I.

Nature of Banks and

Diligence Required

Richelle Ann Zamora

 Richelle Ann Zamora

II. Deposit Fun 1

2
III. Loan Fun

Richelle Ann Zamora

3
 G.R. No. 189871 August 13, 2013

DARIO NACAR, PETITIONER,

vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.

DECISION

PERALTA, J.:

This is a petition for review on certiorari assailing the Decision1 dated September 23, 2008 of the Court of Appeals (CA) in
CA-G.R. SP No. 98591, and the Resolution2 dated October 9, 2009 denying petitioners motion for reconsideration.

The factual antecedents are undisputed.

Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the National Labor
Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC NCR
Case No. 01-00519-97.

On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found that he was dismissed from
employment without a valid or just cause. Thus, petitioner was awarded backwages and separation pay in lieu of
reinstatement in the amount of 158,919.92. The dispositive portion of the decision, reads:

With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that complainant was
dismissed from employment for a just or valid cause. All the more, it is clear from the records that complainant was never
afforded due process before he was terminated. As such, we are perforce constrained to grant complainants prayer for
the payments of separation pay in lieu of reinstatement to his former position, considering the strained relationship
between the parties, and his apparent reluctance to be reinstated, computed only up to promulgation of this decision as
follows:

SEPARATION PAY
Date Hired = August 1990
Rate = 198/day
Date of Decision = Aug. 18, 1998
Length of Service = 8 yrs. & 1 month
198.00 x 26 days x 8 months = 41,184.00
BACKWAGES
Date Dismissed = January 24, 1997
Rate per day = 196.00
Date of Decisions = Aug. 18, 1998
a) 1/24/97 to 2/5/98 = 12.36 mos.
196.00/day x 12.36 mos. = 62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day = 62,986.00
198.00 x 26 days x 6.4 mos. = 32,947.20
TOTAL = 95.933.76
xxxx

WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive dismissal and
are therefore, ordered:

To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six pesos and 56/100
(62,986.56) Pesos representing his separation pay;

To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-three and 36/100
(95,933.36) representing his backwages; and

All other claims are hereby dismissed for lack of merit.

SO ORDERED.4

Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution5 dated February 29, 2000.
Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents filed a motion for reconsideration, but it
was denied.6

4
Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the CA issued a
Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it was likewise denied in a
Resolution dated May 8, 2001.7

Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no reversible error on
the part of the CA, this Court denied the petition in the Resolution dated April 17, 2002.8

An Entry of Judgment was later issued certifying that the resolution became final and executory on May 27, 2002.9 The
case was, thereafter, referred back to the Labor Arbiter. A pre-execution conference was consequently scheduled, but
respondents failed to appear.10

On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be computed from
the date of his dismissal on January 24, 1997 up to the finality of the Resolution of the Supreme Court on May 27, 2002.11
Upon recomputation, the Computation and Examination Unit of the NLRC arrived at an updated amount in the sum of
471,320.31.12

On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff to collect from
respondents the total amount of 471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing, among
other things, that since the Labor Arbiter awarded separation pay of 62,986.56 and limited backwages of 95,933.36, no
more recomputation is required to be made of the said awards. They claimed that after the decision becomes final and
executory, the same cannot be altered or amended anymore.14 On January 13, 2003, the Labor Arbiter issued an Order15
denying the motion. Thus, an Alias Writ of Execution16 was issued on January 14, 2003.

Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution17 granting the appeal in favor
of the respondents and ordered the recomputation of the judgment award.

On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and executory.
Consequently, another pre-execution conference was held, but respondents failed to appear on time. Meanwhile,
petitioner moved that an Alias Writ of Execution be issued to enforce the earlier recomputed judgment award in the sum
of 471,320.31.18

The records of the case were again forwarded to the Computation and Examination Unit for recomputation, where the
judgment award of petitioner was reassessed to be in the total amount of only 147,560.19.

Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as
determined by the Labor Arbiter in his Decision dated October 15, 1998, pending the final computation of his backwages
and separation pay.

On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that was due to
petitioner in the amount of 147,560.19, which petitioner eventually received.

Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to include the
appropriate interests.19

On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the amount of 11,459.73. The
Labor Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced considering that it was the one
that became final and executory. However, the Labor Arbiter reasoned that since the decision states that the separation
pay and backwages are computed only up to the promulgation of the said decision, it is the amount of 158,919.92 that
should be executed. Thus, since petitioner already received 147,560.19, he is only entitled to the balance of 11,459.73.

Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its Resolution22 dated September
27, 2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in the Resolution23 dated January 31,
2007.

Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.

On September 23, 2008, the CA rendered a Decision24 denying the petition. The CA opined that since petitioner no longer
appealed the October 15, 1998 Decision of the Labor Arbiter, which already became final and executory, a belated
correction thereof is no longer allowed. The CA stated that there is nothing left to be done except to enforce the said
judgment. Consequently, it can no longer be modified in any respect, except to correct clerical errors or mistakes.

Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution25 dated October 9, 2009.

5
Hence, the petition assigning the lone error:

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE ABUSE OF DISCRETION
AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN,
SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE OCTOBER
15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF THE SAME
DECISION.26

Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor Arbiters decision,
the same is not final until reinstatement is made or until finality of the decision, in case of an award of separation pay.
Petitioner maintains that considering that the October 15, 1998 decision of the Labor Arbiter did not become final and
executory until the April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of Entries
on May 27, 2002, the reckoning point for the computation of the backwages and separation pay should be on May 27,
2002 and not when the decision of the Labor Arbiter was rendered on October 15, 1998. Further, petitioner posits that he
is also entitled to the payment of interest from the finality of the decision until full payment by the respondents.

On their part, respondents assert that since only separation pay and limited backwages were awarded to petitioner by the
October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to be made of said awards.
Respondents insist that since the decision clearly stated that the separation pay and backwages are "computed only up to
[the] promulgation of this decision," and considering that petitioner no longer appealed the decision, petitioner is only
entitled to the award as computed by the Labor Arbiter in the total amount of 158,919.92. Respondents added that it
was only during the execution proceedings that the petitioner questioned the award, long after the decision had become
final and executory. Respondents contend that to allow the further recomputation of the backwages to be awarded to
petitioner at this point of the proceedings would substantially vary the decision of the Labor Arbiter as it violates the rule
on immutability of judgments.

The petition is meritorious.

The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth Division),27
wherein the issue submitted to the Court for resolution was the propriety of the computation of the awards made, and
whether this violated the principle of immutability of judgment. Like in the present case, it was a distinct feature of the
judgment of the Labor Arbiter in the above-cited case that the decision already provided for the computation of the
payable separation pay and backwages due and did not further order the computation of the monetary awards up to the
time of the finality of the judgment. Also in Session Delights, the dismissed employee failed to appeal the decision of the
labor arbiter. The Court clarified, thus:

In concrete terms, the question is whether a re-computation in the course of execution of the labor arbiter's original
computation of the awards made, pegged as of the time the decision was rendered and confirmed with modification by a
final CA decision, is legally proper. The question is posed, given that the petitioner did not immediately pay the awards
stated in the original labor arbiter's decision; it delayed payment because it continued with the litigation until final
judgment at the CA level.

A source of misunderstanding in implementing the final decision in this case proceeds from the way the original labor
arbiter framed his decision. The decision consists essentially of two parts.

The first is that part of the decision that cannot now be disputed because it has been confirmed with finality. This is the
finding of the illegality of the dismissal and the awards of separation pay in lieu of reinstatement, backwages, attorney's
fees, and legal interests.

The second part is the computation of the awards made. On its face, the computation the labor arbiter made shows that
it was time-bound as can be seen from the figures used in the computation. This part, being merely a computation of what
the first part of the decision established and declared, can, by its nature, be re-computed. This is the part, too, that the
petitioner now posits should no longer be re-computed because the computation is already in the labor arbiter's decision
that the CA had affirmed. The public and private respondents, on the other hand, posit that a re-computation is necessary
because the relief in an illegal dismissal decision goes all the way up to reinstatement if reinstatement is to be made, or
up to the finality of the decision, if separation pay is to be given in lieu reinstatement.

That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place, also made a
computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules of Procedure which
requires that a computation be made. This Section in part states:

6
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable, shall embody in
any such decision or order the detailed and full amount awarded.

Clearly implied from this original computation is its currency up to the finality of the labor arbiter's decision. As we noted
above, this implication is apparent from the terms of the computation itself, and no question would have arisen had the
parties terminated the case and implemented the decision at that point.

However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of illegality as well as
on all the consequent awards made. Hence, the petitioner appealed the case to the NLRC which, in turn, affirmed the
labor arbiter's decision. By law, the NLRC decision is final, reviewable only by the CA on jurisdictional grounds.

The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely filed Rule 65
petition for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming the payment of 13th month
pay and indemnity, lapsed to finality and was subsequently returned to the labor arbiter of origin for execution.

It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original labor arbiter's
decision, the implementing labor arbiter ordered the award re-computed; he apparently read the figures originally
ordered to be paid to be the computation due had the case been terminated and implemented at the labor arbiter's level.
Thus, the labor arbiter re-computed the award to include the separation pay and the backwages due up to the finality of
the CA decision that fully terminated the case on the merits. Unfortunately, the labor arbiter's approved computation
went beyond the finality of the CA decision (July 29, 2003) and included as well the payment for awards the final CA
decision had deleted - specifically, the proportionate 13th month pay and the indemnity awards. Hence, the CA issued the
decision now questioned in the present petition.

We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered the labor
arbiter's original decision in accordance with its basic component parts as we discussed above. To reiterate, the first part
contains the finding of illegality and its monetary consequences; the second part is the computation of the awards or
monetary consequences of the illegal dismissal, computed as of the time of the labor arbiter's original decision.28

Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed by the
petitioner, no essential change is made by a recomputation as this step is a necessary consequence that flows from the
nature of the illegality of dismissal declared by the Labor Arbiter in that decision.29 A recomputation (or an original
computation, if no previous computation has been made) is a part of the law specifically, Article 279 of the Labor Code
and the established jurisprudence on this provision that is read into the decision. By the nature of an illegal dismissal
case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of the Labor Code. The
recomputation of the consequences of illegal dismissal upon execution of the decision does not constitute an alteration
or amendment of the final decision being implemented. The illegal dismissal ruling stands; only the computation of
monetary consequences of this dismissal is affected, and this is not a violation of the principle of immutability of final
judgments.30

That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the risk
that it ran when it continued to seek recourses against the Labor Arbiter's decision. Article 279 provides for the
consequences of illegal dismissal in no uncertain terms, qualified only by jurisprudence in its interpretation of when
separation pay in lieu of reinstatement is allowed. When that happens, the finality of the illegal dismissal decision becomes
the reckoning point instead of the reinstatement that the law decrees. In allowing separation pay, the final decision
effectively declares that the employment relationship ended so that separation pay and backwages are to be computed
up to that point.31

Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals,32 the
Court laid down the guidelines regarding the manner of computing legal interest, to wit:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the

7
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court
is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.33

Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16,
2013, approved the amendment of Section 234 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No.
799,35 Series of 2013, effective July 1, 2013, the pertinent portion of which reads:

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of
interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and Sections 4305Q.1,37
4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended
accordingly.

This Circular shall take effect on 1 July 2013.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the parties,
the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall
no longer be twelve percent (12%) per annum - as reflected in the case of Eastern Shipping Lines40 and Subsection X305.1
of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-
Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but will now be six percent (6%) per annum
effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come
July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable.

Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral Monetary
Board,41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue and enforce Circulars when it
ruled that "the BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the
forbearance of any money, goods or credits, including those for loans of low priority such as consumer loans, as well as
such loans made by pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB to
prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes,
or loans of financial intermediaries."

Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said judgments
shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.1awp++i1

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines42 are accordingly
modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.1wphi1

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable

8
certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court
is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed
and shall continue to be implemented applying the rate of interest fixed therein.

WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-G.R. SP No.
98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are Ordered to Pay
petitioner:

(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May 27, 2002, when
the Resolution of this Court in G.R. No. 151332 became final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002 to June 30,
2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction.

The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded and due to
petitioner in accordance with this Decision. SO ORDERED.
G.R. No. 148753 July 30, 2004

NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI) and Spouses EDUARDO R. DEE Present: and ARCELITA M.
DEE, Petitioners, Panganiban, J, Chairman, Sandoval-Gutierrez, Corona
vs
Carpio Morales, JJ
PHILIPPINE NATIONAL BANK, Promulgated:
Respondent.

DECISION

PANGANIBAN, J.:

Courts have the authority to strike down or to modify provisions in promissory notes that grant the lenders unrestrained
power to increase interest rates, penalties and other charges at the latters sole discretion and without giving prior notice
to and securing the consent of the borrowers. This unilateral authority is anathema to the mutuality of contracts and
enable lenders to take undue advantage of borrowers. Although the Usury Law has been effectively repealed, courts may
still reduce iniquitous or unconscionable rates charged for the use of money. Furthermore, excessive interests, penalties
and other charges not revealed in disclosure statements issued by banks, even if stipulated in the promissory notes, cannot
be given effect under the Truth in Lending Act.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the June 20, 2001 Decision[2]
of the Court of Appeals[3] (CA) in CA-GR CV No. 55231. The decretal portion of the assailed Decision reads as follows:

WHEREFORE, the decision of the Regional Trial Court of Dagupan City, Branch 40 dated December 28, 1995 is REVERSED
and SET ASIDE. The foreclosure proceedings of the mortgaged properties of defendants-appellees[4] and the February 26,
1992 auction sale are declared legal and valid and said defendants-appellees are ordered to pay plaintiff-appellant PNB,[5]
jointly and severally[,] the amount of deficiency that will be computed by the trial court based on the original penalty of
6% per annum as explicitly stated in the loan documents and to pay attorneys fees in an amount equivalent to x x x 1% of
the total amount due and the costs of suit and expenses of litigation.[6]

The Facts

The facts are narrated by the CA as follows:

9
On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved by [Petitioner] NSBCI [1)] authorizing the
company to x x x apply for or secure a commercial loan with the PNB in an aggregate amount of P8.0M, under such terms
agreed by the Bank and the NSBCI, using or mortgaging the real estate properties registered in the name of its President
and Chairman of the Board [Petitioner] Eduardo R. Dee as collateral; [and] 2) authorizing [petitioner-spouses] to secure
the loan and to sign any [and all] documents which may be required by [Respondent] PNB[,] and that [petitioner-spouses]
shall act as sureties or co-obligors who shall be jointly and severally liable with [Petitioner] NSBCI for the payment of any
[and all] obligations.

On August 15, 1989, Resolution No. 77 was approved by granting the request of [Respondent] PNB thru its Board NSBCI
for an P8 Million loan broken down into a revolving credit line of P7.7M and an unadvised line of P0.3M for additional
operating and working capital to mobilize its various construction projects, namely:

1) MWSS Watermain;
2) NEA-Liberty farm;
3) Olongapo City Pag-Asa Public Market;
4) Renovation of COA-NCR Buildings 1, 2 and 9;
5) Dupels, Inc., Extensive prawn farm development project;
6) Banawe Hotel Phase II;
7) Clark Air Base -- Barracks and Buildings; and
8) Others: EDSA Lighting, Roxas Blvd. Painting NEA Sapang Palay and Angeles City.

The loan of [Petitioner] NSBCI was secured by a first mortgage on the following: a) three (3) parcels of residential land
located at Mangaldan, Pangasinan with total land area of 1,214 square meters[,] including improvements thereon and
registered under TCT Nos. 128449, 126071, and 126072 of the Registry of Deeds of Pangasinan; b) six (6) parcels of
residential land situated at San Fabian, Pangasinan with total area of 1,767 square meters[,] including improvements
thereon and covered by TCT Nos. 144006, 144005, 120458, 120890, 144161[,] and 121127 of the Registry of Deeds of
Pangasinan; and c) a residential lot and improvements thereon located at Mangaldan, Pangasinan with an area of 4,437
square meters and covered by TCT No. 140378 of the Registry of Deeds of Pangasinan.

The loan was further secured by the joint and several signatures of [Petitioners] Eduardo Dee and Arcelita Marquez Dee,
who signed as accommodation-mortgagors since all the collaterals were owned by them and registered in their names.

Moreover [Petitioner] NSBCI executed the following documents, viz: a) promissory note dated June 29, 1989 in the amount
of P5,000,000.00 with due date on October 27, 1989; [b)] promissory note dated September 1, 1989 in the amount of
P2,700,000.00 with due date on December 30, 1989; and c) promissory note dated September 6, 1989 in the amount of
P300,000.00 with maturity date on January 4, 1990.

In addition, [petitioner] corporation also signed the Credit Agreement dated August 31, 1989 relating to the revolving
credit line of P7.7 Million x x x and the Credit Agreement dated September 5, 1989 to support the unadvised line of
P300,000.00.

On August 31, 1989, [petitioner-spouses] executed a Joint and Solidary Agreement (JSA) in favor of [Respondent] PNB
unconditionally and irrevocably binding themselves to be jointly and severally liable with the borrower for the payment
of all sums due and payable to the Bank under the Credit Document.

Later on, [Petitioner] NSBCI failed to comply with its obligations under the promissory notes.

On June 18, 1991, [Petitioner] Eduardo R. Dee on behalf of [Petitioner] NSBCI sent a letter to the Branch Manager of the
PNB Dagupan Branch requesting for a 90-day extension for the payment of interests and restructuring of its loan for
another term.

Subsequently, NSBCI tendered payment to [Respondent] PNB [of] three (3) checks aggregating P1,000,000.00, namely 1)
check no. 316004 dated August 8, 1991 in the amount of P200,000.00; 2) check no. 03499997 dated August 8, 1991 in the
amount of P650,000.00; and 3) check no. 03499998 dated August 15, 1991 in the amount of P150,000.00.[8]

In a meeting held on August 12, 1991, [Respondent] PNBs representative[,] Mr. Rolly Cruzabra, was informed by
[Petitioner] Eduardo Dee of his intention to remit to [Respondent] PNB post-dated checks covering interests, penalties
and part of the loan principals of his due account.

On August 22, 1991, [Respondent] banks Crispin Carcamo wrote [Petitioner] Eduardo Dee[,] informing him that
[Petitioner] NSBCIs proposal [was] acceptable[,] provided the total payment should be P4,128,968.29 that [would] cover
the amount of P1,019,231.33 as principal, P3,056,058.03 as interests and penalties[,] and P53,678.93 for insurance[,] with
the issuance of post-dated checks to be dated not later than November 29, 1991.

10
On September 6, 1991, [Petitioner] Eduardo Dee wrote the PNB Branch Manager reiterating his proposals for the
settlement of [Petitioner] NSBCIs past due loan account amounting to P7,019,231.33.

[Petitioner] Eduardo Dee later tendered four (4) post-dated Interbank checks aggregating P1,111,306.67 in favor of
[Respondent] PNB, viz:

Check No. Date Amount

03500087 Sept. 29, 1991 P277,826.70

03500088 Oct. 29, 1991 P277,826.70
03500089 Nov. 29, 1991 P277,826.70
03500090 Dec. 20, 1991 P277,826.57

Upon presentment[,] however, x x x check nos. 03500087 and 03500088 dated September 29 and October 29, 1991 were
dishonored by the drawee bank and returned due [to] a stop payment order from [petitioners].

On November 12, 1991, PNBs Mr. Carcamo wrote [Petitioner] Eduardo Dee informing him that unless the dishonored
checks [were] made good, said PNB branch shall recall its recommendation to the Head Office for the restructuring of the
loan account and refer the matter to its legal counsel for legal action.[] [Petitioners] did not heed [respondents] warning
and as a result[,] the PNB Dagupan Branch sent demand letters to [Petitioner] NSBCI at its office address at 1611 ERDC
Building, E. Rodriguez Sr. Avenue, Quezon City[,] asking it to settle its past due loan account.

[Petitioners] nevertheless failed to pay their loan obligations within the [timeframe] given them and as a result,
[Respondent] PNB filed with the Provincial Sheriff of Pangasinan at Lingayen a Petition for Sale under Act 3135, as
amended[,] and Presidential Decree No. 385 dated January 30, 1992.

The notice of extra-judicial sale of the mortgaged properties relating to said PNBs [P]etition for [S]ale was published in the
February 8, 15 and 22, 1992 issues of the Weekly Guardian, allegedly a newspaper of general circulation in the Province
of Pangasinan, including the cities of Dagupan and San Carlos. In addition[,] copies of the notice were posted in three (3)
public places[,] and copies thereof furnished [Petitioner] NSBCI at 1611 [ERDC Building,] E. Rodriguez Sr. Avenue, Quezon
City, [and at] 555 Shaw Blvd., Mandaluyong[, Metro Manila;] and [Petitioner] Sps. Eduardo and Arcelita Dee at 213 Wilson
St., San Juan, Metro Manila.

On February 26, 1992, the Provincial Deputy Sheriff Cresencio F. Ferrer of Lingayen, Pangasinan foreclosed the real estate
mortgage and sold at public auction the mortgaged properties of [petitioner-spouses,] with [Respondent] PNB being
declared the highest bidder for the amount of P10,334,000.00.

On March 2, 1992, copies of the Sheriffs Certificate of Sale were sent by registered mail to [petitioner] corporations
address at 1611 [ERDC Building,] E. Rodriguez Sr. Avenue, Quezon City and [petitioner-spouses] address at 213 Wilson St.,
San Juan, Metro Manila.

On April 6, 1992, the PNB Dagupan Branch Manager sent a letter to [petitioners] at their address at 1611 [ERDC Building,]
E. Rodriguez Sr. Avenue, Quezon City[,] informing them that the properties securing their loan account [had] been sold at
public auction, that the Sheriffs Certificate of Sale had been registered with the Registry of Deeds of Pangasinan on March
13, 1992[,] and that a period of one (1) year therefrom [was] granted to them within which to redeem their properties.

[Petitioners] failed to redeem their properties within the one-year redemption period[,] and so [Respondent] PNB
executed a [D]eed of [A]bsolute [S]ale consolidating title to the properties in its name. TCT Nos. 189935 to 189944 were
later issued to [Petitioner] PNB by the Registry of Deeds of Pangasinan.

On August 4, 1992, [Respondent] PNB informed [Petitioner] NSBCI that the proceeds of the sale conducted on February
26, 1992 were not sufficient to cover its total claim amounting to P12,506,476.43[,] and thus demanded from the latter
the deficiency of P2,172,476.43 plus interest and other charges[,] until the amount [was] fully paid.

[Petitioners] refused to pay the above deficiency claim which compelled [Respondent] PNB to institute the instant
[C]omplaint for the collection of its deficiency claim.

Finding that the PNB debt relief package automatically [granted] to [Petitioner] NSBCI the benefits under the program,
the court a quo ruled in favor of [petitioners] in its Decision dated December 28, 1995, the fallo of which reads:

In view of the foregoing, the Court believes and so holds that the [respondent] has no cause of action against the
[petitioners].

11
WHEREFORE, the case is hereby DISMISSED, without costs.[9]

On appeal, respondent assailed the trial courts Decision dismissing its deficiency claim on the mortgage debt. It also
challenged the ruling of the lower court that Petitioner NSBCIs loan account was bloated, and that the inadequacy of the
bid price was sufficient to set aside the auction sale.

Ruling of the Court of Appeals

Reversing the trial court, the CA held that Petitioner NSBCI did not avail itself of respondents debt relief package (DRP) or
take steps to comply with the conditions for qualifying under the program. The appellate court also ruled that entitlement
to the program was not a matter of right, because such entitlement was still subject to the approval of higher bank
authorities, based on their assessment of the borrowers repayment capability and satisfaction of other requirements.

As to the misapplication of loan payments, the CA held that the subsidiary ledgers of NSBCIs loan accounts with respondent
reflected all the loan proceeds as well as the partial payments that had been applied either to the principal or to the
interests, penalties and other charges. Having been made in the ordinary and usual course of the banking business of
respondent, its entries were presumed accurate, regular and fair under Section 5(q) of Rule 131 of the Rules of Court.
Petitioners failed to rebut this presumption.

The increases in the interest rates on NSBCIs loan were also held to be authorized by law and the Monetary Board and --
like the increases in penalty rates -- voluntarily and freely agreed upon by the parties in the Credit Agreements they
executed. Thus, these increases were binding upon petitioners.

However, after considering that two to three of Petitioner NSBCIs projects covered by the loan were affected by the
economic slowdown in the areas near the military bases in the cities of Angeles and Olongapo, the appellate court annulled
and deleted the adjustment in penalty from 6 percent to 36 percent per annum. Not only did respondent fail to
demonstrate the existence of market forces and economic conditions that would justify such increases; it could also have
treated petitioners request for restructuring as a request for availment of the DRP. Consequently, the original penalty rate
of 6 percent per annum was used to compute the deficiency claim.

The auction sale could not be set aside on the basis of the inadequacy of the auction price, because in sales made at public
auction, the owner is given the right to redeem the mortgaged properties; the lower the bid price, the easier it is to effect
redemption or to sell such right. The bid price of P10,334,000.00 vis--vis respondents claim of P12,506,476.43 was found
to be neither shocking nor unconscionable.

The attorneys fees were also reduced by the appellate court from 10 percent to 1 percent of the total indebtedness. First,
there was no extreme difficulty in an extrajudicial foreclosure of a real estate mortgage, as this proceeding was merely
administrative in nature and did not involve a court litigation contesting the proceedings prior to the auction sale. Second,
the attorneys fees were exclusive of all stipulated costs and fees. Third, such fees were in the nature of liquidated damages
that did not inure to respondents salaried counsel.
Respondent was also declared to have the unquestioned right to foreclose the Real Estate Mortgage. It was allowed to
recover any deficiency in the mortgage account not realized in the foreclosure sale, since petitioner-spouses had agreed
to be solidarily liable for all sums due and payable to respondent.

Finally, the appellate court concluded that the extrajudicial foreclosure proceedings and auction sale were valid for the
following reasons: (1) personal notice to the mortgagors, although unnecessary, was actually made; (2) the notice of
extrajudicial sale was duly published and posted; (3) the extrajudicial sale was conducted through the deputy sheriff, under
the direction of the clerk of court who was concurrently the ex-oficio provincial sheriff and acting as agent of respondent;
(4) the sale was conducted within the province where the mortgaged properties were located; and (5) such sale was not
shown to have been attended by fraud.

Hence this Petition.[10]

Issues

Petitioners submit the following issues for our consideration:

I
Whether or not the Honorable Court of Appeals correctly ruled that petitioners did not avail of PNBs debt relief package
and were not entitled thereto as a matter of right.

II

12
Whether or not petitioners have adduced sufficient and convincing evidence to overthrow the presumption of regularity
and correctness of the PNB entries in the subsidiary ledgers of the loan accounts of petitioners.

III
Whether or not the Honorable Court of Appeals seriously erred in not holding that the Respondent PNB bloated the loan
account of petitioner corporation by imposing interests, penalties and attorneys fees without legal, valid and equitable
justification.

IV
Whether or not the auction price at which the mortgaged properties was sold was disproportionate to their actual fair
mortgage value.

V
Whether or not Respondent PNB is not entitled to recover the deficiency in the mortgage account not realized in the
foreclosure sale, considering that:

A. Petitioners are merely guarantors of the mortgage debt of petitioner corporation which has a separate personality
from the [petitioner-spouses].

B. The joint and solidary agreement executed by [petitioner- spouses] are contracts of adhesion not binding on them;

C. The NSBCI Board Resolution is not valid and binding on [petitioner-spouses] because they were compelled to execute
the said Resolution[;] otherwise[,] Respondent PNB would not grant petitioner corporation the loan;

D. The Respondent PNB had already in its possession the properties of the [petitioner-spouses] which served as a
collateral to the loan obligation of petitioner corporation[,] and to still allow Respondent PNB to recover the deficiency
claim amounting to a very substantial amount of P2.1 million would constitute unjust enrichment on the part of
Respondent PNB.

VI
Whether or not the extrajudicial foreclosure proceedings and auction sale, including all subsequent proceedings[,] are
null and void for non-compliance with jurisdictional and other mandatory requirements; whether or not the petition for
extrajudicial foreclosure of mortgage was filed prematurely; and whether or not the finding of fraud by the trial court is
amply supported by the evidence on record.[11]

The foregoing may be summed up into two main issues: first, whether the loan accounts are bloated; and second, whether
the extrajudicial foreclosure and subsequent claim for deficiency are valid and proper.

The Courts Ruling

The Petition is partly meritorious.

First Main Issue:

Bloated Loan Accounts

At the outset, it must be stressed that only questions of law[12] may be raised in a petition for review on certiorari under
Rule 45 of the Rules of Court. As a rule, questions of fact cannot be the subject of this mode of appeal,[13] for [t]he
Supreme Court is not a trier of facts.[14] As exceptions to this rule, however, factual findings of the CA may be reviewed
on appeal[15] when, inter alia, the factual inferences are manifestly mistaken;[16] the judgment is based on a
misapprehension of facts;[17] or the CA manifestly overlooked certain relevant and undisputed facts that, if properly
considered, would justify a different legal conclusion.[18] In the present case, these exceptions exist in various instances,
thus prompting us to take cognizance of factual issues and to decide upon them in the interest of justice and in the exercise
of our sound discretion.[19]

Indeed, Petitioner NSBCIs loan accounts with respondent appear to be bloated with some iniquitous imposition of
interests, penalties, other charges and attorneys fees. To demonstrate this point, the Court shall take up one by one the
promissory notes, the credit agreements and the disclosure statements.

Increases in Interest Baseless

Promissory Notes. In each drawdown, the Promissory Notes specified the interest rate to be charged: 19.5 percent in the
first, and 21.5 percent in the second and again in the third. However, a uniform clause therein permitted respondent to

13
increase the rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future x x
x,[20] without even giving prior notice to petitioners. The Court holds that petitioners accessory duty to pay interest[21]
did not give respondent unrestrained freedom to charge any rate other than that which was agreed upon. No interest
shall be due, unless expressly stipulated in writing.[22] It would be the zenith of farcicality to specify and agree upon rates
that could be subsequently upgraded at whim by only one party to the agreement.

The unilateral determination and imposition[23] of increased rates is violative of the principle of mutuality of contracts
ordained in Article 1308[24] of the Civil Code.[25] One-sided impositions do not have the force of law between the parties,
because such impositions are not based on the parties essential equality.

Although escalation clauses[26] are valid in maintaining fiscal stability and retaining the value of money on long-term
contracts,[27] giving respondent an unbridled right to adjust the interest independently and upwardly would completely
take away from petitioners the right to assent to an important modification in their agreement[28] and would also negate
the element of mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts dependent
exclusively upon the uncontrolled will[29] of respondent and was therefore void. Besides, the pro forma promissory notes
have the character of a contract dadhsion,[30] where the parties do not bargain on equal footing, the weaker partys [the
debtors] participation being reduced to the alternative to take it or leave it.[31]

While the Usury Law[32] ceiling on interest rates was lifted by [Central Bank] Circular No. 905,[33] nothing in the said
Circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or
lead to a hemorrhaging of their assets.[34] In fact, we have declared nearly ten years ago that neither this Circular nor PD
1684, which further amended the Usury Law,
authorized either party to unilaterally raise the interest rate without the others consent.[35]

Moreover, a similar case eight years ago pointed out to the same respondent (PNB) that borrowing signified a capital
transfusion from lending institutions to businesses and industries and was done for the purpose of stimulating their
growth; yet respondents continued unilateral and lopsided policy[36] of increasing interest rates without the prior
assent[37] of the borrower not only defeats this purpose, but also deviates from this pronouncement. Although such
increases are not usurious, since the Usury Law is now legally inexistent[38] -- the interest ranging from 26 percent to 35
percent in the statements of account[39] -- must be equitably reduced for being iniquitous, unconscionable and
exorbitant.[40] Rates found to be
iniquitous or unconscionable are void, as if it there were no express contract thereon.[41] Above all, it is undoubtedly
against public policy to charge excessively for the use of money.[42]

It cannot be argued that assent to the increases can be implied either from the June 18, 1991 request of petitioners for
loan restructuring or from their lack of response to the statements of account sent by respondent. Such request does not
indicate any agreement to an interest increase; there can be no implied waiver of a right when there is no clear,
unequivocal and decisive act showing such purpose.[43] Besides, the statements were not letters of information sent to
secure their conformity; and even if we were to presume these as an offer, there was no acceptance. No one receiving a
proposal to modify a loan contract, especially interest -- a vital component -- is obliged to answer the proposal.[44]

Furthermore, respondent did not follow the stipulation in the Promissory Notes providing for the automatic conversion
of the portion that remained unpaid after 730 days -- or two years from date of original release -- into a medium-term
loan, subject to the applicable interest rate to be applied from the dates of original release.[45]

In the first,[46] second[47] and third[48] Promissory Notes, the amount that remained unpaid as of October 27, 1989,
December 1989 and January 4, 1990 -- their respective due dates -- should have been automatically converted by
respondent into medium-term loans on June 30, 1991, September 2, 1991, and September 7, 1991, respectively. And on
this unpaid amount should have been imposed the same interest rate charged by respondent on other medium-term
loans; and the rate applied from June 29, 1989, September 1, 1989 and September 6, 1989 -- their respective original
release -- until paid. But these steps were not taken. Aside from sending demand letters, respondent did not at all exercise
its option to enforce collection as of these Notes due dates. Neither did it renew or extend the account.

In these three Promissory Notes, evidently, no complaint for collection was filed with the courts. It was not until January
30, 1992 that a Petition for Sale of the mortgaged properties was filed -- with the provincial sheriff, instead.[49] Moreover,
respondent did not supply the interest rate to be charged on medium-term loans granted by automatic conversion.
Because of this deficiency, we shall use the legal rate of 12 percent per annum on loans and forbearance of money, as
provided for by CB Circular 416.[50]

Credit Agreements. Aside from the promissory notes, another main document involved in the principal obligation is the
set of credit agreements executed and their annexes.
The first Credit Agreement[51] dated June 19, 1989 -- although offered and admitted in evidence, and even referred to in
the first Promissory Note -- cannot be given weight.

14
First, it was not signed by respondent through its branch manager.[52] Apparently it was surreptitiously acknowledged
before respondents counsel, who unflinchingly declared that it had been signed by the parties on every page, although
respondents signature does not appear thereon.[53]

Second, it was objected to by petitioners,[54] contrary to the trial courts findings.[55] However, it was not the Agreement,
but the revolving credit line[56] of P5,000,000, that expired one year from the Agreements date of implementation.[57]

Third, there was no attached annex that contained the General Conditions.[58] Even the Acknowledgment did not allude
to its existence.[59] Thus, no terms or conditions could be added to the Agreement other than those already stated
therein.

Since the first Credit Agreement cannot be given weight, the interest rate on the first availment pegged at 3 percent over
and above respondents prime rate[60] on the date of such availment[61] has no bearing at all on the loan. After the first
Notes due date, the rate
of 19 percent agreed upon should continue to be applied on the availment, until its automatic conversion to a medium-
term loan.

The second Credit Agreement[62] dated August 31, 1989, provided for interest -- respondents prime rate, plus the
applicable spread[63] in effect as of the date of each availment,[64] on a revolving credit line of P7,700,000[65] -- but did
not state any provision on its increase or decrease.[66] Consequently, petitioners could not be made to bear interest more
than such prime rate plus spread. The Court gives weight to this second Credit Agreement for the following reasons.

First, this document submitted by respondent was admitted by petitioners.[67] Again, contrary to their assertion, it was
not the Agreement -- but the credit line -- that expired one year from the Agreements date of implementation.[68] Thus,
the terms and conditions continued to apply, even if drawdowns could no longer be made.

Second, there was no 7-page annex[69] offered in evidence that contained the General Conditions,[70] notwithstanding
the Acknowledgment of its existence by respondents counsel. Thus, no terms or conditions could be appended to the
Agreement other than those specified therein.

Third, the 12-page General Conditions[71] offered and admitted in evidence had no probative value. There was no
reference to it in the Acknowledgment of the Agreement; neither was respondents signature on any of the pages thereof.
Thus, the General Conditions stipulations on interest adjustment,[72] whether on a fixed or a floating scheme, had no
effect whatsoever on the Agreement. Contrary to the trial courts findings,[73] the General Condition were correctly
objected to by petitioners.[74] The rate of 21.5 percent agreed upon in the second Note thus continued to apply to the
second availment, until its automatic conversion into a medium-term loan.

The third Credit Agreement[75] dated September 5, 1989, provided for the same rate of interest as that in the second
Agreement. This rate was to be applied to availments of an unadvised line of P300,000. Since there was no mention in the
third Agreement, either, of any stipulation on increases or decreases[76] in interest, there would be no basis for imposing
amounts higher than the prime rate plus spread. Again, the 21.5 percent rate agreed upon would continue to apply to the
third availment indicated in the third Note, until such amount was automatically converted into a medium-term loan.

The Court also finds that, first, although this document was admitted by petitioners,[77] it was the credit line that expired
one year from the implementation of the Agreement.[78] The terms and conditions therein continued to apply, even if
availments could no longer be drawn after expiry.

Second, there was again no 7-page annex[79] offered that contained the General Conditions,[80] regardless of the
Acknowledgment by the same respondents counsel affirming its existence. Thus, the terms and conditions in this
Agreement relating to interest cannot be expanded beyond that which was already laid down by the parties.

Disclosure Statements. In the present case, the Disclosure Statements[81] furnished by respondent set forth the same
interest rates as those respectively indicated in the Promissory Notes. Although no method of computation was provided
showing how such rates were arrived at, we will nevertheless take up the Statements seriatim in order
to determine the applicable rates clearly.

As to the first Disclosure Statement on Loan/Credit Transaction[82] dated June 13, 1989, we hold that the 19.5 percent
effective interest rate per annum[83] would indeed apply to the first availment or drawdown evidenced by the first
Promissory Note. Not only was this Statement issued prior to the consummation of such availment or drawdown, but the
rate shown therein can also be considered equivalent to 3 percent over and above respondents prime rate in effect.
Besides, respondent mentioned no other rate that it considered to be the prime rate chargeable to petitioners. Even if we
disregarded the related Credit Agreement, we assume that this private transaction between the parties was fair and
regular,[84] and that the ordinary course of business was followed.[85]

15
As to the second Disclosure Statement on Loan/Credit Transaction[86] dated September 2, 1989, we hold that the 21.5
percent effective interest rate per annum[87] would definitely apply to the second availment or drawdown evidenced by
the second Promissory Note. Incidentally, this Statement was issued only after the consummation of its related availment
or drawdown, yet such rate can be deemed equivalent to the prime rate plus spread, as stipulated in the corresponding
Credit Agreement. Again, we presume that this private transaction was fair and regular, and that the ordinary course of
business was followed. That the related Promissory Note was pre-signed would also bolster petitioners claim although,
under cross-examination Efren Pozon -- Assistant Department Manager I[88] of PNB, Dagupan Branch -- testified that the
Disclosure Statements were the basis for preparing the Notes.[89]

As to the third Disclosure Statement on Loan/Credit Transaction[90] dated September 6, 1989, we hold that the same 21.5
percent effective interest rate per annum[91] would apply to the third
availment or drawdown evidenced by the third Promissory Note. This Statement was made available to petitioner-
spouses, only after the related Credit Agreement had been executed, but simultaneously with the consummation of the
Statements related availment or drawdown. Nonetheless, the rate herein should still be regarded as equivalent to the
prime rate plus spread, under the similar presumption that this private transaction was fair and regular and that the
ordinary course of business was followed.

In sum, the three disclosure statements, as well as the two credit agreements considered by this Court, did not provide
for any increase in the specified interest rates. Thus, none would now be permitted. When cross-examined, Julia Ang-
Lopez, Finance Account Analyst II of PNB, Dagupan Branch, even testified that the bases for computing such rates were
those sent by the head office from time to time, and not those indicated in the notes or disclosure statements.[92]

In addition to the preceding discussion, it is then useless to labor the point that the increase in rates violates the
impairment[93] clause of the Constitution,[94] because the sole purpose of this provision is to safeguard the integrity of
valid contractual agreements against unwarranted interference by the State[95] in the form of laws. Private individuals
intrusions on interest rates is governed by statutory enactments like the Civil Code.

Penalty, or Increases
Thereof, Unjustified

No penalty charges or increases thereof appear either in the Disclosure Statements[96] or in any of the clauses in the
second and the third Credit Agreements[97] earlier discussed. While a standard penalty charge of 6 percent per annum
has been imposed on the amounts stated in all three Promissory Notes still remaining unpaid or unrenewed when they
fell due,[98] there is no stipulation therein that would justify any increase in that charges. The effect, therefore, when the
borrower is not clearly informed of the Disclosure Statements -- prior to the consummation of the availment or drawdown
-- is that the lender will have no right to collect upon such charge[99] or increases thereof, even if stipulated in the Notes.
The time is now ripe to give teeth to the often ignored forty-one-year old Truth in Lending Act[100] and thus transform it
from a snivelling paper tiger to a growling financial watchdog of hapless borrowers.

Besides, we have earlier said that the Notes are contracts of adhesion; although not invalid per se, any apparent ambiguity
in the loan contracts -- taken as a whole -- shall be strictly construed against respondent who caused it.[101] Worse, in
the statements of account, the penalty rate has again been unilaterally increased by respondent to 36 percent without
petitioners consent. As a result of its move, such
liquidated damages intended as a penalty shall be equitably reduced by the Court to zilch[102] for being iniquitous or
unconscionable.[103]

Although the first Disclosure Statement was furnished Petitioner NSBCI prior to the execution of the transaction, it is not
a contract that can be modified by the related Promissory Note, but a mere statement in writing that reflects the true and
effective cost of loans from respondent. Novation can never be presumed,[104] and the animus novandi must appear by
express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.[105] To allow
novation will surely flout the policy of the State to protect
its citizens from a lack of awareness of the true cost of credit.[106]
With greater reason should such penalty charges be indicated in the second and third Disclosure Statements, yet none
can be found therein. While the charges are issued after the respective availment or drawdown, the disclosure statements
are given simultaneously therewith. Obviously, novation still does not apply.

Other Charges Unwarranted

In like manner, the other charges imposed by respondent are not warranted. No particular values or rates of service charge
are indicated in the Promissory Notes or Credit Agreements, and no total value or even the breakdown figures of such
non-finance charge are specified in the Disclosure Statements. Moreover, the provision in the Mortgage that requires the
payment of insurance and other charges is neither made part of nor reflected in such Notes, Agreements, or
Statements.[107]

16
Attorneys Fees Equitably Reduced

We affirm the equitable reduction in attorneys fees.[108] These are not an integral part of the cost of borrowing, but arise
only when collecting upon the Notes becomes necessary. The purpose of these fees is not to give respondent a larger
compensation for the loan than the law already allows, but to protect it against any future loss or damage by being
compelled to retain counsel in-house or not -- to institute judicial proceedings for the collection of its credit.[109] Courts
have has the power[110] to determine their reasonableness[111] based on quantum meruit[112] and to reduce[113] the
amount thereof if excessive.[114]

In addition, the disqualification argument in the Affidavit of Publication raised by petitioners no longer holds water,
inasmuch as Act 496[115] has repealed the Spanish Notarial Law.[116] In the same vein, their engagement of their counsel
in another capacity concurrent with the practice of law is not prohibited, so long as the roles being assumed by such
counsel is made clear to the client.[117] The only reason for this clarification requirement is that certain ethical
considerations operative in one profession may not be so in the other.[118]

Debt Relief Package

Not Availed Of

We also affirm the CAs disquisition on the debt relief package (DRP).

Respondents Circular is not an outright grant of assistance or extension of payment,[119] but a mere offer subject to
specific terms and conditions.
Petitioner NSBCI failed to establish satisfactorily that it had been seriously and directly affected by the economic slowdown
in the peripheral areas of the then US military bases. Its allegations, devoid of any verification, cannot lead to a supportable
conclusion. In fact, for short-term loans, there is still a need to conduct a thorough review of the borrowers repayment
possibilities.[120]

Neither has Petitioner NSBCI shown enough margin of equity,[121] based on the latest loan value of hard collaterals,[122]
to be eligible for the package. Additional accommodations on an unsecured basis may be granted only when regular
payment amortizations have been established, or when the merits of the credit application would so justify.[123]

The branch managers recommendation to restructure or extend a total outstanding loan not exceeding P8,000,000 is not
final, but subject to the approval of respondents Branches Department Credit Committee, chaired by its executive vice-
president.[124] Aside from being further conditioned on other pertinent policies of respondent,[125] such approval
nevertheless needs to be reported to its Board of Directors for confirmation.[126] In fact, under the General Banking Law
of 2000,[127] banks shall grant loans and other credit accommodations only in amounts and for periods of time essential
to the effective completion of operations to be financed, consistent with safe and sound banking practices.[128] The
Monetary Board -- then and now -- still prescribes, by regulation, the conditions and limitations under which banks may
grant extensions or renewals of their loans and other credit accommodations.[129]

Entries in Subsidiary Ledgers

Regular and Correct

Contrary to petitioners assertions, the subsidiary ledgers of respondent properly reflected all entries pertaining to
Petitioner NSBCIs loan accounts. In accordance with the Generally Accepted Accounting Principles (GAAP) for the Banking
Industry,[130] all interests accrued or earned on such loans, except those that were restructured and non-accruing,[131]
have been periodically taken into income.[132] Without a doubt, the subsidiary ledgers in a manual accounting system
are mere private documents[133] that support and are controlled by the general ledger.[134] Such ledgers are neither
foolproof nor standard in format, but are periodically subject to audit. Besides, we go by the presumption that the
recording of private transactions has been fair and regular, and that the ordinary course of business has been followed.

Second Main Issue:

Extrajudicial Foreclosure Valid, But
Deficiency Claims Excessive

Respondent aptly exercised its option to foreclose the mortgage,[135] after petitioners had failed to pay all the Notes in
full when they fell due.[136] The extrajudicial sale and subsequent proceedings are therefore valid, but the alleged
deficiency claim cannot be recovered.

Auction Price Adequate

In the accessory contract[137] of real mortgage,[138] in which immovable property or real rights thereto are used as
security[139] for the fulfillment of the principal loan obligation,[140] the bid price may be lower than the propertys fair

17
market value.[141] In fact, the loan value itself is only 70 percent of the appraised value.[142] As correctly emphasized by
the appellate court, a low bid price will make it
easier[143] for the owner to effect redemption[144] by subsequently reacquiring the property or by selling the right to
redeem and thus recover alleged losses. Besides, the public auction sale has been regularly and fairly conducted,[145]
there has been ample authority to effect the sale,[146] and the Certificates of Title can be relied upon. No personal
notice[147] is even required,[148] because an extrajudicial foreclosure is an action in rem, requiring only notice by
publication and posting, in order to bind parties interested in the foreclosed property.[149]

As no redemption[150] was exercised within one year after the date of registration of the Certificate of Sale with the
Registry of Deeds,[151] respondent -- being the highest bidder -- has the right to a writ of possession, the final process
that will consummate the extrajudicial foreclosure. On the other hand, petitioner-spouses, who are mortgagors herein,
shall lose all their rights to the property.[152]

No Deficiency Claim Receivable

After the foreclosure and sale of the mortgaged property, the Real Estate Mortgage is extinguished. Although the
mortgagors, being third persons, are not liable for any deficiency in the absence of a contrary stipulation,[153] the action
for recovery of such amount -- being clearly sureties to the principal obligation -- may still be directed against them.[154]
However, respondent may impose only the stipulated interest rates of 19.5 percent and 21.5 percent on the respective
availments -- subject to the 12 percent legal rate revision upon automatic conversion into medium-term loans -- plus 1
percent attorneys fees, without additional charges on penalty, insurance or any increases thereof.

Accordingly, the excessive interest rates in the Statements of Account sent to petitioners are reduced to 19.5 percent and
21.5 percent, as stipulated in the Promissory Notes; upon loan conversion, these rates are further reduced to the legal
rate of 12 percent. Payments made by petitioners are pro-rated, the charges on penalty and insurance eliminated, and
the resulting total unpaid principal and interest of P6,582,077.70 as of the date of public auction is then subjected to 1
percent attorneys fees. The total outstanding obligation is compared to the bid price. On the basis of these rates and the
comparison made, the deficiency claim receivable amounting to P2,172,476.43 in fact vanishes. Instead, there is an
overpayment by more than P3 million, as shown in the following Schedules:

18
19
20
21
In the preparation of the above-mentioned schedules, these basic legal principles were followed:

First, the payments were applied to debts that were already due.[155] Thus, when the first payment was made
and applied on January 5, 1990, all Promissory Notes were already due.
Second, payments of the principal were not made until the interests had been covered.[156] For instance, the first
payment on January 15, 1990 had initially been applied to all interests due on the notes, before deductions were made
from their respective principal amounts. The resulting decrease in interest balances served as the bases for subsequent
pro-ratings.
Third, payments were proportionately applied to all interests that were due and of the same nature and
burden.[157] This legal principle was the rationale for the pro-rated computations shown on Schedule 4.
Fourth, since there was no stipulation on capitalization, no interests due and unpaid were added to the principal;
hence, such interests did not earn any additional interest.[158] The simple -- not compounded -- method of interest
calculation[159] was used on all Notes until the date of public auction.

In fine, under solutio indebiti[160] or payment by mistake,[161] there is no deficiency receivable in favor of PNB,
but rather an excess claim or surplus[162] payable by respondent; this excess should immediately be returned to

22
petitioner-spouses or their assigns -- not to mention the buildings and improvements[163] on and the fruits of the property
-- to the end that no one may be unjustly enriched or benefited at
the expense of another.[164] Such surplus is in the amount of P3,686,101.52, computed as follows:
Total unpaid principal and interest on the
promissory notes as of February 26, 1992:
Drawdown on June 29, 1989
(Schedule 1) P 4,037,204.10
Drawdown on September 1, 1989
(Schedule 2) 2,289,040.38
Drawdown on September 6, 1989
(Schedule 3) 255,833.22
6,582,077.70
Add: 1% attorneys fees 65,820.78
Total outstanding obligation 6,647,898.48
Less: Bid price 10,334,000.00
Excess P 3,686,101.52
Joint and Solidary Agreement. Contrary to the contention of the petitioner-spouses, their Joint and Solidary Agreement
(JSA)[165] was indubitably a surety, not a guaranty.[166] They consented to be jointly and severally liable with Petitioner
NSBCI -- the borrower -- not only for the payment of all sums due and payable in favor of respondent, but also for the
faithful and prompt performance of all the terms and conditions thereof.[167] Additionally, the corporate secretary of
Petitioner NSBCI certified as early as February 23, 1989, that the spouses should act as such surety.[168] But, their solidary
liability should be carefully studied, not sweepingly assumed to cover all availments instantly.

First, the JSA was executed on August 31, 1989. As correctly adverted to by petitioners,[169] it covered only the Promissory
Notes of P2,700,000 and P300,000 made after that date. The terms of a contract of suretyship undeniably determine the
suretys liability[170] and cannot extend beyond what is stipulated therein.[171] Yet, the total amount petitioner-spouses
agreed to be held liable for was P7,700,000; by the time the JSA was executed, the first Promissory Note was still unpaid
and was thus brought within the JSAs ambit.[172]
Second, while the JSA included all costs, charges and expenses that respondent might incur or sustain in connection with
the credit documents,[173] only the interest was imposed under the pertinent Credit Agreements. Moreover, the relevant
Promissory Notes had to be resorted to for proper valuation of the interests charged.

Third, although the JSA, as a contract of adhesion, should be taken contra proferentum against the party who may have
caused any ambiguity therein, no such ambiguity was found. Petitioner-spouses, who agreed to be accommodation
mortgagors,[174] can no longer be held individually liable for the entire onerous obligation[175] because, as
it turned out, it was respondent that still owed them.

To summarize, to give full force to the Truth in Lending Act, only the interest rates of 19.5 percent and 21.5 percent
stipulated in the Promissory Notes may be imposed by respondent on the respective availments. After 730 days, the
portions remaining unpaid are automatically converted into medium-term loans at the legal rate of 12 percent. In all
instances, the simple method of interest computation is followed. Payments made by petitioners are applied and pro-
rated according to basic legal principles. Charges on penalty and insurance are eliminated, and 1 percent attorneys fees
imposed upon the total unpaid balance of the principal and interest as of the date of public auction. The P2 million
deficiency claim therefore vanishes, and a refund of P3,686,101.52 arises.

WHEREFORE, this Petition is hereby PARTLY GRANTED. The Decision of the Court of Appeals is AFFIRMED, with the
MODIFICATION that PNB is ORDERED to refund the sum of P3,686,101.52 representing the overcollection computed
above, plus interest thereon at the legal rate of six percent (6%) per annum from the filing of the Complaint until the
finality of this Decision. After this Decision becomes final and executory, the applicable rate shall be twelve percent (12%)
per annum until its satisfaction. No costs. SO ORDERED.
[G.R. NO. 171169 : August 24, 2009]

GC DALTON INDUSTRIES, INC., Petitioner, v. EQUITABLE PCI BANK, Respondent.

DECISION

CORONA, J.:

In 1999, respondent Equitable PCI Bank extended a P30-million credit line to Camden Industries, Inc. (CII) allowing the
latter to avail of several loans (covered by promissory notes) and to purchase trust receipts. To facilitate collection, CII
executed a "hold-out" agreement in favor of respondent authorizing it to deduct from its savings account any amounts
due. To guarantee payment, petitioner GC Dalton Industries, Inc. executed a third-party mortgage of its real properties in
Quezon City1 and Malolos, Bulacan2 as security for CII's loans.3

23
CII did not pay its obligations despite respondent's demands. By 2003, its outstanding consolidated promissory notes and
unpaid trust receipts had reached a staggering P68,149,132.40.4

Consequently, respondent filed a petition for extrajudicial foreclosure of petitioner's Bulacan properties in the Regional
Trial Court (RTC) of Bulacan on May 7, 2004.5 On August 3, 2004, the mortgaged properties were sold at a public auction
where respondent was declared the highest bidder. Consequently, a certificate of sale6 was issued in respondent's favor
on August 3, 2004.

On September 13, 2004, respondent filed the certificate of sale and an affidavit of consolidation of ownership7 in the
Register of Deeds of Bulacan pursuant to Section 47 of the General Banking Law.8 Hence, petitioner's TCTs covering the
Bulacan properties were cancelled and new ones were issued in the name of respondent.9

In view of the foregoing, respondent filed an ex parte motion for the issuance of a writ of possession10 in the RTC Bulacan,
Branch 10 on January 10, 2005.11

Previously, however, on August 4, 2004, CII had filed an action for specific performance and damages12 in the RTC of
Pasig, Branch 71 (Pasig RTC), asserting that it had allegedly paid its obligation in full to respondent.13 CII sought to compel
respondent to render an accounting in order to prove that the bank fraudulently foreclosed on petitioner's mortgaged
properties.

Because respondent allegedly failed to appear during the trial, the Pasig RTC rendered a decision on March 30, 200514
based on the evidence presented by CII. It found that, while CII's past due obligation amounted only to P14,426,485.66 as
of November 30, 2002, respondent had deducted a total of P108,563,388.06 from CII's savings account. Thus, the Pasig
RTC ordered respondent: (1) to return to CII the "overpayment" with legal interest of 12% per annum amounting to
P94,136,902.40; (2) to compensate it for lost profits amounting to P2,000,000 per month starting August 2004 with legal
interest of 12% per annum until full payment and (3) to return the TCTs covering the mortgaged properties to petitioner.
It likewise awarded CII P2,000,000 and P300,000, respectively, as moral and exemplary damages and P500,000 as
attorney's fees.

Respondent filed a notice of appeal. CII, on the other hand, moved for the immediate entry and execution of the
abovementioned decision.

In an order dated December 7, 2005,15 the Pasig RTC dismissed respondent's notice of appeal due to its failure to pay the
appellate docket fees. It likewise found respondent guilty of forum-shopping for filing the petition for the issuance of a
writ of possession in the Bulacan RTC. Thus, the Pasig RTC ordered the immediate entry of its March 30, 2005 decision.16

Meanwhile, in view of the pending case in the Pasig RTC, petitioner opposed respondent's ex parte motion for the issuance
of a writ of possession in the Bulacan RTC. It claimed that respondent was guilty of fraud and forum-shopping, and that it
was not informed of the foreclosure. Furthermore, respondent fraudulently foreclosed on the properties since the Pasig
RTC had not yet determined whether CII indeed failed to pay its obligations.

In an order dated December 10, 2005, the Bulacan RTC granted the motion and a writ of possession was issued in
respondent's favor on December 19, 2005.

Petitioner immediately assailed the December 10, 2005 order of the Bulacan RTC via a petition for certiorari in the Court
of Appeals (CA). It claimed that the order violated Section 14, Article VIII of the Constitution17 which requires that every
decision must clearly and distinctly state its factual and legal bases. In a resolution dated January 13, 2006,18 the CA
dismissed the petition for lack of merit on the ground that an order involving the issuance of a writ of possession is not a
judgment on the merits, hence, not covered by the requirement of Section 14, Article VIII of the Constitution.

Petitioner elevated the matter to this Court, assailing the January 13, 2006 resolution of the CA. It insists that the
December 10, 2005 order of the Bulacan RTC was void as it was bereft of factual and legal bases.rbl rl l
lbrr

Petitioner likewise cites the conflict between the December 10, 2005 order of the Bulacan RTC and the December 7, 2005
order of the Pasig RTC. Petitioner claims that, since the Pasig RTC already ordered the entry of its March 30, 2005 decision
(in turn ordering respondent to return TCT No. 351231 and all such other owner's documents of title as may have been
placed in its possession by virtue of the subject trust receipt and loan transactions), the same was already final and
executory. Thus, inasmuch as CII had supposedly paid respondent in full, it was erroneous for the Bulacan RTC to order
the issuance of a writ of possession to respondent.

Respondent, on the other hand, asserts that petitioner is raising a question of fact as it essentially assails the propriety of
the issuance of the writ of possession. It likewise points out that petitioner did not truthfully disclose the status of the
March 30, 2005 decision of the Pasig RTC because, in an order dated April 4, 2006, the Pasig RTC partially reconsidered its

24
December 7, 2005 order and gave due course to respondent's notice of appeal. (The propriety of the said April 4, 2006
order is still pending review in the CA.)

We deny the petition.

The issuance of a writ of possession to a purchaser in an extrajudicial foreclosure is summary and ministerial in nature as
such proceeding is merely an incident in the transfer of title.19 The trial court does not exercise discretion in the issuance
thereof.20 For this reason, an order for the issuance of a writ of possession is not the judgment on the merits
contemplated by Section 14, Article VIII of the Constitution. Hence, the CA correctly upheld the December 10, 2005 order
of the Bulacan RTC.

Furthermore, the mortgagor loses all legal interest over the foreclosed property after the expiration of the redemption
period.21 Under Section 47 of the General Banking Law,22 if the mortgagor is a juridical person, it can exercise the right
to redeem the foreclosed property until, but not after, the registration of the certificate of foreclosure sale within three
months after foreclosure, whichever is earlier. Thereafter, such mortgagor loses its right of redemption.

Respondent filed the certificate of sale and affidavit of consolidation with the Register of Deeds of Bulacan on September
13, 2004. This terminated the redemption period granted by Section 47 of the General Banking Law. Because consolidation
of title becomes a right upon the expiration of the redemption period,23 respondent became the owner of the foreclosed
properties.24 Therefore, when petitioner opposed the ex parte motion for the issuance of the writ of possession on
January 10, 2005 in the Bulacan RTC, it no longer had any legal interest in the Bulacan properties.

Nevertheless, even if the ownership of the Bulacan properties had already been consolidated in the name of respondent,
petitioner still had, and could have availed of, the remedy provided in Section 8 of Act 3135.25 It could have filed a petition
to annul the August 3, 2004 auction sale and to cancel the December 19, 2005 writ of possession,26 within 30 days after
respondent was given possession.27 But it did not. Thus, inasmuch as the 30-day period to avail of the said remedy had
already lapsed, petitioner could no longer assail the validity of the August 3, 2004 sale.

Any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for the refusal to issue a
writ of possession. Regardless of whether or not there is a pending suit for the annulment of the mortgage or the
foreclosure itself, the purchaser is entitled to a writ of possession, without prejudice, of course, to the eventual outcome
of the pending annulment case.28

Needless to say, petitioner committed a misstep by completely relying and pinning all its hopes for relief on its complaint
for specific performance and damages in the Pasig RTC,29 instead of resorting to the remedy of annulment (of the auction
sale and writ of possession) under Section 8 of Act 3135 in the Bulacan RTC.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner.

SO ORDERED.

G.R. No. 195540 March 13, 2013

25
 GOLDENWAY MERCHANDISING CORPORATION, Petitioner,
vs.
EQUITABLE PCI BANK, Respondent.

DECISION

VILLARAMA, JR., J.:

Before the Court is a petition for review on certiorari which seeks to reverse and set aside the Decision1 dated November
19, 2010 and Resolution2 dated January 31, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 91120. The CA affirmed
the Decision3 dated January 8, 2007 of the Regional Trial Court (RTC) of- Valenzuela City, Branch 171 dismissing the
complaint in Civil Case No. 295-V -01.

The facts are undisputed.

On November 29, 1985, Goldenway Merchandising Corporation (petitioner) executed a Real Estate Mortgage in favor of
Equitable PCI Bank (respondent) over its real properties situated in Valenzuela, Bulacan (now Valenzuela City) and covered
by Transfer Certificate of Title (TCT) Nos. T-152630, T-151655 and T-214528 of the Registry of Deeds for the Province of
Bulacan. The mortgage secured the Two Million Pesos (2,000,000.00) loan granted by respondent to petitioner and was
duly registered.4

As petitioner failed to settle its loan obligation, respondent extrajudicially foreclosed the mortgage on December 13, 2000.
During the public auction, the mortgaged properties were sold for 3,500,000.00 to respondent. Accordingly, a Certificate
of Sale was issued to respondent on January 26, 2001. On February 16, 2001, the Certificate of Sale was registered and
inscribed on TCT Nos. T-152630, T-151655 and T-214528.5

In a letter dated March 8, 2001, petitioners counsel offered to redeem the foreclosed properties by tendering a check in
the amount of 3,500,000.00. On March 12, 2001, petitioners counsel met with respondents counsel reiterating
petitioners intention to exercise the right of redemption.6 However, petitioner was told that such redemption is no longer
possible because the certificate of sale had already been registered. Petitioner also verified with the Registry of Deeds
that title to the foreclosed properties had already been consolidated in favor of respondent and that new certificates of
title were issued in the name of respondent on March 9, 2001.

On December 7, 2001, petitioner filed a complaint7 for specific performance and damages against the respondent,
asserting that it is the one-year period of redemption under Act No. 3135 which should apply and not the shorter
redemption period provided in Republic Act (R.A.) No. 8791. Petitioner argued that applying Section 47 of R.A. 8791 to the
real estate mortgage executed in 1985 would result in the impairment of obligation of contracts and violation of the equal
protection clause under the Constitution. Additionally, petitioner faulted the respondent for allegedly failing to furnish it
and the Office of the Clerk of Court, RTC of Valenzuela City with a Statement of Account as directed in the Certificate of
Sale, due to which petitioner was not apprised of the assessment and fees incurred by respondent, thus depriving
petitioner of the opportunity to exercise its right of redemption prior to the registration of the certificate of sale.

In its Answer with Counterclaim,8 respondent pointed out that petitioner cannot claim that it was unaware of the
redemption price which is clearly provided in Section 47 of R.A. No. 8791, and that petitioner had all the opportune time
to redeem the foreclosed properties from the time it received the letter of demand and the notice of sale before the
registration of the certificate of sale. As to the check payment tendered by petitioner, respondent said that even assuming
arguendo such redemption was timely made, it was not for the amount as required by law.

On January 8, 2007, the trial court rendered its decision dismissing the complaint as well as the counterclaim. It noted that
the issue of constitutionality of Sec. 47 of R.A. No. 8791 was never raised by the petitioner during the pre-trial and the
trial. Aside from the fact that petitioners attempt to redeem was already late, there was no valid redemption made
because Atty. Judy Ann Abat-Vera who talked to Atty. Joseph E. Mabilog of the Legal Division of respondent bank, was not
properly authorized by petitioners Board of Directors to transact for and in its behalf; it was only a certain Chan Guan
Pue, the alleged President of petitioner corporation, who gave instruction to Atty. Abat-Vera to redeem the foreclosed
properties.9

Aggrieved, petitioner appealed to the CA which affirmed the trial courts decision. According to the CA, petitioner failed
to justify why Section 47 of R.A. No. 8791 should be declared unconstitutional. Furthermore, the appellate court concluded
that a reading of Section 47 plainly reveals the intention to shorten the period of redemption for juridical persons and that
the foreclosure of the mortgaged properties in this case when R.A. No. 8791 was already in effect clearly falls within the
purview of the said provision.10

Petitioners motion for reconsideration was likewise denied by the CA.

