[G.R. No. 128996.

February 15, 2002]

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

xxx

xxx

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

Carmen Intengan
Rosario Neri
Rita Brawner

All the above persons/parties have long standing accounts with Citibank, N.A. in savings/dollar deposits and/or in trust
accounts and/or money placements.

As evidence, Lim annexed bank records purporting to establish the deception practiced by Santos and Genuino.
Some of the documents pertained to the dollar deposits of petitioners Carmen Ll. Intengan, Rosario Ll. Neri, and Rita
P. Brawner, as follows:
a) Annex A-6[7] - an Application for Money Transfer in the amount of US $140,000.00, executed by
Intengan in favor of Citibank $ S/A No. 24367796, to be debited from her Account No. 22543341;
b) Annex A-7[8] - a Money Transfer Slip in the amount of US $45,996.30, executed by Brawner in favor of
Citibank $ S/A No. 24367796, to be debited from her Account No. 22543236; and
c) Annex A-9[9] - an Application for Money Transfer in the amount of US $100,000.00, executed by Neri in
favor of Citibank $ S/A No. 24367796, to be debited from her Account No. 24501018.
In turn, private respondent Joven Reyes, vice-president/business manager of the Global Consumer Banking
Group of Citibank, admits to having authorized Lim to state the names of the clients involved and to attach the
pertinent bank records, including those of petitioners. [10] He states that private respondents Aziz Rajkotwala and
William Ferguson, Citibank, N.A. Global Consumer Banking Country Business Manager and Country Corporate
Officer, respectively, had no hand in the disclosure, and that he did so upon the advice of counsel.
In his memorandum, the Solicitor General described the scheme as having been conducted in this manner:
First step: Santos and/or Genuino would tell the bank client that they knew of financial products of other companies
that were yielding higher rates of interests in which the bank client can place his money. Acting on this information, the
bank client would then authorize the transfer of his funds from his Citibank account to the Citibank account of
either Torrance or Global.
The transfer of the Citibank clients deposits was done through the accomplishment of either an Application For
Managers Checks or a Term Investment Application in favor of Global or Torrance that was prepared/filed by Genuino
herself.
Upon approval of the Application for Managers Checks or Term Investment Application, the funds of the bank client
covered thereof were then deposited in the Citibank accounts of Torrance and/or Global.
Second step: Once the said fund transfers had been effected, Global and/or Torrance would then issue its/ their
checks drawn against its/their Citibank accounts in favor of the other companies whose financial products, such as
securities, shares of stocks and other certificates, were offering higher yields.
Third step: On maturity date(s) of the placements made by Torrance and/or Global in the other companies, using the
monies of the Citibank client, the other companies would then. return the placements to Global and/orTorrance with
the corresponding interests earned.
Fourth step: Upon receipt by Global and/or Torrance of the remittances from the other companies, Global
and/or Torrance would then issue its/their own checks drawn against their Citibank accounts in favor of Santos and
Genuino.
The amounts covered by the checks represent the shares of Santos and Genuino in the margins Global
and/or Torrance had realized out of the placements [using the diverted monies of the Citibank clients] made with the
other companies.
Fifth step: At the same time, Global and/or Torrance would also issue its/their check(s) drawn against its/their Citibank
accounts in favor of the bank client.
The check(s) cover the principal amount (or parts thereof) which the Citibank client had previously transferred, with
the help of Santos and/or Genuino, from his Citibank account to the Citibank account(s) of Global and/or Torrance for
placement in the other companies, plus the interests or earnings his placements in other companies had made less
the spreads made by Global, Torrance, Santos and Genuino.
The complaints which were docketed as I.S. Nos. 93-9969, 93-10058 and 94-1215 were subsequently amended
to include a charge of estafa under Article 315, paragraph 1(b)[11] of the Revised Penal Code.
As an incident to the foregoing, petitioners filed respective motions for the exclusion and physical withdrawal of
their bank records that were attached to Lims affidavit.
In due time, Lim and Reyes filed their respective counter-affidavits. [12] In separate Memoranda dated March 8,
1994 and March 15, 1994 2nd Assistant Provincial Prosecutor Hermino T. Ubana, Sr. recommended the dismissal of
petitioners complaints. The recommendation was overruled by Provincial Prosecutor Mauro M. Castro who, in a

Resolution dated August 18, 1994,[13]directed the filing of informations against private respondents for alleged violation
of Republic Act No. 1405, otherwise known as the Bank Secrecy Law.
Private respondents counsel then filed an appeal before the Department of Justice (DOJ). On November 17,
1994, then DOJ Secretary Franklin M. Drilon issued a Resolution [14] ordering,inter alia, the withdrawal of the aforesaid
informations against private respondents. Petitioners motion for reconsideration [15] was denied by DOJ Acting
Secretary Demetrio G. Demetria in a Resolution dated March 6, 1995.[16]
Initially, petitioners sought the reversal of the DOJ resolutions via a petition for certiorari and mandamus filed with
this Court, docketed as G.R. No. 119999-120001. However, the former First Division of this Court, in a Resolution
dated June 5, 1995,[17] referred the matter to the Court of the Appeals, on the basis of the latter tribunals concurrent
jurisdiction to issue the extraordinary writs therein prayed for. The petition was docketed as CA-G.R. SP No. 37577 in
the Court of Appeals.
On July 8, 1996, the Court of Appeals rendered judgment dismissing the petition in CA-G.R. SP No. 37577 and
declared therein, as follows:
Clearly, the disclosure of petitioners deposits was necessary to establish the allegation that Santos and Genuino had
violated Section 31 of the Corporation Code in acquiring any interest adverse to the corporation in respect of any
matter which has been reposed in him in confidence. To substantiate the alleged scheme of Santos and Genuino,
private respondents had to present the records of the monies which were manipulated by the two officers which
included the bank records of herein petitioners.
Although petitioners were not the parties involved in IS. No. 93-8469, their accounts were relevant to the complete
prosecution of the case against Santos and Genuino and the respondent DOJ properly ruled that the disclosure of the
same falls under the last exception of R.A. No. 1405. That ruling is consistent with the principle laid down in the case
of Mellon Bank, N.A. vs. Magsino (190 SCRA 633) where the Supreme Court allowed the testimonies on the bank
deposits of someone not a party to the case as it found that said bank deposits were material or relevant to the
allegations in the complaint. Significantly, therefore, as long as the bank deposits are material to the case, although
not necessarily the direct subject matter thereof, a disclosure of the same is proper and falls within the scope of the
exceptions provided for by R.A. No. 1405.
xxx

xxx

xxx

Moreover, the language of the law itself is clear and cannot be subject to different interpretations. A reading of the
provision itself would readily reveal that the exception or in cases where the money deposited or invested is the
subject matter of the litigation is not qualified by the phrase upon order of competent Court which refers only to
cases of bribery or dereliction of duty of public officials.
Petitioners motion for reconsideration was similarly denied in a Resolution dated April 16, 1997. Appeal was
made in due time to this Court.
The instant petition was actually denied by the former Third Division of this Court in a Resolution [18] dated July 16,
1997, on the ground that petitioners had failed to show that a reversible error had been committed. On motion,
however, the petition was reinstated[19] and eventually given due course.[20]
In assailing the appellate courts findings, petitioners assert that the disclosure of their bank records was
unwarranted and illegal for the following reasons:
I.
IN BLATANT VIOLATION OF R.A. NO. 1405, PRIVATE RESPONDENTS ILLEGALLY MADE DISCLOSURES OF
PETITIONERS CONFIDENTIAL BANK DEPOSITS FOR THEIR SELFISH ENDS IN PROSECUTING THEIR
COMPLAINT IN IS. NO. 93-8469 THAT DID NOT INVOLVE PETITIONERS.
II.
PRIVATE RESPONDENTS DISCLOSURES DO NOT FALL UNDER THE FOURTH EXCEPTION OF R.A. NO.
1405 (i.e., in cases where the money deposited or invested is the subject matter of the litigation), NOR UNDER
ANY OTHER EXCEPTION:
(1)
PETITIONERS DEPOSITS ARE NOT INVOLVED IN ANY LITIGATION BETWEEN PETITIONERS AND
RESPONDENTS. THERE IS NO LITIGATION BETWEEN THE PARTIES, MUCH LESS ONE INVOLVING
PETITIONERS DEPOSITS AS THE SUBJECT MATTER THEREOF.
(2)
EVEN ASSUMING ARGUENDO THAT THERE IS A LITIGATION INVOLVING PETITIONERS DEPOSITS
AS THE SUBJECT MATTER THEREOF, PRIVATE RESPONDENTS DISCLOSURES OF PETITIONERS
DEPOSITS ARE NEVERTHELESS ILLEGAL FOR WANT OF THE REQUISITE COURT ORDER, IN
VIOLATION OF R.A. NO. 1405.
III.

THEREFORE, PETITIONERS ARE ENTITLED TO PROSECUTE PRIVATE RESPONDENTS FOR VIOLATIONS

OF R.A. NO. 1405 FOR HAVING ILLEGALLY DISCLOSED PETITIONERS CONFIDENTIAL BANK DEPOSITS
AND RECORDS IN IS. NO. 93-8469.
Apart from the reversal of the decision and resolution of the appellate court as well as the resolutions of the
Department of Justice, petitioners pray that the latter agency be directed to issue a resolution ordering the Provincial
Prosecutor of Rizal to file the corresponding informations for violation of Republic Act No. 1405 against private
respondents.
The petition is not meritorious.
Actually, this case should have been studied more carefully by all concerned. The finest legal minds in the
country - from the parties respective counsel, the Provincial Prosecutor, the Department of Justice, the Solicitor
General, and the Court of Appeals - all appear to have overlooked a single fact which dictates the outcome of the
entire controversy. A circumspect review of the record shows us the reason. The accounts in question are U.S. dollar
deposits; consequently, the applicable law is not Republic Act No. 1405 but Republic Act (RA) No. 6426, known as the
Foreign Currency Deposit Act of the Philippines, section 8 of which provides:
Sec. 8. Secrecy of Foreign Currency Deposits.- All foreign currency deposits authorized under this Act, as amended
by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034,
are hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of
the depositor, in no instance shall such foreign currency deposits be examined, inquired or looked into by any person,
government official bureau or office whether judicial or administrative or legislative or any other entity whether public
or private: Provided, however, that said foreign currency deposits shall be exempt from attachment, garnishment, or
any other order or process of any court, legislative body, government agency or any administrative body whatsoever.
[21]
(italics supplied)
Thus, under R.A. No. 6426 there is only a single exception to the secrecy of foreign currency deposits, that is,
disclosure is allowed only upon the written permission of the depositor. Incidentally, the acts of private respondents
complained of happened before the enactment on September 29, 2001 of R.A. No. 9160 otherwise known as the AntiMoney Laundering Act of 2001.
A case for violation of Republic Act No. 6426 should have been the proper case brought against private
respondents. Private respondents Lim and Reyes admitted that they had disclosed details of petitioners dollar
deposits without the latters written permission. It does not matter if that such disclosure was necessary to establish
Citibanks case against Dante L. Santos and Marilou Genuino. Lims act of disclosing details of petitioners bank
records regarding their foreign currency deposits, with the authority of Reyes, would appear to belong to that species
of criminal acts punishable by special laws, called malum prohibitum. In this regard, it has been held that:
While it is true that, as a rule and on principles of abstract justice, men are not and should not be held criminally
responsible for acts committed by them without guilty knowledge and criminal or at least evil intent xxx, the courts
have always recognized the power of the legislature, on grounds of public policy and compelled by necessity, the
great master of things, to forbid in a limited class of cases the doing of certain acts, and to make their commission
criminal without regard to the intent of the doer. xxx In such cases no judicial authority has the power to require, in the
enforcement of the law, such knowledge or motive to be shown. As was said in the case of State vs. McBrayer xxx:
It is a mistaken notion that positive, willful intent, as distinguished from a mere intent, to violate the criminal law, is an
essential ingredient in every criminal offense, and that where there is the absence of such intent there is no offense;
this is especially so as to statutory offenses. When the statute plainly forbids an act to be done, and it is done by some
person, the law implies conclusively the guilty intent, although the offender was honestly mistaken as to the meaning
of the law he violates. When the language is plain and positive, and the offense is not made to depend upon the
positive, willful intent and purpose, nothing is left to interpretation. [22]
Ordinarily, the dismissal of the instant petition would have been without prejudice to the filing of the proper
charges against private respondents. The matter would have ended here were it not for the intervention of time,
specifically the lapse thereof. So as not to unduly prolong the settlement of the case, we are constrained to rule on a
material issue even though it was not raised by the parties. We refer to the issue of prescription.
Republic Act No. 6426 being a special law, the provisions of Act No. 3326, [23] as amended by Act No. 3763, are
applicable:
SECTION 1. Violations penalized by special acts shall, unless otherwise provided in such acts, prescribe in
accordance with the following rules: (a) after a year for offences punished only by a fine or by imprisonment for not
more than one month, or both: (b) after four years for those punished by imprisonment for more than one month, but
less than two years; (c) after eight years for those punished by imprisonment for two years or more, but less than six
years; and (d) after twelve years for any other offence punished by imprisonment for six years or more, except the

crime of treason, which shall prescribe after twenty years: Provided, however, That all offences against any law or part
of law administered by the Bureau of Internal Revenue shall prescribe after five years. Violations penalized by
municipal ordinances shall prescribe after two months.
Violations of the regulations or conditions of certificates of public convenience issued by the Public Service
Commission shall prescribe after two months.
SEC. 2. Prescription shall begin to run from the day of the commission of the violation of the law, and if the same be
not known at the time, from the discovery thereof and the institution of judicial proceedings for its investigation and
punishment.
The prescription shall be interrupted when proceedings are instituted against the guilty person, and shall begin to run
again if the proceedings are dismissed for reasons not constituting jeopardy.
A violation of Republic Act No. 6426 shall subject the offender to imprisonment of not less than one year nor more
than five years, or by a fine of not less than five thousand pesos nor more than twenty-five thousand pesos, or both.
[24]
Applying Act No. 3326, the offense prescribes in eight years. [25] Per available records, private respondents may no
longer be haled before the courts for violation of Republic Act No. 6426. Private respondent Vic Lim made the
disclosure in September of 1993 in his affidavit submitted before the Provincial Fiscal. [26] In her complaint-affidavit,
[27]
Intengan stated that she learned of the revelation of the details of her foreign currency bank account on October 14,
1993. On the other hand, Neri asserts that she discovered the disclosure onOctober 24, 1993. [28] As to Brawner, the
material date is January 5, 1994.[29] Based on any of these dates, prescription has set in. [30]
The filing of the complaint or information in the case at bar for alleged violation of Republic Act No. 1405 did not
have the effect of tolling the prescriptive period. For it is the filing of the complaint or information corresponding to the
correct offense which produces that effect.[31]
It may well be argued that the foregoing disquisition would leave petitioners with no remedy in law. We point out,
however, that the confidentiality of foreign currency deposits mandated by Republic Act No. 6426, as amended by
Presidential Decree No. 1246, came into effect as far back as 1977. Hence, ignorance thereof cannot be pretended.
On one hand, the existence of laws is a matter of mandatory judicial notice; [32] on the other, ignorantia legis non
excusat.[33] Even during the pendency of this appeal, nothing prevented the petitioners from filing a complaint charging
the correct offense against private respondents. This was not done, as everyone involved was content to submit the
case on the basis of an alleged violation of Republic Act No. 1405 (Bank Secrecy Law), however, incorrectly invoked.
[34]

WHEREFORE, the petition is hereby DENIED. No pronouncement as to costs.

SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

G.R. No. 90027 March 3, 1993

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

DAVIDE, JR., J.:

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

On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay defendant the
amount of FIVE THOUSAND (P5,000.00) PESOS as attorney's fees.
With costs against plaintiff. 6
The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of the contract of
lease, the Bank has no liability for the loss of the certificates of title. The court declared that the said provisions are
binding on the parties.
Its motion for reconsideration 7 having been denied, petitioner appealed from the adverse decision to the respondent
Court of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the respondent Court to
reverse the challenged decision because the trial court erred in (a) absolving the respondent Bank from liability from
the loss, (b) not declaring as null and void, for being contrary to law, public order and public policy, the provisions in
the contract for lease of the safety deposit box absolving the Bank from any liability for loss, (c) not concluding that in
this jurisdiction, as well as under American jurisprudence, the liability of the Bank is settled and (d) awarding attorney's
fees to the Bank and denying the petitioner's prayer for nominal and exemplary damages and attorney's fees. 8
In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed decision principally on the theory
that the contract (Exhibit "2") executed by the petitioner and respondent Bank is in the nature of a contract of lease by
virtue of which the petitioner and its co-renter were given control over the safety deposit box and its contents while the
Bank retained no right to open the said box because it had neither the possession nor control over it and its contents.
As such, the contract is governed by Article 1643 of the Civil Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or
use of a thing for a price certain, and for a period which may be definite or indefinite. However, no
lease for more than ninety-nine years shall be valid.
It invoked Tolentino vs. Gonzales 11 which held that the owner of the property loses his control over the
property leased during the period of the contract and Article 1975 of the Civil Code which provides:
Art. 1975. The depositary holding certificates, bonds, securities or instruments which earn interest
shall be bound to collect the latter when it becomes due, and to take such steps as may be necessary
in order that the securities may preserve their value and the rights corresponding to them according to
law.
The above provision shall not apply to contracts for the rent of safety deposit boxes.
and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain the contents of the
box. The stipulation absolving the defendant-appellee from liability is in accordance with the nature of the
contract of lease and cannot be regarded as contrary to law, public order and public policy." 12 The appellate
court was quick to add, however, that under the contract of lease of the safety deposit box, respondent Bank
is not completely free from liability as it may still be made answerable in case unauthorized persons enter into
the vault area or when the rented box is forced open. Thus, as expressly provided for in stipulation number 8
of the contract in question:
8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe
and beyond this, the Bank will not be responsible for the contents of any safe rented from it. 13
Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August
1989, 15 petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and set aside the
respondent Court's ruling. Petitioner avers that both the respondent Court and the trial court (a) did not properly and
legally apply the correct law in this case, (b) acted with grave abuse of discretion or in excess of jurisdiction amounting
to lack thereof and (c) set a precedent that is contrary to, or is a departure from precedents adhered to and affirmed by
decisions of this Court and precepts in American jurisprudence adopted in the Philippines. It reiterates the arguments
it had raised in its motion to reconsider the trial court's decision, the brief submitted to the respondent Court and the
motion to reconsider the latter's decision. In a nutshell, petitioner maintains that regardless of nomenclature, the
contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit governed by Title XII, Book
IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of title
pursuant to Article 1972 of the said Code which provides:
Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the
depositor, or to his heirs and successors, or to the person who may have been designated in the

contract. His responsibility, with regard to the safekeeping and the loss of the thing, shall be governed
by the provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that
the depositary must observe.
Petitioner then quotes a passage from American Jurisprudence
prevailing rule in the United States, to wit:

