bare allegations
which regrettably, the trial court echoed.

We cannot overemphasize that the burden of proof is upon the party who alleges bad faith or fraud.14 In this case, the
Spouses Gironella's bare allegations that PNB's officers assured them that their additional loan will be approved are mere
abstractions of fraud without specifics pointing to the actual commission of fraud.

We thus agree with the disquisition of the appellate court thereon:

In civil cases, he who alleges a fact has the burden of proving it by a preponderance of evidence. Aside from the surmises
of [the Spouses Gironella] that they were given false hopes and assurances by [PNB's] officers, the [Spouses Gironella] in
this case failed to show proof preponderant enough to sway this [c]ourt in their favor.

As compared to the other transactions and negotiations entered into between the parties herein which were very, much
documented, the [Spouses Gironella] failed to present any documentary evidence relevant to their claims of fraud, gross
negligence, and abuse of right against the [PNB's] officers. The records of the instant case are wanting of any proof that
would substantiate the [Spouses Gironella's] claim that they were assured by [PNB's] officers that the additional loan
application will be approved and that it was agreed upon that the income of the hotel will be used for the construction of
the disco-restaurant and the purchase of the generator set for the meantime.15
The Spouses Gironella next contend that the parties already had a partially executed, if not perfected and binding,
restructuring agreement embodied in their 7 February 2000 letter of acceptance of the offer and proposal contained in
PNB's 25 January 2000 letter. As with their first contention on the "false hopes and assurances" purportedly given by
PNB's officers and representatives to the Spouses Gironella, the trial court upheld them and found that there was a
perfected and binding restructuring agreement between the parties. Moreover, the Spouses Gironella assert that since they
have made substantial payments in pursuance of the restructuring agreement, or at the least under a promise of
restructuring the loan, there is effectively a partially executed restructuring agreement.

We cannot subscribe to the contention of the Spouses Gironella, albeit upheld by the trial court.

A contract is perfected by mere consent.16 In turn, consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract.17 The offer must be certain and the acceptance
seasonable and absolute.18 If qualified, the acceptance would merely constitute a counter-offer19 as what occurred in this
case.

To reach that moment of perfection, the parties must agree on the same thing in the same sense, so that their minds meet
as to all the terms.20 They must have a distinct intention common to both and without doubt or difference; until all
understand alike, there can be no assent, and therefore no contract. The minds of parties must meet at every point; nothing
can be left open for further arrangement. So long as there is any uncertainty or indefiniteness, or future negotiations or
considerations to be had between the parties, there is not a completed contract, and in fact, there is no contract at all.21

The Spouses Gironella's payments under its original loan account cannot be considered as partial execution of the
proposed restructuring loan agreement. They were clearly made during the pendency of the negotiations on the
restructuring. Such pendency proves, absence, not presence of an agreement ready for execution. At the time of payments
only petitioners' obligation under the original credit agreements were in existence. Indeed, the payment scheme under the
proposed restructuring was outlined by PNB only in the letter of 25 January 2000.

Further on this, negotiation begins from the time the prospective contracting parties manifest their interest in the contract
and ends at the moment of agreement of the parties. Once there is concurrence of the offer and acceptance of the object
and cause, the stage of negotiation is finished.22 This situation does not obtain in the case at bar. The letter dated 25
January 2000 of PNB was qualifiedly accepted by the Spouses Gironella as contained in their 7 February 2000 letter and
constituted a counter-offer which PNB ultimately rejected in its 8 March 2000 letter. The surrounding circumstances
clearly show that the parties were not past the stage of negotiation for the terms and conditions of the restructured loan
agreements. There was no meeting of the minds on the restructuring of the loans. Thus, the Spouses Gironella's original
Php9,500,000.00 loan agreement subsists.

In all, we affirm the appellate court's ruling, PNB is not liable either for fraud, gross negligence or abuse of right. It did
not breach any agreement there having been no restructured loan agreement at all that was perfected. Consequently, the
PNB is not liable to pay the Spouses Gironella any form of damages.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 27 August 2010 in CA-G.R. CV
No. 83870 is AFFIRMED. The Decision and Order dated 23 June 2004 and 28 September 2004 of the Regional Trial
Court, Branch 44, Dagupan City are REVERSED and SET ASIDE. The Amended Complaint of the petitioners, Oscar
and Gina Gironella, is DISMISSED.

SO ORDERED.
JOSE C. GO, G.R. No. 178429
Petitioner, Promulgated:
- versus - October 23, 2009
BANGKO SENTRAL NG PILIPINAS,
Respondent.
x ------------------------------------------------------------------------------------------x

DECISION

BRION, J.:

Through the present petition for review on certiorari,[1] petitioner Jose C. Go (Go) assails the October 26, 2006 decision[2] of
the Court of Appeals (CA) in CA-G.R. SP No. 79149, as well as its June 4, 2007 resolution.[3] The CA decision and
resolution annulled and set aside the May 20, 2003[4] and June 30, 2003[5] orders of the Regional Trial Court (RTC), Branch
26, Manila which granted Gos motion to quash the Information filed against him.

THE FACTS

On August 20, 1999, an Information[6] for violation of Section 83 of Republic Act No. 337 (RA 337) or the General Banking
Act, as amended by Presidential Decree No. 1795, was filed against Go before the RTC. The charge reads:

That on or about and during the period comprised between June 27, 1996 and September 15, 1997, inclusive, in the City of
Manila, Philippines, the said accused, being then the Director and the President and Chief Executive Officer of the
Orient Commercial Banking Corporation (Orient Bank), a commercial banking institution created, organized and
existing under Philippines laws, with its main branch located at C.M. Recto Avenue, this City, and taking advantage of his
position as such officer/director of the said bank, did then and there wilfully, unlawfully and knowingly borrow, either
directly or indirectly, for himself or as the representative of his other related companies, the deposits or funds of the
said banking institution and/or become a guarantor, indorser or obligor for loans from the said bank to others, by
then and there using said borrowed deposits/funds of the said bank in facilitating and granting and/or caused the
facilitating and granting of credit lines/loans and, among others, to the New Zealand Accounts loans in the total
amount of TWO BILLION AND SEVEN HUNDRED FIFTY-FOUR MILLION NINE HUNDRED FIVE THOUSAND
AND EIGHT HUNDRED FIFTY-SEVEN AND 0/100 PESOS, Philippine Currency, said accused knowing fully well that
the same has been done by him without the written approval of the majority of the Board of Directors of said Orient
Bank and which approval the said accused deliberately failed to obtain and enter the same upon the records of said banking
institution and to transmit a copy of which to the supervising department of the said bank, as required by the General
Banking Act.

CONTRARY TO LAW. [Emphasis supplied.]

On May 28, 2001, Go pleaded not guilty to the offense charged.

After the arraignment, both the prosecution and accused Go took part in the pre-trial conference where the marking of the
voluminous evidence for the parties was accomplished. After the completion of the marking, the trial court ordered the
parties to proceed to trial on the merits.
Before the trial could commence, however, Go filed on February 26, 2003[7] a motion to quash the Information, which
motion Go amended on March 1, 2003.[8] Go claimed that the Information was defective, as the facts charged therein
do not constitute an offense under Section 83 of RA 337 which states:

No director or officer of any banking institution shall either directly or indirectly, for himself or as the representative or
agent of another, borrow any of the deposits of funds of such banks, nor shall he become a guarantor, indorser, or surety for
loans from such bank, to others, or in any manner be an obligor for money borrowed from the bank or loaned by it, except
with the written approval of the majority of the directors of the bank, excluding the director concerned. Any such approval
shall be entered upon the records of the corporation and a copy of such entry shall be transmitted forthwith to the appropriate
supervising department. The office of any director or officer of a bank who violates the provisions of this section shall
immediately become vacant and the director or officer shall be punished by imprisonment of not less than one year nor more
than ten years and by a fine of not less than one thousand nor more than ten thousand pesos.

The Monetary Board may regulate the amount of credit accommodations that may be extended, directly or indirectly, by
banking institutions to their directors, officers, or stockholders.However, the outstanding credit accommodations which a
bank may extend to each of its stockholders owning two percent (2%) or more of the subscribed capital stock, its directors,
or its officers, shall be limited to an amount equivalent to the respective outstanding deposits and book value of the paid-in
capital contribution in the bank. Provided, however, that loans and advances to officers in the form of fringe benefits granted
in accordance with rules and regulations as may be prescribed by Monetary Board shall not be subject to the preceding
limitation. (As amended by PD 1795)

In addition to the conditions established in the preceding paragraph, no director or a building and loan association shall
engage in any of the operations mentioned in said paragraphs, except upon the pledge of shares of the association having a
total withdrawal value greater than the amount borrowed. (As amended by PD 1795)

In support of his motion to quash, Go averred that based on the facts alleged in the Information, he was being prosecuted
for borrowing the deposits or funds of the Orient Bank and/or acting as a guarantor, indorser or obligor for the banks loans
to other persons. The use of the word and/or meant that he was charged for being either a borrower or a guarantor, or for
being both a borrower and guarantor. Go claimed that the charge was not only vague, but also did not constitute an
offense. He posited that Section 83 of RA 337 penalized only directors and officers of banking institutions who acted either
as borrower or as guarantor, but not as both.

Go further pointed out that the Information failed to state that his alleged act of borrowing and/or guarantying was not
among the exceptions provided for in the law.According to Go, the second paragraph of Section 83 allowed banks to extend
credit accommodations to their directors, officers, and stockholders, provided it is limited to an amount equivalent to the
respective outstanding deposits and book value of the paid-in capital contribution in the bank. Extending credit
accommodations to bank directors, officers, and stockholders is not per se prohibited, unless the amount exceeds the legal
limit. Since the Information failed to state that the amount he purportedly borrowed and/or guarantied was beyond the limit
set by law, Go insisted that the acts so charged did not constitute an offense.

Finding Gos contentions persuasive, the RTC granted Gos motion to quash the Information on May 20, 2003. It denied
on June 30, 2003 the motion for reconsideration filed by the prosecution.

The prosecution did not accept the RTC ruling and filed a petition for certiorari to question it before the CA. The
Information, the prosecution claimed, was sufficient. The word and/or did not materially affect the validity of the
Information, as it merely stated a mode of committing the crime penalized under Section 83 of RA 337. Moreover, the
prosecution asserted that the second paragraph of Section 83 (referring to the credit accommodation limit) cannot be
interpreted as an exception to what the first paragraph provided. The second paragraph only sets borrowing limits that, if
violated, render the bank, not the director-borrower, liable. A violation of the second paragraph of Section 83 under which
Go is being prosecuted is therefore separate and distinct from a violation of the first paragraph. Thus, the prosecution prayed
that the orders of the RTC quashing the Information be set aside and the criminal case against Go be reinstated.

On October 26, 2006, the CA rendered the assailed decision granting the prosecutions petition for certiorari.[9] The CA
declared that the RTC misread the law when it decided to quash the Information against Go. It explained that the allegation
that Go acted either as a borrower or a guarantor or as both borrower and guarantor merely set forth the different modes by
which the offense was committed. It did not necessarily mean that Go acted both as borrower and guarantor for the same
loan at the same time. It agreed with the prosecutions stand that the second paragraph of Section 83 of RA 337 is not an
exception to the first paragraph. Thus, the failure of the Information to state that the amount of the loan Go borrowed or
guaranteed exceeded the legal limits was, to the CA, an irrelevant issue. For these reasons, the CA annulled and set aside
the RTCs orders and ordered the reinstatement of the criminal charge against Go. After the CAs denial of his motion for
reconsideration,[10] Go filed the present appeal by certiorari.

THE PETITION

In his petition, Go alleges that the appellate court legally erred in overturning the trial courts orders. He insists that the
Information failed to allege the acts or omissions complained of with sufficient particularity to enable him to know the
offense being charged; to allow him to properly prepare his defense; and likewise to allow the court to render proper
judgment.

Repeating his arguments in his motion to quash, Go reads Section 83 of RA 337 as penalizing a director or officer of a
banking institution for either borrowing the deposits or funds of the bank, or guaranteeing or indorsing loans to others, but
not for assuming both capacities. He claimed that the prosecutions shotgun approach in alleging that he acted as borrower
and/or guarantor rendered the Information highly defective for failure to specify with certainty the specific act or omission
complained of. To petitioner Go, the prosecutions approach was a clear violation of his constitutional right to be informed
of the nature and cause of the accusation against him.

Additionally, Go reiterates his claim that credit accommodations by banks to their directors and officers are legal and valid,
provided that these are limited to their outstanding deposits and book value of the paid-in capital contribution in the
bank. The failure to state that he borrowed deposits and/or guaranteed loans beyond this limit rendered the Information
defective. He thus asks the Court to reverse the CA decision to reinstate the criminal charge.

In its Comment,[11] the prosecution raises the same defenses against Gos contentions. It insists on the sufficiency of the
allegations in the Information and prays for the denial of Gos petition.

THE COURTS RULING

The Court does not find the petition meritorious and accordingly denies it.

The Accuseds Right to be Informed

Under the Constitution, a person who stands charged of a criminal offense has the right to be informed of the nature and
cause of the accusation against him.[12] The Rules of Court, in implementing the right, specifically require that the acts or
omissions complained of as constituting the offense, including the qualifying and aggravating circumstances, must be stated
in ordinary and concise language, not necessarily in the language used in the statute, but in terms sufficient to enable a
person of common understanding to know what offense is being charged and the attendant qualifying and aggravating
circumstances present, so that the accused can properly defend himself and the court can pronounce judgment.[13] To broaden
the scope of the right, the Rules authorize the quashal, upon motion of the accused, of an Information that fails to allege the
acts constituting the offense.[14] Jurisprudence has laid down the fundamental test in appreciating a motion to quash an
Information grounded on the insufficiency of the facts alleged therein. We stated in People v. Romualdez[15] that:

The determinative test in appreciating a motion to quash xxx is the sufficiency of the averments in the information, that is,
whether the facts alleged, if hypothetically admitted, would establish the essential elements of the offense as defined by law
without considering matters aliunde. As Section 6, Rule 110 of the Rules of Criminal Procedure requires, the information
only needs to state the ultimate facts; the evidentiary and other details can be provided during the trial.

To restate the rule, an Information only needs to state the ultimate facts constituting the offense, not the finer details
of why and how the illegal acts alleged amounted to undue injury or damage matters that are appropriate for the trial.
[Emphasis supplied]

The facts and circumstances necessary to be included in the Information are determined by reference to the definition and
elements of the specific crimes. The Information must allege clearly and accurately the elements of the crime
charged.[16]

Elements of Violation of
Section 83 of RA 337

Under Section 83, RA 337, the following elements must be present to constitute a violation of its first paragraph:
1. the offender is a director or officer of any banking institution;
2. the offender, either directly or indirectly, for himself or as representative or agent of another, performs any of the
following acts:
a. he borrows any of the deposits or funds of such bank; or
b. he becomes a guarantor, indorser, or surety for loans from such bank to others, or
c. he becomes in any manner an obligor for money borrowed from bank or loaned by it;
3. the offender has performed any of such acts without the written approval of the majority of the directors of the bank,
excluding the offender, as the director concerned.

A simple reading of the above elements easily rejects Gos contention that the law penalizes a bank director or officer only
either for borrowing the banks deposits or funds or for guarantying loans by the bank, but not for acting in both
capacities. The essence of the crime is becoming an obligor of the bank without securing the necessary written
approval of the majority of the banks directors.

The second element merely lists down the various modes of committing the offense. The third mode, by declaring that [no
director or officer of any banking institution shall xxx] in any manner be an obligor for money borrowed from the bank
or loaned by it, in fact serves a catch-all phrase that covers any situation when a director or officer of the bank becomes its
obligor. The prohibition is directed against a bank director or officer who becomes in any manner an obligor for
money borrowed from or loaned by the bank without the written approval of the majority of the banks board of
directors. To make a distinction between the act of borrowing and guarantying is therefore unnecessary because in either
situation, the director or officer concerned becomes an obligor of the bank against whom the obligation is juridically
demandable.