26
In the present petition, it is contended that Section 47 of R.A. No. 8791 is inapplicable considering that the contracting
parties expressly and categorically agreed that the foreclosure of the real estate mortgage shall be in accordance with Act
No. 3135. Citing Co v. Philippine National Bank11 petitioner contended that the right of redemption is part and parcel of
the Deed of Real Estate Mortgage itself and attaches thereto upon its execution, a vested right flowing out of and made
dependent upon the law governing the contract of mortgage and not on the mortgagees act of extrajudicially foreclosing
the mortgaged properties. This Court thus held in said case that "Under the terms of the mortgage contract, the terms
and conditions under which redemption may be exercised are deemed part and parcel thereof whether the same be
merely conventional or imposed by law."

Petitioner then argues that applying Section 47 of R.A. No. 8791 to the present case would be a substantial impairment of
its vested right of redemption under the real estate mortgage contract. Such impairment would be violative of the
constitutional proscription against impairment of obligations of contract, a patent derogation of petitioners vested right
and clearly changes the intention of the contracting parties. Moreover, citing this Courts ruling in Rural Bank of Davao
City, Inc. v. Court of Appeals12 where it was held that "Section 119 prevails over statutes which provide for a shorter
period of redemption in extrajudicial foreclosure sales", and in Sulit

v. Court of Appeals,13 petitioner stresses that it has always been the policy of this Court to aid rather than defeat the
mortgagors right to redeem his property.

Petitioner further argues that since R.A. No. 8791 does not provide for its retroactive application, courts therefore cannot
retroactively apply its provisions to contracts executed and consummated before its effectivity. Also, since R.A. 8791 is a
general law pertaining to the banking industry while Act No. 3135 is a special law specifically governing real estate
mortgage and foreclosure, under the rules of statutory construction that in case of conflict a special law prevails over a
general law regardless of the dates of enactment of both laws, Act No. 3135 clearly should prevail on the redemption
period to be applied in this case.

The constitutional issue having been squarely raised in the pleadings filed in the trial and appellate courts, we shall proceed
to resolve the same.

The law governing cases of extrajudicial foreclosure of mortgage is Act No. 3135,14 as amended by Act No. 4118. Section
6 thereof provides:

SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his
successors-in-interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of

trust under which the property is sold, may redeem the same at any time within the term of one year from and after the
date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four
hundred and sixty-six, inclusive, of the Code of

Civil Procedure,15 in so far as these are not inconsistent with the provisions of this Act.

The one-year period of redemption is counted from the date of the registration of the certificate of sale. In this case, the
parties provided in their real estate mortgage contract that upon petitioners default and the latters entire loan obligation
becoming due, respondent may immediately foreclose the mortgage judicially in accordance with the Rules of Court, or
extrajudicially in accordance with Act No. 3135, as amended.

However, Section 47 of R.A. No. 8791 otherwise known as "The General Banking Law of 2000" which took effect on June
13, 2000, amended Act No. 3135. Said provision reads:

SECTION 47. Foreclosure of Real Estate Mortgage. In the event of foreclosure, whether judicially or extrajudicially, of
any mortgage on real estate which is security for any loan or other credit accommodation granted, the mortgagor or
debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one
year after the sale of the real estate, to redeem the property by paying the amount due under the mortgage deed, with
interest thereon at the rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution
from the sale and custody of said property less the income derived therefrom. However, the purchaser at the auction sale
concerned whether in a judicial or extrajudicial foreclosure shall have the right to enter upon and take possession of such
property immediately after the date of the confirmation of the auction sale and administer the same in accordance with
law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision
shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that
he will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding.

27
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall
have the right to redeem the property in accordance with this provision until, but not after, the registration of the
certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months
after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the effectivity
of this Act shall retain their redemption rights until their expiration. (Emphasis supplied.)

Under the new law, an exception is thus made in the case of juridical persons which are allowed to exercise the right of
redemption only "until, but not after, the registration of the certificate of foreclosure sale" and in no case more than three
(3) months after foreclosure, whichever comes first.16

May the foregoing amendment be validly applied in this case when the real estate mortgage contract was executed in
1985 and the mortgage foreclosed when R.A. No. 8791 was already in effect?

We answer in the affirmative.

When confronted with a constitutional question, it is elementary that every court must approach it with grave care and
considerable caution bearing in mind that every statute is presumed valid and every reasonable doubt should be resolved
in favor of its constitutionality.17 For a law to be nullified, it must be shown that there is a clear and unequivocal breach
of the Constitution. The ground for nullity must be clear and beyond reasonable doubt.18 Indeed, those who petition this
Court to declare a law, or parts thereof, unconstitutional must clearly establish the basis therefor. Otherwise, the petition
must fail.19

Petitioners contention that Section 47 of R.A. 8791 violates the constitutional proscription against impairment of the
obligation of contract has no basis.

The purpose of the non-impairment clause of the Constitution20 is to safeguard the integrity of contracts against
unwarranted interference by the State. As a rule, contracts should not be tampered with by subsequent laws that would
change or modify the rights and obligations of the parties.21 Impairment is anything that diminishes the efficacy of the
contract. There is an impairment if a subsequent law changes the terms of a contract between the parties, imposes new
conditions, dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of the parties.22

Section 47 did not divest juridical persons of the right to redeem their foreclosed properties but only modified the time
for the exercise of such right by reducing the one-year period originally provided in Act No. 3135. The new redemption
period commences from the date of foreclosure sale, and expires upon registration of the certificate of sale or three
months after foreclosure, whichever is earlier. There is likewise no retroactive application of the new redemption period
because Section 47 exempts from its operation those properties foreclosed prior to its effectivity and whose owners shall
retain their redemption rights under Act No. 3135.

Petitioners claim that Section 47 infringes the equal protection clause as it discriminates mortgagors/property owners
who are juridical persons is equally bereft of merit.

The equal protection clause is directed principally against undue favor and individual or class privilege.1wphi1 It is not
intended to prohibit legislation which is limited to the object to which it is directed or by the territory in which it is to
operate. It does not require absolute equality, but merely that all persons be treated alike under like conditions both as
to privileges conferred and liabilities imposed.23 Equal protection permits of reasonable classification.24 We have ruled
that one class may be treated differently from another where the groupings are based on reasonable and real
distinctions.25 If classification is germane to the purpose of the law, concerns all members of the class, and applies equally
to present and future conditions, the classification does not violate the equal protection guarantee.26

We agree with the CA that the legislature clearly intended to shorten the period of redemption for juridical persons whose
properties were foreclosed and sold in accordance with the provisions of Act No. 3135.27

The difference in the treatment of juridical persons and natural persons was based on the nature of the properties
foreclosed whether these are used as residence, for which the more liberal one-year redemption period is retained, or
used for industrial or commercial purposes, in which case a shorter term is deemed necessary to reduce the period of
uncertainty in the ownership of property and enable mortgagee-banks to dispose sooner of these acquired assets. It must
be underscored that the General Banking Law of 2000, crafted in the aftermath of the 1997 Southeast Asian financial
crisis, sought to reform the General Banking Act of 1949 by fashioning a legal framework for maintaining a safe and sound
banking system.28 In this context, the amendment introduced by Section 47 embodied one of such safe and sound
practices aimed at ensuring the solvency and liquidity of our banks.1wphi1 It cannot therefore be disputed that the said
provision amending the redemption period in Act 3135 was based on a reasonable classification and germane to the
purpose of the law.

This legitimate public interest pursued by the legislature further enfeebles petitioners impairment of contract theory.

28
The right of redemption being statutory, it must be exercised in the manner prescribed by the statute,29 and within the
prescribed time limit, to make it effective. Furthermore, as with other individual rights to contract and to property, it has
to give way to police power exercised for public welfare.30 The concept of police power is well-established in this
jurisdiction. It has been defined as the "state authority to enact legislation that may interfere with personal liberty or
property in order to promote the general welfare." Its scope, ever-expanding to meet the exigencies of the times, even to
anticipate the future where it could be done, provides enough room for an efficient and flexible response to conditions
and circumstances thus assuming the greatest benefits.31

The freedom to contract is not absolute; all contracts and all rights are subject to the police power of the State and not
only may regulations which affect them be established by the State, but all such regulations must be subject to change
from time to time, as the general well-being of the community may require, or as the circumstances may change, or as
experience may demonstrate the necessity.32 Settled is the rule that the non-impairment clause of the Constitution must
yield to the loftier purposes targeted by the Government. The right granted by this provision must submit to the demands
and necessities of the States power of regulation.33 Such authority to regulate businesses extends to the banking industry
which, as this Court has time and again emphasized, is undeniably imbued with public interest.34

Having ruled that the assailed Section 47 of R.A. No. 8791 is constitutional, we find no reversible error committed by the
CA in holding that petitioner can no longer exercise the right of redemption over its foreclosed properties after the
certificate of sale in favor of respondent had been registered.

WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. The Decision dated November 19, 2010 and
Resolution dated January 31, 2011 of the Court of Appeals in CA-G.R. CV No. 91120 are hereby AFFIRMED.

With costs against the petitioner.

SO ORDERED.

G.R. No. 134068 June 25, 2001

UNION BANK OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS, APOLONIA DE JESUS GREGORIO, GONZALO VINCOY, married to TRINIDAD GREGORIO VINCOY,
respondents.

DE LEON, JR., J.:

This is a motion for reconsideration of the resolution of this Court dated July 12, 1999 dismissing the petition for review
on certiorari filed by petitioner Union Bank of the Philippines which assailed the decision of the Court of Appeals (a)
upholding the validity of the real estate mortgage executed by respondents Gonzalo and Trinidad Vincoy in favor of
petitioner as security for a loan in the principal amount of Two Million Pesos (P2,000,000,00.), and (b) fixing the
redemption price of the property mortgaged at Three Million Two Hundred Ninety Thousand Pesos (P3,290,000.00)
representing the purchase price of the said property at the foreclosure sale plus one percent (1%) monthly interest from
April 19, 1991, the date of the foreclosure sale, until its redemption pursuant to Section 30, Rule 39 of the Rules of Court.

The following are the factual antecedents.

29
On March 2, 1990, respondents-spouses Gonzalo and Trinidad Vincoy mortgaged their residence in favor of petitioner to
secure the payment of a loan to Delco Industries (Phils.), Incorporated1 in the amount of Two Million Pesos
(P2,000,000.00). For failure of the respondents to pay the loan at its date of maturity, petitioner extrajudicially foreclosed
the mortgage and scheduled the foreclosure sale on April 10, 1991.

The petitioner submitted the highest bid for Three Million Two Hundred Ninety Thousand Pesos (P3,290,000.OO) at the
foreclosure sale. Accordingly, a certificate of sale was issued to petitioner and duly annotated at the back of the Transfer
Certificate of Title covering the property on May 8,1991.2

Prior to the expiration of the redemption period on May 8,1992, the respondents filed a complaint for annulment of
mortgage with the lower court. In their complaint, respondents alleged that the subject property mortgaged to petitioner
had in fact been constituted as a family home as early as October 27, 1989. Among the beneficiaries of the said family
home are the sisters of respondent Trinidad Vincoy, namely Apolonia and Luciana De Jesus Gregorio whose consent to
the mortgage was not obtained.3 Respondents thus assailed the validity of the mortgage on the ground that Article 158
of the Family Code4 prohibits the execution, forced sale, attachment or any other encumbrance of a family home without
the written consent of majority of the beneficiaries thereof of legal age.5 On the other hand, petitioner maintained that
the mortgaged property of the respondents could not be legally constituted as a family home because its actual value
exceeded Three Hundred Thousand Pesos (P300,000.00), the maximum value for a family home in urban areas as
stipulated in Article 157 of the Family Code.6

The lower court rendered judgment declaring the constitution of the family home void and the mortgage executed in
favor of the petitioner valid. It held, among others, that Article 158 of the Family Code was not applicable to respondents'
family home as the value of the latter at the time of its alleged constitution exceeded Three Hundred Thousand Pesos
(P300,000.00).7 It also respondent Gonzalo Vincoy and/or Delco Industries (Phils.), Inc. to pay petitioner his and/or its
outstanding obligation as of February 15,1993 in the amount of Four Million Eight Hundred Sixteen Thousand One
Hundred Ninety-Four Pesos and Forty Four Centavos (p4,816,194.44) including such sums that may accrue by way of
interests and penalties.8

Aggrieved, respondents appealed to the Court of Appeals contending that the lower court erred in finding that their family
home was not duly constituted, and that the mortgage in favor of petitioner is valid. Respondents also claimed that the
correct amount sufficient for the redemption of their property as of February 15,1993 is Two Million Seven Hundred
Seventy Three Thousand Seven Hundred Twelve Pesos and Eighty Seven Centavos (P2,773,712.87)9 and not Four Million
Eight Hundred Sixteen Thousand One Hundred Ninety-Four Pesos and Forty-Four Centavos (P4,816,194.44) as found by
the lower court.

In a decision promulgated on June 4, 1997, the Court of Appeals sustained the finding of the lower court that the alleged
family home of the respondents did not fall within the purview of Article 157 of the Family Code as its value at the time of
its constitution was more than the maximum value of Three Hundred Thousand Pesos (P300,000.00). Hence, the Court of
Appeals upheld the validity of the mortgage executed over the said property in favor of the petitioner.10 However, it
found that the amount sufficient for the redemption of the foreclosed property is Three Million Two Hundred Ninety
Thousand Pesos (P3,290,000.00) equivalent to the purchase price at tile foreclosure sale plus one percent (1%) monthly
interest from April 19, 1991 up to the date of redemption11 pursuant to Section 30, Rule 39 of the Rules of Court.12

Dissatisfied with the ruling of the Court of Appeals, the petitioner filed a petition for review on certiorari with Court
submitting the following resolution:

I. The Court of Appeals resolves an issue of redemption which was not even directly raised by the parties and contrary to
the evidence on record.

2. Assuming without admitting that respondents are entitled to redemption, the price set by the Court of Appeals is not
based on laws.13

Petitioner contends, first of all, that in allowing the respondents to redeem the subject foreclosed property, the Court of
Appeals completely ignored that fact that neither respondents' complaint before the lower court nor their brief filed
before the Court of Appeals prayed for the redemption of the said property. On the contrary, respondents had consistently
insisted on the nullity of the mortgage. Thus, to allow them to redeem the property would contradict that very theory of
their case.14

Petitioner also contends that the respondents had already lost their right to redeem the foreclosed property when they
failed to exercise their right of redemption by paying the redemption price within the period provided by law.15 In the
event, however, that the Courts upholds the right of the respondents to redeem the said property, the petitioner claims
that it is not Section 30, Rule 39 of the Rules of the Court that applies in determining the amount sufficient for redemption
but Section 78 of the General Banking Act as amended by the Presidential Decree No. 182816 which provides:

30
"xxx. In the event of foreclosure, whether judicially or extra judicially, of any mortgage on real estate which is security for
any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real
property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any
bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the sale of the
real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed
by the court in the order of execution, or the amount due under the mortgage deed, as the case may be, with interest
thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or
institution concerned by reason of the execution and sale and as a result of the custody of the said property less the
income received from the property." [Italics supplied].

This Court dismissed the petition in a Resolution promulgated on July 12,1999 on the ground that the Court of Appeals
did not commit any reversible error and that the petition raises mere questions of fact already amply passed upon by the
appellate court.17 Hence, the instant motion for reconsideration.

We are persuaded to reconsider.

First of all, it is important to note that this case was decided by the lower court on the basis only the pleadings submitted
by the parties. No trial was conducted, thus, no evidence other than submitted with the pleadings could be considered.

A careful scrutiny of the pleadings filed by the respondents before the lower court reveals that at no time did the
respondents pray that they be allowed to redeem the subject foreclosed property.18 On the other hand, respondents
never wavered from the belief that the mortgage over the said property is, in the first place, void for having been executed
over a duly constituted family home without the consent of the beneficiaries thereof. After upholding the validity of
mortgage, the lower court ordered respondent Gonzalo Vincoy and/or Delco Industries, Inc. to pay petitioner the amount
of Four Million Eight Hundred Sixteen Thousand One Hundred Ninety-Four Pesos and Forty-Four Centavos (P4,816,194.44)
plus interest and penalties representing Vincoy's and/or Delco's outstanding obligation to petitioner as of February
15,1993.19 There is no mention whatsoever of respondents right to redeem the property.

Respondents raised the issue of redemption for the first time only on appeal in contesting the amount ordered by the
lower court to be paid by respondents to the petitioner. Thus, the actuation of the Court of Appeals in allowing the
respondents to redeem the subject foreclosed property is not legally permissible. In petitions for review or appeal under
Rule 45 of the Rules of Court, the appellate tribunal is limited to the determination of whether tile lower court committed
reversible error.20

It is settled jurisprudence that an issue which was neither averred in the complain nor raised during the trial in the court
below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due
process.21 On this ground alone, the Court of Appeals should have completely ignored the issue of respondents' right to
redeem the subject foreclosed property. In addition, a reason just as glaringly obvious exists for declaring the respondents'
right of redemption already non-existent one year after May 8,1991, the date of the registration of the sale at public
auction.

Pursuant to Section 78 of the General Banking Act, a mortgagor whose real property has been sold at a public auction,
judicially or extrajudicially, for the full or partial payment of an obligation to any bank, shall have the right, within one year
after the sale of the real estate to redeem the property. The one-year period is actually to be reckoned from the date of
registration of the sale.22 Clearly therefore, respondents had only until May 8, 1992 to redeem the subject foreclosed
property. Their failure to exercise the right of redemption by paying the redemption price within the period prescribed by
the law effectively divested them of said right. It bears reiterating that during the one year redemption period,
respondents never attempted to redeem the subject property but instead persisted in their theory that the mortgage is
null and void. To allow them now to redeem the same property would, as petitioner aptly puts it, be letting them have
their cake and eat it too.

It cannot also be argued that the action for annulment of the mortgage filed by the respondents tolled the running of the
one year period of redemption. In the case of Sumerariz v. Development Bank of the Philippines,23 petitioners therein
contented that the one-year period to redeem the property foreclosed by respondent was suspended by the institution
of an action to annul the foreclosure sale filed three (3) days before the expiration of the period. To this we ruled that:

"We have not found, however, any statute or decision in support of this pretense. Moreover. up to now plaintiffs have
not exercised the right of redemption. Indeed. although they have intimated their wish to redeem the property in
question, they have not deposited the amount necessary therefor. It may be not a miss to note that, unlike Section 30 of
Rule 39 of the Rules of Court, which permits the extension of the period of redemption of mortgaged properties. Section
3 of Commonwealth Act No. 459, in relation to Section 9 of Republic Act No. 85, which governs the redemption of property
of mortgaged to the Bank does no contain a similar provision. Again this question has been definitely settled by the
previous case declaring the plaintiffs' right of redemption has already been extinguished in view of their failure to exercise
it within the statutory period."24

31
Also, in the more recent case of, Vaca v. Court of Appeals,25 we declared that the pendency of an action questioning the
validity of a mortgage cannot bar the issuance of the writ of possession after title to the property has been consolidated
in the mortgagee.26 The implication is clear: the period of redemption is not interrupted by the filling of an action assailing
the validity of the mortgage, so that at the expiration thereof, the mortgagee who acquires the property at the foreclosure
sale can proceed to have the title consolidated in his name and a writ of possession issued in his favor.

To rule otherwise, and allow the institution of an action questioning the validity of a mortgage to suspend the running of
the one year period of redemption would constitute a dangerous precedent. A likely off shoot of such a ruling is\ the
institution of frivolous suits for annulment of mortgage intended merely to give the mortgagor more time to redeem the
mortgaged property.1wphi1.nt

As a final word, although the issue pertaining to the correct amount for the redemption of the subject foreclosed property
has been rendered moot by the foregoing, a point of clarification should perhaps be made as to applicable legal provision.
Petitioner's contention that Section 78 of the General Banking Act governs the determination of the redemption price of
the subject property is meritorious. In Ponce de Leon v. Rehabilitation Finance Corporation,27 this Court had occasion to
rule that Section 78 of the General Banking Act had the effect of amending Section 6 of Act 313528 insofar as the
redemption price is concerned when the mortgagee bank, as in this case, or a banking or credit institution.29 The apparent
conflict between the provisions of Act No. 3135 and the General Banking Act was, therefore, resolved in favor of the latter,
being a special and subsequent legislation. This pronouncement was reiterated in the case of.Sy v..Court of Appeals30
where we held that the amount at which the foreclosed property is redeemable is the amount due under the mortgage
deed, or the outstanding obligation of the mortgagor plus interest and expense in accordance with Section 78 of the
General Banking Act.31 It was therefore manifest error on the part of the Court of Appeals to apply in the case at bar the
provisions of Section 30 Rule 39 of the Rules of Court in fixing the redemption price of the subject foreclosed property.

WHEREFORE, the motion for reconsideration is hereby GRANTED. This Court's Resolution dated July 12, 1999 is MODIFlED
insofar as respondents are found to have lost their right to redeem the subject foreclosed property.

SO ORDERED.

G.R. No. 178429 October 23, 2009

JOSE C. GO, Petitioner,

vs.
BANGKO SENTRAL NG PILIPINAS, Respondent.

DECISION

32
BRION, J.:

Through the present petition for review on certiorari,1 petitioner Jose C. Go (Go) assails the October 26, 2006 decision2
of the Court of Appeals (CA) in CA-G.R. SP No. 79149, as well as its June 4, 2007 resolution.3 The CA decision and resolution
annulled and set aside the May 20, 20034 and June 30, 20035 orders of the Regional Trial Court (RTC), Branch 26, Manila
which granted Gos motion to quash the Information filed against him.

THE FACTS

On August 20, 1999, an Information6 for violation of Section 83 of Republic Act No. 337 (RA 337) or the General Banking
Act, as amended by Presidential Decree No. 1795, was filed against Go before the RTC. The charge reads:

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

CONTRARY TO LAW. [Emphasis supplied.]

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

After the arraignment, both the prosecution and accused Go took part in the pre-trial conference where the marking of
the voluminous evidence for the parties was accomplished. After the completion of the marking, the trial court ordered
the parties to proceed to trial on the merits.

Before the trial could commence, however, Go filed on February 26, 20037 a motion to quash the Information, which
motion Go amended on March 1, 2003.8 Go claimed that the Information was defective, as the facts charged therein do
not constitute an offense under Section 83 of RA 337 which states:

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

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

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

In support of his motion to quash, Go averred that based on the facts alleged in the Information, he was being prosecuted
for borrowing the deposits or funds of the Orient Bank and/or acting as a guarantor, indorser or obligor for the banks
loans to other persons. The use of the word "and/or" meant that he was charged for being either a borrower or a

33
guarantor, or for being both a borrower and guarantor. Go claimed that the charge was not only vague, but also did not
constitute an offense. He posited that Section 83 of RA 337 penalized only directors and officers of banking institutions
who acted either as borrower or as guarantor, but not as both.

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

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

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

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

THE PETITION

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

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

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

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

THE COURTS RULING

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

The Accuseds Right to be Informed

34
Under the Constitution, a person who stands charged of a criminal offense has the right to be informed of the nature and
cause of the accusation against him.12 The Rules of Court, in implementing the right, specifically require that the acts or
omissions complained of as constituting the offense, including the qualifying and aggravating circumstances, must be
stated in ordinary and concise language, not necessarily in the language used in the statute, but in terms sufficient to
enable a person of common understanding to know what offense is being charged and the attendant qualifying and
aggravating circumstances present, so that the accused can properly defend himself and the court can pronounce
judgment.13 To broaden the scope of the right, the Rules authorize the quashal, upon motion of the accused, of an
Information that fails to allege the acts constituting the offense.14 Jurisprudence has laid down the fundamental test in
appreciating a motion to quash an Information grounded on the insufficiency of the facts alleged therein. We stated in
People v. Romualdez15 that:

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

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

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

Elements of Violation of

Section 83 of RA 337

Under Section 83, RA 337, the following elements must be present to constitute a violation of its first paragraph:

1. the offender is a director or officer of any banking institution;

2. the offender, either directly or indirectly, for himself or as representative or agent of another, performs any of the
following acts:

a. he borrows any of the deposits or funds of such bank; or

b. he becomes a guarantor, indorser, or surety for loans from such bank to others, or

c. he becomes in any manner an obligor for money borrowed from bank or loaned by it;

3. the offender has performed any of such acts without the written approval of the majority of the directors of the bank,
excluding the offender, as the director concerned.

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

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

The language of the law is broad enough to encompass either act of borrowing or guaranteeing, or both. While the first
paragraph of Section 83 is penal in nature, and by principle should be strictly construed in favor of the accused, the Court
is unwilling to adopt a liberal construction that would defeat the legislatures intent in enacting the statute. The objective
of the law should allow for a reasonable flexibility in its construction. Section 83 of RA 337, as well as other banking laws
adopting the same prohibition,17 was enacted to ensure that loans by banks and similar financial institutions to their own
directors, officers, and stockholders are above board.18 Banks were not created for the benefit of their directors and

35
officers; they cannot use the assets of the bank for their own benefit, except as may be permitted by law. Congress has
thus deemed it essential to impose restrictions on borrowings by bank directors and officers in order to protect the public,
especially the depositors.19 Hence, when the law prohibits directors and officers of banking institutions from becoming
in any manner an obligor of the bank (unless with the approval of the board), the terms of the prohibition shall be the
standards to be applied to directors transactions such as those involved in the present case.

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

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

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

The reportorial requirement, on the other hand, mandates that any such approval should be entered upon the records of
the corporation, and a copy of the entry be transmitted to the appropriate supervising department. The reportorial
requirement is addressed to the bank itself, which, upon its failure to do so, subjects it to quo warranto proceedings under
Section 87 of RA 337.20

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

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

Rules of Court allow amendment of insufficient Information

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

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

If it is based on the ground that the facts charged do not constitute an offense, the prosecution shall be given by the court
an opportunity to correct the defect by amendment. The motion shall be granted if the prosecution fails to make the
amendment, or the complaint or information still suffers from the same defect despite the amendment. [Emphasis
supplied]

Although an Information may be defective because the facts charged do not constitute an offense, the dismissal of the
case will not necessarily follow. The Rules specifically require that the prosecution should be given a chance to correct the
defect; the court can order the dismissal only upon the prosecutions failure to do so. The RTCs failure to provide the
prosecution this opportunity twice21 constitutes an arbitrary exercise of power that was correctly addressed by the CA
through the certiorari petition. This defect in the RTCs action on the case, while not central to the issue before us,
strengthens our conclusion that this criminal case should be resolved through full-blown trial on the merits.

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

SO ORDERED.

36
 G.R. No. 162336 February 1, 2010

HILARIO P. SORIANO, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES, BANGKO SENTRAL NG PILIPINAS (BSP), PHILIPPINE DEPOSIT INSURANCE CORPORATION
(PDIC), PUBLIC PROSECUTOR ANTONIO C.BUAN, and STATE PROSECUTOR ALBERTO R. FONACIER, Respondents.

DECISION

DEL CASTILLO, J.:

A bank officer violates the DOSRI2 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 Certiorari4 under Rule 45 of the Rules of Court, assailing the September 26, 2003
Decision5 and the February 5, 2004 Resolution6 of the Court of Appeals (CA) in CA-G.R. SP No. 67657. The challenged
Decision disposed as follows:

WHEREFORE, premises considered, the instant petition for certiorari is hereby DENIED.7

Factual Antecedents

Sometime in 2000, the Office of Special Investigation (OSI) of the Bangko Sentral ng Pilipinas (BSP), through its officers,8
transmitted a letter9 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 8 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 8 million loan had never been authorized by RBSM's Board of Directors and no report thereof had
ever been submitted to the Department of Rural Banks, Supervision and Examination Sector of the BSP. The letter of the
OSI, which was not subscribed under oath, ended with a request that a preliminary investigation be conducted and the
corresponding criminal charges be filed against petitioner at his last known address.

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

The first Information,14 dated November 14, 2000 and docketed as Criminal Case No. 237-M-2001, was for estafa through
falsification of commercial documents, under Article 315, paragraph 1(b), of the Revised Penal Code (RPC), in relation to
Article 172 of the RPC and PD 1689. It basically alleged that petitioner and his co-accused, in abuse of the confidence
reposed in them as RBSM officers, caused the falsification of a number of loan documents, making it appear that one
Enrico Carlos filled up the same, and thereby succeeded in securing a loan and converting the loan proceeds for their
personal gain and benefit.15 The information reads:

37
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 Information17 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 8 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 quash21 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 8323 of RA 337, as amended by PD 1795),24
hence a person cannot be charged for both offenses. He argued that a violation of DOSRI law requires the offender to
obtain a loan from his bank, without complying with procedural, reportorial, or ceiling requirements. On the other hand,
estafa under par. 1(b), Article 315 of the RPC requires the offender to misappropriate or convert something that he holds
in trust, or on commission, or for administration, or under any other obligation involving the duty to return the same.25

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

38
Ruling of the Regional Trial Court

In an Order26 dated August 8, 2001, the trial court denied petitioner's Motion to Quash for lack of merit. The lower court
agreed with the prosecution that the assailed OSI letter was not the complaint-affidavit itself; thus, it need not comply
with the requirements under the Rules of Court. The trial court held that the affidavits, which were attached to the OSI
letter, comprised the complaint-affidavit in the case. Since these affidavits were duly subscribed and sworn to before a
notary public, there was adequate compliance with the Rules. The trial court further held that the two offenses were
separate and distinct violations, hence the prosecution of one did not pose a bar to the other.27

Petitioners Motion for Reconsideration was likewise denied in an Order dated September 5, 2001.28

Aggrieved, petitioner filed a Petition for Certiorari29 with the CA, reiterating his arguments before the trial court.

Ruling of the Court of Appeals

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

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

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

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

Petitioners Motion for Reconsideration33 was likewise denied for lack of merit.

Hence, this petition.

Issues

Restated, petitioner raises the following issues34 for our consideration:

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

39
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 noted35 petitioner's Manifestation and Motion for Partial Withdrawal of the Petition36 dated
February 7, 2007. In the said motion, petitioner informed the Court of the promulgation of a Decision entitled Soriano v.
Hon. Casanova,37 which also involved petitioner and similar BSP letters to the DOJ. According to petitioner, the said
Decision allegedly ruled squarely on the nature of the BSP letters and the validity of the sworn affidavits attached thereto.
For this reason, petitioner moved for the partial withdrawal of the instant petition insofar as it involved the issue of
"whether or not a court can legally acquire jurisdiction over a complaint which failed to comply with the mandatory
requirements provided under Section 3(a), Rule 112 of the Rules of Court and Section 18, paragraphs (c) and (d) of RA
7653".38

Given that the case had already been submitted for resolution of the Court when petitioner filed his latest motion, and
that all respondents had presented their positions and arguments on the first issue, the Court deems it proper to rule on
the same.

In Soriano v. Hon. Casanova, the Court held that the affidavits attached to the BSP transmittal letter complied with the
mandatory requirements under the Rules of Court.

To be sure, the BSP letters involved in Soriano v. Hon. Casanova39 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:

40
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 8 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

41
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 8 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 8
million because it was the proceeds of a loan. That would have been correct if the bank knowingly extended the loan to
petitioner himself. But that is not the case here. According to the information for estafa, the loan was supposed to be for
another person, a certain "Enrico Carlos"; petitioner, through falsification, made it appear that said "Enrico Carlos" applied
for the loan when 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 8 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 (8 million), [petitioner] converted the same to his
own personal use and benefit".53

42
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
elements54 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.

43
 G.R. No. 155001 May 5, 2003

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL ANTONIO B. BOE, MAMERTO
S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P.
ADOLFO, BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION - NATIONAL LABOR UNION (MWU-NLU), and
PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION (PALEA), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT
OF TRANSPORTATION AND COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of
the Department of Transportation and Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS CORPORATION, MACROASIA-
EUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT SERVICES CORPORATION, MIASCOR CATERING SERVICES
CORPORATION, MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR LOGISTICS CORPORATION,
petitioners-in-intervention,

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

G.R. No. 155547 May 5, 2003

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA, petitioners,

vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT
OF TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, SECRETARY
LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and Communications, and
SECRETARY SIMEON A. DATUMANONG, in his capacity as Head of the Department of Public Works and Highways,
respondents,
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA, PROSPERO C. NOGRALES,
PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and BENASING O. MACARANBON, respondents-intervenors,

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

G.R. No. 155661 May 5, 2003

CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V. GAERLAN, LEONARDO DE LA ROSA,
DINA C. DE LEON, VIRGIE CATAMIN RONALD SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and SAMAHANG
MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT
OF TRANSPORTATION AND COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the
Department of Transportation and Communications, respondents.

PUNO, J.:

Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under Rule 65 of the Revised Rules of
Court seeking to prohibit the Manila International Airport Authority (MIAA) and the Department of Transportation and
Communications (DOTC) and its Secretary from implementing the following agreements executed by the Philippine
Government through the DOTC and the MIAA and the Philippine International Air Terminals Co., Inc. (PIATCO): (1) the
Concession Agreement signed on July 12, 1997, (2) the Amended and Restated Concession Agreement dated November
26, 1999, (3) the First Supplement to the Amended and Restated Concession Agreement dated August 27, 1999, (4) the
Second Supplement to the Amended and Restated Concession Agreement dated September 4, 2000, and (5) the Third
Supplement to the Amended and Restated Concession Agreement dated June 22, 2001 (collectively, the PIATCO
Contracts).

44
The facts are as follows:

In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a comprehensive study of the Ninoy
Aquino International Airport (NAIA) and determine whether the present airport can cope with the traffic development up
to the year 2010. The study consisted of two parts: first, traffic forecasts, capacity of existing facilities, NAIA future
requirements, proposed master plans and development plans; and second, presentation of the preliminary design of the
passenger terminal building. The ADP submitted a Draft Final Report to the DOTC in December 1989.

Some time in 1993, six business leaders consisting of John Gokongwei, Andrew Gotianun, Henry Sy, Sr., Lucio Tan, George
Ty and Alfonso Yuchengco met with then President Fidel V. Ramos to explore the possibility of investing in the construction
and operation of a new international airport terminal. To signify their commitment to pursue the project, they formed the
Asia's Emerging Dragon Corp. (AEDC) which was registered with the Securities and Exchange Commission (SEC) on
September 15, 1993.

On October 5, 1994, AEDC submitted an unsolicited proposal to the Government through the DOTC/MIAA for the
development of NAIA International Passenger Terminal III (NAIA IPT III) under a build-operate-and-transfer arrangement
pursuant to RA 6957 as amended by RA 7718 (BOT Law).1

On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the Prequalification Bids and Awards
Committee (PBAC) for the implementation of the NAIA IPT III project.

On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to the National Economic and
Development Authority (NEDA). A revised proposal, however, was forwarded by the DOTC to NEDA on December 13,
1995. On January 5, 1996, the NEDA Investment Coordinating Council (NEDA ICC) Technical Board favorably endorsed
the project to the ICC Cabinet Committee which approved the same, subject to certain conditions, on January 19, 1996.
On February 13, 1996, the NEDA passed Board Resolution No. 2 which approved the NAIA IPT III project.

On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers of an invitation for competitive
or comparative proposals on AEDC's unsolicited proposal, in accordance with Sec. 4-A of RA 6957, as amended. The
alternative bidders were required to submit three (3) sealed envelopes on or before 5:00 p.m. of September 20, 1996. The
first envelope should contain the Prequalification Documents, the second envelope the Technical Proposal, and the third
envelope the Financial Proposal of the proponent.

On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid Documents and the submission of
the comparative bid proposals. Interested firms were permitted to obtain the Request for Proposal Documents beginning
June 28, 1996, upon submission of a written application and payment of a non-refundable fee of P50,000.00 (US$2,000).

The Bid Documents issued by the PBAC provided among others that the proponent must have adequate capability to
sustain the financing requirement for the detailed engineering, design, construction, operation, and maintenance phases
of the project. The proponent would be evaluated based on its ability to provide a minimum amount of equity to the
project, and its capacity to secure external financing for the project.

On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid conference on July 29, 1996.

On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The following amendments were
made on the Bid Documents:

a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its financial proposal an additional
percentage of gross revenue share of the Government, as follows:

i. First 5 years

5.0%

ii. Next 10 years

7.5%

iii. Next 10 years

10.0%

b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price challenge. Proponent may offer an
Annual Guaranteed Payment which need not be of equal amount, but payment of which shall start upon site possession.

45
c. The project proponent must have adequate capability to sustain the financing requirement for the detailed engineering,
design, construction, and/or operation and maintenance phases of the project as the case may be. For purposes of pre-
qualification, this capability shall be measured in terms of:

i. Proof of the availability of the project proponent and/or the consortium to provide the minimum amount of equity for
the project; and

ii. a letter testimonial from reputable banks attesting that the project proponent and/or the members of the consortium
are banking with them, that the project proponent and/or the members are of good financial standing, and have adequate
resources.

d. The basis for the prequalification shall be the proponent's compliance with the minimum technical and financial
requirements provided in the Bid Documents and the IRR of the BOT Law. The minimum amount of equity shall be 30% of
the Project Cost.

e. Amendments to the draft Concession Agreement shall be issued from time to time. Said amendments shall only cover
items that would not materially affect the preparation of the proponent's proposal.

On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were made. Upon the request
of prospective bidder People's Air Cargo & Warehousing Co., Inc (Paircargo), the PBAC warranted that based on Sec. 11.6,
Rule 11 of the Implementing Rules and Regulations of the BOT Law, only the proposed Annual Guaranteed Payment
submitted by the challengers would be revealed to AEDC, and that the challengers' technical and financial proposals would
remain confidential. The PBAC also clarified that the list of revenue sources contained in Annex 4.2a of the Bid Documents
was merely indicative and that other revenue sources may be included by the proponent, subject to approval by
DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges denominated as Public Utility Fees would
be subject to regulation, and those charges which would be actually deemed Public Utility Fees could still be revised,
depending on the outcome of PBAC's query on the matter with the Department of Justice.

In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the Queries of PAIRCARGO as Per Letter Dated
September 3 and 10, 1996." Paircargo's queries and the PBAC's responses were as follows:

1. It is difficult for Paircargo and Associates to meet the required minimum equity requirement as prescribed in Section
8.3.4 of the Bid Documents considering that the capitalization of each member company is so structured to meet the
requirements and needs of their current respective business undertaking/activities. In order to comply with this equity
requirement, Paircargo is requesting PBAC to just allow each member of (sic) corporation of the Joint Venture to just
execute an agreement that embodies a commitment to infuse the required capital in case the project is awarded to the
Joint Venture instead of increasing each corporation's current authorized capital stock just for prequalification purposes.

In prequalification, the agency is interested in one's financial capability at the time of prequalification, not future or
potential capability.

A commitment to put up equity once awarded the project is not enough to establish that "present" financial capability.
However, total financial capability of all member companies of the Consortium, to be established by submitting the
respective companies' audited financial statements, shall be acceptable.

2. At present, Paircargo is negotiating with banks and other institutions for the extension of a Performance Security to the
joint venture in the event that the Concessions Agreement (sic) is awarded to them. However, Paircargo is being required
to submit a copy of the draft concession as one of the documentary requirements. Therefore, Paircargo is requesting that
they'd (sic) be furnished copy of the approved negotiated agreement between the PBAC and the AEDC at the soonest
possible time.

A copy of the draft Concession Agreement is included in the Bid Documents. Any material changes would be made known
to prospective challengers through bid bulletins. However, a final version will be issued before the award of contract.

The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents (Acceptance of Criteria and
Waiver of Rights to Enjoin Project) and to submit the same with the required Bid Security.

On September 20, 1996, the consortium composed of People's Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air
and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium) submitted
their competitive proposal to the PBAC. On September 23, 1996, the PBAC opened the first envelope containing the
prequalification documents of the Paircargo Consortium. On the following day, September 24, 1996, the PBAC prequalified
the Paircargo Consortium.

46
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the Paircargo Consortium, which
include:

a. The lack of corporate approvals and financial capability of PAIRCARGO;

b. The lack of corporate approvals and financial capability of PAGS;

c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount that Security Bank could
legally invest in the project;

d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalification purposes; and

e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in the operation of a public
utility.

The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues raised by the latter, and that
based on the documents submitted by Paircargo and the established prequalification criteria, the PBAC had found that
the challenger, Paircargo, had prequalified to undertake the project. The Secretary of the DOTC approved the finding of
the PBAC.

The PBAC then proceeded with the opening of the second envelope of the Paircargo Consortium which contained its
Technical Proposal.

On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargo's financial capability, in view of
the restrictions imposed by Section 21-B of the General Banking Act and Sections 1380 and 1381 of the Manual Regulations
for Banks and Other Financial Intermediaries. On October 7, 1996, AEDC again manifested its objections and requested
that it be furnished with excerpts of the PBAC meeting and the accompanying technical evaluation report where each of
the issues they raised were addressed.

On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo Consortium containing
their respective financial proposals. Both proponents offered to build the NAIA Passenger Terminal III for at least $350
million at no cost to the government and to pay the government: 5% share in gross revenues for the first five years of
operation, 7.5% share in gross revenues for the next ten years of operation, and 10% share in gross revenues for the last
ten years of operation, in accordance with the Bid Documents. However, in addition to the foregoing, AEDC offered to pay
the government a total of P135 million as guaranteed payment for 27 years while Paircargo Consortium offered to pay the
government a total of P17.75 billion for the same period.

Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted by the Paircargo Consortium,
and gave AEDC 30 working days or until November 28, 1996 within which to match the said bid, otherwise, the project
would be awarded to Paircargo.

As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado Lagdameo, on December 11,
1996, issued a notice to Paircargo Consortium regarding AEDC's failure to match the proposal.

On February 27, 1997, Paircargo Consortium incorporated into Philippine International Airport Terminals Co., Inc.
(PIATCO).

AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated its objections as regards the
prequalification of PIATCO.

On April 11, 1997, the DOTC submitted the concession agreement for the second-pass approval of the NEDA-ICC.

On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration of Nullity of the Proceedings,
Mandamus and Injunction against the Secretary of the DOTC, the Chairman of the PBAC, the voting members of the PBAC
and Pantaleon D. Alvarez, in his capacity as Chairman of the PBAC Technical Committee.

On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a no-objection basis, of the
BOT agreement between the DOTC and PIATCO. As the ad referendum gathered only four (4) of the required six (6)
signatures, the NEDA merely noted the agreement.

On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.

On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO, through its President, Henry
T. Go, signed the "Concession Agreement for the Build-Operate-and-Transfer Arrangement of the Ninoy Aquino

47
International Airport Passenger Terminal III" (1997 Concession Agreement). The Government granted PIATCO the
franchise to operate and maintain the said terminal during the concession period and to collect the fees, rentals and other
charges in accordance with the rates or schedules stipulated in the 1997 Concession Agreement. The Agreement provided
that the concession period shall be for twenty-five (25) years commencing from the in-service date, and may be renewed
at the option of the Government for a period not exceeding twenty-five (25) years. At the end of the concession period,
PIATCO shall transfer the development facility to MIAA.

On November 26, 1998, the Government and PIATCO signed an Amended and Restated Concession Agreement (ARCA).
Among the provisions of the 1997 Concession Agreement that were amended by the ARCA were: Sec. 1.11 pertaining to
the definition of "certificate of completion"; Sec. 2.05 pertaining to the Special Obligations of GRP; Sec. 3.02 (a) dealing
with the exclusivity of the franchise given to the Concessionaire; Sec. 4.04 concerning the assignment by Concessionaire
of its interest in the Development Facility; Sec. 5.08 (c) dealing with the proceeds of Concessionaire's insurance; Sec. 5.10
with respect to the temporary take-over of operations by GRP; Sec. 5.16 pertaining to the taxes, duties and other imposts
that may be levied on the Concessionaire; Sec. 6.03 as regards the periodic adjustment of public utility fees and charges;
the entire Article VIII concerning the provisions on the termination of the contract; and Sec. 10.02 providing for the venue
of the arbitration proceedings in case a dispute or controversy arises between the parties to the agreement.

Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First Supplement was signed on
August 27, 1999; the Second Supplement on September 4, 2000; and the Third Supplement on June 22, 2001 (collectively,
Supplements).

The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining "Revenues" or "Gross Revenues"; Sec. 2.05 (d)
of the ARCA referring to the obligation of MIAA to provide sufficient funds for the upkeep, maintenance, repair and/or
replacement of all airport facilities and equipment which are owned or operated by MIAA; and further providing additional
special obligations on the part of GRP aside from those already enumerated in Sec. 2.05 of the ARCA. The First Supplement
also provided a stipulation as regards the construction of a surface road to connect NAIA Terminal II and Terminal III in
lieu of the proposed access tunnel crossing Runway 13/31; the swapping of obligations between GRP and PIATCO
regarding the improvement of Sales Road; and the changes in the timetable. It also amended Sec. 6.01 (c) of the ARCA
pertaining to the Disposition of Terminal Fees; Sec. 6.02 of the ARCA by inserting an introductory paragraph; and Sec. 6.02
(a) (iii) of the ARCA referring to the Payments of Percentage Share in Gross Revenues.

The Second Supplement to the ARCA contained provisions concerning the clearing, removal, demolition or disposal of
subterranean structures uncovered or discovered at the site of the construction of the terminal by the Concessionaire. It
defined the scope of works; it provided for the procedure for the demolition of the said structures and the consideration
for the same which the GRP shall pay PIATCO; it provided for time extensions, incremental and consequential costs and
losses consequent to the existence of such structures; and it provided for some additional obligations on the part of
PIATCO as regards the said structures.

Finally, the Third Supplement provided for the obligations of the Concessionaire as regards the construction of the surface
road connecting Terminals II and III.

Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA Terminals I and II, had existing
concession contracts with various service providers to offer international airline airport services, such as in-flight catering,
passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo handling and warehousing, and
other services, to several international airlines at the NAIA. Some of these service providers are the Miascor Group,
DNATA-Wings Aviation Systems Corp., and the MacroAsia Group. Miascor, DNATA and MacroAsia, together with Philippine
Airlines (PAL), are the dominant players in the industry with an aggregate market share of 70%.

On September 17, 2002, the workers of the international airline service providers, claiming that they stand to lose their
employment upon the implementation of the questioned agreements, filed before this Court a petition for prohibition to
enjoin the enforcement of said agreements.2

On October 15, 2002, the service providers, joining the cause of the petitioning workers, filed a motion for intervention
and a petition-in-intervention.

On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula filed a similar petition with
this Court.3

On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the legality of the various
agreements.4

On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael P. Nantes, Eduardo C. Zialcita, Willie
B. Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon and Benasing O. Macaranbon, moved to

48
intervene in the case as Respondents-Intervenors. They filed their Comment-In-Intervention defending the validity of the
assailed agreements and praying for the dismissal of the petitions.

During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on November 29, 2002, in her
speech at the 2002 Golden Shell Export Awards at Malacaang Palace, stated that she will not "honor (PIATCO) contracts
which the Executive Branch's legal offices have concluded (as) null and void."5

Respondent PIATCO filed its Comments to the present petitions on November 7 and 27, 2002. The Office of the Solicitor
General and the Office of the Government Corporate Counsel filed their respective Comments in behalf of the public
respondents.

On December 10, 2002, the Court heard the case on oral argument. After the oral argument, the Court then resolved in
open court to require the parties to file simultaneously their respective Memoranda in amplification of the issues heard
in the oral arguments within 30 days and to explore the possibility of arbitration or mediation as provided in the challenged
contracts.

In their consolidated Memorandum, the Office of the Solicitor General and the Office of the Government Corporate
Counsel prayed that the present petitions be given due course and that judgment be rendered declaring the 1997
Concession Agreement, the ARCA and the Supplements thereto void for being contrary to the Constitution, the BOT Law
and its Implementing Rules and Regulations.

On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO commenced arbitration
proceedings before the International Chamber of Commerce, International Court of Arbitration (ICC) by filing a Request
for Arbitration with the Secretariat of the ICC against the Government of the Republic of the Philippines acting through
the DOTC and MIAA.

In the present cases, the Court is again faced with the task of resolving complicated issues made difficult by their
intersecting legal and economic implications. The Court is aware of the far reaching fall out effects of the ruling which it
makes today. For more than a century and whenever the exigencies of the times demand it, this Court has never shirked
from its solemn duty to dispense justice and resolve "actual controversies involving rights which are legally demandable
and enforceable, and to determine whether or not there has been grave abuse of discretion amounting to lack or excess
of jurisdiction."6 To be sure, this Court will not begin to do otherwise today.

We shall first dispose of the procedural issues raised by respondent PIATCO which they allege will bar the resolution of
the instant controversy.

Petitioners' Legal Standing to File

the present Petitions

a. G.R. Nos. 155001 and 155661

In G.R. No. 155001 individual petitioners are employees of various service providers7 having separate concession contracts
with MIAA and continuing service agreements with various international airlines to provide in-flight catering, passenger
handling, ramp and ground support, aircraft maintenance and provisions, cargo handling and warehousing and other
services. Also included as petitioners are labor unions MIASCOR Workers Union-National Labor Union and Philippine
Airlines Employees Association. These petitioners filed the instant action for prohibition as taxpayers and as parties whose
rights and interests stand to be violated by the implementation of the PIATCO Contracts.

Petitioners-Intervenors in the same case are all corporations organized and existing under Philippine laws engaged in the
business of providing in-flight catering, passenger handling, ramp and ground support, aircraft maintenance and
provisions, cargo handling and warehousing and other services to several international airlines at the Ninoy Aquino
International Airport. Petitioners-Intervenors allege that as tax-paying international airline and airport-related service
operators, each one of them stands to be irreparably injured by the implementation of the PIATCO Contracts. Each of the
petitioners-intervenors have separate and subsisting concession agreements with MIAA and with various international
airlines which they allege are being interfered with and violated by respondent PIATCO.

In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa sa Paliparan ng Pilipinas - a
legitimate labor union and accredited as the sole and exclusive bargaining agent of all the employees in MIAA. Petitioners
anchor their petition for prohibition on the nullity of the contracts entered into by the Government and PIATCO regarding
the build-operate-and-transfer of the NAIA IPT III. They filed the petition as taxpayers and persons who have a legitimate
interest to protect in the implementation of the PIATCO Contracts.

49
Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations which directly contravene
numerous provisions of the Constitution, specific provisions of the BOT Law and its Implementing Rules and Regulations,
and public policy. Petitioners contend that the DOTC and the MIAA, by entering into said contracts, have committed grave
abuse of discretion amounting to lack or excess of jurisdiction which can be remedied only by a writ of prohibition, there
being no plain, speedy or adequate remedy in the ordinary course of law.

In particular, petitioners assail the provisions in the 1997 Concession Agreement and the ARCA which grant PIATCO the
exclusive right to operate a commercial international passenger terminal within the Island of Luzon, except those
international airports already existing at the time of the execution of the agreement. The contracts further provide that
upon the commencement of operations at the NAIA IPT III, the Government shall cause the closure of Ninoy Aquino
International Airport Passenger Terminals I and II as international passenger terminals. With respect to existing concession
agreements between MIAA and international airport service providers regarding certain services or operations, the 1997
Concession Agreement and the ARCA uniformly provide that such services or operations will not be carried over to the
NAIA IPT III and PIATCO is under no obligation to permit such carry over except through a separate agreement duly entered
into with PIATCO.8

With respect to the petitioning service providers and their employees, upon the commencement of operations of the NAIA
IPT III, they allege that they will be effectively barred from providing international airline airport services at the NAIA
Terminals I and II as all international airlines and passengers will be diverted to the NAIA IPT III. The petitioning service
providers will thus be compelled to contract with PIATCO alone for such services, with no assurance that subsisting
contracts with MIAA and other international airlines will be respected. Petitioning service providers stress that despite the
very competitive market, the substantial capital investments required and the high rate of fees, they entered into their
respective contracts with the MIAA with the understanding that the said contracts will be in force for the stipulated period,
and thereafter, renewed so as to allow each of the petitioning service providers to recoup their investments and obtain a
reasonable return thereon.

Petitioning employees of various service providers at the NAIA Terminals I and II and of MIAA on the other hand allege
that with the closure of the NAIA Terminals I and II as international passenger terminals under the PIATCO Contracts, they
stand to lose employment.

The question on legal standing is whether such parties have "alleged such a personal stake in the outcome of the
controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so
largely depends for illumination of difficult constitutional questions."9 Accordingly, it has been held that the interest of a
person assailing the constitutionality of a statute must be direct and personal. He must be able to show, not only that the
law or any government act is invalid, but also that he sustained or is in imminent danger of sustaining some direct injury
as a result of its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that the
person complaining has been or is about to be denied some right or privilege to which he is lawfully entitled or that he is
about to be subjected to some burdens or penalties by reason of the statute or act complained of.10

We hold that petitioners have the requisite standing. In the above-mentioned cases, petitioners have a direct and
substantial interest to protect by reason of the implementation of the PIATCO Contracts. They stand to lose their source
of livelihood, a property right which is zealously protected by the Constitution. Moreover, subsisting concession
agreements between MIAA and petitioners-intervenors and service contracts between international airlines and
petitioners-intervenors stand to be nullified or terminated by the operation of the NAIA IPT III under the PIATCO Contracts.
The financial prejudice brought about by the PIATCO Contracts on petitioners and petitioners-intervenors in these cases
are legitimate interests sufficient to confer on them the requisite standing to file the instant petitions.

b. G.R. No. 155547

In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of Representatives, citizens and
taxpayers. They allege that as members of the House of Representatives, they are especially interested in the PIATCO
Contracts, because the contracts compel the Government and/or the House of Representatives to appropriate funds
necessary to comply with the provisions therein.11 They cite provisions of the PIATCO Contracts which require
disbursement of unappropriated amounts in compliance with the contractual obligations of the Government. They allege
that the Government obligations in the PIATCO Contracts which compel government expenditure without appropriation
is a curtailment of their prerogatives as legislators, contrary to the mandate of the Constitution that "[n]o money shall be
paid out of the treasury except in pursuance of an appropriation made by law."12

Standing is a peculiar concept in constitutional law because in some cases, suits are not brought by parties who have been
personally injured by the operation of a law or any other government act but by concerned citizens, taxpayers or voters
who actually sue in the public interest. Although we are not unmindful of the cases of Imus Electric Co. v. Municipality of
Imus13 and Gonzales v. Raquiza14 wherein this Court held that appropriation must be made only on amounts immediately
demandable, public interest demands that we take a more liberal view in determining whether the petitioners suing as
legislators, taxpayers and citizens have locus standi to file the instant petition. In Kilosbayan, Inc. v. Guingona,15 this Court

50
held "[i]n line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even
association of planters, and non-profit civic organizations were allowed to initiate and prosecute actions before this Court
to question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or
instrumentalities."16 Further, "insofar as taxpayers' suits are concerned . . . (this Court) is not devoid of discretion as to
whether or not it should be entertained."17 As such ". . . even if, strictly speaking, they [the petitioners] are not covered
by the definition, it is still within the wide discretion of the Court to waive the requirement and so remove the impediment
to its addressing and resolving the serious constitutional questions raised."18 In view of the serious legal questions
involved and their impact on public interest, we resolve to grant standing to the petitioners.

Other Procedural Matters

Respondent PIATCO further alleges that this Court is without jurisdiction to review the instant cases as factual issues are
involved which this Court is ill-equipped to resolve. Moreover, PIATCO alleges that submission of this controversy to this
Court at the first instance is a violation of the rule on hierarchy of courts. They contend that trial courts have concurrent
jurisdiction with this Court with respect to a special civil action for prohibition and hence, following the rule on hierarchy
of courts, resort must first be had before the trial courts.

After a thorough study and careful evaluation of the issues involved, this Court is of the view that the crux of the instant
controversy involves significant legal questions. The facts necessary to resolve these legal questions are well established
and, hence, need not be determined by a trial court.

The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over the cases at bar. The said
rule may be relaxed when the redress desired cannot be obtained in the appropriate courts or where exceptional and
compelling circumstances justify availment of a remedy within and calling for the exercise of this Court's primary
jurisdiction.19

It is easy to discern that exceptional circumstances exist in the cases at bar that call for the relaxation of the rule. Both
petitioners and respondents agree that these cases are of transcendental importance as they involve the construction and
operation of the country's premier international airport. Moreover, the crucial issues submitted for resolution are of first
impression and they entail the proper legal interpretation of key provisions of the Constitution, the BOT Law and its
Implementing Rules and Regulations. Thus, considering the nature of the controversy before the Court, procedural bars
may be lowered to give way for the speedy disposition of the instant cases.

Legal Effect of the Commencement

of Arbitration Proceedings by

PIATCO

There is one more procedural obstacle which must be overcome. The Court is aware that arbitration proceedings pursuant
to Section 10.02 of the ARCA have been filed at the instance of respondent PIATCO. Again, we hold that the arbitration
step taken by PIATCO will not oust this Court of its jurisdiction over the cases at bar.

In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that the arbitration clause in the Distributorship
Agreement in question is valid and the dispute between the parties is arbitrable, this Court affirmed the trial court's
decision denying petitioner's Motion to Suspend Proceedings pursuant to the arbitration clause under the contract. In so
ruling, this Court held that as contracts produce legal effect between the parties, their assigns and heirs, only the parties
to the Distributorship Agreement are bound by its terms, including the arbitration clause stipulated therein. This Court
ruled that arbitration proceedings could be called for but only with respect to the parties to the contract in question.
Considering that there are parties to the case who are neither parties to the Distributorship Agreement nor heirs or assigns
of the parties thereto, this Court, citing its previous ruling in Salas, Jr. v. Laperal Realty Corporation,21 held that to tolerate
the splitting of proceedings by allowing arbitration as to some of the parties on the one hand and trial for the others on
the other hand would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay.22 Thus, we
ruled that the interest of justice would best be served if the trial court hears and adjudicates the case in a single and
complete proceeding.

It is established that petitioners in the present cases who have presented legitimate interests in the resolution of the
controversy are not parties to the PIATCO Contracts. Accordingly, they cannot be bound by the arbitration clause provided
for in the ARCA and hence, cannot be compelled to submit to arbitration proceedings. A speedy and decisive resolution
of all the critical issues in the present controversy, including those raised by petitioners, cannot be made before an arbitral
tribunal. The object of arbitration is precisely to allow an expeditious determination of a dispute. This objective would not
be met if this Court were to allow the parties to settle the cases by arbitration as there are certain issues involving non-
parties to the PIATCO Contracts which the arbitral tribunal will not be equipped to resolve.

51
Now, to the merits of the instant controversy.

Is PIATCO a qualified bidder?

Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was not a duly pre-qualified bidder on
the unsolicited proposal submitted by AEDC as the Paircargo Consortium failed to meet the financial capability required
under the BOT Law and the Bid Documents. They allege that in computing the ability of the Paircargo Consortium to meet
the minimum equity requirements for the project, the entire net worth of Security Bank, a member of the consortium,
should not be considered.

PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14, 1996 issued by the DOTC
Undersecretary Primitivo C. Cal stating that the Paircargo Consortium is found to have a combined net worth of
P3,900,000,000.00, sufficient to meet the equity requirements of the project. The said Memorandum was in response to
a letter from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning the financial capability of the Paircargo
Consortium on the ground that it does not have the financial resources to put up the required minimum equity of
P2,700,000,000.00. This contention is based on the restriction under R.A. No. 337, as amended or the General Banking Act
that a commercial bank cannot invest in any single enterprise in an amount more than 15% of its net worth. In the said
Memorandum, Undersecretary Cal opined:

The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that financial capability will be evaluated based
on total financial capability of all the member companies of the [Paircargo] Consortium. In this connection, the Challenger
was found to have a combined net worth of P3,926,421,242.00 that could support a project costing approximately P13
Billion.

It is not a requirement that the net worth must be "unrestricted." To impose that as a requirement now will be nothing
less than unfair.

The financial statement or the net worth is not the sole basis in establishing financial capability. As stated in Bid Bulletin
No. 3, financial capability may also be established by testimonial letters issued by reputable banks. The Challenger has
complied with this requirement.

To recap, net worth reflected in the Financial Statement should not be taken as the amount of the money to be used to
answer the required thirty percent (30%) equity of the challenger but rather to be used in establishing if there is enough
basis to believe that the challenger can comply with the required 30% equity. In fact, proof of sufficient equity is required
as one of the conditions for award of contract (Section 12.1 IRR of the BOT Law) but not for pre-qualification (Section 5.4
of the same document).23

Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract shall be awarded to the bidder
"who, having satisfied the minimum financial, technical, organizational and legal standards" required by the law, has
submitted the lowest bid and most favorable terms of the project.24 Further, the 1994 Implementing Rules and
Regulations of the BOT Law provide:

Section 5.4 Pre-qualification Requirements.

xxx xxx xxx

c. Financial Capability: The project proponent must have adequate capability to sustain the financing requirements for the
detailed engineering design, construction and/or operation and maintenance phases of the project, as the case may be.
For purposes of pre-qualification, this capability shall be measured in terms of (i) proof of the ability of the project
proponent and/or the consortium to provide a minimum amount of equity to the project, and (ii) a letter testimonial from
reputable banks attesting that the project proponent and/or members of the consortium are banking with them, that they
are in good financial standing, and that they have adequate resources. The government agency/LGU concerned shall
determine on a project-to-project basis and before pre-qualification, the minimum amount of equity needed. (emphasis
supplied)

Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996 amending the financial capability
requirements for pre-qualification of the project proponent as follows:

6. Basis of Pre-qualification

The basis for the pre-qualification shall be on the compliance of the proponent to the minimum technical and financial
requirements provided in the Bid Documents and in the IRR of the BOT Law, R.A. No. 6957, as amended by R.A. 7718.

52
The minimum amount of equity to which the proponent's financial capability will be based shall be thirty percent (30%)
of the project cost instead of the twenty percent (20%) specified in Section 3.6.4 of the Bid Documents. This is to correlate
with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft concession agreement. The debt portion of
the project financing should not exceed 70% of the actual project cost.

Accordingly, based on the above provisions of law, the Paircargo Consortium or any challenger to the unsolicited proposal
of AEDC has to show that it possesses the requisite financial capability to undertake the project in the minimum amount
of 30% of the project cost through (i) proof of the ability to provide a minimum amount of equity to the project, and (ii) a
letter testimonial from reputable banks attesting that the project proponent or members of the consortium are banking
with them, that they are in good financial standing, and that they have adequate resources.

As the minimum project cost was estimated to be US$350,000,000.00 or roughly P9,183,650,000.00,25 the Paircargo
Consortium had to show to the satisfaction of the PBAC that it had the ability to provide the minimum equity for the
project in the amount of at least P2,755,095,000.00.

Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a net worth of P2,783,592.00 and
P3,123,515.00 respectively.26 PAGS' Audited Financial Statements as of 1995 indicate that it has approximately
P26,735,700.00 to invest as its equity for the project.27 Security Bank's Audited Financial Statements as of 1995 show that
it has a net worth equivalent to its capital funds in the amount of P3,523,504,377.00.28

We agree with public respondents that with respect to Security Bank, the entire amount of its net worth could not be
invested in a single undertaking or enterprise, whether allied or non-allied in accordance with the provisions of R.A. No.
337, as amended or the General Banking Act:

Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the Monetary Board, whenever it
shall deem appropriate and necessary to further national development objectives or support national priority projects,
may authorize a commercial bank, a bank authorized to provide commercial banking services, as well as a government-
owned and controlled bank, to operate under an expanded commercial banking authority and by virtue thereof exercise,
in addition to powers authorized for commercial banks, the powers of an Investment House as provided in Presidential
Decree No. 129, invest in the equity of a non-allied undertaking, or own a majority or all of the equity in a financial
intermediary other than a commercial bank or a bank authorized to provide commercial banking services: Provided, That
(a) the total investment in equities shall not exceed fifty percent (50%) of the net worth of the bank; (b) the equity
investment in any one enterprise whether allied or non-allied shall not exceed fifteen percent (15%) of the net worth of
the bank; (c) the equity investment of the bank, or of its wholly or majority-owned subsidiary, in a single non-allied
undertaking shall not exceed thirty-five percent (35%) of the total equity in the enterprise nor shall it exceed thirty-five
percent (35%) of the voting stock in that enterprise; and (d) the equity investment in other banks shall be deducted from
the investing bank's net worth for purposes of computing the prescribed ratio of net worth to risk assets.

xxx xxx xxx

Further, the 1993 Manual of Regulations for Banks provides:

SECTION X383. Other Limitations and Restrictions. The following limitations and restrictions shall also apply regarding
equity investments of banks.

a. In any single enterprise. The equity investments of banks in any single enterprise shall not exceed at any time fifteen
percent (15%) of the net worth of the investing bank as defined in Sec. X106 and Subsec. X121.5.