17

which is supposed to expound on the

The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box or
safe and the lessee takes possession of the box or safe and places therein his securities or other
valuables, the relation of bailee and bail or is created between the parties to the transaction as to such
securities or other valuables; the fact that the
safe-deposit company does not know, and that it is not expected that it shall know, the character or
description of the property which is deposited in such safe-deposit box or safe does not change that
relation. That access to the contents of the safe-deposit box can be had only by the use of a key
retained by the lessee ( whether it is the sole key or one to be used in connection with one retained by
the lessor) does not operate to alter the foregoing rule. The argument that there is not, in such a case,
a delivery of exclusive possession and control to the deposit company, and that therefore the situation
is entirely different from that of ordinary bailment, has been generally rejected by the courts, usually
on the ground that as possession must be either in the depositor or in the company, it should
reasonably be considered as in the latter rather than in the former, since the company is, by the
nature of the contract, given absolute control of access to the property, and the depositor cannot gain
access thereto without the consent and active participation of the company. . . . (citations omitted).
and a segment from Words and Phrases 18 which states that a contract for the rental of a bank safety deposit
box in consideration of a fixed amount at stated periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and public policy and
should be declared null and void. In support thereof, it cites Article 1306 of the Civil Code which provides that parties
to a contract may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order or public policy.
After the respondent Bank filed its comment, this Court gave due course to the petition and required the parties to
simultaneously submit their respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an ordinary
contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe to its view that the
same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; 19the
contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease
under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the
joint renters the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without
this key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open
the box without the renter's key. In this case, the said key had a duplicate which was made so that both renters could
have access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article 1975, also
relied upon by the respondent Court, be invoked as an argument against the deposit theory. Obviously, the first
paragraph of such provision cannot apply to a depositary of certificates, bonds, securities or instruments which earn
interest if such documents are kept in a rented safety deposit box. It is clear that the depositary cannot open the box
without the renter being present.
We observe, however, that the deposit theory itself does not altogether find unanimous support even in American
jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is that the relation between a bank
renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bail or and bailee,
the bailment being for hire and mutual benefit. 21 This is just the prevailing view because:
There is, however, some support for the view that the relationship in question might be more properly
characterized as that of landlord and tenant, or lessor and lessee. It has also been suggested that it
should be characterized as that of licensor and licensee. The relation between a bank, safe-deposit
company, or storage company, and the renter of a safe-deposit box therein, is often described as
contractual, express or implied, oral or written, in whole or in part. But there is apparently no

jurisdiction in which any rule other than that applicable to bailments governs questions of the liability
and rights of the parties in respect of loss of the contents of safe-deposit boxes. 22 (citations omitted)
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this
jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking
Act 23pertinently provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions
other than building and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety
deposit boxes for the safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section
asdepositories or as agents. . . . 24 (emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody
of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered
into orally or in writing 25 and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects
deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be
liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the
agreement. 26 In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a
family is to be observed. 27Hence, any stipulation exempting the depositary from any liability arising from the loss of
the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy.
In the instant case, petitioner maintains that conditions 13 and 14 of the questioned contract of lease of the safety
deposit box, which read:
13. The bank is not a depositary of the contents of the safe and it has neither the possession nor
control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it
assumes absolutely no liability in connection therewith. 28
are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for
indeed, said provisions are inconsistent with the respondent Bank's responsibility as a depositary under
Section 72(a) of the General Banking Act. Both exempt the latter from any liability except as contemplated in
condition 8 thereof which limits its duty to exercise reasonable diligence only with respect to who shall be
admitted to any rented safe, to wit:
8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe
and beyond this, the Bank will not be responsible for the contents of any safe rented from it. 29
Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is
not correct to assert that the Bank has neither the possession nor control of the contents of the box since in
fact, the safety deposit box itself is located in its premises and is under its absolute control; moreover, the
respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot open their respective
boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to the extent above
stated, the foregoing conditions in the contract in question are void and ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company,
the parties, since the relation is a contractual one, may by special contract define their respective
duties or provide for increasing or limiting the liability of the deposit company, provided such contract
is not in violation of law or public policy. It must clearly appear that there actually was such a special
contract, however, in order to vary the ordinary obligations implied by law from the relationship of the
parties; liability of the deposit company will not be enlarged or restricted by words of doubtful
meaning. The company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or
negligence or that of its agents or servants, and if a provision of the contract may be construed as an
attempt to do so, it will be held ineffective for the purpose. Although it has been held that the lessor of

a safe-deposit box cannot limit its liability for loss of the contents thereof through its own negligence,
the view has been taken that such a lessor may limits its liability to some extent by agreement or
stipulation. 30 (citations omitted)
Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should be
dismissed, but on grounds quite different from those relied upon by the Court of Appeals. In the instant case, the
respondent Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be based on or proceed from a
characterization of the impugned contract as a contract of lease, but rather on the fact that no competent proof was
presented to show that respondent Bank was aware of the agreement between the petitioner and the Pugaos to the
effect that the certificates of title were withdrawable from the safety deposit box only upon both parties' joint
signatures, and that no evidence was submitted to reveal that the loss of the certificates of title was due to the fraud or
negligence of the respondent Bank. This in turn flows from this Court's determination that the contract involved was
one of deposit. Since both the petitioner and the Pugaos agreed that each should have one (1) renter's key, it was
obvious that either of them could ask the Bank for access to the safety deposit box and, with the use of such key and
the Bank's own guard key, could open the said box, without the other renter being present.
Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had been
established, the trial court erred in condemning the petitioner to pay the respondent Bank attorney's fees. To this
extent, the Decision (dispositive portion) of public respondent Court of Appeals must be modified.
WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from the 4 July
1989 Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the
pronouncement We made above on the nature of the relationship between the parties in a contract of lease of safety
deposit boxes, the dispositive portion of the said Decision is hereby AFFIRMED and the instant Petition for Review is
otherwise DENIED for lack of merit.
No pronouncement as to costs.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.
Gutierrez, Jr., J., is on leave.

G.R. No. 102970 May 13, 1993

LUZAN SIA, petitioner,
vs.
COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents.
Asuncion Law Offices for petitioner.
Cauton, Banares, Carpio & Associates for private respondent.

DAVIDE, JR., J.:

The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21 August
1991, 1reversing and setting aside the Decision, dated 19 February 1990, 2 of Branch 47 of the Regional Trial Court
(RTC) of Manila in Civil Case No. 87-42601, entitled "LUZAN SIA vs. SECURITY BANK and TRUST CO.," is
challenged in this petition for review on certiorari under Rule 45 of the Rules Court.
Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stamp collection of the
plaintiff (petitioner herein) contained in Safety Deposit Box No. 54 which had been rented from the defendant pursuant
to a contract denominated as a Lease Agreement. 3 Judgment therein was rendered in favor of the dispositive portion
of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against
the defendant, Security Bank & Trust Company, ordering the defendant bank to pay the plaintiff the
sum of
a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;
b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral damages; and
c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and legal expenses.
The counterclaim set up by the defendant are hereby dismissed for lack of merit.
No costs.
SO ORDERED. 4
The antecedent facts of the present controversy are summarized by the public respondent in its challenged decision
as follows:
The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at its
Binondo Branch located at the Fookien Times Building, Soler St., Binondo, Manila wherein he placed
his collection of stamps. The said safety deposit box leased by the plaintiff was at the bottom or at the
lowest level of the safety deposit boxes of the defendant bank at its aforesaid Binondo Branch.
During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's
premises, seeped into the safety deposit box leased by the plaintiff and caused, according to the
plaintiff, damage to his stamps collection. The defendant bank rejected the plaintiff's claim for
compensation for his damaged stamps collection, so, the plaintiff instituted an action for damages
against the defendant bank.
The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis of
the "Rules and Regulations Governing the Lease of Safe Deposit Boxes" (Exhs. "A-1", "1-A"),
particularly paragraphs 9 and 13, which reads (sic):
"9. The liability of the Bank by reason of the lease, is limited to the exercise of the diligence to prevent
the opening of the safe by any person other than the Renter, his authorized agent or legal
representative;

xxx xxx xxx

"13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the
control of the same. The Bank has no interest whatsoever in said contents, except as herein provided,
and it assumes absolutely no liability in connection therewith."
The defendant bank also contended that its contract with the plaintiff over safety deposit box No. 54
was one of lease and not of deposit and, therefore, governed by the lease agreement (Exhs. "A", "L")
which should be the applicable law; that the destruction of the plaintiff's stamps collection was due to
a calamity beyond obligation on its part to notify the plaintiff about the floodwaters that inundated its
premises at Binondo branch which allegedly seeped into the safety deposit box leased to the plaintiff.
The trial court then directed that an ocular inspection on (sic) the contents of the safety deposit box be
conducted, which was done on December 8, 1988 by its clerk of court in the presence of the parties
and their counsels. A report thereon was then submitted on December 12, 1988 (Records, p. 98-A)
and confirmed in open court by both parties thru counsel during the hearing on the same date (Ibid.,
p. 102) stating:
"That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan Sia and the
Acting Branch Manager Jimmy B. Ynion in the presence of the undersigned, plaintiff's
and defendant's counsel. Said Safety Box when opened contains two albums of
different sizes and thickness, length and width and a tin box with printed word 'Tai
Ping Shiang Roast Pork in pieces with Chinese designs and character."
Condition of the above-stated Items
"Both albums are wet, moldy and badly damaged.
1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in thick. The leaves of
the album are attached to every page and cannot be lifted without destroying it, hence the stamps
contained therein are no longer visible.
2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch thick. Some of its pages
can still be lifted. The stamps therein can still be distinguished but beyond restoration. Others have
lost its original form.
3. The tin box is rusty inside. It contains an album with several pieces of papers stuck up to the cover
of the box. The condition of the album is the second abovementioned album." 5
The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial court's decision to
the public respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No. 26737.
In urging the public respondent to reverse the decision of the trial court, SBTC contended that the latter erred in (a)
holding that the lease agreement is a contract of adhesion; (b) finding that the defendant had failed to exercise the
required diligence expected of a bank in maintaining the safety deposit box; (c) awarding to the plaintiff actual
damages in the amount of P20,000.00, moral damages in the amount of P100,000.00 and attorney's fees and legal
expenses in the amount of P5,000.00; and (d) dismissing the counterclaim.
On 21 August 1991, the respondent promulgated its decision the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED and instead the appellee's
complaint is hereby DISMISSED. The appellant bank's counterclaim is likewise DISMISSED. No
costs.6
In reversing the trial court's decision and absolving SBTC from liability, the public respondent found and ruled that:
a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the terms and conditions of the contract of
lease which the appellee (now petitioner) had voluntarily and knowingly executed with SBTC;
b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit wherein
the bank became a depositary of the subject stamp collection; hence, as contended by SBTC, the provisions of Book
IV, Title XII of the Civil Code on deposits do not apply;

c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC's liability:
9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent
the opening of the Safe by any person other than the Renter, his authorized agent or legal
representative.
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the
control of the same. The Bank has no interest whatsoever in said contents, except as herein provided,
and it assumes absolutely no liability in connection therewith.
are valid since said stipulations are not contrary to law, morals, good customs, public order or public policy; and
d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining the safety
deposit box; what was proven was that the floods of 1985 and 1986, which were beyond the control of SBTC, caused
the damage to the stamp collection; said floods were fortuitous events which SBTC should not be held liable for since
it was not shown to have participated in the aggravation of the damage to the stamp collection; on the contrary, it
offered its services to secure the assistance of an expert in order to save most of the stamps, but the appellee
refused; appellee must then bear the lose under the principle of "res perit domino."
Unsuccessful in his bid to have the above decision reconsidered by the public respondent, 7 petitioner filed the instant
petition wherein he contends that:
I
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE RESPONDENT
COURT WHEN IT RULED THAT RESPONDENT SBTC DID NOT FAIL TO EXERCISE THE
REQUIRED DILIGENCE IN MAINTAINING THE SAFETY DEPOSIT BOX OF THE PETITIONER
CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST (sic) PROVING THE CONTRARY.
II
THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE RESPONDENT
FROM ANY LIABILITY WHATSOEVER BY REASON OF THE PROVISIONS OF PARAGRAPHS 9
AND 13 OF THE AGREEMENT (EXHS. "A" AND "A-1").
III
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE AWARDS OF THE
TRIAL COURT FOR ACTUAL AND MORAL DAMAGES, INCLUDING ATTORNEY'S FEES AND
LEGAL EXPENSES, IN FAVOR OF THE PETITIONER. 8
We subsequently gave due course the petition and required both parties to submit their respective memoranda, which
they complied with. 9
Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required diligence expected of
a bank maintaining such safety deposit box . . . in the light of the environmental circumstance of said safety deposit
box after the floods of 1985 and 1986." He argues that such a conclusion is supported by the evidence on record, to
wit: SBTC was fully cognizant of the exact location of the safety deposit box in question; it knew that the premises
were inundated by floodwaters in 1985 and 1986 and considering that the bank is guarded twenty-four (24) hours a
day , it is safe to conclude that it was also aware of the inundation of the premises where the safety deposit box was
located; despite such knowledge, however, it never bothered to inform the petitioner of the flooding or take any
appropriate measures to insure the safety and good maintenance of the safety deposit box in question.
SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of facts of the Court of Appeals,
when supported by substantial exidence, are not reviewable on appeal by certiorari. 10
The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity between the
factual findings and conclusions of the Court of Appeals and the trial court. 11 Such a disparity obtains in the present
case.

As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease Agreement " covering
Safe Deposit Box No. 54 (Exhibit "A and "1") is just that a contract of lease and not a contract of deposit, and
that paragraphs 9 and 13 thereof, which expressly limit the bank's liability as follows:
9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent
the opening of the Safe by any person other than the Renter, his autliorized agent or legal
representative;
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the
control of the same. The Bank has no interest whatsoever said contents, except as herein provided,
and it assumes absolutely no liability in connection therewith. 12
are valid and binding upon the parties. In the challenged decision, the public respondent further avers that even
without such a limitation of liability, SBTC should still be absolved from any responsibility for the damage sustained by
the petitioner as it appears that such damage was occasioned by a fortuitous event and that the respondent bank was
free from any participation in the aggravation of the injury.
We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be impressed with merit.
In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this Court explicitly rejected the
contention that a contract for the use of a safety deposit box is a contract of lease governed by Title VII, Book IV of the
Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit to be strictly governed by the Civil
Code provision on deposit; 14 it is, as We declared, a special kind of deposit. The prevailing rule in American
jurisprudence that the relation between a bank renting out safe deposit boxes and its customer with respect to the
contents of the box is that of a bailor and bailee, the bailment for hire and mutual benefit 15 has been adopted in this
jurisdiction, thus:
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is
clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of
the General Banking Act [R.A. 337, as amended] pertinently provides:
"Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking
institutions other than building and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety
deposit boxes for the safequarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section
asdepositories or as agents. . . ."(emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out
of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal
function. A contract of deposit may be entered into orally or in writing (Art. 1969, Civil Code] and,
pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order or public policy. The depositary's responsibility for the safekeeping of the
objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the
depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement [Art. 1170, id.]. In the absence of any stipulation
prescribing the degree of diligence required, that of a good father of a family is to be observed [Art.
1173, id.]. Hence, any stipulation exempting the depositary from any liability arising from the loss of
the thing deposited on account of fraud, negligence or delay would be void for being contrary to law
and public policy. In the instant case, petitioner maintains that conditions 13 and l4 of the questioned
contract of lease of the safety deposit box, which read:
"13. The bank is a depositary of the contents of the safe and it has neither the possession nor control
of the same.

"14. The bank has no interest whatsoever in said contents, except as herein expressly provided, and it
assumes absolutely no liability in connection therewith."
are void as they are contrary to law and public policy. We find Ourselves in agreement with this
proposition for indeed, said provisions are inconsistent with the respondent Bank's responsibility as a
depositary under Section 72 (a) of the General Banking Act. Both exempt the latter from any liability
except as contemplated in condition 8 thereof which limits its duty to exercise reasonable diligence
only with respect to who shall be admitted to any rented safe, to wit:
"8. The Bank shall use due diligence that no unauthorized person shall be admitted to
any rented safe and beyond this, the Bank will not be responsible for the contents of
any safe rented from it."
Furthermore condition 13 stands on a wrong premise and is contrary to the actual practice of the
Bank. It is not correct to assert that the Bank has neither the possession nor control of the contents of
the box since in fact, the safety deposit box itself is located in its premises and is under its absolute
control; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters
cannot open their respective boxes unless the Bank cooperates by presenting and using this guard
key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are
void and ineffective. It has been said:
"With respect to property deposited in a safe-deposit box by a customer of a safedeposit company, the parties, since the relation is a contractual one, may by special
contract define their respective duties or provide for increasing or limiting the liability
of the deposit company, provided such contract is not in violation of law or public
policy. It must clearly appear that there actually was such a special contract, however,
in order to vary the ordinary obligations implied by law from the relationship of the
parties; liability of the deposit company will not be enlarged or restricted by words of
doubtful meaning. The company, in renting safe-deposit boxes, cannot exempt itself
from liability for loss of the contents by its own fraud or negligence or that, of its
agents or servants, and if a provision of the contract may be construed as an attempt
to do so, it will be held ineffective for the purpose. Although it has been held that the
lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof
through its own negligence, the view has been taken that such a lessor may limit its
liability to some extent by agreement or stipulation ."[10 AM JUR 2d., 466]. (citations
omitted) 16
It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA AgroIndustrial Development Corp. are strikingly similar to condition No. 13 in the instant case. On the other hand, both
condition No. 8 in CA Agro-Industrial Development Corp. and condition No. 9 in the present case limit the scope of the
exercise of due diligence by the banks involved to merely seeing to it that only the renter, his authorized agent or his
legal representative should open or have access to the safety deposit box. In short, in all other situations, it would
seem that SBTC is not bound to exercise diligence of any kind at all. Assayed in the light of Our aforementioned
pronouncements in CA Agro-lndustrial Development Corp., it is not at all difficult to conclude that both conditions No. 9
and No. 13 of the "Lease Agreement" covering the safety deposit box in question (Exhibits "A" and "1") must be
stricken down for being contrary to law and public policy as they are meant to exempt SBTC from any liability for
damage, loss or destruction of the contents of the safety deposit box which may arise from its own or its agents' fraud,
negligence or delay. Accordingly, SBTC cannot take refuge under the said conditions.
Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of the stamp
collection because the flooding was a fortuitous event and there was no showing of SBTC's participation in the
aggravation of the loss or injury. It states:
Article 1174 of the Civil Code provides:
"Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no
person shall be responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.'
In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada Espaola 17 says: "In a
legal sense and, consequently, also in relation to contracts, a "caso fortuito" prevents (sic) 18 the
following essential characteristics: (1) the cause of the unforeseen ands unexpected occurrence, or of
the failure of the debtor to comply with his obligation, must be independent of the human will; (2) it

must be impossible to foresee the event which constitutes the "caso fortuito," or if it can be foreseen,
it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for one
debtor to fulfill his obligation in a normal manner; and (4) the obligor must be free from any
participation in the aggravation of the injury resulting to the creditor." (cited in Servando vs.Phil.,
Steam Navigation Co., supra). 19
Here, the unforeseen or unexpected inundating floods were independent of the will of the appellant
bank and the latter was not shown to have participated in aggravating damage (sic) to the stamps
collection of the appellee. In fact, the appellant bank offered its services to secure the assistance of
an expert to save most of the then good stamps but the appelle refused and let (sic) these
recoverable stamps inside the safety deposit box until they were ruined. 20
Both the law and authority cited are clear enough and require no further elucidation. Unfortunately, however, the public
respondent failed to consider that in the instant case, as correctly held by the trial court, SBTC was guilty of
negligence. The facts constituting negligence are enumerated in the petition and have been summarized in
this ponencia. SBTC's negligenceaggravated the injury or damage to the stamp collection. SBTC was aware of the
floods of 1985 and 1986; it also knew that the floodwaters inundated the room where Safe Deposit Box No. 54 was
located. In view thereof, it should have lost no time in notifying the petitioner in order that the box could have been
opened to retrieve the stamps, thus saving the same from further deterioration and loss. In this respect, it failed to
exercise the reasonable care and prudence expected of a good father of a family, thereby becoming a party to the
aggravation of the injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent
Article 1170 of the Civil Code, which reads:
Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages,
thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in the language
of the trial court, the "product of 27 years of patience and diligence" 21 caused the petitioner pecuniary loss; hence, he
must be compensated therefor.
We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the relationship
between the petitioner and SBTC is based on a contract, either of them may be held liable for moral damages for
breach thereof only if said party had acted fraudulently or in bad faith. 22 There is here no proof of fraud or bad faith on
the part of SBTC.
WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of the public
respondent Court of Appeals of 21 August 1991 and 21 November 1991, respectively, in CA-G.R. CV No. 26737, are
hereby SET ASIDE and the Decision of 19 February 1990 of Branch 47 of the Regional Trial Court of Manila in Civil
Case No. 87-42601 is hereby REINSTATED in full, except as to the award of moral damages which is hereby set
aside.
Costs against the private respondent.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.