The language of the law is broad enough to encompass either act of borrowing or guaranteeing, or both. While the first
paragraph of Section 83 is penal in nature, and by principle should be strictly construed in favor of the accused, the Court
is unwilling to adopt a liberal construction that would defeat the legislatures intent in enacting the statute.The objective of
the law should allow for a reasonable flexibility in its construction. Section 83 of RA 337, as well as other banking laws
adopting the same prohibition,[17] was enacted to ensure that loans by banks and similar financial institutions to their own
directors, officers, and stockholders are above board.[18] Banks were not created for the benefit of their directors and officers;
they cannot use the assets of the bank for their own benefit, except as may be permitted by law. Congress has thus deemed
it essential to impose restrictions on borrowings by bank directors and officers in order to protect the public, especially the
depositors.[19] Hence, when the law prohibits directors and officers of banking institutions from becoming in any manner an
obligor of the bank (unless with the approval of the board), the terms of the prohibition shall be the standards to be applied
to directors transactions such as those involved in the present case.

Credit accommodation limit is not an exception nor is it an element of the

offense

Contrary to Gos claims, the second paragraph of Section 83, RA 337 does not provide for an exception to a violation of the
first paragraph thereof, nor does it constitute as an element of the offense charged. Section 83 of RA 337 actually imposes
three restrictions: approval, reportorial, and ceiling requirements.

The approval requirement (found in the first sentence of the first paragraph of the law) refers to the written approval of
the majority of the banks board of directors required before bank directors and officers can in any manner be an obligor for
money borrowed from or loaned by the bank. Failure to secure the approval renders the bank director or officer concerned
liable for prosecution and, upon conviction, subjects him to the penalty provided in the third sentence of first paragraph of
Section 83.

The reportorial requirement, on the other hand, mandates that any such approval should be entered upon the records of
the corporation, and a copy of the entry be transmitted to the appropriate supervising department. The reportorial
requirement is addressed to the bank itself, which, upon its failure to do so, subjects it to quo warrantoproceedings under
Section 87 of RA 337.[20]

The ceiling requirement under the second paragraph of Section 83 regulates the amount of credit accommodations that
banks may extend to their directors or officers by limiting these to an amount equivalent to the respective outstanding
deposits and book value of the paid-in capital contribution in the bank. Again, this is a requirement directed at the bank. In
this light, a prosecution for violation of the first paragraph of Section 83, such as the one involved here, does not require an
allegation that the loan exceeded the legal limit. Even if the loan involved is below the legal limit, a written approval by the
majority of the banks directors is still required; otherwise, the bank director or officer who becomes an obligor of the bank
is liable. Compliance with the ceiling requirement does not dispense with the approval requirement.

Evidently, the failure to observe the three requirements under Section 83 paves the way for the prosecution of three different
offenses, each with its own set of elements. A successful indictment for failing to comply with the approval requirement
will not necessitate proof that the other two were likewise not observed.

Rules of Court allow amendment of insufficient Information

Assuming that the facts charged in the Information do not constitute an offense, we find it erroneous for the RTC to
immediately order the dismissal of the Information, without giving the prosecution a chance to amend it. Section 4 of Rule
117 states:

SEC. 4. Amendment of complaint or information.If the motion to quash is based on an alleged defect of the complaint or
information which can be cured by amendment, the court shall order that an amendment be made.

If it is based on the ground that the facts charged do not constitute an offense, the prosecution shall be given by the
court an opportunity to correct the defect by amendment. The motion shall be granted if the prosecution fails to
make the amendment, or the complaint or information still suffers from the same defect despite the
amendment. [Emphasis supplied]
Although an Information may be defective because the facts charged do not constitute an offense, the dismissal of the case
will not necessarily follow. The Rules specifically require that the prosecution should be given a chance to correct the defect;
the court can order the dismissal only upon the prosecutions failure to do so. The RTCs failure to provide the prosecution
this opportunity twice[21] constitutes an arbitrary exercise of power that was correctly addressed by the CA through
the certiorari petition. This defect in the RTCs action on the case, while not central to the issue before us, strengthens our
conclusion that this criminal case should be resolved through full-blown trial on the merits.

WHEREFORE, we DENY the petitioners petition for review on certiorari and AFFIRM the decision of the Court of
Appeals in CA-G.R. SP No. 79149, promulgated on October 26, 2006, as well as its resolution of June 4, 2007. The Regional
Trial Court, Branch 26, Manila is directed to PROCEED with the hearing of Criminal Case No. 99-178551. Costs against
the petitioner.

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 co-accused, 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
to obtain a loan from his bank, without complying with procedural, reportorial, or ceiling requirements. On the other hand,
estafa under par. 1(b), Article 315 of the RPC requires the offender to misappropriate or convert something that he holds in
trust, or on commission, or for administration, or under any other obligation involving the duty to return the same.[25]

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

Ruling of the Regional Trial Court

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

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

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

Ruling of the Court of Appeals

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

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

The CA further determined that the five affidavits attached to the transmittal letter should be considered as the complaint-
affidavits that charged petitioner with violation of Section 83 of RA 337 and for Estafa thru Falsification of Commercial
Documents. These complaint-affidavits complied with the mandatory requirements set out in the Rules of Court they were
subscribed 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 238-M-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 CA-G.R. SP No. 67657 are AFFIRMED. Costs against petitioner.