Thus, the maximum amount that Security Bank could validly invest in the Paircargo Consortium is only P528,525,656.55,
representing 15% of its entire net worth. The total net worth therefore of the Paircargo Consortium, after considering the
maximum amounts that may be validly invested by each of its members is P558,384,871.55 or only 6.08% of the project
cost,29 an amount substantially less than the prescribed minimum equity investment required for the project in the
amount of P2,755,095,000.00 or 30% of the project cost.

The purpose of pre-qualification in any public bidding is to determine, at the earliest opportunity, the ability of the bidder
to undertake the project. Thus, with respect to the bidder's financial capacity at the pre-qualification stage, the law
requires the government agency to examine and determine the ability of the bidder to fund the entire cost of the project
by considering the maximum amounts that each bidder may invest in the project at the time of pre-qualification.

The PBAC has determined that any prospective bidder for the construction, operation and maintenance of the NAIA IPT
III project should prove that it has the ability to provide equity in the minimum amount of 30% of the project cost, in
accordance with the 70:30 debt-to-equity ratio prescribed in the Bid Documents. Thus, in the case of Paircargo
Consortium, the PBAC should determine the maximum amounts that each member of the consortium may commit for the

53
construction, operation and maintenance of the NAIA IPT III project at the time of pre-qualification. With respect to
Security Bank, the maximum amount which may be invested by it would only be 15% of its net worth in view of the
restrictions imposed by the General Banking Act. Disregarding the investment ceilings provided by applicable law would
not result in a proper evaluation of whether or not a bidder is pre-qualified to undertake the project as for all intents and
purposes, such ceiling or legal restriction determines the true maximum amount which a bidder may invest in the project.

Further, the determination of whether or not a bidder is pre-qualified to undertake the project requires an evaluation of
the financial capacity of the said bidder at the time the bid is submitted based on the required documents presented by
the bidder. The PBAC should not be allowed to speculate on the future financial ability of the bidder to undertake the
project on the basis of documents submitted. This would open doors to abuse and defeat the very purpose of a public
bidding. This is especially true in the case at bar which involves the investment of billions of pesos by the project
proponent. The relevant government authority is duty-bound to ensure that the awardee of the contract possesses the
minimum required financial capability to complete the project. To allow the PBAC to estimate the bidder's future financial
capability would not secure the viability and integrity of the project. A restrictive and conservative application of the rules
and procedures of public bidding is necessary not only to protect the impartiality and regularity of the proceedings but
also to ensure the financial and technical reliability of the project. It has been held that:

The basic rule in public bidding is that bids should be evaluated based on the required documents submitted before and
not after the opening of bids. Otherwise, the foundation of a fair and competitive public bidding would be defeated. Strict
observance of the rules, regulations, and guidelines of the bidding process is the only safeguard to a fair, honest and
competitive public bidding.30

Thus, if the maximum amount of equity that a bidder may invest in the project at the time the bids are submitted falls
short of the minimum amounts required to be put up by the bidder, said bidder should be properly disqualified.
Considering that at the pre-qualification stage, the maximum amounts which the Paircargo Consortium may invest in the
project fell short of the minimum amounts prescribed by the PBAC, we hold that Paircargo Consortium was not a qualified
bidder. Thus the award of the contract by the PBAC to the Paircargo Consortium, a disqualified bidder, is null and void.

While it would be proper at this juncture to end the resolution of the instant controversy, as the legal effects of the
disqualification of respondent PIATCO's predecessor would come into play and necessarily result in the nullity of all the
subsequent contracts entered by it in pursuance of the project, the Court feels that it is necessary to discuss in full the
pressing issues of the present controversy for a complete resolution thereof.

II

Is the 1997 Concession Agreement valid?

Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as it contains provisions that
substantially depart from the draft Concession Agreement included in the Bid Documents. They maintain that a substantial
departure from the draft Concession Agreement is a violation of public policy and renders the 1997 Concession Agreement
null and void.

PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents is intended to be a draft, i.e.,
subject to change, alteration or modification, and that this intention was clear to all participants, including AEDC, and
DOTC/MIAA. It argued further that said intention is expressed in Part C (6) of Bid Bulletin No. 3 issued by the PBAC which
states:

6. Amendments to the Draft Concessions Agreement

Amendments to the Draft Concessions Agreement shall be issued from time to time. Said amendments shall only cover
items that would not materially affect the preparation of the proponent's proposal.

By its very nature, public bidding aims to protect the public interest by giving the public the best possible advantages
through open competition. Thus:

Competition must be legitimate, fair and honest. In the field of government contract law, competition requires, not only
`bidding upon a common standard, a common basis, upon the same thing, the same subject matter, the same
undertaking,' but also that it be legitimate, fair and honest; and not designed to injure or defraud the government.31

An essential element of a publicly bidded contract is that all bidders must be on equal footing. Not simply in terms of
application of the procedural rules and regulations imposed by the relevant government agency, but more importantly,
on the contract bidded upon. Each bidder must be able to bid on the same thing. The rationale is obvious. If the winning
bidder is allowed to later include or modify certain provisions in the contract awarded such that the contract is altered in
any material respect, then the essence of fair competition in the public bidding is destroyed. A public bidding would indeed

54
be a farce if after the contract is awarded, the winning bidder may modify the contract and include provisions which are
favorable to it that were not previously made available to the other bidders. Thus:

It is inherent in public biddings that there shall be a fair competition among the bidders. The specifications in such biddings
provide the common ground or basis for the bidders. The specifications should, accordingly, operate equally or
indiscriminately upon all bidders.32

The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:

The law is well settled that where, as in this case, municipal authorities can only let a contract for public work to the lowest
responsible bidder, the proposals and specifications therefore must be so framed as to permit free and full competition.
Nor can they enter into a contract with the best bidder containing substantial provisions beneficial to him, not included
or contemplated in the terms and specifications upon which the bids were invited.33

In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the draft concession agreement is
subject to amendment, the pertinent portion of which was quoted above, the PBAC also clarified that "[s]aid amendments
shall only cover items that would not materially affect the preparation of the proponent's proposal."

While we concede that a winning bidder is not precluded from modifying or amending certain provisions of the contract
bidded upon, such changes must not constitute substantial or material amendments that would alter the basic parameters
of the contract and would constitute a denial to the other bidders of the opportunity to bid on the same terms. Hence,
the determination of whether or not a modification or amendment of a contract bidded out constitutes a substantial
amendment rests on whether the contract, when taken as a whole, would contain substantially different terms and
conditions that would have the effect of altering the technical and/or financial proposals previously submitted by other
bidders. The alterations and modifications in the contract executed between the government and the winning bidder must
be such as to render such executed contract to be an entirely different contract from the one that was bidded upon.

In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted with approval the ruling of the trial
court that an amendment to a contract awarded through public bidding, when such subsequent amendment was made
without a new public bidding, is null and void:

The Court agrees with the contention of counsel for the plaintiffs that the due execution of a contract after public bidding
is a limitation upon the right of the contracting parties to alter or amend it without another public bidding, for otherwise
what would a public bidding be good for if after the execution of a contract after public bidding, the contracting parties
may alter or amend the contract, or even cancel it, at their will? Public biddings are held for the protection of the public,
and to give the public the best possible advantages by means of open competition between the bidders. He who bids or
offers the best terms is awarded the contract subject of the bid, and it is obvious that such protection and best possible
advantages to the public will disappear if the parties to a contract executed after public bidding may alter or amend it
without another previous public bidding.35

Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same agreement that was offered
for public bidding, i.e., the draft Concession Agreement attached to the Bid Documents? A close comparison of the draft
Concession Agreement attached to the Bid Documents and the 1997 Concession Agreement reveals that the documents
differ in at least two material respects:

a. Modification on the Public

Utility Revenues and Non-Public

Utility Revenues that may be

collected by PIATCO

The fees that may be imposed and collected by PIATCO under the draft Concession Agreement and the 1997 Concession
Agreement may be classified into three distinct categories: (1) fees which are subject to periodic adjustment of once every
two years in accordance with a prescribed parametric formula and adjustments are made effective only upon written
approval by MIAA; (2) fees other than those included in the first category which maybe adjusted by PIATCO whenever it
deems necessary without need for consent of DOTC/MIAA; and (3) new fees and charges that may be imposed by PIATCO
which have not been previously imposed or collected at the Ninoy Aquino International Airport Passenger Terminal I,
pursuant to Administrative Order No. 1, Series of 1993, as amended. The glaring distinctions between the draft Concession
Agreement and the 1997 Concession Agreement lie in the types of fees included in each category and the extent of the
supervision and regulation which MIAA is allowed to exercise in relation thereto.

55
For fees under the first category, i.e., those which are subject to periodic adjustment in accordance with a prescribed
parametric formula and effective only upon written approval by MIAA, the draft Concession Agreement includes the
following:36

(1) aircraft parking fees;

(2) aircraft tacking fees;

(3) groundhandling fees;

(4) rentals and airline offices;

(5) check-in counter rentals; and

(6) porterage fees.

Under the 1997 Concession Agreement, fees which are subject to adjustment and effective upon MIAA approval are
classified as "Public Utility Revenues" and include:37

(1) aircraft parking fees;

(2) aircraft tacking fees;

(3) check-in counter fees; and

(4) Terminal Fees.

The implication of the reduced number of fees that are subject to MIAA approval is best appreciated in relation to fees
included in the second category identified above. Under the 1997 Concession Agreement, fees which PIATCO may adjust
whenever it deems necessary without need for consent of DOTC/MIAA are "Non-Public Utility Revenues" and is defined
as "all other income not classified as Public Utility Revenues derived from operations of the Terminal and the Terminal
Complex."38 Thus, under the 1997 Concession Agreement, ground handling fees, rentals from airline offices and porterage
fees are no longer subject to MIAA regulation.

Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right to regulate (1) lobby and vehicular
parking fees and (2) other new fees and charges that may be imposed by PIATCO. Such regulation may be made by periodic
adjustment and is effective only upon written approval of MIAA. The full text of said provision is quoted below:

Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft parking fees, aircraft tacking fees,
groundhandling fees, rentals and airline offices, check-in-counter rentals and porterage fees shall be allowed only once
every two years and in accordance with the Parametric Formula attached hereto as Annex F. Provided that adjustments
shall be made effective only after the written express approval of the MIAA. Provided, further, that such approval of the
MIAA, shall be contingent only on the conformity of the adjustments with the above said parametric formula. The first
adjustment shall be made prior to the In-Service Date of the Terminal.

The MIAA reserves the right to regulate under the foregoing terms and conditions the lobby and vehicular parking fees
and other new fees and charges as contemplated in paragraph 2 of Section 6.01 if in its judgment the users of the airport
shall be deprived of a free option for the services they cover.39

On the other hand, the equivalent provision under the 1997 Concession Agreement reads:

Section 6.03 Periodic Adjustment in Fees and Charges.

xxx xxx xxx

(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public Utility Revenues in order
to ensure that End Users are not unreasonably deprived of services. While the vehicular parking fee, porterage fee and
greeter/well wisher fee constitute Non-Public Utility Revenues of Concessionaire, GRP may intervene and require
Concessionaire to explain and justify the fee it may set from time to time, if in the reasonable opinion of GRP the said fees
have become exorbitant resulting in the unreasonable deprivation of End Users of such services.40

Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2) porterage fee and (3)
greeter/well wisher fee, all that MIAA can do is to require PIATCO to explain and justify the fees set by PIATCO. In the draft
Concession Agreement, vehicular parking fee is subject to MIAA regulation and approval under the second paragraph of

56
Section 6.03 thereof while porterage fee is covered by the first paragraph of the same provision. There is an obvious
relaxation of the extent of control and regulation by MIAA with respect to the particular fees that may be charged by
PIATCO.

Moreover, with respect to the third category of fees that may be imposed and collected by PIATCO, i.e., new fees and
charges that may be imposed by PIATCO which have not been previously imposed or collected at the Ninoy Aquino
International Airport Passenger Terminal I, under Section 6.03 of the draft Concession Agreement MIAA has reserved the
right to regulate the same under the same conditions that MIAA may regulate fees under the first category, i.e., periodic
adjustment of once every two years in accordance with a prescribed parametric formula and effective only upon written
approval by MIAA. However, under the 1997 Concession Agreement, adjustment of fees under the third category is not
subject to MIAA regulation.

With respect to terminal fees that may be charged by PIATCO,41 as shown earlier, this was included within the category
of "Public Utility Revenues" under the 1997 Concession Agreement. This classification is significant because under the
1997 Concession Agreement, "Public Utility Revenues" are subject to an "Interim Adjustment" of fees upon the occurrence
of certain extraordinary events specified in the agreement.42 However, under the draft Concession Agreement, terminal
fees are not included in the types of fees that may be subject to "Interim Adjustment."43

Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal fees, are denominated in US
Dollars44 while payments to the Government are in Philippine Pesos. In the draft Concession Agreement, no such
stipulation was included. By stipulating that "Public Utility Revenues" will be paid to PIATCO in US Dollars while payments
by PIATCO to the Government are in Philippine currency under the 1997 Concession Agreement, PIATCO is able to enjoy
the benefits of depreciations of the Philippine Peso, while being effectively insulated from the detrimental effects of
exchange rate fluctuations.

When taken as a whole, the changes under the 1997 Concession Agreement with respect to reduction in the types of fees
that are subject to MIAA regulation and the relaxation of such regulation with respect to other fees are significant
amendments that substantially distinguish the draft Concession Agreement from the 1997 Concession Agreement. The
1997 Concession Agreement, in this respect, clearly gives PIATCO more favorable terms than what was available to other
bidders at the time the contract was bidded out. It is not very difficult to see that the changes in the 1997 Concession
Agreement translate to direct and concrete financial advantages for PIATCO which were not available at the time the
contract was offered for bidding. It cannot be denied that under the 1997 Concession Agreement only "Public Utility
Revenues" are subject to MIAA regulation. Adjustments of all other fees imposed and collected by PIATCO are entirely
within its control. Moreover, with respect to terminal fees, under the 1997 Concession Agreement, the same is further
subject to "Interim Adjustments" not previously stipulated in the draft Concession Agreement. Finally, the change in the
currency stipulated for "Public Utility Revenues" under the 1997 Concession Agreement, except terminal fees, gives
PIATCO an added benefit which was not available at the time of bidding.

b. Assumption by the

Government of the liabilities of

PIATCO in the event of the latter's

default thereof

Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors who have provided, loaned
or advanced funds for the NAIA IPT III project does not result in the assumption by the Government of these liabilities. In
fact, nowhere in the said contract does default of PIATCO's loans figure in the agreement. Such default does not directly
result in any concomitant right or obligation in favor of the Government.

However, the 1997 Concession Agreement provides:

Section 4.04 Assignment.

xxx xxx xxx

(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default has resulted in the
acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors
and Concessionaire shall immediately inform GRP in writing of such default. GRP shall, within one hundred eighty (180)
Days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over the
Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be substituted
as concessionaire and operator of the Development Facility in accordance with the terms and conditions hereof, or
designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the terms and

57
conditions of this Agreement; Provided that if at the end of the 180-day period GRP shall not have served the Unpaid
Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take over the
Development Facility with the concomitant assumption of Attendant Liabilities.

(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall form
and organize a concession company qualified to take over the operation of the Development Facility. If the concession
company should elect to designate an operator for the Development Facility, the concession company shall in good faith
identify and designate a qualified operator acceptable to GRP within one hundred eighty (180) days from receipt of GRP's
written notice. If the concession company, acting in good faith and with due diligence, is unable to designate a qualified
operator within the aforesaid period, then GRP shall at the end of the 180-day period take over the Development Facility
and assume Attendant Liabilities.

The term "Attendant Liabilities" under the 1997 Concession Agreement is defined as:

Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the Concessionaire
as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for the Project, including all
interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related expenses, and
further including amounts owed by Concessionaire to its suppliers, contractors and sub-contractors.

Under the above quoted portions of Section 4.04 in relation to the definition of "Attendant Liabilities," default by PIATCO
of its loans used to finance the NAIA IPT III project triggers the occurrence of certain events that leads to the assumption
by the Government of the liability for the loans. Only in one instance may the Government escape the assumption of
PIATCO's liabilities, i.e., when the Government so elects and allows a qualified operator to take over as Concessionaire.
However, this circumstance is dependent on the existence and availability of a qualified operator who is willing to take
over the rights and obligations of PIATCO under the contract, a circumstance that is not entirely within the control of the
Government.

Without going into the validity of this provision at this juncture, suffice it to state that Section 4.04 of the 1997 Concession
Agreement may be considered a form of security for the loans PIATCO has obtained to finance the project, an option that
was not made available in the draft Concession Agreement. Section 4.04 is an important amendment to the 1997
Concession Agreement because it grants PIATCO a financial advantage or benefit which was not previously made available
during the bidding process. This financial advantage is a significant modification that translates to better terms and
conditions for PIATCO.

PIATCO, however, argues that the parties to the bidding procedure acknowledge that the draft Concession Agreement is
subject to amendment because the Bid Documents permit financing or borrowing. They claim that it was the lenders who
proposed the amendments to the draft Concession Agreement which resulted in the 1997 Concession Agreement.

We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow the project proponent or the
winning bidder to obtain financing for the project, especially in this case which involves the construction, operation and
maintenance of the NAIA IPT III. Expectedly, compliance by the project proponent of its undertakings therein would involve
a substantial amount of investment. It is therefore inevitable for the awardee of the contract to seek alternate sources of
funds to support the project. Be that as it may, this Court maintains that amendments to the contract bidded upon should
always conform to the general policy on public bidding if such procedure is to be faithful to its real nature and purpose.
By its very nature and characteristic, competitive public bidding aims to protect the public interest by giving the public the
best possible advantages through open competition.45 It has been held that the three principles in public bidding are (1)
the offer to the public; (2) opportunity for competition; and (3) a basis for the exact comparison of bids. A regulation of
the matter which excludes any of these factors destroys the distinctive character of the system and thwarts the purpose
of its adoption.46 These are the basic parameters which every awardee of a contract bidded out must conform to,
requirements of financing and borrowing notwithstanding. Thus, upon a concrete showing that, as in this case, the
contract signed by the government and the contract-awardee is an entirely different contract from the contract bidded,
courts should not hesitate to strike down said contract in its entirety for violation of public policy on public bidding. A
strict adherence on the principles, rules and regulations on public bidding must be sustained if only to preserve the
integrity and the faith of the general public on the procedure.

Public bidding is a standard practice for procuring government contracts for public service and for furnishing supplies and
other materials. It aims to secure for the government the lowest possible price under the most favorable terms and
conditions, to curtail favoritism in the award of government contracts and avoid suspicion of anomalies and it places all
bidders in equal footing.47 Any government action which permits any substantial variance between the conditions under
which the bids are invited and the contract executed after the award thereof is a grave abuse of discretion amounting to
lack or excess of jurisdiction which warrants proper judicial action.

In view of the above discussion, the fact that the foregoing substantial amendments were made on the 1997 Concession
Agreement renders the same null and void for being contrary to public policy. These amendments convert the 1997

58
Concession Agreement to an entirely different agreement from the contract bidded out or the draft Concession
Agreement. It is not difficult to see that the amendments on (1) the types of fees or charges that are subject to MIAA
regulation or control and the extent thereof and (2) the assumption by the Government, under certain conditions, of the
liabilities of PIATCO directly translates concrete financial advantages to PIATCO that were previously not available during
the bidding process. These amendments cannot be taken as merely supplements to or implementing provisions of those
already existing in the draft Concession Agreement. The amendments discussed above present new terms and conditions
which provide financial benefit to PIATCO which may have altered the technical and financial parameters of other bidders
had they known that such terms were available.

III

Direct Government Guarantee

Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession Agreement provides:

Section 4.04 Assignment

xxx xxx xxx

(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default resulted in the
acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors
and Concessionaire shall immediately inform GRP in writing of such default. GRP shall within one hundred eighty (180)
days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over the
Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified to be substituted
as concessionaire and operator of the Development facility in accordance with the terms and conditions hereof, or
designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the terms and
conditions of this Agreement; Provided, that if at the end of the 180-day period GRP shall not have served the Unpaid
Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take over the
Development Facility with the concomitant assumption of Attendant Liabilities.

(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall form and
organize a concession company qualified to takeover the operation of the Development Facility. If the concession company
should elect to designate an operator for the Development Facility, the concession company shall in good faith identify
and designate a qualified operator acceptable to GRP within one hundred eighty (180) days from receipt of GRP's written
notice. If the concession company, acting in good faith and with due diligence, is unable to designate a qualified operator
within the aforesaid period, then GRP shall at the end of the 180-day period take over the Development Facility and
assume Attendant Liabilities.

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the Concessionaire
as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for the Project, including all
interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related expenses, and
further including amounts owed by Concessionaire to its suppliers, contractors and sub-contractors.48

It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults in its loan obligations, is
obligated to pay "all amounts recorded and from time to time outstanding from the books" of PIATCO which the latter
owes to its creditors.49 These amounts include "all interests, penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses."50 This obligation of the Government to pay PIATCO's creditors upon
PIATCO's default would arise if the Government opts to take over NAIA IPT III. It should be noted, however, that even if
the Government chooses the second option, which is to allow PIATCO's unpaid creditors operate NAIA IPT III, the
Government is still at a risk of being liable to PIATCO's creditors should the latter be unable to designate a qualified
operator within the prescribed period.51 In effect, whatever option the Government chooses to take in the event of
PIATCO's failure to fulfill its loan obligations, the Government is still at a risk of assuming PIATCO's outstanding loans. This
is due to the fact that the Government would only be free from assuming PIATCO's debts if the unpaid creditors would be
able to designate a qualified operator within the period provided for in the contract. Thus, the Government's assumption
of liability is virtually out of its control. The Government under the circumstances provided for in the 1997 Concession
Agreement is at the mercy of the existence, availability and willingness of a qualified operator. The above contractual
provisions constitute a direct government guarantee which is prohibited by law.

One of the main impetus for the enactment of the BOT Law is the lack of government funds to construct the infrastructure
and development projects necessary for economic growth and development. This is why private sector resources are being

59
tapped in order to finance these projects. The BOT law allows the private sector to participate, and is in fact encouraged
to do so by way of incentives, such as minimizing the unstable flow of returns,52 provided that the government would not
have to unnecessarily expend scarcely available funds for the project itself. As such, direct guarantee, subsidy and equity
by the government in these projects are strictly prohibited.53 This is but logical for if the government would in the end
still be at a risk of paying the debts incurred by the private entity in the BOT projects, then the purpose of the law is
subverted.

Section 2(n) of the BOT Law defines direct guarantee as follows:

(n) Direct government guarantee An agreement whereby the government or any of its agencies or local government
units assume responsibility for the repayment of debt directly incurred by the project proponent in implementing the
project in case of a loan default.

Clearly by providing that the Government "assumes" the attendant liabilities, which consists of PIATCO's unpaid debts,
the 1997 Concession Agreement provided for a direct government guarantee for the debts incurred by PIATCO in the
implementation of the NAIA IPT III project. It is of no moment that the relevant sections are subsumed under the title of
"assignment". The provisions providing for direct government guarantee which is prohibited by law is clear from the terms
thereof.

The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal defect. Article IV, Section
4.04(c), in relation to Article I, Section 1.06, of the ARCA provides:

Section 4.04 Security

xxx xxx xxx

(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and enter into direct agreement with the
Senior Lenders, or with an agent of such Senior Lenders (which agreement shall be subject to the approval of the Bangko
Sentral ng Pilipinas), in such form as may be reasonably acceptable to both GRP and Senior Lenders, with regard, inter
alia, to the following parameters:

xxx xxx xxx

(iv) If the Concessionaire [PIATCO] is in default under a payment obligation owed to the Senior Lenders, and as a result
thereof the Senior Lenders have become entitled to accelerate the Senior Loans, the Senior Lenders shall have the right
to notify GRP of the same, and without prejudice to any other rights of the Senior Lenders or any Senior Lenders' agent
may have (including without limitation under security interests granted in favor of the Senior Lenders), to either in good
faith identify and designate a nominee which is qualified under sub-clause (viii)(y) below to operate the Development
Facility [NAIA Terminal 3] or transfer the Concessionaire's [PIATCO] rights and obligations under this Agreement to a
transferee which is qualified under sub-clause (viii) below;

xxx xxx xxx

(vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are unable to designate a nominee or effect a
transfer in terms and conditions satisfactory to the Senior Lenders within one hundred eighty (180) days after giving GRP
notice as referred to respectively in (iv) or (v) above, then GRP and the Senior Lenders shall endeavor in good faith to enter
into any other arrangement relating to the Development Facility [NAIA Terminal 3] (other than a turnover of the
Development Facility [NAIA Terminal 3] to GRP) within the following one hundred eighty (180) days. If no agreement
relating to the Development Facility [NAIA Terminal 3] is arrived at by GRP and the Senior Lenders within the said 180-day
period, then at the end thereof the Development Facility [NAIA Terminal 3] shall be transferred by the Concessionaire
[PIATCO] to GRP or its designee and GRP shall make a termination payment to Concessionaire [PIATCO] equal to the
Appraised Value (as hereinafter defined) of the Development Facility [NAIA Terminal 3] or the sum of the Attendant
Liabilities, if greater. Notwithstanding Section 8.01(c) hereof, this Agreement shall be deemed terminated upon the
transfer of the Development Facility [NAIA Terminal 3] to GRP pursuant hereto;

xxx xxx xxx

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time to time owed or which
may become owing by Concessionaire [PIATCO] to Senior Lenders or any other persons or entities who have provided,
loaned, or advanced funds or provided financial facilities to Concessionaire [PIATCO] for the Project [NAIA Terminal 3],
including, without limitation, all principal, interest, associated fees, charges, reimbursements, and other related expenses
(including the fees, charges and expenses of any agents or trustees of such persons or entities), whether payable at

60
maturity, by acceleration or otherwise, and further including amounts owed by Concessionaire [PIATCO] to its professional
consultants and advisers, suppliers, contractors and sub-contractors.54

It is clear from the foregoing contractual provisions that in the event that PIATCO fails to fulfill its loan obligations to its
Senior Lenders, the Government is obligated to directly negotiate and enter into an agreement relating to NAIA IPT III with
the Senior Lenders, should the latter fail to appoint a qualified nominee or transferee who will take the place of PIATCO.
If the Senior Lenders and the Government are unable to enter into an agreement after the prescribed period, the
Government must then pay PIATCO, upon transfer of NAIA IPT III to the Government, termination payment equal to the
appraised value of the project or the value of the attendant liabilities whichever is greater. Attendant liabilities as defined
in the ARCA includes all amounts owed or thereafter may be owed by PIATCO not only to the Senior Lenders with whom
PIATCO has defaulted in its loan obligations but to all other persons who may have loaned, advanced funds or provided
any other type of financial facilities to PIATCO for NAIA IPT III. The amount of PIATCO's debt that the Government would
have to pay as a result of PIATCO's default in its loan obligations -- in case no qualified nominee or transferee is appointed
by the Senior Lenders and no other agreement relating to NAIA IPT III has been reached between the Government and
the Senior Lenders -- includes, but is not limited to, "all principal, interest, associated fees, charges, reimbursements, and
other related expenses . . . whether payable at maturity, by acceleration or otherwise."55

It is clear from the foregoing that the ARCA provides for a direct guarantee by the government to pay PIATCO's loans not
only to its Senior Lenders but all other entities who provided PIATCO funds or services upon PIATCO's default in its loan
obligation with its Senior Lenders. The fact that the Government's obligation to pay PIATCO's lenders for the latter's
obligation would only arise after the Senior Lenders fail to appoint a qualified nominee or transferee does not detract
from the fact that, should the conditions as stated in the contract occur, the ARCA still obligates the Government to pay
any and all amounts owed by PIATCO to its lenders in connection with NAIA IPT III. Worse, the conditions that would make
the Government liable for PIATCO's debts is triggered by PIATCO's own default of its loan obligations to its Senior Lenders
to which loan contracts the Government was never a party to. The Government was not even given an option as to what
course of action it should take in case PIATCO defaulted in the payment of its senior loans. The Government, upon PIATCO's
default, would be merely notified by the Senior Lenders of the same and it is the Senior Lenders who are authorized to
appoint a qualified nominee or transferee. Should the Senior Lenders fail to make such an appointment, the Government
is then automatically obligated to "directly deal and negotiate" with the Senior Lenders regarding NAIA IPT III. The only
way the Government would not be liable for PIATCO's debt is for a qualified nominee or transferee to be appointed in
place of PIATCO to continue the construction, operation and maintenance of NAIA IPT III. This "pre-condition", however,
will not take the contract out of the ambit of a direct guarantee by the government as the existence, availability and
willingness of a qualified nominee or transferee is totally out of the government's control. As such the Government is
virtually at the mercy of PIATCO (that it would not default on its loan obligations to its Senior Lenders), the Senior Lenders
(that they would appoint a qualified nominee or transferee or agree to some other arrangement with the Government)
and the existence of a qualified nominee or transferee who is able and willing to take the place of PIATCO in NAIA IPT III.

The proscription against government guarantee in any form is one of the policy considerations behind the BOT Law.
Clearly, in the present case, the ARCA obligates the Government to pay for all loans, advances and obligations arising out
of financial facilities extended to PIATCO for the implementation of the NAIA IPT III project should PIATCO default in its
loan obligations to its Senior Lenders and the latter fails to appoint a qualified nominee or transferee. This in effect would
make the Government liable for PIATCO's loans should the conditions as set forth in the ARCA arise. This is a form of direct
government guarantee.

The BOT Law and its implementing rules provide that in order for an unsolicited proposal for a BOT project may be
accepted, the following conditions must first be met: (1) the project involves a new concept in technology and/or is not
part of the list of priority projects, (2) no direct government guarantee, subsidy or equity is required, and (3) the
government agency or local government unit has invited by publication other interested parties to a public bidding and
conducted the same.56 The failure to meet any of the above conditions will result in the denial of the proposal. It is further
provided that the presence of direct government guarantee, subsidy or equity will "necessarily disqualify a proposal from
being treated and accepted as an unsolicited proposal."57 The BOT Law clearly and strictly prohibits direct government
guarantee, subsidy and equity in unsolicited proposals that the mere inclusion of a provision to that effect is fatal and is
sufficient to deny the proposal. It stands to reason therefore that if a proposal can be denied by reason of the existence
of direct government guarantee, then its inclusion in the contract executed after the said proposal has been accepted is
likewise sufficient to invalidate the contract itself. A prohibited provision, the inclusion of which would result in the denial
of a proposal cannot, and should not, be allowed to later on be inserted in the contract resulting from the said proposal.
The basic rules of justice and fair play alone militate against such an occurrence and must not, therefore, be countenanced
particularly in this instance where the government is exposed to the risk of shouldering hundreds of million of dollars in
debt.

This Court has long and consistently adhered to the legal maxim that those that cannot be done directly cannot be done
indirectly.58 To declare the PIATCO contracts valid despite the clear statutory prohibition against a direct government
guarantee would not only make a mockery of what the BOT Law seeks to prevent -- which is to expose the government to
the risk of incurring a monetary obligation resulting from a contract of loan between the project proponent and its lenders

61
and to which the Government is not a party to -- but would also render the BOT Law useless for what it seeks to achieve
- to make use of the resources of the private sector in the "financing, operation and maintenance of infrastructure and
development projects"59 which are necessary for national growth and development but which the government,
unfortunately, could ill-afford to finance at this point in time.

IV

Temporary takeover of business affected with public interest

Article XII, Section 17 of the 1987 Constitution provides:

Section 17. In times of national emergency, when the public interest so requires, the State may, during the emergency
and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately owned public
utility or business affected with public interest.

The above provision pertains to the right of the State in times of national emergency, and in the exercise of its police
power, to temporarily take over the operation of any business affected with public interest. In the 1986 Constitutional
Commission, the term "national emergency" was defined to include threat from external aggression, calamities or national
disasters, but not strikes "unless it is of such proportion that would paralyze government service."60 The duration of the
emergency itself is the determining factor as to how long the temporary takeover by the government would last.61 The
temporary takeover by the government extends only to the operation of the business and not to the ownership thereof.
As such the government is not required to compensate the private entity-owner of the said business as there is no transfer
of ownership, whether permanent or temporary. The private entity-owner affected by the temporary takeover cannot,
likewise, claim just compensation for the use of the said business and its properties as the temporary takeover by the
government is in exercise of its police power and not of its power of eminent domain.

Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:

Section 5.10 Temporary Take-over of operations by GRP.

(c) In the event the development Facility or any part thereof and/or the operations of Concessionaire or any part thereof,
become the subject matter of or be included in any notice, notification, or declaration concerning or relating to acquisition,
seizure or appropriation by GRP in times of war or national emergency, GRP shall, by written notice to Concessionaire,
immediately take over the operations of the Terminal and/or the Terminal Complex. During such take over by GRP, the
Concession Period shall be suspended; provided, that upon termination of war, hostilities or national emergency, the
operations shall be returned to Concessionaire, at which time, the Concession period shall commence to run again.
Concessionaire shall be entitled to reasonable compensation for the duration of the temporary take over by GRP, which
compensation shall take into account the reasonable cost for the use of the Terminal and/or Terminal Complex, (which is
in the amount at least equal to the debt service requirements of Concessionaire, if the temporary take over should occur
at the time when Concessionaire is still servicing debts owed to project lenders), any loss or damage to the Development
Facility, and other consequential damages. If the parties cannot agree on the reasonable compensation of Concessionaire,
or on the liability of GRP as aforesaid, the matter shall be resolved in accordance with Section 10.01 [Arbitration]. Any
amount determined to be payable by GRP to Concessionaire shall be offset from the amount next payable by
Concessionaire to GRP.62

PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on temporary government
takeover and obligate the government to pay "reasonable cost for the use of the Terminal and/or Terminal Complex."63
Article XII, section 17 of the 1987 Constitution envisions a situation wherein the exigencies of the times necessitate the
government to "temporarily take over or direct the operation of any privately owned public utility or business affected
with public interest." It is the welfare and interest of the public which is the paramount consideration in determining
whether or not to temporarily take over a particular business. Clearly, the State in effecting the temporary takeover is
exercising its police power. Police power is the "most essential, insistent, and illimitable of powers."64 Its exercise
therefore must not be unreasonably hampered nor its exercise be a source of obligation by the government in the absence
of damage due to arbitrariness of its exercise.65 Thus, requiring the government to pay reasonable compensation for the
reasonable use of the property pursuant to the operation of the business contravenes the Constitution.

Regulation of Monopolies

A monopoly is "a privilege or peculiar advantage vested in one or more persons or companies, consisting in the exclusive
right (or power) to carry on a particular business or trade, manufacture a particular article, or control the sale of a

62
particular commodity."66 The 1987 Constitution strictly regulates monopolies, whether private or public, and even
provides for their prohibition if public interest so requires. Article XII, Section 19 of the 1987 Constitution states:

Sec. 19. The state shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint
of trade or unfair competition shall be allowed.

Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to exist to aid the government in
carrying on an enterprise or to aid in the performance of various services and functions in the interest of the public.67
Nonetheless, a determination must first be made as to whether public interest requires a monopoly. As monopolies are
subject to abuses that can inflict severe prejudice to the public, they are subject to a higher level of State regulation than
an ordinary business undertaking.

In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is granted the "exclusive right to operate
a commercial international passenger terminal within the Island of Luzon" at the NAIA IPT III.68 This is with the exception
of already existing international airports in Luzon such as those located in the Subic Bay Freeport Special Economic Zone
("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in Laoag City.69 As such, upon commencement of PIATCO's
operation of NAIA IPT III, Terminals 1 and 2 of NAIA would cease to function as international passenger terminals. This,
however, does not prevent MIAA to use Terminals 1 and 2 as domestic passenger terminals or in any other manner as it
may deem appropriate except those activities that would compete with NAIA IPT III in the latter's operation as an
international passenger terminal.70 The right granted to PIATCO to exclusively operate NAIA IPT III would be for a period
of twenty-five (25) years from the In-Service Date71 and renewable for another twenty-five (25) years at the option of the
government.72 Both the 1997 Concession Agreement and the ARCA further provide that, in view of the exclusive right
granted to PIATCO, the concession contracts of the service providers currently servicing Terminals 1 and 2 would no longer
be renewed and those concession contracts whose expiration are subsequent to the In-Service Date would cease to be
effective on the said date.73

The operation of an international passenger airport terminal is no doubt an undertaking imbued with public interest. In
entering into a BuildOperate-and-Transfer contract for the construction, operation and maintenance of NAIA IPT III, the
government has determined that public interest would be served better if private sector resources were used in its
construction and an exclusive right to operate be granted to the private entity undertaking the said project, in this case
PIATCO. Nonetheless, the privilege given to PIATCO is subject to reasonable regulation and supervision by the Government
through the MIAA, which is the government agency authorized to operate the NAIA complex, as well as DOTC, the
department to which MIAA is attached.74

This is in accord with the Constitutional mandate that a monopoly which is not prohibited must be regulated.75 While it
is the declared policy of the BOT Law to encourage private sector participation by "providing a climate of minimum
government regulations,"76 the same does not mean that Government must completely surrender its sovereign power
to protect public interest in the operation of a public utility as a monopoly. The operation of said public utility can not be
done in an arbitrary manner to the detriment of the public which it seeks to serve. The right granted to the public utility
may be exclusive but the exercise of the right cannot run riot. Thus, while PIATCO may be authorized to exclusively operate
NAIA IPT III as an international passenger terminal, the Government, through the MIAA, has the right and the duty to
ensure that it is done in accord with public interest. PIATCO's right to operate NAIA IPT III cannot also violate the rights of
third parties.

Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:

3.01 Concession Period

xxx xxx xxx

(e) GRP confirms that certain concession agreements relative to certain services and operations currently being
undertaken at the Ninoy Aquino International Airport passenger Terminal I have a validity period extending beyond the
In-Service Date. GRP through DOTC/MIAA, confirms that these services and operations shall not be carried over to the
Terminal and the Concessionaire is under no legal obligation to permit such carry-over except through a separate
agreement duly entered into with Concessionaire. In the event Concessionaire becomes involved in any litigation initiated
by any such concessionaire or operator, GRP undertakes and hereby holds Concessionaire free and harmless on full
indemnity basis from and against any loss and/or any liability resulting from any such litigation, including the cost of
litigation and the reasonable fees paid or payable to Concessionaire's counsel of choice, all such amounts shall be fully
deductible by way of an offset from any amount which the Concessionaire is bound to pay GRP under this Agreement.

During the oral arguments on December 10, 2002, the counsel for the petitioners-in-intervention for G.R. No. 155001
stated that there are two service providers whose contracts are still existing and whose validity extends beyond the In-
Service Date. One contract remains valid until 2008 and the other until 2010.77

63
We hold that while the service providers presently operating at NAIA Terminal 1 do not have an absolute right for the
renewal or the extension of their respective contracts, those contracts whose duration extends beyond NAIA IPT III's In-
Service-Date should not be unduly prejudiced. These contracts must be respected not just by the parties thereto but also
by third parties. PIATCO cannot, by law and certainly not by contract, render a valid and binding contract nugatory. PIATCO,
by the mere expedient of claiming an exclusive right to operate, cannot require the Government to break its contractual
obligations to the service providers. In contrast to the arrastre and stevedoring service providers in the case of Anglo-Fil
Trading Corporation v. Lazaro78 whose contracts consist of temporary hold-over permits, the affected service providers
in the cases at bar, have a valid and binding contract with the Government, through MIAA, whose period of effectivity, as
well as the other terms and conditions thereof, cannot be violated.

In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions of the 1997 Concession
Agreement and the ARCA did not strip government, thru the MIAA, of its right to supervise the operation of the whole
NAIA complex, including NAIA IPT III. As the primary government agency tasked with the job,79 it is MIAA's responsibility
to ensure that whoever by contract is given the right to operate NAIA IPT III will do so within the bounds of the law and
with due regard to the rights of third parties and above all, the interest of the public.

VI

CONCLUSION

In sum, this Court rules that in view of the absence of the requisite financial capacity of the Paircargo Consortium,
predecessor of respondent PIATCO, the award by the PBAC of the contract for the construction, operation and
maintenance of the NAIA IPT III is null and void. Further, considering that the 1997 Concession Agreement contains
material and substantial amendments, which amendments had the effect of converting the 1997 Concession Agreement
into an entirely different agreement from the contract bidded upon, the 1997 Concession Agreement is similarly null and
void for being contrary to public policy. The provisions under Sections 4.04(b) and (c) in relation to Section 1.06 of the
1997 Concession Agreement and Section 4.04(c) in relation to Section 1.06 of the ARCA, which constitute a direct
government guarantee expressly prohibited by, among others, the BOT Law and its Implementing Rules and Regulations
are also null and void. The Supplements, being accessory contracts to the ARCA, are likewise null and void.

WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession Agreement and the Supplements
thereto are set aside for being null and void.

SO ORDERED.

G.R. No. 161397 June 30, 2005

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.
FELIPE P. ARCILLA, JR., Respondent.

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

G.R. No. 161426 June 30, 2005

FELIPE P. ARCILLA, JR., Petitioner,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.

64
DECISION

CALLEJO, SR., J.:

Atty. Felipe P. Arcilla, Jr. was employed by the Development Bank of the Philippines (DBP) in October 1981. About five or
six months thereafter, he was assigned to the legal department, and thereafter, decided to avail of a loan under the
Individual Housing Project (IHP) of the bank.1 On September 12, 1983, DBP and Arcilla executed a Deed of Conditional
Sale2 over a parcel of land, as well as the house to be constructed thereon, for the price of 160,000.00. Arcilla borrowed
the said amount from DBP for the purchase of the lot and the construction of a residential building thereon. He obliged
himself to pay the loan in 25 years, with a monthly amortization of 1,417.91, with 9% interest per annum, to be deducted
from his monthly salary.3

DBP obliged itself to transfer the title of the property upon the payment of the loan, including any increments thereof. It
was also agreed therein that if Arcilla availed of optional retirement, he could elect to continue paying the loan, provided
that the loan/amount would be converted into a regular real estate loan account with the prevailing interest assigned on
real estate loans, payable within the remaining term of the loan account.4

Arcilla was notified of the periodic release of his loan.5 During the period of July 1984 to December 31, 1986, the monthly
amortizations for the said account were deducted from his monthly salary, for which he was issued receipts.6

The monthly amortization was increased to 1,468.92 in November 1984, and to 1,691.51 beginning January 1985.
However, Arcilla opted to resign from the bank in December 1986. Conformably with the Deed of Conditional Sale, the
bank informed him, on June 11, 1987, that the balance of his loan account with the bank had been converted to a regular
housing loan, thus:

Amount converted to PH Loan Interest Rate Remaining Term Monthly

Amortization
155,218.79 - 1 9% 22 yrs. & 6 mos< 1,342.72
6,802.45 - 2 9% 21 yrs. & 10 mos. 59.41
24,342.91 - 3 9% 22 yrs. 212.07
Plus: MRI at PC. 41/thousand 1,614.20
76.41
186,364.15 Total
1,690.617
=========
On July 24, 1987, Arcilla signed three Promissory Notes8 for the total amount of 186,364.15. He was also obliged to pay
service charge and interests, as follows:

a.1 On the amount advanced or balance thereof that remains unpaid for 30 days* or less:

i. Interest on advances at 7% p.a. over DBP's borrowing cost:

ii. No 2% service charge
iii. No 8% penalty charge
a.2 On the amount advanced or balance thereof that remains unpaid for more than 30 days:

i. Interest on the advance at 7% p.a.

over DBP's borrowing cost; ]
]
ii. One time 2% service charge ] -- To be computed from
iii. Interest on the service charge ] the start of the 30-day
iv. 8% penalty charge on the balances
of the advances and service charge.9 ] period
Arcilla also agreed to pay to DBP the following:

*Insurance Premiums - 30-day period to be computed from date of advances

Other Advances - 30-day period to be computed from date of notification

b. Taxes
b.1 One time service charge2% of the amount advanced
b.2 Interest and penalty charge Interest - 7% p.a. over borrowing cost
Penalty charge 8% p.a. if unpaid
after 30 days from date of advance
i. Interest of the advance at ]

65
7% p.a. over DBP's ]
borrowing costs; ]-- To be computed from start of 30-day period
ii. One time 2% service charge ]
iii. Interest on the service charge ]
iv. 8% penalty charge on the
balances of the advance and
service charge. ]
]
]
*Insurance Premiums - 30-day period to be computed from date of advances.

Other Advances - 30-day period to be computed from date of notification.

b. Taxes
b.1 One time service charge2% of the amount advanced
b.2 Interest and penalty charge Interest - 7% p.a. over borrowing cost
Penalty charge 8% p.a. if unpaid
after 30 days from date of advance
However, Arcilla also agreed to the reservation by the DBP of its right to increase (with notice to him) the "rate of interest
on the loan, as well as all other fees and charges on loans and advances pursuant to such policy as it may adopt from time
to time during the period of the loan; Provided, that the rate of interest on the loan shall be reduced by law or by the
Monetary Board; Provided, further, that the adjustment in the rate of interest shall take effect on or after the effectivity
of the increase or decrease in the maximum rate of interest."10

Upon his request, DBP agreed to grant Arcilla an additional cash advance of 32,000.00. Thereafter, on May 23, 1984, a
Supplement to the Conditional Sale Agreement was executed in which DBP and Arcilla agreed on the following terms of
the loan:

Amount Interest Rate Per Annum Terms Amortization

32,000.00 Nine (9%) per cent MRI for P32,000.00 at P0.40/1,000.00 24 years 271.57

12.80
32,000.00 same to be consolidated with the original advance in accordance with Condition No. 8 hereof.11 (Est.
Amort.)
284.37
=========
The additional advance was, thus, consolidated to the outstanding balance of Arcilla's original advance, payable within
the remaining term thereof at 9% per annum. However, he failed to pay his loan account, advances, penalty charges and
interests which, as of October 31, 1990, amounted to 241,940.93.12 DBP rescinded the Deed of Conditional Sale by
notarial act on November 27, 1990.13 Nevertheless, it wrote Arcilla, on January 3, 1992, giving him until October 24, 1992,
within which to repurchase the property upon full payment of the current appraisal or updated total, whichever is lesser;
in case of failure to do so, the property would be advertised for bidding.14 DBP reiterated the said offer on October 7,
1992.15 Arcilla failed to respond. Consequently, the property was advertised for sale at public bidding on February 14,
1994.16

Arcilla filed a complaint against DBP with the Regional Trial Court (RTC) of Antipolo, Rizal, on February 21, 1994. He alleged
that DBP failed to furnish him with the disclosure statement required by Republic Act (R.A.) No. 3765 and Central Bank
(CB) Circular No. 158 prior to the execution of the deed of conditional sale and the conversion of his loan account with the
bank into a regular housing loan account. Despite this, DBP immediately deducted the account from his salary as early as
1984. Moreover, the bank applied its own formula and imposed its usurious interests, penalties and charges on his loan
account and advances. He further alleged, thus:

13. That when plaintiff could no longer cope-up with defendant's illegal and usurious impositions, the DBP unilaterally
increased further the rate of interest, without notice to the latter, and heaped-up usurious interests, penalties and
charges;

---

14. That to further bend the back of the plaintiff, defendant rescinded the subject deed of conditional sale on 4 December
1990 without giving due notice to plaintiff;

15. That much later, on 10 October 1993, plaintiff received a letter from defendant dated 19 September 1993, informing
plaintiff that the subject deed of conditional sale was already rescinded on 4 December 1990 (xerox copy of the same is
hereto attached and made an integral part hereof as Annex "C";17

66
In its answer to the complaint, the DBP alleged that it substantially complied with R.A. No. 3765 and CB Circular No. 158
because the details required in said statements were particularly disclosed in the promissory notes, deed of conditional
sale and the required notices sent to Arcilla. In any event, its failure to comply strictly with R.A. No. 3765 did not affect
the validity and enforceability of the subject contracts or transactions. DBP interposed a counterclaim for the possession
of the property.

On April 27, 2001, the trial court rendered judgment in favor of Arcilla and nullified the notarial rescission of the deeds
executed by the parties. The fallo of the decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendant.1avvphil.zw+ Defendant is hereby directed to furnish the disclosure statement to the plaintiff within five (5)
days upon receipt hereof in the manner and form provided by R.A. No. 3765 and submit to this Court for approval the
total obligation of the plaintiff as of this date, within ten (10) days from receipt of this order. The Notarial Rescission (Exh.
"16") dated November 27, 1990 is hereby declared null and void. Costs against the defendant.

SO ORDERED.18

DBP appealed the decision to the Court of Appeals (CA) wherein it made the following assignment of errors:

4.1. The trial court erred in ruling that the provision of the details of the loan without the issuance of a "Disclosure
Statement" is not compliance with the "Truth in Lending Act;"

4.2. The trial court erred in declaring the Notarial Rescission null and void; and

4.3. The trial court erred in denying DBP's counterclaims for recovery of possession, back rentals and litigation expenses.19

On May 29, 2003, the CA rendered judgment setting aside and reversing the decision of the RTC. In ordering the dismissal
of the complaint, the appellate court ruled that DBP substantially complied with R.A. No. 3765 and CB Circular No. 158.
Arcilla filed a motion for reconsideration of the decision. For its part, DBP filed a motion for partial reconsideration of the
decision, praying that Arcilla be ordered to vacate the property. However, the appellate court denied both motions.

The parties filed separate petitions for review on certiorari with this Court. The first petition, entitled Development Bank
of the Philippines v. Court of Appeals, was docketed as G.R. No. 161397; the second petition, entitled Felipe Arcilla, Jr. v.
Court of Appeals, was docketed as G.R. No. 161426. The Court resolved to consolidate the two cases.

The issues raised in the two petitions are the following: a) whether or not petitioner DBP complied with the disclosure
requirement of R.A. No. 3765 and CB Circular No. 158, Series of 1978, in the execution of the deed of conditional sale, the
supplemental deed of conditional sale, as well as the promissory notes; and b) whether or not respondent Felipe Arcilla,
Jr. is mandated to vacate the property and pay rentals for his occupation thereof after the notarial rescission of the deed
of conditional sale was rescinded by notarial act, as well as the supplement executed by DBP.

On the first issue, Arcilla avers that under R.A. No. 3765 and CB Circular No. 158, the DBP, as the creditor bank, was
mandated to furnish him with the requisite information in such form prescribed by the Central Bank before the
commutation of the loan transaction. He avers that the disclosure of the details of the loan contained in the deed of
conditional sale and the supplement thereto, the promissory notes and release sheet, do not constitute substantial
compliance with the law and the CB Circular. He avers that the required disclosure did not include the following:

[T]he percentage of Finance Charges to Total Amount Financed (Computed in accordance with Sec. 2(i) of CB Circular
158; the Additional Charges in case certain stipulations in the contract are not met by the debtor; Total Non-Finance
Charges; Total Finance Charges, Effective Interest Rate, etc. 20

Arcilla further posits that the failure of DBP to comply with its obligation under R.A. No. 3765 and CB Circular No. 158
forecloses its right to rescind the transaction between them, and to demand compliance of his obligation arising from said
transaction. Moreover, the bank had no right to deduct the monthly amortizations from his salary without first complying
with the mandate of R.A. No. 3765.

DBP, on the other hand, avers that all the information required by R.A. No. 3765 was already contained in the loan
transaction documents. It posits that even if it failed to comply strictly with the disclosure requirement of R.A. No. 3765,
nevertheless, under Section 6(b) of the law, the validity and enforceability of any action or transaction is not affected. It
asserts that Arcilla was estopped from invoking R.A. No. 3765 because he failed to demand compliance with R.A. No. 3765
from the bank before the consummation of the loan transaction, until the time his complaint was filed with the trial court.

67
In its petition in G.R. No. 161397, DBP asserts that the RTC erred in not rendering judgment on its counterclaim for the
possession of the subject property, and the liability of Arcilla for rentals while in the possession of the property after the
notarial rescission of the deeds of conditional sale. For his part, Arcilla (in G.R. No. 161426) insists that the respondent
failed to comply with its obligation under R.A. No. 3765; hence, the notarial rescission of the deed of conditional sale and
the supplement thereof was null and void. Until DBP complies with its obligation, he is not obliged to comply with his.

The petition of Arcilla has no merit.

Section 1 of R.A. No. 3765 provides that prior to the consummation of a loan transaction, the bank, as creditor, is obliged
to furnish a client with a clear statement, in writing, setting forth, to the extent applicable and in accordance with the
rules and regulations prescribed by the Monetary Board of the Central Bank of the Philippines, 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 charges expressed in terms of pesos and centavos; and

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

Under Circular No. 158 of the Central Bank, the information required by R.A. No. 3765 shall be included in the contract
covering the credit transaction or any other document to be acknowledged and signed by the debtor, thus:

The contract covering the credit transaction, or any other document to be acknowledged and signed by the debtor, shall
indicate the above seven items of information. 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.

Furthermore, 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.21

If the borrower is not duly informed of the data required by the law prior to the consummation of the availment or
drawdown, the lender will have no right to collect such charge or increases thereof, even if stipulated in the promissory
note.22 However, such failure shall not affect the validity or enforceability of any contract or transaction.23

In the present case, DBP failed to disclose the requisite information in the disclosure statement form authorized by the
Central Bank, but did so in the loan transaction documents between it and Arcilla. There is no evidence on record that
DBP sought to collect or collected any interest, penalty or other charges, from Arcilla other than those disclosed in the
said deeds/documents.1avvphi1.zw+

The Court is convinced that Arcilla's claim of not having been furnished the data/information required by R.A. No. 3765
and CB Circular No. 158 was but an afterthought. Despite the notarial rescission of the conditional sale in 1990, and DBP's
subsequent repeated offers to repurchase the property, the latter maintained his silence. Arcilla filed his complaint only
on February 21, 1994, or four years after the said notarial rescission. The Court finds and so holds that the following
findings and ratiocinations of the CA are correct:

After a careful perusal of the records, We find that the appellee had been sufficiently informed of the terms and the
requisite charges necessarily included in the subject loan. It must be stressed that the Truth in Lending Act (R.A. No. 3765),
was enacted primarily "to protect its citizens from a lack of awareness of the true cost of credit to the user

by using a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the
national economy" (Emata vs. Intermediate Appellate Court, 174, SCRA 464 [1989]; Sec. 2, R.A. No. 3765). Contrary to
appellee's claim that he was not sufficiently informed of the details of the loan, the records disclose that the required
informations were readily available in the three (3) promissory notes he executed. Precisely, the said promissory notes
were executed to apprise appellee of the remaining balance on his loan when the same was converted into a regular
housing loan. And on its face, the promissory notes signed by no less than the appellee readily shows all the data required
by the Truth in Lending Act (R.A. No. 3765).

68
Apropos, We agree with the appellant that appellee, a lawyer, would not be so gullible or negligent as to sign documents
without knowing fully well the legal implications and consequences of his actions, and that appellee was a former
employee of appellant. As such employee, he is as well presumed knowledgeable with matters relating to appellant's
business and fully cognizant of the terms of the loan he applied for, including the charges that had to be paid.

It might have been different if the borrower was, say, an ordinary employee eager to buy his first house and is easily lured
into accepting onerous terms so long as the same is payable on installments. In such cases, the Court would be disposed
to be stricter in the application of the Truth in Lending Act, insisting that the borrower be fully informed of what he is
entering into. But in the case at bar, considering appellee's education and training, We must hold, in the light of the
evidence at hand, that he was duly informed of the necessary charges and fully understood their implications and effects.
Consequently, the trial court's annulment of the rescission anchored on this ground was unjustified.24

Anent the prayer of DBP to order Arcilla to vacate the property and pay rentals therefor from 1990, a review of the records
has shown that it failed to adduce evidence on the reasonable amount of rentals for Arcilla's occupancy of the property.
Hence, the Court orders a remand of the case to the court of origin, for the parties to adduce their respective evidence on
the bank's counterclaim.

IN LIGHT OF ALL THE FOREGOING, the petition in G.R. No. 161426 is DENIED for lack of merit. The petition in G.R. No.
161397 is
PARTIALLY GRANTED. The case is hereby REMANDED to the Regional Trial Court of Antipolo, Rizal, Branch 73, for it to
resolve the counterclaim of the Development Bank of the Philippines for possession of the property, and for the
reasonable rentals for Felipe P. Arcilla, Jr.'s occupancy thereof after the notarial rescission of the Deed of Conditional Sale
in 1990.

Costs against petitioner Felipe P. Arcilla, Jr.

SO ORDERED.

G.R. No. 159912 August 17, 2007

UNITED COCONUT PLANTERS BANK, Petitioner,

vs.
SPOUSES SAMUEL and ODETTE BELUSO, Respondents.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, which seeks to annul the Court of Appeals
Decision1 dated 21 January 2003 and its Resolution2 dated 9 September 2003 in CA-G.R. CV No. 67318. The assailed Court
of Appeals Decision and Resolution affirmed in turn the Decision3 dated 23 March 2000 and Order4 dated 8 May 2000 of
the Regional Trial Court (RTC), Branch 65 of Makati City, in Civil Case No. 99-314, declaring void the interest rate provided

69
in the promissory notes executed by the respondents Spouses Samuel and Odette Beluso (spouses Beluso) in favor of
petitioner United Coconut Planters Bank (UCPB).

The procedural and factual antecedents of this case are as follows:

On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the latter
could avail from the former credit of up to a maximum amount of 1.2 Million pesos for a term ending on 30 April 1997.
The spouses Beluso constituted, other than their promissory notes, a real estate mortgage over parcels of land in Roxas
City, covered by Transfer Certificates of Title No. T-31539 and T-27828, as additional security for the obligation. The Credit
Agreement was subsequently amended to increase the amount of the Promissory Notes Line to a maximum of 2.35
Million pesos and to extend the term thereof to 28 February 1998.

The spouses Beluso availed themselves of the credit line under the following Promissory Notes:

PN # Date of PN Maturity Date Amount Secured

8314-96-00083-3 29 April 1996 27 August 1996 700,000
8314-96-00085-0 2 May 1996 30 August 1996 500,000
8314-96-000292-2 20 November 1996 20 March 1997 800,000
The three promissory notes were renewed several times. On 30 April 1997, the payment of the principal and interest of
the latter two promissory notes were debited from the spouses Belusos account with UCPB; yet, a consolidated loan for
1.3 Million was again released to the spouses Beluso under one promissory note with a due date of 28 February 1998.

To completely avail themselves of the 2.35 Million credit line extended to them by UCPB, the spouses Beluso executed
two more promissory notes for a total of 350,000.00:

PN # Date of PN Maturity Date Amount Secured

97-00363-1 11 December 1997 28 February 1998 200,000
98-00002-4 2 January 1998 28 February 1998 150,000
However, the spouses Beluso alleged that the amounts covered by these last two promissory notes were never released
or credited to their account and, thus, claimed that the principal indebtedness was only 2 Million.

In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to 34%. From 1996 to
February 1998 the spouses Beluso were able to pay the total sum of 763,692.03.

From 28 February 1998 to 10 June 1998, UCPB continued to charge interest and penalty on the obligations of the spouses
Beluso, as follows:

PN # Amount Secured Interest Penalty Total

97-00363-1 200,000 31% 36% 225,313.24
97-00366-6 700,000 30.17%
(7 days) 32.786%
(102 days) 795,294.72
97-00368-2 1,300,000 28%
(2 days) 30.41%
(102 days) 1,462,124.54
98-00002-4 150,000 33%
(102 days) 36% 170,034.71
The spouses Beluso, however, failed to make any payment of the foregoing amounts.

On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation of 2,932,543.00 plus 25%
attorneys fees, but the spouses Beluso failed to comply therewith. On 28 December 1998, UCPB foreclosed the properties
mortgaged by the spouses Beluso to secure their credit line, which, by that time, already ballooned to 3,784,603.00.

On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages against UCPB with the
RTC of Makati City.

On 23 March 2000, the RTC ruled in favor of the spouses Beluso, disposing of the case as follows:

PREMISES CONSIDERED, judgment is hereby rendered declaring the interest rate used by [UCPB] void and the foreclosure
and Sheriffs Certificate of Sale void. [UCPB] is hereby ordered to return to [the spouses Beluso] the properties subject of
the foreclosure; to pay [the spouses Beluso] the amount of 50,000.00 by way of attorneys fees; and to pay the costs of
suit. [The spouses Beluso] are hereby ordered to pay [UCPB] the sum of 1,560,308.00.5

70
On 8 May 2000, the RTC denied UCPBs Motion for Reconsideration,6 prompting UCPB to appeal the RTC Decision with
the Court of Appeals. The Court of Appeals affirmed the RTC Decision, to wit:

WHEREFORE, premises considered, the decision dated March 23, 2000 of the Regional Trial Court, Branch 65, Makati City
in Civil Case No. 99-314 is hereby AFFIRMED subject to the modification that defendant-appellant UCPB is not liable for
attorneys fees or the costs of suit.7

On 9 September 2003, the Court of Appeals denied UCPBs Motion for Reconsideration for lack of merit. UCPB thus filed
the present petition, submitting the following issues for our resolution:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
AFFIRMED THE DECISION OF THE TRIAL COURT WHICH DECLARED VOID THE PROVISION ON INTEREST RATE AGREED UPON
BETWEEN PETITIONER AND RESPONDENTS

II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
AFFIRMED THE COMPUTATION BY THE TRIAL COURT OF RESPONDENTS INDEBTEDNESS AND ORDERED RESPONDENTS TO
PAY PETITIONER THE AMOUNT OF ONLY ONE MILLION FIVE HUNDRED SIXTY THOUSAND THREE HUNDRED EIGHT PESOS
(1,560,308.00)

III

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
AFFIRMED THE DECISION OF THE TRIAL COURT WHICH ANNULLED THE FORECLOSURE BY PETITIONER OF THE SUBJECT
PROPERTIES DUE TO AN ALLEGED "INCORRECT COMPUTATION" OF RESPONDENTS INDEBTEDNESS

IV

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
AFFIRMED THE DECISION OF THE TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR VIOLATION OF THE TRUTH IN
LENDING ACT

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT FAILED
TO ORDER THE DISMISSAL OF THE CASE BECAUSE THE RESPONDENTS ARE GUILTY OF FORUM SHOPPING8

Validity of the Interest Rates

The Court of Appeals held that the imposition of interest in the following provision found in the promissory notes of the
spouses Beluso is void, as the interest rates and the bases therefor were determined solely by petitioner UCPB:

FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS. SAMUEL AND ODETTE BELUSO (BORROWER), jointly and
severally promise to pay to UNITED COCONUT PLANTERS BANK (LENDER) or order at UCPB Bldg., Makati Avenue, Makati
City, Philippines, the sum of ______________ PESOS, (P_____), Philippine Currency, with interest thereon at the rate
indicative of DBD retail rate or as determined by the Branch Head.9

UCPB asserts that this is a reversible error, and claims that while the interest rate was not numerically quantified in the
face of the promissory notes, it was nonetheless categorically fixed, at the time of execution thereof, at the "rate indicative
of the DBD retail rate." UCPB contends that said provision must be read with another stipulation in the promissory notes
subjecting to review the interest rate as fixed:

The interest rate shall be subject to review and may be increased or decreased by the LENDER considering among others
the prevailing financial and monetary conditions; or the rate of interest and charges which other banks or financial
institutions charge or offer to charge for similar accommodations; and/or the resulting profitability to the LENDER after
due consideration of all dealings with the BORROWER.10

In this regard, UCPB avers that these are valid reference rates akin to a "prevailing rate" or "prime rate" allowed by this
Court in Polotan v. Court of Appeals.11 Furthermore, UCPB argues that even if the proviso "as determined by the branch
head" is considered void, such a declaration would not ipso facto render the connecting clause "indicative of DBD retail
rate" void in view of the separability clause of the Credit Agreement, which reads:

71
Section 9.08 Separability Clause. If any one or more of the provisions contained in this AGREEMENT, or documents
executed in connection herewith shall be declared invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions hereof shall not in any way be affected or impaired.12

According to UCPB, the imposition of the questioned interest rates did not infringe on the principle of mutuality of
contracts, because the spouses Beluso had the liberty to choose whether or not to renew their credit line at the new
interest rates pegged by petitioner.13 UCPB also claims that assuming there was any defect in the mutuality of the contract
at the time of its inception, such defect was cured by the subsequent conduct of the spouses Beluso in availing themselves
of the credit line from April 1996 to February 1998 without airing any protest with respect to the interest rates imposed
by UCPB. According to UCPB, therefore, the spouses Beluso are in estoppel.14

We agree with the Court of Appeals, and find no merit in the contentions of UCPB.