G.R. No. 189206

June 8, 2011

GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,

vs.
THE HONORABLE 15th DIVISION OF THE COURT OF APPEALS and INDUSTRIAL BANK OF KOREA, TONG
YANG MERCHANT BANK, HANAREUM BANKING CORP., LAND BANK OF THE PHILIPPINES, WESTMONT
BANK and DOMSAT HOLDINGS, INC., Respondents.
DECISION
PEREZ, J.:
The subject of this petition for certiorari is the Decision 1 of the Court of Appeals in CA-G.R. SP No. 82647 allowing the
quashal by the Regional Trial Court (RTC) of Makati of a subpoena for the production of bank ledger. This case is
incident to Civil Case No. 99-1853, which is the main case for collection of sum of money with damages filed by
Industrial Bank of Korea, Tong Yang Merchant Bank, First Merchant Banking Corporation, Land Bank of the
Philippines, and Westmont Bank (now United Overseas Bank), collectively known as "the Banks" against Domsat
Holdings, Inc. (Domsat) and the Government Service Insurance System (GSIS). Said case stemmed from a Loan
Agreement,2 whereby the Banks agreed to lend United States (U.S.) $11 Million to Domsat for the purpose of financing
the lease and/or purchase of a Gorizon Satellite from the International Organization of Space Communications
(Intersputnik).3
The controversy originated from a surety agreement by which Domsat obtained a surety bond from GSIS to secure
the payment of the loan from the Banks. We quote the terms of the Surety Bond in its entirety. 4
Republic of the Philippines
GOVERNMENT SERVICE INSURANCE SYSTEM
GENERAL INSURANCE FUND
GSIS Headquarters, Financial Center
Roxas Boulevard, Pasay City
G(16) GIF Bond 027461
SURETYBOND
KNOW ALL MEN BY THESE PRESENTS:
That we, DOMSAT HOLDINGS, INC., represented by its President as PRINCIPAL, and the GOVERNMENT SERVICE
INSURANCE SYSTEM, as Administrator of the GENERAL INSURANCE FUND, a corporation duly organized and
existing under and by virtue of the laws of the Philippines, with principal office in the City of Pasay, Metro Manila,
Philippines as SURETY, are held and firmly bound unto the OBLIGEES: LAND BANK OF THE PHILIPPINES, 7th
Floor, Land Bank Bldg. IV. 313 Sen. Gil J. Puyat Avenue, Makati City; WESTMONT BANK, 411 Quintin Paredes St.,
Binondo, Manila: TONG YANG MERCHANT BANK, 185, 2-Ka, Ulchi-ro, Chungk-ku, Seoul, Korea; INDUSTRIAL
BANK OF KOREA, 50, 2-Ga, Ulchi-ro, Chung-gu, Seoul, Korea; and FIRST MERCHANT BANKING CORPORATION,
199-40, 2-Ga, Euliji-ro, Jung-gu, Seoul, Korea, in the sum, of US $ ELEVEN MILLION DOLLARS ($11,000,000.00) for
the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators,
successors and assigns, jointly and severally, firmly by these presents.
THE CONDITIONS OF THE OBLIGATION ARE AS FOLLOWS:
WHEREAS, the above bounden PRINCIPAL, on the 12th day of December, 1996 entered into a contract agreement
with the aforementioned OBLIGEES to fully and faithfully
Guarantee the repayment of the principal and interest on the loan granted the PRINCIPAL to be used for the financing
of the two (2) year lease of a Russian Satellite from INTERSPUTNIK, in accordance with the terms and conditions of
the credit package entered into by the parties.
This bond shall remain valid and effective until the loan including interest has been fully paid and liquidated,
a copy of which contract/agreement is hereto attached and made part hereof;
WHEREAS, the aforementioned OBLIGEES require said PRINCIPAL to give a good and sufficient bond in the above
stated sum to secure the full and faithful performance on his part of said contract/agreement.

NOW, THEREFORE, if the PRINCIPAL shall well and truly perform and fulfill all the undertakings, covenants, terms,
conditions, and agreements stipulated in said contract/agreements, then this obligation shall be null and void;
otherwise, it shall remain in full force and effect.
WITNESS OUR HANDS AND SEALS this 13th day of December 1996 at Pasay City, Philippines.
DOMSAT HOLDINGS, INC.
Principal

GOVERNMENT SERVICE INSURANCE SYSTEM

General Insurance Fund

By:

By:

CAPT. RODRIGO A. SILVERIO

President

AMALIO A. MALLARI
Senior Vice-President
General Insurance Group

When Domsat failed to pay the loan, GSIS refused to comply with its obligation reasoning that Domsat did not use the
loan proceeds for the payment of rental for the satellite. GSIS alleged that Domsat, with Westmont Bank as the
conduit, transferred the U.S. $11 Million loan proceeds from the Industrial Bank of Korea to Citibank New York account
of Westmont Bank and from there to the Binondo Branch of Westmont Bank. 5 The Banks filed a complaint before the
RTC of Makati against Domsat and GSIS.
In the course of the hearing, GSIS requested for the issuance of a subpoena duces tecum to the custodian of records
of Westmont Bank to produce the following documents:
1. Ledger covering the account of DOMSAT Holdings, Inc. with Westmont Bank (now United Overseas Bank),
any and all documents, records, files, books, deeds, papers, notes and other data and materials relating to the
account or transactions of DOMSAT Holdings, Inc. with or through the Westmont Bank (now United Overseas
Bank) for the period January 1997 to December 2002, in his/her direct or indirect possession, custody or
control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise;
2. All applications for cashiers/ managers checks and bank transfers funded by the account of DOMSAT
Holdings, Inc. with or through the Westmont Bank (now United Overseas Bank) for the period January 1997 to
December 2002, and all other data and materials covering said applications, in his/her direct or indirect
possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of
Records or otherwise;
3. Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont Bank (now United Overseas
Bank), any and all documents, records, files, books, deeds, papers, notes and other data and materials
relating to the account or transactions of Philippine Agila Satellite, Inc. with or through the Westmont bank
(now United Overseas Bank) for the period January 1997 to December 2002, in his/her direct or indirect
possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of
Records or otherwise;
4. All applications for cashiers/managers checks funded by the account of Philippine Agila Satellite, Inc. with
or through the Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002,
and all other data and materials covering said applications, in his/her direct or indirect possession, custody or
control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise. 6
The RTC issued a subpoena decus tecum on 21 November 2002. 7 A motion to quash was filed by the banks on three
grounds: 1) the subpoena is unreasonable, oppressive and does not establish the relevance of the documents sought;
2) request for the documents will violate the Law on Secrecy of Bank Deposits; and 3) GSIS failed to advance the
reasonable cost of production of the documents. 8 Domsat also joined the banks motion to quash through its
Manifestation/Comment.9 On 9 April 2003, the RTC issued an Order denying the motion to quash for lack of merit. We
quote the pertinent portion of the Order, thus:
After a careful consideration of the arguments of the parties, the Court did not find merit in the motion.
The serious objection appears to be that the subpoena is violative of the Law on Secrecy of Bank Deposit, as
amended. The law declares bank deposits to be "absolutely confidential" except: x x x (6) In cases where the money
deposited or invested is the subject matter of the litigation.
The case at bench is for the collection of a sum of money from defendants that obtained a loan from the plaintiff. The
loan was secured by defendant GSIS which was the surety. It is the contention of defendant GSIS that the proceeds of

the loan was deviated to purposes other than to what the loan was extended. The quashal of the subpoena would
deny defendant GSIS its right to prove its defenses.
WHEREFORE, for lack of merit the motion is DENIED.10
On 26 June 2003, another Order was issued by the RTC denying the motion for reconsideration filed by the
banks.11 On 1 September 2003 however, the trial court granted the second motion for reconsideration filed by the
banks. The previous subpoenas issued were consequently quashed. 12 The trial court invoked the ruling in Intengan v.
Court of Appeals,13 where it was ruled that foreign currency deposits are absolutely confidential and may be examined
only when there is a written permission from the depositor. The motion for reconsideration filed by GSIS was denied
on 30 December 2003.
Hence, these assailed orders are the subject of the petition for certiorari before the Court of Appeals. GSIS raised the
following arguments in support of its petition:
I.
Respondent Judge acted with grave abuse of discretion when it favorably considered respondent banks (second)
Motion for Reconsideration dated July 9, 2003 despite the fact that it did not contain a notice of hearing and was
therefore a mere scrap of paper.
II.
Respondent judge capriciously and arbitrarily ignored Section 2 of the Foreign Currency Deposit Act (RA 6426) in
ruling in his Orders dated September 1 and December 30, 2003 that the US$11,000,000.00 deposit in the account of
respondent Domsat in Westmont Bank is covered by the secrecy of bank deposit.
III.
Since both respondent banks and respondent Domsat have disclosed during the trial the US$11,000,000.00 deposit, it
is no longer secret and confidential, and petitioner GSIS right to inquire into what happened to such deposit can not
be suppressed.14
The Court of Appeals addressed these issues in seriatim.
The Court of Appeals resorted to a liberal interpretation of the rules to avoid miscarriage of justice when it allowed the
filing and acceptance of the second motion for reconsideration. The appellate court also underscored the fact that
GSIS did not raise the defect of lack of notice in its opposition to the second motion for reconsideration. The appellate
court held that failure to timely object to the admission of a defective motion is considered a waiver of its right to do so.
The Court of Appeals declared that Domsats deposit in Westmont Bank is covered by Republic Act No. 6426 or the
Bank Secrecy Law. We quote the pertinent portion of the Decision:
It is our considered opinion that Domsats deposit of $11,000,000.00 in Westmont Bank is covered by the Bank
Secrecy Law, as such it cannot be examined, inquired or looked into without the written consent of its owner. The
ruling in Van Twest vs. Court of Appeals was rendered during the effectivity of CB Circular No. 960, Series of 1983,
under Sec. 102 thereof, transfer to foreign currency deposit account or receipt from another foreign currency deposit
account, whether for payment of legitimate obligation or otherwise, are not eligible for deposit under the System.
CB Circular No. 960 has since been superseded by CB Circular 1318 and later by CB Circular 1389. Section 102 of
Circular 960 has not been re-enacted in the later Circulars. What is applicable now is the decision in Intengan vs.
Court of Appeals where the Supreme Court has ruled that the under R.A. 6426 there is only a single exception to the
secrecy of foreign currency deposits, that is, disclosure is allowed only upon the written permission of the depositor.
Petitioner, therefore, had inappropriately invoked the provisions of Central Bank (CB) Circular Nos. 343 which has
already been superseded by more recently issued CB Circulars. CB Circular 343 requires the surrender to the banking
system of foreign exchange, including proceeds of foreign borrowings. This requirement, however, can no longer be
found in later circulars.
In its Reply to respondent banks comment, petitioner appears to have conceded that what is applicable in this case is
CB Circular 1389. Obviously, under CB 1389, proceeds of foreign borrowings are no longer required to be surrendered
to the banking system.

Undaunted, petitioner now argues that paragraph 2, Section 27 of CB Circular 1389 is applicable because Domsats
$11,000,000.00 loan from respondent banks was intended to be paid to a foreign supplier Intersputnik and, therefore,
should have been paid directly to Intersputnik and not deposited into Westmont Bank. The fact that it was deposited to
the local bank Westmont Bank, petitioner claims violates the circular and makes the deposit lose its confidentiality
status under R.A. 6426. However, a reading of the entire Section 27 of CB Circular 1389 reveals that the portion
quoted by the petitioner refers only to the procedure/conditions of drawdown for service of debts using foreign
exchange. The above-said provision relied upon by the petitioner does not in any manner prescribe the conditions
before any foreign currency deposit can be entitled to the confidentiality provisions of R.A. 6426. 15
Anent the third issue, the Court of Appeals ruled that the testimony of the incumbent president of Westmont Bank is
not the written consent contemplated by Republic Act No. 6426.
The Court of Appeals however upheld the issuance of subpoena praying for the production of applications for
cashiers or managers checks by Domsat through Westmont Bank, as well as a copy of an Agreement and/or
Contract and/or Memorandum between Domsat and/or Philippine Agila Satellite and Intersputnik for the acquisition
and/or lease of a Gorizon Satellite. The appellate court believed that the production of these documents does not
involve the examination of Domsats account since it will never be known how much money was deposited into it or
withdrawn therefrom and how much remains therein.
On 29 February 2008, the Court of Appeals rendered the assailed Decision, the decretal portion of which reads:
WHEREFORE, the petition is partially GRANTED. Accordingly, the assailed Order dated December 30, 2003 is hereby
modified in that the quashal of the subpoena for the production of Domsats bank ledger in Westmont Bank is upheld
while respondent court is hereby ordered to issue subpoena duces tecum ad testificandum directing the records
custodian of Westmont Bank to bring to court the following documents:
a) applications for cashiers or managers checks by respondent Domsat through Westmont Bank from
January 1997 to December 2002;
b) bank transfers by respondent Domsat through Westmont Bank from January 1997 to December 2002; and
c) copy of an agreement and/or contract and/or memorandum between respondent Domsat and/or Philippine
Agila Satellite and Intersputnik for the acquisition and/or lease of a Gorizon satellite.
No pronouncement as to costs.16
GSIS filed a motion for reconsideration which the Court of Appeals denied on 19 June 2009. Thus, the instant petition
ascribing grave abuse of discretion on the part of the Court of Appeals in ruling that Domsats deposit with Westmont
Bank cannot be examined and in finding that the banks second motion for reconsideration in Civil Case No. 99-1853
is procedurally acceptable.17
This Court notes that GSIS filed a petition for certiorari under Rule 65 of the Rules of Court to assail the Decision and
Resolution of the Court of Appeals. Petitioner availed of the improper remedy as the appeal from a final disposition of
the Court of Appeals is a petition for review under Rule 45 and not a special civil action under Rule 65. 18 Certiorari
under Rule 65 lies only when there is no appeal, nor plain, speedy and adequate remedy in the ordinary course of law.
That action is not a substitute for a lost appeal in general; it is not allowed when a party to a case fails to appeal a
judgment to the proper forum.19 Where an appeal is available, certiorari will not prosper even if the ground therefor is
grave abuse of discretion. Accordingly, when a party adopts an improper remedy, his petition may be dismissed
outright.20lauuphil
Yet, even if this procedural infirmity is discarded for the broader interest of justice, the petition sorely lacks merit.
GSIS insists that Domsats deposit with Westmont Bank can be examined and inquired into. It anchored its argument
on Republic Act No. 1405 or the "Law on Secrecy of Bank Deposits," which allows the disclosure of bank deposits in
cases where the money deposited is the subject matter of the litigation. GSIS asserts that the subject matter of the
litigation is the U.S. $11 Million obtained by Domsat from the Banks to supposedly finance the lease of a Russian
satellite from Intersputnik. Whether or not it should be held liable as a surety for the principal amount of U.S. $11
Million, GSIS contends, is contingent upon whether Domsat indeed utilized the amount to lease a Russian satellite as
agreed in the Surety Bond Agreement. Hence, GSIS argues that the whereabouts of the U.S. $11 Million is the subject
matter of the case and the disclosure of bank deposits relating to the U.S. $11 Million should be allowed.
GSIS also contends that the concerted refusal of Domsat and the banks to divulge the whereabouts of the U.S. $11
Million will greatly prejudice and burden the GSIS pension fund considering that a substantial portion of this fund is
earmarked every year to cover the surety bond issued.