SO ORDERED.
G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE
DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island
Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in C.A.-G.R.
No. 52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court of First Instance of
Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specific performance or
rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real
estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and
which mortgage was annotated on the said title the next day. The approved loan application called for a lump sum
P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was required
that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other property into a
subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M.
Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within 3
years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance interest
for the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the partial release of
P17,000.00. But this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being informed
by the Bank that there was no fund yet available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its
vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity
problems, issued Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the Board, by
unanimous vote, decided as follows:
1) To prohibit the bank from making new loans and investments [except investments in government securities] excluding
extensions or renewals of already approved loans, provided that such extensions or renewals shall be subject to review by
the Superintendent of Banks, who may impose such limitations as may be necessary to insure correction of the bank's
deficiency as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the required capital to
restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the
Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank (pp. 48-
49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note, filed
an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M.
Tolentino; and the sheriff scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction,
specific performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank
failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering Island
Savings Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance cannot
be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining order
enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the petition of
Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by the Acting
Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding unmeritorious the petition of
Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal interest and legal
charges due thereon, and lifting the restraining order so that the sheriff may proceed with the foreclosure (pp. 135-136.
rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First Instance
decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled that Island
Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be foreclosed to satisfy
said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they
undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for
that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one
party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is
not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to
pay was the consideration for the obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M.
Tolentino executed a real estate mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan.
From such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in
furnishing the entire loan started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the
Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further
business. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the
P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the protection of the public is
recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island Savings Bank in
complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank
from making new loans and investments, and nowhere did it prohibit island Savings Bank from releasing the balance of
loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an engagement does not discharge
the obligation of the contract, nor does it constitute any defense to a decree of specific performance (Gutierrez Repide vs.
Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never an excuse for the non-
fulfillment of an obligation but 'instead it is taken as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to
P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect
the P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6 months on the supposed
P80,000.00 loan, was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A person
cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. 'Tolentino of the pre-deducted
interest was an exercise of his right to it, which right exist independently of his right to demand the completion of the
P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from
complying with its reciprocal obligation to furnish the entire P80,000.00 loan. 'This Court previously ruled that bank
officials and employees are expected to exercise caution and prudence in the discharge of their functions (Rural Bank of
Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and employees that before they
approve the loan application of their customers, they must investigate the existence and evaluation of the properties being
offered as a loan security. The recent rush of events where collaterals for bank loans turn out to be non-existent or grossly
over-valued underscore the importance of this responsibility. The mere reliance by bank officials and employees on their
customer's representation regarding the loan collateral being offered as loan security is a patent non-performance of this
responsibility. If ever bank officials and employees totally reIy on the representation of their customers as to the valuation
of the loan collateral, the bank shall bear the risk in case the collateral turn out to be over-valued. The representation made
by the customer is immaterial to the bank's responsibility to conduct its own investigation. Furthermore, the lower court,
on objections of' Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation
because of their failure to raise the same in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's action is
sanctioned by the Rules of Court, Section 2, Rule 9, which states that "defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme
Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M.
Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in
either case. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution
No. 967, WE cannot grant specific performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of the
P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that the
bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and
executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a
P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00
loan when it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in default,
hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall
belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date
for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan because he cannot
possibly be in default as there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings
Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his
obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations,
the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings
Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the
form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for
interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M.
Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P
17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract (Banco de
Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to pay is the existence of a debt.
Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the
existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration was then in existence, as
there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real estate
mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of the execution
of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or subsequent matter.
But when the consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it
is created as a binding contract to pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage,
Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage becomes unenforceable to the extent of
such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness
actually owing to the holder of the mortgage is less than the sum named in the mortgage, the mortgage cannot be enforced
for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on
Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real estate mortgage of
Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate
mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of
21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00
debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the
facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be divided among the successors in interest of the debtor or
creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate extinguishment of the pledge
or mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the mortgage, to the
prejudice of other heirs who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the debtor
or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY
MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM
OF P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD
FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM
AUGUST 22, 1985 UNTIL PAID;2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE
MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY
DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M.
TOLENTINO.NO COSTS. SO ORDERED.
[G.R. No. 126908. January 16, 2003]
PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS, SPOUSES ANTONIO SO HU and
SOLEDAD DEL ROSARIO and SPOUSES MATEO CRUZ and CARLITA RONQUILLO, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari[1] to set aside the Decision[2] of the Court of Appeals which affirmed in substance
the Decision[3] of the Regional Trial Court, Branch 27, Cabanatuan City. The Court of Appeals sustained the trial courts
ruling that the questioned extrajudicial foreclosure was void. The courts a quo declared the sheriffs certificate of sale void,
directed the return of the owners duplicate title to the Registry of Deeds for Cabanatuan City, and cancelled the mortgage
inscribed on the title to the property.
The Facts
Private respondents Spouses Mateo Cruz and Carlita Ronquillo (Spouses Cruz for brevity) were the registered owners of a
parcel of land (Property for brevity) situated in Cabanatuan City and covered by Transfer Certificate of Title No. T-4699.
In 1957, Spouses Cruz obtained a loan from petitioner Philippine National Bank (PNB for brevity), Cabanatuan Branch,
for P70,000.00 (First Loan for brevity). A real estate mortgage on the Property secured the First Loan under Entry No.
10433/NT-9679 annotated on TCT No. T-4699 on November 7, 1957.
On October 16, 1964, San Nicolas Agricultural Project, Inc. (SNAPI for brevity), where Mateo Cruz was then Vice-
President, obtained an agricultural crop loan from PNB, Santiago Branch, for P156,000.00 (Second Loan for brevity). Mateo
Cruz also signed the loan in his personal capacity. A real estate mortgage on the Property secured the Second Loan under
Entry No. 1003/T-4699 annotated on TCT No. T-4699 on October 16, 1964. The Spouses Cruz also mortgaged several other
agricultural lands to secure the Second Loan. PNB, Cabanatuan Branch, took custody of all the titles to the mortgaged
properties.
In November 1977, on the instance of the Spouses Cruz, Land Bank of the Philippines (Land Bank for brevity) remitted to
PNB, Cabanatuan Branch, P359,500.00 in bonds and P174.43 in cash and transferred to PNB, Santiago Branch, P25,500.00
in bonds.[4]
On December 2, 1977, PNB issued in favor of the Spouses Cruz a Deed of Release of Real Estate Mortgage which cancelled
the two mortgages on the Property. The cancellation of these mortgages was annotated on TCT No. T-4699. Thus, PNB
released all the titles to the Spouses Cruz.
On March 20, 1980, the Spouses Cruz obtained a new loan from PNB, Cabanatuan Branch, for P50,000.00, later increased
to P200,000.00 (Third Loan for brevity). A real estate mortgage on the Property also secured the Third Loan under Entry
No. 47974/T-4699 annotated on TCT No. T-4699 on March 24, 1980.
Private respondents Spouses Antonio So Hu and Soledad del Rosario (Spouses So Hu for brevity) became interested in
buying the Property. They consulted their counsel, Atty. Rodolfo Domingo, to examine TCT No. T-4699. Finding an
existing mortgage annotated on TCT No. T-4699, Atty. Domingo advised the Spouses So Hu to pay PNB the full amount
of the Third Loan before signing the deed of sale.[5]
On March 18, 1983, the Spouses So Hu, on behalf of the Spouses Cruz, paid PNB P200,000.00 representing the Third
Loan.[6] Subsequently, on March 21, 1983, the Spouses Cruz and the Spouses So Hu signed a Deed of Absolute Sale
covering the Property.[7] Thus, the Spouses So Hu demanded from PNB the release of TCT No. T-4699 on the ground that
the Spouses Cruz had already paid all their loans secured by real estate mortgages on the Property.[8] PNB, however, refused.
For the Spouses Cruzs alleged failure to pay their Second Loan, PNB filed a Petition for Sale under Act No. 3135, [9] as
amended, and Presidential Decree No. 385.[10] On August 27, 1985, Sheriff Ex-Officio Numeriano Y. Galang sold the
Property in a public auction sale. PNB was the highest and sole bidder of the Property for P514,105.36. A sheriffs certificate
of sale[11]was issued in PNBs favor and annotated on TCT No. T-4699 as Entry No. 2565.
In October 1986, PNB found the Spouses So Hu occupying the Property. Through its Assistant Manager Vicente Sales of
its Cabanatuan Branch, PNB demanded that Spouses So Hu vacate the Property, as PNB did not authorize them to occupy
the Property.[12]
On November 17, 1986, the Spouses So Hu filed an action for Annulment of Public Auction Sale and Certificate of Sale
with Petition for a Writ of Preliminary Injunction. The defendants were PNB, Jose S. Miranda as Manager of PNB,
Cabanatuan Branch, the Spouses Cruz, Numeriano Y. Galang, as Sheriff Ex-Officio, and the Register of Deeds for
Cabanatuan City.
In their complaint, the Spouses So Hu alleged that they were the owners of the foreclosed Property under a Deed of Absolute
Sale executed by the Spouses Cruz in their favor. They stressed that PNB had already cancelled and released the prior
mortgages on the Property and that they had paid the Third Loan before the foreclosure. Thus, the Spouses So Hu sought to
declare the foreclosure and certificate of sale void. They also prayed for the cancellation of the mortgage on the Property,
delivery of the owners duplicate copy of TCT No. T-4699, and award of damages and attorneys fees.
In its answer,[13] PNB argued that the foreclosure was valid since the all-inclusive clause in the third mortgage deed embraces
the Spouses Cruzs Second Loan which, according to PNB, was still unpaid. PNB asserted that the cancellation and release
of the second mortgage were due purely to inadvertence and mistake. PNB interposed a cross-claim[14] against the Spouses
Cruz that should the trial court grant the relief prayed for by the Spouses So Hu, the Spouses Cruz be ordered to pay
PNB P514,105.36. This amount represented the Spouses Cruzs alleged outstanding obligation under the Second Loan.
During the pendency of this case, the one-year period of redemption expired without redemption being made. On April 10,
1987, PNB executed an Affidavit of Consolidation of Ownership. Therefore, the Registry of Deeds for Cabanatuan City
issued TCT No. 51022 in favor of PNB on June 25, 1987.[15]
On March 2, 1990, the Spouses Cruz filed their answer[16] to PNBs cross-claim whereby the Spouses Cruz admitted that
SNAPI obtained the Second Loan from PNB with a real estate mortgage on the Property. However, the Spouses Cruz
contended that they had already fully paid the Second Loan on December 2, 1977, as shown by the release of the mortgage
annotated on TCT No. T-4699. The Spouses Cruz further alleged that the all-inclusive clause is illegal and improper for this
clause is too general. The Spouses Cruz added that assuming that the Second Loan is still unpaid, extinctive prescription
and laches had already set in and barred the cross-claim.
Subsequently, PNB filed a reply. PNB claimed that the release of the second mortgage was a mistake, and that the right to
foreclose has not prescribed because the prescriptive period was suspended by a demand to pay. PNB further claimed that
what it foreclosed was the third mortgage which purportedly also secured the Second Loan.[17]
On April 29, 1993, after trial on the merits, the trial court rendered a decision declaring null and void the certificate of sale
in favor of PNB, and ordered the cancellation of TCT No. 51022, including the mortgage entries on TCT No. T-4699. The
trial court also awarded moral and exemplary damages, attorneys fees and litigation expenses in favor of the Spouses So Hu
and the Spouses Cruz.[18]
On May 11, 1993, PNB appealed the adverse decision.[19] The Court of Appeals modified the decision of the trial court,
deleting the award of moral and exemplary damages in favor of the Spouses So Hu. The Court of Appeals also remanded
the case to the trial court for further proceedings on PNBs cross-claim against the Spouses Cruz. The Court of Appeals
affirmed the trial courts ruling in all other respects.
Hence, this petition.
The Ruling of the Court of Appeals
The Court of Appeals declared the extrajudicial foreclosure void based on the following findings of facts:
First, at the time of sale to spouses Antonio So Hu and Soledad del Rosario, the Property was already free from any liens
and encumbrances, as prior registered mortgages on the Property were already cancelled and such cancellation was duly
annotated at the back of the TCT (except the third which was then yet to be released). Conformably, plaintiff had the right
to rely on the correctness of such annotation and on what appears on the face of the title. They cannot be charged with
knowledge of the all-inclusive clause in the third mortgage since, they were not privy to the said contract between PNB and
the Cruz spouses. Hence, the validity or invalidity of the all-inclusive clause is of no consequence.
xxx
This conclusively makes Antonio So Hu and Soledad del Rosario buyers in good faith.
Second, PNB knew that Spouses Mateo Cruz and Carlita Ronquillo, appellee spouses So Hu sent appellant bank a letter
through its PNB-Cabanatuan Branch Manager, Jose Miranda dated 31 July 2984 (Exhs. D and D-1, Records, p. 126)
requesting for the release of the mortgage and the owners duplicate title in view of the sale of the Property to them. This
notwithstanding, PNB foreclosed the Property in an auction sale on 27 August 1985.
It need not be stressed that a mortgagee can only foreclose Property given as a security for an unpaid obligation. In the case
at bar, at least insofar as the plaintiffs are concerned, the obligation secured by the Property had already been paid and they
had the right to expect that the Property is released from mortgage. Although PNB is not privy to the contract of sale between
spouses Cruz and So Hu, it cannot raise the issue that the Property still stood as security for a previous loan because by
releasing the Property from the two previous mortgages, it is obviously estopped from claiming otherwise. The rule is
embodied in the following provision of the Rules of Court:
x x x[20]
The dispositive portion of the assailed decision reads:
WHEREFORE, judgment is hereby rendered as follows:
1. The certificate of sale dated August 27, 1985 issued by the Provincial Sheriff Office in favor of PNB is hereby declared
null and void and Entry No. 2565 is hereby ordered cancelled. Defendant PNB is directed to return the owners duplicate
copy of TCT No. T-51022 to the Registry of Deeds for the City of Cabanatuan for its cancellation and TCT No. T-4699 is
hereby ordered revived. Defendant PNB is likewise ordered to issue a cancellation and discharge of mortgage inscribed as
Entry Nos. 47103 and 47974 annotated in the memorandum of encumbrances of TCT No. T-4699;
2. Appellant Philippine National Bank is ordered to pay Spouses Antonio So Hu and Soledad del Rosario attorneys fees and
litigation expenses in the amount of P25,000.00 and P15,000.00, respectively, as awarded by the trial court.
3. Further, the case is remanded to the trial court for further proceedings/trial for the purpose of resolving the issue on PNBs
cross-claim against Spouses Mateo Cruz and Soledad del Rosario.
SO ORDERED.[21]
The Issues
The petition is anchored on the following assigned errors:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT SPOUSES ANTONIO SO HU AND SOLEDAD DEL
ROSARIO CANNOT BE CHARGED WITH KNOWLEDGE OF THE ALL-INCLUSIVE CLAUSE IN THE THIRD
MORTGAGE, SINCE THEY WERE NOT PRIVY TO THE SAID CONTRACT BETWEEN PNB AND THE CRUZ
SPOUSES DESPITE THAT THE SAID ANNOTATION WAS CLEARLY INSCRIBED ON TCT NO. T-4699 UNDER
ENTRY NO. 47974/T-4699 GIVING NOTICE TO THE WHOLE WORLD THAT AMENDMENT OF THE MORTGAGE
IN FAVOR OF PNB, INSCRIBED UNDER ENTRY NO. 47103 IN THE SENSE THAT THE CONSIDERATION
THEREOF HAS BEEN INCREASED TO PHILIPPINE PESOS: TWO HUNDRED THOUSAND PESOS: (P200,000.00)
AND TO SECURE ANY AND ALL OBLIGATIONS WITH PNB, WHETHER CONTRACTED BEFORE, DURING OR
AFTER THE DATE OF THIS INSTRUMENT.
II
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE SALE OF THE MORTGAGED PROPERTY
BETWEEN SPOUSES CRUZ AND SPOUSES SO HU DID NOT BIND PNB.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PNBS MORTGAGE LIEN AND THE PROPERTY
MORTGAGED ARE INSEPARABLE, SO MUCH SO THAT WHOEVER MAY SUBSEQUENTLY ACQUIRE TITLE
TO THE MORTGAGED PROPERTY IS BOUND BY THE TERMS OF THE MORTGAGE WHETHER THE
TRANSFER BE WITH OR WITHOUT THE CONSENT OF PNB.
IV
THE COURT OF APPEALS ERRED IN AWARDING SPOUSES SO HU P25,000 ATTORNEYS FEES AND P15,000.00
LITIGATION EXPENSES WITHOUT FACTUAL AND LEGAL BASES.[22]
The main issue to resolve is the validity of the extrajudicial foreclosure of the third mortgage deed which secured the
allegedly unpaid Second Loan. The validity of the extrajudicial foreclosure in turn hinges on two important questions. First,
whether the Spouses Cruz indeed failed to pay the Second Loan. Second, if the Second Loan is still unpaid, whether the
parties to the third mortgage deed intended to include the Second Loan in the third mortgage deed.
The Ruling of the Court
We deny the petition. We affirm the finding of the courts a quo that the foreclosure of the mortgage on the Property was
void.
Records show that PNBs application for foreclosure, filed on July 15, 1985, was based on the Spouses Cruzs third mortgage
deed.[23] However, the Spouses So Hu had already paid on March 18, 1983 the principal obligation secured by the third
mortgage.[24] A mortgage is but an accessory contract, the consideration of which is the same consideration of the principal
contract without which it cannot exist as an independent contract.[25] Since the full amount of the Third Loan was paid as
early as March 18, 1983, extinguishing the loan obligation under the principal contract, the mortgage obligation under the
accessory contract has likewise been extinguished.
Foreclosure is valid where the debtor is in default in the payment of his obligation. In the instant case, PNB foreclosed the
third mortgage even when the obligation, the Third Loan, secured by the mortgage has been completely paid prior to the
foreclosure. Obviously, the Property could no longer be foreclosed to satisfy an extinguished obligation.
PNB, on the other hand, mainly argues that the third mortgage deed also covered the Second Loan which remained
unpaid. The consideration, allegedly, of the third mortgage deed also includes the Spouses Cruzs Second Loan that was
supposedly still outstanding then. The issue then turns on whether the Spouses Cruz paid the Second Loan, for if they did,
the foreclosure was without any legal basis.
The Spouses Cruzs Second Loan
PNBs defense is anchored on the Spouses Cruzs alleged failure to pay the Second Loan. Under the so-called all-inclusive
clause in the third mortgage deed, PNB maintains that the Spouses Cruz intended to secure all obligations contracted
before, during or after the date of the third mortgage deed, including the supposedly unpaid Second Loan. We must first
resolve whether the Spouses Cruz defaulted in paying their Second Loan. If the Second Loan had in fact been paid, it would
be immaterial whether the all-inclusive clause covered the Second Loan or not since the payment of the Second Loan would
have extinguished the mortgage obligation.
The trial court expressly stated that the Spouses Cruz or SNAPI had already paid the Second Loan as early as December 2,
1977, as shown by the release of the titles to the Spouses Cruz and the cancellation of the mortgages on TCT No. T-4699. In
addition, the trial court found that the Spouses Cruz remitted to PNB various Land Bank bonds and cash in payment of their
first two loans with PNB. The pertinent portion of the trial courts decision reads:
The PNB called to the witness stand Severina Rarela, Chief of the Securities and Documentation Specialist, Bond Servicing
Department of the Land Bank of the Philippines who testified that as of November 3, 1977, they have released in favor
of PNB at the instance of Spouses Cruz Land Bank bonds in the amount of P25,500.00 and P359,500.00 and cash of
P174.43. It would appear therefore that the execution of the release of mortgage registered as Entry No. 31968 was not a
mistake. The obligation of SNAPI or Mateo Cruz has been fully paid and that is the actual reason why the PNB executed
a release of mortgage and returned the owners duplicate copy of TCT No. T-4699 and other titles to said defendant Spouses
Cruz.[26] (Emphasis supplied)
This Court is not a trier of facts. It is not this Courts function to analyze or weigh all over again the evidence already
considered in the proceedings below.[27] Since the issue of the payment of the Second Loan is factual, resolving the same is
beyond this Courts jurisdiction. Moreover, we respect the trial courts factual findings in the absence of exceptional
circumstances to warrant a reversal,[28] and there is none in the instant case.
To prove that he had already settled the Second Loan, Mateo Cruz testified, among others, that the Department of Agrarian
Reform paid his outstanding loans (First and Second Loans) with PNB through the issuance of Land Bank bonds and cash. In
his cross-examination, he stated in part:
ATTY. INCISO
Q How did you pay the loan?
A It was paid by the Land Bank because those properties together with my other agricultural lands consisting of 100 hectares
were mortgaged to the PNB and the Land Bank was the one who bought it because it was under agrarian reform and the
Land Bank paid those accounts that I have in that bank, otherwise TCT No. T-4699 should have not given to me by the
Land Bank if it was not paid, sir.[29]
What is telling is that Land Bank indeed paid PNB, Cabanatuan Branch, bonds and cash in the total amount
of P359,674.43. PNB, however, refused to acknowledge such payment for the Second Loan and insisted that this amount
was used to pay the Spouses Cruzs other loans with PNB, Cabanatuan Branch. Yet, other than its bare allegation, PNB
failed to show what these other alleged loans were.
On the other hand, PNB failed to prove clearly and convincingly that the Spouses Cruz have not yet paid their Second
Loan. PNBs evidence consisted, among others, of SNAPIs statements of account,[30] a letter from Manuel Ornedo, former
PNB, Cabanatuan Branch Assistant Manager,[31] and testimony of a Land Bank officer.[32]
While the statements of account showed that SNAPI has an unpaid obligation of P514,105.36, as of August 1985, the same
failed to show the correct computation of the loan. On the request of the Spouses Cruz, Land Bank transferred P25,500.00
worth of bonds to PNB, Santiago Branch[33] but PNB never reflected this amount in the statements of account. PNB simply
stated that the Second Loan was not yet fully paid according to its statements of account.
PNBs rebuttal witness, Severina Rarela, testified that Land Bank paid PNB in cash and in bonds. This witness competently
testified that, on the instance of the Spouses Cruz, Land Bank transferred P25,500.00 worth of bonds to PNB, Escolta Branch
(where the account of SNAPI and Mateo Cruz were allegedly transferred). This witness further testified that Land Bank
paid directly to PNB, Cabanatuan Branch, P359,673.43 in bonds and in cash on the instance of the Spouses Cruz.
PNB further stressed that instead of paying PNB, Santiago Branch, where Mateo Cruz obtained the Second Loan, Land
Bank issued bonds and cash to PNB, Cabanatuan Branch. PNB then concluded that this payment was not intended to pay
the Second Loan. PNB overlooked the fact that the Spouses Cruz obtained the Second Loan from PNB, Santiago Branch,
though the titles to the mortgaged properties were with PNB, Cabanatuan Branch. Why was the second mortgage, securing
a loan obtained from the PNB, Santiago Branch, annotated on TCT No. T-4699 when this title, like the rest of the titles to
the mortgaged properties, was in the possession of PNB, Cabanatuan Branch? It clearly appears that these PNB branches
have coordinated with each other to accommodate the Spouses Cruzs loan applications. However, when it came to the
payment of the loans, PNB now claims that these branches acted separately and independently from each other. It is unfair
to compel the Spouses Cruz to show how PNB applied the Land Bank bonds and cash. Having indisputably received the
payments, it was PNBs burden to show how it applied these payments.
A review of the trial courts findings convinces us that the Spouses Cruz, through Land Bank, were able to pay not only the
First Loan but more importantly the Second Loan. The trial court also took note of the more significant fact of cancellation
of the mortgages on TCT No. T-4699 and the release of the titles of the Spouses Cruzs lands, which fact bolstered the
Spouses Cruzs stand.
We find that the Spouses Cruz had paid the Second Loan in 1977 resulting in the cancellation of the second mortgage and
release of TCT No. T-4699 and other titles to the Spouses Cruz. With this, the questioned foreclosure is undoubtedly without
any legal basis, as the Third Loan was fully paid in 1983 and the Second Loan was completely settled in 1977. This being
the case, the issue of whether the all-inclusive clause in the third mortgage deed includes the Second Loan is now moot and
academic.
Award of Damages and Attorneys Fees
The records do not support any award for moral and exemplary damages to private respondents. As found by the Court of
Appeals, the Spouses So Hu have not sufficiently proved that PNB acted maliciously and in bad faith when it foreclosed
the Property. On the contrary, PNB believed, although mistakenly, that it still had an unpaid claim for which the Property
stood as a security. [34] As we ruled in Expertravel & Tours, Inc. vs. Court of Appeals -
Moral damages are not punitive in nature but are designed to compensate and alleviate in some way the physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury unjustly caused to a person. Although incapable of pecuniary computation, moral damages, nevertheless, must
somehow be proportional to and in approximation of the suffering inflicted. Such damages, to be recoverable, must be the
proximate result of a wrongful act or omission the factual basis for which is satisfactorily established by the aggrieved
party.[35] (Emphasis supplied)
Since the record is bereft of any evidence to prove the moral damages allegedly suffered by the Spouses So Hu and the
Spouses Cruz, this Court cannot award exemplary damages.[36]We also disallow the award of attorneys fees for lack of
factual and legal basis in the text of the decisions of the courts a quo. We ruled in Pimentel vs. Court of Appeals that -
With respect to petitioner's contention that the respondent court erred in affirming the trial court's decision awarding
P10,000.00 attorney's fees to private respondent, we rule in favor of petitioner. The text of the trial court's decision does not
mention the reason for the award of attorney's fees and the award was simply contained in the dispositive portion of the trial
court's decision. It is now settled that the reasons or grounds for an award must be set forth in the decision of the court. [37]
WHEREFORE, the Decision of the Court of Appeals dated October 23, 1996 is AFFIRMED with modification. The award
of attorneys fees and litigation expenses to the Spouses Antonio and Soledad So Hu is deleted and the cross-claim of
Philippine National Bank against the Spouses Mateo and Carlita Cruz is dismissed for lack of merit. Costs against petitioner.
SO ORDERED.
UNION BANK OF THE G.R. No. 164910
PHILIPPINES,
Petitioner,
HON. COURT OF APPEALS and
DROSSA, INCORPORATED,
Respondents.
Promulgated:

September 30, 2005

x ---------------------------------------------------------------------------------------- x

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari[1] seeks to set aside the February 23, 2004 Decision[2] of the Court of Appeals in CA-
G.R. CV No. 66407 which reversed and set aside the Decision[3] of the Regional Trial Court of Makati City, Branch 141 in
Civil Case No. 96-1053; and its August 13, 2004,[4] resolution denying reconsideration thereof.

In a memorandum of agreement dated May 27, 1992, DRossa Incorporated (DRI) agreed to mortgage its parcels of land
covered by TCT Nos. S-24740 and S-24747 in favor of Union Bank of the Philippines (Union Bank) as security for the
credit facility of Josephine Marine Trading Corporation (JMTC). JMTC availed P3 million from the credit line.

Subsequently, Union Bank increased the credit facility of JMTC to P27 million, from which JMTC availed US$700,503.64
or P18,318,170.18. Upon JMTCs failure to pay its obligation, Union Bank instituted foreclosure proceedings on DRIs
properties.

On September 20, 1996, DRIs properties were auctioned where Union Bank was declared the highest bidder for
P15,300,000.00.[5]

On February 26, 1997, DRI filed a supplemental complaint seeking to declare the public sale as null. It claimed that its
liability is only P3 million which was the liability incurred by JMTC under its first agreement with Union Bank. However,
Union Bank alleged that DRI was liable to JMTCs total outstanding obligations, regardless of whether it was incurred during
or subsequent to the first agreement.

On December 27, 1999, the trial court rendered its decision, the dispositive portion of which states:

WHEREFORE, the complaint is hereby dismissed for lack of merit. The plaintiff is ordered to pay the defendant UBP, the
sum of P250,000.00 as and for attorneys fees and the costs.