Article 1308 of the Civil Code provides:

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of
them.

We applied this provision in Philippine National Bank v. Court of Appeals,15 where we held:

In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality
between the parties based on their essential equality. A contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc.,
21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB and the private respondent
gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan,
that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would
have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal
footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" (Qua vs. Law
Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of justice
must protect against abuse and imposition.

The provision stating that the interest shall be at the "rate indicative of DBD retail rate or as determined by the Branch
Head" is indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner UCPB has two choices
on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch
Head. As UCPB is given this choice, the rate should be categorically determinable in both choices. If either of these two
choices presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such an option, thus making
the entire interest rate provision violative of the principle of mutuality of contracts.

Not just one, but rather both, of these choices are dependent solely on the will of UCPB. Clearly, a rate "as determined by
the Branch Head" gives the latter unfettered discretion on what the rate may be. The Branch Head may choose any rate
he or she desires. As regards the rate "indicative of the DBD retail rate," the same cannot be considered as valid for being
akin to a "prevailing rate" or "prime rate" allowed by this Court in Polotan. The interest rate in Polotan reads:

The Cardholder agrees to pay interest per annum at 3% plus the prime rate of Security Bank and Trust Company. x x x.16

In this provision in Polotan, there is a fixed margin over the reference rate: 3%. Thus, the parties can easily determine the
interest rate by applying simple arithmetic. On the other hand, the provision in the case at bar does not specify any margin
above or below the DBD retail rate. UCPB can peg the interest at any percentage above or below the DBD retail rate, again
giving it unfettered discretion in determining the interest rate.

The stipulation in the promissory notes subjecting the interest rate to review does not render the imposition by UCPB of
interest rates on the obligations of the spouses Beluso valid. According to said stipulation:

The interest rate shall be subject to review and may be increased or decreased by the LENDER considering among others
the prevailing financial and monetary conditions; or the rate of interest and charges which other banks or financial
institutions charge or offer to charge for similar accommodations; and/or the resulting profitability to the LENDER after
due consideration of all dealings with the BORROWER.17

It should be pointed out that the authority to review the interest rate was given UCPB alone as the lender. Moreover,
UCPB may apply the considerations enumerated in this provision as it wishes. As worded in the above provision, UCPB
may give as much weight as it desires to each of the following considerations: (1) the prevailing financial and monetary
condition; (2) the rate of interest and charges which other banks or financial institutions charge or offer to charge for
similar accommodations; and/or (3) the resulting profitability to the LENDER (UCPB) after due consideration of all dealings

72
with the BORROWER (the spouses Beluso). Again, as in the case of the interest rate provision, there is no fixed margin
above or below these considerations.

In view of the foregoing, the Separability Clause cannot save either of the two options of UCPB as to the interest to be
imposed, as both options violate the principle of mutuality of contracts.

UCPB likewise failed to convince us that the spouses Beluso were in estoppel.

Estoppel cannot be predicated on an illegal act. As between the parties to a contract, validity cannot be given to it by
estoppel if it is prohibited by law or is against public policy.18

The interest rate provisions in the case at bar are illegal not only because of the provisions of the Civil Code on mutuality
of contracts, but also, as shall be discussed later, because they violate the Truth in Lending Act. Not disclosing the true
finance charges in connection with the extensions of credit is, furthermore, a form of deception which we cannot
countenance. It is against the policy of the State as stated in the Truth in Lending Act:

Sec. 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its citizens from a lack of
awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the
uninformed use of credit to the detriment of the national economy.19

Moreover, while the spouses Beluso indeed agreed to renew the credit line, the offending provisions are found in the
promissory notes themselves, not in the credit line. In fixing the interest rates in the promissory notes to cover the
renewed credit line, UCPB still reserved to itself the same two options (1) a rate indicative of the DBD retail rate; or (2)
a rate as determined by the Branch Head.

Error in Computation

UCPB asserts that while both the RTC and the Court of Appeals voided the interest rates imposed by UCPB, both failed to
include in their computation of the outstanding obligation of the spouses Beluso the legal rate of interest of 12% per
annum. Furthermore, the penalty charges were also deleted in the decisions of the RTC and the Court of Appeals. Section
2.04, Article II on "Interest and other Bank Charges" of the subject Credit Agreement, provides:

Section 2.04 Penalty Charges. In addition to the interest provided for in Section 2.01 of this ARTICLE, any principal
obligation of the CLIENT hereunder which is not paid when due shall be subject to a penalty charge of one percent (1%)
of the amount of such obligation per month computed from due date until the obligation is paid in full. If the bank
accelerates teh (sic) payment of availments hereunder pursuant to ARTICLE VIII hereof, the penalty charge shall be used
on the total principal amount outstanding and unpaid computed from the date of acceleration until the obligation is paid
in full.20

Paragraph 4 of the promissory notes also states:

In case of non-payment of this Promissory Note (Note) at maturity, I/We, jointly and severally, agree to pay an additional
sum equivalent to twenty-five percent (25%) of the total due on the Note as attorneys fee, aside from the expenses and
costs of collection whether actually incurred or not, and a penalty charge of one percent (1%) per month on the total
amount due and unpaid from date of default until fully paid.21

Petitioner further claims that it is likewise entitled to attorneys fees, pursuant to Section 9.06 of the Credit Agreement,
thus:

If the BANK shall require the services of counsel for the enforcement of its rights under this AGREEMENT, the Note(s), the
collaterals and other related documents, the BANK shall be entitled to recover attorneys fees equivalent to not less than
twenty-five percent (25%) of the total amounts due and outstanding exclusive of costs and other expenses.22

Another alleged computational error pointed out by UCPB is the negation of the Compounding Interest agreed upon by
the parties under Section 2.02 of the Credit Agreement:

Section 2.02 Compounding Interest. Interest not paid when due shall form part of the principal and shall be subject to the
same interest rate as herein stipulated.23 and paragraph 3 of the subject promissory notes:

Interest not paid when due shall be added to, and become part of the principal and shall likewise bear interest at the same
rate.24

UCPB lastly avers that the application of the spouses Belusos payments in the disputed computation does not reflect the
parties agreement.1avvphi1 The RTC deducted the payment made by the spouses Beluso amounting to 763,693.00 from

73
the principal of 2,350,000.00. This was allegedly inconsistent with the Credit Agreement, as well as with the agreement
of the parties as to the facts of the case. In paragraph 7 of the spouses Belusos Manifestation and Motion on Proposed
Stipulation of Facts and Issues vis--vis UCPBs Manifestation, the parties agreed that the amount of 763,693.00 was
applied to the interest and not to the principal, in accord with Section 3.03, Article II of the Credit Agreement on "Order
of the Application of Payments," which provides:

Section 3.03 Application of Payment. Payments made by the CLIENT shall be applied in accordance with the following
order of preference:

1. Accounts receivable and other out-of-pocket expenses

2. Front-end Fee, Origination Fee, Attorneys Fee and other expenses of collection;

3. Penalty charges;

4. Past due interest;

5. Principal amortization/Payment in arrears;

6. Advance interest;

7. Outstanding balance; and

8. All other obligations of CLIENT to the BANK, if any.25

Thus, according to UCPB, the interest charges, penalty charges, and attorneys fees had been erroneously excluded by the
RTC and the Court of Appeals from the computation of the total amount due and demandable from spouses Beluso.

The spouses Belusos defense as to all these issues is that the demand made by UCPB is for a considerably bigger amount
and, therefore, the demand should be considered void. There being no valid demand, according to the spouses Beluso,
there would be no default, and therefore the interests and penalties would not commence to run. As it was likewise
improper to foreclose the mortgaged properties or file a case against the spouses Beluso, attorneys fees were not
warranted.

We agree with UCPB on this score. Default commences upon judicial or extrajudicial demand.26 The excess amount in
such a demand does not nullify the demand itself, which is valid with respect to the proper amount. A contrary ruling
would put commercial transactions in disarray, as validity of demands would be dependent on the exactness of the
computations thereof, which are too often contested.

There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in default with
respect to the proper amount and, therefore, the interests and the penalties began to run at that point.

As regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that said legal interest should
be imposed, thus: "There being no valid stipulation as to interest, the legal rate of interest shall be charged."27 It seems
that the RTC inadvertently overlooked its non-inclusion in its computation.

The spouses Beluso had even originally asked for the RTC to impose this legal rate of interest in both the body and the
prayer of its petition with the RTC:

12. Since the provision on the fixing of the rate of interest by the sole will of the respondent Bank is null and void, only the
legal rate of interest which is 12% per annum can be legally charged and imposed by the bank, which would amount to
only about P599,000.00 since 1996 up to August 31, 1998.

xxxx

WHEREFORE, in view of the foregoing, petiitoners pray for judgment or order:

xxxx

2. By way of example for the public good against the Banks taking unfair advantage of the weaker party to their contract,
declaring the legal rate of 12% per annum, as the imposable rate of interest up to February 28, 1999 on the loan of 2.350
million.28

74
All these show that the spouses Beluso had acknowledged before the RTC their obligation to pay a 12% legal interest on
their loans. When the RTC failed to include the 12% legal interest in its computation, however, the spouses Beluso merely
defended in the appellate courts this non-inclusion, as the same was beneficial to them. We see, however, sufficient basis
to impose a 12% legal interest in favor of petitioner in the case at bar, as what we have voided is merely the stipulated
rate of interest and not the stipulation that the loan shall earn interest.

We must likewise uphold the contract stipulation providing the compounding of interest. The provisions in the Credit
Agreement and in the promissory notes providing for the compounding of interest were neither nullified by the RTC or
the Court of Appeals, nor assailed by the spouses Beluso in their petition with the RTC. The compounding of interests has
furthermore been declared by this Court to be legal. We have held in Tan v. Court of Appeals,29 that:

Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the
contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new
interest.

As regards the imposition of penalties, however, although we are likewise upholding the imposition thereof in the
contract, we find the rate iniquitous. Like in the case of grossly excessive interests, the penalty stipulated in the contract
may also be reduced by the courts if it is iniquitous or unconscionable.30

We find the penalty imposed by UCPB, ranging from 30.41% to 36%, to be iniquitous considering the fact that this penalty
is already over and above the compounded interest likewise imposed in the contract. If a 36% interest in itself has been
declared unconscionable by this Court,31 what more a 30.41% to 36% penalty, over and above the payment of
compounded interest? UCPB itself must have realized this, as it gave us a sample computation of the spouses Belusos
obligation if both the interest and the penalty charge are reduced to 12%.

As regards the attorneys fees, the spouses Beluso can actually be liable therefor even if there had been no demand. Filing
a case in court is the judicial demand referred to in Article 116932 of the Civil Code, which would put the obligor in delay.

The RTC, however, also held UCPB liable for attorneys fees in this case, as the spouses Beluso were forced to litigate the
issue on the illegality of the interest rate provision of the promissory notes. The award of attorneys fees, it must be
recalled, falls under the sound discretion of the court.33 Since both parties were forced to litigate to protect their
respective rights, and both are entitled to the award of attorneys fees from the other, practical reasons dictate that we
set off or compensate both parties liabilities for attorneys fees. Therefore, instead of awarding attorneys fees in favor
of petitioner, we shall merely affirm the deletion of the award of attorneys fees to the spouses Beluso.

In sum, we hold that spouses Beluso should still be held liable for a compounded legal interest of 12% per annum and a
penalty charge of 12% per annum. We also hold that, instead of awarding attorneys fees in favor of petitioner, we shall
merely affirm the deletion of the award of attorneys fees to the spouses Beluso.

Annulment of the Foreclosure Sale

Properties of spouses Beluso had been foreclosed, titles to which had already been consolidated on 19 February 2001 and
20 March 2001 in the name of UCPB, as the spouses Beluso failed to exercise their right of redemption which expired on
25 March 2000. The RTC, however, annulled the foreclosure of mortgage based on an alleged incorrect computation of
the spouses Belusos indebtedness.

UCPB alleges that none of the grounds for the annulment of a foreclosure sale are present in the case at bar. Furthermore,
the annulment of the foreclosure proceedings and the certificates of sale were mooted by the subsequent issuance of
new certificates of title in the name of said bank. UCPB claims that the spouses Belusos action for annulment of
foreclosure constitutes a collateral attack on its certificates of title, an act proscribed by Section 48 of Presidential Decree
No. 1529, otherwise known as the Property Registration Decree, which provides:

Section 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to collateral attack. It
cannot be altered, modified or cancelled except in a direct proceeding in accordance with law.

The spouses Beluso retort that since they had the right to refuse payment of an excessive demand on their account, they
cannot be said to be in default for refusing to pay the same. Consequently, according to the spouses Beluso, the
"enforcement of such illegal and overcharged demand through foreclosure of mortgage" should be voided.

We agree with UCPB and affirm the validity of the foreclosure proceedings. Since we already found that a valid demand
was made by UCPB upon the spouses Beluso, despite being excessive, the spouses Beluso are considered in default with
respect to the proper amount of their obligation to UCPB and, thus, the property they mortgaged to secure such amounts
may be foreclosed. Consequently, proceeds of the foreclosure sale should be applied to the extent of the amounts to
which UCPB is rightfully entitled.

75
As argued by UCPB, none of the grounds for the annulment of a foreclosure sale are present in this case. The grounds for
the proper annulment of the foreclosure sale are the following: (1) that there was fraud, collusion, accident, mutual
mistake, breach of trust or misconduct by the purchaser; (2) that the sale had not been fairly and regularly conducted; or
(3) that the price was inadequate and the inadequacy was so great as to shock the conscience of the court.34

Liability for Violation of Truth in Lending Act

The RTC, affirmed by the Court of Appeals, imposed a fine of 26,000.00 for UCPBs alleged violation of Republic Act No.
3765, otherwise known as the Truth in Lending Act.

UCPB challenges this imposition, on the argument that Section 6(a) of the Truth in Lending Act which mandates the filing
of an action to recover such penalty must be made under the following circumstances:

Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in
violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of 100 or in an
amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is
greater, except that such liability shall not exceed 2,000 on any credit transaction. Action to recover such penalty may
be brought by such person within one year from the date of the occurrence of the violation, in any court of competent
jurisdiction. x x x (Emphasis ours.)

According to UCPB, the Court of Appeals even stated that "[a]dmittedly the original complaint did not explicitly allege a
violation of the Truth in Lending Act and no action to formally admit the amended petition [which expressly alleges
violation of the Truth in Lending Act] was made either by [respondents] spouses Beluso and the lower court. x x x."35

UCPB further claims that the action to recover the penalty for the violation of the Truth in Lending Act had been barred
by the one-year prescriptive period provided for in the Act. UCPB asserts that per the records of the case, the latest of the
subject promissory notes had been executed on 2 January 1998, but the original petition of the spouses Beluso was filed
before the RTC on 9 February 1999, which was after the expiration of the period to file the same on 2 January 1999.

On the matter of allegation of the violation of the Truth in Lending Act, the Court of Appeals ruled:

Admittedly the original complaint did not explicitly allege a violation of the Truth in Lending Act and no action to formally
admit the amended petition was made either by [respondents] spouses Beluso and the lower court. In such transactions,
the debtor and the lending institutions do not deal on an equal footing and this law was intended to protect the public
from hidden or undisclosed charges on their loan obligations, requiring a full disclosure thereof by the lender. We find
that its infringement may be inferred or implied from allegations that when [respondents] spouses Beluso executed the
promissory notes, the interest rate chargeable thereon were left blank. Thus, [petitioner] UCPB failed to discharge its duty
to disclose in full to [respondents] Spouses Beluso the charges applicable on their loans.36

We agree with the Court of Appeals. The allegations in the complaint, much more than the title thereof, are controlling.
Other than that stated by the Court of Appeals, we find that the allegation of violation of the Truth in Lending Act can also
be inferred from the same allegation in the complaint we discussed earlier:

b.) In unilaterally imposing an increased interest rates (sic) respondent bank has relied on the provision of their promissory
note granting respondent bank the power to unilaterally fix the interest rates, which rate was not determined in the
promissory note but was left solely to the will of the Branch Head of the respondent Bank, x x x.37

The allegation that the promissory notes grant UCPB the power to unilaterally fix the interest rates certainly also means
that the promissory notes do not contain a "clear statement in writing" of "(6) the finance charge expressed in terms of
pesos and centavos; and (7) the percentage that the finance charge bears to the amount to be financed expressed as a
simple annual rate on the outstanding unpaid balance of the obligation."38 Furthermore, the spouses Belusos prayer "for
such other reliefs just and equitable in the premises" should be deemed to include the civil penalty provided for in Section
6(a) of the Truth in Lending Act.

UCPBs contention that this action to recover the penalty for the violation of the Truth in Lending Act has already
prescribed is likewise without merit. The penalty for the violation of the act is 100 or an amount equal to twice the
finance charge required by such creditor in connection with such transaction, whichever is greater, except that such
liability shall not exceed 2,000.00 on any credit transaction.39 As this penalty depends on the finance charge required of
the borrower, the borrowers cause of action would only accrue when such finance charge is required. In the case at bar,
the date of the demand for payment of the finance charge is 2 September 1998, while the foreclosure was made on 28
December 1998. The filing of the case on 9 February 1999 is therefore within the one-year prescriptive period.

76
UCPB argues that a violation of the Truth in Lending Act, being a criminal offense, cannot be inferred nor implied from the
allegations made in the complaint.40 Pertinent provisions of the Act read:

Sec. 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in
violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of 100 or in an
amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is the
greater, except that such liability shall not exceed 2,000 on any credit transaction. Action to recover such penalty may
be brought by such person within one year from the date of the occurrence of the violation, in any court of competent
jurisdiction. In any action under this subsection in which any person is entitled to a recovery, the creditor shall be liable
for reasonable attorneys fees and court costs as determined by the court.

xxxx

(c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less
than 1,000 or more than 5,000 or imprisonment for not less than 6 months, nor more than one year or both.

As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the violation of the said Act gives rise to both
criminal and civil liabilities. Section 6(c) considers a criminal offense the willful violation of the Act, imposing the penalty
therefor of fine, imprisonment or both. Section 6(a), on the other hand, clearly provides for a civil cause of action for
failure to disclose any information of the required information to any person in violation of the Act. The penalty therefor
is an amount of 100 or in an amount equal to twice the finance charge required by the creditor in connection with such
transaction, whichever is greater, except that the liability shall not exceed 2,000.00 on any credit transaction. The action
to recover such penalty may be instituted by the aggrieved private person separately and independently from the criminal
case for the same offense.

In the case at bar, therefore, the civil action to recover the penalty under Section 6(a) of the Truth in Lending Act had been
jointly instituted with (1) the action to declare the interests in the promissory notes void, and (2) the action to declare the
foreclosure void. This joinder is allowed under Rule 2, Section 5 of the Rules of Court, which provides:

SEC. 5. Joinder of causes of action.A party may in one pleading assert, in the alternative or otherwise, as many causes
of action as he may have against an opposing party, subject to the following conditions:

(a) The party joining the causes of action shall comply with the rules on joinder of parties;

(b) The joinder shall not include special civil actions or actions governed by special rules;

(c) Where the causes of action are between the same parties but pertain to different venues or jurisdictions, the joinder
may be allowed in the Regional Trial Court provided one of the causes of action falls within the jurisdiction of said court
and the venue lies therein; and

(d) Where the claims in all the causes of action are principally for recovery of money, the aggregate amount claimed shall
be the test of jurisdiction.

In attacking the RTCs disposition on the violation of the Truth in Lending Act since the same was not alleged in the
complaint, UCPB is actually asserting a violation of due process. Indeed, due process mandates that a defendant should
be sufficiently apprised of the matters he or she would be defending himself or herself against. However, in the 1 July
1999 pre-trial brief filed by the spouses Beluso before the RTC, the claim for civil sanctions for violation of the Truth in
Lending Act was expressly alleged, thus:

Moreover, since from the start, respondent bank violated the Truth in Lending Act in not informing the borrower in writing
before the execution of the Promissory Notes of the interest rate expressed as a percentage of the total loan, the
respondent bank instead is liable to pay petitioners double the amount the bank is charging petitioners by way of sanction
for its violation.41

In the same pre-trial brief, the spouses Beluso also expressly raised the following issue:

b.) Does the expression indicative rate of DBD retail (sic) comply with the Truth in Lending Act provision to express the
interest rate as a simple annual percentage of the loan?42

These assertions are so clear and unequivocal that any attempt of UCPB to feign ignorance of the assertion of this issue in
this case as to prevent it from putting up a defense thereto is plainly hogwash.

77
Petitioner further posits that it is the Metropolitan Trial Court which has jurisdiction to try and adjudicate the alleged
violation of the Truth in Lending Act, considering that the present action allegedly involved a single credit transaction as
there was only one Promissory Note Line.

We disagree. We have already ruled that the action to recover the penalty under Section 6(a) of the Truth in Lending Act
had been jointly instituted with (1) the action to declare the interests in the promissory notes void, and (2) the action to
declare the foreclosure void. There had been no question that the above actions belong to the jurisdiction of the RTC.
Subsection (c) of the above-quoted Section 5 of the Rules of Court on Joinder of Causes of Action provides:

(c) Where the causes of action are between the same parties but pertain to different venues or jurisdictions, the joinder
may be allowed in the Regional Trial Court provided one of the causes of action falls within the jurisdiction of said court
and the venue lies therein.

Furthermore, opening a credit line does not create a credit transaction of loan or mutuum, since the former is merely a
preparatory contract to the contract of loan or mutuum. Under such credit line, the bank is merely obliged, for the
considerations specified therefor, to lend to the other party amounts not exceeding the limit provided. The credit
transaction thus occurred not when the credit line was opened, but rather when the credit line was availed of. In the case
at bar, the violation of the Truth in Lending Act allegedly occurred not when the parties executed the Credit Agreement,
where no interest rate was mentioned, but when the parties executed the promissory notes, where the allegedly offending
interest rate was stipulated.

UCPB further argues that since the spouses Beluso were duly given copies of the subject promissory notes after their
execution, then they were duly notified of the terms thereof, in substantial compliance with the Truth in Lending Act.

Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that the disclosure statement must be
furnished prior to the consummation of the transaction:

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.

The rationale of this provision is to protect users of credit from a lack of awareness of the true cost thereof, proceeding
from the experience that banks are able to conceal such true cost by hidden charges, uncertainty of interest rates,
deduction of interests from the loaned amount, and the like. The law thereby seeks to protect debtors by permitting them
to fully appreciate the true cost of their loan, to enable them to give full consent to the contract, and to properly evaluate
their options in arriving at business decisions. Upholding UCPBs claim of substantial compliance would defeat these
purposes of the Truth in Lending Act. The belated discovery of the true cost of credit will too often not be able to reverse
the ill effects of an already consummated business decision.

In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution, are not
sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not sufficiently indicate
with particularity the interest rate to be applied to the loan covered by said promissory notes.

Forum Shopping

UCPB had earlier moved to dismiss the petition (originally Case No. 99-314 in RTC, Makati City) on the ground that the
spouses Beluso instituted another case (Civil Case No. V-7227) before the RTC of Roxas City, involving the same parties
and issues. UCPB claims that while Civil Case No. V-7227 initially appears to be a different action, as it prayed for the

78
issuance of a temporary restraining order and/or injunction to stop foreclosure of spouses Belusos properties, it poses
issues which are similar to those of the present case.43 To prove its point, UCPB cited the spouses Belusos Amended
Petition in Civil Case No. V-7227, which contains similar allegations as those in the present case. The RTC of Makati denied
UCPBs Motion to Dismiss Case No. 99-314 for lack of merit. Petitioner UCPB raised the same issue with the Court of
Appeals, and is raising the same issue with us now.

The spouses Beluso claim that the issue in Civil Case No. V-7227 before the RTC of Roxas City, a Petition for Injunction
Against Foreclosure, is the propriety of the foreclosure before the true account of spouses Beluso is determined. On the
other hand, the issue in Case No. 99-314 before the RTC of Makati City is the validity of the interest rate provision. The
spouses Beluso claim that Civil Case No. V-7227 has become moot because, before the RTC of Roxas City could act on the
restraining order, UCPB proceeded with the foreclosure and auction sale. As the act sought to be restrained by Civil Case
No. V-7227 has already been accomplished, the spouses Beluso had to file a different action, that of Annulment of the
Foreclosure Sale, Case No. 99-314 with the RTC, Makati City.

Even if we assume for the sake of argument, however, that only one cause of action is involved in the two civil actions,
namely, the violation of the right of the spouses Beluso not to have their property foreclosed for an amount they do not
owe, the Rules of Court nevertheless allows the filing of the second action. Civil Case No. V-7227 was dismissed by the RTC
of Roxas City before the filing of Case No. 99-314 with the RTC of Makati City, since the venue of litigation as provided for
in the Credit Agreement is in Makati City.

Rule 16, Section 5 bars the refiling of an action previously dismissed only in the following instances:

SEC. 5. Effect of dismissal.Subject to the right of appeal, an order granting a motion to dismiss based on paragraphs (f),
(h) and (i) of section 1 hereof shall bar the refiling of the same action or claim. (n)

Improper venue as a ground for the dismissal of an action is found in paragraph (c) of Section 1, not in paragraphs (f), (h)
and (i):

SECTION 1. Grounds.Within the time for but before filing the answer to the complaint or pleading asserting a claim, a
motion to dismiss may be made on any of the following grounds:

(a) That the court has no jurisdiction over the person of the defending party;

(b) That the court has no jurisdiction over the subject matter of the claim;

(c) That venue is improperly laid;

(d) That the plaintiff has no legal capacity to sue;

(e) That there is another action pending between the same parties for the same cause;

(f) That the cause of action is barred by a prior judgment or by the statute of limitations;

(g) That the pleading asserting the claim states no cause of action;

(h) That the claim or demand set forth in the plaintiffs pleading has been paid, waived, abandoned, or otherwise
extinguished;

(i) That the claim on which the action is founded is unenforceable under the provisions of the statute of frauds; and

(j) That a condition precedent for filing the claim has not been complied with.44 (Emphases supplied.)

When an action is dismissed on the motion of the other party, it is only when the ground for the dismissal of an action is
found in paragraphs (f), (h) and (i) that the action cannot be refiled. As regards all the other grounds, the complainant is
allowed to file same action, but should take care that, this time, it is filed with the proper court or after the
accomplishment of the erstwhile absent condition precedent, as the case may be.

UCPB, however, brings to the attention of this Court a Motion for Reconsideration filed by the spouses Beluso on 15
January 1999 with the RTC of Roxas City, which Motion had not yet been ruled upon when the spouses Beluso filed Civil
Case No. 99-314 with the RTC of Makati. Hence, there were allegedly two pending actions between the same parties on
the same issue at the time of the filing of Civil Case No. 99-314 on 9 February 1999 with the RTC of Makati. This will still
not change our findings. It is indeed the general rule that in cases where there are two pending actions between the same
parties on the same issue, it should be the later case that should be dismissed. However, this rule is not absolute. According
to this Court in Allied Banking Corporation v. Court of Appeals45 :

79
In these cases, it is evident that the first action was filed in anticipation of the filing of the later action and the purpose is
to preempt the later suit or provide a basis for seeking the dismissal of the second action.

Even if this is not the purpose for the filing of the first action, it may nevertheless be dismissed if the later action is the
more appropriate vehicle for the ventilation of the issues between the parties. Thus, in Ramos v. Peralta, it was held:

[T]he rule on litis pendentia does not require that the later case should yield to the earlier case. What is required merely
is that there be another pending action, not a prior pending action. Considering the broader scope of inquiry involved in
Civil Case No. 4102 and the location of the property involved, no error was committed by the lower court in deferring to
the Bataan court's jurisdiction.

Given, therefore, the pendency of two actions, the following are the relevant considerations in determining which action
should be dismissed: (1) the date of filing, with preference generally given to the first action filed to be retained; (2)
whether the action sought to be dismissed was filed merely to preempt the later action or to anticipate its filing and lay
the basis for its dismissal; and (3) whether the action is the appropriate vehicle for litigating the issues between the parties.

In the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was an action for injunction against a foreclosure
sale that has already been held, while Civil Case No. 99-314 before the RTC of Makati City includes an action for the
annulment of said foreclosure, an action certainly more proper in view of the execution of the foreclosure sale. The former
case was improperly filed in Roxas City, while the latter was filed in Makati City, the proper venue of the action as
mandated by the Credit Agreement. It is evident, therefore, that Civil Case No. 99-314 is the more appropriate vehicle for
litigating the issues between the parties, as compared to Civil Case No. V-7227. Thus, we rule that the RTC of Makati City
was not in error in not dismissing Civil Case No. 99-314.

WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with the following MODIFICATIONS:

1. In addition to the sum of 2,350,000.00 as determined by the courts a quo, respondent spouses Samuel and Odette
Beluso are also liable for the following amounts:

a. Penalty of 12% per annum on the amount due46 from the date of demand; and

b. Compounded legal interest of 12% per annum on the amount due47 from date of demand;

2. The following amounts shall be deducted from the liability of the spouses Samuel and Odette Beluso:

a. Payments made by the spouses in the amount of 763,692.00. These payments shall be applied to the date of actual
payment of the following in the order that they are listed, to wit:

i. penalty charges due and demandable as of the time of payment;

ii. interest due and demandable as of the time of payment;

iii. principal amortization/payment in arrears as of the time of payment;

iv. outstanding balance.

b. Penalty under Republic Act No. 3765 in the amount of 26,000.00. This amount shall be deducted from the liability of
the spouses Samuel and Odette Beluso on 9 February 1999 to the following in the order that they are listed, to wit:

i. penalty charges due and demandable as of time of payment;

ii. interest due and demandable as of the time of payment;

iii. principal amortization/payment in arrears as of the time of payment;

iv. outstanding balance.

3. The foreclosure of mortgage is hereby declared VALID. Consequently, the amounts which the Regional Trial Court and
the Court of Appeals ordered respondents to pay, as modified in this Decision, shall be deducted from the proceeds of the
foreclosure sale.

SO ORDERED.

80
IV.Other Ba
Richelle Ann Zamora

81
 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 1991,1 reversing
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."

82
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.

83
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:

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.

84
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 as depositories or as
agents. . . ."(emphasis supplied)

Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody
of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into
orally or in writing (Art. 1969, Civil Code] and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish
such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects
deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if,
in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement
[Art. 1170, id.]. In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a
family is to be observed [Art. 1173, id.]. Hence, any stipulation exempting the depositary from any liability arising from
the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public
policy. In the instant case, petitioner maintains that conditions 13 and l4 of the questioned contract of lease of the safety
deposit box, which read:

"13. The bank is a depositary of the contents of the safe and it has neither the possession nor control of the same.

"14. The bank has no interest whatsoever in said contents, except as herein expressly provided, and it assumes
absolutely no liability in connection therewith."

are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed,
said provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72 (a) of the
General Banking Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits
its duty to exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to wit:

"8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond
this, the Bank will not be responsible for the contents of any safe rented from it."

Furthermore condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to
assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box
itself is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to
the said box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and
using this guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void
and ineffective. It has been said:

"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the
relation is a contractual one, may by special contract define their respective duties or provide for increasing or limiting
the liability of the deposit company, provided such contract is not in violation of law or public policy. It must clearly appear
that there actually was such a special contract, however, in order to vary the ordinary obligations implied by law from the
relationship of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning.
The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or

85
negligence or that, of its agents or servants, and if a provision of the contract may be construed as an attempt to do so, it
will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its
liability for loss of the contents thereof through its own negligence, the view has been taken that such a lessor may limit
its liability to some extent by agreement or stipulation ."[10 AM JUR 2d., 466]. (citations omitted) 16

It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA Agro-Industrial
Development Corp. are strikingly similar to condition No. 13 in the instant case. On the other hand, both condition No. 8
in CA Agro-Industrial Development Corp. and condition No. 9 in the present case limit the scope of the exercise of due
diligence by the banks involved to merely seeing to it that only the renter, his authorized agent or his legal representative
should open or have access to the safety deposit box. In short, in all other situations, it would seem that SBTC is not bound
to exercise diligence of any kind at all. Assayed in the light of Our aforementioned pronouncements in CA Agro-lndustrial
Development Corp., it is not at all difficult to conclude that both conditions No. 9 and No. 13 of the "Lease Agreement"
covering the safety deposit box in question (Exhibits "A" and "1") must be stricken down for being contrary to law and
public policy as they are meant to exempt SBTC from any liability for damage, loss or destruction of the contents of the
safety deposit box which may arise from its own or its agents' fraud, negligence or delay. Accordingly, SBTC cannot take
refuge under the said conditions.

Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of the stamp
collection because the flooding was a fortuitous event and there was no showing of SBTC's participation in the aggravation
of the loss or injury. It states:

Article 1174 of the Civil Code provides:

"Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen,
or which, though foreseen, were inevitable.'

In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada Espaola 17 says: "In a legal sense and,
consequently, also in relation to contracts, a "caso fortuito" prevents (sic) 18 the following essential characteristics: (1)
the cause of the unforeseen ands unexpected occurrence, or of the failure of the debtor to comply with his obligation,
must be independent of the human will; (2) it must be impossible to foresee the event which constitutes the "caso
fortuito," or if it can be foreseen, it must be impossible to avoid; (3) the occurrence must be such as to render it impossible
for one debtor to fulfill his obligation in a normal manner; and (4) the obligor must be free from any participation in the
aggravation of the injury resulting to the creditor." (cited in Servando vs. Phil., Steam Navigation Co., supra). 19

Here, the unforeseen or unexpected inundating floods were independent of the will of the appellant bank and the latter
was not shown to have participated in aggravating damage (sic) to the stamps collection of the appellee. In fact, the
appellant bank offered its services to secure the assistance of an expert to save most of the then good stamps but the
appelle refused and let (sic) these recoverable stamps inside the safety deposit box until they were ruined. 20

Both the law and authority cited are clear enough and require no further elucidation. Unfortunately, however, the public
respondent failed to consider that in the instant case, as correctly held by the trial court, SBTC was guilty of negligence.
The facts constituting negligence are enumerated in the petition and have been summarized in this ponencia. SBTC's
negligence aggravated 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

86
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.

G.R. No. 146717 November 22, 2004

TRANSFIELD PHILIPPINES, INC., petitioner,

vs.
LUZON HYDRO CORPORATION, AUSTRALIA and NEW ZEALAND BANKING GROUP LIMITED and SECURITY BANK
CORPORATION, respondents.

DECISION

TINGA, J.:

Subject of this case is the letter of credit which has evolved as the ubiquitous and most important device in international
trade. A creation of commerce and businessmen, the letter of credit is also unique in the number of parties involved and
its supranational character.

Petitioner has appealed from the Decision1 of the Court of Appeals in CA-G.R. SP No. 61901 entitled "Transfield
Philippines, Inc. v. Hon. Oscar Pimentel, et al.," promulgated on 31 January 2001.2

On 26 March 1997, petitioner and respondent Luzon Hydro Corporation (hereinafter, LHC) entered into a Turnkey
Contract3 whereby petitioner, as Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy (70)-Megawatt
hydro-electric power station at the Bakun River in the provinces of Benguet and Ilocos Sur (hereinafter, the Project).
Petitioner was given the sole responsibility for the design, construction, commissioning, testing and completion of the
Project.4

The Turnkey Contract provides that: (1) the target completion date of the Project shall be on 1 June 2000, or such later
date as may be agreed upon between petitioner and respondent LHC or otherwise determined in accordance with the
Turnkey Contract; and (2) petitioner is entitled to claim extensions of time (EOT) for reasons enumerated in the Turnkey
Contract, among which are variations, force majeure, and delays caused by LHC itself.5 Further, in case of dispute, the
parties are bound to settle their differences through mediation, conciliation and such other means enumerated under
Clause 20.3 of the Turnkey Contract.6

To secure performance of petitioner's obligation on or before the target completion date, or such time for completion as
may be determined by the parties' agreement, petitioner opened in favor of LHC two (2) standby letters of credit both
dated 20 March 2000 (hereinafter referred to as "the Securities"), to wit: Standby Letter of Credit No. E001126/8400 with
the local branch of respondent Australia and New Zealand Banking Group Limited (ANZ Bank)7 and Standby Letter of
Credit No. IBDIDSB-00/4 with respondent Security Bank Corporation (SBC)8 each in the amount of US$8,988,907.00.9

In the course of the construction of the project, petitioner sought various EOT to complete the Project. The extensions
were requested allegedly due to several factors which prevented the completion of the Project on target date, such as

87
force majeure occasioned by typhoon Zeb, barricades and demonstrations. LHC denied the requests, however. This gave
rise to a series of legal actions between the parties which culminated in the instant petition.

The first of the actions was a Request for Arbitration which LHC filed before the Construction Industry Arbitration
Commission (CIAC) on 1 June 1999.10 This was followed by another Request for Arbitration, this time filed by petitioner
before the International Chamber of Commerce (ICC)11 on 3 November 2000. In both arbitration proceedings, the
common issues presented were: [1) whether typhoon Zeb and any of its associated events constituted force majeure to
justify the extension of time sought by petitioner; and [2) whether LHC had the right to terminate the Turnkey Contract
for failure of petitioner to complete the Project on target date.

Meanwhile, foreseeing that LHC would call on the Securities pursuant to the pertinent provisions of the Turnkey
Contract,12 petitionerin two separate letters13 both dated 10 August 2000advised respondent banks of the
arbitration proceedings already pending before the CIAC and ICC in connection with its alleged default in the performance
of its obligations. Asserting that LHC had no right to call on the Securities until the resolution of disputes before the arbitral
tribunals, petitioner warned respondent banks that any transfer, release, or disposition of the Securities in favor of LHC
or any person claiming under LHC would constrain it to hold respondent banks liable for liquidated damages.

As petitioner had anticipated, on 27 June 2000, LHC sent notice to petitioner that pursuant to Clause 8.214 of the Turnkey
Contract, it failed to comply with its obligation to complete the Project. Despite the letters of petitioner, however, both
banks informed petitioner that they would pay on the Securities if and when LHC calls on them.15

LHC asserted that additional extension of time would not be warranted; accordingly it declared petitioner in default/delay
in the performance of its obligations under the Turnkey Contract and demanded from petitioner the payment of
US$75,000.00 for each day of delay beginning 28 June 2000 until actual completion of the Project pursuant to Clause 8.7.1
of the Turnkey Contract. At the same time, LHC served notice that it would call on the securities for the payment of
liquidated damages for the delay.16

On 5 November 2000, petitioner as plaintiff filed a Complaint for Injunction, with prayer for temporary restraining order
and writ of preliminary injunction, against herein respondents as defendants before the Regional Trial Court (RTC) of
Makati.17 Petitioner sought to restrain respondent LHC from calling on the Securities and respondent banks from
transferring, paying on, or in any manner disposing of the Securities or any renewals or substitutes thereof. The RTC issued
a seventy-two (72)-hour temporary restraining order on the same day. The case was docketed as Civil Case No. 00-1312
and raffled to Branch 148 of the RTC of Makati.

After appropriate proceedings, the trial court issued an Order on 9 November 2000, extending the temporary restraining
order for a period of seventeen (17) days or until 26 November 2000.18

The RTC, in its Order19 dated 24 November 2000, denied petitioner's application for a writ of preliminary injunction. It
ruled that petitioner had no legal right and suffered no irreparable injury to justify the issuance of the writ. Employing the
principle of "independent contract" in letters of credit, the trial court ruled that LHC should be allowed to draw on the
Securities for liquidated damages. It debunked petitioner's contention that the principle of "independent contract" could
be invoked only by respondent banks since according to it respondent LHC is the ultimate beneficiary of the Securities.
The trial court further ruled that the banks were mere custodians of the funds and as such they were obligated to transfer
the same to the beneficiary for as long as the latter could submit the required certification of its claims.

Dissatisfied with the trial court's denial of its application for a writ of preliminary injunction, petitioner elevated the case
to the Court of Appeals via a Petition for Certiorari under Rule 65, with prayer for the issuance of a temporary restraining
order and writ of preliminary injunction.20 Petitioner submitted to the appellate court that LHC's call on the Securities
was premature considering that the issue of its default had not yet been resolved with finality by the CIAC and/or the ICC.
It asserted that until the fact of delay could be established, LHC had no right to draw on the Securities for liquidated
damages.

Refuting petitioner's contentions, LHC claimed that petitioner had no right to restrain its call on and use of the Securities
as payment for liquidated damages. It averred that the Securities are independent of the main contract between them as
shown on the face of the two Standby Letters of Credit which both provide that the banks have no responsibility to
investigate the authenticity or accuracy of the certificates or the declarant's capacity or entitlement to so certify.

In its Resolution dated 28 November 2000, the Court of Appeals issued a temporary restraining order, enjoining LHC from
calling on the Securities or any renewals or substitutes thereof and ordering respondent banks to cease and desist from
transferring, paying or in any manner disposing of the Securities.

However, the appellate court failed to act on the application for preliminary injunction until the temporary restraining
order expired on 27 January 2001. Immediately thereafter, representatives of LHC trooped to ANZ Bank and withdrew the
total amount of US$4,950,000.00, thereby reducing the balance in ANZ Bank to US$1,852,814.00.

88
On 2 February 2001, the appellate court dismissed the petition for certiorari. The appellate court expressed conformity
with the trial court's decision that LHC could call on the Securities pursuant to the first principle in credit law that the
credit itself is independent of the underlying transaction and that as long as the beneficiary complied with the credit, it
was of no moment that he had not complied with the underlying contract. Further, the appellate court held that even
assuming that the trial court's denial of petitioner's application for a writ of preliminary injunction was erroneous, it
constituted only an error of judgment which is not correctible by certiorari, unlike error of jurisdiction.

Undaunted, petitioner filed the instant Petition for Review raising the following issues for resolution:

WHETHER THE "INDEPENDENCE PRINCIPLE" ON LETTERS OF CREDIT MAY BE INVOKED BY A BENEFICIARY THEREOF WHERE
THE BENEFICIARY'S CALL THEREON IS WRONGFUL OR FRAUDULENT.

WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THE SECURITIES BEFORE THE RESOLUTION OF PETITIONER'S AND
LHC'S DISPUTES BY THE APPROPRIATE TRIBUNAL.

WHETHER ANZ BANK AND SECURITY BANK ARE JUSTIFIED IN RELEASING THE AMOUNTS DUE UNDER THE SECURITIES
DESPITE BEING NOTIFIED THAT LHC'S CALL THEREON IS WRONGFUL.

WHETHER OR NOT PETITIONER WILL SUFFER GRAVE AND IRREPARABLE DAMAGE IN THE EVENT THAT:

A. LHC IS ALLOWED TO CALL AND DRAW ON, AND ANZ BANK AND SECURITY BANK ARE ALLOWED TO RELEASE, THE
REMAINING BALANCE OF THE SECURITIES PRIOR TO THE RESOLUTION OF THE DISPUTES BETWEEN PETITIONER AND LHC.

B. LHC DOES NOT RETURN THE AMOUNTS IT HAD WRONGFULLY DRAWN FROM THE SECURITIES.21

Petitioner contends that the courts below improperly relied on the "independence principle" on letters of credit when this
case falls squarely within the "fraud exception rule." Respondent LHC deliberately misrepresented the supposed existence
of delay despite its knowledge that the issue was still pending arbitration, petitioner continues.

Petitioner asserts that LHC should be ordered to return the proceeds of the Securities pursuant to the principle against
unjust enrichment and that, under the premises, injunction was the appropriate remedy obtainable from the competent
local courts.

On 25 August 2003, petitioner filed a Supplement to the Petition22 and Supplemental Memorandum,23 alleging that in
the course of the proceedings in the ICC Arbitration, a number of documentary and testimonial evidence came out through
the use of different modes of discovery available in the ICC Arbitration. It contends that after the filing of the petition facts
and admissions were discovered which demonstrate that LHC knowingly misrepresented that petitioner had incurred
delays notwithstanding its knowledge and admission that delays were excused under the Turnkey Contractto be able
to draw against the Securities. Reiterating that fraud constitutes an exception to the independence principle, petitioner
urges that this warrants a ruling from this Court that the call on the Securities was wrongful, as well as contrary to law and
basic principles of equity. It avers that it would suffer grave irreparable damage if LHC would be allowed to use the
proceeds of the Securities and not ordered to return the amounts it had wrongfully drawn thereon.

In its Manifestation dated 8 September 2003,24 LHC contends that the supplemental pleadings filed by petitioner present
erroneous and misleading information which would change petitioner's theory on appeal.

In yet another Manifestation dated 12 April 2004,25 petitioner alleges that on 18 February 2004, the ICC handed down its
Third Partial Award, declaring that LHC wrongfully drew upon the Securities and that petitioner was entitled to the return
of the sums wrongfully taken by LHC for liquidated damages.

LHC filed a Counter-Manifestation dated 29 June 2004,26 stating that petitioner's Manifestation dated 12 April 2004
enlarges the scope of its Petition for Review of the 31 January 2001 Decision of the Court of Appeals. LHC notes that the
Petition for Review essentially dealt only with the issue of whether injunction could issue to restrain the beneficiary of an
irrevocable letter of credit from drawing thereon. It adds that petitioner has filed two other proceedings, to wit: (1) ICC
Case No. 11264/TE/MW, entitled "Transfield Philippines Inc. v. Luzon Hydro Corporation," in which the parties made
claims and counterclaims arising from petitioner's performance/misperformance of its obligations as contractor for LHC;
and (2) Civil Case No. 04-332, entitled "Transfield Philippines, Inc. v. Luzon Hydro Corporation" before Branch 56 of the
RTC of Makati, which is an action to enforce and obtain execution of the ICC's partial award mentioned in petitioner's
Manifestation of 12 April 2004.

In its Comment to petitioner's Motion for Leave to File Addendum to Petitioner's Memorandum, LHC stresses that the
question of whether the funds it drew on the subject letters of credit should be returned is outside the issue in this appeal.
At any rate, LHC adds that the action to enforce the ICC's partial award is now fully within the Makati RTC's jurisdiction in

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Civil Case No. 04-332. LHC asserts that petitioner is engaged in forum-shopping by keeping this appeal and at the same
time seeking the suit for enforcement of the arbitral award before the Makati court.

Respondent SBC in its Memorandum, dated 10 March 200327 contends that the Court of Appeals correctly dismissed the
petition for certiorari. Invoking the independence principle, SBC argues that it was under no obligation to look into the
validity or accuracy of the certification submitted by respondent LHC or into the latter's capacity or entitlement to so
certify. It adds that the act sought to be enjoined by petitioner was already fait accompli and the present petition would
no longer serve any remedial purpose.

In a similar fashion, respondent ANZ Bank in its Memorandum dated 13 March 200328 posits that its actions could not be
regarded as unjustified in view of the prevailing independence principle under which it had no obligation to ascertain the
truth of LHC's allegations that petitioner defaulted in its obligations. Moreover, it points out that since the Standby Letter
of Credit No. E001126/8400 had been fully drawn, petitioner's prayer for preliminary injunction had been rendered moot
and academic.

At the core of the present controversy is the applicability of the "independence principle" and "fraud exception rule" in
letters of credit. Thus, a discussion of the nature and use of letters of credit, also referred to simply as "credits," would
provide a better perspective of the case.

The letter of credit evolved as a mercantile specialty, and the only way to understand all its facets is to recognize that it is
an entity unto itself. The relationship between the beneficiary and the issuer of a letter of credit is not strictly contractual,
because both privity and a meeting of the minds are lacking, yet strict compliance with its terms is an enforceable right.
Nor is it a third-party beneficiary contract, because the issuer must honor drafts drawn against a letter regardless of
problems subsequently arising in the underlying contract. Since the bank's customer cannot draw on the letter, it does
not function as an assignment by the customer to the beneficiary. Nor, if properly used, is it a contract of suretyship or
guarantee, because it entails a primary liability following a default. Finally, it is not in itself a negotiable instrument,
because it is not payable to order or bearer and is generally conditional, yet the draft presented under it is often
negotiable.29

In commercial transactions, a letter of credit is a financial device developed by merchants as a convenient and relatively
safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part
with his goods before he is paid, and a buyer, who wants to have control of the goods before paying.30 The use of credits
in commercial transactions serves to reduce the risk of nonpayment of the purchase price under the contract for the sale
of goods. However, credits are also used in non-sale settings where they serve to reduce the risk of nonperformance.
Generally, credits in the non-sale settings have come to be known as standby credits.31

There are three significant differences between commercial and standby credits. First, commercial credits involve the
payment of money under a contract of sale. Such credits become payable upon the presentation by the seller-beneficiary
of documents that show he has taken affirmative steps to comply with the sales agreement. In the standby type, the credit
is payable upon certification of a party's nonperformance of the agreement. The documents that accompany the
beneficiary's draft tend to show that the applicant has not performed. The beneficiary of a commercial credit must
demonstrate by documents that he has performed his contract. The beneficiary of the standby credit must certify that his
obligor has not performed the contract.32

By definition, a letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay
money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee.33 A
letter of credit, however, changes its nature as different transactions occur and if carried through to completion ends up
as a binding contract between the issuing and honoring banks without any regard or relation to the underlying contract
or disputes between the parties thereto.34

Since letters of credit have gained general acceptability in international trade transactions, the ICC has published from
time to time updates on the Uniform Customs and Practice (UCP) for Documentary Credits to standardize practices in the
letter of credit area. The vast majority of letters of credit incorporate the UCP.35 First published in 1933, the UCP for
Documentary Credits has undergone several revisions, the latest of which was in 1993.36

In Bank of the Philippine Islands v. De Reny Fabric Industries, Inc.,37 this Court ruled that the observance of the UCP is
justified by Article 2 of the Code of Commerce which provides that in the absence of any particular provision in the Code
of Commerce, commercial transactions shall be governed by usages and customs generally observed. More recently, in
Bank of America, NT & SA v. Court of Appeals,38 this Court ruled that there being no specific provisions which govern the
legal complexities arising from transactions involving letters of credit, not only between or among banks themselves but
also between banks and the seller or the buyer, as the case may be, the applicability of the UCP is undeniable.

Article 3 of the UCP provides that credits, by their nature, are separate transactions from the sales or other contract(s) on
which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference

90
whatsoever to such contract(s) is included in the credit. Consequently, the undertaking of a bank to pay, accept and pay
draft(s) or negotiate and/or fulfill any other obligation under the credit is not subject to claims or defenses by the applicant
resulting from his relationships with the issuing bank or the beneficiary. A beneficiary can in no case avail himself of the
contractual relationships existing between the banks or between the applicant and the issuing bank.

Thus, the engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required
documents are presented to it. The so-called "independence principle" assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and precludes the issuing bank from determining whether the
main contract is actually accomplished or not. Under this principle, banks assume no liability or responsibility for the form,
sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular
conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or responsibility for the
description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any
documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the
carriers, or the insurers of the goods, or any other person whomsoever.39

The independent nature of the letter of credit may be: (a) independence in toto where the credit is independent from the
justification aspect and is a separate obligation from the underlying agreement like for instance a typical standby; or (b)
independence may be only as to the justification aspect like in a commercial letter of credit or repayment standby, which
is identical with the same obligations under the underlying agreement. In both cases the payment may be enjoined if in
the light of the purpose of the credit the payment of the credit would constitute fraudulent abuse of the credit.40

Can the beneficiary invoke the independence principle?

Petitioner insists that the independence principle does not apply to the instant case and assuming it is so, it is a defense
available only to respondent banks. LHC, on the other hand, contends that it would be contrary to common sense to deny
the benefit of an independent contract to the very party for whom the benefit is intended. As beneficiary of the letter of
credit, LHC asserts it is entitled to invoke the principle.

As discussed above, in a letter of credit transaction, such as in this case, where the credit is stipulated as irrevocable, there
is a definite undertaking by the issuing bank to pay the beneficiary provided that the stipulated documents are presented
and the conditions of the credit are complied with.41 Precisely, the independence principle liberates the issuing bank from
the duty of ascertaining compliance by the parties in the main contract. As the principle's nomenclature clearly suggests,
the obligation under the letter of credit is independent of the related and originating contract. In brief, the letter of credit
is separate and distinct from the underlying transaction.

Given the nature of letters of credit, petitioner's argumentthat it is only the issuing bank that may invoke the
independence principle on letters of creditdoes not impress this Court. To say that the independence principle may only
be invoked by the issuing banks would render nugatory the purpose for which the letters of credit are used in commercial
transactions. As it is, the independence doctrine works to the benefit of both the issuing bank and the beneficiary.

Letters of credit are employed by the parties desiring to enter into commercial transactions, not for the benefit of the
issuing bank but mainly for the benefit of the parties to the original transactions. With the letter of credit from the issuing
bank, the party who applied for and obtained it may confidently present the letter of credit to the beneficiary as a security
to convince the beneficiary to enter into the business transaction. On the other hand, the other party to the business
transaction, i.e., the beneficiary of the letter of credit, can be rest assured of being empowered to call on the letter of
credit as a security in case the commercial transaction does not push through, or the applicant fails to perform his part of
the transaction. It is for this reason that the party who is entitled to the proceeds of the letter of credit is appropriately
called "beneficiary."

Petitioner's argument that any dispute must first be resolved by the parties, whether through negotiations or arbitration,
before the beneficiary is entitled to call on the letter of credit in essence would convert the letter of credit into a mere
guarantee. Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the
settlement of a dispute between the parties is not a pre-requisite for the release of funds under a letter of credit. In other
words, the argument is incompatible with the very nature of the letter of credit. If a letter of credit is drawable only after
settlement of the dispute on the contract entered into by the applicant and the beneficiary, there would be no practical
and beneficial use for letters of credit in commercial transactions.

Professor John F. Dolan, the noted authority on letters of credit, sheds more light on the issue:

The standby credit is an attractive commercial device for many of the same reasons that commercial credits are attractive.
Essentially, these credits are inexpensive and efficient. Often they replace surety contracts, which tend to generate higher
costs than credits do and are usually triggered by a factual determination rather than by the examination of documents.

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Because parties and courts should not confuse the different functions of the surety contract on the one hand and the
standby credit on the other, the distinction between surety contracts and credits merits some reflection. The two
commercial devices share a common purpose. Both ensure against the obligor's nonperformance. They function, however,
in distinctly different ways.

Traditionally, upon the obligor's default, the surety undertakes to complete the obligor's performance, usually by hiring
someone to complete that performance. Surety contracts, then, often involve costs of determining whether the obligor
defaulted (a matter over which the surety and the beneficiary often litigate) plus the cost of performance. The benefit of
the surety contract to the beneficiary is obvious. He knows that the surety, often an insurance company, is a strong
financial institution that will perform if the obligor does not. The beneficiary also should understand that such
performance must await the sometimes lengthy and costly determination that the obligor has defaulted. In addition, the
surety's performance takes time.

The standby credit has different expectations. He reasonably expects that he will receive cash in the event of
nonperformance, that he will receive it promptly, and that he will receive it before any litigation with the obligor (the
applicant) over the nature of the applicant's performance takes place. The standby credit has this opposite effect of the
surety contract: it reverses the financial burden of parties during litigation.

In the surety contract setting, there is no duty to indemnify the beneficiary until the beneficiary establishes the fact of the
obligor's performance. The beneficiary may have to establish that fact in litigation. During the litigation, the surety holds
the money and the beneficiary bears most of the cost of delay in performance.

In the standby credit case, however, the beneficiary avoids that litigation burden and receives his money promptly upon
presentation of the required documents. It may be that the applicant has, in fact, performed and that the beneficiary's
presentation of those documents is not rightful. In that case, the applicant may sue the beneficiary in tort, in contract, or
in breach of warranty; but, during the litigation to determine whether the applicant has in fact breached the obligation to
perform, the beneficiary, not the applicant, holds the money. Parties that use a standby credit and courts construing such
a credit should understand this allocation of burdens. There is a tendency in some quarters to overlook this distinction
between surety contracts and standby credits and to reallocate burdens by permitting the obligor or the issuer to litigate
the performance question before payment to the beneficiary.42

While it is the bank which is bound to honor the credit, it is the beneficiary who has the right to ask the bank to honor the
credit by allowing him to draw thereon. The situation itself emasculates petitioner's posture that LHC cannot invoke the
independence principle and highlights its puerility, more so in this case where the banks concerned were impleaded as
parties by petitioner itself.

Respondent banks had squarely raised the independence principle to justify their releases of the amounts due under the
Securities. Owing to the nature and purpose of the standby letters of credit, this Court rules that the respondent banks
were left with little or no alternative but to honor the credit and both of them in fact submitted that it was "ministerial"
for them to honor the call for payment.43

Furthermore, LHC has a right rooted in the Contract to call on the Securities. The relevant provisions of the Contract read,
thus:

4.2.1. In order to secure the performance of its obligations under this Contract, the Contractor at its cost shall on the
Commencement Date provide security to the Employer in the form of two irrevocable and confirmed standby letters of
credit (the "Securities"), each in the amount of US$8,988,907, issued and confirmed by banks or financial institutions
acceptable to the Employer. Each of the Securities must be in form and substance acceptable to the Employer and may
be provided on an annually renewable basis.44

8.7.1 If the Contractor fails to comply with Clause 8.2, the Contractor shall pay to the Employer by way of liquidated
damages ("Liquidated Damages for Delay") the amount of US$75,000 for each and every day or part of a day that shall
elapse between the Target Completion Date and the Completion Date, provided that Liquidated Damages for Delay
payable by the Contractor shall in the aggregate not exceed 20% of the Contract Price. The Contractor shall pay Liquidated
Damages for Delay for each day of the delay on the following day without need of demand from the Employer.

8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from
any monies due, or to become due to the Contractor and/or by drawing on the Security."45

A contract once perfected, binds the parties not only to the fulfillment of what has been expressly stipulated but also to
all the consequences which according to their nature, may be in keeping with good faith, usage, and law.46 A careful
perusal of the Turnkey Contract reveals the intention of the parties to make the Securities answerable for the liquidated
damages occasioned by any delay on the part of petitioner. The call upon the Securities, while not an exclusive remedy on
the part of LHC, is certainly an alternative recourse available to it upon the happening of the contingency for which the

92
Securities have been proffered. Thus, even without the use of the "independence principle," the Turnkey Contract itself
bestows upon LHC the right to call on the Securities in the event of default.

Next, petitioner invokes the "fraud exception" principle. It avers that LHC's call on the Securities is wrongful because it
fraudulently misrepresented to ANZ Bank and SBC that there is already a breach in the Turnkey Contract knowing fully
well that this is yet to be determined by the arbitral tribunals. It asserts that the "fraud exception" exists when the
beneficiary, for the purpose of drawing on the credit, fraudulently presents to the confirming bank, documents that
contain, expressly or by implication, material representations of fact that to his knowledge are untrue. In such a situation,
petitioner insists, injunction is recognized as a remedy available to it.

Citing Dolan's treatise on letters of credit, petitioner argues that the independence principle is not without limits and it is
important to fashion those limits in light of the principle's purpose, which is to serve the commercial function of the credit.
If it does not serve those functions, application of the principle is not warranted, and the commonlaw principles of contract
should apply.

It is worthy of note that the propriety of LHC's call on the Securities is largely intertwined with the fact of default which is
the self-same issue pending resolution before the arbitral tribunals. To be able to declare the call on the Securities
wrongful or fraudulent, it is imperative to resolve, among others, whether petitioner was in fact guilty of delay in the
performance of its obligation. Unfortunately for petitioner, this Court is not called upon to rule upon the issue of default
such issue having been submitted by the parties to the jurisdiction of the arbitral tribunals pursuant to the terms embodied
in their agreement.47

Would injunction then be the proper remedy to restrain the alleged wrongful draws on the Securities?

Most writers agree that fraud is an exception to the independence principle. Professor Dolan opines that the
untruthfulness of a certificate accompanying a demand for payment under a standby credit may qualify as fraud sufficient
to support an injunction against payment.48 The remedy for fraudulent abuse is an injunction. However, injunction should
not be granted unless: (a) there is clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the independent
purpose of the letter of credit and not only fraud under the main agreement; and (c) irreparable injury might follow if
injunction is not granted or the recovery of damages would be seriously damaged.49

In its complaint for injunction before the trial court, petitioner alleged that it is entitled to a total extension of two hundred
fifty-three (253) days which would move the target completion date. It argued that if its claims for extension would be
found meritorious by the ICC, then LHC would not be entitled to any liquidated damages.50

Generally, injunction is a preservative remedy for the protection of one's substantive right or interest; it is not a cause of
action in itself but merely a provisional remedy, an adjunct to a main suit. The issuance of the writ of preliminary injunction
as an ancillary or preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of
the court taking cognizance of the case, the only limitation being that this discretion should be exercised based upon the
grounds and in the manner provided by law.51

Before a writ of preliminary injunction may be issued, there must be a clear showing by the complaint that there exists a
right to be protected and that the acts against which the writ is to be directed are violative of the said right.52 It must be
shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is
clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage.53
Moreover, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard compensation.54

In the instant case, petitioner failed to show that it has a clear and unmistakable right to restrain LHC's call on the Securities
which would justify the issuance of preliminary injunction. By petitioner's own admission, the right of LHC to call on the
Securities was contractually rooted and subject to the express stipulations in the Turnkey Contract.55 Indeed, the Turnkey
Contract is plain and unequivocal in that it conferred upon LHC the right to draw upon the Securities in case of default, as
provided in Clause 4.2.5, in relation to Clause 8.7.2, thus:

4.2.5 The Employer shall give the Contractor seven days' notice of calling upon any of the Securities, stating the nature of
the default for which the claim on any of the Securities is to be made, provided that no notice will be required if the
Employer calls upon any of the Securities for the payment of Liquidated Damages for Delay or for failure by the Contractor
to renew or extend the Securities within 14 days of their expiration in accordance with Clause 4.2.2.56

8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from
any monies due, or to become due, to the Contractor and/or by drawing on the Security.57

The pendency of the arbitration proceedings would not per se make LHC's draws on the Securities wrongful or fraudulent
for there was nothing in the Contract which would indicate that the parties intended that all disputes regarding delay

93
should first be settled through arbitration before LHC would be allowed to call upon the Securities. It is therefore
premature and absurd to conclude that the draws on the Securities were outright fraudulent given the fact that the ICC
and CIAC have not ruled with finality on the existence of default.

Nowhere in its complaint before the trial court or in its pleadings filed before the appellate court, did petitioner invoke
the fraud exception rule as a ground to justify the issuance of an injunction.58 What petitioner did assert before the courts
below was the fact that LHC's draws on the Securities would be premature and without basis in view of the pending
disputes between them. Petitioner should not be allowed in this instance to bring into play the fraud exception rule to
sustain its claim for the issuance of an injunctive relief. Matters, theories or arguments not brought out in the proceedings
below will ordinarily not be considered by a reviewing court as they cannot be raised for the first time on appeal.59 The
lower courts could thus not be faulted for not applying the fraud exception rule not only because the existence of fraud
was fundamentally interwoven with the issue of default still pending before the arbitral tribunals, but more so, because
petitioner never raised it as an issue in its pleadings filed in the courts below. At any rate, petitioner utterly failed to show
that it had a clear and unmistakable right to prevent LHC's call upon the Securities.

Of course, prudence should have impelled LHC to await resolution of the pending issues before the arbitral tribunals prior
to taking action to enforce the Securities. But, as earlier stated, the Turnkey Contract did not require LHC to do so and,
therefore, it was merely enforcing its rights in accordance with the tenor thereof. Obligations arising from contracts have
the force of law between the contracting parties and should be complied with in good faith.60 More importantly, pursuant
to the principle of autonomy of contracts embodied in Article 1306 of the Civil Code,61 petitioner could have incorporated
in its Contract with LHC, a proviso that only the final determination by the arbitral tribunals that default had occurred
would justify the enforcement of the Securities. However, the fact is petitioner did not do so; hence, it would have to live
with its inaction.

With respect to the issue of whether the respondent banks were justified in releasing the amounts due under the
Securities, this Court reiterates that pursuant to the independence principle the banks were under no obligation to
determine the veracity of LHC's certification that default has occurred. Neither were they bound by petitioner's
declaration that LHC's call thereon was wrongful. To repeat, respondent banks' undertaking was simply to pay once the
required documents are presented by the beneficiary.

At any rate, should petitioner finally prove in the pending arbitration proceedings that LHC's draws upon the Securities
were wrongful due to the non-existence of the fact of default, its right to seek indemnification for damages it suffered
would not normally be foreclosed pursuant to general principles of law.