Lastly, GSIS defends the acceptance by the trial court of the second motion for reconsideration filed by the banks on
the grounds that it is pro forma and did not conform to the notice requirements of Section 4, Rule 15 of the Rules of
Civil Procedure.21
Domsat denies the allegations of GSIS and reiterates that it did not give a categorical or affirmative written consent or
permission to GSIS to examine its bank statements with Westmont Bank.
The Banks maintain that Republic Act No. 1405 is not the applicable law in the instant case because the Domsat
deposit is a foreign currency deposit, thus covered by Republic Act No. 6426. Under said law, only the consent of the
depositor shall serve as the exception for the disclosure of his/her deposit.
The Banks counter the arguments of GSIS as a mere rehash of its previous arguments before the Court of Appeals.
They justify the issuance of the subpoena as an interlocutory matter which may be reconsidered anytime and that the
pro forma rule has no application to interlocutory orders.
It appears that only GSIS appealed the ruling of the Court of Appeals pertaining to the quashal of the subpoena for the
production of Domsats bank ledger with Westmont Bank. Since neither Domsat nor the Banks interposed an appeal
from the other portions of the decision, particularly for the production of applications for cashiers or managers checks
by Domsat through Westmont Bank, as well as a copy of an agreement and/or contract and/or memorandum between
Domsat and/or Philippine Agila Satellite and Intersputnik for the acquisition and/or lease of a Gorizon satellite, the
latter became final and executory.
GSIS invokes Republic Act No. 1405 to justify the issuance of the subpoena while the banks cite Republic Act No.
6426 to oppose it. The core issue is which of the two laws should apply in the instant case.
Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by Presidential Decree No. 1792 in
1981 and further amended by Republic Act No. 7653 in 1993. It now reads:
Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments
in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or
upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the
money deposited or invested is the subject matter of the litigation.
Section 8 of Republic Act No. 6426, which was enacted in 1974, and amended by Presidential Decree No. 1035 and
later by Presidential Decree No. 1246, provides:
Section 8. Secrecy of Foreign Currency Deposits. All foreign currency deposits authorized under this Act, as
amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree
No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the written
permission of the depositor, in no instance shall foreign currency deposits be examined, inquired or looked into by any
person, government official, bureau or office whether judicial or administrative or legislative or any other entity whether
public or private; Provided, however, That said foreign currency deposits shall be exempt from attachment,
garnishment, or any other order or process of any court, legislative body, government agency or any administrative
body whatsoever. (As amended by PD No. 1035, and further amended by PD No. 1246, prom. Nov. 21, 1977.)
On the one hand, Republic Act No. 1405 provides for four (4) exceptions when records of deposits may be disclosed.
These are under any of the following instances: a) upon written permission of the depositor, (b) in cases of
impeachment, (c) upon order of a competent court in the case of bribery or dereliction of duty of public officials or, (d)
when the money deposited or invested is the subject matter of the litigation, and e) in cases of violation of the AntiMoney Laundering Act (AMLA), the Anti-Money Laundering Council (AMLC) may inquire into a bank account upon
order of any competent court.22 On the other hand, the lone exception to the non-disclosure of foreign currency
deposits, under Republic Act No. 6426, is disclosure upon the written permission of the depositor.
These two laws both support the confidentiality of bank deposits. There is no conflict between them. Republic Act No.
1405 was enacted for the purpose of giving encouragement to the people to deposit their money in banking
institutions and to discourage private hoarding so that the same may be properly utilized by banks in authorized loans
to assist in the economic development of the country.23 It covers all bank deposits in the Philippines and no distinction
was made between domestic and foreign deposits. Thus, Republic Act No. 1405 is considered a law of general
application. On the other hand, Republic Act No. 6426 was intended to encourage deposits from foreign lenders and
investors.24 It is a special law designed especially for foreign currency deposits in the Philippines. A general law does
not nullify a specific or special law. Generalia specialibus non derogant. 25 Therefore, it is beyond cavil that Republic
Act No. 6426 applies in this case.

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

FIRST PLANTERS
PAWNSHOP, INC.,
Petitioner,

- versus -

G.R. No. 174134

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

COMMISSIONER OF
INTERNAL REVENUE,
Promulgated:
Respondent.
July 30, 2008
x----------------------------------------------x
DECISION
AUSTRIA-MARTINEZ, J.:
First Planters Pawnshop, Inc. (petitioner) contests the deficiency value-added and documentary stamp taxes imposed upon
it by the Bureau of Internal Revenue (BIR) for the year 2000. The core of petitioner's argument is that it is not a lending investor within
the purview of Section 108(A) of the National Internal Revenue Code (NIRC), as amended, and therefore not subject to value-added
tax (VAT). Petitioner also contends that a pawn ticket is not subject to documentary stamp tax (DST) because it is not proof of the
pledge transaction, and even assuming that it is so, still, it is not subject to tax since a documentary stamp tax is levied on the
document issued and not on the transaction.
The facts:
In a Pre-Assessment Notice dated July 7, 2003, petitioner was informed by the BIR that it has an existing tax deficiency on
its VAT and DST liabilities for the year 2000. The deficiency assessment was at P541,102.79 for VAT and P23,646.33 for DST.
[1]
Petitioner protested the assessment for lack of legal and factual bases.[2]
Petitioner subsequently received a Formal Assessment Notice on December 29, 2003, directing payment of VAT deficiency
in the amount of P541,102.79 and DST deficiency in the amount of P24,747.13, inclusive of surcharge and interest.[3] Petitioner
filed a protest,[4] which was denied by Acting Regional Director Anselmo G. Adriano per Final Decision on Disputed Assessment
dated January 29, 2004.[5]
Petitioner then filed a petition for review with the Court of Tax Appeals (CTA).[6] In a Decision dated May 9, 2005, the
2 Division of the CTA upheld the deficiency assessment.[7] Petitioner filed a motion for reconsideration[8] which was denied in a
Resolution dated October 7, 2005.[9]
nd

Petitioner appealed to the CTA En Banc which rendered a Decision dated June 7, 2006, the dispositive portion of which
reads as follows:
WHEREFORE, premises considered, the Petition for Review is hereby DENIED for lack of merit. The
assailed Decision dated May 9, 2005 and Resolution dated October 7, 2005 are hereby AFFIRMED.
SO ORDERED.[10]
Petitioner sought reconsideration but this was denied by the CTA En Banc per Resolution dated August 14, 2006.[11]
Hence, the present petition for review under Rule 45 of the Rules of Court based on the following grounds:
I
THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN FINDING PETITIONER
LIABLE FOR VAT.
II
THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN RULING THAT PETITIONER
IS LIABLE FOR DST ON PAWN TICKETS.[12]
The determination of petitioner's tax liability depends on the tax treatment of a pawnshop business. Oddly, there has not
been any definitive declaration in this regard despite the fact that pawnshops have long been in existence. All that has been stated is
what pawnshops are not, but not what pawnshops are.

The BIR itself has maintained an ambivalent stance on this issue. Initially, in Revenue Memorandum Order No. 1591 issued on March 11, 1991, a pawnshop business was considered as akin to lending investors business activity and subject to
5% percentage tax beginning January 1, 1991, under Section 116 of the Tax Code of 1977, as amended by E.O. No. 273.[13]
With the passage of Republic Act (R.A.) No. 7716 or the EVAT Law in 1994,[14] the BIR abandoned its earlier position and
maintained that pawnshops are subject to 10% VAT, as implemented by Revenue Regulations No. 7-95. This was complemented
by Revenue Memorandum Circular No. 45-01 dated October 12, 2001, which provided that pawnshop operators are liable to the
10% VAT based on gross receipts beginning January 1, 1996, while pawnshops whose gross annual receipts do not
exceed P550,000.00 are liable for percentage tax, pursuant to Section 109(z) of the Tax Code of 1997.
CTA decisions affirmed the BIR's position that pawnshops are subject to VAT. In H. Tambunting Pawnshop, Inc. v.
Commissioner of Internal Revenue,[15] the CTA ruled that the petitioner therein was subject to 10% VAT under Section 108 of the Tax
Code of 1997. Antam Pawnshop Corporation v. Commissioner of Internal Revenue [16] reiterates said ruling. It was theCTA's view
that the services rendered by pawnshops fall under the general definition of sale or exchange of services under Section 108(A) of
the Tax Code of 1997.
On July 15, 2003, the Court rendered Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.[17] in which it
was categorically ruled that while pawnshops are engaged in the business of lending money, they are not considered lending
investors for the purpose of imposing percentage taxes.[18] The Court gave the following reasons: first, under the 1997 Tax Code,
pawnshops and lending investors were subjected to different tax treatments; second, Congress never intended pawnshops to be
treated in the same way as lending investors; third, Section 116 of the NIRC of 1977 subjects to percentage tax dealers in securities
and lending investors only; and lastly, the BIR had ruled several times prior to the issuance of RMO No. 15-91 and RMC 43-91 that
pawnshops were not subject to the 5% percentage tax on lending investors imposed by Section 116 of the NIRC of 1977, as
amended by Executive Order No. 273.
In view of said ruling, the BIR issued Revenue Memorandum Circular No. 36-2004 dated June 16, 2004, canceling the
previous lending investor's tax assessments on pawnshops. Said Circular stated, inter alia:
In view of the said Supreme Court decision, all assessments on pawnshops for percentage taxes as
lending investors are hereby cancelled. This Circular is being issued for the sole purpose of resolving the tax
liability of pawnshops to the 5% lending investors tax provided under the then Section 116 of the NIRC of 1977, as
amended, and shall not cover issues relating to their other tax liabilities. All internal revenue officials are enjoined
from issuing assessments on pawnshops for percentage taxes on lending investors, under the then Section 116 of
the NIRC of 1977, as amended.
For purposes of the gross receipt tax provided for under Republic Act No. 9294, the pawnshops are
now subject thereof. This shall however, be covered by another issuance.[19]
Revenue Memorandum Circular No. 37-2004 was issued on the same date whereby pawnshop businesses were allowed
to settle their VAT liabilities for the tax years 1996-2002 pursuant to a memorandum of agreement entered into by the Commissioner
of Internal Revenue and the Chambers of Pawnbrokers of the Philippines, Inc. The Circular likewise instructed all revenue officers to
ensure that all VAT due from pawnshops beginning January 1, 2003, including increments thereto, if any, are assessed and
collected from pawnshops under its jurisdiction.
In the interim, however, Congress passed Republic Act (R.A.) No. 9238 on February 5, 2004 entitled, An Act Amending
Certain Sections of the National Internal Revenue Code of 1997, as amended, by Excluding Several Services from the Coverage of
the Value-added Tax and Re-imposing the Gross Receipts Tax on Banks and Non-bank Financial Intermediaries Performing Quasibanking Functions and Other Non-bank Financial Intermediaries beginning January 01, 2004.[20]
Pending publication of R.A. No. 9238, the BIR issued Bank Bulletin No. 2004-01 on February 10, 2004 advising all banks
and non-bank financial intermediaries that they shall remain liable under the VAT system.
When R.A. No. 9238 took effect on February 16, 2004, the Department of Finance issued Revenue Regulations No. 102004 dated October 18, 2004, classifying pawnshops as Other Non-bank Financial Intermediaries. The BIR then issued Revenue
Memorandum Circular No. 73-2004 on November 25, 2004, prescribing the guidelines and policies on the assessment and
collection of 10% VAT for gross annual sales/receipts exceeding P550,000.00 or 3% percentage tax for gross annual sales/receipts
not exceeding P550,000.00 of pawnshops prior to January 1, 2005.
In fine, prior to the EVAT Law, pawnshops were treated as lending investors subject to lending investor's tax. Subsequently,
with the Court's ruling in Lhuillier, pawnshops were then treated as VAT-able enterprises under the general classification of sale or
exchange of services under Section 108(A) of the Tax Code of 1997, as amended. R.A. No. 9238 finally classified pawnshops as
Other Non-bank Financial Intermediaries.
The Court finds that pawnshops should have been treated as non-bank financial intermediaries from the very beginning,
subject to the appropriate taxes provided by law, thus

Under the National Internal Revenue Code of 1977, [21] pawnshops should have been levied the 5%
percentage tax on gross receipts imposed on bank and non-bank financial intermediaries under Section 119 (now
Section 121 of the Tax Code of 1997);
With the imposition of the VAT under R.A. No. 7716 or the EVAT Law, [22] pawnshops should have been
subjected to the 10% VAT imposed on banks and non-bank financial intermediaries and financial institutions under
Section 102 of the Tax Code of 1977 (now Section 108 of the Tax Code of 1997);[23]
This was restated by R.A. No. 8241,[24] which amended R.A. No. 7716, although the levy, collection and
assessment of the 10% VAT on services rendered by banks, non-bank financial intermediaries, finance companies,
and other financial intermediaries not performing quasi-banking functions, were made effective January 1, 1998;[25]
R.A. No. 8424 or the Tax Reform Act of 1997[26] likewise imposed a 10% VAT under Section 108 but the
levy, collection and assessment thereof were again deferred until December 31, 1999;[27]
The levy, collection and assessment of the 10% VAT was further deferred by R.A. No. 8761 until December
31, 2000, and by R.A. No. 9010, until December 31, 2002;
With no further deferments given by law, the levy, collection and assessment of the 10% VAT on banks,
non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking
functions were finally made effective beginning January 1, 2003;
Finally, with the enactment of R.A. No. 9238, the services of banks, non-bank financial intermediaries,
finance companies, and other financial intermediaries not performing quasi-banking functions were specifically
exempted from VAT,[28] and the 0% to 5% percentage tax on gross receipts on other non-bank financial intermediaries
was reimposed under Section 122 of the Tax Code of 1997.[29]

At the time of the disputed assessment, that is, for the year 2000, pawnshops were not subject to 10% VAT under the
general provision on sale or exchange of services as defined under Section 108(A) of the Tax Code of 1997, which states: 'sale or
exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or
consideration x x x. Instead, due to the specific nature of its business, pawnshops were then subject to 10% VAT under the
category of non-bank financial intermediaries, as provided in the same Section 108(A), which reads:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use
or lease of properties.
The phrase "sale or exchange of services" means the performance of all kinds or services in the
Philippines for others for a fee, remuneration or consideration, including x x x services of banks, non-bank
financial intermediaries and finance companies; and non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether
or not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase 'sale or
exchange of services' shall likewise include: x x x (Emphasis and underscoring supplied)
The tax treatment of pawnshops as non-bank financial intermediaries is not without basis.
R.A. No. 337, as amended, or the General Banking Act characterizes the terms banking institution and bank as
synonymous and interchangeable and specifically include commercial banks, savings bank, mortgage banks, development banks,
rural banks, stock savings and loan associations, and branches and agencies in the Philippines of foreign banks.[30] R.A. No. 8791
or the General Banking Law of 2000, meanwhile, provided that banks shall refer to entities engaged in the lending of funds obtained
in the form of deposits.[31] R.A. No. 8791 also included cooperative banks, Islamic banks and other banks as determined by the
Monetary Board of the Bangko Sentral ng Pilipinas in the classification of banks.[32]
Financial intermediaries, on the other hand, are defined as persons or entities whose principal functions include the lending,
investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed
through them, either for their own account or for the account of others.[33]
It need not be elaborated that pawnshops are non-banks/banking institutions. Moreover, the nature of their business
activities partakes that of a financial intermediary in that its principal function is lending.
A pawnshop's business and operations are governed by Presidential Decree (P.D.) No. 114 or the Pawnshop Regulation
Act and Central Bank Circular No. 374 (Rules and Regulations for Pawnshops). Section 3 of P.D. No. 114 defines pawnshop as a
person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be
synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage.
That pawnshops are to be treated as non-bank financial intermediaries is further bolstered by the fact that pawnshops are
under the regulatory supervision of the Bangko Sentral ngPilipinas and covered by its Manual of Regulations for Non-Bank Financial
Institutions. The Manual includes pawnshops in the list of non-bank financial intermediaries, viz.:
4101Q.1 Financial Intermediaries
xxx
Non-bank financial intermediaries shall include the following:

(1) A person or entity licensed and/or registered with any government regulatory body as a non-bank
financial intermediary, such as investment house, investment company, financing company, securities
dealer/broker, lending investor, pawnshop, money broker x x x. (Emphasis supplied)
Revenue Regulations No. 10-2004, in fact, recognized these bases, to wit:
SEC. 2. BASES OF QUALIFYING PAWNSHOPS AS NON-BANK FINANCIAL INTERMEDIARIES. Whereas, in relation to Sec. 2.3 of Rev. Regs No. 9-2004 defining Non-bank Financial Intermediaries, the term
pawnshop as defined under Presidential Decree No. 114 which authorized its creation, to be a person or entity
engaged in the business of lending money, all fall within the classification of Non-bank Financial Intermediaries and
therefore, covered by Sec. 4 of R.A. No. 9238.
This classification is equally supported by Subsection 4101Q.1 of the BSP Manual of Regulations for
Non-Bank Financial Intermediaries and reiterated in BSP Circular No. 204-99, classifying pawnshops as one of
Non-bank Financial Intermediaries within the supervision of the Bangko Sentral ng Pilipinas.
Ultimately, R.A. No. 9238 categorically confirmed the classification of pawnshops as non-bank financial intermediaries.
Coming now to the issue at hand - Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax
years 1996 to 2002; however, with the levy, assessment and collection of VAT from non-bank financial intermediaries being
specifically deferred by law,[34] then petitioner is not liable for VAT during these tax years. But with the full implementation of
the VAT system on non-bank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said tax year. And
beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on
gross receipts from 0% to 5 %, as the case may be.
Lastly, petitioner is liable for documentary stamp taxes.

The Court has settled this issue in Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue,[35] in which it
was ruled that the subject of DST is not limited to the document alone. Pledge, which is an exercise of a privilege to transfer
obligations, rights or properties incident thereto, is also subject to DST, thus
x x x the subject of a DST is not limited to the document embodying the enumerated transactions.
A DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident
thereto. InPhilippine Home Assurance Corporation v. Court of Appeals, it was held that:
xxxx
Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined as an
accessory, real and unilateral contract by virtue of which the debtor or a third person delivers to the creditor or to a
third person movable property as security for the performance of the principal obligation, upon the fulfillment of
which the thing pledged, with all its accessions and accessories, shall be returned to the debtor or to the third
person. This is essentially the business of pawnshops which are defined under Section 3 of Presidential Decree
No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending money on personal property
delivered as security for loans.
Section 12 of the Pawnshop Regulation Act and Section 21 of the Rules and Regulations For
Pawnshops issued by the Central Bank to implement the Act, require every pawnshop or pawnbroker to issue, at
the time of every such loan or pledge, a memorandum or ticket signed by the pawnbroker and containing the
following details: (1) name and residence of the pawner; (2) date the loan is granted; (3) amount of principal loan;
(4) interest rate in percent; (5) period of maturity; (6) description of pawn; (7) signature of pawnbroker or his
authorized agent; (8) signature or thumb mark of pawner or his authorized agent; and (9) such other terms and
conditions as may be agreed upon between the pawnbroker and the pawner. In addition, Central Bank Circular
No. 445, prescribed a standard form of pawn tickets with entries for the required details on its face and the
mandated terms and conditions of the pledge at the dorsal portion thereof.
Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:
xxxx
True, the law does not consider said ticket as an evidence of security or indebtedness. However, for
purposes of taxation, the same pawn ticket is proof of an exercise of a taxable privilege of concluding a contract of
pledge. At any rate, it is not said ticket that creates the pawnshops obligation to pay DST but the exercise of the
privilege to enter into a contract of pledge. There is therefore no basis in petitioners assertion that a DST is literally
a tax on a document and that no tax may be imposed on a pawn ticket.
The settled rule is that tax laws must be construed in favor of the taxpayer and strictly against the
government; and that a tax cannot be imposed without clear and express words for that purpose. Taking our

bearing from the foregoing doctrines, we scrutinized Section 195 of the NIRC, but there is no way that said
provision may be interpreted in favor of petitioner. Section 195 unqualifiedly subjects all pledges to DST. It
states that [o]n every xx x pledge x x x there shall be collected a documentary stamp tax x x x. It is clear,
categorical, and needs no further interpretation or construction. The explicit tenor thereof requires hardly anything
than a simple application.
xxxx
In the instant case, there is no law specifically and expressly exempting pledges entered into by
pawnshops from the payment of DST. Section 199 of the NIRC enumerated certain documents which are not
subject to stamp tax; but a pawnshop ticket is not one of them. Hence, petitioners nebulous claim that it is not
subject to DST is without merit. It cannot be over-emphasized that tax exemption represents a loss of revenue to
the government and must, therefore, not rest on vague inference. Exemption from taxation is never presumed. For
tax exemption to be recognized, the grant must be clear and express; it cannot be made to rest on doubtful
implications.
Under the principle of stare decisis et non quieta movere (follow past precedents and do not disturb what has been settled),
once a case has been decided one way, any other case involving exactly the same point at issue, as in the case at bar, should be
decided in the same manner.[36]
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated June 7, 2006 and Resolution dated August
14, 2006 of the Court of Tax Appeals En Banc isMODIFIED to the effect that the Bureau of Internal Revenue assessment for VAT
deficiency in the amount of P541,102.79 for the year 2000 is REVERSED and SET ASIDE, while its assessment for DST
deficiency in the amount of P24,747.13, inclusive of surcharge and interest, is UPHELD.