SO ORDERED.[6]

On appeal, the Court of Appeals reversed the decision of the trial court. While it upheld Union Banks right to foreclose, it
found that DRIs mortgage liability is pegged at P3 million and which was later amended and increased to P8.61 million. It
ruled that DRI could not be held liable for more than P8.61 million[7] even if JMTC availed more than this amount. It also
noted that the date of the public sale as contained in the notice varies with the actual date of sale. As such, it declared as
null the foreclosure sale because a foreclosure sale carried out on a day different from the published notice is a total nullity.[8]

The dispositive portion of the Court of Appeals decision reads:

WHEREFORE, the appealed Decision is REVERSED and SET ASIDE, and another is RENDERED:

(a) Declaring appellant DRIs mortgage liability to be P8.61 Million only;

(b) Declaring the foreclosure of appellant DRIs properties covered by TCTs No. S-24740 and No. S-24747 NULL and
VOID ab initio;

(c) Ordering the Register of Deeds of Rizal or Makati City to CANCEL appellee UBPs TCTs No. 212659 and No. 212660,
and to RESTORE appellant DRIs TCTs No. S-24740 and No. S-24747; and

(d) Ordering the appellee UBP to PAY appellant DRI P100,000.00 for and as attorneys fees plus the costs of suit.

SO ORDERED.[9]

Union Banks motion for reconsideration was denied hence this petition raising the following issues:[10]

I.

Whether or not the Court of Appeals through its former Special Eleventh Division committed reversible error in declaring
as null and void the foreclosure sale of private respondent DRossas mortgaged properties then covered by TCT Nos. S-
24740 and S-24747 notwithstanding its earlier ruling through the former Fifth Division in CA-G.R. SP No. 41694 sustaining
the validity of the very same foreclosure proceedings covering the exact same properties.

II.

Whether or not the Court of Appeals committed reversible error when it held that there was a variance between the notice
regarding the date of foreclosure on 22 July 1996 and that of the actual date of foreclosure sale covering the same real
properties on 20 September 1996.

III.

Whether or not the Court of Appeals committed reversible error when it held that DRossas liability to Union Bank is limited
to only P8.61 Million even though the actual bid price tendered by Union Bank at the foreclosure sale of DRossas mortgaged
properties to cover the unpaid obligation of the borrower amounted to P15.3 Million.

IV.

Whether or not the Court of Appeals committed reversible error when in holding as null and void the foreclosure of the
mortgaged properties then covered by TCT Nos. S-24740 and S-24747 notwithstanding the earlier ruling of Honorable
Court of Appeals, Fifth (5th) Division in CA-G.R. SP No. 41694 sustaining the validity of the very same foreclosure
proceedings herein involved covering the same properties.

V.

Whether or not the Court of Appeals committed reversible error in ordering the cancellation of TCT Nos. 212659 and
212660 now registered under the name of petitioner Union Bank and the corresponding restoration of DRossas TCT Nos.
S-24740 and S-24747.

VI.

Whether or not the Court of Appeals committed reversible error in holding petitioner Union Bank liable for attorneys fees
and costs of suit.

The foregoing issues can be summed up into: (a) whether the Court of Appeals erred in holding that the liability of DRI is
limited only to P8.61 million; and (b) whether the Court of Appeals erred in finding the foreclosure sale of DRIs mortgaged
properties as null for lack of republication of the notice of sale.

The pertinent provisions of the Real Estate Mortgage provide:

Section 1. Secured Obligations. The obligations secured by this Mortgage (the Secured Obligations) are the following:

a) All the obligations of the Borrower and/or the Mortgagor under: (i) the Notes, the Agreement and this Mortgage; (ii) any
and all instruments or documents issued upon the renewal, extension, amendment or novation of the Notes, the Agreement
and this Mortgage, irrespective of whether such obligations as renewed, extended, amended or novated are in the nature of
new, separate or additional obligations; and (iii) any and all instruments or documents issued pursuant to the Notes, the
Agreement and this Mortgage;

b) All other obligations of the Borrower and/or the Mortgagor in favor of the Mortgagee, whether presently owing or
hereinafter incurred and whether or not arising from or connected with the Agreement, the Notes and/or this Mortgage; and

c) Any and all expenses which may be incurred in collecting any and all of the above and in enforcing any and all rights,
powers and remedies of the Mortgagee under this Mortgage.[11](Emphasis supplied)

The foregoing provisions clearly show the parties intent to constitute DRIs real estate properties as continuing securities,
liable for the current as well as the future obligations of JMTC. Indeed, a mortgage liability is usually limited to the amount
mentioned in the contract, but where the intent of the contracting parties is manifest that the mortgage property shall also
answer for future loans or advancements, the same is valid and binding between the parties.[12] In this case, DRI expressly
agreed to secure all the obligations of JMTC, whether presently owing or subsequently incurred. Thus, its liability is not
limited to P8.61 million only.

In Prudential Bank v. Don A. Alviar and Georgia B. Alviar,[13] we referred to this provision as blanket mortgage clause or
dragnet clause. Thus:

A blanket mortgage clause, also known as a dragnet clause in American jurisprudence, is one which is specifically phrased
to subsume all debts of past or future origins. Such clauses are carefully scrutinized and strictly construed. Mortgages of
this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or
anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction.
A dragnet clause operates as a convenience and accommodation to the borrowers as it makes available additional funds
without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra
legal services, recording fees, et cetera. Indeed, it has been settled in a long line of decisions that mortgages given to secure
future advancements are valid and legal contracts, and the amounts named as consideration in said contracts do not limit the
amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future
and other indebtedness can be gathered.

Even if DRI is considered as an accommodation mortgagor only, its liability would still exceed P8.61 million. It is well to
note that DRI, through its President, Rose D. Teodoro, agreed to secure not only the present obligations of JMTC but also
those that may be incurred after the execution of the mortgage contract. DRI also actively participated in facilitating the
increase of JMTCs credit facility.[14]

We draw attention to a letter sent by DRI to Union Bank after the renewal and increase of JMTCs credit line, the pertinent
part of which is hereby quoted:

Dear Mr. Katigbak,

We would like to thank you and your Executive Committee in approving the renewal and increase of our credit facilities
for the operations of Josephine Marine Trading Corporation.
We are herewith submitting the following documents in relation to the above mentioned credit line:
1. Sec. Cert. (Stockholders Special Meeting) (2copies)
2. Sec. Cert. (Board of DIRECTORS Special Meeting) (2 copies)
3. Union Bank Real Estate Mortgage (signed)
4. Amendment to the Real Estate Mortgage (signed)
We have also taken note that the approval was in Sept. 30, 1994 and expires on Sept. 30, 1995. We apologize for the delay
in forwarding the said documents and hope that effectivity of the accomodation could be extended.
Thank you.

Very truly yours,

(sgd.)
ROSE D. TEODORO
President

Encl. as stated[15]
It appears from the tenor of the foregoing letter that, more than just being a third-party mortgagor, DRI was actively involved
in the business and operations of JMTC. As observed by the trial court:

[DRI] could not feign innocence on the subsequent renewal and increase of credit facility to JMTC because it even wrote a
letter dated 26 January 1995 (Exhibit 8) to defendant UBP, signed by its President Rose D. Teodoro...
Parenthetically, Josephine Marine Trading Corporation and DRossa Incorporated are family owned corporations of the
Teodoros.[16]
Likewise, the evidence presented during the proceedings in the trial court reveal that DRI acknowledged and consented to
the renewal and increase of the credit facilities of JMTC.[17] Thus, by agreeing to secure JMTCs future loans or
advancements with its real properties, DRI is estopped from questioning the foreclosure proceedings conducted upon the
failure of JMTC to pay its obligations to Union Bank.

Concerning DRIs allegation of lack of republication, the same is without factual or legal basis. Other than its bare
allegations, DRI did not present proof that there was no republication of the notice of sale. On the other hand, Union Bank
presented a Certificate of Posting[18] executed by Sheriff Norberto Magsajo and the Affidavit of Publication by Veronica
Arguilla, the General Manager of Pilipino Newsline, attesting to the publication of the notice on August 29, September 5
and 12, 1996.[19] The original issues of Pilipino Newsline where the notice was republished were also attached in the records.
Verily, in the face of such overwhelming evidence, there is no reason why the regularity and validity of the mortgage
foreclosure should not be upheld as the trial court did.

Foreclosure proceedings have in their favor the presumption of regularity and the burden of evidence to rebut the same is
on the party that seeks to challenge the proceedings.[20] Likewise, the presumption of regularity in the performance of duty
applies in this case in favor of the Sheriff.[21] These presumptions have not been rebutted by convincing and substantial
evidence by DRI.

It is settled that the principal object of a notice of sale is not so much to notify the mortgagor as to inform the public in
general of the nature and condition of the property to be sold, and of the time, place, and terms of the sale.[22] In fact, personal
notice to the mortgagor in extrajudicial foreclosure proceedings is not even necessary, unless stipulated.[23] Yet it cannot be
argued that DRI was left in the dark regarding the exact date of the sale. In a letter dated September 19, 1996, its counsel
wrote the Sheriff of Makati requesting that the sale on September 20, 1996 be held in abeyance in view of their pending
petition for the issuance of a temporary restraining order. This proves that DRI knew of the scheduled sale and cannot
therefore claim to have been deprived of the opportunity to participate therein.

Lastly, the issue of republication was never raised in the trial court or in the appellate court proceedings. It is well settled
that no issue may be raised on appeal unless it has been passed upon by the lower court for consideration.[24] And where the
Court of Appeals went beyond the issues of the case or where its findings of facts are conclusions without citations of
specific evidence on which they are based, we are compelled to review the facts of the case. [25] We find sufficient cause to
believe that the requirement of republication was duly complied with and to uphold the validity of the foreclosure
sale.WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated February 23, 2004
and its Resolution dated August 13, 2004 in CA-G.R. CV No. 66407 are REVERSED and SET ASIDE. The Decision of
the trial court dated December 27, 1999 in Civil Case No. 96-1053 is AFFIRMED in toto.

SO ORDERED.
 REYNALDO P. FLOIRENDO, JR., G.R. No. 148325
Petitioner,
-versus- Promulgated:
METROPOLITAN BANK and TRUST September 3, 2007
COMPANY,
Respondent.
x-----------------------------------------------------------------------------------------x
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, assailing the Decision[1] dated February 22, 2001 and Order[2] dated May 2, 2001 rendered by the Regional Trial
Court (RTC), Branch 39, Cagayan de Oro City in Civil Case No. 98-476, entitled, REYNALDO P. FLOIRENDO, JR.,
plaintiff, v. METROPOLITAN BANK AND TRUST COMPANY, ET AL., defendants.
Reynaldo P. Floirendo, Jr., petitioner, is the president and chairman of the Board of Directors of Reymill Realty Corporation,
a domestic corporation engaged in real estate business. On March 20, 1996, he obtained a loan of P1,000,000.00 from the
Metropolitan Bank and Trust Company, Cagayan de Oro City Branch, respondent, to infuse additional working capital for
his company. As security for the loan, petitioner executed a real estate mortgage in favor of respondent bank over his four
(4) parcels of land, all situated at Barangay Carmen, Cagayan de Oro City.
The loan was renewed for another year secured by the same real estate mortgage. Petitioner signed a promissory note
dated March 14, 1997 fixing the rate of interest at 15.446% per annum for the first 30 days, subject to upward/downward
adjustment every 30 days thereafter; and a penalty charge of 18% per annum based on any unpaid principal to be computed
from date of default until payment of the obligation. The promissory note likewise provides that:
The rate of interest and/or bank charges herein stipulated, during the term of this Promissory Note, its extension, renewals
or other modifications, may be increased, decreased, or otherwise changed from time to time by the Bank without advance
notice to me/us in the event of changes in the interest rate prescribed by law or the Monetary Board of the Central Bank of
the Philippines, in the rediscount rate of member banks with the Central Bank of the Philippines, in the interest rates on
savings and time deposits, in the interest rates on the banks borrowings, in the reserve requirements, or in the overall costs
of funding or money;
I/We hereby expressly consent to any extension and/or renewal hereof in whole or in part and/or partial payment on account
which may be requested by and/or granted to anyone of us for the payment of this note upon payment of the corresponding
renewal or extension fee.
On July 11, 1997, respondent bank started imposing higher interest rates on petitioners loan which varied through the
months, in fact, as high as 30.244% in October 1997.As a result, petitioner could no longer pay the high interest rates
charged by respondent bank. Thus, he negotiated for the renewal of his loan. Respondent bank agreed
provided petitioner would pay the arrears in interest amounting to the total sum of P163,138.33. Despite payment
by petitioner, respondent bank, instead of renewing the loan, filed with the Office of the Clerk of Court and Provincial
Sheriff, RTC, Cagayan de Oro City a petition for foreclosure of mortgage which was granted. On August 17, 1998, the
auction sale was set.
Prior thereto or on August 11, 1998, petitioner filed with the RTC, Branch 39, same city, a complaint for reformation of
real estate mortgage contract and promissory note, docketed as Civil Case No. 98-476. Referring to the real estate mortgage
and the promissory note as contracts of adhesion, petitioner alleged that the increased interest rates unilaterally imposed by
respondent bank are scandalous, immoral, illegal and unconscionable. He also alleged that the terms and conditions of the
real estate mortgage and the promissory note are such that they could be interpreted by respondent bank in whatever manner
it wants, leaving petitioner at its mercy. Petitioner thus prayed for reformation of these documents and the issuance of a
temporary restraining order (TRO) and a writ of preliminary injunction to enjoin the foreclosure and sale at public auction
of his four (4) parcels of land.
On August 14, 1998, the RTC issued a TRO and on September 3, 1998, a writ of preliminary injunction.
In its answer to the complaint, respondent bank asserted that the interest stipulated by the parties in the promissory note is
not per annum but on a month to month basis.The 15.446% interest appearing therein was good only for the first 30 days
of the loan, subject to upward and downward adjustment every 30 days thereafter. The terms of the real estate mortgage and
promissory note voluntarily entered into by petitioner are clear and unequivocal. There is, therefore, no legal and factual
basis for an action for reformation of instruments.

On February 22, 2001, the RTC rendered a Judgment (1) dismissing the complaint for reformation of instruments, (2)
dissolving the writ of preliminary injunction and (3) directing the sale at public auction of petitioners mortgaged
properties. The RTC ruled:
In order that an action for reformation of an instrument may prosper, the following requisites must occur:
1.) There must have been a meeting of the minds upon the contract;
2.) The instrument or document evidencing the contract does not express the true agreement between the parties;
and
3.) The failure of the instrument to express the agreement must be due to mistake, fraud, inequitable conduct or
accident. (National Irrigation Administration v. Gamit, G.R. No. 85869, November 5, 1992)
xxx
A perusal further of the complaint and the evidences submitted by the parties convinced the court that there was certainly a
meeting of the minds between the parties. Plaintiff and defendant bank entered into a contract of loan, the terms and
conditions of which, especially on the rates of interest, are clearly and unequivocally spelled out in the promissory note. The
court believes that there was absolutely no mistake, fraud or anything that could have prevented a meeting of the minds
between the parties.