Moreover, in a Manifestation,62 dated 30 March 2001, LHC informed this Court that the subject letters of credit had been
fully drawn. This fact alone would have been sufficient reason to dismiss the instant petition.

Settled is the rule that injunction would not lie where the acts sought to be enjoined have already become fait accompli
or an accomplished or consummated act.63 In Ticzon v. Video Post Manila, Inc.64 this Court ruled that where the period
within which the former employees were prohibited from engaging in or working for an enterprise that competed with
their former employerthe very purpose of the preliminary injunction has expired, any declaration upholding the
propriety of the writ would be entirely useless as there would be no actual case or controversy between the parties insofar
as the preliminary injunction is concerned.

In the instant case, the consummation of the act sought to be restrained had rendered the instant petition mootfor any
declaration by this Court as to propriety or impropriety of the non-issuance of injunctive relief could have no practical
effect on the existing controversy.65 The other issues raised by petitioner particularly with respect to its right to recover
the amounts wrongfully drawn on the Securities, according to it, could properly be threshed out in a separate proceeding.

One final point. LHC has charged petitioner of forum-shopping. It raised the charge on two occasions. First, in its Counter-
Manifestation dated 29 June 200466 LHC alleges that petitioner presented before this Court the same claim for money
which it has filed in two other proceedings, to wit: ICC Case No. 11264/TE/MW and Civil Case No. 04-332 before the RTC
of Makati. LHC argues that petitioner's acts constitutes forum-shopping which should be punished by the dismissal of the
claim in both forums. Second, in its Comment to Petitioner's Motion for Leave to File Addendum to Petitioner's
Memorandum dated 8 October 2004, LHC alleges that by maintaining the present appeal and at the same time pursuing
Civil Case No. 04-332wherein petitioner pressed for judgment on the issue of whether the funds LHC drew on the
Securities should be returnedpetitioner resorted to forum-shopping. In both instances, however, petitioner has
apparently opted not to respond to the charge.

Forum-shopping is a very serious charge. It exists when a party repetitively avails of several judicial remedies in different
courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts
and circumstances, and all raising substantially the same issues either pending in, or already resolved adversely, by some
other court.67 It may also consist in the act of a party against whom an adverse judgment has been rendered in one forum,
of seeking another and possibly favorable opinion in another forum other than by appeal or special civil action of certiorari,

94
or the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the
other court might look with favor upon the other party.68 To determine whether a party violated the rule against forum-
shopping, the test applied is whether the elements of litis pendentia are present or whether a final judgment in one case
will amount to res judicata in another.69 Forum-shopping constitutes improper conduct and may be punished with
summary dismissal of the multiple petitions and direct contempt of court.70

Considering the seriousness of the charge of forum-shopping and the severity of the sanctions for its violation, the Court
will refrain from making any definitive ruling on this issue until after petitioner has been given ample opportunity to
respond to the charge.

WHEREFORE, the instant petition is DENIED, with costs against petitioner.

Petitioner is hereby required to answer the charge of forum-shopping within fifteen (15) days from notice.

SO ORDERED.

V. Banks in Di Richelle Ann Zamora

95
 G.R. No. 168332 June 19, 2009

ANA MARIA A. KORUGA, Petitioner,

vs.
TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO, FRANCISCO A. RIVERA, and THE HONORABLE
COURT OF APPEALS, THIRD DIVISION, Respondents.

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

G.R. No. 169053 June 19, 2009

TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO, and FRANCISCO A. RIVERA, Petitioners,
vs.
HON. SIXTO MARELLA, JR., Presiding Judge, Branch 138, Regional Trial Court of Makati City, and ANA MARIA A.
KORUGA, Respondents.

DECISION

NACHURA, J.:

Before this Court are two petitions that originated from a Complaint filed by Ana Maria A. Koruga (Koruga) before the
Regional Trial Court (RTC) of Makati City against the Board of Directors of Banco Filipino and the Members of the Monetary
Board of the Bangko Sentral ng Pilipinas (BSP) for violation of the Corporation Code, for inspection of records of a
corporation by a stockholder, for receivership, and for the creation of a management committee.

G.R. No. 168332

The first is a Petition for Certiorari under Rule 65 of the Rules of Court, docketed as G.R. No. 168332, praying for the
annulment of the Court of Appeals (CA) Resolution1 in CA-G.R. SP No. 88422 dated April 18, 2005 granting the prayer for
a Writ of Preliminary Injunction of therein petitioners Teodoro O. Arcenas, Jr., Albert C. Aguirre, Cesar S. Paguio, and
Francisco A. Rivera (Arcenas, et al.).

Koruga is a minority stockholder of Banco Filipino Savings and Mortgage Bank. On August 20, 2003, she filed a complaint
before the Makati RTC which was raffled to Branch 138, presided over by Judge Sixto Marella, Jr.2 Korugas complaint
alleged:

10. 1 Violation of Sections 31 to 34 of the Corporation Code ("Code") which prohibit self-dealing and conflicts of interest
of directors and officers, thus:

(a) For engaging in unsafe, unsound, and fraudulent banking practices that have jeopardized the welfare of the Bank, its
shareholders, who includes among others, the Petitioner, and depositors. (sic)

(b) For granting and approving loans and/or "loaned" sums of money to six (6) "dummy" borrower corporations
("Borrower Corporations") which, at the time of loan approval, had no financial capacity to justify the loans. (sic)

(c) For approving and accepting a dacion en pago, or payment of loans with property instead of cash, resulting to a
diminished future cumulative interest income by the Bank and a decline in its liquidity position. (sic)

(d) For knowingly giving "favorable treatment" to the Borrower Corporations in which some or most of them have
interests, i.e. interlocking directors/officers thereof, interlocking ownerships. (sic)

(e) For employing their respective offices and functions as the Banks officers and directors, or omitting to perform their
functions and duties, with negligence, unfaithfulness or abuse of confidence of fiduciary duty, misappropriated or
misapplied or ratified by inaction the misappropriation or misappropriations, of (sic) almost 1.6 Billion Pesos (sic)
constituting the Banks funds placed under their trust and administration, by unlawfully releasing loans to the Borrower
Corporations or refusing or failing to impugn these, knowing before the loans were released or thereafter that the Banks
cash resources would be dissipated thereby, to the prejudice of the Petitioner, other Banco Filipino depositors, and the
public.

10.2 Right of a stockholder to inspect the records of a corporation (including financial statements) under Sections 74 and
75 of the Code, as implemented by the Interim Rules;

(a) Unlawful refusal to allow the Petitioner from inspecting or otherwise accessing the corporate records of the bank
despite repeated demand in writing, where she is a stockholder. (sic)

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10.3 Receivership and Creation of a Management Committee pursuant to:

(a) Rule 59 of the 1997 Rules of Civil Procedure ("Rules");

(b) Section 5.2 of R.A. No. 8799;

(c) Rule 1, Section 1(a)(1) of the Interim Rules;

(d) Rule 1, Section 1(a)(2) of the Interim Rules;

(e) Rule 7 of the Interim Rules;

(f) Rule 9 of the Interim Rules; and

(g) The General Banking Law of 2000 and the New Central Bank Act.3

On September 12, 2003, Arcenas, et al. filed their Answer raising, among others, the trial courts lack of jurisdiction to take
cognizance of the case. They also filed a Manifestation and Motion seeking the dismissal of the case on the following
grounds: (a) lack of jurisdiction over the subject matter; (b) lack of jurisdiction over the persons of the defendants; (c)
forum-shopping; and (d) for being a nuisance/harassment suit. They then moved that the trial court rule on their
affirmative defenses, dismiss the intra-corporate case, and set the case for preliminary hearing.

In an Order dated October 18, 2004, the trial court denied the Manifestation and Motion, ruling thus:

The result of the procedure sought by defendants Arcenas, et al. (sic) is for the Court to conduct a preliminary hearing on
the affirmative defenses raised by them in their Answer. This [is] proscribed by the Interim Rules of Procedure on
Intracorporate (sic) Controversies because when a preliminary hearing is conducted it is "as if a Motion to Dismiss was
filed" (Rule 16, Section 6, 1997 Rules of Civil Procedure). A Motion to Dismiss is a prohibited pleading under the Interim
Rules, for which reason, no favorable consideration can be given to the Manifestation and Motion of defendants, Arcenas,
et al.

The Court finds no merit to (sic) the claim that the instant case is a nuisance or harassment suit.

WHEREFORE, the Court defers resolution of the affirmative defenses raised by the defendants Arcenas, et al.4

Arcenas, et al. moved for reconsideration5 but, on January 18, 2005, the RTC denied the motion.6 This prompted Arcenas,
et al. to file before the CA a Petition for Certiorari and Prohibition under Rule 65 of the Rules of Court with a prayer for
the issuance of a writ of preliminary injunction and a temporary retraining order (TRO).7

On February 9, 2005, the CA issued a 60-day TRO enjoining Judge Marella from conducting further proceedings in the
case.8

On February 22, 2005, the RTC issued a Notice of Pre-trial9 setting the case for pre-trial on June 2 and 9, 2005. Arcenas,
et al. filed a Manifestation and Motion10 before the CA, reiterating their application for a writ of preliminary injunction.
Thus, on April 18, 2005, the CA issued the assailed Resolution, which reads in part:

(C)onsidering that the Temporary Restraining Order issued by this Court on February 9, 2005 expired on April 10, 2005, it
is necessary that a writ of preliminary injunction be issued in order not to render ineffectual whatever final resolution this
Court may render in this case, after the petitioners shall have posted a bond in the amount of FIVE HUNDRED THOUSAND
(500,000.00) PESOS.

SO ORDERED.11

Dissatisfied, Koruga filed this Petition for Certiorari under Rule 65 of the Rules of Court. Koruga alleged that the CA
effectively gave due course to Arcenas, et al.s petition when it issued a writ of preliminary injunction without factual or
legal basis, either in the April 18, 2005 Resolution itself or in the records of the case. She prayed that this Court restrain
the CA from implementing the writ of preliminary injunction and, after due proceedings, make the injunction against the
assailed CA Resolution permanent.12

In their Comment, Arcenas, et al. raised several procedural and substantive issues. They alleged that the Verification and
Certification against Forum-Shopping attached to the Petition was not executed in the manner prescribed by Philippine
law since, as admitted by Korugas counsel himself, the same was only a facsimile.

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They also averred that Koruga had admitted in the Petition that she never asked for reconsideration of the CAs April 18,
2005 Resolution, contending that the Petition did not raise pure questions of law as to constitute an exception to the
requirement of filing a Motion for Reconsideration before a Petition for Certiorari is filed.

They, likewise, alleged that the Petition may have already been rendered moot and academic by the July 20, 2005 CA
Decision,13 which denied their Petition, and held that the RTC did not commit grave abuse of discretion in issuing the
assailed orders, and thus ordered the RTC to proceed with the trial of the case.

Meanwhile, on March 13, 2006, this Court issued a Resolution granting the prayer for a TRO and enjoining the Presiding
Judge of Makati RTC, Branch 138, from proceeding with the hearing of the case upon the filing by Arcenas, et al. of a
50,000.00 bond. Koruga filed a motion to lift the TRO, which this Court denied on July 5, 2006.

On the other hand, respondents Dr. Conrado P. Banzon and Gen. Ramon Montao also filed their Comment on Korugas
Petition, raising substantially the same arguments as Arcenas, et al.

G.R. No. 169053

G.R. No. 169053 is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, with prayer for the issuance of
a TRO and a writ of preliminary injunction filed by Arcenas, et al.

In their Petition, Arcenas, et al. asked the Court to set aside the Decision14 dated July 20, 2005 of the CA in CA-G.R. SP No.
88422, which denied their petition, having found no grave abuse of discretion on the part of the Makati RTC. The CA said
that the RTC Orders were interlocutory in nature and, thus, may be assailed by certiorari or prohibition only when it is
shown that the court acted without or in excess of jurisdiction or with grave abuse of discretion. It added that the Supreme
Court frowns upon resort to remedial measures against interlocutory orders.

Arcenas, et al. anchored their prayer on the following grounds: that, in their Answer before the RTC, they had raised the
issue of failure of the court to acquire jurisdiction over them due to improper service of summons; that the Koruga action
is a nuisance or harassment suit; that there is another case involving the same parties for the same cause pending before
the Monetary Board of the BSP, and this constituted forum-shopping; and that jurisdiction over the subject matter of the
case is vested by law in the BSP.15

Arcenas, et al. assign the following errors:

I. THE COURT OF APPEALS, IN "FINDING NO GRAVE ABUSE OF DISCRETION COMMITTED BY PUBLIC RESPONDENT
REGIONAL TRIAL COURT OF MAKATI, BRANCH 138, IN ISSUING THE ASSAILED ORDERS," FAILED TO CONSIDER AND MERELY
GLOSSED OVER THE MORE TRANSCENDENT ISSUES OF THE LACK OF JURISDICTION ON THE PART OF SAID PUBLIC
RESPONDENT OVER THE SUBJECT MATTER OF THE CASE BEFORE IT, LITIS PENDENTIA AND FORUM SHOPPING, AND THE
CASE BELOW BEING A NUISANCE OR HARASSMENT SUIT, EITHER ONE AND ALL OF WHICH GOES/GO TO RENDER THE
ISSUANCE BY PUBLIC RESPONDENT OF THE ASSAILED ORDERS A GRAVE ABUSE OF DISCRETION.

II. THE FINDING OF THE COURT OF APPEALS OF "NO GRAVE ABUSE OF DISCRETION COMMITTED BY PUBLIC RESPONDENT
REGIONAL TRIAL COURT OF MAKATI, BRANCH 138, IN ISSUING THE ASSAILED ORDERS," IS NOT IN ACCORD WITH LAW OR
WITH THE APPLICABLE DECISIONS OF THIS HONORABLE COURT.16

Meanwhile, in a Manifestation and Motion filed on August 31, 2005, Koruga prayed for, among others, the consolidation
of her Petition with the Petition for Review on Certiorari under Rule 45 filed by Arcenas, et al., docketed as G.R. No.
169053. The motion was granted by this Court in a Resolution dated September 26, 2005.

Our Ruling

Initially, we will discuss the procedural issue.

Arcenas, et al. argue that Korugas petition should be dismissed for its defective Verification and Certification Against
Forum-Shopping, since only a facsimile of the same was attached to the Petition. They also claim that the Verification and
Certification Against Forum-Shopping, allegedly executed in Seattle, Washington, was not authenticated in the manner
prescribed by Philippine law and not certified by the Philippine Consulate in the United States.

This contention deserves scant consideration.

On the last page of the Petition in G.R. No. 168332, Korugas counsel executed an Undertaking, which reads as follows:

In view of that fact that the Petitioner is currently in the United States, undersigned counsel is attaching a facsimile copy
of the Verification and Certification Against Forum-Shopping duly signed by the Petitioner and notarized by Stephanie N.

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Goggin, a Notary Public for the Sate (sic) of Washington. Upon arrival of the original copy of the Verification and
Certification as certified by the Office of the Philippine Consul, the undersigned counsel shall immediately provide
duplicate copies thereof to the Honorable Court.17

Thus, in a Compliance18 filed with the Court on September 5, 2005, petitioner submitted the original copy of the duly
notarized and authenticated Verification and Certification Against Forum-Shopping she had executed.19 This Court noted
and considered the Compliance satisfactory in its Resolution dated November 16, 2005. There is, therefore, no need to
further belabor this issue.

We now discuss the substantive issues in this case.

First, we resolve the prayer to nullify the CAs April 18, 2005 Resolution.

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

The case is REMANDED to the court a quo for further proceedings and to resolve with deliberate dispatch the intra-
corporate controversies and determine whether there was actually a valid service of summons. If, after hearing, such
service is found to have been improper, then new summons should be served forthwith.20

Accordingly, there is no necessity to restrain the implementation of the writ of preliminary injunction issued by the CA on
April 18, 2005, since it no longer exists.

However, this Court finds that the CA erred in upholding the jurisdiction of, and remanding the case to, the RTC.

The resolution of these petitions rests mainly on the determination of one fundamental issue: Which body has jurisdiction
over the Koruga Complaint, the RTC or the BSP?

We hold that it is the BSP that has jurisdiction over the case.

A reexamination of the Complaint is in order.

Korugas Complaint charged defendants with violation of Sections 31 to 34 of the Corporation Code, prohibiting self-
dealing and conflict of interest of directors and officers; invoked her right to inspect the corporations records under
Sections 74 and 75 of the Corporation Code; and prayed for Receivership and Creation of a Management Committee,
pursuant to Rule 59 of the Rules of Civil Procedure, the Securities Regulation Code, the Interim Rules of Procedure
Governing Intra-Corporate Controversies, the General Banking Law of 2000, and the New Central Bank Act. She accused
the directors and officers of Banco Filipino of engaging in unsafe, unsound, and fraudulent banking practices, more
particularly, acts that violate the prohibition on self-dealing.

It is clear that the acts complained of pertain to the conduct of Banco Filipinos banking business. A bank, as defined in the
General Banking Law,21 refers to an entity engaged in the lending of funds obtained in the form of deposits.22 The banking
business is properly subject to reasonable regulation under the police power of the state because of its nature and relation
to the fiscal affairs of the people and the revenues of the state. Banks are affected with public interest because they
receive funds from the general public in the form of deposits. It is the Governments responsibility to see to it that the
financial interests of those who deal with banks and banking institutions, as depositors or otherwise, are protected. In this
country, that task is delegated to the BSP, which pursuant to its Charter, is authorized to administer the monetary, banking,
and credit system of the Philippines. It is further authorized to take the necessary steps against any banking institution if
its continued operation would cause prejudice to its depositors, creditors and the general public as well.23

The law vests in the BSP the supervision over operations and activities of banks. The New Central Bank Act provides:

Section 25. Supervision and Examination. - The Bangko Sentral shall have supervision over, and conduct periodic or special
examinations of, banking institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied
activities.24

Specifically, the BSPs supervisory and regulatory powers include:

4.1 The issuance of rules of conduct or the establishment of standards of operation for uniform application to all
institutions or functions covered, taking into consideration the distinctive character of the operations of institutions and
the substantive similarities of specific functions to which such rules, modes or standards are to be applied;

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4.2 The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as
determined by the Monetary Board;

4.3 Overseeing to ascertain that laws and Regulations are complied with;

4.4 Regular investigation which shall not be oftener than once a year from the last date of examination to determine
whether an institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities
found by or discovered by an audit shall be immediately addressed;

4.5 Inquiring into the solvency and liquidity of the institution (2-D); or

4.6 Enforcing prompt corrective action.25

Koruga alleges that "the dispute in the trial court involves the manner with which the Directors (sic) have handled the
Banks affairs, specifically the fraudulent loans and dacion en pago authorized by the Directors in favor of several dummy
corporations known to have close ties and are indirectly controlled by the Directors."26 Her allegations, then, call for the
examination of the allegedly questionable loans. Whether these loans are covered by the prohibition on self-dealing is a
matter for the BSP to determine. These are not ordinary intra-corporate matters; rather, they involve banking activities
which are, by law, regulated and supervised by the BSP. As the Court has previously held:

It is well-settled in both law and jurisprudence that the Central Monetary Authority, through the Monetary Board, is vested
with exclusive authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one
of insolvency, or that its continuance in business would involve a probable loss to its depositors or creditors, forbid bank
or non-bank financial institution to do business in the Philippines; and shall designate an official of the BSP or other
competent person as receiver to immediately take charge of its assets and liabilities.27

Correlatively, the General Banking Law of 2000 specifically deals with loans contracted by bank directors or officers, thus:

SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related Interests. No director
or officer of any bank shall, directly or indirectly, for himself or as the representative or agent of others, borrow from such
bank nor shall he become a guarantor, indorser or surety for loans from such bank to others, or in any manner be an
obligor or incur any contractual liability to the bank except with the written approval of the majority of all the directors of
the bank, excluding the director concerned: Provided, That such written approval shall not be required for loans, other
credit accommodations and advances granted to officers under a fringe benefit plan approved by the Bangko Sentral. The
required approval shall be entered upon the records of the bank and a copy of such entry shall be transmitted forthwith
to the appropriate supervising and examining department of the Bangko Sentral.

Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be upon terms not less
favorable to the bank than those offered to others.

After due notice to the board of directors of the bank, the office of any bank director or officer who violates the provisions
of this Section may be declared vacant and the director or officer shall be subject to the penal provisions of the New
Central Bank Act.

The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that may be extended,
directly or indirectly, by a bank to its directors, officers, stockholders and their related interests, as well as investments of
such bank in enterprises owned or controlled by said directors, officers, stockholders and their related interests. However,
the outstanding loans, credit accommodations and guarantees which a bank may extend to each of its stockholders,
directors, or officers and their related interests, shall be limited to an amount equivalent to their respective
unencumbered deposits and book value of their paid-in capital contribution in the bank: Provided, however, That loans,
credit accommodations and guarantees secured by assets considered as non-risk by the Monetary Board shall be excluded
from such limit: Provided, further, That loans, credit accommodations and advances to officers in the form of fringe
benefits granted in accordance with rules as may be prescribed by the Monetary Board shall not be subject to the
individual limit.

The Monetary Board shall define the term "related interests."

The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to loans, credit
accommodations and guarantees extended by a cooperative bank to its cooperative shareholders.28

Furthermore, the authority to determine whether a bank is conducting business in an unsafe or unsound manner is also
vested in the Monetary Board. The General Banking Law of 2000 provides:

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SECTION 56. Conducting Business in an Unsafe or Unsound Manner. In determining whether a particular act or omission,
which is not otherwise prohibited by any law, rule or regulation affecting banks, quasi-banks or trust entities, may be
deemed as conducting business in an unsafe or unsound manner for purposes of this Section, the Monetary Board shall
consider any of the following circumstances:

56.1. The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the safety,
stability, liquidity or solvency of the institution;

56.2. The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution's
depositors, creditors, investors, stockholders or to the Bangko Sentral or to the public in general;

56.3. The act or omission has caused any undue injury, or has given any unwarranted benefits, advantage or preference
to the bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest
partiality, evident bad faith or gross inexcusable negligence; or

56.4. The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the
bank, quasi-bank or trust entity, whether or not the director or officer profited or will profit thereby.

Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or unsound manner, the
Monetary Board may, without prejudice to the administrative sanctions provided in Section 37 of the New Central Bank
Act, take action under Section 30 of the same Act and/or immediately exclude the erring bank from clearing, the provisions
of law to the contrary notwithstanding.

Finally, the New Central Bank Act grants the Monetary Board the power to impose administrative sanctions on the erring
bank:

Section 37. Administrative Sanctions on Banks and Quasi-banks. - Without prejudice to the criminal sanctions against the
culpable persons provided in Sections 34, 35, and 36 of this Act, the Monetary Board may, at its discretion, impose upon
any bank or quasi-bank, their directors and/or officers, for any willful violation of its charter or by-laws, willful delay in the
submission of reports or publications thereof as required by law, rules and regulations; any refusal to permit examination
into the affairs of the institution; any willful making of a false or misleading statement to the Board or the appropriate
supervising and examining department or its examiners; any willful failure or refusal to comply with, or violation of, any
banking law or any order, instruction or regulation issued by the Monetary Board, or any order, instruction or ruling by
the Governor; or any commission of irregularities, and/or conducting business in an unsafe or unsound manner as may be
determined by the Monetary Board, the following administrative sanctions, whenever applicable:

(a) fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to exceed Thirty
thousand pesos (30,000) a day for each violation, taking into consideration the attendant circumstances, such as the
nature and gravity of the violation or irregularity and the size of the bank or quasi-bank;

(b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities;

(c) suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments;

(d) suspension of interbank clearing privileges; and/or

(e) revocation of quasi-banking license.

Resignation or termination from office shall not exempt such director or officer from administrative or criminal sanctions.

The Monetary Board may, whenever warranted by circumstances, preventively suspend any director or officer of a bank
or quasi-bank pending an investigation: Provided, That should the case be not finally decided by the Bangko Sentral within
a period of one hundred twenty (120) days after the date of suspension, said director or officer shall be reinstated in his
position: Provided, further, That when the delay in the disposition of the case is due to the fault, negligence or petition of
the director or officer, the period of delay shall not be counted in computing the period of suspension herein provided.

The above administrative sanctions need not be applied in the order of their severity.

Whether or not there is an administrative proceeding, if the institution and/or the directors and/or officers concerned
continue with or otherwise persist in the commission of the indicated practice or violation, the Monetary Board may issue
an order requiring the institution and/or the directors and/or officers concerned to cease and desist from the indicated
practice or violation, and may further order that immediate action be taken to correct the conditions resulting from such
practice or violation. The cease and desist order shall be immediately effective upon service on the respondents.

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The respondents shall be afforded an opportunity to defend their action in a hearing before the Monetary Board or any
committee chaired by any Monetary Board member created for the purpose, upon request made by the respondents
within five (5) days from their receipt of the order. If no such hearing is requested within said period, the order shall be
final. If a hearing is conducted, all issues shall be determined on the basis of records, after which the Monetary Board may
either reconsider or make final its order.

The Governor is hereby authorized, at his discretion, to impose upon banking institutions, for any failure to comply with
the requirements of law, Monetary Board regulations and policies, and/or instructions issued by the Monetary Board or
by the Governor, fines not in excess of Ten thousand pesos (10,000) a day for each violation, the imposition of which
shall be final and executory until reversed, modified or lifted by the Monetary Board on appeal.29

Koruga also accused Arcenas, et al. of violation of the Corporation Codes provisions on self-dealing and conflict of interest.
She invoked Section 31 of the Corporation Code, which defines the liability of directors, trustees, or officers of a
corporation for, among others, acquiring any personal or pecuniary interest in conflict with their duty as directors or
trustees, and Section 32, which prescribes the conditions under which a contract of the corporation with one or more of
its directors or trustees the so-called "self-dealing directors"30 would be valid. She also alleged that Banco Filipinos
directors violated Sections 33 and 34 in approving the loans of corporations with interlocking ownerships, i.e., owned,
directed, or managed by close associates of Albert C. Aguirre.

Sections 31 to 34 of the Corporation Code provide:

Section 31. Liability of directors, trustees or officers. - Directors or trustees who wilfully and knowingly vote for or assent
to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members
and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability
upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits
which otherwise would have accrued to the corporation.

Section 32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation with one or
more of its directors or trustees or officers is voidable, at the option of such corporation, unless all the following conditions
are present:

1. That the presence of such director or trustee in the board meeting in which the contract was approved was not
necessary to constitute a quorum for such meeting;

2. That the vote of such director or trustee was not necessary for the approval of the contract;

3. That the contract is fair and reasonable under the circumstances; and

4. That in case of an officer, the contract has been previously authorized by the board of directors.

Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a
director or trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of
the outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose: Provided,
That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided,
however, That the contract is fair and reasonable under the circumstances.

Section 33. Contracts between corporations with interlocking directors. - Except in cases of fraud, and provided the
contract is fair and reasonable under the circumstances, a contract between two or more corporations having interlocking
directors shall not be invalidated on that ground alone: Provided, That if the interest of the interlocking director in one
corporation is substantial and his interest in the other corporation or corporations is merely nominal, he shall be subject
to the provisions of the preceding section insofar as the latter corporation or corporations are concerned.

Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for
purposes of interlocking directors.

Section 34. Disloyalty of a director. - Where a director, by virtue of his office, acquires for himself a business opportunity
which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he must account
to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders owning

102
or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable,
notwithstanding the fact that the director risked his own funds in the venture.

Korugas invocation of the provisions of the Corporation Code is misplaced. In an earlier case with similar antecedents, we
ruled that:

The Corporation Code, however, is a general law applying to all types of corporations, while the New Central Bank Act
regulates specifically banks and other financial institutions, including the dissolution and liquidation thereof. As between
a general and special law, the latter shall prevail generalia specialibus non derogant.31

Consequently, it is not the Interim Rules of Procedure on Intra-Corporate Controversies,32 or Rule 59 of the Rules of Civil
Procedure on Receivership, that would apply to this case. Instead, Sections 29 and 30 of the New Central Bank Act should
be followed, viz.:

Section 29. Appointment of Conservator. - Whenever, on the basis of a report submitted by the appropriate supervising
or examining department, the Monetary Board finds that a bank or a quasi-bank is in a state of continuing inability or
unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors,
the Monetary Board may appoint a conservator with such powers as the Monetary Board shall deem necessary to take
charge of the assets, liabilities, and the management thereof, reorganize the management, collect all monies and debts
due said institution, and exercise all powers necessary to restore its viability. The conservator shall report and be
responsible to the Monetary Board and shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or quasi-bank.

xxxx

The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can continue to operate
on its own and the conservatorship is no longer necessary. The conservatorship shall likewise be terminated should the
Monetary Board, on the basis of the report of the conservator or of its own findings, determine that the continuance in
business of the institution would involve probable loss to its depositors or creditors, in which case the provisions of Section
30 shall apply.

Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the supervising or
examining department, the Monetary Board finds that a bank or quasi-bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not include
inability to pay caused by extraordinary demands induced by financial panic in the banking community;

(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or creditors; or

(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts or transactions
which amount to fraud or a dissipation of the assets of the institution; in which cases, the Monetary Board may summarily
and without need for prior hearing forbid the institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking institution.

xxxx

The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and executory,
and may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken
was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The
petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock within
ten (10) days from receipt by the board of directors of the institution of the order directing receivership, liquidation or
conservatorship.

The designation of a conservator under Section 29 of this Act or the appointment of a receiver under this section shall be
vested exclusively with the Monetary Board. Furthermore, the designation of a conservator is not a precondition to the
designation of a receiver.33

On the strength of these provisions, it is the Monetary Board that exercises exclusive jurisdiction over proceedings for
receivership of banks.

Crystal clear in Section 30 is the provision that says the "appointment of a receiver under this section shall be vested
exclusively with the Monetary Board." The term "exclusively" connotes that only the Monetary Board can resolve the issue

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of whether a bank is to be placed under receivership and, upon an affirmative finding, it also has authority to appoint a
receiver. This is further affirmed by the fact that the law allows the Monetary Board to take action "summarily and without
need for prior hearing."

And, as a clincher, the law explicitly provides that "actions of the Monetary Board taken under this section or under Section
29 of this Act shall be final and executory, and may not be restrained or set aside by the court except on a petition for
certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction."1avvphi1

From the foregoing disquisition, there is no doubt that the RTC has no jurisdiction to hear and decide a suit that seeks to
place Banco Filipino under receivership.

Koruga herself recognizes the BSPs power over the allegedly unlawful acts of Banco Filipinos directors. The records of
this case bear out that Koruga, through her legal counsel, wrote the Monetary Board34 on April 21, 2003 to bring to its
attention the acts she had enumerated in her complaint before the RTC. The letter reads in part:

Banco Filipino and the current members of its Board of Directors should be placed under investigation for violations of
banking laws, the commission of irregularities, and for conducting business in an unsafe or unsound manner. They should
likewise be placed under preventive suspension by virtue of the powers granted to the Monetary Board under Section 37
of the Central Bank Act. These blatant violations of banking laws should not go by without penalty. They have put Banco
Filipino, its depositors and stockholders, and the entire banking system (sic) in jeopardy.

xxxx

We urge you to look into the matter in your capacity as regulators. Our clients, a minority stockholders, (sic) and many
depositors of Banco Filipino are prejudiced by a failure to regulate, and taxpayers are prejudiced by accommodations
granted by the BSP to Banco Filipino35

In a letter dated May 6, 2003, BSP Supervision and Examination Department III Director Candon B. Guerrero referred
Korugas letter to Arcenas for comment.36 On June 6, 2003, Banco Filipinos then Executive Vice President and Corporate
Secretary Francisco A. Rivera submitted the banks comments essentially arguing that Korugas accusations lacked legal
and factual bases.37

On the other hand, the BSP, in its Answer before the RTC, said that it had been looking into Banco Filipinos activities. An
October 2002 Report of Examination (ROE) prepared by the Supervision and Examination Department (SED) noted certain
dacion payments, out-of-the-ordinary expenses, among other dealings. On July 24, 2003, the Monetary Board passed
Resolution No. 1034 furnishing Banco Filipino a copy of the ROE with instructions for the bank to file its comment or
explanation within 30 to 90 days under threat of being fined or of being subjected to other remedial actions. The ROE, the
BSP said, covers substantially the same matters raised in Korugas complaint. At the time of the filing of Korugas complaint
on August 20, 2003, the period for Banco Filipino to submit its explanation had not yet expired.38

Thus, the courts jurisdiction could only have been invoked after the Monetary Board had taken action on the matter and
only on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount
to lack or excess of jurisdiction.

Finally, there is one other reason why Korugas complaint before the RTC cannot prosper. Given her own admission and
the same is likewise supported by evidence that she is merely a minority stockholder of Banco Filipino, she would not
have the standing to question the Monetary Boards action. Section 30 of the New Central Bank Act provides:

The petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock
within ten (10) days from receipt by the board of directors of the institution of the order directing receivership, liquidation
or conservatorship.

All the foregoing discussion yields the inevitable conclusion that the CA erred in upholding the jurisdiction of, and
remanding the case to, the RTC. Given that the RTC does not have jurisdiction over the subject matter of the case, its
refusal to dismiss the case on that ground amounted to grave abuse of discretion.

WHEREFORE, the foregoing premises considered, the Petition in G.R. No. 168332 is DISMISSED, while the Petition in G.R.
No. 169053 is GRANTED. The Decision of the Court of Appeals dated July 20, 2005 in CA-G.R. SP No. 88422 is hereby SET
ASIDE. The Temporary Restraining Order issued by this Court on March 13, 2006 is made PERMANENT. Consequently, Civil
Case No. 03-985, pending before the Regional Trial Court of Makati City, is DISMISSED.

SO ORDERED.

104
 G.R. No. 135706 October 1, 2004

SPS. CESAR A. LARROBIS, JR. and VIRGINIA S. LARROBIS, petitioners,

vs.
PHILIPPINE VETERANS BANK, respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review of the decision of the Regional Trial Court (RTC), Cebu City, Branch 24, dated April 17,
1998,1 and the order denying petitioners motion for reconsideration dated August 25, 1998, raising pure questions of
law.2

The following facts are uncontroverted:

On March 3, 1980, petitioner spouses contracted a monetary loan with respondent Philippine Veterans Bank in the
amount of 135,000.00, evidenced by a promissory note, due and demandable on February 27, 1981, and secured by a
Real Estate Mortgage executed on their lot together with the improvements thereon.

On March 23, 1985, the respondent bank went bankrupt and was placed under receivership/liquidation by the Central
Bank from April 25, 1985 until August 1992.3

On August 23, 1985, the bank, through Francisco Go, sent the spouses a demand letter for "accounts receivable in the
total amount of 6,345.00 as of August 15, 1984,"4 which pertains to the insurance premiums advanced by respondent
bank over the mortgaged property of petitioners.5

On August 23, 1995, more than fourteen years from the time the loan became due and demandable, respondent bank
filed a petition for extrajudicial foreclosure of mortgage of petitioners property.6 On October 18, 1995, the property was
sold in a public auction by Sheriff Arthur Cabigon with Philippine Veterans Bank as the lone bidder.

On April 26, 1996, petitioners filed a complaint with the RTC, Cebu City, to declare the extra-judicial foreclosure and the
subsequent sale thereof to respondent bank null and void.7

In the pre-trial conference, the parties agreed to limit the issue to whether or not the period within which the bank was
placed under receivership and liquidation was a fortuitous event which suspended the running of the ten-year prescriptive
period in bringing actions.8

On April 17, 1998, the RTC rendered its decision, the fallo of which reads:

WHEREFORE, premises considered judgment is hereby rendered dismissing the complaint for lack of merit. Likewise the
compulsory counterclaim of defendant is dismissed for being unmeritorious.9

It reasoned that:

defendant bank was placed under receivership by the Central Bank from April 1985 until 1992. The defendant bank was
given authority by the Central Bank to operate as a private commercial bank and became fully operational only on August
3, 1992. From April 1985 until July 1992, defendant bank was restrained from doing its business. Doing business as
construed by Justice Laurel in 222 SCRA 131 refers to:

".a continuity of commercial dealings and arrangements and contemplates to that extent, the performance of acts or
words or the exercise of some of the functions normally incident to and in progressive prosecution of the purpose and
object of its organization."

The defendant banks right to foreclose the mortgaged property prescribes in ten (10) years but such period was
interrupted when it was placed under receivership. Article 1154 of the New Civil Code to this effect provides:

105
"The period during which the obligee was prevented by a fortuitous event from enforcing his right is not reckoned against
him."

In the case of Provident Savings Bank vs. Court of Appeals, 222 SCRA 131, the Supreme Court said.

"Having arrived at the conclusion that a foreclosure is part of a banks activity which could not have been pursued by the
receiver then because of the circumstances discussed in the Central Bank case, we are thus convinced that the prescriptive
period was legally interrupted by fuerza mayor in 1972 on account of the prohibition imposed by the Monetary Board
against petitioner from transacting business, until the directive of the Board was nullified in 1981. Indeed, the period
during which the obligee was prevented by a caso fortuito from enforcing his right is not reckoned against him. (Art. 1154,
NCC) When prescription is interrupted, all the benefits acquired so far from the possession cease and when prescription
starts anew, it will be entirely a new one. This concept should not be equated with suspension where the past period is
included in the computation being added to the period after the prescription is presumed (4 Tolentino, Commentaries
and Jurisprudence on the Civil Code of the Philippines 1991 ed. pp. 18-19), consequently, when the closure of the
petitioner was set aside in 1981, the period of ten years within which to foreclose under Art. 1142 of the N.C.C. began to
run and, therefore, the action filed on August 21, 1986 to compel petitioner to release the mortgage carried with it the
mistaken notion that petitioners own suit for foreclosure has prescribed."

Even assuming that the liquidation of defendant bank did not affect its right to foreclose the plaintiffs mortgaged
property, the questioned extrajudicial foreclosure was well within the ten (10) year prescriptive period. It is noteworthy
to mention at this point in time, that defendant bank through authorized Deputy Francisco Go made the first extrajudicial
demand to the plaintiffs on August 1985. Then on March 24, 1995 defendant bank through its officer-in-charge Llanto
made the second extrajudicial demand. And we all know that a written extrajudicial demand wipes out the period that
has already elapsed and starts anew the prescriptive period. (Ledesma vs. C.A., 224 SCRA 175.)10

Petitioners filed a motion for reconsideration which the RTC denied on August 25, 1998.11 Thus, the present petition for
review where petitioners claim that the RTC erred:

IN RULING THAT THE PERIOD WITHIN WHICH RESPONDENT BANK WAS PUT UNDER RECEIVERSHIP AND LIQUIDATION
WAS A FORTUITOUS EVENT THAT INTERRUPTED THE RUNNING OF THE PRESCRIPTIVE PERIOD.

II

IN RULING THAT THE WRITTEN EXTRA-JUDICIAL DEMAND MADE BY RESPONDENT ON PETITIONERS WIPED OUT THE
PERIOD THAT HAD ALREADY ELAPSED.

III

IN DENYING PETITIONERS MOTION FOR RECONSIDERATION OF ITS HEREIN ASSAILED DECISION.12

Petitioners argue that: since the extra-judicial foreclosure of the real estate mortgage was effected by the bank on October
18, 1995, which was fourteen years from the date the obligation became due on February 27, 1981, said foreclosure and
the subsequent sale at public auction should be set aside and declared null and void ab initio since they are already barred
by prescription; the court a quo erred in sustaining the respondents theory that its having been placed under receivership
by the Central Bank between April 1985 and August 1992 was a fortuitous event that interrupted the running of the
prescriptive period;13 the court a quos reliance on the case of Provident Savings Bank vs. Court of Appeals14 is misplaced
since they have different sets of facts; in the present case, a liquidator was duly appointed for respondent bank and there
was no judgment or court order that would legally or physically hinder or prohibit it from foreclosing petitioners property;
despite the absence of such legal or physical hindrance, respondent banks receiver or liquidator failed to foreclose
petitioners property and therefore such inaction should bind respondent bank;15 foreclosure of mortgages is part of the
receivers/liquidators duty of administering the banks assets for the benefit of its depositors and creditors, thus, the ten-
year prescriptive period which started on February 27, 1981, was not interrupted by the time during which the respondent
bank was placed under receivership; and the Monetary Boards prohibition from doing business should not be construed
as barring any and all business dealings and transactions by the bank, otherwise, the specific mandate to foreclose
mortgages under Sec. 29 of R.A. No. 265 as amended by Executive Order No. 65 would be rendered nugatory.16 Said
provision reads:

Section 29. Proceedings upon Insolvency Whenever, upon examination by the head of the appropriate supervising or
examining department or his examiners or agents into the condition of any bank or non-bank financial intermediary
performing quasi-banking functions, it shall be disclosed that the condition of the same is one of insolvency, or that its
continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the department
head concerned forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon finding the

106
statements of the department head to be true, forbid the institution to do business in the Philippines and designate the
official of the Central Bank or a person of recognized competence in banking or finance, as receiver to immediately take
charge its assets and liabilities, as expeditiously as possible, collect and gather all the assets and administer the same for
the benefit of its creditors, and represent the bank personally or through counsel as he may retain in all actions or
proceedings for or against the institution, exercising all the powers necessary for these purposes including, but not limited
to, bringing and foreclosing mortgages in the name of the bank.

Petitioners further contend that: the demand letter, dated March 24, 1995, was sent after the ten-year prescriptive period,
thus it cannot be deemed to have revived a period that has already elapsed; it is also not one of the instances enumerated
by Art. 1115 of the Civil Code when prescription is interrupted;17 and the August 23, 1985 letter by Francisco Go
demanding 6,345.00, refers to the insurance premium on the house of petitioners, advanced by respondent bank, thus
such demand letter referred to another obligation and could not have the effect of interrupting the running of the
prescriptive period in favor of herein petitioners insofar as foreclosure of the mortgage is concerned.18

Petitioners then prayed that respondent bank be ordered to pay them 100,000.00 as moral damages, 50,000.00 as
exemplary damages and 100,000.00 as attorneys fees.19

Respondent for its part asserts that: the period within which it was placed under receivership and liquidation was a
fortuitous event that interrupted the running of the prescriptive period for the foreclosure of petitioners mortgaged
property; within such period, it was specifically restrained and immobilized from doing business which includes foreclosure
proceedings; the extra-judicial demand it made on March 24, 1995 wiped out the period that has already lapsed and
started anew the prescriptive period; respondent through its authorized deputy Francisco Go made the first extra-judicial
demand on the petitioners on August 23, 1985; while it is true that the first demand letter of August 1985 pertained to
the insurance premium advanced by it over the mortgaged property of petitioners, the same however formed part of the
latters total loan obligation with respondent under the mortgage instrument and therefore constitutes a valid extra-
judicial demand made within the prescriptive period.20

In their Reply, petitioners reiterate their earlier arguments and add that it was respondent that insured the mortgaged
property thus it should not pass the obligation to petitioners through the letter dated August 1985.21

To resolve this petition, two questions need to be answered: (1) Whether or not the period within which the respondent
bank was placed under receivership and liquidation proceedings may be considered a fortuitous event which interrupted
the running of the prescriptive period in bringing actions; and (2) Whether or not the demand letter sent by respondent
banks representative on August 23, 1985 is sufficient to interrupt the running of the prescriptive period.

Anent the first issue, we answer in the negative.

One characteristic of a fortuitous event, in a legal sense and consequently in relations to contract, is that its occurrence
must be such as to render it impossible for a party to fulfill his obligation in a normal manner.22

Respondents claims that because of a fortuitous event, it was not able to exercise its right to foreclose the mortgage on
petitioners property; and that since it was banned from pursuing its business and was placed under receivership from
April 25, 1985 until August 1992, it could not foreclose the mortgage on petitioners property within such period since
foreclosure is embraced in the phrase "doing business," are without merit.

While it is true that foreclosure falls within the broad definition of "doing business," that is:

a continuity of commercial dealings and arrangements and contemplates to that extent, the performance of acts or
words or the exercise of some of the functions normally incident to and in progressive prosecution of the purpose and
object of its organization.23

it should not be considered included, however, in the acts prohibited whenever banks are "prohibited from doing
business" during receivership and liquidation proceedings.

This we made clear in Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of the Philippines24
where we explained that:

Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that when a bank is forbidden
to do business in the Philippines and placed under receivership, the person designated as receiver shall immediately take
charge of the banks assets and liabilities, as expeditiously as possible, collect and gather all the assets and administer the
same for the benefit of its creditors, and represent the bank personally or through counsel as he may retain in all actions
or proceedings for or against the institution, exercising all the powers necessary for these purposes including, but not
limited to, bringing and foreclosing mortgages in the name of the bank.25

107
This is consistent with the purpose of receivership proceedings, i.e., to receive collectibles and preserve the assets of the
bank in substitution of its former management, and prevent the dissipation of its assets to the detriment of the creditors
of the bank.26

When a bank is declared insolvent and placed under receivership, the Central Bank, through the Monetary Board,
determines whether to proceed with the liquidation or reorganization of the financially distressed bank. A receiver, who
concurrently represents the bank, then takes control and possession of its assets for the benefit of the banks creditors. A
liquidator meanwhile assumes the role of the receiver upon the determination by the Monetary Board that the bank can
no longer resume business. His task is to dispose of all the assets of the bank and effect partial payments of the banks
obligations in accordance with legal priority. In both receivership and liquidation proceedings, the bank retains its juridical
personality notwithstanding the closure of its business and may even be sued as its corporate existence is assumed by the
receiver or liquidator. The receiver or liquidator meanwhile acts not only for the benefit of the bank, but for its creditors
as well.27

In Provident Savings Bank vs. Court of Appeals,28 we further stated that:

When a bank is prohibited from continuing to do business by the Central Bank and a receiver is appointed for such bank,
that bank would not be able to do new business, i.e., to grant new loans or to accept new deposits. However, the receiver
of the bank is in fact obliged to collect debts owing to the bank, which debts form part of the assets of the bank. The
receiver must assemble the assets and pay the obligation of the bank under receivership, and take steps to prevent
dissipation of such assets. Accordingly, the receiver of the bank is obliged to collect pre-existing debts due to the bank,
and in connection therewith, to foreclose mortgages securing such debts.29 (Emphasis supplied.)

It is true that we also held in said case that the period during which the bank was placed under receivership was deemed
fuerza mayor which validly interrupted the prescriptive period.30 This is being invoked by the respondent and was used
as basis by the trial court in its decision. Contrary to the position of the respondent and court a quo however, such ruling
does not find application in the case at bar.

A close scrutiny of the Provident case, shows that the Court arrived at said conclusion, which is an exception to the general
rule, due to the peculiar circumstances of Provident Savings Bank at the time. In said case, we stated that:

Having arrived at the conclusion that a foreclosure is part of a banks business activity which could not have been pursued
by the receiver then because of the circumstances discussed in the Central Bank case, we are thus convinced that the
prescriptive period was legally interrupted by fuerza mayor in 1972 on account of the prohibition imposed by the
Monetary Board against petitioner from transacting business, until the directive of the Board was nullified in 1981.31
(Emphasis supplied.)

Further examination of the Central Bank case reveals that the circumstances of Provident Savings Bank at the time were
peculiar because after the Monetary Board issued MB Resolution No. 1766 on September 15, 1972, prohibiting it from
doing business in the Philippines, the banks majority stockholders immediately went to the Court of First Instance of
Manila, which prompted the trial court to issue its judgment dated February 20, 1974, declaring null and void the
resolution and ordering the Central Bank to desist from liquidating Provident. The decision was appealed to and affirmed
by this Court in 1981. Thus, the Superintendent of Banks, which was instructed to take charge of the assets of the bank in
the name of the Monetary Board, had no power to act as a receiver of the bank and carry out the obligations specified in
Sec. 29 of the Central Bank Act.32

In this case, it is not disputed that Philippine Veterans Bank was placed under receivership by the Monetary Board of the
Central Bank by virtue of Resolution No. 364 on April 25, 1985, pursuant to Section 29 of the Central Bank Act on insolvency
of banks.33

Unlike Provident Savings Bank, there was no legal prohibition imposed upon herein respondent to deter its receiver and
liquidator from performing their obligations under the law. Thus, the ruling laid down in the Provident case cannot apply
in the case at bar.

There is also no truth to respondents claim that it could not continue doing business from the period of April 1985 to
August 1992, the time it was under receivership. As correctly pointed out by petitioner, respondent was even able to send
petitioners a demand letter, through Francisco Go, on August 23, 1985 for "accounts receivable in the total amount of
6,345.00 as of August 15, 1984" for the insurance premiums advanced by respondent bank over the mortgaged property
of petitioners. How it could send a demand letter on unpaid insurance premiums and not foreclose the mortgage during
the time it was "prohibited from doing business" was not adequately explained by respondent.

Settled is the principle that a bank is bound by the acts, or failure to act of its receiver.34 As we held in Philippine Veterans
Bank vs. NLRC,35 a labor case which also involved respondent bank,

108
 all the acts of the receiver and liquidator pertain to petitioner, both having assumed petitioners corporate existence.
Petitioner cannot disclaim liability by arguing that the non-payment of MOLINAs just wages was committed by the
liquidators during the liquidation period.36

However, the bank may go after the receiver who is liable to it for any culpable or negligent failure to collect the assets of
such bank and to safeguard its assets.37

Having reached the conclusion that the period within which respondent bank was placed under receivership and
liquidation proceedings does not constitute a fortuitous event which interrupted the prescriptive period in bringing
actions, we now turn to the second issue on whether or not the extra-judicial demand made by respondent bank, through
Francisco Go, on August 23, 1985 for the amount of 6,345.00, which pertained to the insurance premiums advanced by
the bank over the mortgaged property, constitutes a valid extra-judicial demand which interrupted the running of the
prescriptive period. Again, we answer this question in the negative.

Prescription of actions is interrupted when they are filed before the court, when there is a written extra-judicial demand
by the creditors, and when there is any written acknowledgment of the debt by the debtor.38

Respondents claim that while its first demand letter dated August 23, 1985 pertained to the insurance premium it
advanced over the mortgaged property of petitioners, the same formed part of the latters total loan obligation with
respondent under the mortgage instrument, and therefore, constitutes a valid extra-judicial demand which interrupted
the running of the prescriptive period, is not plausible.

The real estate mortgage signed by the petitioners expressly states that:

This mortgage is constituted by the Mortgagor to secure the payment of the loan and/or credit accommodation granted
to the spouses Cesar A. Larrobis, Jr. and Virginia S. Larrobis in the amount of ONE HUNDRED THIRTY FIVE THOUSAND
(135,000.00) PESOS ONLY Philippine Currency in favor of the herein Mortgagee.39

The promissory note, executed by the petitioners, also states that:

FOR VALUE RECEIVED, I/WE, JOINTLY AND SEVERALLY, PROMISE TO PAY THE PHILIPPINE VETERANS BANK, OR ORDER,
AT ITS OFFICE AT CEBU CITY THE SUM OF ONE HUNDRED THIRTY FIVE THOUSAND PESOS (P135,000.00), PHILIPPINE
CURRENCY WITH INTEREST AT THE RATE OF FOURTEEN PER CENT (14%) PER ANNUM FROM THIS DATE UNTIL FULLY
PAID.40

Considering that the mortgage contract and the promissory note refer only to the loan of petitioners in the amount of
135,000.00, we have no reason to hold that the insurance premiums, in the amount of 6,345.00, which was the subject
of the August 1985 demand letter, should be considered as pertaining to the entire obligation of petitioners.

In Quirino Gonzales Logging Concessionaire vs. Court of Appeals,41 we held that the notices of foreclosure sent by the
mortgagee to the mortgagor cannot be considered tantamount to written extrajudicial demands, which may validly
interrupt the running of the prescriptive period, where it does not appear from the records that the notes are covered by
the mortgage contract.42

In this case, it is clear that the advanced payment of the insurance premiums is not part of the mortgage contract and the
promissory note signed by petitioners. They pertain only to the amount of 135,000.00 which is the principal loan of
petitioners plus interest. The arguments of respondent bank on this point must therefore fail.

As to petitioners claim for damages, however, we find no sufficient basis to award the same. For moral damages to be
awarded, the claimant must satisfactorily prove the existence of the factual basis of the damage and its causal relation to
defendants acts.43 Exemplary damages meanwhile, which are imposed as a deterrent against or as a negative incentive
to curb socially deleterious actions, may be awarded only after the claimant has proven that he is entitled to moral,
temperate or compensatory damages.44 Finally, as to attorneys fees, it is demanded that there be factual, legal and
equitable justification for its award.45 Since the bases for these claims were not adequately proven by the petitioners, we
find no reason to grant the same.

WHEREFORE, the decision of the Regional Trial Court, Cebu City, Branch 24, dated April 17, 1998, and the order denying
petitioners motion for reconsideration dated August 25, 1998 are hereby REVERSED and SET ASIDE. The extra-judicial
foreclosure of the real estate mortgage on October 18, 1995, is hereby declared null and void and respondent is ordered
to return to petitioners their owners duplicate certificate of title.

Costs against respondent.

SO ORDERED.

109
 G.R. No. 156761 October 17, 2006

LADY LYDIA CORNISTA-DOMINGO, SYLVIA SALANGA, LIWAYWAY SILAPAN, CYNTHIA ALICANTE, ALBERTO ANCHETA,
ANA MARIA SANCHEZ, ELENA TUMBAGA, PEDRO JOSU, TERESITA VOCAL, ROSIE ANCHETA, LILIA PINUELA-JULIAN,
IMELDA ERESE, NORMA YABUT, LOURDES PINEDA, CORAZON CARANDANG, ERLINDA GUTIERREZ, MARIO MILAN,
FLAVIANO MEJIA, JR., ESTELA AYSON, ENRIQUE GARAYGAY, ROSE DAILEG, JOSE CALDO, RITA BATAC, MARIA
CORAZON GALAN, MA. ELISA GAYO, DEBBIE RODRIGUEZ, CAROLINA CABEBE, EDGARDO BOLIVAR, FE ILAGAN,
TERESITA MONDEJAR, ELVIRA ANGELES, PEDRO EMPIG, LUZ MARQUEZ, TERESITA DORIA, ABELARDO BONTOC,
MADELON REYES-YEE and FILOMENO CINCO, JR., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER EDUARDO J. CARPIO, PHILIPPINE VETERANS BANK
and/or SUNDAY LAVIN, PHILIPPINE VETERANS BANK EMPLOYEES UNION and/or FELIZARDO SARAPAT, AMELITA
DURIAN, RICARDO RICAFRENTE, LEON MAGALONA, FERMIN CASTILLO, NORMINIO MOJICA and OLYMPIO DE
GUZMAN, respondents.

DECISION

GARCIA, J.:

By this petition for review on certiorari,1 petitioners seek the review and reversal of the consolidated Decision2 dated
December 21, 2001 of the Court of Appeals (CA) in CA-G.R. SP No. 51218, CA-G.R. SP No. 51219 and CA-G.R. SP No. 51220
declaring as null and void the September 14, 1993 decision and the November 22, 1993 resolution of the National Labor
Relations Commission (NLRC) and reinstating the decision dated March 31, 1993 of Labor Arbiter Eduardo J. Carpio.
Likewise, assailed is the CA Resolution of January 8, 2003, denying the petitioners' motion for reconsideration.

The ultimate facts material to the resolution of the case are as follows:

On April 10, 1983, by virtue of Resolution No. 334 of the Central Bank's Monetary Board, the Philippine Veterans Bank
(Bank, hereafter) was placed under receivership.

In consequence, the Bank adopted a retrenchment and reorganization program which was challenged before this Court
by the Philippine Veterans Bank Employees Union (Union, hereafter) on the ground that the program allegedly violated
the security of tenure of the Bank's employees, in G.R. No. 67125 entitled Philippine Veterans Bank Employees Union-
NUBE v. Philippine Veterans Bank.

110
While G.R. No. 67125 was pending, the Monetary Board issued Resolution No. 612, dated June 7, 1985, ordering the
liquidation of the Bank. The Monetary Board then appointed a liquidator who, pursuant to the authority vested by the
same Board, terminated the employment of all the employees of the Bank effective June 15, 1985. Thereafter, the
liquidator commenced payment of separation pay and other benefits to the terminated employees.

Although a number of the Bank employees accepted their separation pay and other benefits and executed quitclaims and
releases therefor in favor of the Bank, others chose to question their termination. Thus, on September 25, 1985, the Union
filed a supplemental petition for prohibition with preliminary injunction in G.R. No. 67125 opposing Monetary Board
Resolution No. 612.

On August 24, 1990, the Court promulgated a consolidated3 en banc Decision4 in G.R. No. 67125 upholding the authority
of the Monetary Board to place the respondent Bank under liquidation as well as the legality of the termination of all the
Bank's employees, including the members of the Union. The Court also rejected the dismissed employees' claim for back
wages as it held that they were not illegally dismissed but lawfully separated as a result of the Bank's liquidation upon
order of the Monetary Board.

On January 2, 1992, Congress enacted Republic Act (R.A.) No. 7169,5 authorizing the Central Bank to reopen the Bank.

To facilitate the implementation of R.A. No. 7169, a Rehabilitation Committee was created by the Monetary Board. The
committee thus created was given the power to select and to organize an initial manning force headed by a management
team to be staffed by a trained workforce. Hiring preference was given the veterans and their dependents, other
qualifications being equal.6

At this juncture, several employees of the Bank initiated a series of cases claiming that the enactment of R.A. No. 7169
nullified Monetary Board Resolution No. 612 placing respondent Bank under liquidation and, in effect, also nullified the
liquidator's termination of the Bank's employees.

On January 20, 1992, the Union filed a petition with the Secretary of Labor and Employment charging the Bank with unfair
labor practices and praying that the Rehabilitation Committee be directed to cease and desist from screening and hiring
new employees and to immediately reinstate the Bank's former employees. The petition, docketed as NLRC NCR No. 00-
02426-92, also sought payment of the accrued collective bargaining agreement benefits and back wages of the employees
from the time they were terminated from employment in 1985 up to the time of their actual reinstatement. Several other
petitions seeking essentially the same relief were consolidated with NLRC NCR No. 00-02426-92.

In the meantime, on August 3, 1992, the respondent Bank resumed operations.

On March 31, 1993, Labor Arbiter Eduardo J. Carpio rendered a decision7 dismissing NLRC NCR No. 00-02426-92 and all
cases consolidated therewith for lack of merit. The dispositive portion of said decision reads:

Wherefore, premises considered, the claim of the Union for reinstatement of the individual complainants it represents as
well as the claims for payment of backwages, other benefits and damages are hereby, as they should be, dismissed for
lack of merit.

The charge for unfair labor practice filed by the Union against the respondent Bank is likewise dismissed for lack of factual
and legal basis.

SO ORDERED.

In time, the Union appealed the Labor Arbiter's decision to the NLRC proper.

On September 14, 1993, the NLRC rendered a Decision8 reversing and setting aside that of the Labor Arbiter. Additionally,
the NLRC directed the immediate reinstatement of all Union members subject to the operational requirements of the
Bank which it likewise ordered to cease and desist from further hiring new employees. More specifically, the fallo of the
NLRC decision reads:

ACCORDINGLY, the decision of the Labor Arbiter is hereby SET ASIDE and a new one entered, finding the claim for
reinstatement of the appellant to be legal and proper. Accordingly, Appellee bank therefore is hereby ordered to
immediately reinstate all members of the appellant union inclusive of those who have executed their quitclaims and
release and all the rest of the PVBEU members, who will signify their intention to be reinstated from the date of this
Decision. In the meanwhile, however, that the bank has not fully reopened and activated all its operational departments,
offices and branches, the employees' reinstatement shall be conditioned to actual personnel requirement of the
department branch office to be reopened, for which reason, preference shall be given to employees formerly occupying

111
the position being reinstated or reactivated or at the prerogative and discretion of management, to any position in the
office provided the latter is of equivalent rank and at least has the same rate of pay.

For this purpose, appellee is hereby ordered to temporarily cease and desist from further hiring new employees which
might affect the full compliance to this Decision. The claim for backwages and other CBA benefits are hereby denied for
lack merit.

The claim for unfair labor practice is also hereby denied for lack of merit.

SO ORDERED.

On October 1, 1993, the Bank sought a reconsideration of the said decision. Six days later, or on October 7, 1993, the
Union also moved for its partial reconsideration. Both motions, however, were denied by the NLRC in its resolution of
November 22, 1993.

Therefrom, the Bank and the Union interposed separate petitions to this Court.

The Bank, in its petition, docketed as G.R. No. 113423,9 sought to nullify the NLRC decision of September 14, 1993,
reinstating the members of the Union, and its Resolution of November 22, 1993, denying the Bank's motion for
reconsideration. While in its petition, docketed as G.R. No. 115421,10 the Union sought a modification of the same
decision so as to include the award of backwages.

On January 26, 1996, while G.R. Nos. 113423 and 115421 were pending before the Court, the Union, through its duly
authorized officers, and the Bank entered into a Compromise Agreement11 for the amicable settlement of all other cases
and claims then pending with the NLRC and/or other tribunals arising from the employment of the individual complainants
with the Bank.

A substantial majority of the members of the Union ratified the compromise agreement.

On February 16, 1996, Labor Arbiter Eduardo J. Carpio approved the compromise agreement and issued an Order12 which
reads:

WHEREFORE, finding the terms and conditions set forth in the Compromise Agreement to be not contrary to law, morals
and public policy, the same is hereby approved and considered as in complete and full satisfaction of the Decision in the
above-entitled case dated September 14, 1993.

The parties are hereby enjoined to comply strictly and faithfully with the terms and conditions of the Compromise
Agreement.

SO ORDERED.

A number of the employees, in separate appeals to the NLRC, contested the foregoing Order of the Labor Arbiter. They
argued that the compromise agreement is contrary to law and jurisprudence.

On February 29, 1996, the Bank and the Union filed before the Court their Joint Motion to Dismiss Petition in G.R. Cases
No. 113423 and 115421.

In a Resolution dated June 17, 1996, the Court denied said Joint Motion. In the same resolution, the Court gave due course
to an Urgent Motion for Leave to Intervene and to Oppose Motion to Dismiss Petition filed by the bank employees led by
a certain Nestor Garcia and the Urgent Motion With Leave of Court for Individual Union Members Petitioners to Intervene
and to Participate in Their Individual Capacities And To Oppose Joint Motion to Dismiss Petition filed by the herein
petitioners Lady Lydia Domingo, et al.

On October 2, 1996, the NLRC decided the aforementioned separate appeals from the Labor Arbiter's Order of February
16, 1996 approving the compromise agreement. The NLRC ruled that those who received and acknowledged receipt of
the first payment, as agreed upon in the questioned Compromise Agreement, and who executed the corresponding
Quitclaim, Waiver and Release were bound by the same Compromise Agreement. The decision dispositively reads:

WHEREFORE, in the interest of substantial justice and fair play, the order appealed from is hereby partially vacated and
Set Aside in that:

a) For those union members who received and acknowledged receipt of the first payment as agreed upon in the
Compromise Agreement dated January 26, 1996 and who executed the corresponding Quitclaim, Waiver and Release will
be bound by the said Compromise Agreement which was made the basis of the Order dated February 16, 1996 appealed

112
from and they shall continue to receive the money due them on the second and third payments due on December 15,
1996 and December 15, 1997, respectively.

b) For those union members who signified their opposition and those who are similarly situated who did not receive and
acknowledge receipt of the money, let the case be remanded to the Arbitration Branch of origin for further proceedings.
The Labor Arbiter so designated to hear is hereby ordered to proceed with dispatch so as not to prejudice the parties as
the disposition hereof has been duly delayed.

SO ORDERED.

Separate petitions were then filed with the Court by the Bank, the Union and the petitioners. The Bank assailed the
reinstatement of union members while the Union questioned the lack of award for backwages. For their part, the
petitioners questioned the validity of the compromise agreement.

On December 7, 1998, the Court issued a Resolution referring the three aforesaid petitions to the CA for appropriate
action and disposition, pursuant to St. Martin Funeral Homes v. NLRC.13 In the CA, the Bank's petition, PVB v. NLRC, et al.,
was docketed as CA-G.R. SP No. 51218, that of the Union, PVBEU-NUBE v. NLRC, et al., was docketed as CA-G.R. SP No.
51219, and that of herein petitioners' Lady Lydia Cornista Domingo, et al. v. NLRC, et al., was docketed as CA-G.R. SP No.
51220. The three (3) petitions were thereafter consolidated.