SO ORDERED.

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

PHILIPPINE NATIONAL BANK petitioner,
vs.
HON. ROMULO S. QUIMPO, Presiding Judge, Court of First Instance of Rizal, Branch XIV, and FRANCISCO S.
GOZON II, respondents.

GANCAYCO, J.:
On July 3, 1973, Francisco S. Gozon II, who was a depositor of the Caloocan City Branch of the Philippine National
Bank, went to the bank in his car accompanied by his friend Ernesto Santos whom he left in the car while he
transacted business in the bank. When Santos saw that Gozon left his check book he took a check therefrom, filled it
up for the amount of P5,000.00, forged the signature of Gozon, and thereafter he encashed the check in the bank on
the same day. The account of Gozon was debited the said amount. Upon receipt of the statement of account from the
bank, Gozon asked that the said amount of P5,000.00 should be returned to his account as his signature on the check
was forged but the bank refused.
Upon complaint of private respondent on February 1, 1974 Ernesto Santos was apprehended by the police authorities
and upon investigation he admitted that he stole the check of Gozon, forged his signature and encashed the same
with the Bank.
Hence Gozon filed the complaint for recovery of the amount of P5,000.00, plus interest, damages, attorney's fees and
costs against the bank in the Court of First Instance of Rizal. After the issues were joined and the trial on the merits
ensued, a decision was rendered on February 4, 1980, the dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff. The defendant is hereby
condemned to return to plaintiff the amount of P5,000.00 which it had unlawfully withheld from the
latter, with interest at the legal rate from September 22, 1972 until the amount is fully delivered. The
defendant is further condemned to pay plaintiff the sum of P2,000.00 as attorney's fees and to pay the
costs of this suit.
Not satisfied therewith, the bank now filed this petition for review on certiorari in this Court raising the sole legal issue
that
THE ACT OF RESPONDENT FRANCISCO GOZON, II IN PUTTING HIS CHECK BOOK
CONTAINING THE CHECK IN QUESTION INTO THE HANDS OF ERNESTO SANTOS WAS
INDEED THE PROXIMATE CAUSE OF THE LOSS, THEREBY PRECLUDING HIM FROM SETTING
UP THE DEFENSE OF FORGERY OR WANT 0F AUTHORITY UNDER SECTION 23 OF THE
NEGOTIABLE INSTRUMENTS LAW, ACT NO. 3201
The petition is devoid of merit.
This Court reproduces with approval the disquisition of the court a quo as follows:
A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be
considered as making the payment out of its own funds, and cannot ordinarily change the amount so
paid to the account of the depositor whose name was forged' (San Carlos Milling Co. vs. Bank of the
P.I., 59 Phil. 59).
This rule is absolutely necessary to the circulation of drafts and checks, and is based upon the
presumed negligence of the drawee in failing to meet its obligation to know the signature of its
correspondent. ... There is nothing inequitable in such a rule. If the paper comes to the drawee in the
regular course of business, and he, having the opportunity ascertaining its character, pronounces it to
be valid and pays it, it is not only a question of payment under mistake, but payment in neglect of duty
which the commercial law places upon him, and the result of his negligence must rest upon him (12
ALR 1901, citing many cases found in I Agbayani, supra).
Defendant, however, interposed the defense that it exercised diligence in accordance with the
accepted norms of banking practice when it accepted and paid Exhibit "A". It presented evidence that
the check had to pass scrutiny by a signature verifier as well as an officer of the bank.

A comparison of the signature (Exhibit "A-l") on the forged check (Exhibit "A") with plaintiffs exemplar
signatures (Exhibits "5-N" and "5-B") found in the PNB Form 35-A would immediately show the
negligence of the employees of the defendant bank. Even a not too careful comparison would
immediately arrest one's attention and direct it to the graceful lines of plaintiffs exemplar signatures
found in Exhibits "5-A" and "5-B". The formation of the first letter "F" in the exemplars, which could be
regarded as artistic, is completely different from the way the same letter is formed in Exhibit "A-l". That
alone should have alerted a more careful and prudent signature verifier.
The prime duty of a bank is to ascertain the genuineness of the signature of the drawer or the depositor on the check
being encashed. 1 It is expected to use reasonable business prudence in accepting and cashing a check presented to
it.
In this case the findings of facts of the court a quo are conclusive. The trial court found that a comparison of the
signature on the forged check and the sample signatures of private respondent show marked differences as the
graceful lines in the sample signature which is completely different from those of the signature on the forged check.
Indeed the NBI handwriting expert Estelita Santiago Agnes whom the trial court considered to be an "unbiased
scientific expert" indicated the marked differences between the signature of private respondent on the sample
signatures and the questioned signature. Notwithstanding the testimony of Col. Fernandez, witness for petitioner,
advancing the opinion that the questioned signature appears to be genuine, the trial court by merely examining the
pictorial report presented by said witness, found a marked difference in the second "c" in Francisco as written on the
questioned signature as compared to the sample signatures, and the separation between the "s" and the "c" in the
questioned signature while they are connected in the sample signatures. 2
Obviously, petitioner was negligent in encashing said forged check without carefully examining the signature which
shows marked variation from the genuine signature of private respondent.
In reference to the allegation of the petitioner that it is the negligence of private respondent that is the cause of the
loss which he suffered, the trial court held:
The act of plaintiff in leaving his checkbook in the car while he went out for a short while can not be
considered negligence sufficient to excuse the defendant bank from its own negligence. It should be
home in mind that when defendant left his car, Ernesto Santos, a long time classmate and friend
remained in the same. Defendant could not have been expected to know that the said Ernesto Santos
would remove a check from his checkbook. Defendant had trust in his classmate and friend. He had
no reason to suspect that the latter would breach that trust .
We agree.
Private respondent trustee Ernesto Santos as a classmate and a friend. He brought him along in his car to the bank
and he left his personal belongings in the car. Santos however removed and stole a check from his cheek book
without the knowledge and consent of private respondent. No doubt private respondent cannot be considered
negligent under the circumstances of the case.
WHEREFORE, the petition is DISMISSED for lack of merit with costs against petitioner.
SO ORDERED.
Teehankee, C.J., Narvasa, Cruz and Grio-Aquino, JJ., concur.

BPI FAMILY BANK,

G.R. No. 148196

Petitioner,
- versus -

EDGARDO BUENAVENTURA, MYRNA LIZARDO

and YOLANDA TICA,
Respondents.
x--------------------------x
EDGARDO BUENAVENTURA, MYRNA LIZARDO
and YOLANDA TICA,
Petitioners,

G.R. No. 148259

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

- versus -

Promulgated:
BPI FAMILY BANK,
Respondent.

September 30, 2005

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

The factual background of the case is as follows:

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

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

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

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

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

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

WHEREFORE, in view of the foregoing judgment is rendered in favor of the plaintiff and
against the defendant bank and the latter is ordered as follows:
1. To pay the plaintiff the sum of P490,328.50 representing the balance of the plaintiffs
deposit under Account No. 807-065-313-0 which was unlawfully frozen by the bank and finally debited
against said account with legal rate of interest from date of closure;
2. To pay the sum of P200,000.00 as moral damages;
3. To pay the amount of P200,000.00 as exemplary damages to serve as an example and
lesson to serve as a deterrent for similar action which the bank may take against its depositors in the
future;
4. To pay the sum of P50,000.00 as attorneys fees.
SO ORDERED.[9]

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

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

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

Both parties filed separate motions for reconsideration. Buenaventura, et al. sought reconsideration of the
deletion of the award of exemplary damages. [11] On the other hand, BPI-FB reiterated its argument that the
International Baptist Academy is the real party-in-interest. It also assailed the findings and conclusions of the CA. [12]

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

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

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

I.
The Honorable Court of Appeals committed a reversible error in holding that the
respondents are the real parties-in-interest in this case contrary to the admissions of respondents
themselves that it is the International Baptist Academy who is the owner of the funds in question and
hence it is and out to be the real party in interest in this case.
II.
The Honorable Court of Appeals committed a grave abuse of discretion in not
dismissing respondents complaint for lack of cause of action.
III.
The Honorable Court of Appeals committed a reversible error in NOT holding, based
on a misapprehension of facts that BPI-FB is entitled to freeze respondents account and to disallow
any withdrawal therefrom as a measure to protect its interest.
IV.
The Honorable Court of Appeals committed a reversible error in holding, based on a
misapprehension of facts, that it has not been sufficiently shown that the funds in deposit with BPI-FB
under the name of the respondents were derived exclusively from the alleged 80 million pesos
unlawfully transferred from the funds of FMIC or that the deposit under the name of Tevesteco
consisted exclusively of the said 80 million pesos debited from FMICs account.
V.
The Honorable Court of Appeals committed a grave abuse of discretion in NOT
upholding the position of BPI-FB on the freezing of respondents current account when it held that
there was no clear proof of any involvement by the respondents with the alleged irregularities
attending the fund transfer from FMIC to Tevesteco.
VI.
The Honorable Court of Appeals committed a grave abuse of discretion, in holding, in
effect, that there is nothing wrong with the Lower Courts order directing BPI-FB to pay to respondents
directly the balance of their account plus interest although their prayer in their complaint was only to
reinstate their current account.[14]

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

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

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

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

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

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

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

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

We rule in favor of Buenaventura, et al.

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

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

Furthermore, BPI-FB has no unilateral right to freeze the current account of Buenaventura, et al. based on the
suspicion that the funds in the latters account are illegal or unauthorized having been sourced from the

unlawful transfer of funds from the account of FMIC to Tevesteco and disallow any withdrawal therefrom to allegedly
protect its interest.

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

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

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

Thus, the fact that the funds in deposit with BPI-FB under the name of Buenaventura, et al. were allegedly
derived exclusively from the alleged P80,000,000.00 unlawfully transferred from the funds of FMIC or that the deposit
under the name of Tevesteco consisted allegedly exclusively of the said P80,000,000.00 debited from FMICs account
is immaterial. These circumstances cannot be used against a party not privy to the forgery.
There is no merit to the claim that the CA erred in affirming the RTCs order directing BPI-FB to pay the
balance of their account plus interest although the prayer was only to reinstate their Current Account. The complaint
does contain a general prayer for such other relief as may be just and equitable in the premises. And this general
prayer is broad enough to justify extension of a remedy different from or together with the specific remedy
sought.[24] Indeed, a court may grant relief to a party, even if the party awarded did not pray for it in his pleadings. [25]

As to the prayer of Buenaventura, et al. for exemplary damages, the Court finds that the CA erred in deleting
the award of exemplary damages. The law allows the grant of exemplary damages to set an example for the public
good.[26] The business of a bank is affected with public interest; thus, it makes a sworn profession of diligence and

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

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

SO ORDERED.

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

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

of collateral in connivance with unauthorized loans. Furthermore, GCC allegedly divested itself of its assets through a
questionable offset of receivables arrangement with one of its creditors, Resource and Finance Corporation.
On February 24, 1984, petitioners filed a suit against GCC, CCC Equity and RFC. Petitioners prayed for (1)
receivership, (2) an order directing GCC and CCC Equity solidarily to pay petitioners and depositors for the losses
they sustained, and (3) nullification of the agreement between GCC and RFC.
On June 6, 1984, all respondents, except CCC Equity, filed a motion to dismiss asserting that SEC lacked
jurisdiction, and that petitioners were not the real parties in interest. Both motions, for receivership and for dismissal,
were subsequently denied by the hearing officer.
On February 23, 1990, the hearing officer ordered piercing the corporate veil of GCC, CCC Equity, and the
franchise companies. He later declared that GCC was not liable to individual petitioners for the losses, since as
investors they assumed the risk of their respective investments. The franchise companies and the individual
petitioners were held not liable to GCC for the bad accounts incurred by the latter through the discounting
process. The decretal portion of his order reads:
WHEREFORE, judgment is hereby rendered, as follows:
1. Declaring GCC, CCC-Equity and the franchised companies - Commercial Credit Corporation of North
Manila, Commercial Credit Corporation of Cagayan Valley, Commercial Credit Corporation of Olongapo
City and Commercial Credit Corporation of Quezon City - as one corporation;
2. Declaring that the petitioning franchised companies are not liable for the payment of bad accounts
assigned to, and discounted by GCC;
3. Declaring the individual petitioners who executed continuing guaranties to secure the obligation of the
franchised companies to GCC arising from the discounting accounts should not be held liable thereon;
4. Declaring that GCC is not liable to individual petitioners for the investments they made in the franchised
companies;
5. Dismissing the petition with respect to respondent Resource Finance Corporation, Generoso Villanueva
and Leonardo Alejandrino.[4]
In an en banc decision, dated October 6, 1992, the SEC reversed the ruling of its hearing officer. Petitioners
appealed to the Court of Appeals. On October 8, 1993, the appellate court affirmed respondent SECs
decision. Petitioners moved for a reconsideration, but it was denied on September 22, 1994.
Hence, the instant petition raising the following issues:
I.

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

II. WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO RULE THAT ONLY THE
SEC HAS JURISDICTION OVER THE ISSUE OF WHETHER INDIVIDUAL PETITIONERS MAY BE
HELD LIABLE ON THE SURETY AGREEMENTS FOR BAD ACCOUNTS INCURRED BY GCC
THROUGH THE DISCOUNTING PROCESS.
III.WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO REVERSE AND SET ASIDE
THE 06, OCTOBER 1992 SEC DECISION.
Petitioners pray for the piercing of the corporate fiction of GCC, CCC Equity, RFC and the franchise companies.
They allege that (1) GCC was the alter-ego of CCC Equity and the franchise companies; (2) GCC created CCC Equity
to circumvent CBs DOSRI Regulation; and (3) GCC mismanaged the franchise companies. Ultimately, petitioners
pray that the SEC en bancreinstate the decision of the hearing officer absolving individual investors of their respective
liabilities attached to the continuing guaranty of bad debts. They pray that should the afore-stated companies be
considered as one, then petitioners liabilities should be nullified.
SEC en banc decided against the petitioners, saying:
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded...
[T]he control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made.
The test may be stated as follows:
In any given case, except express agency, estoppel, or direct tort, three elements must be proved:

1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of
policy and business practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation
of the statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal
rights; and
3. the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the corporate veil. [5]
The SEC stated further that:
The second element required for the application of the instrumentality rule is not present in this case. Upon close
scrutiny of the various testamentary and documentary evidence presented during trial, it may be observed that
petitioners claim of dissipation of assets and resources belonging to the franchise companies has not been
reasonably supported by said evidence at hand with the Commission. In fact, the disputed decision of the hearing
officer dealt mainly with the aspect of control exercised by GCC over the franchise companies without a concrete
finding of fraud on the part of the former to the prejudice of individual petitioners interests. As previously discussed,
mere control on the part of GCC through CCC Equity over the operations and business policies of the franchise
companies does not necessarily warrant piercing the veil of corporate fiction without proof of fraud. In order to
determine whether or not the control exercised by GCC through CCC Equity over the franchise companies was used
to commit fraud or wrong, to violate a statutory or other positive legal duty, or dishonest and unjust act in contravention
of petitioners legal rights, the circumstances that caused the bankruptcy of the franchise companies must be taken
into consideration.[6]
As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to the
contrary appears. When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as an association of persons. [7] Also, the corporate entity may be
disregarded in the interest of justice in such cases as fraud that may work inequities among members of the
corporation internally, involving no rights of the public or third persons. In both instances, there must have been
fraud, and proof of it. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must
be clearly and convincingly established.[8] It cannot be presumed.[9]
We agree with the findings of the SEC concurred in by the appellate court that there was no fraud nor
mismanagement in the control exercised by GCC and by CCC Equity, over the franchise companies. Whether the
existence of the corporation should be pierced depends on questions of facts, appropriately pleaded. Mere allegation
that a corporation is the alter ego of the individual stockholders is insufficient. The presumption is that the
stockholders or officers and the corporation are distinct entities. The burden of proving otherwise is on the party
seeking to have the court pierce the veil of the corporate entity.[10] In this, petitioner failed.
Petitioners contend that the issue of whether the investors may be held liable on the surety agreements for bad
accounts incurred by GCC through the discounting process cannot be isolated from the fundamental issue of validly
piercing GCCs corporate veil. They argue that since these surety agreements are intra-corporate matters, only the
SEC has the specialized knowledge to evaluate whether fraud was perpetrated.
We note, however, that petitioners signed the continuing guaranty of the franchise companies bad debts in their
own personal capacities. Consequently, they are responsible for their individual acts. The liabilities of petitioners as
investors arose out of the regular financing venture of the franchise companies. There is no evidence that these bad
debts were fraudulently incurred. Any taint of bad faith on the part of GCC in enticing investors may be resolved in
ordinary courts, inasmuch as this is in the nature of a contractual relationship. Changing petitioners subsidiary
liabilities by converting them to guarantors of bad debts cannot be done by piercing the veil of corporate identity.
Private respondents claim they had actually filed collection cases against most, if not all, of the petitioners to
enforce the suretyship liability on accounts discounted with then CCC (now GCC). [11] In such cases, the trial court may
determine the validity of the promissory notes and the corresponding guarantee contracts. The existence of the
corporate entities need not be disregarded.
On the matter of jurisdiction, we agree with the Court of Appeals when it held that:
. . . [T]he ruling of the hearing officer in relation to the liabilities of the franchise companies and individual petitioners
for the bad accounts incurred by GCC through the discounting process would necessary entail a prior interpretation of
the discounting agreements entered into between GCC and the various franchise companies as well as the continuing
guaranties executed to secure the same. A judgment on the aforementioned liabilities incurred through the
discounting process must likewise involve a determination of the validity of the said discounting agreements and
continuing guaranties in order to properly pass upon the enforcement or implementation of the same. It is crystal clear
from the aforecited authorities and jurisprudence[12] that there is no need to apply the specialized knowledge and skill

of the SEC to interpret the said discounting agreements and continuing guaranties executed to secure the same
because the regular courts possess the utmost competence to do so by merely applying the general principles laid
down under civil law on contracts.
xxx
The matter of whether the petitioners must be held liable on their separate suretyship is one that belongs to the
regular courts. As the respondent SEC notes in its comment, the franchised companies accounts discounted by GCC
would arise even if there is no intra-corporate relationship between the parties. In other words, the controversy did not
arise out of the parties relationships as stockholders. The Court agrees. This matter is better left to the regular courts
in which the private respondents have filed suits to enforce the suretyship agreements allegedly executed by the
petitioners.[13]
Not every conflict between a corporation and its stockholders involves corporate matters that only the SEC can
resolve. In Viray vs. Court of Appeals, 191 SCRA 308, 323 (1990), we stressed that a contrary interpretation would
dissipate the powers of the regular courts and distort the meaning and intent of PD No. 902-A.
It is true that the trend is toward vesting administrative bodies like the SEC with the power to adjudicate matters
coming under their particular specialization, to insure a more knowledgeable solution of the problems submitted to
them. This would also relieve the regular courts of a substantial number of cases that would otherwise swell their
already clogged dockets. But as expedient as this policy may be, it should not deprive the courts of justice of their
power to decide ordinary cases in accordance with the general laws that do not require any particular expertise or
training to interpret and apply. Otherwise, the creeping take-over by the administrative agencies of the judicial power
vested in the courts would render the Judiciary virtually impotent in the discharge of the duties assigned to it by the
Constitution.
Finally, we note that petitioners were given ample opportunity to present evidence in support of their claims. But
mere allegations do not constitute convincing evidence. We find no sufficient reason to overturn the decisions of both
the SEC and the appellate court.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision and resolution of the Court
of Appeals dated October 8, 1993 and September 22, 1994, respectively, are AFFIRMED. Costs against petitioners.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