The RTC upheld the validity of the escalation clause, thus:

Escalation clauses are valid stipulations in commercial contract to maintain fiscal stability and to retain the value of money
in loan term contracts, (Llorin v. CA, G.R. No. 103592, February 4, 1993).
x x x the Court has no other alternative to resolve Issue No. 1 that defendant bank is allowed to impose the interest rate
questioned by plaintiff considering that Exhibit B and B-1, which is Exhibit 1 and 1-A of defendant bank is very clear that
the rate of interest is 15.446% per annum for the first 30 days subject to upward/downward adjustment every 30 days
thereafter.
On the issue of the validity of the foreclosure of the real estate mortgage, the RTC ruled that:
It is a settled rule that in a real estate mortgage when the obligation is not paid when due, the mortgagee has the right to
foreclose the mortgage and to have the property seized and sold in view of applying the proceeds to the payment of the
obligation (Estate Investment House v. CA, 215 SCRA 734).
On May 2, 2001, petitioner filed a motion for reconsideration but it was denied for lack of merit.
Hence, the instant petition.
The fundamental issue for our resolution is whether the mortgage contract and the promissory note express the true
agreement between the parties herein.
Petitioner contends that the escalation clause in the promissory note imposing 15.446% interest on the loan for the first 30
days subject to upward/downward adjustment every 30 days thereafter is illegal, excessive and arbitrary. The
determination to increase or decrease such interest rate is primarily left to the discretion of respondent bank.
We agree.
We hold that the increases of interest rate unilaterally imposed by respondent bank without petitioners assent are violative of
the principle of mutuality of contracts ordained in Article 1308 of the Civil Code[3] which provides: Article 1308. The
contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
The binding effect of any agreement between the parties to a contract is premised on two settled principles: (1) that
obligations arising from contracts have the force of law between the contracting parties; and (2) that there must be mutuality
between the parties based on their essential equality to which is repugnant to have one party bound by the contract leaving
the other free therefrom.[4] Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to
an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left solely to
the will of one of the parties is likewise invalid.[5]
The provision in the promissory note authorizing respondent bank to increase, decrease or otherwise change from time to
time the rate of interest and/or bank charges without advance notice to petitioner, in the event of change in the interest rate
prescribed by law or the Monetary Board of the Central Bank of the Philippines, does not give respondent bank unrestrained
freedom to charge any rate other than that which was agreed upon. Here, the monthly upward/downward adjustment of
interest rate is left to the will of respondent bank alone. It violates the essence of mutuality of the contract.
In Philippine National Bank v. Court of Appeals,[6] and in later cases,[7] we held:
In order that obligations arising from contracts may have the force of law between the parties, there must
be mutuality between the parties based on their essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia v. Rita
Legarda, Inc., 21 SCRA 555).Hence, even assuming that the P1.8 million loan agreement between the PNB and the private
respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of
the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It
would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on
equal footing, the weaker partys (the debtor) participation being reduced to the alternative to take it or leave it (Qua v. Law
Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of justice
must protect against abuse and imposition.
In New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine National Bank,[8] we ruled that while it is true that
escalation clauses are valid in maintaining fiscal stability and retaining the value of money on long term contracts, however,
giving respondent an unbridled right to adjust the interest independently and upwardly would completely take away
from petitioner the right to assent to an important modification in their agreement, hence, would negate the element of
mutuality in their contracts. Such escalation clause would make the fulfillment of the contracts dependent exclusively upon
the uncontrolled will of respondent bank and is therefore void. In the present case, the promissory note gives respondent
bank authority to increase the interest rate at will during the term of the loan. This stipulation violates the principle of
mutuality between the parties. It would be converting the loan agreement into a contract of adhesion where the parties do
not bargain on equal footing, the weaker partys (petitioners) participation being reduced to the alternative to take it or leave
it.[9] While the Usury Law ceiling on interest rate was lifted by Central Bank Circular No. 905, nothing therein could possibly
be read as granting respondent bank carte blanche authority to raise interest rate to levels which would either enslave its
borrower (petitioner herein) or lead to hemorrhaging of his assets.[10]
In Philippine National Bank v. Court of Appeals[11] we declared void the escalation clause in the Credit Agreement between
petitioner bank and private respondents whereby the Bank reserves the right to increase the interest rate within the limit
allowed by law at any time depending on whatever policy it may adopt in the future xxx. We held:
It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of
the parties. If this assent is wanting on the part of one who contracts, his act has no more efficacy than if it had been done
under duress or by a person of unsound mind.
Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet
as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts,
it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital venture. Thus,
any change must be mutually agreed upon, otherwise, it is bereft of any binding effect.
We cannot countenance petitioner banks posturing that that escalation clause at bench gives it unbridled right
to unilaterally upwardly adjust the interest on private respondents loan.That would completely take away from private
respondents the right to assent to an important modification in their agreement, and would negate the element of mutuality
in contracts.
Under Article 1310 of the Civil Code, courts are granted authority to reduce/increase interest rates equitably, thus: Article
1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is
equitable under the circumstances.
In the other Philippine National Bank v. Court of Appeals[12] case, we disauthorized petitioner bank from unilaterally raising
the interest rate on the loan of private respondent from 18% to 32%, 41% and 48%. In Almeda v. Court of Appeals,[13] where
the interest rate was increased from 21% to as high as 68% per annum, we declared arbitrary the galloping increases in
interest rate imposed by respondent bank on petitioners loan, over the latters vehement protests. In Medel v. Court of
Appeals,[14] the stipulated interest of 5.5% per month or 66% per annum on a loan amounting to P500,000.00 was equitably
reduced for being iniquitous, unconscionable and exorbitant. In Solangon v. Salazar,[15] the stipulated interest rate of 6%
per month or 72% per annum was found to be definitely outrageous and inordinate and was reduced to 12% per
annumwhich we deemed fair and reasonable. In Imperial v. Jaucian,[16] we ruled that the trial court was justified in reducing
the stipulated interest rate from 16% to 1.167% or 14% per annum and the stipulated penalty charge from 5% to 1.167%
per month or 14% per annum.
In this case, respondent bank started to increase the agreed interest rate of 15.446% per annum to 24.5% on July 11, 1997
and every month thereafter; 27% on August 11, 1997; 26% on September 10, 1997; 33% on October 15, 1997; 26.5% on
November 27, 1997; 27% on December 1997; 29% on January 13, 1998; 30.244% on February 7, 1998; 24.49% on March
9, 1998; 22.9% on April 18, 1998; and 18% on May 21, 1998. Obviously, the rate increases are excessive and arbitrary. It
bears reiterating that respondent bank unilaterally increased the interest rate without petitioners knowledge and consent.
As mentioned earlier, petitioner negotiated for the renewal of his loan. As required by respondent bank, he paid the interests
due. Respondent bank then could not claim that there was no attempt on his part to comply with his obligation. Yet,
respondent bank hastily filed a petition to foreclose the mortgage to gain the upperhand in taking petitioners four (4) parcels
of land at bargain prices. Obviously, respondent bank acted in bad faith.
In sum, we find that the requisites for reformation of the mortgage contract and promissory note are present in this
case. There has been meeting of minds of the parties upon these documents. However, these documents do not express the
parties true agreement on interest rates. And the failure of these documents to express their agreement on interest rates was
due to respondent banks inequitable conduct. WHEREFORE, we GRANT the petition. The Judgment dated February 22,
2001 of the RTC of Cagayan de Oro City, Branch 39 in Civil Case No. 98-476 is REVERSED. The real estate mortgage
contract and the promissory note agreed upon by the parties are reformed in the sense that any increase in the interest rate
beyond 15.446% per annum should not be imposed by respondent bank without the consent of petitioner. The interest he
paid in excess of 15.446% should be applied to the payment of the principal obligation. SO ORDERED.
April 6, 2016
G.R. No. 206459
SPOUSES FLORANTE E. JONSAY and LUZVIMINDA L. JONSAY and MOMARCO IMPORT CO.,
INC., Petitioners,
vs.
SOLIDBANK CORPORATION (now METROPOLITAN BANK AND TRUST COMPANY), Respondent.
DECISION
REYES, J.:
Before this Court is a Petition for Review1 from the Amended Decision2 dated November 26, 2012 of the Court of
Appeals (CA) in CA-G.R. CV No. 94012, which reconsidered its earlier Decision3 therein dated April 27, 2012, and
granted in part the appeal of herein respondent Solidbank Corporation (Solidbank) from the Amended Decision 4dated July
7, 2009 of the Regional Trial Court (RTC) of Calamba City, Branch 35, in Civil Case No. 2912-2000-C, which annulled
the extrajudicial foreclosure proceedings instituted by Solidbank against the Spouses Florante E. Jonsay (Florante) and
Luzviminda L. Jonsay (Luzviminda) (Spouses Jonsay) and Momarco Import Co., Inc. (Momarco) (petitioners) over the
mortgaged properties.
Factual Antecedents
Momarco, controlled and owned by the Spouses Jonsay, is an importer, manufacturer and distributor of animal health and
feedmill products catering to cattle, hog and poultry producers. On November 9, 1995, and again on April 28, 1997,
Momarco obtained loans of P40,000,000.00 and P20,000,000.00, respectively, from Solidbank for which the Spouses
Jonsay executed a blanket mortgage over three parcels of land they owned in Calamba City, Laguna registered in their
names under Transfer Certificates of Title Nos. T-224751, T-210327 and T-269668 containing a total of 23,733 square
meters.5 On November 3, 1997,6 the loans were consolidated under one promissory note7 for the combined amount of
P60,000,000.00, signed by Florante as President of Momarco, with his wife Luzviminda also signing as co-maker.8 The
stipulated rate of interest was 18.75% per annum, along with an escalation clause tied to increases in pertinent Central
Bank-declared interest rates, by which Solidbank was eventually able to unilaterally increase the interest charges up to
30% per annum. 9
Momarco religiously paid the monthly interests charged by Solidbank from November 199510 until January 1998, when it
paid Pl,370,321.09. Claiming business reverses brought on by the 1997 Asian financial crisis, Momarco tried
unsuccessfully to negotiate a moratorium or suspension in its interest payments. Due to persistent demands by Solidbank,
Momarco made its next, and its last, monthly interest payment in April 1998 in the amount of Pl,000,000.00. Solidbank
applied the said payment to Momarco's accrued interest for February 1998. Momarco sought a loan from Landbank of the
Philippines to pay off its aforesaid debt but its application fell through. The anticipated expropriation by the Department
of Public Works and Highways of the mortgaged lots for the extension of the South Luzon Expressway (SLEX) also did
not materialize. 11
Solidbank proceeded to extrajudicially foreclose on the mortgage, and at the auction sale held on March 5, 1999, it
submitted the winning bid of P82,327,249.54, 12 representing Momarco's outstanding loans, interests and penalties, plus
attorney's fees of P3,600,000.00. But Momarco now claims that on the date of the auction the fair market value of their
mortgaged lots had increased sevenfold to P441,750,000.00. 13 On March 22, 1999, Sheriff Adelio Perocho (Sheriff
Perocho) issued a certificate of sale to Solidbank, duly annotated on April 15, 1999 on the lots' titles. 14
On March 9, 2000, a month before the expiration of the period to redeem the lots, the petitioners filed a
Complaint15against Solidbank, Sheriff Perocho and the Register of Deeds of Calamba, Laguna, docketed as Civil Case
No. 2912-2000-C, for Annulment of the Extrajudicial Foreclosure of Mortgage, Injunction, Accounting and Damages
with Prayer for the Immediate Issuance of a Writ of Preliminary Prohibitory Injunction. They averred that: (a) the amount
claimed by Solidbank as Momarco's total loan indebtedness is bloated; (b) Solidbank's interest charges are illegal for
exceeding the legal rate of 12% per annum; (c) the filing fee it charged has no legal .and factual basis; (d) the attorney's
fees of P3,600,000.00 it billed the petitioners is excessive and unconscionable; (e) their previous payments from 1995 to
1997 were not taken into account in computing their principal indebtedness; (t) Sheriff Perocho's certificate of posting was
invalid; and (g) the publication of the notice of the auction sale was defective because the Morning Chronicle which
published the said notice was not a newspaper of general circulation in Calamba, Laguna. 16
After Solidbank filed its Answer with Counterclaim 17 on April 12, 2000, the RTC heard and granted the petitioners'
application for temporary restraining order on April 13, 2000, 18 followed on May 2, 200019 by issuance of a writ of
preliminary prohibitory injunction, thus suspending the consolidation of Solidbank's titles to the subject lots.
The petitioners' principal witness was Florante, whose testimony was summarized by the RTC in its amended decision, as
follows:
[Florante] signed the loan documents in blank and the signing took place at his office in Quezon City; he asserted that
they were able to pay more than Twenty-Four Million Pesos but the same were not deducted by the bank to arrive at the
correct amount of indebtedness. He said that his accountant prepared statement of payments showing the payments made
to the bank. He further claimed that there are still other payments, the receipts of which are being retrieved by his
accountant. He also asserted that the newspaper where the notice of foreclosure sale was published is not a newspaper of
general circulation.
The same cannot be found in a newspaper stand in the place where the mortgaged properties are located; he further
claimed that [he] suffered moral, emotional and mental injury; he is a graduate of Doctor of Veterinary Medicine; a
permanent member of the Philippine Veterinary Medical Association; graduated and passed the Board; he is the President
of [Momarco] and the President of Momarco Resort; he has been engaged in this line of business for 31 years now; his
wife is a graduate of Dental Medicine and partner of [Momarco]; he has four (4) children three of them had already
graduated and one still in college; x x x he is also claiming for exemplary damages of Five Million Pesos to set an
example for other banks like Solidbank, to refrain from filing acts which are irregular and affect borrowers like him, he
claimed also for attorney[']s fees of Three
Million Pesos.20
Solidbank's witnesses, Lela Quijano, head of its collection division, and Benjamin Apan, its senior manager for retail
operations, admitted that the monthly interests it collected from 1995 to 1998 ranged from 18.75% to 30%, and that for
1998, Momarco paid P2,370,321.09 in interest.21
Ruling of the RTC
On July 7, 2009, the RTC issued its Amended Decision, the fallo of which reads, as follows:
Wherefore, premises considered, judgment is rendered in favor of the [petitioners] and against the defendant[s] by:
1) Declaring the extra-judicial foreclosure proceedings NULL and VOID and without any legal effect and the defendants
are prohibited to consolidate the titles in the name of [Solidbank] without prejudice to the filing of the action for
collection or recovery of the sum of money secured by the real estate mortgage in the proper forum;
2) Ordering that the interest rates on the [petitioners'] indebtedness be reduced to 12% per annum;
3) Declaring that the attorney's fees and filing fee being collected by [Solidbank] to be devoid of any legal basis;
4) Ordering [Solidbank] to pay the [petitioners] the following sums, to wit:
a) Php20,000,000.00 - moral damages;
b) Php2,500,000.00 - exemplary damages;
c) Phpl,[500],000.00 - for attorney's fees.
5) Ordering the dismissal of the counterclaim for lack of merit.
SO ORDERED.22
The RTC ruled that the mortgage contract and the promissory notes prepared by Solidbank, which the Spouses Jonsay
signed in blank, were contracts of adhesion; that Solidbank failed to take into account Momarco’s payments in the two
years preceding 1998 totaling P24,277,293.22 (this amount was not disputed by Solidbank); that the interest rates, ranging
from 19% to 30%, as well as the penalties, charges and attorney's fees imposed by Solidbank, were excessive,
unconscionable and immoral, and that Solidbank has no carte blanche authority under the Usury Law to unilaterally raise
the interest rates to levels as to enslave the borrower and hemorrhage its assets; that Solidbank's verification in its
application for foreclosure of mortgage was defective because it was signed not by its President but only by a vice-
president; that the Morning Chronicle, in which the notice of auction was published, was not a newspaper of general
circulation because it had no bona fide list of paying subscribers; that Solidbank manipulated the foreclosure sale through
a defective publication of the notice of auction and by submitting an unconscionably low bid of P82,327,000.00, whereas
the value of the lots had risen sevenfold since the rehabilitation of the SLEX. 23
Ruling of the CA
On appeal to the CA, Solidbank interposed the following errors of the RTC, to wit:
THE [RTC] GRAVELY ERRED IN NULLIFYING THE FORECLOSURE PROCEEDINGS CONDUCTED AGAINST
[THE PETITIONERS'] PROPERTIES ON THE GROUND THAT THE REAL ESTATE MORTGAGE EXECUTED BY
THE PARTIES WAS A CONTRACT OF ADHESION;
THE [RTC] GRAVELY ERRED IN NULLIFYING THE FORECLOSURE PROCEEDINGS CONDUCTED AGAINST
[THE PETITIONERS'] PROPERTIES ON THE GROUND THAT THE NEWSPAPER WHERE THE NOTICE OF
FORECLOSURE WAS PUBLISHED IS NOT A NEWSPAPER OF GENERAL CIRCULATION;
THE [RTC] GRAVELY ERRED IN NULLIFYING THE FORECLO[S]URE PROCEEDINGS CONDUCTED
AGAINST [THE PETITIONERS'] PROPERTIES ON THE GROUNDS THAT THE INTEREST RATES, PENALTIES,
ATTORNEY'S FEES CHARGED ARE EXCESSIVE, UNCONSCIONABLE AND IMMORAL AND THAT THE
[SOLIDBANK] DID NOT TAKE INTO ACCOUNT [THE PETITIONERS'] PREVIOUS PAYMENT[S] IN THE
AMOUNT OF P24,277,293.27;
THE [RTC] GRAVELY ERRED IN AWARDING MORAL DAMAGES, EXEMPLARY DAMAGES AND
ATTORNEY'S FEES IN FAVOR OF THE [PETITIONERS];
THE [RTC] GRAVE[LY] ERRED IN FAILING TO REGARD [THE PETITIONERS] [IN] ESTOPPEL WHEN THE
LATTER DID NOT IMPUGN THE VALIDITY OF THE LOAN AND MORTGAGE DOCUMENTS· WITHIN A
REASONABLE TIME.24
On April 27, 2012, the CA rendered judgment affirming the RTC in toto. It agreed that Solidbank did not comply with the
publication requirements under Section 3, Act No. 3135, which provides:
Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of
the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such
notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in
the municipality or city.25 (Emphasis ours)
According to the CA, the Morning Chronicle was not a newspaper of general circulation, notwithstanding the affidavit of
publication issued by its publisher, Turing R. Crisostomo (Crisostomo), to that effect as well as the certification of the
Clerk of Court of RTC-Calamba City that it was duly accredited by the court since May 28, 1997 to publish legal notices.
The CA ruled that it was not enough for Crisostomo to merely state in his affidavit that the Morning Chronicle was
published and edited in the province of Laguna and in San Pablo City without a showing that it was published to
disseminate local news and general information, that it had a bona fide list of paying subscribers, that it was published at
regular intervals, and that it was in general circulation in Calamba City where the subject properties are located. 26
In Metropolitan Bank and Trust Company, Inc. v. Peñafiel, 27 cited by the CA, the Court explained that: (1) the object of a
notice of sale is to achieve a reasonably wide publicity of the auction by informing the public of the nature and condition
of the property to be auctioned, and of the time, place and terms of the sale, and thereby secure bidders and prevent a
sacrifice of the property; (2) a newspaper to be considered one of general circulation need not have the largest circulation
but must be able to appeal to the public in general and thus ensure a wide readership, and must not be devoted solely to
entertainment or the interest of a particular class, profession, trade, calling, race, or religious denomination; and (3)
Section 3 of Act No. 3135, as amended by Act No. 4118, does not only require the newspaper to be of general circulation
but also that it is circulated in the municipality or city where the property is located. 28
The CA held that the accreditation of the Morning Chronicle by the Clerk of Court of the RTC to publish legal notices is
not determinative of whether it is a newspaper of general circulation in Calamba City. 29
Concerning the loans due from the petitioners, the CA noted that under the proforma promissory note which Solidbank
prepared and which the Spouses Jonsay signed in blank, Solidbank enjoyed unrestrained freedom to unilaterally increase
the interest rate in any month. The note gave it authority to increase or decrease the interest rate from time to time,
"without any advance notice" and "in the event the Monetary Board of the Central Bank of the Philippines raises or lowers
the interest rates on loans." According to the CA, this provision violated the principle of mutuality of contracts embodied
in Article 130830 of the Civil Code.31
The CA also held that the herein petitioners were not in estoppel for failing to seasonably question the validity of the
mortgage loan since the prescriptive period is reckoned from their notice of the statements of account issued by Solidbank
showing the unilateral increases in the interest, for only by then would their cause of action have accrued. Since only three
years had elapsed from the execution of the mortgage contract to the filing of the complaint on March 15, 2000, the action
was brought within the 10-year prescriptive period.32
Solidbank moved for reconsideration33 of the decision, which the CA granted in part on November 26, 2012, via its
Amended Decision, to wit:
WHEREFORE, premises considered, the Motion is GRANTED IN PART. Our Decision promulgated on April 27, 2012
is hereby amended. Paragraphs 2 and 5 of the dispositive portion of the July 7, 2009 Decision of the [RTC] of Calamba
City, Branch 35 remain affirmed. Paragraphs 1, 3 and 4 thereof are hereby reversed and set aside.
SO ORDERED.34
Thus, in a complete reversal of its decision, the CA now not only found the parties' mortgage contract valid, but also
declared that Solidbank's extrajudicial foreclosure of the mortgage enjoyed the presumption of regularity. It took into
account the (a) Affidavit of Publication issued by Crisostomo that it duly published the notice of auction sale on February
8, 15, and 22, 1999, (b) the Certification by the Clerk of Court of the RTC-Calamba City that the Morning Chronicle was
duly accredited by the court to publish legal notices, and (c) the Raffle of Publication dated February 1, 1999 showing that
the said newspaper participated in and won the raffle on February 1, 1999 to publish the subject notice. The CA stressed
that since the selection of Morning Chronicle to publish the notice was through a court-supervised raffle, Solidbank was
fully justified in relying on the regularity of the publication of its notice in the aforesaid newspaper, in the choice of which
it had no hand whatsoever. 35
The CA further held that no malice can be imputed on Solidbank's refusal to accept the petitioners' offer of dacion en
pago, since it was duly authorized under the parties' mortgage contract to extra judicially foreclose on the mortgage in the
event that Momarco defaulted in its interest payments. Thus, when Solidbank opted to foreclose on the mortgage, it was
merely exercising its contractual right to protept its interest, and Solidbank's supposed insensitivity or lack of sympathy
toward Momarco's financial plight is irrelevant and is not indemnifiable as bad faith. 36
On the other hand, the CA pointed out that other than Florante's bare testimonial allegations, the petitioners failed to
adduce evidence to debunk Solidbank's compliance with the publication of its auction notice. They were unable to show
that the Morning Chronicle was not a newspaper of general circulation in Calamba City, that it was not published once a
week, or that it could not be found in newsstands. 37
Thus, the CA in its amended decision: (a) upheld the validity of the extrajudicial foreclosure proceedings, the
consolidation of the titles of Solidbank in the foreclosed properties, and the dismissal of Solidbank's counterclaim; (b)
ordered the reduction of the interest rates on the petitioners' indebtedness to the legal rate of 12% per annum, thereby
affirming that the unilateral increases in the monthly interest rates, which averaged 2.19% per month or 26.25% per
annum, "without notice to the mortgagors," are void for being iniquitous, excessive and unconscionable; and (c) upheld
the collection by the Solidbank of attorney's fees and filing fee. Nonetheless, the CA invalidated for lack of basis the
award by the RTC to the petitioners of P20,000,000.00 as moral damages, P2,500,000.00 as exemplary damages, and
Pl,500,000.00 as attorney's fees. 38
The petitioners moved for partial reconsideration39 of the CA's Amended Decision dated November 26, 2012, but the CA
denied the same in its Resolution40 dated March 19, 2013.
Petition for Review in the Supreme Court
In this petition for review, the petitioners interpose the following assignment of errors, to wit:
1. WITH ALL DUE RESPECT, THE [CA] GRAVELY ERRED BY RENDERJNG TWO (2) CONFLICTING
DECISIONS ON THE SAME SET OF FACTS AND EVIDENCE. THE AMENDED DECISION IS NOT IN ACCORD
WITH LAW AND EXISTING JURJSPRUDENCE[; AND]
2. WITH ALL DUE RESPECT, THE [CA] GRAVELY ERRED IN NOT CORRECTLY APPLYING THE LAW AND
JURJSPRUDENCE ON EXTRAJUDICIAL FORECLOSURE OF REAL ESTATE MORTGAGE, DAMAGES AND