On December 21, 2001, the CA rendered the herein challenged consolidated decision declaring that the NLRC gravely
abused its discretion in ordering the reinstatement of the union members and accordingly declared null and void its
September 14, 1993 decision and the November 22, 1993 resolution, and instead reiterated the March 31, 1993 decision
of the Labor Arbiter, to wit:

PREMISES CONSIDERED, the assailed NLRC decision dated September 14, 1993 as well as its Resolution dated November
22, 1993 (CA-G.R. SP No. 51218) are both declared NULL and VOID and SET ASIDE. The Decision dated March 31, 1993 of
the Labor Arbiter Eduardo J. Carpio is hereby ordered REINSTATED.

Accordingly, the other two (2) petitions, CA-G.R. SP No. 51219 and CA-G.R. SP No. 51220 are hereby DISMISSED for lack of
merit.

SO ORDERED.

Partly says the CA in its decision:

1. The Supreme Court said in G.R. No. 67125 (189 SCRA 14) that the PVB employees were not "illegally dismissed but
lawfully separated." This is a pronouncement, as categorical as can be, that the employment relationship between the
Bank and the separated employees had definitely ceased to exist as of that time;

xxx xxx xxxx

4. It is a well-settled doctrine that reinstatement is proper only in cases of illegal dismissal. The pronouncement of the
Supreme Court that the PVB employees were "not illegally dismissed" forecloses any right of reinstatement under any
circumstance.

While the PVB employees concerned should be given priority in hiring, they cannot demand it as a matter of right.

xxx xxx xxx

Evidently, Domingo, et al. ratified the Compromise Agreement and even voluntarily received the first payment under that
agreement, executing the corresponding Quitclaim, Waiver and Release in the process. Having done that, they are deemed
bound by the Compromise Agreement under the previously discussed principle of res judicata and/or estoppel.

xxx xxx xxx

Petitioners are now before the Court via the present recourse essentially arguing that the CA committed reversible error
in foreclosing their right to be reinstated to their former employment with the Bank upon its rehabilitation and in
upholding the validity of the Compromise Agreement entered into by the Bank and the Union.

Petitioners argue that the passage of R.A. No. 7169,14 which reopened and rehabilitated the Bank, gave them the right to
be reinstated and entitled them to the payment of back wages and other benefits. They call the Court's attention to
Congress Resolution No. 1104 expressing the sentiments of some congressmen to give preference to veterans and their

113
dependents in the employment with the Bank. This resolution, according to petitioners, strengthens their claim for
reinstatement.

We are not persuaded.

As we see it, upon implementation of Monetary Board Resolution No. 612 and prior to the passage of R.A. No. 7169, the
Bank ceased to exist. Its subsequent rehabilitation was not an ordinary rehabilitation. R.A. No. 7169 had to be passed as
a legislative fiat to breathe life into the Bank. While it is true that the Bank used its old name, a new law had to be enacted
to restructure its outstanding liabilities. As it is, the Bank's present state of finances, the enormous cost of backwages and
other benefits that have to be paid its employees seeking to be reinstated would surely put an end to the economic
viability of the Bank.

The enactment of R.A. No. 7169 did not nullify Monetary Board Resolution No. 612 which earlier placed the Bank under
liquidation and caused the termination of employment of the petitioners. The Bank's subsequent rehabilitation did not,
by any test of reason, "revive" what was already a dead relationship between the petitioners and the Bank. Neither did
such rehabilitation affect the Court's pronouncement in Philippine Veterans Bank Employees Union-NUBE v. Philippine
Veterans Bank15 that the actions of the Monetary Board and its duly appointed liquidator were valid and that the former
employees' claim for back wages must be rejected as they were lawfully separated. Reinstatement is a relief accorded
only to an employee who was illegally dismissed.16

To reiterate, the forcible closure of the Bank by operation of law permanently severed the employer-employee
relationship between it and its employees when it ceased operations from April 10, 1983 to August 3, 1992. Thus, the
claim for reinstatement and payment of back wages and other benefits, having no leg to stand on, must necessarily fall.

Whilst House Resolution No. 1104 expressed sentiments of some congressmen that "preferential right to employment be
given to veterans and their dependents" under Section 7(b) of R.A. No. 7169, without more, such sentiments did not
operate as a compulsion to the newly opened Bank to accept an employee earlier separated from work as a result of its
closure. If at all, such sentiments only provide that all things being equal, preference shall be given to veterans and their
dependents in the hiring of new employees. While the employees concerned should be given priority in hiring, they cannot
demand it as a matter of right.

Verily, the clear wordings of Section 7 of R.A. No. 7169 gave the rehabilitation committee created thereunder a free hand
in the selection and appointment of the Bank's new employees. We quote Section 7 of the law:

Sec. 7. Rehabilitation Committee. To facilitate the implementation of the provisions this Act, there is hereby created a
rehabilitation committee which shall have a term of three (3) months from the date of the approval of this Act composed
of the following: the Executive Secretary, as Chairman, and the Administrator of the Philippine Veterans Affairs Office, the
President of the Veterans Federation of the Philippines, a representative from the executive board of the Veterans
Federation of the Philippines and a representative from the Board of Trustees of the Veterans of World War II or their
respective representatives, as members.

Specifically, the committee shall:

(a) Prepare, finalize and submit a viable rehabilitation plan to the Monetary Board of the Central Bank;

(b) Select and organize an initial manning force headed by a management team to be composed of competent,
experienced and professional managers who must possess all qualifications and none of the disqualifications provided
under Central Bank rules and regulations. The management team shall be staffed by a trained workforce: Provided, That
preference shall be given to the veterans and their dependents, other qualifications being equal;

The mandate given the Bank's rehabilitation committee to "select and organize an initial manning force" shows that the
lawmakers recognize the fact that the new bank is entirely without any working force. Congress, therefore, gave the Bank
full authority and discretion to recruit and form a new staff. Had Congress intended that separated employees be rehired
and given priority in the hiring of new employees, it would have clearly stated this in R.A. No. 7169. The fact that it did not
only shows its clear legislative intent to give the new bank a free hand in the selection and hiring of its new staff.

We have to acknowledge the sad reality that giving in to petitioners' demand of wholesale reinstatement with back wages,
bonuses, holiday pay, vacation and sick leave benefits would be a fatal blow to the very intention of R.A. No. 7169 to
rehabilitate the Bank. The payment of such substantial amounts would definitely further dissipate the remaining assets of
the Bank and cripple its finances even as, at this point, the Bank is barely making a profit under the weight of its present
liabilities, and ultimately make impossible its desired rehabilitation. This clearly contravenes the intent and spirit of R.A.
No. 7169.

114
Petitioners fault the CA in upholding the validity of the Compromise Agreement. They claim that said agreement is not
binding on employees who did not ratify it and even to those who were allegedly tricked and/or deceived by the Union
into accepting the first payment under the same agreement.

The argument is utterly baseless. A labor union's function is to represent its members. It can file an action or enter into
compromise agreements on behalf of its members. Here, majority of the Bank's employees authorized the Union to enter
into a compromise agreement with the Bank on their behalves. Union members were bound by the resulting compromise
agreement when they affixed their signatures thereon, thereby giving their individual assent thereto, and when they
accepted the benefits due them under that agreement. As it is, the Compromise Agreement in question detailed the
amounts to be received by each employee. Petitioners and other employees of the Bank knew exactly what they were
ratifying when they affixed their signatures in the said compromise agreement.

Further, respondent Union is a closed shop union. For this reason, it was the only one with legal authority to negotiate,
transact, and enter into any agreement with the Bank. The Compromise Agreement was ratified by 282 Union members
representing a majority of its entire 529 membership. The ratification of the Compromise Agreement by the majority of
the Union members necessarily binds the minority.

The general rule that the Labor Arbiter must be present during the signing of the compromise agreement is not immune
to certain exceptions. Here, the submission of the Compromise Agreement on joint motion of the parties for approval by
the Labor Arbiter cured whatever defect the signing of the agreement in the absence of the Labor Arbiter would have
caused. So it is that in Santiago v. De Guzman,17 the Court ruled:

A compromise agreement entered into by the parties not in the presence of the Labor Arbiter before whom the case is
pending shall be approved by him, if after confronting the parties, particularly the complainants, he is satisfied that they
understand the terms and conditions of "the settlement and that it was entered into freely and voluntarily by them.

It is incumbent upon the Labor Arbiter not only to persuade the parties to settle amicably, but equally to ensure the
compromise agreement is a fair one and that the same was forged freely, voluntarily with full understanding of the terms
and conditions embodies therein as well as the consequences thereof."

It is likewise noteworthy that as of March 31, 2004, thirty (30) of the herein thirty-seven (37) petitioners already received
payment under the same Compromise Agreement. The acceptance by said petitioners of the benefits bars them from
repudiating the agreement. They cannot be allowed to adopt an inconsistent position at the expense of the Bank.
Petitioners cannot belatedly reject or repudiate their acts of accepting the monetary consideration under the compromise
agreement, to the prejudice of the Bank.18 We, thus, quote with approval the following observation of the CA in its
challenged Decision of December 21, 2001:

As regards the third petition for certiorari filed by Lady Lydia Cornista Domingo, et. al. (CA-G.R. SP No. 51220), the position
taken by the petitioners is that NLRC committed grave abuse of discretion by: a) ordering petitioners who received the
first payment under the Compromise Agreement to be bound by it, and b) resolving to remand the case to the Labor
Arbiter for further proceedings insofar as those who did not receive payment are concerned.

Petitioners Domingo et. al. allege that "(a)s found out by the respondent NLRC, the Compromise Agreement was not
entered into in the presence of the labor Arbiter and it (NLRC) faulted the latter in not calling the parties especially the
complainants, to a conference and satisfy himself that they (complainants) understand the terms and conditions of the
settlement; and that the agreement was entered into freely and voluntarily" (Rollo of SP No. 51218-20, p. 886) as called
for under Section 2, Rule V of the New Rules of Procedure of the NLRC.

Further, petitioners contend that "(h)ad the respondents NLRC and Labor Arbiter Carpio followed the rules, they would
have found out that those who received the first payment were only tricked and deceived in(to) receiving the payment;"
that "had the respondents Labor Arbiter and NLRC been more circumspect in their solemn duties, they should have
required the respondent union officers to present a special power of attorney as required under Article 1878(3) of the
Civil Code." (Ibid., pp. 886-887).

We are not convinced.

Evidently, Domingo, et. al. ratified the Compromise Agreement and even voluntarily received the first payment under that
agreement, executing the corresponding Quitclaim, Waiver and Release in the process. Having done that, they are deemed
bound by the Compromise Agreement under the previously discussed principle of res judicata and/or estoppel.

We find that the subsequent decision of petitioners Domingo, et. al. to repudiate the Compromise Agreement was merely
an afterthought, whatever would be the reason for their subsequent change of mind. Since they had entered into a binding
contract on their own volition and received benefits therefrom, they are therefore estopped from questioning the validity
of said contract later on. Parenthetically, it is interesting to note that while the petitioners try to impugn the Compromise

115
Agreement that they themselves entered into, they have not made any offer or effort to return the money they received
as first payment under said agreement.

The other allegation of the petitioners that "those who received the first payment were only tricked and deceived in(to)
receiving the payment" deserves scant consideration. Said petitioners are not only ordinary laborers but mature, educated
and intelligent people with college degrees, and considering the size of their group, it is unbelievable that they could have
been easily duped into doing something against their will and self-interest. Absent a showing that they were indeed victims
of trickery and deception, outside of their own self-serving affidavits, the petitioners' allegation does not hold water.

Here, the petitioners and other employees legally separated were in fact given termination or separation pay despite the
staggering loss sustained by the Bank. They were given a very good bargain in the compromise agreement. They, therefore,
have no reason to complain. Without the subject compromise agreement, they would not have received any separation
pay in light of our ruling in State Investment House, Inc. v. CA,19 and North Davao Mining Corporation v. NLRC,20 where
we held that in cases of serious losses or financial reverses, the Labor Code does not impose any obligation upon the
employer to pay separation benefits, for obvious reasons.

Records reveal that when the Bank offered termination or separation pay to its remaining employees by way of a
compromise agreement, a great majority of them accepted the amount as justifiable settlement of their claims.21 Like
these quitclaims and releases, there are voluntary agreements which represent reasonable settlements and are
considered binding on the parties.22 Petitioners, therefore, cannot renege on the compromise agreement they entered
into after accepting benefits earlier simply because they may have felt that they committed a mistake in accepting their
termination/separation pay. As no proof was presented to show that the compromise agreement in dispute was entered
into through fraud, misrepresentation or coercion, the same must be recognized as valid and binding upon all the 529
employees of the Bank. In fine, the petitioners and the other employees are estopped from questioning the validity of the
Compromise Agreement.

In law, a compromise agreement, once approved, has the effect of res judicata between the parties and should not be
disturbed except for vices of consent, forgery, fraud, misrepresentation and coercion,23 none of which exists in this case.
The Compromise Agreement between the Union and the Bank binds the minority Union members.

All told, the Court finds and so holds that the CA committed no reversible error in rendering its challenged decision of
December 21, 2001 and Resolution of January 8, 2003.

IN VIEW WHEREOF, the instant petition is DENIED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 150886 February 16, 2007

116
 RURAL BANK OF SAN MIGUEL, INC. and HILARIO P. SORIANO, in his capacity as majority stockholder in the Rural
Bankof San Miguel, Inc., Petitioners,
vs.
MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS and PHILIPPINE DEPOSIT INSURANCE CORPORATION,
Respondents.

DECISION

CORONA, J.:

This is a petition for review on certiorari1 of a decision2 and resolution3 of the Court of Appeals (CA) dated March 28,
2000 and November 13, 2001, respectively, in CA-G.R. SP No. 57112.

Petitioner Rural Bank of San Miguel, Inc. (RBSM) was a domestic corporation engaged in banking. It started operations in
1962 and by year 2000 had 15 branches in Bulacan.4 Petitioner Hilario P. Soriano claims to be the majority stockholder of
its outstanding shares of stock.5

On January 21, 2000, respondent Monetary Board (MB), the governing board of respondent Bangko Sentral ng Pilipinas
(BSP), issued Resolution No. 105 prohibiting RBSM from doing business in the Philippines, placing it under receivership
and designating respondent Philippine Deposit Insurance Corporation (PDIC) as receiver:

On the basis of the comptrollership/monitoring report as of October 31, 1999 as reported by Mr. Wilfredo B. Domo-ong,
Director, Department of Rural Banks, in his memorandum dated January 20, 2000, which report showed that [RBSM] (a)
is unable to pay its liabilities as they become due in the ordinary course of business; (b) cannot continue in business
without involving probable losses to its depositors and creditors; that the management of the bank had been accordingly
informed of the need to infuse additional capital to place the bank in a solvent financial condition and was given adequate
time within which to make the required infusion and that no infusion of adequate fresh capital was made, the Board
decided as follows:

1. To prohibit the bank from doing business in the Philippines and to place its assets and affairs under receivership in
accordance with Section 30 of [RA 7653];

2. To designate the [PDIC] as receiver of the bank;

xxx xxx xxx6

On January 31, 2000, petitioners filed a petition for certiorari and prohibition in the Regional Trial Court (RTC) of Malolos,
Branch 22 to nullify and set aside Resolution No. 105.7 However, on February 7, 2000, petitioners filed a notice of
withdrawal in the RTC and, on the same day, filed a special civil action for certiorari and prohibition in the CA. On February
8, 2000, the RTC dismissed the case pursuant to Section 1, Rule 17 of the Rules of Court.8

The CAs findings of facts were as follows.

To assist its impaired liquidity and operations, the RBSM was granted emergency loans on different occasions in the
aggregate amount of 375 [million].

As early as November 18, 1998, Land Bank of the Philippines (LBP) advised RBSM that it will terminate the clearing of
RBSMs checks in view of the latters frequent clearing losses and continuing failure to replenish its Special Clearing
Demand Deposit with LBP. The BSP interceded with LBP not to terminate the clearing arrangement of RBSM to protect
the interests of RBSMs depositors and creditors.

After a year, or on November 29, 1999, the LBP informed the BSP of the termination of the clearing facility of RBSM to
take effect on December 29, 1999, in view of the clearing problems of RBSM.

On December 28, 1999, the MB approved the release of 26.189 [million] which is the last tranche of the 375 million
emergency loan for the sole purpose of servicing and meeting the withdrawals of its depositors. Of the 26.180 million,
xxx 12.6 million xxx was not used to service withdrawals [and] remains unaccounted for as admitted by [RBSMs Treasury
Officer and Officer-in-Charge of Treasury]. Instead of servicing withdrawals of depositors, RBSM paid Forcecollect
Professional Solution, Inc. and Surecollect Professional, Inc., entities which are owned and controlled by Hilario P. Soriano
and other RBSM officers.

On January 4, 2000, RBSM declared a bank holiday. RBSM and all of its 15 branches were closed from doing business.

117
Alarmed and disturbed by the unilateral declaration of bank holiday, [BSP] wanted to examine the books and records of
RBSM but encountered problems.

Meanwhile, on November 10, 1999, RBSMs designated comptroller, Ms. Zenaida Cabais of the BSP, submitted to the
Department of Rural Banks, BSP, a Comptrollership Report on her findings on the financial condition and operations of the
bank as of October 31, 1999. Another set of findings was submitted by said comptroller [and] this second report reflected
the financial status of RBSM as of December 31, 1999.

The findings of the comptroller on the financial state of RBSM as of October 31, 1999 in comparison with the financial
condition as of December 31, 1999 is summed up pertinently as follows:

FINANCIAL CONDITION OF RBSM

As of Oct. 31, 1999 As of Dec. 31, 1999

Total obligations/
Liabilities 1,076,863,000.00 1,009,898,000.00
Realizable Assets 898,588,000.00 796,930,000.00
Deficit 178,275,000.00 212,968,000.00
Cash on Hand 101,441.547.00 8,266,450.00
Required Capital Infusion 252,120,000.00

Capital Infusion 5,000,000.00

(On Dec. 20, 1999)

Actual Breakdown of Total Obligations:

1) Deposits of 20,000 depositors 578,201,000.00

2) Borrowings from BSP 320,907,000.00

3) Unremitted withholding and gross receipt taxes 57,403,000.00.9

Based on these comptrollership reports, the director of the Department of Rural Banks Supervision and Examination
Sector, Wilfredo B. Domo-ong, made a report to the MB dated January 20, 2000.10 The MB, after evaluating and
deliberating on the findings and recommendation of the Department of Rural Banks Supervision and Examination Sector,
issued Resolution No. 105 on January 21, 2000.11 Thereafter, PDIC implemented the closure order and took over the
management of RBSMs assets and affairs.

In their petition12 before the CA, petitioners claimed that respondents MB and BSP committed grave abuse of discretion
in issuing Resolution No. 105. The petition was dismissed by the CA on March 28, 2000. It held, among others, that the
decision of the MB to issue Resolution No. 105 was based on the findings and recommendations of the Department of
Rural Banks Supervision and Examination Sector, the comptroller reports as of October 31, 1999 and December 31, 1999
and the declaration of a bank holiday. Such could be considered as substantial evidence.13

Pertinently, on June 9, 2000, on the basis of reports prepared by PDIC stating that RBSM could not resume business with
sufficient assurance of protecting the interest of its depositors, creditors and the general public, the MB passed Resolution
No. 966 directing PDIC to proceed with the liquidation of RBSM under Section 30 of RA 7653.14

Hence this petition.

It is well-settled that the closure of a bank may be considered as an exercise of police power.15 The action of the MB on
this matter is final and executory.16 Such exercise may nonetheless be subject to judicial inquiry and can be set aside if
found to be in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction.17

Petitioners argue that Resolution No. 105 was bereft of any basis considering that no complete examination had been
conducted before it was issued. This case essentially boils down to one core issue: whether Section 30 of RA 7653 (also
known as the New Central Bank Act) and applicable jurisprudence require a current and complete examination of the bank
before it can be closed and placed under receivership.

Section 30 of RA 7653 provides:

SECTION 30. Proceedings in Receivership and Liquidation. Whenever, upon report of the head of the supervising or
examining department, the Monetary Board finds that a bank or quasi-bank:

118
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not include
inability to pay caused by extraordinary demands induced by financial panic in the banking community;

(b) has insufficient realizable assets, as determined by the [BSP] to meet its liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or creditors; or

(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts or transactions
which amount to fraud or a dissipation of the assets of the institution; in which cases, the Monetary Board may summarily
and without need for prior hearing forbid the institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking institution.

xxx xxx xxx

The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and executory,
and may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken
was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The
petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock within
ten (10) days from receipt by the board of directors of the institution of the order directing receivership, liquidation or
conservatorship. (Emphasis supplied)

xxx xxx xxx

Petitioners contend that there must be a current, thorough and complete examination before a bank can be closed under
Section 30 of RA 7653. They argue that this section should be harmonized with Sections 25 and 28 of the same law:

SECTION 25. Supervision and Examination. The [BSP] shall have supervision over, and conduct periodic or special
examinations of, banking institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied activities.

xxx xxx xxx

SECTION 28. Examination and Fees. The supervising and examining department head, personally or by deputy, shall
examine the books of every banking institution once in every twelve (12) months, and at such other time as the Monetary
Board by an affirmative vote of five (5) members may deem expedient and to make a report on the same to the Monetary
Board: Provided that there shall be an interval of at least twelve (12) months between annual examinations. (Emphasis
supplied)

xxx xxx xxx

According to the petitioners, it is clear from these provisions that the "report of the supervising or examining department"
required under Section 30 refers to the report on the examination of the bank which, under Section 28, must be made to
the MB after the supervising or examining head conducts an examination mandated by Sections 25 and 28.18 They cite
Banco Filipino Savings & Mortgage Bank v. Monetary Board, Central Bank of the Philippines19 wherein the Court ruled:

There is no question that under Section 29 of the Central Bank Act, the following are the mandatory requirements to be
complied with before a bank found to be insolvent is ordered closed and forbidden to do business in the Philippines:
Firstly, an examination shall be conducted by the head of the appropriate supervising or examining department or his
examiners or agents into the condition of the bank; secondly, it shall be disclosed in the examination that the condition of
the bank is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors;
thirdly, the department head concerned shall inform the Monetary Board in writing, of the facts; and lastly, the Monetary
Board shall find the statements of the department head to be true.20 (Emphasis supplied)

Petitioners assert that an examination is necessary and not a mere report, otherwise the decision to close a bank would
be arbitrary.

Respondents counter that RA 7653 merely requires a report of the head of the supervising or examining department. They
maintain that the term "report" under Section 30 and the word "examination" used in Section 29 of the old law are not
synonymous. "Examination" connotes in-depth analysis, evaluation, inquiry or investigation while "report" connotes a
simple disclosure or narration of facts for informative purposes.21

Petitioners contention has no merit. Banco Filipino and other cases petitioners cited22 were decided using Section 29 of
the old law (RA 265):

119
SECTION 29. Proceedings upon insolvency. Whenever, upon examination by the head of the appropriate supervising or
examining department or his examiners or agents into the condition of any bank or non-bank financial intermediary
performing quasi-banking functions, it shall be disclosed that the condition of the same is one of insolvency, or that its
continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the department
head concerned forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon finding the
statements of the department head to be true, forbid the institution to do business in the Philippines and designate an
official of the Central Bank or a person of recognized competence in banking or finance, as receiver to immediately take
charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same
for the benefits of its creditors, and represent the bank personally or through counsel as he may retain in all actions or
proceedings for or against the institution, exercising all the powers necessary for these purposes including, but not limited
to, bringing and foreclosing mortgages in the name of the bank or non-bank financial intermediary performing quasi-
banking functions. (Emphasis supplied)

xxx xxx xxx

Thus in Banco Filipino, we ruled that an "examination [conducted] by the head of the appropriate supervising or examining
department or his examiners or agents into the condition of the bank"23 is necessary before the MB can order its closure.

However, RA 265, including Section 29 thereof, was expressly repealed by RA 7653 which took effect in 1993. Resolution
No. 105 was issued on January 21, 2000. Hence, petitioners reliance on Banco Filipino which was decided under RA 265
was misplaced.

In RA 7653, only a "report of the head of the supervising or examining department" is necessary. It is an established rule
in statutory construction that where the words of a statute are clear, plain and free from ambiguity, it must be given its
literal meaning and applied without attempted interpretation:24

This plain meaning rule or verba legis derived from the maxim index animi sermo est (speech is the index of intention)
rests on the valid presumption that the words employed by the legislature in a statute correctly express its intention or
will and preclude the court from construing it differently. The legislature is presumed to know the meaning of the words,
to have used words advisedly, and to have expressed its intent by use of such words as are found in the statute. Verba
legis non est recedendum, or from the words of a statute there should be no departure.25

The word "report" has a definite and unambiguous meaning which is clearly different from "examination." A report, as a
noun, may be defined as "something that gives information" or "a usually detailed account or statement."26 On the other
hand, an examination is "a search, investigation or scrutiny."27

This Court cannot look for or impose another meaning on the term "report" or to construe it as synonymous with
"examination." From the words used in Section 30, it is clear that RA 7653 no longer requires that an examination be made
before the MB can issue a closure order. We cannot make it a requirement in the absence of legal basis.

Indeed, the court may consider the spirit and reason of the statute, where a literal meaning would lead to absurdity,
contradiction, injustice, or would defeat the clear purpose of the lawmakers.28 However, these problems are not present
here. Using the literal meaning of "report" does not lead to absurdity, contradiction or injustice. Neither does it defeat
the intent of the legislators. The purpose of the law is to make the closure of a bank summary and expeditious in order to
protect public interest. This is also why prior notice and hearing are no longer required before a bank can be closed.29

Laying down the requisites for the closure of a bank under the law is the prerogative of the legislature and what its wisdom
dictates. The lawmakers could have easily retained the word "examination" (and in the process also preserved the
jurisprudence attached to it) but they did not and instead opted to use the word "report." The insistence on an
examination is not sanctioned by RA 7653 and we would be guilty of judicial legislation were we to make it a requirement
when such is not supported by the language of the law.

What is being raised here as grave abuse of discretion on the part of the respondents was the lack of an examination and
not the supposed arbitrariness with which the conclusions of the director of the Department of Rural Banks Supervision
and Examination Sector had been reached in the report which became the basis of Resolution No. 105.1awphi1.net

The absence of an examination before the closure of RBSM did not mean that there was no basis for the closure order.
Needless to say, the decision of the MB and BSP, like any other administrative body, must have something to support itself
and its findings of fact must be supported by substantial evidence. But it is clear under RA 7653 that the basis need not
arise from an examination as required in the old law.

We thus rule that the MB had sufficient basis to arrive at a sound conclusion that there were grounds that would justify
RBSMs closure. It relied on the report of Mr. Domo-ong, the head of the supervising or examining department, with the
findings that: (1) RBSM was unable to pay its liabilities as they became due in the ordinary course of business and (2) that

120
it could not continue in business without incurring probable losses to its depositors and creditors.30 The report was a 50-
page memorandum detailing the facts supporting those grounds, an extensive chronology of events revealing the
multitude of problems which faced RBSM and the recommendations based on those findings.

In short, MB and BSP complied with all the requirements of RA 7653. By relying on a report before placing a bank under
receivership, the MB and BSP did not only follow the letter of the law, they were also faithful to its spirit, which was to act
expeditiously. Accordingly, the issuance of Resolution No. 105 was untainted with arbitrariness.

Having dispensed with the issue decisive of this case, it becomes unnecessary to resolve the other minor issues raised.31

WHEREFORE, the petition is hereby DENIED. The March 28, 2000 decision and November 13, 2001 resolution of the Court
of Appeals in CA-G.R. SP No. 57112 are AFFIRMED.

Costs against petitioners.

SO ORDERED.

G.R. No. 148491 February 8, 2007

SPOUSES ZACARIAS BACOLOR and CATHERINE BACOLOR, Petitioners,

vs.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, DAGUPAN CITY BRANCH and MARCELINO C. BONUAN,
Respondents.

DECISION

SANDOVAL-GUTIERREZ, J.:

Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Decision 1
of the Court of Appeals in CA-G.R. CV No. 47732 promulgated on February 23, 2001 and its Resolution dated May 30, 2001.

On February 11, 1982, spouses Zacarias and Catherine Bacolor, herein petitioners, obtained a loan of 244,000.00 from
Banco Filipino Savings and Mortgage Bank, Dagupan City Branch, respondent. They executed a promissory note providing
that the amount shall be payable within a period of ten (10) years with a monthly amortization of P5,380.00 beginning
March 11, 1982 and every 11th day of the month thereafter; that the interest rate shall be twenty-four percent (24%) per
annum, with a penalty of three percent (3%) on any unpaid monthly amortization; that there shall be a service charge of
three percent (3%) per annum on the loan; and that in case respondent bank seeks the assistance of counsel to enforce
the collection of the loan, petitioners shall be liable for ten percent (10%) of the amount due as attorneys fees and fifteen
percent (15%) of the amount due as liquidated damages.

As security for the loan, petitioners mortgaged with respondent bank their parcel of land located in Dagupan City,
Pangasinan, registered under Transfer Certificate of Title No. 40827.

From March 11, 1982 to July 10, 1991, petitioners paid respondent bank 412, 199.36. Thereafter, they failed to pay the
remaining balance of the loan.

On August 7, 1992, petitioners received from respondent bank a statement of account stating that their indebtedness as
of July 31, 1992 amounts to 840,845.61.

In its letter dated January 13, 1993, respondent bank informed petitioners that should they fail to pay their loan within
fifteen (15) days from notice, appropriate action shall be taken against them.

Due to petitioners failure to settle their obligation, respondent instituted, on March 5, 1993, an action for extra-judicial
foreclosure of mortgage.

Prior thereto, or on February 1, 1993, petitioners filed with Branch 40 of the same RTC, a complaint for violation of the
Usury Law against respondent, docketed as Civil Case No. D-10480. They alleged that the provisions of the promissory
note constitute a usurious transaction considering the (1) rate of interest, (2) the rate of penalties, service charge,
attorneys fees and liquidated damages, and (3) deductions for surcharges and insurance premium. In their amended
complaint, petitioners further alleged that, during the closure of respondent bank, it ceased to be a banking institution
and, therefore, could not charge interests and institute foreclosure proceeding.

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On August 25, 1994, the RTC rendered its decision dismissing petitioners complaint, holding that:

(1) The terms and conditions of the Deed of Mortgage and the Promissory Note are legal and not usurious.

The plaintiff freely signed the Deed of Mortgage and the Promissory Note with full knowledge of its terms and conditions.

The interest rate of 24% per annum is not usurious and does not violate the Usury Law (Act 2655) as amended by P.D. No.
166.

The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money
etc., regardless of maturity x x x, shall not be subject to any ceiling under or pursuant to the Usury Law, as amended (CB
Circular no. 905). Hence, the 24% interest per annum is allowed under P.D. No. 166.

For sometime now, usury has been legally non-existent. Interest can now be as lender and borrower may agree upon
(Verdejo v. CA, Jan. 29, 1988. 157 SCRA 743).

The imposition of penalties in case the obligation is not fulfilled is not prohibited by the Usury Law. Parties to a contract
of loan may validly agree upon the imposition of penalty charges in case of delay or non-payment of the loan. The purpose
is to compel the debtor to pay his debt on time (Go Chioco v. Martinez, 45 Phil. 256, 265).

(2) The closure of Banco Filipino did not suspend or stop its usual and normal banking operations like the collection of loan
receivables and foreclosures of mortgages.

In view of the foregoing, plaintiffs failed to substantiate their cause of action against the defendant. 2

On appeal, the Court of Appeals rendered its Decision affirming the Decision of the trial court. Petitioners subsequent
motion for reconsideration was denied.

Hence, this present petition for review on certiorari raising this lone issue: whether the interest rate is "excessive and
unconscionable."

It is the petitioners contention that while the Usury Law ceiling on interest rates was lifted by Central Bank Circular No.
905, there is nothing in the said circular which grants respondent bank carte blanche authority to raise interest rates to
levels which "either enslave the borrower or lead to a hemorrhaging of their assets." 3

In its comment 4 , respondent bank maintained that petitioner, by signing the Deed of Mortgage and Promissory Note,
knowingly and freely consented to its terms and conditions. A contract between the parties must not be impaired. The
interest rate of 24% per annum is not usurious and does not violate the Usury Law. 5

The petition lacks merit.

Article 1956 of the Civil Code provides that no interest shall be due unless it has been expressly stipulated in writing. Here,
the parties agreed in writing on February 11, 1982 that the rate of interest on the petitioners loan shall be 24% per annum.

At the time the parties entered into the loan transaction, the applicable law was the Usury Law (Act 2655), as amended
by P.D. No. 166, which provides that the rate of interest for the forbearance of money when secured by a mortgage upon
real estate, should not be more than 6% per annum or the maximum rate prescribed by the Monetary Board of the Central
Bank of the Philippines in force at the time the loan was granted. Central Bank Circular No. 783, which took effect on July
1, 1981, removed the ceiling on interest rates on a certain class of loans, thus:

SECTION 2. The interest rate on a loan forbearance of any money, goods, or credits with a maturity of more than seven
hundred thirty (730) days shall not be subject to any ceiling. 6

In the present case, the term of the subject loan is for a period of 10 years. Considering that its maturity is more than 730
days, the interest rate is not subject to any ceiling following the above provision. Therefore, the 24% interest rate agreed
upon by parties does not violate the Usury Law, as amended by P.D. 116.

This Court has consistently held that for sometime now, usury has been legally non-inexistent and that interest can now
be charged as lender and borrower may agree upon. 7 As a matter of fact, Section 1 of Central Bank Circular No. 905 states
that:

SECTION 1. The rate of interest, including commissions, premiums, fees and other charges , on a loan or forbearance of
any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected

122
by any person, whether natural or judicial, shall not be subject to any ceiling prescribed under or pursuant to the Usury
Law, as amended. 8

Moreover, in Trade & Investment Development Corporation of the Philippines v. Roblett Industrial Construction
Corporation, 9 this Court has ruled that:

With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to
be imposed on monetary obligations. Absent any evidence of fraud, undue influence, or any vice of consent exercised by
one party against the other, the interest rate agreed upon is binding upon them.

There is no indication in the records that any of the incidents which vitiate consent on the part of petitioners is present.
Indeed, the interest rate agreed upon is binding on them. With respect to the penalty and service charges, the same are
unconscionable or excessive.

Petitioners invoke this Courts rulings in Almeda vs. Court of Appeals 10 and Medel vs. Court of Appeals 11 to show that
the interest rate in the subject promissory note is unconscionable. Their reliance on these cases is misplaced. In Almeda,
what this Court struck down as being unconscionable and excessive was the unilateral increase in the interest rates from
18% to 68%. This Court ruled thus:

It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank unilaterally altered the terms
of its contract by increasing the interest rates of the loan without the prior assent of the latter. In fact, the manner of
agreement is itself explicitly stipulated by the Civil Code when it provides, in Article 1956, that "No interest shall be due
unless it has been expressly stipulated in writing." What has been "stipulated in writing" from a perusal of the interest
rate provision of the credit agreement signed between the parties is that petitioners were bound merely to pay 21%
interest x x x.

Petitioners also cannot find refuge in Medel. In this case, what this Court declared as unconscionable was the imposition
of a 66% interest rate per annum. In the instant case, the interest rate is only 24% per annum, agreed upon by both parties.
By no means can it be considered unconscionable or excessive.1awphi1.net

Verily, petitioners cannot now renege on their obligation to comply with what is incumbent upon them under the loan
agreement. A contract is the law between the parties and they are bound by its stipulations. 12

Petitioners further contend that during the closure of respondent bank (from January 1, 1985 to July 1, 1994), it lost its
function as a banking institution and, therefore, could no longer charge interests and institute foreclosure proceedings.

In the case of Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of the Philippines, 13 this Court
ruled that the banks closure did not diminish the authority and powers of the designated liquidator to effectuate and
carry on the administration of the bank, thus:

x x x. We did not prohibit however acts such as receiving collectibles and receivables or paying off creditors claims and
other transactions pertaining to the normal operations of a bank. There is no doubt that that the prosecution of suits for
collection and the foreclosure of mortgages against debtors of the bank by the liquidator are among the usual and ordinary
transactions pertaining to the administration of a bank. x x x.

Likewise, in Banco Filipino Savings and Mortgage Bank vs. Ybaez, 14 where one of the issues was whether respondent
bank can collect interest on its loans during its period of liquidation and closure, this Court held:

In Banco Filipino Savings and Mortgage Bank v. Monetary Board, the validity of the closure and receivership of Banco
Filipino was put in issue. But the pendency of the case did not diminish the authority of the designated liquidator to
administer and continue the banks transactions. The Court allowed the bank liquidator to continue receiving collectibles
and receivables or paying off creditors claims and other transactions pertaining to normal operations of a bank. Among
these transactions were the prosecution of suits against debtors for collection and for foreclosure of mortgages. The bank
was allowed to collect interests on its loans while under liquidation, provided that the interests were legal.

In fine, we hold that the interest rate on the loan agreed upon between the parties is not excessive or unconscionable;
and that during the closure of respondent bank, it could still function as a bonding institution, hence, could continue
collecting interests from petitioners.

WHEREFORE, we DENY the petition and AFFIRM the challenged Decision and Resolution of the Court of Appeals in CA-G.R.
CV No. 47732. Costs against petitioners.

SO ORDERED.
G.R. No. 158261 December 18, 2006

123
 IN RE: PETITION FOR ASSISTANCE IN THE LIQUIDATION OF THE RURAL BANK OF BOKOD (BENGUET), INC., PHILIPPINE
DEPOSIT INSURANCE CORPORATION, petitioner,
vs.
BUREAU OF INTERNAL REVENUE, respondent.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari1 under Rule 45 of the revised Rules of Court, praying that this Court set aside
the Orders, dated 17 January 20032 and 13 May 2003,3 of the Regional Trial Court (RTC) of La Trinidad, Benguet, sitting
as the Liquidation Court of the closed Rural Bank of Bokod (Benguet), Inc. (RBBI), in Spec. Proc. No. 91-SP-0060.

There is no dispute as to the antecedent facts of the case, recounted as follows:

In 1986, a special examination of RBBI was conducted by the Supervision and Examination Sector (SES) Department III of
what is now the Bangko Sentral ng Pilipinas (BSP),4 wherein various loan irregularities were uncovered. In a letter, dated
20 May 1986, the SES Department III required the RBBI management to infuse fresh capital into the bank, within 30 days
from date of the advice, and to correct all the exceptions noted. However, up to the termination of the subsequent general
examination conducted by the SES Department III, no concrete action was taken by the RBBI management. In view of the
irregularities noted and the insolvent condition of RBBI, the members of the RBBI Board of Directors were called for a
conference at the BSP on 4 August 1986. Only one RBBI Director, a certain Mr. Wakit, attended the conference, and the
examination findings and related recommendations were discussed with him. In a letter, dated 4 August 1986, receipt of
which was acknowledged by Mr. Wakit, the SES Department III warned the RBBI Board of Directors that, unless substantial
remedial measures are taken to rehabilitate the bank, it will recommend that the bank be placed under receivership. In a
subsequent letter, dated 17 November 1986, a copy of which was sent to every member of the RBBI Board of Directors
via registered mail, the SES Department III reiterated its warning that it would recommend the closure of the bank, unless
the needed fresh capital was immediately infused. Despite these notices, the SES Department III received no word from
RBBI or from any of its Directors as of 28 November 1986.5

In a meeting held on 9 January 1987, the Monetary Board of the BSP decided to take the following action

Rural Bank of Bokod (Benguet), Inc. Report on its examination as of June 16, 1986, its placement under receivership

ACTION TAKEN

Finding to be true the statements of the Special Assistant to the Governor and Head, Supervision and Examination Sector
(SES) Department III, in her memorandum dated 28 November 1986 submitting a report on the general examination of
the Rural Bank of Bokod (Benguet), Inc. as of 16 June 1986, that the financial condition of the rural bank is one of insolvency
and its continuance in business would involve further losses to its depositors and creditors, x x x

xxxx

[T]he Board decided as follows:

a. To forbid the bank to do business in the Philippines and place its assets and affairs under receivership in accordance
with Section 29 of R.A. No. 265, as amended.

b. To designate the Special Assistant to the Governor and Head, SES Department III, as Receiver of the bank;

c. To refer the cases of irregularities/frauds to the Office of Special Investigation for further investigation and possible
filing of appropriate charges against the following present/former officers and employees of the bank:

xxxx

d. To include the names of the above-mentioned present and former officers and employees of the bank in the list of
persons barred from employment in any financial institution under the supervision of the Central Bank without prior
clearance from the Central Bank.6

A memorandum and report, dated 28 August 1990, were submitted by the Director of the SES Department III concluding
that the RBBI remained in insolvent financial condition and it can no longer safely resume business with the depositors,

124
creditors, and the general public. On 7 September 1990, the Monetary Board, after determining and confirming the said
memorandum and report, ordered the liquidation of the bank and designated the Director of the SES Department III as
liquidator.7

On 10 April 1991, the designated BSP liquidator of RBBI caused the filing with the RTC of a Petition for Assistance in the
Liquidation of RBBI, docketed as Spec. Proc. No. 91-SP-0060.8 Subsequently, on 2 June 1992, the Monetary Board
transferred to herein petitioner Philippine Deposit Insurance Corporation (PDIC) the receivership/liquidation of RBBI.9

PDIC then filed, on 11 September 2002, a Motion for Approval of Project of Distribution10 of the assets of RBBI, in
accordance with Section 31, in relation to Section 30, of Republic Act No. 7653, otherwise known as the New Central Bank
Act. During the hearing held on 17 January 2003, the respondent Bureau of Internal Revenue (BIR), through Atty. Justo
Reginaldo, manifested that PDIC should secure a tax clearance certificate from the appropriate BIR Regional Office,
pursuant to Section 52(C) of Republic Act No. 8424, or the Tax Code of 1997, before it could proceed with the dissolution
of RBBI. On even date, the RTC issued one of the assailed Orders,11 directing PDIC to comply with Section 52(C) of the Tax
Code of 1997 within 30 days from receipt of a copy of the said order. Pending compliance therewith, the RTC held in
abeyance the Motion for Approval of Project of Distribution. On 13 May 2003, the second assailed Order12 was issued, in
which the RTC, in resolving the Motion for Reconsideration filed by PDIC, ruled as follows

ORDER

Submitted for resolution is petitioners motion for reconsideration of the order of this court dated January 17, 2003
holding in abeyance the motion for approval of the project of distribution pending their compliance with a tax clearance
from the Bureau of Internal Revenue.

Petitioner in their motion state that Section 52-C of Republic Act 8424 does not cover closed banking institutions like the
Rural Bank of Bokod as the law that covers liquidation of closed banks is Section 30 of Republic Act No. 7653 otherwise
known as the new Central Bank Law.

Commenting on the motion for reconsideration the Bureau of Internal Revenue states that the only logic why the Bureau
is requesting for a tax clearance is to determine how much taxes, if there be any, is due the government.

The court believes and so holds that petitioner should still secure the necessary tax clearance in order for it to be cleared
of all its tax liabilities as regardless of what law covers the liquidation of closed banks, still these banks are subject to
payment of taxes mandated by law. Also in its motion for approval of the project of distribution, paragraph 2, item 2.2
states that there are unremitted withholding taxes in the amount of P8,767.32.

This shows that indeed there are still taxes to be paid. In order therefore that all taxes due the government should be
paid, petitioner should secure a tax clearance from the Bureau of Internal Revenue.

Wherefore, based on the foregoing premises, the motion for reconsideration filed by petitioner is hereby DENIED for lack
of merit.13

Hence, PDIC filed the present Petition for Review on Certiorari, under Rule 45 of the revised Rules of Court, raising pure
questions of law. It made a lone assignment of error, alleging that

THE COURT A QUO ERRED IN APPLYING THE PROVISION OF SECTION 52-C OF REPUBLIC ACT NO. 8424 DIRECTING THE
SUBMISSION OF TAX CLEARANCE FOR CORPORATIONS CONTEMPLATING DISSOLUTION ON A BANK ORDERED CLOSED AND
PLACED UNDER RECEIVERSHIP AND, THEREAFTER, UNDER LIQUIDATION, BY THE MONETARY BOARD PURSUANT TO
SECTION 30 OF REPUBLIC ACT NO. 7653.14

PDIC argues that the closure of banks under Section 30 of the New Central Bank Act is summary in nature and procurement
of tax clearance as required under Section 52(C) of the Tax Code of 1997 is not a condition precedent thereto; that under
Section 30, in relation to Section 31, of the New Central Bank Act, asset distribution of a closed bank requires only the
approval of the liquidation court; and that the BIR is not without recourse since, subject to the applicable provisions of
the Tax Code of 1997, it may therefore assess the closed RBBI for tax liabilities, if any.

In its Comment, the BIR countered with the following arguments: that the present Petition for Review on Certiorari under
Rule 45 of the revised Rules of Court is not the proper remedy to question the Order, dated 17 January 2003, of the RTC
because said order is interlocutory and cannot be the subject of an appeal; that Section 52(C) of the Tax Code of 1997
applies to all corporations, including banks ordered closed by the Monetary Board pursuant to Section 30 of the New
Central Bank Act; that the RTC may order the PDIC to obtain a tax clearance before proceeding to rule on the Motion for
Approval of Project of Distribution of the assets of RBBI; and that the present controversy should not have been elevated
to this Court since the parties are both government agencies who should have administratively settled the dispute.

125
This Court finds that there are only two primary issues for the resolution of the Petition at bar, one being procedural, and
the other substantive. The procedural issue involves the question of whether the Petition for Review on Certiorari under
Rule 45 of the revised Rules of Court is the proper remedy from the assailed Orders of the RTC. The substantive issue deals
with the determination of whether a bank ordered closed and placed under receivership by the Monetary Board of the
BSP still needs to secure a tax clearance certificate from the BIR before the liquidation court approves the project of
distribution of the assets of the bank.

This Court shall first proceed with the procedural issue on the appropriateness of the remedy taken by PDIC from the
assailed RTC Orders.

The differences between an appeal by certiorari under Rule 4515 of the revised Rules of Court and an original action for
certiorari under Rule 6516 of the same Rules have been laid down by this Court in the case of Atty. Paa v. Court of
Appeals,17 to wit

a. In appeal by certiorari, the petition is based on questions of law which the appellant desires the appellate court to
resolve. In certiorari as an original action, the petition raises the issue as to whether the lower court acted without or in
excess of jurisdiction or with grave abuse of discretion.

b. Certiorari, as a mode of appeal, involves the review of the judgment, award or final order on the merits. The original
action for certiorari may be directed against an interlocutory order of the court prior to appeal from the judgment or
where there is no appeal or any other plain, speedy or adequate remedy.

c. Appeal by certiorari must be made within the reglementary period for appeal. An original action for certiorari may be
filed not later than sixty (60) days from notice of the judgment, order or resolution sought to be assailed.

d. Appeal by certiorari stays the judgment, award or order appealed from. An original action for certiorari, unless a writ
of preliminary injunction or a temporary restraining order shall have been issued, does not stay the challenged proceeding.

e. In appeal by certiorari, the petitioner and respondent are the original parties to the action, and the lower court or quasi-
judicial agency is not to be impleaded. In certiorari as an original action, the parties are the aggrieved party against the
lower court or quasi-judicial agency and the prevailing parties, who thereby respectively become the petitioner and
respondents.

f. In certiorari for purposes of appeal, the prior filing of a motion for reconsideration is not required (Sec. 1, Rule 45); while
in certiorari as an original action, a motion for reconsideration is a condition precedent (Villa-Rey Transit vs. Bello, L-18957,
April 23, 1963), subject to certain exceptions.

g. In appeal by certiorari, the appellate court is in the exercise of its appellate jurisdiction and power of review, while in
certiorari as an original action, the higher court exercises original jurisdiction under its power of control and supervision
over the proccedings of lower courts.

Guided by the foregoing distinctions, this Court, in perusing the assailed RTC Orders, dated 17 January 2003 and 13 May
2003, reaches the conclusion that these are merely interlocutory in nature and are not the proper subjects of an appeal
by certiorari under Rule 45 of the revised Rules of Court.

This Court has repeatedly and uniformly held that a judgment or order may be appealed only when it is final, meaning
that it completely disposes of the case and definitively adjudicates the respective rights of the parties, leaving thereafter
no substantial proceeding to be had in connection with the case except the proper execution of the judgment or order.
Conversely, an interlocutory order or judgment is not appealable for it does not decide the action with finality and leaves
substantial proceedings still to be had.18

The RTC Orders presently questioned before this Court has not disposed of the case nor has it adjudicated definitively the
rights of the parties in Spec. Proc. No. 91-SP-0060. They only held in abeyance the approval of the Project of Distribution
of the assets of RBBI until PDIC, as liquidator, acquires a tax clearance from the BIR. Indubitably, there are still substantial
proceedings to be had after PDIC presents the required tax clearance to the trial court, since the Project of Distribution of
assets still has to be finalized and approved.

PDIC avers that the RTC Orders of 17 January 2003 and 13 May 2003 are final because, as this Court pronounced in the
case of Pacific Banking Corporation Employees Organization (PaBCEO) v. Court of Appeals,19 an order of the liquidation
court allowing or disallowing a claim is a final order and may be the subject of an appeal. It further asserts that the legal
issue of whether RBBI should secure a tax clearance is a "disputed claim," which was already allowed by the RTC in its
assailed Orders, thus, making the latter final.

126
This Court is unconvinced. The foregoing arguments of PDIC result from a strained interpretation of law and jurisprudence,
and are raised in an apparent attempt to justify a very obvious faux pas on its part. While it is true that in liquidation
proceedings, the settlement of disputed or contentious claims may require a full-dress hearing and the resolution of legal
issues,20 it does not follow that all legal issues resolved in the course of the liquidation proceedings would automatically
be tantamount to an allowance or disallowance of a disputed or contentious claim. In Spec. Proc. No. 91-SP-0060 pending
before the RTC, there can be no doubt that the claim of the BIR against RBBI consists of the unpaid tax liabilities of the
latter. The BIR contends that it could only determine the existence and correct amount of the tax liabilities of RBBI if PDIC,
as liquidator of the bank, secures a tax clearance from the appropriate BIR Regional Office. The acquirement of a tax
clearance is not the claim of the BIR against RBBI, it is only the means by which to ascertain such claim. Whatever tax
liabilities the BIR may claim against RBBI can still be disputed before the RTC by the PDIC, as liquidator of the bank, whether
as to the existence or computation of the said tax liabilities, and it is the ruling of the RTC on such matters that may
constitute a final order which definitively settles the claim of the BIR. The mere grant by the RTC of the motion requiring
PDIC, as liquidator of RBBI, to secure a tax clearance, does not yet constitute an adjudication of the claim of the BIR. Hence,
the assailed RTC Orders, dated 17 January 2003 and 13 May 2003, are clearly interlocutory in nature.

As a general rule, an interlocutory order is not appealable until after the rendition of the judgment on the merits, given
that a contrary rule would delay the administration of justice and unduly burden the courts. This Court, however, has also
held that an original action for certiorari under Rule 65 of the revised Rules of Court is an appropriate remedy to assail an
interlocutory order when (1) the tribunal issued such order without or in excess of jurisdiction or with grave abuse of
discretion, and (2) the assailed interlocutory order is patently erroneous and the remedy of appeal would not afford
adequate and expeditious relief.21 Thus, despite this Courts finding that PDIC, as the liquidator of RBBI, availed itself of
the wrong remedy by filing an appeal by certiorari under Rule 45 of the revised Rules of Court, We shall adopt a positive
and pragmatic approach, and, instead of dismissing the instant Petition outright, it shall treat the same as an original
action for certiorari under Rule 65 of the same Rules, in consideration of the crucial issues and substantial arguments
already presented by the concerned parties before this Court.22

II

Having disposed of the procedural issue, this Court now addresses the substantive issue of whether RBBI, as represented
by its liquidator, PDIC, still needs to secure a tax clearance from the BIR before the RTC could approve the Project of
Distribution of the assets of RBBI.

The BIR anchors its position that a tax clearance is necessary on Section 52(C) of the Tax Code of 1997, which provides

SEC. 52. Corporation Returns.

xxxx

(C) Return of Corporation Contemplating Dissolution or Reorganization. Every corporation shall, within thirty days (30)
after the adoption by the corporation of a resolution or plan for its dissolution, or for the liquidation of the whole or any
part of its capital stock, including a corporation which has been notified of possible involuntary dissolution by the Securities
and Exchange Commission, or for its reorganization, render a correct return to the Commissioner, verified under oath,
setting forth the terms of such resolution or plan and such other information as the Secretary of Finance, upon
recommendation of the Commissioner, shall, by rules and regulations, prescribe.

The dissolving or reorganizing corporation shall, prior to the issuance by the Securities and Exchange Commission of the
Certificate of Dissolution or Reorganization, as may be defined by rules and regulations prescribed by the Secretary of
Finance, upon recommendation of the Commissioner, secure a certificate of tax clearance from the Bureau of Internal
Revenue which certificate shall be submitted to the Securities and Exchange Commission.

To implement the foregoing provision, the BIR still relies on the regulations it jointly issued with the Securities and
Exchange Commission (SEC) in 1985, when the Tax Code of 1977 was still in effect and a similar provision could be found
in Section 46(C) thereof. The full text of the regulations is reproduced below

BIR-SEC REGULATIONS NO. 1

SUBJECT: Regulations to Implement the Provisions of Executive Order No. 1026, Amending Section 46(c) of the National
Internal Revenue Code of 1977, as amended, Requiring Dissolving Corporations to File Information Returns and Secure
Tax Clearance from the Commissioner of Internal Revenue, and Providing Adequate Penalties for Violations Thereof.

TO: All Internal Revenue Officers and Others Concerned.

127
Pursuant to the provisions of Section 277, in relation to Section 4 of the National Revenue Code of 1977, as amended, the
following regulations are hereby promulgated.

Section 1. Scope. These regulations shall govern the procedure for the issuance of tax clearance certificates to dissolving
corporations. This shall include corporations intending to dissolve or liquidate the whole or any part of its capital stocks,
as well as, corporations which have been notified of possible involuntary dissolution by the Securities and Exchange
Commission.

Section 2. Requirements in case of dissolution. a) Every Corporation shall, within thirty (30) days after

- the adoption by the corporation of a resolution or plan for the dissolution of the corporation, or for the liquidation of
the whole or any part of its capital stock, or

- the receipt of an order of suspension by the Securities and Exchange Commission in case of involuntary dissolution,

file their income tax returns covering the income earned by them from the beginning of the taxable year up to date of
such dissolution.

In addition thereto, they shall submit within the same period and verified under oath, the following documents:

1. a copy of the articles of incorporation and by-laws;

2. a copy of the resolution authorizing dissolution; and

3. balance sheet as of the date of dissolution and a profit and loss statement covering the period from the beginning of
the taxable year to the date of dissolution.

b) The Securities and Exchange Commission whenever it issues an order of involuntary dissolution or suspension of the
primary franchise or certificate of registration of a corporation, shall at the same time furnish the Commissioner of Internal
Revenue a copy of such order.

Section 3. Tax clearance certificate. a) Within thirty (30) days from receipt of the documents mentioned in the preceding
Section, the Commissioner of Internal Revenue, or his duly authorized representative, shall issue the corresponding tax
clearance certificate (BIR Form No. 17.61) for the corporation which will be dissolved.

b) The Securities and Exchange Commission shall issue the final order of dissolution only after a certificate of tax clearance
has been submitted by the dissolving corporation: Provided, that in case of involuntary dissolution, the Securities and
Exchange Commission may nevertheless proceed with the dissolution if thirty (30) days after receipt of the suspension
order no tax clearance has yet been issued.

Section 4. Penalty. Failure to render the return and secure the certificate of tax clearance as above-mentioned shall
subject the officer(s) of the corporation required by law to file the return under Section 46(a) of the National Internal
Revenue Code of 1977, as amended, to a fine of not less than P5,000.00 or imprisonment of not less than two (2) years,
and shall make them liable for all outstanding or unpaid tax liabilities of the dissolving corporation.

Section 5. Effectivity. These regulations shall apply to all corporate dissolution taking place on or after May 14, 1985.

Section 6. Repealing Clause. All revenue regulations, orders and circulars which are inconsistent herewith are hereby
modified accordingly.

The afore-quoted Tax Code provision and regulations refer to a voluntary dissolution and/or liquidation of a corporation
through its adoption of a resolution or plan to that effect, or an involuntary dissolution of a corporation by order of the
SEC. They make no reference at all to a situation similar to the one at bar in which a banking corporation is ordered closed
and placed under receivership by the BSP and its assets judicially liquidated. Now, the determining question is, whether
Section 52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1 could be made to apply to the present case.

This Court rules in the negative.

First, Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1 regulate the relations only as between the
SEC and the BIR, making a certificate of tax clearance a prior requirement before the SEC could approve the dissolution of
a corporation. In Spec. Proc. No. 91-SP-0060 pending before the RTC, RBBI was placed under receivership and ordered
liquidated by the BSP, not the SEC; and the SEC is not even a party in the said case, although the BIR is. This Court cannot
find any basis to extend the SEC requirements for dissolution of a corporation to the liquidation proceedings of RBBI before
the RTC when the SEC is not even involved therein.

128
It is conceded that the SEC has the authority to order the dissolution of a corporation pursuant to Section 121 of Batas
Pambansa Blg. 68, otherwise known as the Corporation Code of the Philippines, which reads

Sec. 121. Involuntary dissolution. A corporation may be dissolved by the Securities and Exchange Commission upon filing
of a verified complaint and after proper notice and hearing on the grounds provided by existing laws, rules and regulations.

The Corporation Code, however, is a general law applying to all types of corporations, while the New Central Bank Act
regulates specifically banks and other financial institutions, including the dissolution and liquidation thereof. As between
a general and special law, the latter shall prevail generalia specialibus non derogant.23

The liquidation of RBBI is undertaken according to Sections 30 of the New Central Bank Act, viz

Sec. 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the supervising or examining
department, the Monetary Board finds that a bank or quasi-bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not include
inability to pay caused by extraordinary demands induced by financial panic in the banking community;

(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or creditors; or

(d) has wilfully violated a cease and desist order under Section 37 that has become final, involving acts or transactions
which amount to fraud or a dissipation of the assets of the institution; in which cases, the Monetary Board may summarily
and without need for prior hearing forbid the institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking institution.

For a quasi-bank, any person of recognized competence in banking or finance may be designated as receiver.

The receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer the
same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court but
shall not, with the exception of administrative expenditures, pay or commit any act that will involve the transfer or
disposition of any asset of the institution: Provided, That the receiver may deposit or place the funds of the institution in
non-speculative investments. The receiver shall determine as soon as possible, but not later than ninety (90) days from
take over, whether the institution may be rehabilitated or otherwise placed in such a condition that it may be permitted
to resume business with safety to its depositors and creditors and the general public: Provided, That any determination
for the resumption of business of the institution shall be subject to prior approval of the Monetary Board.

If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in accordance with
the next preceding paragraph, the Monetary Board shall notify in writing the board of directors of its findings and direct
the receiver to proceed with the liquidation of the institution. The receiver shall:

(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any other action, a petition
for assistance in the liquidation of the institution pursuant to a liquidation plan adopted by the Philippine Deposit
Insurance Corporation for general application to all closed banks. In case of quasi-banks, the liquidation plan shall be
adopted by the Monetary Board. Upon acquiring jurisdiction, the court shall, upon motion by the receiver after due notice,
adjudicate disputed claims against the institution, assist the enforcement of individual liabilities of the stockholders,
directors and officers, and decide on other issues as may be material to implement the liquidation plan adopted. The
receiver shall pay the cost of the proceedings from the assets of the institution.

(2) convert the assets of the institution to money, dispose of the same to creditors and other parties, for the purpose of
paying the debts of such institution in accordance with the rules on concurrence and preference of credit under the Civil
Code of the Philippines and he may, in the name of the institution, and with the assistance of counsel as he may retain,
institute such actions as may be necessary to collect and recover accounts and assets of, or defend any action against, the
institution. The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of
the receiver and shall, from the moment the institution was placed under such receivership or liquidation, be exempt from
any order of garnishment, levy, attachment, or execution.

The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and executory,
and may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken
was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The
petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock within

129
ten (10) days from receipt by the board of directors of the institution of the order directing receivership, liquidation or
conservatorship.

The designation of a conservator under Section 29 of this Act or the appointment of a receiver under this section shall be
vested exclusively with the Monetary Board. Furthermore, the designation of a conservator is not a precondition to the
designation of a receiver.

Section 30 of the New Central Bank Act lays down the proceedings for receivership and liquidation of a bank. The said
provision is silent as regards the securing of a tax clearance from the BIR. The omission, nonetheless, cannot compel this
Court to apply by analogy the tax clearance requirement of the SEC, as stated in Section 52(C) of the Tax Code of 1997 and
BIR-SEC Regulations No. 1, since, again, the dissolution of a corporation by the SEC is a totally different proceeding from
the receivership and liquidation of a bank by the BSP. This Court cannot simply replace any reference by Section 52(C) of
the Tax Code of 1997 and the provisions of the BIR-SEC Regulations No. 1 to the "SEC" with the "BSP." To do so would be
to read into the law and the regulations something that is simply not there, and would be tantamount to judicial legislation.

It should be noted that there are substantial differences in the procedure for involuntary dissolution and liquidation of a
corporation under the Corporation Code, and that of a banking corporation under the New Central Bank Act, so that the
requirements in one cannot simply be imposed in the other.

Under the Corporation Code, the SEC may dissolve a corporation, upon the filing of a verified complaint and after proper
notice and hearing, on grounds provided by existing laws, rules, and regulations.24 Upon receipt by the corporation of the
order of suspension from the SEC, it is required to notify and submit a copy of the said order, together with its final tax
return, to the BIR. The SEC is also required to furnish the BIR a copy of its order of suspension. The BIR is supposed to issue
a tax clearance to the corporation within 30 days from receipt of the foregoing documentary requirements. The SEC shall
issue the final order of dissolution only after the corporation has submitted its tax clearance; or in case of involuntary
dissolution, the SEC may proceed with the dissolution after 30 days from receipt by the BIR of the documentary
requirements without a tax clearance having been issued.25 The corporation is allowed to continue as a body corporate
for three years after its dissolution, for the purpose of prosecuting and defending suits by or against it, to settle and close
its affairs, and to dispose of and convey its property and distribute its assets, but not for the purpose of continuing its
business. The corporation may undertake its own liquidation, or at any time during the said three years, it may convey all
of its property to trustees for the benefit of its stockholders, members, creditors, and other persons in interest.26

In contrast, the Monetary Board may summarily and without need for prior hearing, forbid the banking corporation from
doing business in the Philippines, for causes enumerated in Section 30 of the New Central Bank Act; and appoint the PDIC
as receiver of the bank. PDIC shall immediately gather and take charge of all the assets and liabilities of the closed bank
and administer the same for the benefit of its creditors. The summary nature of the procedure for the involuntary closure
of a bank is especially stressed in Section 30 of the New Central Bank Act, which explicitly states that the actions of the
Monetary Board under the said Section or Section 29 shall be final and executory, and may not be restrained or set aside
by the court except on a Petition for Certiorari filed by the stockholders of record of the bank representing a majority of
the capital stock. PDIC, as the appointed receiver, shall file ex parte with the proper RTC, and without requirement of prior
notice or any other action, a petition for assistance in the liquidation of the bank. The bank is not given the option to
undertake its own liquidation.

Second, the alleged purpose of the BIR in requiring the liquidator PDIC to secure a tax clearance is to enable it to determine
the tax liabilities of the closed bank. It raised the point that since the PDIC, as receiver and liquidator, failed to file the final
return of RBBI for the year its operations were stopped, the BIR had no way of determining whether the bank still had
outstanding tax liabilities.

To our mind, what the BIR should have requested from the RTC, and what was within the discretion of the RTC to grant,
is not an order for PDIC, as liquidator of RBBI, to secure a tax clearance; but, rather, for it to submit the final return of
RBBI. The first paragraph of Section 30(C) of the Tax Code of 1997, read in conjunction with Section 54 of the same Code,
clearly imposes upon PDIC, as the receiver and liquidator of RBBI, the duty to file such a return. The pertinent provisions
are reproduced below for reference

SEC. 52. Corporation Returns.

xxxx
(C) Return of Corporation Contemplating Dissolution or Reorganization. Every corporation shall, within thirty days (30)
after the adoption by the corporation of a resolution or plan for its dissolution, or for the liquidation of the whole or any
part of its capital stock, including a corporation which has been notified of possible involuntary dissolution by the Securities
and Exchange Commission, or for its reorganization, render a correct return to the Commissioner, verified under oath,
setting forth the terms of such resolution or plan and such other information as the Secretary of Finance, upon
recommendation of the Commissioner, shall, by rules and regulations, prescribe.
xxxx

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SEC. 54. Returns of receivers, Trustees in Bankruptcy or Assignees. In cases wherein receivers, trustees in bankruptcy or
assignees are operating the property or business of a corporation, subject to the tax imposed by this Title, such receivers,
trustees or assignees shall make returns of net income as and for such corporation, in the same manner and form as such
an organization is hereinbefore required to make returns, and any tax due on the income as returned by receivers, trustees
or assignees shall be assessed and collected in the same manner as if assessed directly against the organizations of whose
businesses or properties they have custody or control.