G.R. No. 166859

June 26, 2006

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO, JR., AGRICULTURAL CONSULTANCY
SERVICES, INC., ARCHIPELAGO REALTY CORP., BALENTE RANCH, INC., BLACK STALLON RANCH, INC.,
CHRISTENSEN PLANTATION COMPANY, DISCOVERY REALTY CORP., DREAM PASTURES, INC., ECHO
RANCH, INC., FAR EAST RANCH, INC., FILSOV SHIPPING COMPANY, INC., FIRST UNITED TRANSPORT, INC.,
HABAGAT REALTY DEVELOPMENT, INC., KALAWAKAN RESORTS, INC., KAUNLARAN AGRICULTURAL
CORP., LABAYUG AIR TERMINALS, INC., LANDAIR INTERNATIONAL MARKETING CORP., LHL CATTLE
CORPORATION, LUCENA OIL FACTORY, INC., MEADOW LARK PLANTATIONS, INC., METROPLEX
COMMODITIES, INC., MISTY MOUNTAIN AGRICULTURAL CORP., NORTHEAST CONTRACT TRADERS, INC.,
NORTHERN CARRIERS CORPORATION, OCEANSIDE MARITIME ENTERPRISES, INC., ORO VERDE
SERVICES, INC., PASTORAL FARMS, INC., PCY OIL MANUFACTURING CORP., PHILIPPINE TECHNOLOGIES,
INC., PRIMAVERA FARMS, INC., PUNONG-BAYAN HOUSING DEVELOPMENT CORP., PURA ELECTRIC
COMPANY INC., RADIO AUDIENCE DEVELOPERS INTEGRATED ORGANIZATION, INC., RADYO PILIPINO
CORPORATION, RANCHO GRANDE, INC., REDDEE DEVELOPERS, INC., SAN ESTEBAN DEVELOPMENT
CORP., SILVER LEAF PLANTATIONS, INC., SOUTHERN SERVICE TRADERS, INC., SOUTHERN STAR CATTLE
CORP., SPADE ONE RESORTS CORP., UNEXPLORED LAND DEVELOPERS, INC., VERDANT PLANTATATIONS,
INC., VESTA AGRICULTURAL CORP. AND WINGS RESORTS CORPORATION, Respondents.
RESOLUTION
CARPIO MORALES, J.:
For resolution is the Urgent Motion for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction
which was filed by petitioner, Republic of the Philippines, during the pendency of its Petition for Certiorari before this
Court challenging the denial by public respondent, the Sandiganbayan, of its Motion for Partial Summary Judgment in
Civil Case No. 0033-F (the civil case).
In support of its present urgent motion, petitioner pleads that the issue it raised in its Petition for Certiorari whether
public respondent committed grave abuse of discretion in denying its Motion for Partial Summary Judgment must
first be resolved, as a continuation of the proceedings in the civil case by public respondent might be rendered
unnecessary in the event that its Petition before this Court is resolved in its favor.
The mere elevation of an interlocutory matter to this Court through a petition for Certiorari under Rule 65 of the Rules
of Court, like in the present case, does not by itself merit a suspension of the proceedings before a public respondent,
unless a temporary restraining order or a writ of preliminary injunction has been issued against the public respondent.
Rule 65, Section 7 of the Rules of Court so provides:
SECTION 7. Expediting proceedings; injunctive relief. The court in which the petition [for Certiorari, Prohibition and
Mandamus] is filed may issue orders expediting the proceedings, and it may also grant a temporary restraining order
or a writ of preliminary injunction for the preservation of the rights of the parties pending such proceedings. The
petition shall not interrupt the course of the principal case unless a temporary restraining order or a writ of preliminary
injunction has been issued against the public respondent from further proceeding in the case. (Emphasis and
underscoring supplied)
The burden is thus on the petitioner in a petition for Certiorari, Prohibition and Mandamus to show that there is a
meritorious ground for the issuance of a temporary restraining order or writ of preliminary injunction for the purpose of
suspending the proceedings before the public respondent. 1 Essential for granting injunctive relief is the existence of an
urgent necessity for the writ in order to prevent serious damage. 2
The Court finds that petitioner has failed to discharge the burden. The ground on which it bases its urgent motion is
the alleged futility of proceeding with the trial of the case. This assertion, however, is speculative, anchored on the
mere supposition that the petition would be decided in its favor.
There is thus, in this case, a marked absence of any urgent necessity for the issuance of a temporary restraining order
or writ of preliminary injunction.
It is gathered though that even prior to the filing of the instant motion, public respondent suspended the proceedings in
the civil case, the absence of any temporary restraining order or writ of preliminary injunction from this Court
notwithstanding. Thus, petitioner brought to this Courts attention private respondents insistence to have the civil case
set for trial by public respondent, citing private respondents filing of a "Motion Reiterating Motion to Set Case for Trial"

dated June 27, 2005, "Second Motion Reiterating Motion to Set Case for Trial" dated October 26, 2005, and
"Manifestation and Motion Reiterating Motion to Set Case for Trial" dated December 8, 2005. 3
The earlier quoted Section 7 of Rule 65 provides the general rule that the mere pendency of a special civil action for
Certiorari commenced in relation to a case pending before a lower court or court of origin does not stay the
proceedings therein in the absence of a writ of preliminary injunction or temporary restraining order. 4
There are of course instances where even if there is no writ of preliminary injunction or temporary restraining order
issued by a higher court, it would be proper for a lower court or court of origin to suspend its proceedings on the
precept of judicial courtesy. As this Court explained in Eternal Gardens Memorial Park v. Court of Appeals:5
Although this Court did not issue any restraining order against the Intermediate Appellate Court to prevent it from
taking any action with regard to its resolutions respectively granting respondents' motion to expunge from the records
the petitioner's motion to dismiss and denying the latter's motion to reconsider such order, upon learning of the
petition, the appellate court should have refrained from ruling thereon because its jurisdiction was necessarily limited
upon the filing of a petition for certiorari with this Court questioning the propriety of the issuance of the abovementioned resolutions. Due respect for the Supreme Court and practical and ethical considerations should have
prompted the appellate court to wait for the final determination of the petition before taking cognizance of the case and
trying to render moot exactly what was before this court x x x (Emphasis and underscoring supplied)
A reading of Eternal Gardens Memorial Park shows that the appellate courts failure to observe judicial courtesy which
was frowned upon by this Court lay in its recall of its (the appellate courts) Orders expunging from the records the
Motion to Dismiss filed by the therein petitioner, which Orders were the orders being questioned before this Court via
a petition for Certiorari and Mandamus. Such act of the appellate court tended to render moot and academic the said
petition. No parity of circumstances obtains in the present case, however, where merely setting the case for trial would
not have the effect of rendering the present petition moot.
This Court explained, however, that the rule on "judicial courtesy" applies where "there is a strong probability that the
issues before the higher court would be rendered moot and moribund as a result of the continuation of the
proceedings in the lower court [or court of origin]". 6
A final word. This Court takes notice that in most cases where its interlocutory orders are challenged before this Court,
public respondent, Sandiganbayan, suspends proceedings in the cases in which these assailed interlocutory orders
are issued despite the non-issuance by this Court of a temporary restraining order or writ of preliminary injunction and
the absence of a strong probability that the issues raised before this Court would be rendered moot by a continuation
of the proceedings before it (Sandiganbayan).
WHEREFORE, the URGENT MOTION FOR ISSUANCE OF TEMPORARY RESTRAINING ORDER AND/OR WRIT
OF PRELIMINARY INJUNCTION filed by petitioner REPUBLIC OF THE PHILIPPINES is DENIED.
The SANDIGANBAYAN is, however, ORDERED,in light of the foregoing discussion, to continue the proceedings in
Civil Case No. 0033-F, as well as in all other cases where its interlocutory orders are on challenge before this Court
but no Temporary Restraining Order or Writ of Preliminary Injunction has been issued and there is no strong
probability that the issues raised before this Court would be rendered moot and moribund.
SO ORDERED.

HILARIO P. SORIANO,
Petitioner,
- versus -

G.R. No. 162336

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,
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.
[8]

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 toobtain
a loan from his bank, without complying with procedural, reportorial, or ceiling requirements. On the other hand, estafa under
par. 1(b), Article 315 of the RPC requires the offender to misappropriate or convert something that he holds in trust, or on
commission, or for administration, or under any other obligation involving the duty to return the same.[25]
Essentially, the petitioner theorized that the characterization of possession is different in the two offenses. If petitioner
acquired the loan as DOSRI, he owned the loaned money and therefore, cannot misappropriate or convert it as contemplated in
the offense of estafa. Conversely, if petitioner committed estafa, then he merely held the money in trust for someone else and
therefore, did not acquire a loan in violation of DOSRI rules.
Ruling of the Regional Trial Court
In an Order[26] dated August 8, 2001, the trial court denied petitioner's Motion to Quash for lack of merit. The lower court
agreed with the prosecution that the assailed OSI letter wasnot the complaint-affidavit itself; thus, it need not comply with the
requirements under the Rules of Court. The trial court held that the affidavits, which were attached to the OSI letter, comprised

the complaint-affidavit in the case. Since these affidavits were duly subscribed and sworn to before a notary public, there was
adequate compliance with the Rules. The trial court further held that the two offenses were separate and distinct violations,
hence the prosecution of one did not pose a bar to the other.[27]
Petitioners Motion for Reconsideration was likewise denied in an Order dated September 5, 2001.[28]
Aggrieved, petitioner filed a Petition for Certiorari[29] with the CA, reiterating his arguments before the trial court.
Ruling of the Court of Appeals
The CA denied the petition on both issues presented by petitioner.
On the first issue, the CA determined that the BSP letter, which petitioner characterized to be a fatally infirm complaint,
was not actually a complaint, but a transmittal or cover letter only. This transmittal letter merely contained a summary of the
affidavits which were attached to it. It did not contain any averment of personal knowledge of the events and transactions that
constitute the elements of the offenses charged. Being a mere transmittal letter, it need not comply with the requirements of
Section 3(a) of Rule 112 of the Rules of Court.[30]
The CA further determined that the five affidavits attached to the transmittal letter should be considered as the complaintaffidavits 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 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]
[36]

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.

RE: REQUEST OF POLICE DIRECTOR

GENERALAVELINO I. RAZON
FOR
AUTHORITY
TO
DELEGATE
THE
ENDORSEMENT OF APPLICATION FOR
SEARCH WARRANT.

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

Present:

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

RESOLUTION

CHICO-NAZARIO, J.:

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

The 19 March 2008 letter of then P/Dir. Gen. Razon manifested his apprehension that
[R]ecently that the concerned Executive Regional Trial Court Judges have required that the
applications for search warrants in accordance with the [Section 12, Chapter V of the Guidelines on
the Selection and Appointment of Executive Judges] need to be endorsed personally by the
undersigned otherwise the application would not be acted upon.
The undersigned (P/Dir. Gen. Razon), due to the numerous demands of his office, may not be
able to act expeditiously on the required endorsements of application for search warrant. Any
unnecessary delay in the application, especially on cases which require immediate search and
seizure of any contraband, would not serve the purpose for which the search warrant was applied for
and render the ends of justice nugatory.[3]

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

[He] be allowed to delegate the endorsement of the application for search warrant to the Director of
the Directorate for Investigation and Detective Management (PDIR JEFFERSON P. SORIANO), in

view of his inherent investigative functions and as Commander of the Task Force USIG and AntiIllegal Drugs Special Operations Task Force.[4]

Acting upon the foregoing letter, Court Administrator Elepano recommended to Chief Justice Reynato S.
Puno, through a Memorandum dated 28 March 2008, that leave be granted allowing P/Dir. Gen. Razon to
delegate the authority to endorse the applications for search warrant, based on the following considerations
Being the chief of the PNP, General Razon oversees the operations of the entire police force all over
the Philippines, and in the discharge of his duties and responsibilities, he is expected to be very
mobile. His constant official and ceremonial functions compel him to be out of his office most of the
time. Such situation poses a problem in terms of expediting the filing of application for search warrant
by the PNP in the Regional Trial Courts of Manila and Quezon City because of the requirement under
Section 12 of A.M. No. 03-8-02, the compliance of which is dependent upon the presence of General
Razon in his office. Delegating the authority to endorse is a legal and viable option to address this
problem and to ensure the speedy filing of applications for search warrant by the PNP.[5]

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

In a Resolution dated 15 April 2008, the Court granted the request of P/Dir. Gen. Razon, to wit:
The Court Resolved, upon the recommendation of Court Administrator Zenaida N. Elepao, to
GRANT the request of Police Director General Avelino I. Razon, Chief, Philippine National Police
(PNP), to delegate the authority to endorse the applications for search warrant to be filed in the
Regional trial Courts of Manila and Quezon City to the Director of the Directorate for Investigation and
Detective Management of the PNP in connection with Section 12 of the Guidelines on the Selection
and Appointment of Executive Judges (A.M. No. 03-8-02-SC). [6]

Thereafter, on 25 November 2008, the PNP, this time under the headship P/Dir. Gen. Verzosa, asked the
Court for clarification x x x regarding the construction on the duration or effectivity [7] of the 15 April
2008 Resolution of the Court. The necessity for clarification resulted from an incident that occurred on 11
November 2008, wherein the application for search warrant filed by the Anti-Illegal Drugs Special Operations Task
Force (AIDSOTF), as endorsed by the Director for Investigation and Detective Management (DIDM), Police Chief
Superintendent Raul M. Bacalzo,[8] was denied by Executive Judge Reynaldo Ros of the Manila RTC, on the
ground that the authority to delegate was already inoperative for it only applies to the incumbency of PDG
AVELINO I. RAZON, JR. being the requesting party. [9] P/Dir. Gen. Verzosa, thus, asked of the Court that
Should the [15 April 2008 Resolution of the Court] be rendered moot by mere change of PNP
leadership, the undersigned formally requests for the issuance of a Resolution granting continuing

authority delegating to the Director, DIDM the endorsement of SW application in behalf of the Chief,
PNP before the said courts to withstand future changes of officers. [10]

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

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

The Office of the Chief Attorney (OCAT), on the other hand, observed in its Comment, submitted on 13
March 2009, that
Since Section 12, Chapter V of the Guidelines for Executive Judges appear to be the
hindrance to immediate action on applications for search warrant in the cases mentioned therein, and
to make the delegation applicable to all heads of law enforcement agencies regardless of the holder
of those positions, it may be best for the Court to amend that guideline. Thereby, a change in
leadership in the PNP would not require the incumbent PNP Chief to seek the authority of the Court to
delegate his function to endorse an application for search warrant. The amendment may also achieve
the reason for and purpose of the requested continuing authority, especially because the authority of
the PNP Chief to delegate functions is expressly recognized by Section 26 of Republic Act No. 6975.

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

At present, Sec. 12, Chapter V of A.M. No. 03-8-02-SC, entitled Guidelines on the Selection and
Appointment of Executive Judges and Defining their Powers, Prerogatives and Duties, dictates that
SEC. 12. Issuance of search warrants in special criminal cases by the Regional Trial Courts
of Manila and Quezon City. The Executive Judges and, whenever they are on official leave of
absence or are not physically present in the station, the Vice-Executive Judges of the RTCs of Manila
and Quezon City shall have authority to act on applications filed by the National Bureau of
Investigation (NBI), the Philippine National Police (PNP) and the Anti-Crime Task Force (ACTAF), for
search warrants involving heinous crimes, illegal gambling, illegal possession of firearms and
ammunitions as well as violations of the Comprehensive Dangerous Drugs Act of 2002, he Intellectual
Property Code, the Anti-Money Laundering Act of 2001, the Tariff and Customs Code, as amended,
and other relevant laws that may hereafter be enacted by Congress, and included herein by the
Supreme Court.
The applications shall be personally endorsed by the heads of such agencies and shall
particularly describe therein the places to be searched and/or the property or things to be seized as
prescribed in the Rules of Court. The Executive Judges and Vice-Executive Judges concerned shall
issue the warrants, if justified, which may be served in places outside the territorial jurisdiction of the
said courts.

The Executive Judges and the authorized Judges shall keep a special docket book listing
names of Judges to whom the applications are assigned, the details of the applications and the
results of the searches and seizures made pursuant to the warrants issued.
This Section shall be an exception to Section 2 of Rule 126 of the Rules of Court. [11] (Emphasis
supplied.)
From a cursory reading of the aforementioned provision of A.M. No. 03-8-02-SC, it is crystal that
applications for search warrant to be filed before the RTCs of Manila and Quezon City must be essentially
approved in person by the heads of the following agencies: the PNP, NBI, and ACTAF of the AFP. Accordingly, in
the incident recounted in the 25 November 2008 letter of P/Dir. Gen. Verzosa, Judge Ros correctly denied the
application for search warrant of the PNP for being defective. The authority granted by the Court to P/Dir. Gen.
Razon to delegate to the Director of DIDM, PNP, the endorsement of applications for search warrant to be filed
before the RTCs of Manila and Quezon City, was personal to P/Dir. Gen. Razon. It cannot be invoked by P/Dir.
Gen. Razons successor.