CONTRACT OF ADHESION IN THE AMENDED DECISION.41
The petitioners decry how, after first declaring that "[a]ll told, we find no reason to disturb, much less reverse, the assailed
decision of the RTC," the CA could now be permitted to make a complete turn-around from its previous decision over the
same set of facts, and declare that the subject foreclosure is valid, order the consolidation of Solidbank's titles, and delete
the award of moral and exemplary damages, attorney's fees and costs of suit.42
Ruling of the Court
There is merit in the petition.
There is no legal proscription
against an adjudicating court
adopting on motion for
reconsideration by a party a
position that is completely contrary
to one it had previously taken in a case.
The petitioners' dismay over how the same division of the CA could make two opposite and conflicting decisions over
exactly the same facts is understandable. Yet, what the CA simply did was to admit that it had committed an error of
judgment, one which it was nonetheless fully authorized to correct upon a timely motion for reconsideration. Sections 1, 2
and 3 of Rule 3 7 of the Rules of Court are pertinent:
Sec. 1. Grounds of and period for filing motion for new trial or reconsideration. - x x x.
Within the same period, the aggrieved party may move for reconsideration upon the grounds that the damages awarded
are excessive, that the evidence is insufficient to justify the decision or final order, or that the decision or final order is
contrary to law.
Sec. 2. Contents of motion for new trial or reconsideration and notice thereof - x x x.
xxxx
A motion for reconsideration shall point out specifically the findings or conclusions of the judgment or final order which
are not supported by the evidence or which are contrary to law[,] making express reference to the testimonial or
documentary evidence or to the provisions of law alleged to be contrary to such findings or conclusions.
xxxx
Sec. 3. Action upon motion for new trial or reconsideration. - x x x If the court finds that excessive damages have been
awarded or that the judgment or final order is contrary to the evidence or law, it may amend such judgment or final order
accordingly.
The rule is that while the decision of a court becomes final upon the lapse of the period to appeal by any party, 43 but the
filing of a motion for reconsideration or new trial interrupts or suspends the running of the said period, and prevents the
finality of the decision or order from setting in.44 A motion for reconsideration allows a party to request the adjudicating
court or quasi-judicial body to take a second look at its earlier judgment and correct any errors it may have
committed.45 As explained in Salcedo II v. COMELEC,46 a motion for reconsideration allows the adjudicator or judge to
take a second opportunity to review the case and to grapple anew with the issues therein, and to decide again a question
previously raised, there being no legal proscription imposed against the deciding body adopting thereby a new position
contrary to one it had previously taken.47
Solidbank has sufficiently complied
with the requirement of publication
under Section 3 of Act No. 3135.
In Philippine Savings Bank v. Spouses Geronimo, 48 the Court stressed that the right of a bank to extrajudicially foreclose
on a real estate mortgage is well-recognized, provided it faithfully complies with the statutory requirements of
foreclosure:
While the law recognizes the right of a bank to foreclose a mortgage upon the mortgagor's failure to pay his obligation, it
is imperative that such right be exercised according to its clear mandate. Each and every requirement of the law must be
complied with, lest, the valid exercise of the right would end. It must be remembered that the exercise of a right ends
when the right disappears, and it disappears when it is abused especially to the prejudice of others. 49
In Cristobal v. CA, 50 the Court explicitly held that foreclosure proceedings enjoy the presumption of regularity and the
mortgagor who alleges the absence of a requisite has the burden of proving such fact:
Further, as respondent bank asserts, a mortgagor who alleges absence of a requisite has the burden of establishing that
fact. Petitioners failed in this regard. Foreclosure proceedings have in their favor the presumption of regularility and the
burden of evidence to rebut the same is on the petitioners.x x x. 51 (Citation omitted)
The petitioners insist that the CA was correct when it first ruled in its Decision dated April 27, 2012 that there was no
valid publication of the notice of auction, since the Morning Chronicle was not shown to be a newspaper of general
circulation in Calamba City. The CA disregarded the affidavit of publication executed by its publisher to that effect, as
well as the certification by the Clerk of Court of RTC-Calamba City that the said paper was duly accredited by the court
to publish legal notices. It ruled that there was no showing by the Solidbank that the Morning Chronicle was published to
disseminate local news and general information, that it had a bona fide list of paying subscribers, that it was published at
regular intervals, and that it was in circulation in Calamba City where the subject properties are located.
But in its Amended Decision on November 26, 2012, the CA now ruled that the questioned foreclosure proceedings enjoy
the presumption of regularity, and it is the burden of the petitioners to overcome this presumption. The CA stated:
It is an elementary rule that the burden of proof is the duty of a party to present evidence on the facts in issue necessary to
establish his claim or defense as required by law. The Court has likewise ruled in previous cases that foreclosure
proceedings enjoy the presumption of regularity and that the mortgagor who alleges absence of a requisite has the burden
of proving such fact. 52 (Citation omitted)
In Fortune Motors (Phils.) Inc. v. Metropolitan Bank and Trust Co., 53 it was stressed that in order for publication to serve
its intended purpose, the newspaper should be in general circulation in the place where the foreclosed properties to be
auctioned are located.54 But in Metropolitan Bank and Trust Co. v. Spouses Miranda, 55 the Court also clarified that the
matter of compliance with the notice and publication requirements is a factual issue which need not be resolved by the
high court:
It has been our consistent ruling that the question of compliance or non-compliance with notice and publication
requirements of an extrajudicial foreclosure sale is a factual issue, and the resolution thereof by the trial court is generally
binding on this Court. The matter of sufficiency of posting and publication of a notice of foreclosure sale need not be
resolved by this Court, especially when the findings of the RTC were sustained by the CA. Well-established is the rule
that factual findings of the CA are conclusive on the parties and carry even more weight when the said court affirms the
factual findings of the trial court. 56 (Citation omitted)
In Spouses Miranda, the Court ruled that the foreclosing bank could not invoke the presumption of regularity of the
publication of the notice of auction absent any proof whatsoever of the fact of publication. 57 In the case at bar, there is no
dispute that there was publication of the auction notice, which the CA in its amended decision now held to have
sufficiently complied with the requirement of publication under Section 3 of Act No. 3135. Unfortunately, against the fact
of publication and the presumption of regularity of the foreclosure proceedings, the petitioners' only contrary evidence is
Florante's testimonial assertion that the Morning Chronicle was not a newspaper of general circulation in Calamba City
and that it could not be found in the local newsstands.
Admittedly, the records are sparse as to the details of the publication. In his Affidavit of Publication, publisher Crisostomo
stated concerning the circulation of his paper, as follows:
I, [CRISOSTOMO], legal age, Filipino, resident of Brgy. III-D, San Pablo City with postal address at San Pablo City,
after having been duly sworn in accordance to law, depose and say[:]
That I am the Publisher of The Morning Chronicle Weekly newspaper of Luzon Province and Greater Manila Area,
Cavite, [p ]ublished and edited in the Province of Laguna and San Pablo City.
x x x x58
In Spouses Geronimo,59 it was held that the affidavit of publication executed by the account executive of the newspaper
is prima facie proof that the newspaper is generally circulated in the place where the properties are located.60 But in
substance, all that Crisostomo stated is that his newspaper was ''published and edited in the province of Laguna and San
Pablo City." He did not particularly mention, as the CA seemed to demand in its initial decision, that the Morning
Chronicle was published and circulated to disseminate local news and general information in Calamba City where the
foreclosed properties are located.
Nonetheless, when the RTC accredited the Morning Chronicle to publish legal notices in Calamba City, it can be
presumed that the RTC had made a prior determination that the said newspaper had met the requisites for valid
publication of legal notices in the said locality, guided by the understanding that for the publication of legal notices in
Calamba City to serve its intended purpose, it must be in general circulation therein. This presumption lays the burden
upon the petitioners to show otherwise, contrary to the CA's first ruling.
It is true that the Court also held in Peñafiel,61 concerning the evidentiary weight of the publisher's affidavit of
publication, that the accreditation by the RTC executive judge is not decisive on the issue of whether a newspaper is of
general circulation:
The accreditation of Maharlika Pilipinas by the Presiding Judge of the RTC is not decisive of whether it is a newspaper of
general circulation in Mandaluyong City. This Court is not bound to adopt the Presiding Judge's determination, in
connection with the said accreditation, that Maharlika Pilipinas is a newspaper of general circulation. The court before
which a case is pending is bound to make a resolution of the issues based on the evidence on record. 62
But as the Court has seen, the petitioners failed to present proof to overcome the presumption of regularity created by the
publisher's affidavit of publication and the accreditation of the Morning Chronicle by the RTC.63 Significantly, in A.M.
No. 01-1-07-SC,64 the Court now requires all courts beginning in 2001 to accredit local newspapers authorized to publish
legal notices.65
The petitioners' mere proposal to
extinguish their loan obligations by
way of dacion en pago does not
novate the mortgage contract.
On the question of the petitioners' failed proposal to extinguish their loan obligations by way of dacion en pago, no bad
faith can be imputed to Solidbank for refusing the offered settlement as to render itself liable for moral and exemplary
damages after opting to extrajudicially foreclose on the mortgage. 66 In Tecnogas Philippines Manufacturing Corporation
v. Philippine National Bank,67 the Court held:
Dacion en pago is a special mode of payment whereby the debtor offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding obligation. The undertaking is really one of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged against the debtor's debt. As such, the
essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. It is
only when the thing offered as an equivalent is accepted by the creditor that novation takes place, thereby, totally
extinguishing the debt.
On the first issue, the Court of Appeals did not err in ruling that Tecnogas has no clear legal right to an injunctive relief
because its proposal to pay by way of dacion en pago did not extinguish its obligation. Undeniably, Tecnogas' proposal to
pay by way of dacion en pago was not accepted by PNB. Thus, the unaccepted proposal neither novates the parties'
mortgage contract nor suspends its execution as there was no meeting of the minds between the parties on whether the
loan will be extinguished by way of dacion en pago. Necessarily, upon Tecnogas' default in its obligations, the foreclosure
of the REM becomes a matter of right on the part of PNB, for such is the purpose of requiring security for the
loans.68 (Citation omitted)
An escalation clause in a loan
agreement granting the lending
bank authority to unilaterally
increase the interest rate without
prior notice to and consent of the
borrower is void.
After annulling the foreclosure of mortgage, the RTC reduced the interest imposable on the petitioners' loans to 12%, the
legal interest allowed for a loan or forbearance of credit, citing Medel v. CA.69 In effect, the RTC voided not just the
unilateral increases in the monthly interest, but also the contracted interest of 18.75%. The implication is to allow the
petitioners to recover what they may have paid in excess of what was validly due to Solidbank, if any.
In Floirendo, Jr. v. Metropolitan Bank and Trust Co., 70 the promissory note provided for interest at 15.446% per
annum for the first 30 days, subject to upward/downward adjustment every 30 days thereafter.71 It was further provided
that:
The rate of interest and/or bank charges herein stipulated, during the term of this Promissory Note, its extension, renewals
or other modifications, may be increased, decreased, or otherwise changed from time to time by the Bank without advance
notice to me/us in the event of changes in the interest rate prescribed by law or the Monetary Board of the Central Bank
of the Philippines, in the rediscount rate of member banks with the Central Bank of the Philippines, in the interest rates on
savings and time deposits, in the interest rates on the banks borrowings, in the reserve requirements, or in the overall
costs of funding or money[.]72 (Italics ours)
The Court ordered the "reformation" of the real estate mortgage contract and the promissory note, in that any increases in
the interest rate beyond 15.446% per annum could not be collected by respondent bank since it was devoid of prior
consent of the petitioner, as well as ordered that the interest paid by the debtor in excess of 15.446% be applied to the
payment of the principal obligation. 73
In Philippine National Bank v. CA, 74 the Court declared void the escalation clause in a credit agreement whereby
the "bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on
whatever policy it may adopt in the future x x x."75 The Court said:
It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of
the parties. If this assent is wanting on the part of one who contracts, his act has no more efficacy than if it had been done
under duress or by a person of unsound mind.
Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must
meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan
contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital
venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding effect.
We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right
to unilaterally upwardly adjust the interest on private respondents' loan. That would completely take away from private
respondents the right to assent to an important modification in their agreement, and would negate the element of mutuality
in contracts. x x x. 76 (Citation omitted and italics in the original)
In New Sampaguita Builders Construction, Inc. (NSBCJ) v. PNB,77 the Court condemned as the "zenith of farcicality" a
mortgage contract whereby the parties "specify and agree upon rates that could be subsequently upgraded at whim by only
one party to the agreement."78 The Court declared as a contract of adhesion a pro forma promissory note which creates a
"take it or leave it" dilemma for borrower and gives the mortgagee bank an unbridled right to adjust the interest
independently and upwardly, thereby completely taking away from the borrower the "right to assent to an important
modification in their agreement," thus negating the element of mutuality in their contracts.79The Court quotes:
Increases in Interest Baseless
Promissorv Notes. In each drawdown, the Promissory Notes specified the interest rate to be charged: 19.5 percent in the
first, and 21.5 percent in the second and again in the third. However, a uniform clause therein permitted respondent to
increase the rate "within the limits allowed by law at any time depending on whatever policy it may adopt in the
future x x x," without even giving prior notice to petitioners. The Court holds that petitioners' accessory duty to pay
interest did not give respondent unrestrained freedom to charge any rate other than that which was agreed upon. No
interest shall be due, unless expressly stipulated in writing. It would be the zenith of farcicality to specify and agree upon
rates that could be subsequently upgraded at whim by only one party to the agreement.
The "unilateral detennination and imposition" of increased rates is "violative of the principle of mutuality of contracts
ordained in Article 1308 of the Civil Code." One-sided impositions do not have the force of law between the parties,
because such impositions are not based on the parties' essential equality.
Although escalation clauses are valid in maintaining fiscal stability and retaining the value of money on long-term
contracts, giving respondent an unbridled right to adjust the interest independently and upwardly would completely take
away from petitioners the "right to assent to an important modification in their agreement" and would also negate the
element of mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts "dependent
exclusively upon the uncontrolled will" of respondent and was therefore void. Besides, the pro forma promissory notes
have the character of a contract d'adhesion, "where the parties do not bargain on equal footing, the weaker party's [the
debtor's] participation being reduced to the alternative 'to take it or leave it."'
"While the Usury Law ceiling on interest rates was lifted by [Central Bank] Circular No. 905, nothing in the said Circular
grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets." In fact, we have declared nearly ten years ago that neither this Circular nor PD 1684, which
further amended the Usury Law, "authorized either party to unilaterally raise the interest rate without the other's consent."
Moreover, a similar case eight years ago pointed out to the same respondent (PNB) that borrowing signified a capital
transfusion from lending institutions to businesses and industries and was done for the purpose of stimulating their
growth; yet respondent's continued "unilateral and lopsided policy" of increasing interest rates "without the prior assent"
of the borrower not only defeats this purpose, but also deviates from this pronouncement. Although such increases are not
usurious, since the "Usury Law is now legally inexistent" - the interest ranging from 26 percent to 35 percent in the
statements of account - "must be equitably reduced for being iniquitous, unconscionable and exorbitant." Rates found to
be iniquitous or unconscionable are void, as if it there were no express contract thereon. Above all, it is undoubtedly
against public policy to charge excessively for the use of money. 80 (Citations omitted and emphasis ours)
In New Sampaguita, the Court invoked Article 131081 of the Civil Code which grants courts authority to reduce or
increase interest rates equitably. It eliminated the escalated rates, insurance and penalties and imposed only the stipulated
interest rates of 19.5% and 21.5% on the notes, to be reduced to the legal rate of 12% upon their automatic conversion
into medium-term loans after maturity: 82
[T]o give full force to the Truth in Lending Act, only the interest rates of 19.5 percent and 21.5 percent stipulated in the
Promissory Notes may be imposed by respondent on the respective availments. After 730 days, the portions remaining
unpaid are automatically converted into medium-term loans at the legal rate of 12 percent. In all instances, the simple
method of interest computation is followed.x x x.83
Thus, all payments made by the petitioners were applied pro-rated to the notes, and after eliminating the charges, penalties
and insurance, the result of the recomputation was an overcollection by the bank of P3,686, 101.52, which the Court
ordered refunded to the petitioners with straight interest at 6% per annum from the filing of the complaint until Finality.84
In Equitable PCI Bank v. Ng Sheung Ngor, 85 the Court annulled the escalation clause and imposed the original stipulated
rate of interest on the loan, until maturity, and thereafter, the legal interest of 12% per annum was imposed on the
outstanding loans. Thus, the Court ordered the borrower to pay Equitable the stipulated interest rate of 12.66% per
annum for the dollar denominated loans, and the stipulated 20% per annum for the peso denominated loans, up to
maturity, and afterwards Equitable was to collect legal interest of 12% per annum on all loans due.86 Incidentally, under
Monetary Board Circular No. 799, the rate of interest for the loan or forbearance of money, in the absence of stipulation,
shall now be 6% per annum starting July 1, 2013.87
Thus, the Court disregarded the unilaterally escalated interest rates and imposed the mutually stipulated rates, which it
applied up to the maturity of the loans. Thereafter, the Court imposed the legal rate of 12% per annum on the outstanding
loans, or 6% per annum legal rate on the excess of the borrower's payments.
Attorney's fees do not form an
integral part of the cost of
borrowing, but arise only when
collecting upon the notes or loans
becomes necessary. Courts have
the power to determine their
reasonableness based on quantum
meruit and to reduce the amount
thereof if excessive.
Concerning the P3,000,000.00 attorney's fees charged by Solidbank and added to the amount of its auction bid, as part of
the cost of collecting the loans by way of extrajudicial foreclosure, the Court finds no factual basis to justify such an
excessive amount. The Court has not hesitated to delete or equitably reduce attorney's fees which are baseless or
excessive. In New Sampaguita, the Court reduced from 10% to 1% the attorney's fees, holding that they are not an integral
part of the cost of borrowing but arise only on the basis of quantum meruit when the lender collects upon the notes. 88
Mortgagee institutions are reminded that extrajudicial foreclosure proceedings are not adversarial suits filed before a
court. It is not commenced by filing a complaint but an ex-parte application for extra judicial foreclosure of mortgage
before the executive judge, pursuant to Act No. 3135, as amended, and special administrative orders issued by this Court,
particularly Administrative Matter No. 99-10-05-0 (Re: Procedure in Extra-Judicial Foreclosure of Mortgage). The
executive judge receives the application neither in a judicial capacity nor on behalf of the court; the conduct of
extrajudicial foreclosure proceedings is not governed by the rules on ordinary or special civil actions. The executive judge
performs therein an administrative function to ensure that all requirements for the extrajudicial foreclosure of a mortgage
are satisfied before the clerk of court, as the ex-officio sheriff, goes ahead with the public auction of the mortgaged
property. Necessarily, the orders of the executive judge in such proceedings, whether they be to allow or disallow the
extrajudicial foreclosure of the mortgage, are not issued in the exercise of a judicial function but in the exercise of his
administrative function to supervise the ministerial duty of the Clerk of Court as Ex-Officio Sheriff in the conduct of an
extrajudicial foreclosure sale.89
The recomputation of the petitioners' total loan indebtedness based on the stipulated interest, and the exclusion of
the penalties and reduction of the attorney's fees results in an excess of the auction proceeds which must be paid to
the petitioners.
Coming now to the question of whether Solidbank must refund any excess interest to the petitioners, the CA agreed with
the RTC that the loans should earn only 12% for Solidbank, which would result in a drastic reduction in the interest which
the petitioners would be obliged to pay to Solidbank. Notwithstanding what this Court has said concerning the invalidity
of the unilateral increases in the interest rates, the ruling nonetheless violates the contractual agreement of the parties
imposing an interest of 18.75% per annum, besides the fact that an interest of 18.75% per annum cannot per se be deemed
as unconscionable back in 1995 or in 1997.
In the recent cases of Mallari v. Prudential Bank (now Bank of the Philippine Islands)90 and Spouses Villanueva v. The
CA, et al.,91 the Court did not consider unconscionable the contractual interest rates of 23% or 24% per
annum. In Mallari, the Court upheld the loans obtained between 1984 and 1989 which bore interest from 21 % to 23% per
year; in Spouses Villanueva, the loans secured in 1994 carried interest of 24% per year were upheld. In Advocates for
Truth in Lending, Inc. v. Bangko Sentral Monetary Board,92 the Court noted that in the later 1990s, the banks' prime
lending rates which they charged to their best borrowers ranged from 26% to 31%.93
To answer, then, the question of whether Solidbank must refund anything to the petitioners, the contracted rate of 18.75%,
not the legal rate of 12%, will be applied to the petitioners' loans. Any excess either in the interest payments of the
petitioners or in the auction proceeds, over what is validly due to Solidbank on the loans, will be refunded or paid to the
petitioners. Thus:
(1) The first loan of P40,000.000.00 carried a stipulated interest of 18.75% per annum, and from November 9, 1995 to
March 5, 1999, which is the auction date and the date the mortgage was terminated, a period of 3 years and 116 days, or
3.3178 years, and total interest earned by the bank thereon is P24,883,500.00; the second loan, for P20,000,000.00, was
also agreed to earn 18. 75% per annum, and from April 28, 1997 to March 5, 1999, a period of 1 year and 311 days, or
1.8520 years, it earned P6,945,000.00 in interest. In all, Solidbank earned P31,828,500.00 in interest up to March 5, 1999
from both loans.1âwphi1
(2) From November 9, 1995 to April 1998, the petitioners paid monthly interests totaling P24,277,283.22. Deducting
P24,277,283.22 from the sum of the total loan principal of P60,000,000.00 and the total interest due of P31,828,500.00,
which is P91,828,500.00, leaves the amount of P67,551,216.78 in interest owed by the petitioners as of March 5, 1999.
(3) As in New Sampaguita Builders, the Court shall exclude all the penalties or surcharges charged by the bank, and shall
allow the bank to recover only 1% as attorney's fees, or P675,512.17, not the P3,600,000.00 awarded by the RTC. Thus,
all in all, the petitioners owed the bank P68,226,728.95 (P67,551,216.78 plus P675,512.17) as of March 5, 1999.1âwphi1
(4) Deducting P68,226,728.95 from Solidbank's winning bid of P82,327,000.00 leaves an excess of P14,100,271.05 in the
proceeds of the auction over the outstanding loan obligation of the petitioners. This amount must be paid by Solidbank to
the petitioners.
(5) Since the P14,100,271.05 is the excess in the auction proceeds, thus an ordinary monetary obligation and not a loan or
a forbearance of credit, it shall earn simple interest at six percent (6%) per annum from judicial demand up to finality,
following Eastern Shipping Lines, Inc. v. Court of Appeals; 94 thereafter, both the said amount and the accumulated
interest shall together earn six percent (6%) per annum, pursuant to Monetary Board Circular No. 799, until full
satisfaction.
Thus:

Particulars Amount
Solidbank’s Winning Bid P82,327,000.00
Less: Amount Due from Petitioners, as March 5, 1999
Loan No. 1 Principal P40,000,000.00
Loan No. 2 Principal 20,000,000.00

Total 60,000,000.00
Add: Interest Due

Loan No. 1 – November 9, 1995

to March 5, 1999
(P40,000,000.00x18.75%p.a. x 3.3178) P24,883,500.00

Loan No. 2 – April 28, 1997 to

March 5, 1999 or
(P20,000,000.00 x 18.75% p.a. x 1.8520) 6,945,000.00 31,828,500.00
Total 91,828,500.00
Less: Interest paid from November 1995 to April 1998 24,277,283.22

Net Amount Due from Petitioners 67,551,216.78

Add: Attorney’s fees (1% of P67,551,216.78) 675,512.17 68,226,728.95
Balance Payable to Petitioners P14,100,271.05

WHEREFORE, premises considered, the Amended Decision dated November 26, 2012 of the Court of Appeals in CA-
G.R. CV No. 94012 is AFFIRMED with MODIFICATION in that the stipulated interest rate on the loan obligation of
18.75% shall be applied, resulting in P67,551,216.78 as the amount due from the Spouses Florante E. Jonsay and
Luzviminda L. Jonsay and Momarco Import Co., Inc. to Solidbank Corporation (now Metropolitan Bank and Trust
Company). In addition, the Spouses Florante E. Jonsay and Luzviminda L. Jonsay and Momarco Import Co., Inc.
are ORDERED to PAY atton1ey's fees in the amount of P675,512.17, which is one percent (1%) of the loan obligation.
Thus, Solidbank Corporation (now Metropolitan Bank and Trust Company) is ORDERED to PAY to the petitioners the
amount of P14,100,271.05, representing the excess of its auction bid over the total loan obligation due from the
petitioners, plus interest at six percent (6%) per annum computed from the date of filing of the complaint or March 15,
2000 up to finality; and thereafter, both the excess of the auction proceeds and the cumulative interest shall earn six
percent (6%) per annum until fully paid. SO ORDERED.
G.R. No. 171865, October 12, 2016
PHILIPPINE NATIONAL BANK, Petitioner, v. HEIRS OF BENEDICTO AND AZUCENA
ALONDAY, Respondent.
DECISION
BERSAMIN, J.:
The issue is whether the all-embracing or dragnet clause contained in the first mortgage contract executed between the
parties for the security of the first loan could authorize the foreclosure of the property under the mortgage to secure a
second loan despite the full payment of the second loan.
Antecedents

On September 26, 1974, the Spouses Benedicto and Azucena Alonday (Spouses Alonday) obtained an agricultural loan of
P28,000.00 from the petitioner at its Digos, Davao del Sur Branch, and secured the obligation by constituting a real estate
mortgage on their parcel of land situated in Sta. Cruz, Davao del Sur registered under Original Certificate of Title (OCT)
No. P-3599 of the Registry of Deeds of Davao del Sur.1chanrobleslaw

On June 11, 1980, the Spouses Alonday obtained a commercial loan for P16,700.00 from the petitioner's Davao City
Branch, and constituted a real estate mortgage over their 598 square meter residential lot situated in Ulas, Davao City
registered under Transfer Certificate of Title (TCT) No. T-66139 of the Registry of Deeds of Davao City.