Section 54 of the Tax Code of 1997 imposes a general duty on all receivers, trustees in bankruptcy, and assignees, who
operate and preserve the assets of a corporation, regardless of the circumstances or the law by which they came to hold
their positions, to file the necessary returns on behalf of the corporation under their care.

The filing by PDIC of a final tax return, on behalf of RBBI, should already address the supposed concern of the BIR and
would already enable the latter to determine if RBBI still had outstanding tax liabilities.

The unreasonableness and impossibility of requiring a tax clearance before the approval by the RTC of the Project of
Distribution of the assets of the RBBI becomes apparent when the timeline of the proceedings is considered.

The BIR can only issue a certificate of tax clearance when the taxpayer had completely paid off his tax liabilities. The
certificate of tax clearance attests that the taxpayer no longer has any outstanding tax obligations to the Government.

Should the BIR find that RBBI still had outstanding tax liabilities, PDIC will not be able to pay the same because the Project
of Distribution of the assets of RBBI remains unapproved by the RTC; and, if RBBI still had outstanding tax liabilities, the
BIR will not issue a tax clearance; but, without the tax clearance, the Project of Distribution of assets, which allocates the
payment for the tax liabilities, will not be approved by the RTC. It will be a chicken-and-egg dilemma.

The Government, in this case, cannot generally claim preference of credit, and receive payment ahead of the other
creditors of RBBI. Duties, taxes, and fees due the Government enjoy priority only when they are with reference to a specific
movable property, under Article 2241(1) of the Civil Code, or immovable property, under Article 2242(1) of the same Code.
However, with reference to the other real and personal property of the debtor, sometimes referred to as "free property,"
the taxes and assessments due the National Government, other than those in Articles 2241(1) and 2242(1) of the Civil
Code, will come only in ninth place in the order of preference.27

Thus, the recourse of the BIR, after assessing the final return and examining all other pertinent documents of RBBI, and
making a determination of the latters outstanding tax liabilities, is to present its claim, on behalf of the National
Government, before the RTC during the liquidation proceedings. The BIR is expected to prove and substantiate its claim,
in the same manner as the other creditors. It is only after the RTC allows the claim of the BIR, together with the claims of
the other creditors, can a Project for Distribution of the assets of RBBI be finalized and approved. PDIC, then, as liquidator,
may proceed with the disposition of the assets of RBBI and pay the latters financial obligations, including its outstanding
tax liabilities. And, finally, only after such payment, can the BIR issue a certificate of tax clearance in the name of RBBI.

Third, the evident void in current statutes and regulations as to the relations among the BIR, as tax collector of the National
Government; the BSP, as regulator of the banks; and the PDIC, as the receiver and liquidator of banks ordered closed by
the BSP, is not for this Court to fill in. It is up to the legislature to address the matter through appropriate legislation, and
to the executive to provide the regulations for its implementation.

It is for these reasons that the RTC committed grave abuse of discretion, and committed patent error, in ordering the
PDIC, as the liquidator of RBBI, to first secure a tax clearance from the appropriate BIR Regional Office, and holding in
abeyance the approval of the Project of Distribution of the assets of the RBBI by virtue thereof.

Although this Court rules in favor of PDIC, in the sense that a tax clearance is not a prerequisite to the approval of the
Project of Distribution of the assets of RBBI, it cannot uphold its argument that the Spec. Proc. No. 91-SP-0060 is summary
in nature.

Section 30(d) of the New Central Bank Act gives the Monetary Board of the BSP the power to, summarily and without
need for prior hearing, forbid a bank or quasi-bank from doing business in the Philippines and designating the PDIC as
receiver of the banking institution. It bears to emphasize that: (1) the power is granted to the Monetary Board of the BSP;
and (2) what is summary in nature is the power of the Monetary Board of the BSP to forbid or stop a bank or quasi-bank
from doing further business.

Once liquidation proceedings are instituted before the appropriate trial court, and the trial court assumes jurisdiction over
the Petition, then the proceedings take a different character. Spec. Proc. No. 91-SP-0600 is the liquidation proceedings
initiated by the PDIC before the RTC. Liquidation proceedings have been described in detail in the case of Pacific Banking
Corporation Employees Organization (PaBCEO) v. Court of Appeals,28 to wit

131
[A] liquidation proceeding resembles the proceeding for the settlement of estate of deceased persons under Rules 73 to
91 of the Rules of Court. The two have a common purpose: the determination of all the assets and the payment of all the
debts and liabilities of the insolvent corporation or the estate. The Liquidator and the administrator or executor are both
charged with the assets for the benefit of the claimants. In both instances, the liability of the corporation and the estate
is not disputed. The court's concern is with the declaration of creditors and their rights and the determination of their
order of payment

xxxx

A liquidation proceeding is a single proceeding which consists of a number of cases properly classified as "claims." It is
basically a two-phased proceeding. The first phase is concerned with the approval and disapproval of claims. Upon the
approval of the petition seeking the assistance of the proper court in the liquidation of a closed entity, all money claims
against the bank are required to be filed with the liquidation court. This phase may end with the declaration by the
liquidation court that the claim is not proper or without basis. On the other hand, it may also end with the liquidation
court allowing the claim. In the latter case, the claim shall be classified whether it is ordinary or preferred, and thereafter
included Liquidator. In either case, the order allowing or disallowing a particular claim is final order, and may be appealed
by the party aggrieved thereby.

The second phase involves the approval by the Court of the distribution plan prepared by the duly appointed liquidator.
The distribution plan specifies in detail the total amount available for distribution to creditors whose claim were earlier
allowed. The Order finally disposes of the issue of how much property is available for disposal. Moreover, it ushers in the
final phase of the liquidation proceeding - payment of all allowed claims in accordance with the order of legal priority and
the approved distribution plan.

xxxx

A liquidation proceeding is commenced by the filing of a single petition by the Solicitor General with a court of competent
jurisdiction entitled, "Petition for Assistance in the Liquidation of e.g., Pacific Banking Corporation." All claims against the
insolvent are required to be filed with the liquidation court. Although the claims are litigated in the same proceeding, the
treatment is individual. Each claim is heard separately. And the Order issued relative to a particular claim applies only to
said claim, leaving the other claims unaffected, as each claim is considered separate and distinct from the others. x x x
[Emphases supplied.]

Irrefragably, liquidation proceedings cannot be summary in nature. It requires the holding of hearings and presentation
of evidence of the parties concerned, i.e., creditors who must prove and substantiate their claims, and the liquidator
disputing the same. It also allows for multiple appeals, so that each creditor may appeal a final order rendered against its
claim. Hence, liquidation proceedings may very well be highly-contested and drawn-out, because, at the end of it all, all
claims against the corporation undergoing litigation must be settled definitively and its assets properly disposed off.

WHEREFORE, in view of the foregoing, this Court rules as follows

(a) The instant Petition is GRANTED and the Orders, dated 17 January 2003 and 13 May 2003, of the RTC, sitting as the
Liquidation Court of the closed RBBI, in Spec. Proc. No. 91-SP-0060, are NULLIFIED and SET ASIDE for having been rendered
with grave abuse of discretion;

(b) The PDIC, as liquidator, is ORDERED to submit to the BIR the final tax return of RBBI, in accordance with the first
paragraph of Section 52(C), in connection with Section 54, of the Tax Code of 1997; and

(c) The RTC is ORDERED to resume the liquidation proceedings in Spec. Proc. No. 91-SP-0060 in order to determine all the
claims of the creditors, including that of the National Government, as determined and presented by the BIR; and, pursuant
to such determination, and guided accordingly by the provisions of the Civil Code on preference of credit, to review and
approve the Project of Distribution of the assets of RBBI.

SO ORDERED.
G.R. No. 115849 January 24, 1996

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO RIVERA,
petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.

DECISION

PANGANIBAN, J.:

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In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters and/or in a
meeting with the buyers constitute a perfected and enforceable contract of sale over 101 hectares of land in Sta. Rosa,
Laguna? Does the doctrine of "apparent authority" apply in this case? If so, may the Central Bank-appointed conservator
of Producers Bank (now First Philippine International Bank) repudiate such "apparent authority" after said contract has
been deemed perfected? During the pendency of a suit for specific performance, does the filing of a "derivative suit" by
the majority shareholders and directors of the distressed bank to prevent the enforcement or implementation of the sale
violate the ban against forum-shopping?

Simply stated, these are the major questions brought before this Court in the instant Petition for review on certiorari
under Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of the respondent Court of
Appeals1 in CA-G.R CV No. 35756 and the Resolution promulgated June 14, 1994 denying the motion for reconsideration.
The dispositive portion of the said Decision reads:

WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages awarded under paragraphs
3, 4 and 6 of its dispositive portion and the reduction of the award in paragraph 5 thereof to P75,000.00, to be assessed
against defendant bank. In all other aspects, said decision is hereby AFFIRMED.

All references to the original plaintiffs in the decision and its dispositive portion are deemed, herein and hereafter, to
legally refer to the plaintiff-appellee Carlos C. Ejercito.

Costs against appellant bank.

The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other hand, is as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants as
follows:

1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at Don Jose,
Sta. Rosa, Laguna with an area of 101 hectares, more or less, covered by and embraced in Transfer Certificates of Title
Nos. T-106932 to T-106937, inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant
Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt from the plaintiffs
the amount of P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale over the aforementioned six (6)
parcels of land, and to immediately deliver to the plaintiffs the owner's copies of T.C.T. Nos. T-106932 to T- 106937,
inclusive, for purposes of registration of the same deed and transfer of the six (6) titles in the names of the plaintiffs;
3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the sums of
P200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as exemplary damages ;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00 for and by way of
attorney's fees;
6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate damages in the amount
of P20,000.00;

With costs against the defendants.

After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the petition was given due
course in a Resolution dated January 18, 1995. Thence, the parties filed their respective memoranda and reply
memoranda. The First Division transferred this case to the Third Division per resolution dated October 23, 1995. After
carefully deliberating on the aforesaid submissions, the Court assigned the case to the undersigned ponente for the writing
of this Decision.

The Parties

Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank, for brevity) is a
banking institution organized and existing under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera
(petitioner Rivera, for brevity) is of legal age and was, at all times material to this case, Head-Manager of the Property
Management Department of the petitioner Bank.

Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original plaintiffs-
appellees Demetrio Demetria and Jose Janolo.

Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside through this
petition.

133
The Facts

The facts of this case are summarized in the respondent Court's Decision3 as follows:

(1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six parcels of
land with a total area of 101 hectares located at Don Jose, Sta. Rose, Laguna, and covered by Transfer Certificates of Title
Nos. T-106932 to T-106937. The property used to be owned by BYME Investment and Development Corporation which
had them mortgaged with the bank as collateral for a loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo,
wanted to purchase the property and thus initiated negotiations for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment's legal counsel, Jose
Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management Department of the defendant bank.
The meeting was held pursuant to plaintiffs' plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting,
plaintiff Janolo, following the advice of defendant Rivera, made a formal purchase offer to the bank through a letter dated
August 30, 1987 (Exh. "B"), as follows:

August 30, 1987

The Producers Bank of the Philippines

Makati, Metro Manila

Attn. Mr. Mercurio Q. Rivera

Manager, Property Management Dept.

Gentleman:

I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder located at Sta.
Rosa, Laguna, with a total area of 101 hectares, more or less.

TCT NO.

AREA

T-106932
113,580 sq. m.
T-106933
70,899 sq. m.
T-106934
52,246 sq. m.
T-106935
96,768 sq. m.
T-106936
187,114 sq. m.
T-106937
481,481 sq. m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in cash.

Kindly contact me at Telephone Number 921-1344.

(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter which is hereunder quoted
(Exh. "C"):

September 1, 1987

JP M-P GUTIERREZ ENTERPRISES

142 Charisma St., Doa Andres II
Rosario, Pasig, Metro Manila

Attention: JOSE O. JANOLO

Dear Sir:

134
Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna (formerly owned by Byme
Industrial Corp.). Please be informed however that the bank's counter-offer is at P5.5 million for more than 101 hectares
on lot basis.

We shall be very glad to hear your position on the on the matter.

Best regards.

(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote (Exh. "D"):

September 17, 1987

Producers Bank
Paseo de Roxas
Makati, Metro Manila

Attention: Mr. Mercurio Rivera

Gentlemen:

In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa, Laguna, I would like to
amend my previous offer and I now propose to buy the said lot at P4.250 million in CASH..

Hoping that this proposal meets your satisfaction.

(5) There was no reply to Janolo's foregoing letter of September 17, 1987. What took place was a meeting on
September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera as well as
Fajardo, the BYME lawyer, attended the meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to the
bank, through Rivera, the following letter (Exh. "E"):

The Producers Bank of the Philippines

Paseo de Roxas, Makati
Metro Manila

Attention: Mr. Mercurio Rivera

Re: 101 Hectares of Land

in Sta. Rosa, Laguna

Gentlemen:

Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your offer for us
to purchase the property at Sta. Rosa, Laguna, formerly owned by Byme Investment, for a total price of PESOS: FIVE
MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).

Thank you.

(6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the Central
Bank since 1984) was replaced by an Acting Conservator in the person of defendant Leonida T. Encarnacion. On November
4, 1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. "F"):

Attention: Atty. Demetrio Demetria

Dear Sir:

Your proposal to buy the properties the bank foreclosed from Byme investment Corp. located at Sta. Rosa, Laguna is under
study yet as of this time by the newly created committee for submission to the newly designated Acting Conservator of
the bank.

For your information.

(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what plaintiff
considered as a perfected contract of sale, which demands were in one form or another refused by the bank. As detailed
by the trial court in its decision, on November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit "G")

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tendered payment of the amount of P5.5 million "pursuant to (our) perfected sale agreement." Defendants refused to
receive both the payment and the letter. Instead, the parcels of land involved in the transaction were advertised by the
bank for sale to any interested buyer (Exh, "H" and "H-1"). Plaintiffs demanded the execution by the bank of the documents
on what was considered as a "perfected agreement." Thus:

Mr. Mercurio Rivera

Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila

Dear Mr. Rivera:

This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot located in Sta. Rosa,
Laguna, and which are covered by TCT No. T-106932 to 106937.

From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same lot in the amount
of P5.5 million was accepted by our client thru a letter dated September 30, 1987 and was received by you on October 5,
1987.

In view of the above circumstances, we believe that an agreement has been perfected. We were also informed that despite
repeated follow-up to consummate the purchase, you now refuse to honor your commitment. Instead, you have
advertised for sale the same lot to others.

In behalf of our client, therefore, we are making this formal demand upon you to consummate and execute the necessary
actions/documentation within three (3) days from your receipt hereof. We are ready to remit the agreed amount of P5.5
million at your advice. Otherwise, we shall be constrained to file the necessary court action to protect the interest of our
client.

We trust that you will be guided accordingly.

(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter and stated, in its
communication of December 2, 1987 (Exh. "I"), that said letter has been "referred . . . to the office of our Conservator for
proper disposition" However, no response came from the Acting Conservator. On December 14, 1987, the plaintiffs made
a second tender of payment (Exh. "L" and "L-1"), this time through the Acting Conservator, defendant Encarnacion.
Plaintiffs' letter reads:

PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila

Attn.: Atty. NIDA ENCARNACION

Central Bank Conservator

We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No. 258387 in the amount of
P5.5 million as our agreed purchase price of the 101-hectare lot covered by TCT Nos. 106932, 106933, 106934, 106935,
106936 and 106937 and registered under Producers Bank.

This is in connection with the perfected agreement consequent from your offer of P5.5 Million as the purchase price of
the said lots. Please inform us of the date of documentation of the sale immediately.

Kindly acknowledge receipt of our payment.

(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through
counsel, made a final demand for compliance by the bank with its obligations under the considered perfected contract of
sale (Exhibit "N"). As recounted by the trial court (Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex "4"
of defendant's answer to amended complaint), the defendants through Acting Conservator Encarnacion repudiated the
authority of defendant Rivera and claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5 Million
are unauthorized or illegal. On that basis, the defendants justified the refusal of the tenders of payment and the non-
compliance with the obligations under what the plaintiffs considered to be a perfected contract of sale.

(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its Manager Rivers
and Acting Conservator Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a

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perfected contract of sale, The defendants took the position that there was no such perfected sale because the defendant
Rivera is not authorized to sell the property, and that there was no meeting of the minds as to the price.

On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and Gatmaitan, filed a
motion to intervene in the trial court, alleging that as owner of 80% of the Bank's outstanding shares of stock, he had a
substantial interest in resisting the complaint. On July 8, 1991, the trial court issued an order denying the motion to
intervene on the ground that it was filed after trial had already been concluded. It also denied a motion for reconsideration
filed thereafter. From the trial court's decision, the Bank, petitioner Rivera and conservator Encarnacion appealed to the
Court of Appeals which subsequently affirmed with modification the said judgment. Henry Co did not appeal the denial of
his motion for intervention.

In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of Demetria and Janolo,
in view of the assignment of the latters' rights in the matter in litigation to said private respondent.

On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other stockholders
of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action (hereafter, the "Second Case")
purportedly a "derivative suit" with the Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606,
against Encarnacion, Demetria and Janolo "to declare any perfected sale of the property as unenforceable and to stop
Ejercito from enforcing or implementing the sale"4 In his answer, Janolo argued that the Second Case was barred by litis
pendentia by virtue of the case then pending in the Court of Appeals. During the pre-trial conference in the Second Case,
plaintiffs filed a Motion for Leave of Court to Dismiss the Case Without Prejudice. "Private respondent opposed this motion
on the ground, among others, that plaintiff's act of forum shopping justifies the dismissal of both cases, with prejudice."5
Private respondent, in his memorandum, averred that this motion is still pending in the Makati RTC.

In their Petition6 and Memorandum7 , petitioners summarized their position as follows:

I.
The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in substitution of Demetria
and Janolo) and the bank.

II.
The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the parties.

III.
The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke acts of
previous management.

IV.
The findings and conclusions of the Court of Appeals do not conform to the evidence on record.

On the other hand, petitioners prayed for dismissal of the instant suit on the ground8 that:

I.
Petitioners have engaged in forum shopping.

II.
The factual findings and conclusions of the Court of Appeals are supported by the evidence on record and may no longer
be questioned in this case.

III.
The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo (substituted by;
respondent Ejercito) and the bank.

IV.
The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the agency and
the contract, has no authority to revoke the contract of sale.

The Issues

From the foregoing positions of the parties, the issues in this case may be summed up as follows:

1) Was there forum-shopping on the part of petitioner Bank?

2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute of frauds?

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4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or to
revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?

The First Issue: Was There Forum-Shopping?

In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised Circular No.
28-91 requiring that a party "must certify under oath . . . [that] (a) he has not (t)heretofore commenced any other action
or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b)
to the best of his knowledge, no such action or proceeding is pending" in said courts or agencies. A violation of the said
circular entails sanctions that include the summary dismissal of the multiple petitions or complaints. To be sure, petitioners
have included a VERIFICATION/CERTIFICATION in their Petition stating "for the record(,) the pendency of Civil Case No.
92-1606 before the Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by stockholders of petitioner
Bank against the conservator and other defendants but which is the subject of a pending Motion to Dismiss Without
Prejudice.9

Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of actual forum
shopping because the instant petition pending before this Court involves "identical parties or interests represented, rights
asserted and reliefs sought (as that) currently pending before the Regional Trial Court, Makati Branch 134 in the Second
Case. In fact, the issues in the two cases are so interwined that a judgement or resolution in either case will constitute res
judicata in the other." 10

On the other hand, petitioners explain 11 that there is no forum-shopping because:

1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded as a defendant, whereas
in the "Second Case" (assuming the Bank is the real party in interest in a derivative suit), it was plaintiff;
2) "The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances";
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to the Petition
identifies the action as a "derivative suit," it "does not mean that it is one" and "(t)hat is a legal question for the courts to
decide";
4) Petitioners did not hide the Second Case at they mentioned it in the said VERIFICATION/CERTIFICATION.

We rule for private respondent.

To begin with, forum-shopping originated as a concept in private international law.12 , where non-resident litigants are
given the option to choose the forum or place wherein to bring their suit for various reasons or excuses, including to
secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more
friendly venue. To combat these less than honorable excuses, the principle of forum non conveniens was developed
whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most "convenient"
or available forum and the parties are not precluded from seeking remedies elsewhere.

In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party attempts to have his action tried in
a particular court or jurisdiction where he feels he will receive the most favorable judgment or verdict." Hence, according
to Words and Phrases14 , "a litigant is open to the charge of "forum shopping" whenever he chooses a forum with slight
connection to factual circumstances surrounding his suit, and litigants should be encouraged to attempt to settle their
differences without imposing undue expenses and vexatious situations on the courts".

In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of venues, as it was
originally understood in conflicts of laws, but also to a choice of remedies. As to the first (choice of venues), the Rules of
Court, for example, allow a plaintiff to commence personal actions "where the defendant or any of the defendants resides
or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec, 2 [b]).
As to remedies, aggrieved parties, for example, are given a choice of pursuing civil liabilities independently of the criminal,
arising from the same set of facts. A passenger of a public utility vehicle involved in a vehicular accident may sue on culpa
contractual, culpa aquiliana or culpa criminal each remedy being available independently of the others although he
cannot recover more than once.

In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum of his action,
This was the original concept of the term forum shopping.

Eventually, however, instead of actually making a choice of the forum of their actions, litigants, through the
encouragement of their lawyers, file their actions in all available courts, or invoke all relevant remedies simultaneously.
This practice had not only resulted to (sic) conflicting adjudications among different courts and consequent confusion
enimical (sic) to an orderly administration of justice. It had created extreme inconvenience to some of the parties to the
action.

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Thus, "forum shopping" had acquired a different concept which is unethical professional legal practice. And this
necessitated or had given rise to the formulation of rules and canons discouraging or altogether prohibiting the practice.
15

What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device for solving
problems has been abused and mis-used to assure scheming litigants of dubious reliefs.

To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned, promulgated
Circular 28-91. And even before that, the Court had prescribed it in the Interim Rules and Guidelines issued on January 11,
1983 and had struck down in several cases 16 the inveterate use of this insidious malpractice. Forum shopping as "the
filing of repetitious suits in different courts" has been condemned by Justice Andres R. Narvasa (now Chief Justice) in
Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et al., "as a reprehensible manipulation of court processes
and proceedings . . ." 17 when does forum shopping take place?

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other
than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts but also in
connection with litigations commenced in the courts while an administrative proceeding is pending, as in this case, in
order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and a favorable court
ruling. This is specially so, as in this case, where the court in which the second suit was brought, has no jurisdiction.18

The test for determining whether a party violated the rule against forum shopping has been laid dawn in the 1986 case of
Buan vs. Lopez 19 , also by Chief Justice Narvasa, and that is, forum shopping exists where the elements of litis pendentia
are present or where a final judgment in one case will amount to res judicata in the other, as follows:

There thus exists between the action before this Court and RTC Case No. 86-36563 identity of parties, or at least such
parties as represent the same interests in both actions, as well as identity of rights asserted and relief prayed for, the relief
being founded on the same facts, and the identity on the two preceding particulars is such that any judgment rendered in
the other action, will, regardless of which party is successful, amount to res adjudicata in the action under consideration:
all the requisites, in fine, of auter action pendant.

xxx xxx xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563, an identity as regards parties, or
interests represented, rights asserted and relief sought, as well as basis thereof, to a degree sufficient to give rise to the
ground for dismissal known as auter action pendant or lis pendens. That same identity puts into operation the sanction of
twin dismissals just mentioned. The application of this sanction will prevent any further delay in the settlement of the
controversy which might ensue from attempts to seek reconsideration of or to appeal from the Order of the Regional Trial
Court in Civil Case No. 86-36563 promulgated on July 15, 1986, which dismissed the petition upon grounds which appear
persuasive.

Consequently, where a litigant (or one representing the same interest or person) sues the same party against whom
another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still
pending, the defense of litis pendencia in one case is bar to the others; and, a final judgment in one would constitute res
judicata and thus would cause the dismissal of the rest. In either case, forum shopping could be cited by the other party
as a ground to ask for summary dismissal of the two 20 (or more) complaints or petitions, and for imposition of the other
sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action against the erring lawyer.

Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious that there exist
identity of parties or interests represented, identity of rights or causes and identity of reliefs sought.

Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was filed by the buyer
(herein private respondent and his predecessors-in-interest) against the seller (herein petitioners) to enforce the alleged
perfected sale of real estate. On the other hand, the complaint 21 in the Second Case seeks to declare such purported sale
involving the same real property "as unenforceable as against the Bank", which is the petitioner herein. In other words, in
the Second Case, the majority stockholders, in representation of the Bank, are seeking to accomplish what the Bank itself
failed to do in the original case in the trial court. In brief, the objective or the relief being sought, though worded
differently, is the same, namely, to enable the petitioner Bank to escape from the obligation to sell the property to
respondent. In Danville Maritime, Inc. vs. Commission on Audit. 22 , this Court ruled that the filing by a party of two
apparently different actions, but with the same objective, constituted forum shopping:

In the attempt to make the two actions appear to be different, petitioner impleaded different respondents therein
PNOC in the case before the lower court and the COA in the case before this Court and sought what seems to be different
reliefs. Petitioner asks this Court to set aside the questioned letter-directive of the COA dated October 10, 1988 and to

139
direct said body to approve the Memorandum of Agreement entered into by and between the PNOC and petitioner, while
in the complaint before the lower court petitioner seeks to enjoin the PNOC from conducting a rebidding and from selling
to other parties the vessel "T/T Andres Bonifacio", and for an extension of time for it to comply with the paragraph 1 of
the memorandum of agreement and damages. One can see that although the relief prayed for in the two (2) actions are
ostensibly different, the ultimate objective in both actions is the same, that is, approval of the sale of vessel in favor of
petitioner and to overturn the letter-directive of the COA of October 10, 1988 disapproving the sale. (emphasis supplied).

In an earlier case 23 but with the same logic and vigor, we held:

In other words, the filing by the petitioners of the instant special civil action for certiorari and prohibition in this Court
despite the pendency of their action in the Makati Regional Trial Court, is a species of forum-shopping. Both actions
unquestionably involve the same transactions, the same essential facts and circumstances. The petitioners' claim of
absence of identity simply because the PCGG had not been impleaded in the RTC suit, and the suit did not involve certain
acts which transpired after its commencement, is specious. In the RTC action, as in the action before this Court, the validity
of the contract to purchase and sell of September 1, 1986, i.e., whether or not it had been efficaciously rescinded, and the
propriety of implementing the same (by paying the pledgee banks the amount of their loans, obtaining the release of the
pledged shares, etc.) were the basic issues. So, too, the relief was the same: the prevention of such implementation and/or
the restoration of the status quo ante. When the acts sought to be restrained took place anyway despite the issuance by
the Trial Court of a temporary restraining order, the RTC suit did not become functus oficio. It remained an effective
vehicle for obtention of relief; and petitioners' remedy in the premises was plain and patent: the filing of an amended and
supplemental pleading in the RTC suit, so as to include the PCGG as defendant and seek nullification of the acts sought to
be enjoined but nonetheless done. The remedy was certainly not the institution of another action in another forum based
on essentially the same facts, The adoption of this latter recourse renders the petitioners amenable to disciplinary action
and both their actions, in this Court as well as in the Court a quo, dismissible.

In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the plaintiffs
in the Second Case (Henry L. Co. et al.) are not name parties in the First Case, they represent the same interest and entity,
namely, petitioner Bank, because:

Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the matter in controversy.
They are not principally or even subsidiarily liable; much less are they direct parties in the assailed contract of sale; and

Secondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a "derivative suit".
In the caption itself, petitioners claim to have brought suit "for and in behalf of the Producers Bank of the Philippines" 24
. Indeed, this is the very essence of a derivative suit:

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holdsstock in
order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to
be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with
the corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; emphasis supplied).

In the face of the damaging admissions taken from the complaint in the Second Case, petitioners, quite strangely, sought
to deny that the Second Case was a derivative suit, reasoning that it was brought, not by the minority shareholders, but
by Henry Co et al., who not only own, hold or control over 80% of the outstanding capital stock, but also constitute the
majority in the Board of Directors of petitioner Bank. That being so, then they really represent the Bank. So, whether they
sued "derivatively" or directly, there is undeniably an identity of interests/entity represented.

Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is separate and distinct from
its shareholders. But the rulings of this Court are consistent: "When the fiction is urged as a means of perpetrating a fraud
or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates
the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as
an aggregation of individuals." 25

In addition to the many cases 26 where the corporate fiction has been disregarded, we now add the instant case, and
declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against
forum-shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative suit, cannot
be allowed to trifle with court processes, particularly where, as in this case, the corporation itself has not been remiss in
vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. To rule otherwise
would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against
forum shopping.

Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming arguendo that there is identity
of parties, causes of action and reliefs sought, "because it (the Bank) was the defendant in the (first) case while it was the

140
plaintiff in the other (Second Case)",citing as authority Victronics Computers, Inc., vs. Regional Trial Court, Branch 63,
Makati, etc. et al., 27 where Court held:

The rule has not been extended to a defendant who, for reasons known only to him, commences a new action against the
plaintiff instead of filing a responsive pleading in the other case setting forth therein, as causes of action, specific
denials, special and affirmative defenses or even counterclaims, Thus, Velhagen's and King's motion to dismiss Civil Case
No. 91-2069 by no means negates the charge of forum-shopping as such did not exist in the first place. (emphasis supplied)

Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the forum in
said case.

Respondent, on the other hand, replied that there is a difference in factual setting between Victronics and the present
suit. In the former, as underscored in the above-quoted Court ruling, the defendants did not file any responsive pleading
in the first case. In other words, they did not make any denial or raise any defense or counter-claim therein In the case
before us however, petitioners filed a responsive pleading to the complaint as a result of which, the issues were joined.

Indeed, by praying for affirmative reliefs and interposing counterclaims in their responsive pleadings, the petitioners
became plaintiffs themselves in the original case, giving unto themselves the very remedies they repeated in the Second
Case.

Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the vexation caused
the courts and parties-litigant by a party who asks different courts and/or administrative agencies to rule on the same or
related causes and/or to grant the same or substantially the same reliefs, in the process creating the possibility of
conflicting decisions being rendered by the different fora upon the same issue. In this case, this is exactly the problem: a
decision recognizing the perfection and directing the enforcement of the contract of sale will directly conflict with a
possible decision in the Second Case barring the parties front enforcing or implementing the said sale. Indeed, a final
decision in one would constitute res judicata in the other 28 .

The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction possible now is the
dismissal of both cases with prejudice, as the other sanctions cannot be imposed because petitioners' present counsel
entered their appearance only during the proceedings in this Court, and the Petition's VERIFICATION/CERTIFICATION
contained sufficient allegations as to the pendency of the Second Case to show good faith in observing Circular 28-91. The
Lawyers who filed the Second Case are not before us; thus the rudiments of due process prevent us from motu propio
imposing disciplinary measures against them in this Decision. However, petitioners themselves (and particularly Henry Co,
et al.) as litigants are admonished to strictly follow the rules against forum-shopping and not to trifle with court
proceedings and processes They are warned that a repetition of the same will be dealt with more severely.

Having said that, let it be emphasized that this petition should be dismissed not merely because of forum-shopping but
also because of the substantive issues raised, as will be discussed shortly.

The Second Issue: Was The Contract Perfected?

The respondent Court correctly treated the question of whether or not there was, on the basis of the facts established, a
perfected contract of sale as the ultimate issue. Holding that a valid contract has been established, respondent Court
stated:

There is no dispute that the object of the transaction is that property owned by the defendant bank as acquired assets
consisting of six (6) parcels of land specifically identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It
is likewise beyond cavil that the bank intended to sell the property. As testified to by the Bank's Deputy Conservator, Jose
Entereso, the bank was looking for buyers of the property. It is definite that the plaintiffs wanted to purchase the property
and it was precisely for this purpose that they met with defendant Rivera, Manager of the Property Management
Department of the defendant bank, in early August 1987. The procedure in the sale of acquired assets as well as the nature
and scope of the authority of Rivera on the matter is clearly delineated in the testimony of Rivera himself, which testimony
was relied upon by both the bank and by Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):

A: The procedure runs this way: Acquired assets was turned over to me and then I published it in the form of an
inter-office memorandum distributed to all branches that these are acquired assets for sale. I was instructed to advertise
acquired assets for sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon having been
offered, I present it to the Committee. I provide the Committee with necessary information about the property such as
original loan of the borrower, bid price during the foreclosure, total claim of the bank, the appraised value at the time the
property is being offered for sale and then the information which are relative to the evaluation of the bank to buy which
the Committee considers and it is the Committee that evaluate as against the exposure of the bank and it is also the
Committee that submit to the Conservator for final approval and once approved, we have to execute the deed of sale and
it is the Conservator that sign the deed of sale, sir.

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The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt with and
talked to the right person. Necessarily, the agenda was the price of the property, and plaintiffs were dealing with the bank
official authorized to entertain offers, to accept offers and to present the offer to the Committee before which the said
official is authorized to discuss information relative to price determination. Necessarily, too, it being inherent in his
authority, Rivera is the officer from whom official information regarding the price, as determined by the Committee and
approved by the Conservator, can be had. And Rivera confirmed his authority when he talked with the plaintiff in August
1987. The testimony of plaintiff Demetria is clear on this point (TSN of May 31,1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him point-blank his
authority to sell any property?

A: No, sir. Not point blank although it came from him, (W)hen I asked him how long it would take because he was
saying that the matter of pricing will be passed upon by the committee. And when I asked him how long it will take for the
committee to decide and he said the committee meets every week. If I am not mistaken Wednesday and in about two
week's (sic) time, in effect what he was saying he was not the one who was to decide. But he would refer it to the
committee and he would relay the decision of the committee to me.

Q Please answer the question.

A He did not say that he had the authority (.) But he said he would refer the matter to the committee and he would
relay the decision to me and he did just like that.

"Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was the Head, with Jose
Entereso as one of the members.

What transpired after the meeting of early August 1987 are consistent with the authority and the duties of Rivera and the
bank's internal procedure in the matter of the sale of bank's assets. As advised by Rivera, the plaintiffs made a formal offer
by a letter dated August 20, 1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the
attention of Mercurio Rivera who was tasked to convey and accept such offers. Considering an aspect of the official duty
of Rivera as some sort of intermediary between the plaintiffs-buyers with their proposed buying price on one hand, and
the bank Committee, the Conservator and ultimately the bank itself with the set price on the other, and considering further
the discussion of price at the meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no other
logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that "the bank's counter-
offer is at P5.5 Million for more than 101 hectares on lot basis," such counter-offer price had been determined by the Past
Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs' offer for discussion by the
Committee of such matters as original loan of borrower, bid price during foreclosure, total claim of the bank, and market
value. Tersely put, under the established facts, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"),
the official and definitive price at which the bank was selling the property.

There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not discussed by
the Committee and that price. As correctly characterized by the trial court, this is not credible. The testimonies of Luis Co
and Jose Entereso on this point are at best equivocal and considering the gratuitous and self-serving character of these
declarations, the bank's submission on this point does not inspire belief. Both Co ad Entereso, as members of the Past Due
Committee of the bank, claim that the offer of the plaintiff was never discussed by the Committee. In the same vein, both
Co and Entereso openly admit that they seldom attend the meetings of the Committee. It is important to note that
negotiations on the price had started in early August and the plaintiffs had already offered an amount as purchase price,
having been made to understand by Rivera, the official in charge of the negotiation, that the price will be submitted for
approval by the bank and that the bank's decision will be relayed to plaintiffs. From the facts, the official bank price. At
any rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy and negotiate the sale by
having the offer officially acted upon by the bank. The bank cannot turn around and later say, as it now does, that what
Rivera states as the bank's action on the matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible
authority, that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an
apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as
against any one who has in good faith dealt with the corporation through such agent, he estopped from denying his
authority (Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court
of Appeals, G.R. No. 103957, June 14, 1993). 29

Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: "(1) Consent of the
contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is
established."

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There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of land in Sta.
Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by Transfer Certificates of Title Nos.
T-106932 to T-106937. There is, however, a dispute on the first and third requisites.

Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer which Rivera (or Co)
may have made is unauthorized. Since there was no counter-offer by the Bank, there was nothing for Ejercito (in
substitution of Demetria and Janolo) to accept." 30 They disputed the factual basis of the respondent Court's findings that
there was an offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We have perused the
evidence but cannot find fault with the said Court's findings of fact. Verily, in a petition under Rule 45 such as this, errors
of fact if there be any - are, as a rule, not reviewable. The mere fact that respondent Court (and the trial court as well)
chose to believe the evidence presented by respondent more than that presented by petitioners is not by itself a reversible
error. In fact, such findings merit serious consideration by this Court, particularly where, as in this case, said courts carefully
and meticulously discussed their findings. This is basic.

Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review the question of
Rivera's authority to act and petitioner's allegations that the P5.5 million counter-offer was extinguished by the P4.25
million revised offer of Janolo. Here, there are questions of law which could be drawn from the factual findings of the
respondent Court. They also delve into the contractual elements of consent and cause.

The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of "apparent
authority", with special reference to banks, was laid out in Prudential Bank vs. Court of Appeals31 , where it was held that:

Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent.
The agent's apparent representation yields to the principal's true representation and the contract is considered as entered
into between the principal and the third person (citing National Food Authority vs. Intermediate Appellate Court, 184
SCRA 166).

A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers
in their representative capacity but not for acts outside the scape of their authority (9 C.J.S., p. 417). A bank holding out
its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to
perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds
even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is
liable to innocent third persons where the representation is made in the course of its business by an agent acting within
the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota
Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).

Application of these principles is especially necessary because banks have a fiduciary relationship with the public and their
stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks
do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their depositors.

From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied authority to act
for the Bank in the matter of selling its acquired assets. This evidence includes the following:

(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this case, Manager of the Property
Management Department of the Bank". By his own admission, Rivera was already the person in charge of the Bank's
acquired assets (TSN, August 6, 1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely being sold by the Bank. And during the initial meeting
between the buyers and Rivera, the latter suggested that the buyers' offer should be no less than P3.3 million (TSN, April
26, 1990, pp. 16-17);
(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30 July 1990, p.11);
(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987 containing the buyers' proposal to buy the property for P4.25
million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the Bank (TSN, January
16, 1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994, during which the Bank's
offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co, a major shareholder
and officer of the Bank, confirmed Rivera's statement as to the finality of the Bank's counter-offer of P5.5 million (TSN,
January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer acting for the
Bank in relation to parties interested in buying assets owned/acquired by the Bank. In fact, Rivera was the officer
mentioned in the Bank's advertisements offering for sale the property in question (cf. Exhs. "S" and "S-1").

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In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32 , the Court, through Justice Jose A. R.
Melo, affirmed the doctrine of apparent authority as it held that the apparent authority of the officer of the Bank of P.I.
in charge of acquired assets is borne out by similar circumstances surrounding his dealings with buyers.

To be sure, petitioners attempted to repudiate Rivera's apparent authority through documents and testimony which seek
to establish Rivera's actual authority. These pieces of evidence, however, are inherently weak as they consist of Rivera's
self-serving testimony and various inter-office memoranda that purport to show his limited actual authority, of which
private respondent cannot be charged with knowledge. In any event, since the issue is apparent authority, the existence
of which is borne out by the respondent Court's findings, the evidence of actual authority is immaterial insofar as the
liability of a corporation is concerned 33 .

Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law firm" had once acted for
the Bank in three criminal cases, they should be charged with actual knowledge of Rivera's limited authority. But the Court
of Appeals in its Decision (p. 12) had already made a factual finding that the buyers had no notice of Rivera's actual
authority prior to the sale. In fact, the Bank has not shown that they acted as its counsel in respect to any acquired assets;
on the other hand, respondent has proven that Demetria and Janolo merely associated with a loose aggrupation of lawyers
(not a professional partnership), one of whose members (Atty. Susana Parker) acted in said criminal cases.

Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter dated September 17, 1987
extinguished the Bank's offer of P5.5 million 34 .They disputed the respondent Court's finding that "there was a meeting
of minds when on 30 September 1987 Demetria and Janolo through Annex "L" (letter dated September 30, 1987)
"accepted" Rivera's counter offer of P5.5 million under Annex "J" (letter dated September 17, 1987)", citing the late Justice
Paras35 , Art. 1319 of the Civil Code 36 and related Supreme Court rulings starting with Beaumont vs. Prieto 37 .

However, the above-cited authorities and precedents cannot apply in the instant case because, as found by the
respondent Court which reviewed the testimonies on this point, what was "accepted" by Janolo in his letter dated
September 30, 1987 was the Bank's offer of P5.5 million as confirmed and reiterated to Demetria and Atty. Jose Fajardo
by Rivera and Co during their meeting on September 28, 1987. Note that the said letter of September 30, 1987 begins
with"(p)ursuant to our discussion last 28 September 1987 . . .

Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the September 28,
1987 meeting "was meant to have the offerors improve on their position of P5.5. million."38 However, both the trial court
and the Court of Appeals found petitioners' testimonial evidence "not credible", and we find no basis for changing this
finding of fact.

Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common finding that private respondents'
evidence is more in keeping with truth and logic that during the meeting on September 28, 1987, Luis Co and Rivera
"confirmed that the P5.5 million price has been passed upon by the Committee and could no longer be lowered (TSN of
April 27, 1990, pp. 34-35)"39 . Hence, assuming arguendo that the counter-offer of P4.25 million extinguished the offer of
P5.5 million, Luis Co's reiteration of the said P5.5 million price during the September 28, 1987 meeting revived the said
offer. And by virtue of the September 30, 1987 letter accepting this revived offer, there was a meeting of the minds, as
the acceptance in said letter was absolute and unqualified.

We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and action, particularly the
latter's counter-offer of P5.5 million, as being "unauthorized and illegal" came only on May 12, 1988 or more than seven
(7) months after Janolo' acceptance. Such delay, and the absence of any circumstance which might have justifiably
prevented the Bank from acting earlier, clearly characterizes the repudiation as nothing more than a last-minute attempt
on the Bank's part to get out of a binding contractual obligation.

Taken together, the factual findings of the respondent Court point to an implied admission on the part of the petitioners
that the written offer made on September 1, 1987 was carried through during the meeting of September 28, 1987. This is
the conclusion consistent with human experience, truth and good faith.

It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was raised for the first time on
appeal and should thus be disregarded.

This Court in several decisions has repeatedly adhered to the principle that points of law, theories, issues of fact and
arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered
by a reviewing court, as they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986,
145 SCRA 592).40

. . . It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the trial in the
court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and

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due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development
Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990).41

Since the issue was not raised in the pleadings as an affirmative defense, private respondent was not given an opportunity
in the trial court to controvert the same through opposing evidence. Indeed, this is a matter of due process. But we passed
upon the issue anyway, if only to avoid deciding the case on purely procedural grounds, and we repeat that, on the basis
of the evidence already in the record and as appreciated by the lower courts, the inevitable conclusion is simply that there
was a perfected contract of sale.

The Third Issue: Is the Contract Enforceable?

The petition alleged42 :

Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of 28 September
1987, and it was this verbal offer that Demetria and Janolo accepted with their letter of 30 September 1987, the contract
produced thereby would be unenforceable by action there being no note, memorandum or writing subscribed by the
Bank to evidence such contract. (Please see article 1403[2], Civil Code.)

Upon the other hand, the respondent Court in its Decision (p, 14) stated:

. . . Of course, the bank's letter of September 1, 1987 on the official price and the plaintiffs' acceptance of the price on
September 30, 1987, are not, in themselves, formal contracts of sale. They are however clear embodiments of the fact
that a contract of sale was perfected between the parties, such contract being binding in whatever form it may have been
entered into (case citations omitted). Stated simply, the banks' letter of September 1, 1987, taken together with plaintiffs'
letter dated September 30, 1987, constitute in law a sufficient memorandum of a perfected contract of sale.

The respondent Court could have added that the written communications commenced not only from September 1, 1987
but from Janolo's August 20, 1987 letter. We agree that, taken together, these letters constitute sufficient memoranda
since they include the names of the parties, the terms and conditions of the contract, the price and a description of the
property as the object of the contract.

But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did constitute a "new"
offer which was accepted by Janolo on September 30, 1987. Still, the statute of frauds will not apply by reason of the
failure of petitioners to object to oral testimony proving petitioner Bank's counter-offer of P5.5 million. Hence, petitioners
by such utter failure to object are deemed to have waived any defects of the contract under the statute of frauds,
pursuant to Article 1405 of the Civil Code:

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the failure to
object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them.

As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-offer of P5.5
million is a plenty and the silence of petitioners all throughout the presentation makes the evidence binding on them
thus;

A Yes, sir, I think it was September 28, 1987 and I was again present because Atty. Demetria told me to accompany
him we were able to meet Luis Co at the Bank.

xxx xxx xxx

Q Now, what transpired during this meeting with Luis Co of the Producers Bank?
A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q What price?
A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the final price and that
is the price they intends (sic) to have, sir.
Q What do you mean?.
A That is the amount they want, sir.
Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that the defendant Rivera's counter-offer
of 5.5 million was the defendant's bank (sic) final offer?
A He said in a day or two, he will make final acceptance, sir.
Q What is the response of Mr. Luis Co?.
A He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]
Q What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?

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A We went straight to the point because he being a busy person, I told him if the amount of P5.5 million could still
be reduced and he said that was already passed upon by the committee. What the bank expects which was contrary to
what Mr. Rivera stated. And he told me that is the final offer of the bank P5.5 million and we should indicate our position
as soon as possible.
Q What was your response to the answer of Mr. Luis Co?
A I said that we are going to give him our answer in a few days and he said that was it. Atty. Fajardo and I and Mr.
Mercurio [Rivera] was with us at the time at his office.
Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office in Producers Bank
Building during this meeting?
A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q By Mr. Co you are referring to?
A Mr. Luis Co.
Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter offer by the bank?
A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank which offer we accepted, the offer of
the bank which is P5.5 million.

[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]

Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the Committee and it is not
within his power to reduce this amount. What can you say to that statement that the amount of P5.5 million was reached
by the Committee?
A It was not discussed by the Committee but it was discussed initially by Luis Co and the group of Atty. Demetrio
Demetria and Atty. Pajardo (sic) in that September 28, 1987 meeting, sir.

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]

The Fourth Issue: May the Conservator Revoke

the Perfected and Enforceable Contract.

It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the Philippines during
the time that the negotiation and perfection of the contract of sale took place. Petitioners energetically contended that
the conservator has the power to revoke or overrule actions of the management or the board of directors of a bank, under
Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:

Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary
Board finds that a bank or a non-bank financial intermediary performing quasi-banking functions is in a state of continuing
inability or unwillingness to maintain a state of liquidity deemed adequate to protect the interest of depositors and
creditors, the Monetary Board may appoint a conservator to take charge of the assets, liabilities, and the management of
that institution, collect all monies and debts due said institution and exercise all powers necessary to preserve the assets
of the institution, reorganize the management thereof, and restore its viability. He shall have the power to overrule or
revoke the actions of the previous management and board of directors of the bank or non-bank financial intermediary
performing quasi-banking functions, any provision of law to the contrary notwithstanding, and such other powers as the
Monetary Board shall deem necessary.

In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the perfected contract of sale
was raised for the first time in this Petition as this was not litigated in the trial court or Court of Appeals. As already
stated earlier, issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals, "cannot be raised for
the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process."43

In the second place, there is absolutely no evidence that the Conservator, at the time the contract was perfected, actually
repudiated or overruled said contract of sale. The Bank's acting conservator at the time, Rodolfo Romey, never objected
to the sale of the property to Demetria and Janolo. What petitioners are really referring to is the letter of Conservator
Encarnacion, who took over from Romey after the sale was perfected on September 30, 1987 (Annex V, petition) which
unilaterally repudiated not the contract but the authority of Rivera to make a binding offer and which unarguably
came months after the perfection of the contract. Said letter dated May 12, 1988 is reproduced hereunder:

May 12, 1988

Atty. Noe C. Zarate

Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila

Dear Atty. Zarate:

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This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding the six (6) parcels of land
located at Sta. Rosa, Laguna.

We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor perfected a "contract to sell
and buy" with any of them for the following reasons.

In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by former Acting Conservator Mr.
Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua detailed the functions of Property Management
Department (PMD) staff and officers (Annex A.), you will immediately read that Manager Mr. Mercurio Rivera or any of
his subordinates has no authority, power or right to make any alleged counter-offer. In short, your lawyer-clients did not
deal with the authorized officers of the bank.

Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates Pambansa Blg. 68.) and Sec. 28-A of the
Central Bank Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator may authorize the sale of any
property of the corportion/bank..

Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank conservators (starting
January, 1984) to sell the aforesaid property to any of your clients. Apparently, what took place were just preliminary
discussions/consultations between him and your clients, which everyone knows cannot bind the Bank's Board or
Conservator.

We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently violative of
corporate and banking laws. We believe that this is more than sufficient legal justification for refusing said alleged tender.

Rest assured that we have nothing personal against your clients. All our acts are official, legal and in accordance with law.
We also have no personal interest in any of the properties of the Bank.

Please be advised accordingly.

Very truly yours,

(Sgd.) Leonida T. Encarnacion

LEONIDA T. EDCARNACION
Acting Conservator

In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank,
it must be pointed out that such powers must be related to the "(preservation of) the assets of the bank, (the
reorganization of) the management thereof and (the restoration of) its viability." Such powers, enormous and extensive
as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe against
the non-impairment clause of the Constitution 44 . If the legislature itself cannot revoke an existing valid contract, how
can it delegate such non-existent powers to the conservator under Section 28-A of said law?

Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law,
deemed to be defective i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place
of a bank's board of directors. What the said board cannot do such as repudiating a contract validly entered into under
the doctrine of implied authority the conservator cannot do either. Ineluctably, his power is not unilateral and he cannot
simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such contracts
as he has already done so in the instant case. A contrary understanding of the law would simply not be permitted by
the Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank to become solvent, at
the expense of third parties, by simply getting the conservator to unilaterally revoke all previous dealings which had one
way or another or come to be considered unfavorable to the Bank, yielding nothing to perfected contractual rights nor
vested interests of the third parties who had dealt with the Bank.

The Fifth Issue: Were There Reversible Errors of Facts?

Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the Court of Appeals
are not reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover & Trust Corporation, 45 , we held:

. . . The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of the Revised
Rules of Court has been stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule 45 of the
Revised Rules of Court. "The jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals is limited

147
to reviewing and revising the errors of law imputed to it, its findings of the fact being conclusive " [Chan vs. Court of
Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has emphatically
declared that "it is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction
being limited to reviewing errors of law that might have been committed by the lower court" (Tiongco v. De la Merced, G.
R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865;
Baniqued vs. Court of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596). "Barring, therefore, a showing that
the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to
constitute serious abuse of discretion, such findings must stand, for this Court is not expected or required to examine or
contrast the oral and documentary evidence submitted by the parties" [Santa Ana, Jr. vs. Hernandez, G. R. No. L-16394,
December 17, 1966, 18 SCRA 973] [at pp. 144-145.]

Likewise, in Bernardo vs. Court of Appeals 46 , we held:

The resolution of this petition invites us to closely scrutinize the facts of the case, relating to the sufficiency of evidence
and the credibility of witnesses presented. This Court so held that it is not the function of the Supreme Court to analyze
or weigh such evidence all over again. The Supreme Court's jurisdiction is limited to reviewing errors of law that may have
been committed by the lower court. The Supreme Court is not a trier of facts. . . .

As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and Development Corp. 47 :

The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and
conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts
found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings
went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a
careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings
of fact made by the courts below.

In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company Inc. vs. Hon. Court
of Appeals, et al. 48 is equally applicable to the present case:

We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is not the function of this Court to
assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly where,
such as here, the findings of both the trial court and the appellate court on the matter coincide. (emphasis supplied)

Petitioners, however, assailed the respondent Court's Decision as "fraught with findings and conclusions which were not
only contrary to the evidence on record but have no bases at all," specifically the findings that (1) the "Bank's counter-
offer price of P5.5 million had been determined by the past due committee and approved by conservator Romey, after
Rivera presented the same for discussion" and (2) "the meeting with Co was not to scale down the price and start
negotiations anew, but a meeting on the already determined price of P5.5 million" Hence, citing Philippine National Bank
vs. Court of Appeals 49 , petitioners are asking us to review and reverse such factual findings.

The first point was clearly passed upon by the Court of Appeals 50 , thus:

There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that
"the bank's counter-offer is at P5.5 Million for more than 101 hectares on lot basis, "such counter-offer price had been
determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs' offer
for discussion by the Committee . . . Tersely put, under the established fact, the price of P5.5 Million was, as clearly worded
in Rivera's letter (Exh. "E"), the official and definitive price at which the bank was selling the property. (p. 11, CA Decision)

xxx xxx xxx

. . . The argument deserves scant consideration. As pointed out by plaintiff, during the meeting of September 28, 1987
between the plaintiffs, Rivera and Luis Co, the senior vice-president of the bank, where the topic was the possible lowering
of the price, the bank official refused it and confirmed that the P5.5 Million price had been passed upon by the Committee
and could no longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).

The respondent Court did not believe the evidence of the petitioners on this point, characterizing it as "not credible" and
"at best equivocal and considering the gratuitous and self-serving character of these declarations, the bank's submissions
on this point do not inspire belief."

148
To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo Romey to testify on
their behalf, as he would have been in the best position to establish their thesis. Under the rules on evidence 51 , such
suppression gives rise to the presumption that his testimony would have been adverse, if produced.

The second point was squarely raised in the Court of Appeals, but petitioners' evidence was deemed insufficient by both
the trial court and the respondent Court, and instead, it was respondent's submissions that were believed and became
bases of the conclusions arrived at.

In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are valid and
correct. But the petitioners are now asking this Court to disturb these findings to fit the conclusion they are espousing,
This we cannot do.

To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by the Court of Appeals
52 . We have studied both the records and the CA Decision and we find no such exceptions in this case. On the contrary,
the findings of the said Court are supported by a preponderance of competent and credible evidence. The inferences and
conclusions are seasonably based on evidence duly identified in the Decision. Indeed, the appellate court patiently
traversed and dissected the issues presented before it, lending credibility and dependability to its findings. The best that
can be said in favor of petitioners on this point is that the factual findings of respondent Court did not correspond to
petitioners' claims, but were closer to the evidence as presented in the trial court by private respondent. But this alone is
no reason to reverse or ignore such factual findings, particularly where, as in this case, the trial court and the appellate
court were in common agreement thereon. Indeed, conclusions of fact of a trial judge as affirmed by the Court of
Appeals are conclusive upon this Court, absent any serious abuse or evident lack of basis or capriciousness of any kind,
because the trial court is in a better position to observe the demeanor of the witnesses and their courtroom manner as
well as to examine the real evidence presented.

Epilogue.

In summary, there are two procedural issues involved forum-shopping and the raising of issues for the first time on appeal
[viz., the extinguishment of the Bank's offer of P5.5 million and the conservator's powers to repudiate contracts entered
into by the Bank's officers] which per se could justify the dismissal of the present case. We did not limit ourselves
thereto, but delved as well into the substantive issues the perfection of the contract of sale and its enforceability, which
required the determination of questions of fact. While the Supreme Court is not a trier of facts and as a rule we are not
required to look into the factual bases of respondent Court's decisions and resolutions, we did so just the same, if only to
find out whether there is reason to disturb any of its factual findings, for we are only too aware of the depth, magnitude
and vigor by which the parties through their respective eloquent counsel, argued their positions before this Court.

We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a government-
appointed conservator and "there is need to rehabilitate the Bank in order to get it back on its feet . . . as many people
depend on (it) for investments, deposits and well as employment. As of June 1987, the Bank's overdraft with the Central
Bank had already reached P1.023 billion . . . and there were (other) offers to buy the subject properties for a substantial
amount of money." 53

While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot emotionally close its eyes
to overriding considerations of substantive and procedural law, like respect for perfected contracts, non-impairment of
obligations and sanctions against forum-shopping, which must be upheld under the rule of law and blind justice.

This Court cannot just gloss over private respondent's submission that, while the subject properties may currently
command a much higher price, it is equally true that at the time of the transaction in 1987, the price agreed upon of P5.5
million was reasonable, considering that the Bank acquired these properties at a foreclosure sale for no more than P3.5
million 54 . That the Bank procrastinated and refused to honor its commitment to sell cannot now be used by it to promote
its own advantage, to enable it to escape its binding obligation and to reap the benefits of the increase in land values. To
rule in favor of the Bank simply because the property in question has algebraically accelerated in price during the long
period of litigation is to reward lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court cannot
stamp its imprimatur on such outrageous proposition.

WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court hereby DENIES the petition.
The assailed Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in forum-shopping and
WARNED that a repetition of the same or similar acts will be dealt with more severely. Costs against petitioners.

SO ORDERED.

149
 G.R. No. 76118 March 30, 1993

THE CENTRAL BANK OF THE PHILIPPINES and RAMON V. TIAOQUI, petitioners,

vs.
COURT OF APPEALS and TRIUMPH SAVINGS BANK, respondents.

BELLOSILLO, J.:

May a Monetary Board resolution placing a private bank under receivership be annulled on the ground of lack of prior
notice and hearing?

This petition seeks review of the decision of the Court of Appeals in CA G.R. S.P. No. 07867 entitled "The Central Bank of
the Philippines and Ramon V. Tiaoqui vs. Hon. Jose C. de Guzman and Triumph Savings Bank," promulgated 26 September
1986, which affirmed the twin orders of the Regional Trial Court of Quezon City issued 11 November 19851 denying herein
petitioners' motion to dismiss Civil Case No. Q-45139, and directing petitioner Ramon V. Tiaoqui to restore the private
management of Triumph Savings Bank (TSB) to its elected board of directors and officers, subject to Central Bank
comptrollership.2

The antecedent facts: Based on examination reports submitted by the Supervision and Examination Sector (SES),
Department II, of the Central Bank (CB) "that the financial condition of TSB is one of insolvency and its continuance in
business would involve probable loss to its depositors and creditors,"3 the Monetary Board (MB) issued on 31 May 1985
Resolution No. 596 ordering the closure of TSB, forbidding it from doing business in the Philippines, placing it under
receivership, and appointing Ramon V. Tiaoqui as receiver. Tiaoqui assumed office on 3 June 1985.4

On 11 June 1985, TSB filed a complaint with the Regional Trial Court of Quezon City, docketed as Civil Case No. Q-45139,
against Central Bank and Ramon V. Tiaoqui to annul MB Resolution No. 596, with prayer for injunction, challenging in the
process the constitutionality of Sec. 29 of R.A. 269, otherwise known as "The Central Bank Act," as amended, insofar as it
authorizes the Central Bank to take over a banking institution even if it is not charged with violation of any law or
regulation, much less found guilty thereof.5

On 1 July 1985, the trial court temporarily restrained petitioners from implementing MB Resolution No. 596 "until further
orders", thus prompting them to move for the quashal of the restraining order (TRO) on the ground that it did not comply
with said Sec. 29, i.e., that TSB failed to show convincing proof of arbitrariness and bad faith on the part of petitioners;'
and, that TSB failed to post the requisite bond in favor of Central Bank.

On 19 July 1985, acting on the motion to quash the restraining order, the trial court granted the relief sought and denied
the application of TSB for injunction. Thereafter, Triumph Savings Bank filed with Us a petition for certiorari under Rule 65
of the Rules of Court6 dated 25 July 1985 seeking to enjoin the continued implementation of the questioned MB
resolution.

Meanwhile, on 9 August 1985; Central Bank and Ramon Tiaoqui filed a motion to dismiss the complaint before the RTC
for failure to state a cause of action, i.e., it did not allege ultimate facts showing that the action was plainly arbitrary and
made in bad faith, which are the only grounds for the annulment of Monetary Board resolutions placing a bank under
conservatorship, and that TSB was without legal capacity to sue except through its receiver.7

On 9 September 1985, TSB filed an urgent motion in the RTC to direct receiver Ramon V. Tiaoqui to restore TSB to its
private management. On 11 November 1985, the RTC in separate orders denied petitioners' motion to dismiss and ordered
receiver Tiaoqui to restore the management of TSB to its elected board of directors and officers, subject to CB
comptrollership.

Since the orders of the trial court rendered moot the petition for certiorari then pending before this Court, Central Bank
and Tiaoqui moved on 2 December 1985 for the dismissal of G.R. No. 71465 which We granted on 18 December 1985.8

Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the Court of Appeals on a petition for
certiorari and prohibition under Rule 65.9 On 26 September 1986, the appellate court, upheld the orders of the trial court
thus

Petitioners' motion to dismiss was premised on two grounds, namely, that the complaint failed to state a cause of action
and that the Triumph Savings Bank was without capacity to sue except through its appointed receiver.

Concerning the first ground, petitioners themselves admit that the Monetary Board resolution placing the Triumph Savings
Bank under the receivership of the officials of the Central Bank was done without prior hearing, that is, without first

150
hearing the side of the bank. They further admit that said resolution can be the subject of judicial review and may be set
aside should it be found that the same was issued with arbitrariness and in bad faith.

The charge of lack of due process in the complaint may be taken as constitutive of allegations of arbitrariness and bad
faith. This is not of course to be taken as meaning that there must be previous hearing before the Monetary Board may
exercise its powers under Section 29 of its Charter. Rather, judicial review of such action not being foreclosed, it would be
best should private respondent be given the chance to show and prove arbitrariness and bad faith in the issuance of the
questioned resolution, especially so in the light of the statement of private respondent that neither the bank itself nor its
officials were even informed of any charge of violating banking laws.

In regard to lack of capacity to sue on the part of Triumph Savings Bank, we view such argument as being specious, for if
we get the drift of petitioners' argument, they mean to convey the impression that only the CB appointed receiver himself
may question the CB resolution appointing him as such. This may be asking for the impossible, for it cannot be expected
that the master, the CB, will allow the receiver it has appointed to question that very appointment. Should the argument
of petitioners be given circulation, then judicial review of actions of the CB would be effectively checked and foreclosed
to the very bank officials who may feel, as in the case at bar, that the CB action ousting them from the bank deserves to
be set aside.

xxx xxx xxx

On the questioned restoration order, this Court must say that it finds nothing whimsical, despotic, capricious, or arbitrary
in its issuance, said action only being in line and congruent to the action of the Supreme Court in the Banco Filipino Case
(G.R. No. 70054) where management of the bank was restored to its duly elected directors and officers, but subject to the
Central Bank comptrollership.10

On 15 October 1986, Central Bank and its appointed receiver, Ramon V. Tiaoqui, filed this petition under Rule 45 of the
Rules of Court praying that the decision of the Court of Appeals in CA-G.R. SP No. 07867 be set aside, and that the civil
case pending before the RTC of Quezon City, Civil Case No.
Q-45139, be dismissed. Petitioners allege that the Court of Appeals erred

(1) in affirming that an insolvent bank that had been summarily closed by the Monetary Board should be restored to
its private management supposedly because such summary closure was "arbitrary and in bad faith" and a denial of "due
process";

(2) in holding that the "charge of lack of due process" for "want of prior hearing" in a complaint to annul a Monetary
Board receivership resolution under Sec. 29 of R.A. 265 "may be taken as . . allegations of arbitrariness and bad faith"; and

(3) in holding that the owners and former officers of an insolvent bank may still act or sue in the name and corporate
capacity of such bank, even after it had been ordered closed and placed under receivership.11

The respondents, on the other hand, allege inter alia that in the Banco Filipino case,12 We held that CB violated the rule
on administrative due process laid down in Ang Tibay vs. CIR (69 Phil. 635) and Eastern Telecom Corp. vs. Dans, Jr. (137
SCRA 628) which requires that prior notice and hearing be afforded to all parties in administrative proceedings. Since MB
Resolution No. 596 was adopted without TSB being previously notified and heard, according to respondents, the same is
void for want of due process; consequently, the bank's management should be restored to its board of directors and
officers.13

Petitioners claim that it is the essence of Sec. 29 of R.A. 265 that prior notice and hearing in cases involving bank closures
should not be required since in all probability a hearing would not only cause unnecessary delay but also provide bank
"insiders" and stockholders the opportunity to further dissipate the bank's resources, create liabilities for the bank up to
the insured amount of P40,000.00, and even destroy evidence of fraud or irregularity in the bank's operations to the
prejudice of its depositors and creditors. 14 Petitioners further argue that the legislative intent of Sec. 29 is to repose in
the Monetary Board exclusive power to determine the existence of statutory grounds for the closure and liquidation of
banks, having the required expertise and specialized competence to do so.