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

As correctly observed by the OCAT, the very specific requirement under Sec. 12, Chap. V of A.M. No. 038-02-SC that the heads of the PNP, NBI, and ACTAF of the AFP, personally endorse applications of search
warrants to be filed before the RTCs of Manila and Quezon City deters the delegation of said duty even to their
authorized representatives. Hence, as suggested,[12] A.M. No. 03-8-02-SC must be amended to delete the word
personally in the second paragraph of Sec. 12, Chap. V thereof. However, as to the proposal of the OCAT
to insert the phrase or their respective duly authorized officials as provided by law, the Court is of the view that
the abridged phrase or their respective duly authorized officials is more than sufficient to serve the
intended purpose. The phrase as provided by law is a mere surplus since, as correctly pointed out by the OCAT,
it may be presumed that the delegation of authority by the head of the agency concerned is in accordance with
law.[13]

The aforementioned amendments of Sec. 12, Chap. V of A.M. No. 03-8-02-SC, will not only enable the
Chief of the PNP, but the heads of the NBI and ACTAF of the AFP, as well, to delegate to their duly authorized

representatives the duty to endorse applications for search warrant to be filed before the RTCs of Manila and
Quezon City.

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

discussion, that:

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

(2) Sec. 12, Chapter V of the Guidelines on the Selection and Appointment of Executive Judges and
Defining their Powers, Prerogatives and Duties, as embodied in A.M. No. 03-8-02-SC, as approved by the Court in
its Resolution of 27 January 2004, is hereby AMENDED to read as follows:
SEC. 12. Issuance of search warrants in special criminal cases by the Regional Trial Courts
of Manila and Quezon City. The Executive Judges and, whenever they are on official leave of
absence or are not physically present in the station, the Vice-Executive Judges of the RTCs of Manila
and Quezon City shall have authority to act on applications filed by the National Bureau of
Investigation (NBI), the Philippine National Police (PNP) and the Anti-Crime Task Force (ACTAF), for
search warrants involving heinous crimes, illegal gambling, illegal possession of firearms and
ammunitions as well as violations of the Comprehensive Dangerous Drugs Act of 2002, the
Intellectual Property Code, the Anti-Money Laundering Act of 2001, the Tariff and Customs Code, as
amended, and other relevant laws that may hereafter be enacted by Congress, and included herein
by the Supreme Court.
The applications shall be endorsed by the heads of such agencies or their respective duly
authorized officials and shall particularly describe therein the places to be searched and/or the
property or things to be seized as prescribed in the Rules of Court. The Executive Judges and ViceExecutive Judges concerned shall issue the warrants, if justified, which may be served outside the
territorial jurisdiction of the said courts.
The Executive Judges and the authorized Judges shall keep a special docket book listing
names of Judges to whom the applications are assigned, the details of the applications and the
results of the searches and seizures made pursuant to the warrants issued.
This Section shall be an exception to Section 2 of Rule 126 of the Rules of Court.
(Emphasis supplied.)
This amendment shall apply to all current, as well as succeeding heads of the PNP, NBI, and ACTAF of
the AFP. It shall take effect on 20 July 2009 and shall be published in a newspaper of general circulation in
the Philippines not later than 5 July 2009.
SO ORDERED.

REPUBLIC OF THE PHILIPPINES,

G.R. No. 154522

Represented by the ANTI-MONEY

LAUNDERING COUNCIL,
Petitioner,

- versus -

CABRINI GREEN & ROSS, INC.,

MICHAEL J. FINDLAY and JANE
GELBERG,
Respondents,

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

REPUBLIC OF THE PHILIPPINES,

G.R. No. 154694

Represented by the ANTI-MONEY

LAUNDERING COUNCIL,
Petitioner,

- versus -

R.A.B. REALTY, INC., MULTINATIONAL

TELECOM INVESTORS CORPORATION,
ROSARIO A. BALADJAY and SATURNINO
M. BALADJAY,
Respondents,

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

REPUBLIC OF THE PHILIPPINES,

Represented by the ANTI-MONEY

G.R. No. 155554

LAUNDERING COUNCIL,
Petitioner,

- versus -

MARIO N. MISA, MICHAEL Z.

LAFUENTE, JESUS SILVERIO,
REYNALDO NICHOLAS and
REX D. JAO,
Respondents,

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

REPUBLIC OF THE PHILIPPINES,

G.R. No. 155711

Represented by the ANTI-MONEY

LAUNDERING COUNCIL,

Present:

Petitioner,
PUNO, J., Chairperson,*
SANDOVAL-GUTIERREZ,**
- versus -

CORONA,
AZCUNA and
GARCIA, JJ.

ALBERTO DE LOS REYES,

LORENZO CASTRO, HERMIE
DE VERA, EDUARDO LAZO and
DANILO LIWAG,
Respondents.

Promulgated:

May 5, 2006
x-----------------------------------------x

RESOLUTION

CORONA, J.:

In the exercise of its power under Section 10 of RA 9160, [1] the Anti-Money Laundering Council (AMLC) issued
freeze orders against various bank accounts of respondents. The frozen bank accounts were previously found prima
facie to be related to the unlawful activities of respondents.

Under RA 9160, a freeze order issued by the AMLC is effective for a period not exceeding 15 days unless
extended upon order of the court. Accordingly, before the lapse of the period of effectivity of its freeze orders, the
AMLC[2] filed with the Court of Appeals (CA)[3] various petitions for extension of effectivity of its freeze orders.

The AMLC invoked the jurisdiction of the CA in the belief that the power given to the CA to issue a temporary
restraining order (TRO) or writ of injunction against any freeze order issued by the AMLC carried with it the power to
extend the effectivity of a freeze order. In other words, the AMLC interpreted the phrase upon order of the court to
refer to the CA.

However, the CA disagreed with the AMLC and dismissed the petitions. It uniformly ruled that it was not
vested by RA 9160 with the power to extend a freeze order issued by the AMLC. [4]

Hence, these consolidated petitions[5] which present a common issue: which court has jurisdiction to extend
the effectivity of a freeze order?

During the pendency of these petitions, or on March 3, 2003, Congress enacted RA 9194 (An Act Amending
Republic Act No. 9160, Otherwise Known as the Anti-Money Laundering Act of 2001). [6] It amended Section 10 of RA
9160 as follows:
SEC. 7. Section 10 of [RA 9160] is hereby amended to read as follows:
SEC. 10. Freezing of Monetary Instrument or Property. The Court of Appeals,
upon application ex parte by the AMLC and after determination that probable cause
exists that any monetary instrument or property is in any way related to an unlawful
activity as defined in Sec. 3(i) hereof, may issue a freeze order which shall be

effective immediately. The freeze order shall be for a period of twenty (20)
days unless extended by the court.[7] (emphasis supplied)

Section 12 of RA 9194 further provides:

SEC 12. Transitory Provision. Existing freeze orders issued by the AMLC shall remain in force for a
period of thirty (30) days after the effectivity of this Act, unless extended by the Court of Appeals.
(emphasis supplied)

On April 3, 2003, the Office of the Solicitor General (OSG) filed a Very Urgent Motion to Remand Cases to
the Honorable Court of Appeals (with Prayer for Issuance of Temporary Restraining Order and/or Writ of Preliminary
Injunction).[8] The OSG prayed for the remand of these cases to the CA pursuant to RA 9194. It also asked for the
issuance of a TRO on the ground that the freeze orders would be automatically lifted on April 22, 2003 by operation of
law and the money or deposits in the concerned bank accounts may be taken out of the reach of law enforcement
authorities. The OSG further manifested that pending in the CA were 29 other cases involving the same issue. It
requested that these cases be included in the coverage of the TRO prayed for.

On April 21, 2003, the Court issued a TRO in these cases and in all other similar cases pending before all
courts in the Philippines. Respondents, the concerned banks, and all persons acting in their behalf were directed
to give full force and effect to existing freeze orders until further orders from this Court.

On May 5, 2003, the OSG informed the Court that on April 22, 2003 the CA issued a resolution in CA-G.R.
SP No. 69371 (the subject of G.R. No. 154694) granting the petition for extension of freeze orders. [9] Hence, the
OSG prayed for the dismissal of G.R. No. 154694 for being moot. It also reiterated its earlier prayer for the
remand of G.R. Nos. 154522, 155554 and 155711 to the CA.

The amendment by RA 9194 of RA 9160 erased any doubt on the jurisdiction of the CA over the extension
of freeze orders. As the law now stands, it is solely the CA which has the authority to issue a freeze order as well
as to extend its effectivity. It also has the exclusive jurisdiction to extend existing freeze orders previously issued
by the AMLC vis--vis accounts and deposits related to money-laundering activities.

WHEREFORE, G.R. No. 154694 is hereby DISMISSED for being moot while G.R. Nos. 154522, 155554 and
155711 are REMANDED to the Court of Appeals for appropriate action. Pending resolution by the Court of Appeals of
these cases, the April 21, 2003 temporary restraining order is hereby MAINTAINED.
No costs.

SO ORDERED.

G.R. No. 170281

January 18, 2008

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

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

On October 27, 2005, the trial court issued the assailed order. It dismissed the case on the following grounds: (1)
improper venue as it should have been filed in the RTC of Pasig where CSBI, the depository bank of the account
sought to be forfeited, was located; (2) insufficiency of the complaint in form and substance and (3) failure to
prosecute. It lifted the writ of preliminary injunction and directed CSBI to release to Glasgow or its authorized
representative the funds in CA-005-10-000121-5.
Raising questions of law, the Republic filed this petition.
On November 23, 2005, this Court issued a TRO restraining Glasgow and CSBI, their agents, representatives and/or
persons acting upon their orders from implementing the assailed October 27, 2005 order. It restrained Glasgow from
removing, dissipating or disposing of the funds in account no. CA-005-10-000121-5 and CSBI from allowing any
transaction on the said account.
The petition essentially presents the following issue: whether the complaint for civil forfeiture was correctly dismissed
on grounds of improper venue, insufficiency in form and substance and failure to prosecute.
The Court agrees with the Republic.
The Complaint Was Filed
In The Proper Venue
In its assailed order, the trial court cited the grounds raised by Glasgow in support of its motion to dismiss:
1. That this [c]ourt has no jurisdiction over the person of Glasgow considering that no [s]ummons has been
served upon it, and it has not entered its appearance voluntarily;
2. That the [c]omplaint for forfeiture is premature because of the absence of a prior finding by any tribunal that
Glasgow was engaged in unlawful activity: [i]n connection therewith[,] Glasgow argues that the [c]omplaint
states no cause of action; and
3. That there is failure to prosecute, in that, up to now, summons has yet to be served upon Glasgow. 5
But inasmuch as Glasgow never questioned the venue of the Republics complaint for civil forfeiture against it, how
could the trial court have dismissed the complaint for improper venue? In Dacoycoy v. Intermediate Appellate
Court6 (reiterated in Rudolf Lietz Holdings, Inc. v. Registry of Deeds of Paraaque City),7 this Court ruled:
The motu proprio dismissal of petitioners complaint by [the] trial court on the ground of improper venue
is plain error. (emphasis supplied)
At any rate, the trial court was a proper venue.
On November 15, 2005, this Court issued A.M. No. 05-11-04-SC, the Rule of Procedure in Cases of Civil Forfeiture,
Asset Preservation, and Freezing of Monetary Instrument, Property, or Proceeds Representing, Involving, or Relating
to an Unlawful Activity or Money Laundering Offense under RA 9160, as amended (Rule of Procedure in Cases of Civil
Forfeiture). The order dismissing the Republics complaint for civil forfeiture of Glasgows account in CSBI has not yet
attained finality on account of the pendency of this appeal. Thus, the Rule of Procedure in Cases of Civil Forfeiture
applies to the Republics complaint.8 Moreover, Glasgow itself judicially admitted that the Rule of Procedure in Cases
of Civil Forfeiture is "applicable to the instant case." 9
Section 3, Title II (Civil Forfeiture in the Regional Trial Court) of the Rule of Procedure in Cases of Civil Forfeiture
provides:
Sec. 3. Venue of cases cognizable by the regional trial court. A petition for civil forfeiture shall be filed in any
regional trial court of the judicial region where the monetary instrument, property or proceeds
representing, involving, or relating to an unlawful activity or to a money laundering offense are
located; provided, however, that where all or any portion of the monetary instrument, property or proceeds is
located outside the Philippines, the petition may be filed in the regional trial court in Manila or of the judicial
region where any portion of the monetary instrument, property, or proceeds is located, at the option of the
petitioner. (emphasis supplied)
Under Section 3, Title II of the Rule of Procedure in Cases of Civil Forfeiture, therefore, the venue of civil forfeiture
cases is any RTC of the judicial region where the monetary instrument, property or proceeds representing, involving,
or relating to an unlawful activity or to a money laundering offense are located. Pasig City, where the account sought

to be forfeited in this case is situated, is within the National Capital Judicial Region (NCJR). Clearly, the complaint for
civil forfeiture of the account may be filed in any RTC of the NCJR. Since the RTC Manila is one of the RTCs of the
NCJR,10 it was a proper venue of the Republics complaint for civil forfeiture of Glasgows account.
The Complaint Was Sufficient In Form And Substance
In the assailed order, the trial court evaluated the Republics complaint to determine its sufficiency in form and
substance:
At the outset, this [c]ourt, before it proceeds, takes the opportunity to examine the [c]omplaint and determine
whether it is sufficient in form and substance.
Before this [c]ourt is a [c]omplaint for Civil Forfeiture of Assets filed by the [AMLC], represented by the Office
of the Solicitor General[,] against Glasgow and [CSBI] as necessary party. The [c]omplaint principally alleges
the following:
(a) Glasgow is a corporation existing under the laws of the Philippines, with principal office address at Unit
703, 7th Floor, Citystate Center [Building], No. 709 Shaw Boulevard[,] Pasig City;
(b) [CSBI] is a corporation existing under the laws of the Philippines, with principal office at Citystate Center
Building, No. 709 Shaw Boulevard, Pasig City;
(c) Glasgow has funds in the amount of P21,301,430.28 deposited with [CSBI], under CA 005-10-000121-5;
(d) As events have proved, aforestated bank account is related to the unlawful activities of Estafa and violation
of Securities Regulation Code;
(e) The deposit has been subject of Suspicious Transaction Reports;
(f) After appropriate investigation, the AMLC issued Resolutions No. 094 (dated July 10, 2002), 096 (dated
July 12, 2002), 101 (dated July 23, 2002), and 108 (dated August 2, 2002), directing the issuance of freeze
orders against the bank accounts of Glasgow;
(g) Pursuant to said AMLC Resolutions, Freeze Orders Nos. 008-010, 011 and 013 were issued on different
dates, addressed to the concerned banks;
(h) The facts and circumstances plainly showing that defendant Glasgows bank account and deposit are
related to the unlawful activities of Estafa and violation of Securities Regulation Code, as well as to a money
laundering offense [which] [has] been summarized by the AMLC in its Resolution No. 094; and
(i) Because defendant Glasgows bank account and deposits are related to the unlawful activities of Estafa
and violation of Securities Regulation Code, as well as [to] money laundering offense as aforestated, and
being the subject of covered transaction reports and eventual freeze orders, the same should properly be
forfeited in favor of the government in accordance with Section 12, R.A. 9160, as amended. 11
In a motion to dismiss for failure to state a cause of action, the focus is on the sufficiency, not the veracity, of the
material allegations.12 The determination is confined to the four corners of the complaint and nowhere else. 13
In a motion to dismiss a complaint based on lack of cause of action, the question submitted to the court for
determination is the sufficiency of the allegations made in the complaint to constitute a cause of action and not
whether those allegations of fact are true, for said motion must hypothetically admit the truth of the facts
alleged in the complaint.
The test of the sufficiency of the facts alleged in the complaint is whether or not, admitting the facts
alleged, the court could render a valid judgment upon the same in accordance with the prayer of the
complaint.14 (emphasis ours)
In this connection, Section 4, Title II of the Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 4. Contents of the petition for civil forfeiture. - The petition for civil forfeiture shall be verified and contain
the following allegations:

(a) The name and address of the respondent;

(b) A description with reasonable particularity of the monetary instrument, property, or proceeds, and
their location; and
(c) The acts or omissions prohibited by and the specific provisions of the Anti-Money Laundering Act,
as amended, which are alleged to be the grounds relied upon for the forfeiture of the monetary
instrument, property, or proceeds; and
[(d)] The reliefs prayed for.
Here, the verified complaint of the Republic contained the following allegations:
(a) the name and address of the primary defendant therein, Glasgow; 15
(b) a description of the proceeds of Glasgows unlawful activities with particularity, as well as the location
thereof, account no. CA-005-10-000121-5 in the amount of P21,301,430.28 maintained with CSBI;
(c) the acts prohibited by and the specific provisions of RA 9160, as amended, constituting the grounds for the
forfeiture of the said proceeds. In particular, suspicious transaction reports showed that Glasgow engaged in
unlawful activities of estafa and violation of the Securities Regulation Code (under Section 3(i)(9) and (13), RA
9160, as amended); the proceeds of the unlawful activities were transacted and deposited with CSBI in
account no. CA-005-10-000121-5 thereby making them appear to have originated from legitimate sources; as
such, Glasgow engaged in money laundering (under Section 4, RA 9160, as amended); and the AMLC
subjected the account to freeze order and
(d) the reliefs prayed for, namely, the issuance of a TRO or writ of preliminary injunction and the forfeiture of
the account in favor of the government as well as other reliefs just and equitable under the premises.
The form and substance of the Republics complaint substantially conformed with Section 4, Title II of the Rule of
Procedure in Cases of Civil Forfeiture.
Moreover, Section 12(a) of RA 9160, as amended, provides:
SEC. 12. Forfeiture Provisions.
(a) Civil Forfeiture. When there is a covered transaction report made, and the court has, in a petition filed for
the purpose ordered seizure of any monetary instrument or property, in whole or in part, directly or indirectly,
related to said report, the Revised Rules of Court on civil forfeiture shall apply.
In relation thereto, Rule 12.2 of the Revised Implementing Rules and Regulations of RA 9160, as amended, states:
RULE 12
Forfeiture Provisions
xxx xxx xxx
Rule 12.2. When Civil Forfeiture May be Applied. When there is a SUSPICIOUS TRANSACTION REPORT
OR A COVERED TRANSACTION REPORT DEEMED SUSPICIOUS AFTER INVESTIGATION BY THE
AMLC, and the court has, in a petition filed for the purpose, ordered the seizure of any monetary instrument or
property, in whole or in part, directly or indirectly, related to said report, the Revised Rules of Court on civil
forfeiture shall apply.
RA 9160, as amended, and its implementing rules and regulations lay down two conditions when applying for civil
forfeiture:
(1) when there is a suspicious transaction report or a covered transaction report deemed suspicious after
investigation by the AMLC and
(2) the court has, in a petition filed for the purpose, ordered the seizure of any monetary instrument or
property, in whole or in part, directly or indirectly, related to said report.