It is noted that the mortgage contracts contained the following identical provision, to wit:ChanRoblesVirtualawlibrary
That for and in consideration of certain loans, overdrafts, and other credit accommodations, obtained from the Mortgagee,
which is hereby fixed at _________, Philippine Currency, and to secure the payment of the same and those others that the
Mortgagee may extend to the Mortgagor, including interests and expenses, and other obligations owing by the Mortgagor
to the Mortgagee, whether direct or indirect, principal or secondary, as appearing in the accounts, books and records of the
Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors or
assigns, the parcel of land which is/are described in the list inserted at the back of this document xxx. In case the
Mortgagor executes subsequent promissory note or notes either as renewal of the former note, as an extension thereof, or
as a new loan, or is given any other kind of accommodation, xxx, this mortgage shall also stand as security for the
payment of the said promissory note or notes and/or accommodations without the necessity of executing a new contract
and this mortgage shall have the same force and effect as if the said promissory note or notes and/or accommodations
were existing on the date thereof, notwithstanding full payments of any or all obligations of the Mortgagors. This
mortgage shall also stand as security for said obligations and any and all other obligations of the Mortgagor to the
Mortgagee of whatever kind and nature, whether such obligations have been contracted before, during or after the
constitution of this mortgage. However, if the Mortgagor shall pay the Mortgagee, its successors or assigns, the
obligations secured by this mortgage, together with interests, costs and other expenses, on or before the date they are due,
and shall keep and perform all the covenants and agreements herein contained for the Mortgagor to keep and perform,
then this mortgage shall be null and void, otherwise, it shall remain in full force and effect.2chanroblesvirtuallawlibrary
The Spouses Alonday made partial payments on the commercial loan, which they renewed on December 23, 1983 for the
balance of P15,950.00. The renewed commercial loan, although due on December 25, 1984, was fully paid on July 5,
1984.3chanrobleslaw

On August 6, 1984, respondents Mercy and Alberto Alonday, the children of the Spouses Alonday, demanded the release
of the mortgage over the property covered by TCT No. T-66139. The petitioner informed them, however, that the
mortgage could not be released because the agricultural loan had not yet been fully paid, and that as the consequence of
the failure to pay, it had foreclosed the mortgage over the property covered by OCT No. P-3599 on August 17, 1984.
It appeared that notwithstanding such foreclosure, a deficiency balance of P91,525.22 remained.4Hence, the petitioner
applied for the extrajudicial foreclosure of the mortgage on the property covered by TCT No. T-66139. A notice of extra-
judicial sale was issued on August 20, 1984, and the property covered by TCT No. T-66139 was sold on September 28,
1984 to the petitioner in the amount of P29,900.00. Since the Alondays were unable to redeem the property, the petitioner
consolidated its ownership. Later on, the property was sold for P48,000.00 to one Felix Malmis on November 10,
1989.5chanrobleslaw

According to the petitioner, the deed of mortgage relating to the property covered by TCT No. T-66139 included an "all-
embracing clause" whereby the mortgage secured not only the commercial loan contracted with its Davao City Branch but
also the earlier agricultural loan contracted with its Digos Branch.
Judgment of the RTC

On July 8, 1994, therefore, the respondents instituted a complaint against the petitioner in the Regional Trial Court (RTC)
in Davao City to recover damages and attorney's fees (Civil Case No. 23,021-94), averring that the foreclosure and sale of
the property covered by TCT No. T-66139 was illegal.

On November 28, 1997, the RTC rendered judgment finding in favor of the respondents,6 and disposed as
follows:ChanRoblesVirtualawlibrary
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against defendant bank, ordering said defendant
bank:ChanRoblesVirtualawlibrary
1. To pay plaintiffs the sum of One Million Seven Hundred Thousand (P1,700,000.00) Pesos, representing the value
of the land covered by TCT No. T-66139;
2. To pay plaintiffs the sum of P20,000.00 as attorney's fees; and cralawlawlibrary
3. To pay the costs of this suit.
SO ORDERED.7chanroblesvirtuallawlibrary
The RTC observed that if the petitioner had intended to have the second mortgage secure the pre-existing agricultural
loan, it should have made an express reservation to that effect; that based on the all-embracing clause, the mortgage was a
contract of adhesion, and the ambiguities therein should be construed strictly against the petitioner; that the last sentence
of the all-embracing clause provided that the mortgage would be null and void upon the payment of the obligations
secured by the mortgage; and that the petitioner was guilty of bad faith in refusing to nullify the mortgage despite full
payment of the commercial loan prior to its maturity.

The RTC also ruled that because the property had already been sold to Malmis, a third party not brought within the trial
court's jurisdiction, it could not order the return of the property; and that it was ordering the petitioner instead to pay the
respondents the value of the property under its present market valuation.
Decision of the CA

Dissatisfied, the petitioner appealed to the Court of Appeals (CA). The appeal was docketed as C.A.-G.R. CV No. 60625.

On August 31, 2005, the CA affirmed the RTC,8 observing that the mortgage, being a contract of adhesion, should be
construed strictly against the petitioner as the patty who had drafted the same; and that although the petitioner had argued,
citing Mojica v. Court of Appeals,9 that all-embracing clauses were valid to secure past, present and future loans, Mojica
v. Court of Appeals was not in point inasmuch as the facts therein were different from the facts herein.
The petitioner filed a motion for reconsideration, but the CA denied the motion on February 27, 2006.10chanrobleslaw

Hence, this appeal by petition for review on certiorari.

Issues

The petitioner assigns the following errors to the CA, to wit:ChanRoblesVirtualawlibrary

I. The Court of Appeals grievously erred in restricting and delimiting the scope and validity of the standard "all-
embracing clause" in real estate mortgage contracts solely to future indebtedness and not to prior ones, contrary to
leading Supreme Court decisions on the matter.
II. Even assuming arguendo that the xxx decisions are inapplicable to the case at bar, the Court of Appeals
grievously erred in awarding the unsubstantiated amount of P1.7 million in damages and P20,000.00 as attorney's
fees against PNB without factual and legal basis.11
The petitioner submits that Mojica v. Court of Appeals validates the use of an all-embracing clause in a mortgage
agreement to secure not only the amount indicated on the mortgage instrument, but also the mortgagor's future and past
obligations; that by denying the applicability to the case of Mojica v. Court of Appeals and other similar rulings, the CA
disregarded the principle of stare decisis; and that the CA in effect thereby regarded allembracing clauses invalid as to
prior obligations.
Ruling of the Court

The appeal lacks merit.

The CA opined as follows:ChanRoblesVirtualawlibrary

The real estate mortgage on the property covered by TCT No. T-66139 was specifically constituted to secure the payment
of the commercial loan of the Spouses ALONDAY. In the same manner, the real estate mortgage on the property covered
by OCT No. P-3599 was constituted to secure the payment of their agricultural loan with the PNB. With the execution of
separate mortgage contracts for the two (2) loans, it is clear that the intention of the parties was to limit the mortgage to
the loan for which it was constituted.

xxxx

The [Mojica] case is not in point since the facts therein are different from the case at bench. In Mojica vs. Court of
Appeals, the mortgaged real estate property was made to answer for future advancement or renewal of the loan, whereas
in the instant case, the foreclosure sale included a property which was used as a security for a commercial loan which was
obtained after the agricultural loan.
The mortgage provision relied upon by appellant is known in American jurisprudence as a "dragnet" clause, which is
specifically phrased to subsume all debts of past or future origin. Such clauses pursuant to the pronouncement of the
Supreme Court in DBP vs. Mirang must be "carefully scrutinized and strictly construed."12chanrobleslaw

The petitioner wrongly insists that the CA, thr ough the foregoing ratiocination, held that the all-embracing or dragnet
clauses were altogether invalid as to prior obligations. What the CA, although reiterating that the Court upheld the validity
of using real estate mortgages to secure future advancements, only thereby pointed out that it could not find similar
rulings as to mortgages executed to secure prior loans.
There is no question, indeed, that all-embracing or dragnet clauses have been recognized as valid means to secure debts of
both future and past origins.13 Even so, we have likewise emphasized that such clauses were an exceptional mode of
securing obligations, and have held that obligations could only be deemed secured by the mortgage if they came fairly
within the terms of the mortgage contract.14 For the all-embracing or dragnet clauses to secure future loans, therefore,
such loans must be sufficiently described in the mortgage contract.15 If the requirement could be imposed on a future loan
that was uncertain to materialize, there is a greater reason that it should be applicable to a past loan, which is already
subsisting and known to the parties.

Nonetheless, it was undeniable that the petitioner had the opportunity to include some form of acknowledgement of the
previously subsisting agricultural loan in the terms of the second mortgage contract The mere fact that the mortgage
constituted on the property covered by TCT No. T-66139 made no mention of the pre-existing loan could only strongly
indicate that each of the loans of the Spouses Alonday had been treated separately by the parties themselves, and this
sufficiently explained why the loans had been secured by different mortgages.

Another indication that the second mortgage did not extend to the agricultural loan was the fact that the second mortgage
was entered into in connection only with the commercial loan. Our ruling in Prudential Bank v. Alviar16 is then relevant,
to wit:ChanRoblesVirtualawlibrary
xxx The parties having conformed to the "blanket mortgage clause" or "dragnet clause," it is reasonable to conclude that
they also agreed to an implied understanding that subsequent loans need not be secured by other securities, as the
subsequent loans will be secured by the first mortgage. In other words, the sufficiency of the first security is a corollary
component of the "dragnet clause." But of course, there is no prohibition, as in the mortgage contract in issue, against
contractually requiring other securities for the subsequent loans. Thus, when the mortgagor takes another loan for which
another security was given it could not be inferred that such loan was made in reliance solely on the original security with
the "dragnet clause," but rather, on the new security given. This is the "reliance on the security test."

xxx Accordingly, finding a different security was taken for the second loan no intent that the parties relied on the security
of the first loan could be inferred, so it was held. The rationale involved, the court said, was that the "dragnet clause" in
the first security instrument constituted a continuing offer by the borrower to secure further loans under the security of the
first security instrument, and that when the lender accepted a different security he did not accept the
offer.17chanroblesvirtuallawlibrary
Although the facts in Prudential Bank were not entirely on all fours with those of this case because the prior mortgage
in Prudential Bank was sought to be enforced against a subsequent loan already secured by other securities, the logic
in Prudential Bank is applicable here. The execution of the subsequent mortgage by the parties herein to secure the
subsequenlloan was an indication that they had intended to treat each loan as distinct from the other, and that they had
intended to secure each of the loans individually and separately.

We further concur with the CA and the RTC in their holding that the mortgage contracts executed by the Spouses
Alonday were contracts of adhesion exclusively prep red by the petitioner. Under Article 1306 of the Civil Code, the
contracting parties "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." This is an express recognition by the
law of the right of the people to enter into all manner of lawful conventions as part of their safeguarded liberties. The
objection against a contract of adhesion lies most often in its negation of the autonomy of the will of the parties in
contracts. A contract of adhesion, albeit valid, becomes objectionable only when it takes undue advantage of one of the
parties the weaker party- by having such party just adhere to the terms of the contract. In such situation, the courts go to
the succor of the weaker party by construing any obscurity in the contract against the party who prepared the contract, the
latter being presumed as the stronger party to the agreement, and as the party who caused the obscurity. 18chanrobleslaw

To reiterate, in order for the all-embracing or dragnet clauses to secure future and other loans, the loans thereby secured
must be sufficiently described in the mortgage contract. Considering that the agricultural loan had been pre-existing when
the mortgage was constituted on the property covered by TCT No. T-66139, it would have been easy for the petitioner to
have expressly incorporated the reference to such agricultural loan in the mortgage contract covering the commercial loan.
But the petitioner did not. Being the party that had prepared the contract of mortgage, its failure to do so should be
construed that it did not at all contemplate the earlier loan when it entered into the subsequent mortgage.

Anent the value of the property covered by TCT No. T-66139, the findings of the RTC on the valuation were as
follows:ChanRoblesVirtualawlibrary
Considering that the property is located at the junction of the roads leading to Toril and Calinan districts with big
establishments all around, plaintiffs claim that at the time of the filing of this case which was in 1994, the reasonable
market value of the land was P1,200.00 per square meter. To date, the value could reasonably be P3,000.00 per square
meter.19chanroblesvirtuallawlibrary
Opining that the respondents should be indemnified the value of the loss suffered from the illegal foreclosure of the
property covered by TCT No. T-66139, theCA adopted the valuation by the RTC on the established fair market value of
the property being P3,000.00/square meter, for a total of P1,700,000.00 as damages to be awarded.20chanrobleslaw

The petitioner challenges the valuation as devoid of basis. It points out that the complaint of the Spouses Alonday had
placed the value of the property at P1,200.00/square meter; and that respondent Alberto Alonday had testified during the
trial that the value of the property had been only P1,200.00/square meter.

We uphold the challenge by the petitioner.

We are at a loss at how the RTC had computed and determined the valuation at P3,000.00/square meter. Such
determination was easily the product of guesswork on the part of the trial court, for the language employed in its judgment
in reference to such value was "could reasonably be."21 On its part, the CA adverted to the valuation as "approximately
P3,000.00,"22 indicating that its own determination of the fair market value was of similar tenor as that by the RTC.
Accordingly, the valuation by both lower courts cannot be upheld, for it is basic enough that in their determination of
actual damages, the comis should eschew mere assertions, speculations, conjectures or guesswork;23 otherwise, they
would be guilty of arbitrariness and whimsicality.

Moreover, the courts cannot grant reliefs not prayed for in the pleadings or in excess of what is being sought by the
party.24chanrobleslaw

To accord with what is fair, based on the records, we reduce the basis of the actual damages to P1,200.00/square meter.
Such valuation is insulated from arbitrariness because it was made by the Spouses Alonday themselves in their complaint,
rendering a total of P717,600.00 as actual damages.

The lower courts did not impose interest on the judgment obligation to be paid by the petitioner. Such interest is in the
nature of compensatory interest, as distinguished from monetary interest. It is relevant to elucidate on the distinctions
between these kinds of interest. In this regard, the Court has expounded in Siga-an v. Villanueva:25cralawredcralawred
Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary
interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages. This is called
compensatory interest. The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure
to pay the principal loan on which interest is demanded.

Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest shall be due unless
it has been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment of monetary interest
is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment
of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest.
Thus, we have held that collection of interest without any stipulation therefor in writing is prohibited by law.

xxxx

There are instances in which an interest may be imposed even in the absence of express stipulation, verbal or written,
regarding payment of interest. Article 2209 of the Civil Code states that if the obligation consists in the payment of a sum
of money, and the debtor incurs delay, a legal interest of 12% per annum may be imposed as indemnity for damages if no
stipulation on the payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due
shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point.

All the same, the interest under these two instances may be imposed only as a penalty or damages for breach of
contractual obligations. It cannot be charged as a compensation for the use or forbearance of money. In other words, the
two instances apply only to compensatory interest and not to monetary interest.26 xxx
The petitioner should be held liable for interest on the actual damages of P717,600.00 representing the value of the
propetiy with an area 598 square meters that was lost to them through the unwarranted foreclosure, the same to be
reckoned from the date of judicial demand (i.e., the filing of the action by the Spouses Alonday). At the time thereof, the
rate was 12% per annum, and such rate shall run until June 30, 2013. Thereafter, or starting on July 1, 2013, the rate of
interest shall be 6% per annum until full payment of the obligation, pursuant to the ruling in Nacar v. Gallery
Frames,27 which took into consideration the lowering of interest rates by the Monetary Board.

In addition, Article 221228 of the Civil Code requires that interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point. Accordingly, the interest due shall itself earn legal
interest of 6% per annum from the date of finality of the judgment until its full satisfaction, the interim period being
deemed to be an equivalent to a forbearance of credit.29chanrobleslaw

WHEREFORE, the Court AFFIRMS the decision promulgated in C.A.-G.R. CV No. 60625 on August 31, 2005 in all
respects subject to the following MODIFICATIONS, namely: (1) the award of P1,700,000.00 representing the value of
the land covered by Transfer Certificate of Title No. T-66139 of the Registry of Deeds of Davao City is REDUCED to
P717,600.00, the same to be paid by petitioner Philippine National Bank; (2) the principal amount of P717,600.00 shall
earn interest of 12% per annumfrom the filing of the complaint until June 30, 2013, and interest of 6% per annum from
July 1, 2013 until full payment; and (3) the interests thus earned shall also earn interest of 6% per annum from the finality
of this decision until full payment.

SO ORDERED.