It is the preliminary seizure of the property in question which brings it within the reach of the judicial process. 16 It is
actually within the courts possession when it is submitted to the process of the court. 17 The injunctive writ issued on
August 8, 2003 removed account no. CA-005-10-000121-5 from the effective control of either Glasgow or CSBI or
their representatives or agents and subjected it to the process of the court.
Since account no. CA-005-10-000121-5 of Glasgow in CSBI was (1) covered by several suspicious transaction reports
and (2) placed under the control of the trial court upon the issuance of the writ of preliminary injunction, the conditions
provided in Section 12(a) of RA 9160, as amended, were satisfied. Hence, the Republic, represented by the AMLC,
properly instituted the complaint for civil forfeiture.
Whether or not there is truth in the allegation that account no. CA-005-10-000121-5 contains the proceeds of unlawful
activities is an evidentiary matter that may be proven during trial. The complaint, however, did not even have to show
or allege that Glasgow had been implicated in a conviction for, or the commission of, the unlawful activities of estafa
and violation of the Securities Regulation Code.
A criminal conviction for an unlawful activity is not a prerequisite for the institution of a civil forfeiture proceeding.
Stated otherwise, a finding of guilt for an unlawful activity is not an essential element of civil forfeiture.
Section 6 of RA 9160, as amended, provides:
SEC. 6. Prosecution of Money Laundering.
(a) Any person may be charged with and convicted of both the offense of money laundering and the unlawful
activity as herein defined.
(b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any
offense or violation under this Act without prejudice to the freezing and other remedies provided.
(emphasis supplied)
Rule 6.1 of the Revised Implementing Rules and Regulations of RA 9160, as amended, states:
Rule 6.1. Prosecution of Money Laundering
(a) Any person may be charged with and convicted of both the offense of money laundering and the unlawful
activity as defined under Rule 3(i) of the AMLA.
(b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any
offense or violation under the AMLA without prejudice to the application ex-parte by the AMLC to the Court
of Appeals for a freeze order with respect to the monetary instrument or property involved therein andresort
to other remedies provided under the AMLA, the Rules of Court and other pertinent laws and rules.
(emphasis supplied)
Finally, Section 27 of the Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 27. No prior charge, pendency or conviction necessary. No prior criminal charge, pendency of or
conviction for an unlawful activity or money laundering offense is necessary for the commencementor
the resolution of a petition for civil forfeiture. (emphasis supplied)
Thus, regardless of the absence, pendency or outcome of a criminal prosecution for the unlawful activity or for money
laundering, an action for civil forfeiture may be separately and independently prosecuted and resolved.
There Was No Failure
To Prosecute
The trial court faulted the Republic for its alleged failure to prosecute the case. Nothing could be more erroneous.
Immediately after the complaint was filed, the trial court ordered its deputy sheriff/process server to serve summons
and notice of the hearing on the application for issuance of TRO and/or writ of preliminary injunction. The subpoena to
Glasgow was, however, returned unserved as Glasgow "could no longer be found at its given address" and had
moved out of the building since August 1, 2002.

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

in order to satisfy the requirements of due process. 22 For this purpose, service may be made by publication as such
mode of service is allowed in actions in rem and quasi in rem.23
In this connection, Section 8, Title II of the Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 8. Notice and manner of service. - (a) The respondent shall be given notice of the petition in the same manner as
service of summons under Rule 14 of the Rules of Court and the following rules:
1. The notice shall be served on respondent personally, or by any other means prescribed in Rule 14 of the
Rules of Court;
2. The notice shall contain: (i) the title of the case; (ii) the docket number; (iii) the cause of action; and (iv) the
relief prayed for; and
3. The notice shall likewise contain a proviso that, if no comment or opposition is filed within the reglementary
period, the court shall hear the case ex parte and render such judgment as may be warranted by the facts
alleged in the petition and its supporting evidence.
(b) Where the respondent is designated as an unknown owner or whenever his whereabouts are
unknown and cannot be ascertained by diligent inquiry, service may, by leave of court, be
effected upon him by publication of the notice of the petition in a newspaper of general
circulation in such places and for such time as the court may order. In the event that the cost of
publication exceeds the value or amount of the property to be forfeited by ten percent, publication
shall not be required. (emphasis supplied)
WHEREFORE, the petition is hereby GRANTED. The October 27, 2005 order of the Regional Trial Court of Manila,
Branch 47, in Civil Case No. 03-107319 is SET ASIDE. The August 11, 2005 motion to dismiss of Glasgow Credit and
Collection Services, Inc. is DENIED. And the complaint for forfeiture of the Republic of the Philippines, represented by
the Anti-Money Laundering Council, is REINSTATED.
The case is hereby REMANDED to the Regional Trial Court of Manila, Branch 47 which shall forthwith proceed with
the case pursuant to the provisions of A.M. No. 05-11-04-SC. Pending final determination of the case, the November
23, 2005 temporary restraining order issued by this Court is hereby MAINTAINED.
SO ORDERED.
Puno, C.J., Chairperson, Sandoval-Gutierrez, Azcuna, Leonardo-de Castro, JJ., concur.

BANK OF THE PHILIPPINE

ISLANDS, INC.,
Petitioner,
- versus -

SPS. NORMAN AND ANGELINA YU

and TUANSON BUILDERS
CORPORATION represented by
PRES. NORMAN YU,
Respondents.

G.R. No. 184122

Present:
Carpio, J., Chairperson,
Brion,
Del Castillo,
Abad, and
Perez, JJ.
Promulgated:
January 20, 2010

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

DECISION

ABAD, J.:

This case is about the propriety of a summary judgment in resolving a documented claim of alleged excessive
penalty charges, interest, attorneys fees, and foreclosure expenses imposed in an extrajudicial foreclosure of
mortgage.

The Facts and the Case

Respondents Norman and Angelina Yu (the Yus), doing business as Tuanson Trading, and Tuanson Builders
Corporation (Tuanson Builders) borrowed various sums totaling P75 million from Far East Bank and Trust
Company. For collateral, they executed real estate mortgages over several of their properties, [1] including certain
lands inLegazpi City owned by Tuanson Trading.[2] In 1999, unable to pay their loans, the Yus and Tuanson Builders
requested a loan restructuring,[3] which the bank, now merged with Bank of the Philippine Islands (BPI), granted. [4] By
this time, the Yus loan balance stood at P33,400,000.00. The restructured loan used the same collaterals, with the
exception of Transfer Certificate of Title 40247 that secured a loan of P1,600,000.[5]

Despite the restructuring, however, the Yus still had difficulties paying their loan. They asked BPI to release
some of the mortgaged lands since their total appraised value far exceeded the amount of the remaining debt. When
BPI ignored their request, the Yus withheld payments on their amortizations. Thus, BPI extrajudicially foreclosed [6] the
mortgaged properties in Legazpi City and in Pili, Camarines Sur. But the Yus sought by court action against BPI and
the winning bidder, Magnacraft Development Corporation (Magnacraft), the annulment of the foreclosure sale.

In the course of the proceedings, however, the Yus and Magnacraft entered into a compromise
agreement[7] that affirmed the latters ownership of three out of the 10 parcels of land that were auctioned. By virtue of
this agreement, the court dismissed the complaint against Magnacraft, [8] without prejudice to the Yus filing a new one
against BPI.

On October 24, 2003 the Yus filed their new complaint before the Regional Trial Court (RTC) of Legazpi City,
Branch 1, in Civil Case 10286 against BPI for recovery of alleged excessive penalty charges, attorneys fees, and
foreclosure expenses that the bank caused to be incorporated in the price of the auctioned properties. [9]

In its answer,[10] BPI essentially admitted the foreclosure of the mortgaged properties for P39,055,254.95,
broken down as follows: P33,283,758.73 as principal debt;P2,110,282.78 as interest; and P3,661,213.46 as penalty
charges.[11] BPI qualified that the total of P39,055,254.95 corresponded only to the Yus debt as of date of filing of the
petition.[12] The notice of the auction sale said that the total was inclusive of interest, penalty charges, attorneys fee
and expenses of this foreclosure.[13]

BPI further admitted that its bid of P45,090,566.41 for all the auctioned properties was broken down as
follows:[14]

Principal
Interest
Penalty Charges

P 32,188,723.07
2,763,088.93
5,568.649.09

Sub-total
Add: 10% Attorneys Fees
Litigation Expenses & Interest
Cost of Publication & Interest

P 40,520,461.09
4,052,046.11
446,726.74
71,332.47

TOTAL.

P 45,090,566.41

BPI also admitted that Magnacraft submitted the highest and winning bid of P45,500,000.00.[15] The
sheriff turned over this amount to BPI. [16] According to BPI, it in turn remitted to the Clerk of Court
the P409,433.59 difference between its bid price and that of Magnacrafts. [17] Although the proceeds of the sale
exceeded theP39,055,254.95 stated in the notice of sale by P6,035,311.46,[18] the bid amount increased
because it now included litigation expenses and attorneys fees as well as interests and penalties as
recomputed.[19]

BPI admitted that it also pushed through with the second auction for the sale of a lot in Pili, Camarines
Sur that secured a remaining debt of P5,562,000.[20] BPI made the lone bid[21] of P1,701,934.09.[22]

The Yus had three causes of action against BPI.

First. The bank imposed excessive penalty charges and interests: over P5 million in penalty charges
computed at 36% per annum compared to the 12% per annum that the Court fixed in the cases of State Investment
House, Inc. v. Court of Appeals[23] and Ruiz v. Court of Appeals.[24] In addition, BPI collected a 14% yearly interest on
the principal, bringing the combined penalty charges and interest to 50% of the principal per annum.

Second. BPI also imposed a charge of P4,052,046.11 in attorneys fees, the equivalent of 10% of the
principal, interest, and penalty charges.

Third. BPI did not provide documents to support its claim for foreclosure expenses of P446,726.74 and cost
of publication of P518,059.21.

As an alternative to their three causes of action, the Yus claimed that BPI was in estoppel to claim more than
the amount stated in its published notices. Consequently, it must turn over the excess bid of P6,035,311.46.

After pre-trial, the Yus moved for summary judgment, [25] pointing out that based on the answer,[26] the common
exhibits of the parties,[27] and the answer to the written interrogatories to the sheriff, [28] no genuine issues of fact exist in
the case. The Yus waived their claim for moral damages so the RTC can dispose of the case through a summary
judgment.[29]

Initially, the RTC granted only a partial summary judgment. It reduced the penalty charge of 36% per
annum[30] to 12% per annum until the debt would have been fully paid but maintained the attorneys fees as
reasonable considering that BPI already waived the P1,761,511.36 that formed part of the attorneys fees and reduced
the rate of attorneys fees it collected from 25% to 10% of the amount due. The RTC ruled that facts necessary to
resolve the issues on penalties and fees had been admitted by the parties thus dispensing with the need to receive
evidence.[31]

Still, the RTC held that it needed to receive evidence for the resolution of the issues of (1) whether or not the
foreclosure and publication expenses were justified; (2) whether or not the foreclosure of the lot in Pili, Camarines Sur,
was valid given that the proceeds of the foreclosure of the properties in Legazpi City sufficiently covered the debt; and
(3) whether or not BPI was entitled to its counterclaim for attorneys fees, moral damages, and exemplary damages. [32]

The Yus moved for partial reconsideration. [33] They argued that, since BPI did not mark in evidence any
document in support of the foreclosure expenses it claimed, it may be assumed that the bank had no evidence to
prove such expenses. As regards their right to the pro-rating of their debt among the mortgaged properties, the Yus
pointed out that BPI did not dispute the fact that the proceeds of the sale of the properties in Legazpi City fully
satisfied the debt. Thus, the court could already resolve without trial the issue of whether or not the foreclosure of the
Pili property was valid.

Further, the Yus sought reconsideration of the reduction of penalty charges and the allowance of the
attorneys fees. They claimed that the penalty charges should be deleted for violation of Republic Act (R.A.) 3765 or
the Truth in Lending Act. BPIs disclosure did not state the rate of penalties on late amortizations. Also, the Yus asked
the court to reduce the attorneys fees from 10% to 1% of the amount due. On January 3, 2006 the RTC reconsidered
its earlier decision and rendered a summary judgment:[34]

1.
Deleting the penalty charges imposed by BPI for non-compliance with the Truth in
Lending Act;
2.

Reducing the attorneys fees to 1% of the principal and interest;

3.
Upholding the reasonableness of the foreclosure expenses and cost of publication,
both with interests;
4.

Reiterating the turnover by the Clerk of Court to the Yus of the excess in the bid price;

5.

Deleting the Yus claim for moral damages they having waived it;

6.

Denying the Yus claim for attorneys fees for lack of basis; and

7.
Dismissing BPIs counterclaim for moral and exemplary damages and for attorneys
fees for lack of merit considering that summary judgment has been rendered in favor of the Yus.

BPI appealed the decision to the Court of Appeals (CA) in CA-G.R. CV 86577. But the CA rendered judgment
on January 23, 2008, affirming the RTC decision in all respects. And when BPI asked for reconsideration,[35] the CA
denied it on July 14, 2008,[36] hence, the banks recourse to this Court.

The Issues Presented

BPI presents the following issues:

1.

Whether or not the case presented no genuine issues of fact such as to warrant a

summary judgment by the RTC; and

2.

Where summary judgment is proper, whether or not the RTC and the CA a) correctly

deleted the penalty charges because of BPIs alleged failure to comply with the Truth in Lending Act;
b) correctly reduced the attorneys fees to 1% of the judgment debt; and c) properly dismissed BPIs
counterclaims for moral and exemplary damages, attorneys fees, and litigation expenses.

The Courts Rulings

One. A summary judgment is apt when the essential facts of the case are uncontested or the parties do not
raise any genuine issue of fact. [37] Here, to resolve the issue of the excessive charges allegedly incorporated into the
auction bid price, the RTC simply had to look at a) the pleadings of the parties; b) the loan agreements, the promissory
note, and the real estate mortgages between them; c) the foreclosure and bidding documents; and d) the admissions
and other disclosures between the parties during pre-trial. Since the parties admitted not only the existence,
authenticity, and genuine execution of these documents but also what they stated, the trial court did not need to hold a
trial for the reception of the evidence of the parties.

BPI contends that a summary judgment was not proper given the following issues that the parties raised: 1)
whether or not the loan agreements between them were valid and enforceable; 2) whether or not the Yus have a
cause of action against BPI; 3) whether or not the Yus are proper parties in interest; 4) whether or not the Yus are
estopped from questioning the foreclosure proceeding after entering into a compromise agreement with Magnacraft;
5) whether or not the penalty charges and fees and expenses of litigation and publication are excessive; and 6)
whether or not BPI violated the Truth in Lending Act. [38]

But these are issues that could be readily resolved based on the facts established by the pleadings and the
admissions of the parties.[39] Indeed, BPI has failed to name any document or item of fact that it would have wanted to
adduce at the trial of the case. A trial would have been such a great waste of time and resources.

Two. Both the RTC and CA decisions cited BPIs alleged violation of the Truth in Lending Act and the ruling of
the Court in New Sampaguita Builders Construction, Inc. v. Philippine National Bank [40] to justify their deletion of the
penalty charges. Section 4 of the Truth in Lending Act states that:

SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth, to the extent applicable
and in accordance with rules and regulations prescribed by the Board, the following information:

(1)

the cash price or delivered price of the property or service to be acquired;

(2)

the amounts, if any, to be credited as down payment and/or trade-in;

(3)

the difference between the amounts set forth under clauses (1) and (2);

(4)
the charges, individually itemized, which are paid or to be paid by such person in
connection with the transaction but which are not incident to the extension of credit;
(5)

the total amount to be financed;

(6)

the finance charge expressed in terms of pesos and centavos; and

(7)
the percentage that the finance bears to the total amount to be financed expressed as
a simple annual rate on the outstanding unpaid balance of the obligation.

Penalty charge, which is liquidated damages resulting from a breach, [41] falls under item (6) or finance charge. A
finance charge represents the amount to be paid by the debtor incident to the extension of credit. [42] The lender may
provide for a penalty clause so long as the amount or rate of the charge and the conditions under which it is to be paid
are disclosed to the borrower before he enters into the credit agreement.

In this case, although BPI failed to state the penalty charges in the disclosure statement, the promissory note
that the Yus signed, on the same date as the disclosure statement, contained a penalty clause that said: I/We jointly
and severally, promise to further pay a late payment charge on any overdue amount herein at the rate of 3% per
month. The promissory note is an acknowledgment of a debt and commitment to repay it on the date and under the
conditions that the parties agreed on.[43] It is a valid contract absent proof of acts which might have vitiated consent. [44]

The question is whether or not the reference to the penalty charges in the promissory note constitutes
substantial compliance with the disclosure requirement of the Truth in Lending Act. [45] The RTC and CA relied on the
ruling in New Sampaguita as authority that the non-disclosure of the penalty charge renders its imposition
illegal. But New Sampaguita is not attended by the same circumstances. What New Sampaguita disallowed,
because it was not mentioned either in the disclosure statement or in the promissory note, was the unilateral increase
in the rates of penalty charges that the creditor imposed on the borrower. Here, however, it is not shown that BPI
increased the rate of penalty charge that it collected from the Yus.

[46]

The ruling that is more in point is that laid down in The Consolidated Bank and Trust Corporation v. Court of
Appeals,[47] a case cited in New Sampaguita. TheConsolidated Bank ruling declared valid the penalty charges that
were stipulated in the promissory notes.[48] What the Court disallowed in that case was the collection of a handling
charge that the promissory notes did not contain.

The Court has affirmed that financial charges are amply disclosed if stated in the promissory note in the case
of Development Bank of the Philippines v. Arcilla, Jr.[49] The Court there said, Under Circular 158 of the Central Bank,
the lender is required to include the information required by R.A. 3765 in the contract covering the credit transaction or
any other document to be acknowledged and signed by the borrower. In addition, the contract or document shall
specify additional charges, if any, which will be collected in case certain stipulations in the contract are not met by the
debtor. In this case, the promissory notes signed by the Yus contained data, including penalty charges, required by
the Truth in Lending Act. They cannot avoid liability based on a rigid interpretation of the Truth in Lending Act that
contravenes its goal.

Nonetheless, the courts have authority to reduce penalty charges when these are unreasonable and iniquitous.
[50]

Considering that BPI had already received over P2.7 million in interest and that it seeks to impose the penalty

charge of 3% per month or 36% per annum on the total amount dueprincipal plus interest, with interest not paid
when due added to and becoming part of the principal and also bearing interest at the same ratethe Court finds the
ruling of the RTC in its original decision [51] reasonable and fair. Thus, the penalty charge of 12% per annum or 1% per
month[52] is imposed.

Three. As for the award of attorneys fee, it being part of a partys liquidated damages, the same may likewise
be equitably reduced.[53] The CA correctly affirmed the RTC Order[54] to reduce it from 10% to 1% based on the
following reasons: (1) attorneys fee is not essential to the cost of borrowing, but a mere incident of collection; [55] (2)
1% is just and adequate because BPI had already charged foreclosure expenses; (3) attorneys fee of 10% of the total
amount due is onerous considering the rote effort that goes into extrajudicial foreclosures.

WHEREFORE, the Court DENIES the petition and AFFIRMS the Court of Appeals Decision in CA-G.R. CV
86577 dated January 23, 2008 subject to theRESTORATION of the penalty charge of 12% per annum or 1% per
month of the amount due computed from date of nonpayment or November 25, 2001.