The first issue raised before Us is whether absence of prior notice and hearing may be considered acts of arbitrariness and
bad faith sufficient to annul a Monetary Board resolution enjoining a bank from doing business and placing it under
receivership. Otherwise stated, is absence of prior notice and hearing constitutive of acts of arbitrariness and bad faith?

Under Sec. 29 of R.A. 265,15 the Central Bank, through the Monetary Board, is vested with exclusive authority to assess,
evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or that its
continuance in business would involve probable loss to its depositors or creditors, forbid the bank or non-bank financial
institution to do business in the Philippines; and shall designate an official of the CB or other competent person as receiver
to immediately take charge of its assets and liabilities. The fourth paragraph,16 which was then in effect at the time the

151
action was commenced, allows the filing of a case to set aside the actions of the Monetary Board which are tainted with
arbitrariness and bad faith.

Contrary to the notion of private respondent, Sec. 29 does not contemplate prior notice and hearing before a bank may
be directed to stop operations and placed under receivership. When par. 4 (now par. 5, as amended by E.O. 289) provides
for the filing of a case within ten (10) days after the receiver takes charge of the assets of the bank, it is unmistakable that
the assailed actions should precede the filing of the case. Plainly, the legislature could not have intended to authorize "no
prior notice and hearing" in the closure of the bank and at the same time allow a suit to annul it on the basis of absence
thereof.

In the early case of Rural Bank of Lucena, Inc. v. Arca [1965],17 We held that a previous hearing is nowhere required in
Sec. 29 nor does the constitutional requirement of due process demand that the correctness of the Monetary Board's
resolution to stop operation and proceed to liquidation be first adjudged before making the resolution effective. It is
enough that a subsequent judicial review be provided.

Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not require a previous hearing before the Monetary
Board can implement its resolution closing a bank, since its action is subject to judicial scrutiny as provided by law.

It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial institution placed under
receivership of the opportunity to be heard and present evidence on arbitrariness and bad faith because within ten (10)
days from the date the receiver takes charge of the assets of the bank, resort to judicial review may be had by filing an
appropriate pleading with the court. Respondent TSB did in fact avail of this remedy by filing a complaint with the RTC of
Quezon City on the 8th day following the takeover by the receiver of the bank's assets on 3 June 1985.

This "close now and hear later" scheme is grounded on practical and legal considerations to prevent unwarranted
dissipation of the bank's assets and as a valid exercise of police power to protect the depositors, creditors, stockholders
and the general public.

In Rural Bank of Buhi, Inc. v. Court of Appeals,19 We stated that

. . . due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may be subsequent
to the closure. One can just imagine the dire consequences of a prior hearing: bank runs would be the order of the day,
resulting in panic and hysteria. In the process, fortunes may be wiped out and disillusionment will run the gamut of the
entire banking community.

We stressed in Central Bank of the Philippines v. Court of Appeals20 that

. . . the banking business is properly subject to reasonable regulation under the police power of the state because of its
nature and relation to the fiscal affairs of the people and the revenues of the state (9 CJS 32). Banks are affected with
public interest because they receive funds from the general public in the form of deposits. Due to the nature of their
transactions and functions, a fiduciary relationship is created between the banking institutions and their depositors.
Therefore, banks are under the obligation to treat with meticulous care and utmost fidelity the accounts of those who
have reposed their trust and confidence in them (Simex International [Manila], Inc., v. Court of Appeals, 183 SCRA 360
[1990]).

It is then the Government's responsibility to see to it that the financial interests of those who deal with the banks and
banking institutions, as depositors or otherwise, are protected. In this country, that task is delegated to the Central Bank
which, pursuant to its Charter (R.A. 265, as amended), is authorized to administer the monetary, banking and credit system
of the Philippines. Under both the 1973 and 1987 Constitutions, the Central Bank is tasked with providing policy direction
in the areas of money, banking and credit; corollarily, it shall have supervision over the operations of banks (Sec. 14, Art.
XV, 1973 Constitution, and Sec. 20, Art. XII, 1987 Constitution). Under its charter, the CB is further authorized to take the
necessary steps against any banking institution if its continued operation would cause prejudice to its depositors, creditors
and the general public as well. This power has been expressly recognized by this Court. In Philippine Veterans Bank
Employees Union-NUBE v. Philippine Veterans Banks (189 SCRA 14 [1990], this Court held that:

. . . [u]nless adequate and determined efforts are taken by the government against distressed and mismanaged banks,
public faith in the banking system is certain to deteriorate to the prejudice of the national economy itself, not to mention
the losses suffered by the bank depositors, creditors, and stockholders, who all deserve the protection of the government.
The government cannot simply cross its arms while the assets of a bank are being depleted through mismanagement or
irregularities. It is the duty of the Central Bank in such an event to step in and salvage the remaining resources of the bank
so that they may not continue to be dissipated or plundered by those entrusted with their management.

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Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be subscribing to a situation where the
procedural rights invoked by private respondent would take precedence over the substantive interests of depositors,
creditors and stockholders over the assets of the bank.

Admittedly, the mere filing of a case for receivership by the Central Bank can trigger a bank run and drain its assets in days
or even hours leading to insolvency even if the bank be actually solvent. The procedure prescribed in Sec. 29 is truly
designed to protect the interest of all concerned, i.e., the depositors, creditors and stockholders, the bank itself, and the
general public, and the summary closure pales in comparison to the protection afforded public interest. At any rate, the
bank is given full opportunity to prove arbitrariness and bad faith in placing the bank under receivership, in which event,
the resolution may be properly nullified and the receivership lifted as the trial court may determine.

The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual circumstances therein which
are not attendant in the present case. We ruled in Banco Filipino that the closure of the bank was arbitrary and attendant
with grave abuse of discretion, not because of the absence of prior notice and hearing, but that the Monetary Board had
no sufficient basis to arrive at a sound conclusion of insolvency to justify the closure. In other words, the arbitrariness, bad
faith and abuse of discretion were determined only after the bank was placed under conservatorship and evidence thereon
was received by the trial court. As this Court found in that case, the Valenzuela, Aurellano and Tiaoqui Reports contained
unfounded assumptions and deductions which did not reflect the true financial condition of the bank. For instance, the
subtraction of an uncertain amount as valuation reserve from the assets of the bank would merely result in its net worth
or the unimpaired capital and surplus; it did not reflect the total financial condition of Banco Filipino.

Furthermore, the same reports showed that the total assets of Banco Filipino far exceeded its total liabilities.
Consequently, on the basis thereof, the Monetary Board had no valid reason to liquidate the bank; perhaps it could have
merely ordered its reorganization or rehabilitation, if need be. Clearly, there was in that case a manifest arbitrariness,
abuse of discretion and bad faith in the closure of Banco Filipino by the Monetary Board. But, this is not the case before
Us. For here, what is being raised as arbitrary by private respondent is the denial of prior notice and hearing by the
Monetary Board, a matter long settled in this jurisdiction, and not the arbitrariness which the conclusions of the
Supervision and Examination Sector (SES), Department II, of the Central Bank were reached.

Once again We refer to Rural Bank of Buhi, Inc. v. Court of Appeals,21 and reiterate Our pronouncement therein that

. . . the law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the institution to do
business in the Philippines and to appoint a receiver to immediately take charge of the bank's assets and liabilities. They
are: (a) an examination made by the examining department of the Central Bank; (b) report by said department to the
Monetary Board; and (c) prima facie showing that its continuance in business would involve probable loss to its depositors
or creditors.

In sum, appeal to procedural due process cannot just outweigh the evil sought to be prevented; hence, We rule that Sec.
29 of R.A. 265 is a sound legislation promulgated in accordance with the Constitution in the exercise of police power of
the state. Consequently, the absence of notice and hearing is not a valid ground to annul a Monetary Board resolution
placing a bank under receivership. The absence of prior notice and hearing cannot be deemed acts of arbitrariness and
bad faith. Thus, an MB resolution placing a bank under receivership, or conservatorship for that matter, may only be
annulled after a determination has been made by the trial court that its issuance was tainted with arbitrariness and bad
faith. Until such determination is made, the status quo shall be maintained, i.e., the bank shall continue to be under
receivership.

As regards the second ground, to rule that only the receiver may bring suit in behalf of the bank is, to echo the respondent
appellate court, "asking for the impossible, for it cannot be expected that the master, the CB, will allow the receiver it has
appointed to question that very appointment." Consequently, only stockholders of a bank could file an action for
annulment of a Monetary Board resolution placing the bank under receivership and prohibiting it from continuing
operations.22 In Central Bank v. Court of Appeals, 23 We explained the purpose of the law

. . . in requiring that only the stockholders of record representing the majority of the capital stock may bring the action to
set aside a resolution to place a bank under conservatorship is to ensure that it be not frustrated or defeated by the
incumbent Board of Directors or officers who may immediately resort to court action to prevent its implementation or
enforcement. It is presumed that such a resolution is directed principally against acts of said Directors and officers which
place the bank in a state of continuing inability to maintain a condition of liquidity adequate to protect the interest of
depositors and creditors. Indirectly, it is likewise intended to protect and safeguard the rights and interests of the
stockholders. Common sense and public policy dictate then that the authority to decide on whether to contest the
resolution should be lodged with the stockholders owning a majority of the shares for they are expected to be more
objective in determining whether the resolution is plainly arbitrary and issued in bad faith.

It is observed that the complaint in this case was filed on 11 June 1985 or two (2) years prior to 25 July 1987 when E.O.
289 was issued, to be effective sixty (60) days after its approval (Sec. 5). The implication is that before E.O

153
. 289, any party in interest could institute court proceedings to question a Monetary Board resolution placing a bank under
receivership. Consequently, since the instant complaint was filed by parties representing themselves to be officers of
respondent Bank (Officer-in-Charge and Vice President), the case before the trial court should now take its natural course.
However, after the effectivity of E.O. 289, the procedure stated therein should be followed and observed.

PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No. 07867 is AFFIRMED, except insofar as it
upholds the Order of the trial court of 11 November 1985 directing petitioner RAMON V. TIAOQUI to restore the
management of TRIUMPH SAVINGS BANK to its elected Board of Directors and Officers, which is hereby SET ASIDE.

Let this case be remanded to the Regional Trial Court of Quezon City for further proceedings to determine whether the
issuance of Resolution No. 596 of the Monetary Board was tainted with arbitrariness and bad faith and to decide the case
accordingly.

SO ORDERED.
G.R. No. 162270. April 06, 2005

ABACUS REAL ESTATE DEVELOPMENT CENTER, INC., Petitioners,

vs.
THE MANILA BANKING CORPORATION, Respondents.

DECISION

GARCIA, J.:

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

1. Decision dated May 26, 2003,1 reversing an earlier decision of the Regional Trial Court at Makati City, Branch 59, in an
action for specific performance and damages thereat commenced by the petitioner against the herein respondent Manila
Banking Corporation; and

2. Resolution of February 17, 2004,2 denying petitioners motion for reconsideration.

The petition is casts against the following factual backdrop:

Respondent Manila Banking Corporation (Manila Bank, for brevity), owns a 1,435-square meter parcel of land located
along Gil Puyat Avenue Extension, Makati City and covered by Transfer Certificate of Title (TCT) No. 132935 of the Registry
of Deeds of Makati. Prior to 1984, the bank began constructing on said land a 14-storey building. Not long after, however,
the bank encountered financial difficulties that rendered it unable to finish construction of the building.

On May 22, 1987, the Central Bank of the Philippines, now Bangko Sentral ng Pilipinas, ordered the closure of Manila Bank
and placed it under receivership, with Feliciano Miranda, Jr. being initially appointed as Receiver. The legality of the closure
was contested by the bank before the proper court.

On November 11, 1988, the Central Bank, by virtue of Monetary Board (MB) Resolution No. 505, ordered the liquidation
of Manila Bank and designated Atty. Renan V. Santos as Liquidator. The liquidation, however, was held in abeyance
pending the outcome of the earlier suit filed by Manila Bank regarding the legality of its closure. Consequently, the
designation of Atty. Renan V. Santos as Liquidator was amended by the Central Bank on December 22, 1988 to that of
Statutory Receiver.

In the interim, Manila Banks then acting president, the late Vicente G. Puyat, in a bid to save the banks investment,
started scouting for possible investors who could finance the completion of the building earlier mentioned. On August 18,
1989, a group of investors, represented by Calixto Y. Laureano (hereafter referred to as Laureano group), wrote Vicente
G. Puyat offering to lease the building for ten (10) years and to advance the cost to complete the same, with the advanced
cost to be amortized and offset against rental payments during the term of the lease. Likewise, the letter-offer stated that
in consideration of advancing the construction cost, the group wanted to be given the "exclusive option to purchase" the
building and the lot on which it was constructed.

Since no disposition of assets could be made due to the litigation concerning Manila Banks closure, an arrangement was
thought of whereby the property would first be leased to Manila Equities Corporation (MEQCO, for brevity), a wholly-
owned subsidiary of Manila Bank, with MEQCO thereafter subleasing the property to the Laureano group.

154
In a letter dated August 30, 1989, Vicente G. Puyat accepted the Laureano groups offer and granted it an "exclusive option
to purchase" the lot and building for One Hundred Fifty Million Pesos (150,000,000.00). Later, or on October 31, 1989,
the building was leased to MEQCO for a period of ten (10) years pursuant to a contract of lease bearing that date. On
March 1, 1990, MEQCO subleased the property to petitioner Abacus Real Estate Development Center, Inc. (Abacus, for
short), a corporation formed by the Laureano group for the purpose, under identical provisions as that of the October 31,
1989 lease contract between Manila Bank and MEQCO.

The Laureano group was, however, unable to finish the building due to the economic crisis brought about by the failed
December 1989 coup attempt. On account thereof, the Laureano group offered its rights in Abacus and its "exclusive
option to purchase" to Benjamin Bitanga (Bitanga hereinafter), for Twenty Million Five Hundred Thousand Pesos
(20,500,000.00). Bitanga would later allege that because of the substantial amount involved, he first had to talk with
Atty. Renan Santos, the Receiver appointed by the Central Bank, to discuss Abacus offer. Bitanga further alleged that,
over lunch, Atty. Santos then verbally approved his entry into Abacus and his take-over of the sublease and option to
purchase.

On March 30, 1990, the Laureano group transferred and assigned to Bitanga all of its rights in Abacus and the "exclusive
option to purchase" the subject land and building.

On September 16, 1994, Abacus sent a letter to Manila Bank informing the latter of its desire to exercise its "exclusive
option to purchase". However, Manila Bank refused to honor the same.

Such was the state of things when, on November 10, 1995, in the Regional Trial Court (RTC) at Makati, Abacus Real Estate
Development Center, Inc. filed a complaint3 for specific performance and damages against Manila Bank and/or the Estate
of Vicente G. Puyat. In its complaint, docketed as Civil Case No. 96-1638 and raffled to Branch 59 of the court, plaintiff
Abacus prayed for a judgment ordering Manila Bank, inter alia, to sell, transfer and convey unto it for 150,000,000.00
the land and building in dispute "free from all liens and encumbrances", plus payment of damages and attorneys fees.

Subsequently, defendant Manila Bank, followed a month later by its co-defendant Estate of Vicente G. Puyat, filed
separate motions to dismiss the complaint.

In an Order dated April 15, 1996, the trial court granted the motion to dismiss filed by the Estate of Vicente G. Puyat, but
denied that of Manila Bank and directed the latter to file its answer.

Before plaintiff Abacus could adduce evidence but after pre-trial, defendant Manila Bank filed a Motion for Partial
Summary Judgment, followed by a Supplement to Motion for Partial Summary Judgment. While initially opposed, Abacus
would later join Manila Bank in submitting the case for summary judgment.

Eventually, in a decision dated May 27, 1999,4 the trial court rendered judgment for Abacus in accordance with the latters
prayer in its complaint, thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff as follows:

1. Ordering the defendant [Manila Bank] to immediately sell to plaintiff the parcel of land and building, with an area of
1,435 square meters and covered by TCT No. 132935 of the Makati Registry of Deeds, situated along Sen. Gil J. Puyat Ave.
in Makati City, at the price of One Hundred Fifty Million (150,000.000.00) Pesos in accordance with the said exclusive
option to purchase, and to execute the appropriate deed of sale therefor in favor of plaintiff;

2. Ordering the defendant [Manila Bank] to pay plaintiff the amount of Two Million (2,000,000.00) Pesos representing
reasonable attorneys fees;

3. Ordering the DISMISSAL of defendants counterclaim, for lack of merit; and

4. With costs against the defendant.

SO ORDERED.

Its motion for reconsideration of the aforementioned decision having been denied by the trial court in its Order of August
17, 1999,5 Manila Bank then went on to the Court of Appeals whereat its appellate recourse was docketed as CA-G.R. CV
No. 64877.

As stated at the threshold hereof, the Court of Appeals, in a decision dated May 26, 2003,6 reversed and set aside the
appealed decision of the trial court, thus:

WHEREFORE, finding serious reversible error, the appeal is GRANTED.

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The Decision dated May 27, 1999 of the Regional Trial Court of Makati City, Branch 59 is REVERSED and SET ASIDE.

Cost of the appeal to be paid by the appellee.

SO ORDERED.

On June 25, 2003, Abacus filed a Motion for Reconsideration, followed, with leave of court, by an Amended Motion for
Reconsideration. Pending resolution of its motion for reconsideration, as amended, Abacus filed a Motion to Dismiss
Appeal,7 therein praying for the dismissal of Manila Banks appeal from the RTC decision of May 27, 1999, contending
that said appeal was filed out of time.

In its Resolution of February 17, 2004,8 the appellate court denied Abacus aforementioned motion for reconsideration.

Hence, this recourse by petitioner Abacus Real Estate Development Center, Inc.

As we see it, two (2) issues commend themselves for the resolution of the Court, namely:

WHETHER OR NOT RESPONDENT BANKS APPEAL TO THE COURT OF APPEALS WAS FILED ON TIME; and

WHETHER OR NOT PETITIONER ABACUS HAS ACQUIRED THE RIGHT TO PURCHASE THE LOT AND BUILDING IN QUESTION.

We rule for respondent Manila Bank on both issues.

Addressing the first issue, petitioner submits that respondent banks appeal to the Court of Appeals from the adverse
decision of the trial court was belatedly filed. Elaborating thereon, petitioner alleges that respondent bank received a copy
of the May 27, 1999 RTC decision on June 22, 1999, hence, petitioner had 15 days, or only up to July 7, 1999 within which
to take an appeal from the same decision or move for a reconsideration thereof. Petitioner alleges that respondent
furnished the trial court with a copy of its Motion for Reconsideration only on July 7, 1999, the last day for filing an appeal.
Under Section 3, Rule 41 of the 1997 Rules of Civil Procedure, "the period of appeal shall be interrupted by a timely motion
for new trial or reconsideration". Since, according to petitioner, respondent filed its Motion for Reconsideration on the
last day of the period to appeal, it only had one (1) more day within which to file an appeal, so much so that when it
received on August 23, 1999 a copy of the trial courts order denying its Motion for Reconsideration, respondent bank had
only up to August 24, 1999 within which to file the corresponding appeal. As respondent bank appealed the decision of
the trial court only on August 25, 1999, petitioner thus argues that respondents appeal was filed out of time.

As a counterpoint, respondent alleges that it sent the trial court a copy of its Motion for Reconsideration on July 6, 1999,
through registered mail. Having sent a copy of its Motion for Reconsideration to the trial court with still two (2) days left
to appeal, respondent then claims that its filing of an appeal on August 25, 1999, two (2) days after receiving the Order of
the trial court denying its Motion for Reconsideration, was within the reglementary period.

Agreeing with respondent, the appellate court declared that respondents appeal was filed on time. Explained that court
in its Resolution of February 17, 2004, denying petitioners motion for reconsideration:

Firstly, the file copy of the motion for reconsideration contains the written annotations "Registry Receipt No. 1633 Makati
P.O. 7-6-99" in its page 13. The presence of the annotations proves that the motion for reconsideration was truly filed by
registered mail on July 6, 1999 through registry receipt no. 1633.

Secondly, the appellants manifestation filed in the RTC personally on July 7, 1999 contains the following self-explanatory
statements, to wit:

2. Defendant [Manila Bank] also filed with this Honorable Court a Motion for Reconsideration of the Decision dated 27
May 1999 promulgated by this Honorable Court in this case, and served a copy thereof to the plaintiff, by registered mail
yesterday, 6 July 1999, due to lack of material time and messenger to effect personal service and filing.

3. In order for this Honorable Court to be able to review defendant [Manila Banks] Motion for Reconsideration without
awaiting the mailed copy, defendant [Manila Bank] is now furnishing this Honorable Court with a copy of said motion, as
well as the entry of appearance, by personal service.

The aforecited reference in the manifestation to the mailing of the motion for reconsideration on July 6, 1999, in light of
the handwritten annotations adverted to herein, renders beyond doubt the appellants insistence of filing through
registered mail on July 6, 1999.

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Thirdly, the registry return cards attached to the envelopes separately addressed and mailed to the RTC and the appellees
counsel, found in pages 728 and 729 of the rollo, indicate that the contents were the motion for reconsideration and the
formal entry of appearance. Although the appellee argues that the handwritten annotations of what were contained by
the envelopes at the time of mailing was easily self-serving, the fact remains that the envelope addressed to the appellees
counsel appears thereon to have been received on July 6, 1999 ("7/6/99"), which enhances the probability of the motion
for reconsideration being mailed, hence filed, on July 6, 1999, as claimed by the appellant.

Fourthly, the certification issued on October 2, 2003 by Atty. Jayme M. Luy, Branch Clerk of Court, Branch 59, RTC in Makati
City, has no consequence because Atty. Luy based his data only on page 3 of the 1995 Civil Case Docket Book without
reference to the original records which were already with the Court of Appeals.

Fifthly, since the appellant received the denial of the motion for reconsideration on August 23, 1999, it had until August
25, 1999 within which to perfect its appeal from the decision of the RTC because 2 days remained in its reglementary
period to appeal. It is not disputed that the appellant filed its notice of appeal and paid the appellate court docket fees on
August 25, 1999.

These circumstances preponderantly demonstrate that the appellants appeal was not late by one day. (Emphasis in the
original)

Petitioner would, however, contest the above findings of the appellate court, stating, among other things, that if it were
true that respondent filed its Motion for Reconsideration by registered mail and then furnished the trial court with a copy
of said Motion the very next day, then the rollo should have had two copies of the Motion for Reconsideration in question.
Respondent, on the other hand, insists that it indeed filed a Motion for Reconsideration on July 6, 1999 through registered
mail.

It is evident that the issue raised by petitioner relates to the correctness of the factual finding of the Court of Appeals as
to the precise date when respondent filed its motion for reconsideration before the trial court. Such issue, however, is
beyond the province of this Court to review. It is not the function of the Court to analyze or weigh all over again the
evidence or premises supportive of such factual determination.9 The Court has consistently held that the findings of the
Court of Appeals and other lower courts are, as a rule, accorded great weight, if not binding upon it,10 save for the most
compelling and cogent reasons.11 As nothing in the record indicates any of such exceptions, the factual conclusion of the
appellate court that respondent filed its appeal on time, supported as it is by substantial evidence, must be affirmed.

Going to the second issue, petitioner insists that the option to purchase the lot and building in question granted to it by
the late Vicente G. Puyat, then acting president of Manila Bank, was binding upon the latter. On the other hand,
respondent has consistently maintained that the late Vicente G. Puyat had no authority to act for and represent Manila
Bank, the latter having been placed under receivership by the Central Bank at the time of the granting of the "exclusive
option to purchase."

There can be no quibbling that respondent Manila Bank was under receivership, pursuant to Central Banks MB Resolution
No. 505 dated May 22, 1987, at the time the late Vicente G. Puyat granted the "exclusive option to purchase" to the
Laureano group of investors. Owing to this defining reality, the appellate court was correct in declaring that Vicente G.
Puyat was without authority to grant the exclusive option to purchase the lot and building in question. The invocation by
the appellate court of the following pronouncement in Villanueva vs. Court of Appeals12 was apropos, to say the least:

the assets of the bank pass beyond its control into the possession and control of the receiver whose duty it is to
administer the assets for the benefit of the creditors of the bank. Thus, the appointment of a receiver operates to suspend
the authority of the bank and of its directors and officers over its property and effects, such authority being reposed in
the receiver, and in this respect, the receivership is equivalent to an injunction to restrain the bank officers from
intermeddling with the property of the bank in any way.

With respondent bank having been already placed under receivership, its officers, inclusive of its acting president, Vicente
G. Puyat, were no longer authorized to transact business in connection with the banks assets and property. Clearly then,
the "exclusive option to purchase" granted by Vicente G. Puyat was and still is unenforceable against Manila Bank.13

Petitioner, however, asseverates that the "exclusive option to purchase" was ratified by Manila Banks receiver, Atty.
Renan Santos, during a lunch meeting held with Benjamin Bitanga in March 1990.

Petitioners argument is tenuous at best. Concededly, a contract unenforceable for lack of authority by one of the parties
may be ratified by the person in whose name the contract was executed. However, even assuming, in gratia argumenti,
that Atty. Renan Santos, Manila Banks receiver, approved the "exclusive option to purchase" granted by Vicente G. Puyat,
the same would still be of no force and effect.

Section 29 of the Central Bank Act, as amended,14 pertinently provides:

157
Sec. 29. Proceedings upon insolvency. Whenever, upon examination by the head of the appropriate supervising and
examining department or his examiners or agents into the condition of any banking institution, it shall be disclosed that
the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its
depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform the
Monetary Board of the facts, and the Board may, upon finding the statements of the department head to be true, forbid
the institution to do business in the Philippines and shall designate an official of the Central Bank as receiver to
immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and
administer the same for the benefit of its creditors, exercising all the powers necessary for these purposes including, but
not limited to, bringing suits and foreclosing mortgages in the name of the banking institution. (Emphasis supplied)

Clearly, the receiver appointed by the Central Bank to take charge of the properties of Manila Bank only had authority to
administer the same for the benefit of its creditors. Granting or approving an "exclusive option to purchase" is not an act
of administration, but an act of strict ownership, involving, as it does, the disposition of property of the bank. Not being
an act of administration, the so-called "approval" by Atty. Renan Santos amounts to no approval at all, a bank receiver not
being authorized to do so on his own.

For sure, Congress itself has recognized that a bank receiver only has powers of administration. Section 30 of the New
Central Bank Act15 expressly provides that "[t]he receiver shall immediately gather and take charge of all the assets and
liabilities of the institution, administer the same for the benefit of its creditors, and exercise the general powers of a
receiver under the Revised Rules of Court but shall not, with the exception of administrative expenditures, pay or commit
any act that will involve the transfer or disposition of any asset of the institution"

In all, respondent banks receiver was without any power to approve or ratify the "exclusive option to purchase" granted
by the late Vicente G. Puyat, who, in the first place, was himself bereft of any authority, to bind the bank under such
exclusive option. Respondent Manila Bank may not thus be compelled to sell the land and building in question to petitioner
Abacus under the terms of the latters "exclusive option to purchase".

WHEREFORE, the instant petition is DENIED and the challenged issuances of the Court of Appeals AFFIRMED.

Costs against petitioner. SO ORDERED.

G.R. No. 70054 December 11, 1991

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner,

vs.
THE MONETARY BOARD, CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, CARLOTA P. VALENZUELA, ARNULFO
B. AURELLANO and RAMON V. TIAOQUI, respondents.

G.R. No. 68878 December 11, 1991

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT and CELESTINA S. PAHIMUNTUNG, assisted by her husband, respondents.

G.R. No. 77255-58 December 11, 1991

TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR DEVELOPMENT CORPORATION, petitioners,

vs.
THE COURT OF APPEALS, The Executive Judge of the Regional Trial Court of Cavite, Ex-Officio Sheriff REGALADO E.
EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR,
HERNANDEZ AND GATMAITAN, respondents.

G.R. No. 78766 December 11, 1991

EL GRANDE CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, THE EXECUTIVE JUDGE of The Regional Trial Court and Ex-Officio Sheriff REGALADO E. EUSEBIO,
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, FELICIANO AND
HERNANDEZ, respondents.

G.R. No. 78767 December 11, 1991

METROPOLIS DEVELOPMENT CORPORATION, petitioner,

vs.

158
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, JR., CARLOTA P. VALENZUELA, ARNULFO
AURELLANO AND RAMON TIAOQUI, respondents.

G.R. No. 78894 December 11, 1991

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner

vs.
COURT OF APPEALS, THE CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, JR., CARLOTA P. VALENZUELA,
ARNULFO B. AURELLANO AND RAMON TIAOQUI, respondents.

G.R. No. 81303 December 11, 1991

PILAR DEVELOPMENT CORPORATION, petitioner

vs.
COURT OF APPEALS, HON. MANUEL M. COSICO, in his capacity as Presiding Judge of Branch 136 of the Regional Trial
Court of Makati, CENTRAL BANK OF THE PHILIPPINES AND CARLOTA P. VALENZUELA, respondents.

G.R. No. 81304 December 11, 1991

BF HOMES DEVELOPMENT CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, CENTRAL BANK AND CARLOTA P. VALENZUELA, respondents.

G.R. No. 90473 December 11, 1991

EL GRANDE DEVELOPMENT CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, THE EXECUTIVE JUDGE of the Regional Trial Court of Cavite, CLERK OF COURT and Ex-Officio
Sheriff ADORACION VICTA, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP,
SALAZAR, HERNANDEZ AND GATMAITAN, respondents.

Panganiban, Benitez, Barinaga & Bautista Law Offices collaborating counsel for petitioner.

Florencio T. Domingo, Jr. and Crisanto S. Cornejo for intervenors.

MEDIALDEA, J.:

This refers to nine (9) consolidated cases concerning the legality of the closure and receivership of petitioner Banco Filipino
Savings and Mortgage Bank (Banco Filipino for brevity) pursuant to the order of respondent Monetary Board. Six (6) of
these cases, namely, G.R. Nos. 68878, 77255-68, 78766, 81303, 81304 and 90473 involve the common issue of whether
or not the liquidator appointed by the respondent Central Bank (CB for brevity) has the authority to prosecute as well as
to defend suits, and to foreclose mortgages for and in behalf of the bank while the issue on the validity of the receivership
and liquidation of the latter is pending resolution in G.R. No. 7004. Corollary to this issue is whether the CB can be sued
to fulfill financial commitments of a closed bank pursuant to Section 29 of the Central Bank Act. On the other hand, the
other three (3) cases, namely, G.R. Nos. 70054, which is the main case, 78767 and 78894 all seek to annul and set aside
M.B. Resolution No. 75 issued by respondents Monetary Board and Central Bank on January 25, 1985.

The antecedent facts of each of the nine (9) cases are as follows:

G.R No. 68878

This is a motion for reconsideration, filed by respondent Celestina Pahimuntung, of the decision promulgated by thisCourt
on April 8, 1986, granting the petition for review on certiorari and reversing the questioned decision of respondent
appellate court, which annulled the writ of possession issued by the trial court in favor of petitioner.

The respondent-movant contends that the petitioner has no more personality to continue prosecuting the instant case
considering that petitioner bank was placed under receivership since January 25, 1985 by the Central Bank pursuant to
the resolution of the Monetary Board.

G.R. Nos. 77255-58

159
Petitioners Top Management Programs Corporation (Top Management for brevity) and Pilar Development Corporation
(Pilar Development for brevity) are corporations engaged in the business of developing residential subdivisions.

Top Management obtained a loan of P4,836,000 from Banco Filipino as evidenced by a promissory note dated January 7,
1982 payable in three years from date. The loan was secured by real estate mortgage in its various properties in Cavite.
Likewise, Pilar Development obtained loans from Banco Filipino between 1982 and 1983 in the principal amounts of
P6,000,000, P7,370,000 and P5,300,000 with maturity dates on December 28, 1984, January 5, 1985 and February 16,
1984, respectively. To secure the loan, Pilar Development mortgaged to Banco Filipino various properties in Dasmarias,
Cavite.

On January 25, 1985, the Monetary Board issued a resolution finding Banco Filipino insolvent and unable to do business
without loss to its creditors and depositors. It placed Banco Filipino under receivership of Carlota Valenzuela, Deputy
Governor of the Central Bank.

On March 22, 1985, the Monetary Board issued another resolution placing the bank under liquidation and designating
Valenzuela as liquidator. By virtue of her authority as liquidator, Valenzuela appointed the law firm of Sycip, Salazar, et al.
to represent Banco Filipino in all litigations.

On March 26, 1985, Banco Filipino filed the petition for certiorari in G.R. No. 70054 questioning the validity of the
resolutions issued by the Monetary Board authorizing the receivership and liquidation of Banco Filipino.

In a resolution dated August 29, 1985, this Court in G.R. No. 70054 resolved to issue a temporary restraining order,
effective during the same period of 30 days, enjoining the respondents from executing further acts of liquidation of the
bank; that acts such as receiving collectibles and receivables or paying off creditors' claims and other transactions
pertaining to normal operations of a bank are not enjoined. The Central Bank is ordered to designate a comptroller for
Banco Filipino.

Subsequently, Top Management failed to pay its loan on the due date. Hence, the law firm of Sycip, Salazar, et al. acting
as counsel for Banco Filipino under authority of Valenzuela as liquidator, applied for extra-judicial foreclosure of the
mortgage over Top Management's properties. Thus, the Ex-Officio Sheriff of the Regional Trial Court of Cavite issued a
notice of extra-judicial foreclosure sale of the properties on December 16, 1985.

On December 9, 1985, Top Management filed a petition for injunction and prohibition with the respondent appellate court
docketed as CA-G.R. SP No. 07892 seeking to enjoin the Regional Trial Court of Cavite, the ex-officio sheriff of said court
and Sycip, Salazar, et al. from proceeding with foreclosure sale.

Similarly, Pilar Development defaulted in the payment of its loans. The law firm of Sycip, Salazar, et al. filed separate
applications with the ex-officio sheriff of the Regional Trial Court of Cavite for the extra-judicial foreclosure of mortgage
over its properties.

Hence, Pilar Development filed with the respondent appellate court a petition for prohibition with prayer for the issuance
of a writ of preliminary injunction docketed as CA-G.R SP Nos. 08962-64 seeking to enjoin the same respondents from
enforcing the foreclosure sale of its properties. CA-G.R. SP Nos. 07892 and 08962-64 were consolidated and jointly
decided.

On October 30, 1986, the respondent appellate court rendered a decision dismissing the aforementioned petitions.

Hence, this petition was filed by the petitioners Top Management and Pilar Development alleging that Carlota Valenzuela,
who was appointed by the Monetary Board as liquidator of Banco Filipino, has no authority to proceed with the foreclosure
sale of petitioners' properties on the ground that the resolution of the issue on the validity of the closure and liquidation
of Banco Filipino is still pending with this Court in G.R. 70054.

G.R. No. 78766

Petitioner El Grande Development Corporation (El Grande for brevity) is engaged in the business of developing residential
subdivisions. It was extended by respondent Banco Filipino a credit accommodation to finance its housing program. Hence,
petitioner was granted a loan in the amount of P8,034,130.00 secured by real estate mortgages on its various estates
located in Cavite.

On January 15, 1985, the Monetary Board forbade Banco Filipino to do business, placed it under receivership and
designated Deputy Governor Carlota Valenzuela as receiver. On March 22, 1985, the Monetary Board confirmed Banco
Filipino's insolvency and designated the receiver Carlota Valenzuela as liquidator.

160
When petitioner El Grande failed to pay its indebtedness to Banco Filipino, the latter thru its liquidator, Carlota Valenzuela,
initiated the foreclosure with the Clerk of Court and Ex-officio sheriff of RTC Cavite. Subsequently, on March 31, 1986, the
ex-officio sheriff issued the notice of extra-judicial sale of the mortgaged properties of El Grande scheduled on April 30,
1986.

In order to stop the public auction sale, petitioner El Grande filed a petition for prohibition with the Court of Appeals
alleging that respondent Carlota Valenzuela could not proceed with the foreclosure of its mortgaged properties on the
ground that this Court in G.R. No. 70054 issued a resolution dated August 29, 1985, which restrained Carlota Valenzuela
from acting as liquidator and allowed Banco Filipino to resume banking operations only under a Central Bank comptroller.

On March 2, 1987, the Court of Appeals rendered a decision dismissing the petition.

Hence this petition for review on certiorari was filed alleging that the respondent court erred when it held in its decision
that although Carlota P. Valenzuela was restrained by this Honorable Court from exercising acts in liquidation of Banco
Filipino Savings & Mortgage Bank, she was not legally precluded from foreclosing the mortgage over the properties of the
petitioner through counsel retained by her for the purpose.

G.R. No. 81303

On November 8, 1985, petitioner Pilar Development Corporation (Pilar Development for brevity) filed an action against
Banco Filipino, the Central Bank and Carlota Valenzuela for specific performance, docketed as Civil Case No. 12191. It
appears that the former management of Banco Filipino appointed Quisumbing & Associates as counsel for Banco Filipino.
On June 12, 1986 the said law firm filed an answer for Banco Filipino which confessed judgment against Banco Filipino.

On June 17, 1986, petitioner filed a second amended complaint. The Central Bank and Carlota Valenzuela, thru the law
firm Sycip, Salazar, Hernandez and Gatmaitan filed an answer to the complaint.

On June 23, 1986, Sycip, et al., acting for all the defendants including Banco Filipino moved that the answer filed by
Quisumbing & Associates for defendant Banco Filipino be expunged from the records. Despite opposition from
Quisumbing & Associates, the trial court granted the motion to expunge in an order dated March 17, 1987. Petitioner Pilar
Development moved to reconsider the order but the motion was denied.

Petitioner Pilar Development filed with the respondent appellate court a petition for certiorari and mandamus to annul
the order of the trial court. The Court of Appeals rendered a decision dismissing the petition. A petition was filed with this
Court but was denied in a resolution dated March 22, 1988. Hence, this instant motion for reconsideration.

G.R. No. 81304

On July 9, 1985, petitioner BF Homes Incorporated (BF Homes for brevity) filed an action with the trial court to compel the
Central Bank to restore petitioner's; financing facility with Banco Filipino.

The Central Bank filed a motion to dismiss the action. Petitioner BF Homes in a supplemental complaint impleaded as
defendant Carlota Valenzuela as receiver of Banco Filipino Savings and Mortgage Bank.

On April 8, 1985, petitioner filed a second supplemental complaint to which respondents filed a motion to dismiss.

On July 9, 1985, the trial court granted the motion to dismiss the supplemental complaint on the grounds (1) that plaintiff
has no contractual relation with the defendants, and (2) that the Intermediate Appellate Court in a previous decision in
AC-G.R. SP. No. 04609 had stated that Banco Filipino has been ordered closed and placed under receivership pending
liquidation, and thus, the continuation of the facility sued for by the plaintiff has become legally impossible and the suit
has become moot.

The order of dismissal was appealed by the petitioner to the Court of Appeals. On November 4, 1987, the respondent
appellate court dismissed the appeal and affirmed the order of the trial court.

Hence, this petition for review on certiorari was filed, alleging that the respondent court erred when it found that the
private respondents should not be the ones to respond to the cause of action asserted by the petitioner and the petitioner
did not have any cause of action against the respondents Central Bank and Carlota Valenzuela.

G.R. No. 90473

Petitioner El Grande Development Corporation (El Grande for brevity) obtained a loan from Banco Filipino in the amount
of P8,034,130.00, secured by a mortgage over its five parcels of land located in Cavite which were covered by Transfer
Certificate of Title Nos. T-82187, T-109027, T-132897, T-148377, and T-79371 of the Registry of Deeds of Cavite.

161
When Banco Filipino was ordered closed and placed under receivership in 1985, the appointed liquidator of BF, thru its
counsel Sycip, Salazar, et al. applied with the ex-officio sheriff of the Regional Trial Court of Cavite for the extrajudicial
foreclosure of the mortgage constituted over petitioner's properties. On March 24, 1986, the ex-officio sheriff issued a
notice of extrajudicial foreclosure sale of the properties of petitioner.

Thus, petitioner filed with the Court of Appeals a petition for prohibition with prayer for writ of preliminary injunction to
enjoin the respondents from foreclosing the mortgage and to nullify the notice of foreclosure.

On June 16, 1989, respondent Court of Appeals rendered a decision dismissing the petition.

Not satisfied with the decision, petitioner filed the instant petition for review on certiorari.

G.R. No. 70054

Banco Filipino Savings and Mortgage Bank was authorized to operate as such under M.B. Resolution No. 223 dated
February 14, 1963. It commenced operations on July 9, 1964. It has eighty-nine (89) operating branches, forty-six (46) of
which are in Manila, with more than three (3) million depositors.

As of July 31, 1984, the list of stockholders showed the major stockholders to be: Metropolis Development Corporation,
Apex Mortgage and Loans Corporation, Filipino Business Consultants, Tiu Family Group, LBH Inc. and Anthony Aguirre.

Petitioner Bank had an approved emergency advance of P119.7 million under M.B. Resolution No. 839 dated June 29,
1984. This was augmented with a P3 billion credit line under M.B. Resolution No. 934 dated July 27, 1984.

On the same date, respondent Board issued M.B. Resolution No. 955 placing petitioner bank under conservatorship of
Basilio Estanislao. He was later replaced by Gilberto Teodoro as conservator on August 10, 1984. The latter submitted a
report dated January 8, 1985 to respondent Board on the conservatorship of petitioner bank, which report shall
hereinafter be referred to as the Teodoro report.

Subsequently, another report dated January 23, 1985 was submitted to the Monetary Board by Ramon Tiaoqui, Special
Assistant to the Governor and Head, SES Department II of the Central Bank, regarding the major findings of examination
on the financial condition of petitioner BF as of July 31, 1984. The report, which shall be referred to herein as the Tiaoqui
Report contained the following conclusion and recommendation:

The examination findings as of July 31, 1984, as shown earlier, indicate one of insolvency and illiquidity and further
confirms the above conclusion of the Conservator.

All the foregoing provides sufficient justification for forbidding the bank from engaging in banking.

Foregoing considered, the following are recommended:

1. Forbid the Banco Filipino Savings & Mortgage Bank to do business in the Philippines effective the beginning of
office January 1985, pursuant to Sec. 29 of R.A No. 265, as amended;

2. Designate the Head of the Conservator Team at the bank, as Receiver of Banco Filipino Savings & Mortgage Bank,
to immediately take charge of the assets and liabilities, as expeditiously as possible collect and gather all the assets and
administer the same for the benefit of all the creditors, and exercise all the powers necessary for these purposes including
but not limited to bringing suits and foreclosing mortgages in the name of the bank.

3. The Board of Directors and the principal officers from Senior Vice Presidents, as listed in the attached Annex "A"
be included in the watchlist of the Supervision and Examination Sector until such time that they shall have cleared
themselves.

4. Refer to the Central Bank's Legal Department and Office of Special Investigation the report on the findings on
Banco Filipino for investigation and possible prosecution of directors, officers, and employees for activities which led to
its insolvent position. (pp- 61-62, Rollo)

On January 25, 1985, the Monetary Board issued the assailed MB Resolution No. 75 which ordered the closure of BF and
which further provides:

After considering the report dated January 8, 1985 of the Conservator for Banco Filipino Savings and Mortgage Bank that
the continuance in business of the bank would involve probable loss to its depositors and creditors, and after discussing
and finding to be true the statements of the Special Assistant to the Governor and Head, Supervision and Examination

162
Sector (SES) Department II as recited in his memorandum dated January 23, 1985, that the Banco Filipino Savings &
Mortgage Bank is insolvent and that its continuance in business would involve probable loss to its depositors and creditors,
and in pursuance of Sec. 29 of RA 265, as amended, the Board decided:

1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches to do business in the Philippines;

2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor as Receiver who is hereby directly vested with
jurisdiction and authority to immediately take charge of the bank's assets and liabilities, and as expeditiously as possible
collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the powers necessary
for these purposes including but not limited to, bringing suits and foreclosing mortgages in the name of the bank;

3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the Governor, and Mr. Ramon V. Tiaoqui, Special
Assistant to the Governor and Head, Supervision and Examination Sector Department II, as Deputy Receivers who are
likewise hereby directly vested with jurisdiction and authority to do all things necessary or proper to carry out the
functions entrusted to them by the Receiver and otherwise to assist the Receiver in carrying out the functions vested in
the Receiver by law or Monetary Board Resolutions;

4. To direct and authorize Management to do all other things and carry out all other measures necessary or proper
to implement this Resolution and to safeguard the interests of depositors, creditors and the general public; and

5. In consequence of the foregoing, to terminate the conservatorship over Banco Filipino Savings and Mortgage
Bank. (pp. 10-11, Rollo, Vol. I)

On February 2, 1985, petitioner BF filed a complaint docketed as Civil Case No. 9675 with the Regional Trial Court of Makati
to set aside the action of the Monetary Board placing BF under receivership.

On February 28, 1985, petitioner filed with this Court the instant petition for certiorari and mandamus under Rule 65 of
the Rules of Court seeking to annul the resolution of January 25, 1985 as made without or in excess of jurisdiction or with
grave abuse of discretion, to order respondents to furnish petitioner with the reports of examination which led to its
closure and to afford petitioner BF a hearing prior to any resolution that may be issued under Section 29 of R.A. 265, also
known as Central Bank Act.

On March 19, 1985, Carlota Valenzuela, as Receiver and Arnulfo Aurellano and Ramon Tiaoqui as Deputy Receivers of
Banco Filipino submitted their report on the receivership of BF to the Monetary Board, in compliance with the mandate
of Sec. 29 of R.A. 265 which provides that the Monetary Board shall determine within sixty (60) days from date of
receivership of a bank whether such bank may be reorganized/permitted to resume business or ordered to be liquidated.
The report contained the following recommendation:

In view of the foregoing and considering that the condition of the banking institution continues to be one of insolvency,
i.e., its realizable assets are insufficient to meet all its liabilities and that the bank cannot resume business with safety to
its depositors, other creditors and the general public, it is recommended that:

1. Banco Filipino Savings & Mortgage Bank be liquidated pursuant to paragraph 3, Sec. 29 of RA No. 265, as amended;

2. The Legal Department, through the Solicitor General, be authorized to file in the proper court a petition for
assistance in th liquidation of the Bank;

3. The Statutory Receiver be designated as the Liquidator of said bank; and

4. Management be instructed to inform the stockholders of Banco Filipino Savings & Mortgage Bank of the Monetary
Board's decision liquidate the Bank. (p. 167, Rollo, Vol. I)

On July 23, 1985, petitioner filed a motion before this Court praying that a restraining order or a writ of preliminary
injunction be issued to enjoin respondents from causing the dismantling of BF signs in its main office and 89 branches.
This Court issued a resolution on August 8, 1985 ordering the issuance of the aforesaid temporary restraining order.

On August 20, 1985, the case was submitted for resolution.

In a resolution dated August 29, 1985, this Court Resolved direct the respondents Monetary Board and Central Bank hold
hearings at which the petitioner should be heard, and terminate such hearings and submit its resolution within thirty (30)
days. This Court further resolved to issue a temporary restraining order enjoining the respondents from executing further
acts of liquidation of a bank. Acts such as receiving collectibles and receivables or paying off creditors' claims and other
transactions pertaining to normal operations of a bank were no enjoined. The Central Bank was also ordered to designate

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comptroller for the petitioner BF. This Court also ordered th consolidation of Civil Cases Nos. 8108, 9676 and 10183 in
Branch 136 of the Regional Trial Court of Makati.

However, on September 12, 1985, this Court in the meantime suspended the hearing it ordered in its resolution of August
29, 1985.

On October 8, 1985, this Court submitted a resolution order ing Branch 136 of the Regional Trial Court of Makati the
presided over by Judge Ricardo Francisco to conduct the hear ing contemplated in the resolution of August 29, 1985 in
the most expeditious manner and to submit its resolution to this Court.

In the Court's resolution of February 19, 1987, the Court stated that the hearing contemplated in the resolution of August
29, 1985, which is to ascertain whether substantial administrative due process had been observed by the respondent
Monetary Board, may be expedited by Judge Manuel Cosico who now presides the court vacated by Judge Ricardo
Francisco, who was elevated to the Court of Appeals, there being no legal impediment or justifiable reason to bar the
former from conducting such hearing. Hence, this Court directed Judge Manuel Cosico to expedite the hearing and submit
his report to this Court.

On February 20, 1988, Judge Manuel Cosico submitted his report to this Court with the recommendation that the
resolutions of respondents Monetary Board and Central Bank authorizing the closure and liquidation of petitioner BP be
upheld.

On October 21, 1988, petitioner BF filed an urgent motion to reopen hearing to which respondents filed their comment
on December 16, 1988. Petitioner filed their reply to respondent's comment of January 11, 1989. After having deliberated
on the grounds raised in the pleadings, this Court in its resolution dated August 3, 1989 declared that its intention as
expressed in its resolution of August 29, 1985 had not been faithfully adhered to by the herein petitioner and respondents.
The aforementioned resolution had ordered a healing on the reports that led respondents to order petitioner's closure
and its alleged pre-planned liquidation. This Court noted that during the referral hearing however, a different scheme was
followed. Respondents merely submitted to the commissioner their findings on the examinations conducted on petitioner,
affidavits of the private respondents relative to the findings, their reports to the Monetary Board and several other
documents in support of their position while petitioner had merely submitted objections to the findings of respondents,
counter-affidavits of its officers and also documents to prove its claims. Although the records disclose that both parties
had not waived cross-examination of their deponents, no such cross-examination has been conducted. The reception of
evidence in the form of affidavits was followed throughout, until the commissioner submitted his report and
recommendations to the Court. This Court also held that the documents pertinent to the resolution of the instant petition
are the Teodoro Report, Tiaoqui Report, Valenzuela, Aurellano and Tiaoqui Report and the supporting documents which
were made as the bases by the reporters of their conclusions contained in their respective reports. This Court also
Resolved in its resolution to re-open the referral hearing that was terminated after Judge Cosico had submitted his report
and recommendation with the end in view of allowing petitioner to complete its presentation of evidence and also for
respondents to adduce additional evidence, if so minded, and for both parties to conduct the required cross-examination
of witnesses/deponents, to be done within a period of three months. To obviate all doubts on Judge Cosico's impartiality,
this Court designated a new hearing commissioner in the person of former Judge Consuelo Santiago of the Regional Trial
Court, Makati, Branch 149 (now Associate Justice of the Court of Appeals).

Three motions for intervention were filed in this case as follows: First, in G.R. No. 70054 filed by Eduardo Rodriguez and
Fortunate M. Dizon, stockholders of petitioner bank for and on behalf of other stockholders of petitioner; second, in G.R.
No. 78894, filed by the same stockholders, and, third, again in G.R. No. 70054 by BF Depositors' Association and others
similarly situated. This Court, on March 1, 1990, denied the aforesaid motions for intervention.

On January 28, 1991, the hearing commissioner, Justice Consuelo Santiago of the Court of Appeals submitted her report
and recommendation (to be hereinafter called, "Santiago Report") on the following issues stated therein as follows:

l) Had the Monetary Board observed the procedural requirements laid down in Sec. 29 of R.A. 265, as amended to
justify th closure of the Banco Filipino Savings and Mortgage Bank?

2) On the date of BF's closure (January 25, 1985) was its condition one of insolvency or would its continuance in
business involve probable loss to its depositors or creditors?

The commissioner after evaluation of the evidence presented found and recommended the following:

1. That the TEODORO and TIAOQUI reports did not establish in accordance with See. 29 of the R.A. 265, as amended,
BF's insolvency as of July 31, 1984 or that its continuance in business thereafter would involve probable loss to its
depositors or creditors. On the contrary, the evidence indicates that BF was solvent on July 31, 1984 and that on January
25, 1985, the day it was closed, its insolvency was not clearly established;

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2. That consequently, BF's closure on January 25, 1985, not having satisfied the requirements prescribed under Sec.
29 of RA 265, as amended, was null and void.

3. That accordingly, by way of correction, BF should be allowed to re-open subject to such laws, rules and regulations
that apply to its situation.

Respondents thereafter filed a motion for leave to file objections to the Santiago Report. In the same motion, respondents
requested that the report and recommendation be set for oral argument before the Court. On February 7, 1991, this Court
denied the request for oral argument of the parties.

On February 25, 1991, respondents filed their objections to the Santiago Report. On March 5, 1991, respondents
submitted a motion for oral argument alleging that this Court is confronted with two conflicting reports on the same
subject, one upholding on all points the Monetary Board's closure of petitioner, (Cosico Report dated February 19, 1988)
and the other (Santiago Report dated January 25, 1991) holding that petitioner's closure was null and void because
petitioner's insolvency was not clearly established before its closure; and that such a hearing on oral argrument will
therefore allow the parties to directly confront the issues before this Court.

On March 12, 1991 petitioner filed its opposition to the motion for oral argument. On March 20, 1991, it filed its reply to
respondents' objections to the Santiago Report.

On June 18, 1991, a hearing was held where both parties were heard on oral argument before this Court. The parties,
having submitted their respective memoranda, the case is now submitted for decision.

G.R. No. 78767

On February 2, 1985, Banco Filipino filed a complaint with the trial court docketed as Civil Case No. 9675 to annul the
resolution of the Monetary Board dated January 25, 1985, which ordered the closure of the bank and placed it under
receivership.

On February 14, 1985, the Central Bank and the receivers filed a motion to dismiss the complaint on the ground that the
receivers had not authorized anyone to file the action. In a supplemental motion to dismiss, the Central Bank cited the
resolution of this Court dated October 15, 1985 in G.R. No. 65723 entitled, "Central Bank et al. v. Intermediate Appellate
Court" whereby We held that a complaint questioning the validity of the receivership established by the Central Bank
becomes moot and academic upon the initiation of liquidation proceedings.

While the motion to dismiss was pending resolution, petitioner herein Metropolis Development Corporation (Metropolis
for brevity) filed a motion to intervene in the aforestated civil case on the ground that as a stockholder and creditor of
Banco Filipino, it has an interest in the subject of the action.

On July 19, 1985, the trial court denied the motion to dismiss and also denied the motion for reconsideration of the order
later filed by Central Bank. On June 5, 1985, the trial court allowed the motion for intervention.

Hence, the Central Bank and the receivers of Banco Filipino filed a petition for certiorari with the respondent appellate
court alleging that the trial court committed grave abuse of discretion in not dismissing Civil Case No. 9675.

On March 17, 1986, the respondent appellate court rendered a decision annulling and setting aside the questioned orders
of the trial court, and ordering the dismissal of the complaint filed by Banco Filipino with the trial court as well as the
complaint in intervention of petitioner Metropolis Development Corporation.

Hence this petition was filed by Metropolis Development Corporation questioning the decision of the respondent
appellate court.

G.R. No. 78894

On February 2, 1985, a complaint was filed with the trial court in the name of Banco Filipino to annul the resolution o the
Monetary Board dated January 25, 1985 which ordered the closure of Banco Filipino and placed it under receivership. The
receivers appointed by the Monetary Board were Carlota Valenzuela, Arnulfo Aurellano and Ramon Tiaoqui.

On February 14, 1985, the Central Bank and the receiver filed a motion to dismiss the complaint on the ground that the
receiver had not authorized anyone to file the action.

On March 22, 1985, the Monetary Board placed the bank under liquidation and designated Valenzuela as liquidator and
Aurellano and Tiaoqui as deputy liquidators.

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The Central Bank filed a supplemental motion to dismiss which was denied. Hence, the latter filed a petition for certiorari
with the respondent appellate court to set aside the order of the trial court denying the motion to dismiss. On March 17,
1986, the respondent appellate court granted the petition and dismissed the complaint of Banco Filipino with the trial
court.

Thus, this petition for certiorari was filed with the petitioner contending that a bank which has been closed and placed
under receivership by the Central Bank under Section 29 of RA 265 could file suit in court in its name to contest such acts
of the Central Bank, without the authorization of the CB-appointed receiver.

After deliberating on the pleadings in the following cases:

1. In G.R. No. 68878, the respondent's motion for reconsideration;

2. In G.R. Nos. 77255-58, the petition, comment, reply, rejoinder and sur-rejoinder;

2. In G.R. No. 78766, the petition, comment, reply and rejoinder;

3. In G.R. No. 81303, the petitioner's motion for reconsideration;

4. In G.R.No. 81304, the petition, comment and reply;

5. Finally, in G.R. No. 90473, the petition comment and reply.

We find the motions for reconsideration in G.R. Nos. 68878 and 81303 and the petitions in G.R. Nos. 77255-58, 78766,
81304 and 90473 devoid of merit.

Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that when a bank is forbidden
to do business in the Philippines and placed under receivership, the person designated as receiver shall immediately take
charge of the bank's assets and liabilities, as expeditiously as possible, collect and gather all the assets and administer the
same for the benefit of its creditors, and represent the bank personally or through counsel as he may retain in all actions
or proceedings for or against the institution, exercising all the powers necessary for these purposes including, but not
limited to, bringing and foreclosing mortgages in the name of the bank. If the Monetary Board shall later determine and
confirm that banking institution is insolvent or cannot resume business safety to depositors, creditors and the general
public, it shall, public interest requires, order its liquidation and appoint a liquidator who shall take over and continue the
functions of receiver previously appointed by Monetary Board. The liquid for may, in the name of the bank and with the
assistance counsel as he may retain, institute such actions as may necessary in the appropriate court to collect and recover
a counts and assets of such institution or defend any action ft against the institution.

When the issue on the validity of the closure and receivership of Banco Filipino bank was raised in G.R. No. 70054,
pendency of the case did not diminish the powers and authority of the designated liquidator to effectuate and carry on
the a ministration of the bank. In fact when We adopted a resolute on August 25, 1985 and issued a restraining order to
respondents Monetary Board and Central Bank, We enjoined me further acts of liquidation. Such acts of liquidation, as
explained in Sec. 29 of the Central Bank Act are those which constitute the conversion of the assets of the banking
institution to money or the sale, assignment or disposition of the s to creditors and other parties for the purpose of paying
debts of such institution. We did not prohibit however acts a as receiving collectibles and receivables or paying off credits
claims and other transactions pertaining to normal operate of a bank. There is no doubt that the prosecution of suits
collection and the foreclosure of mortgages against debtors the bank by the liquidator are among the usual and ordinary
transactions pertaining to the administration of a bank. their did Our order in the same resolution dated August 25, 1985
for the designation by the Central Bank of a comptroller Banco Filipino alter the powers and functions; of the liquid insofar
as the management of the assets of the bank is concerned. The mere duty of the comptroller is to supervise counts and
finances undertaken by the liquidator and to d mine the propriety of the latter's expenditures incurred behalf of the bank.
Notwithstanding this, the liquidator is empowered under the law to continue the functions of receiver is preserving and
keeping intact the assets of the bank in substitution of its former management, and to prevent the dissipation of its assets
to the detriment of the creditors of the bank. These powers and functions of the liquidator in directing the operations of
the bank in place of the former management or former officials of the bank include the retaining of counsel of his choice
in actions and proceedings for purposes of administration.

Clearly, in G.R. Nos. 68878, 77255-58, 78766 and 90473, the liquidator by himself or through counsel has the authority to
bring actions for foreclosure of mortgages executed by debtors in favor of the bank. In G.R. No. 81303, the liquidator is
likewise authorized to resist or defend suits instituted against the bank by debtors and creditors of the bank and by other
private persons. Similarly, in G.R. No. 81304, due to the aforestated reasons, the Central Bank cannot be compelled to
fulfill financial transactions entered into by Banco Filipino when the operations of the latter were suspended by reason of
its closure. The Central Bank possesses those powers and functions only as provided for in Sec. 29 of the Central Bank Act.

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While We recognize the actual closure of Banco Filipino and the consequent legal effects thereof on its operations, We
cannot uphold the legality of its closure and thus, find the petitions in G.R. Nos. 70054, 78767 and 78894 impressed with
merit. We hold that the closure and receivership of petitioner bank, which was ordered by respondent Monetary Board
on January 25, 1985, is null and void.

It is a well-recognized principle that administrative and discretionary functions may not be interfered with by the courts.
In general, courts have no supervising power over the proceedings and actions of the administrative departments of the
government. This is generally true with respect to acts involving the exercise of judgment or discretion, and findings of
fact. But when there is a grave abuse of discretion which is equivalent to a capricious and whimsical exercise of judgment
or where the power is exercised in an arbitrary or despotic manner, then there is a justification for the courts to set aside
the administrative determination reached (Lim, Sr. v. Secretary of Agriculture and Natural Resources, L-26990, August 31,
1970, 34 SCRA 751)

The jurisdiction of this Court is called upon, once again, through these petitions, to undertake the delicate task of
ascertaining whether or not an administrative agency of the government, like the Central Bank of the Philippines and the
Monetary Board, has committed grave abuse of discretion or has acted without or in excess of jurisdiction in issuing the
assailed order. Coupled with this task is the duty of this Court not only to strike down acts which violate constitutional
protections or to nullify administrative decisions contrary to legal mandates but also to prevent acts in excess of authority
or jurisdiction, as well as to correct manifest abuses of discretion committed by the officer or tribunal involved.

The law applicable in the determination of these issues is Section 29 of Republic Act No. 265, as amended, also known as
the Central Bank Act, which provides:

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

The Monetary Board shall thereupon determine within sixty days whether the institution may be reorganized or otherwise
placed in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and
the general public and shall prescribe the conditions under which such resumption of business shall take place as well as
the time for fulfillment of such conditions. In such case, the expenses and fees in the collection and administration of the
assets of the institution shall be determined by the Board and shall be paid to the Central Bank out of the assets of such
institution.

If the Monetary Board shall determine and confirm within the said period that the bank or non-bank financial intermediary
performing quasi-banking functions is insolvent or cannot resume business with safety to its depositors, creditors, and the
general public, it shall, if the public interest requires, order its liquidation, indicate the manner of its liquidation and
approve a liquidation plan which may, when warranted, involve disposition of any or all assets in consideration for the
assumption of equivalent liabilities. The liquidator designated as hereunder provided shall, by the Solicitor General, file a
petition in the regional trial court reciting the proceedings which have been taken and praying the assistance of the court
in the liquidation of such institutions. The court shall have jurisdiction in the same proceedings to assist in the adjudication
of the disputed claims against the bank or non-bank financial intermediary performing quasi-banking functions and in the
enforcement of individual liabilities of the stockholders and do all that is necessary to preserve the assets of such
institutions and to implement the liquidation plan approved by the Monetary Board. The Monetary Board shall designate
an official of the Central bank or a person of recognized competence in banking or finance, as liquidator who shall take
over and continue the functions of the receiver previously appointed by the Monetary Board under this Section. The
liquidator shall, with all convenient speed, convert the assets of the banking institutions or non-bank financial
intermediary performing quasi-banking function to money or sell, assign or otherwise dispose of the same to creditors
and other parties for the purpose of paying the debts of such institution and he may, in the name of the bank or non-bank
financial intermediary performing quasi-banking functions and with the assistance of counsel as he may retain, institute
such actions as may be necessary in the appropriate court to collect and recover accounts and assets of such institution
or defend any action filed against the institution: Provided, However, That after having reasonably established all claims
against the institution, the liquidator may, with the approval of the court, effect partial payments of such claims for assets
of the institution in accordance with their legal priority.

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The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver
or liquidator and shall from the moment of such receivership or liquidation, be exempt from any order of garnishment,
levy, attachment, orexecution.

The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under this Section, Section
28-A, an the second paragraph of Section 34 of this Act shall be final an executory, and can be set aside by a court only if
there is convince proof, after hearing, that the action is plainly arbitrary and made in bad faith: Provided, That the same
is raised in an appropriate pleading filed by the stockholders of record representing the majority of th capital stock within
ten (10) days from the date the receiver take charge of the assets and liabilities of the bank or non-bank financial
intermediary performing quasi-banking functions or, in case of conservatorship or liquidation, within ten (10) days from
receipt of notice by the said majority stockholders of said bank or non-bank financial intermediary of the order of its
placement under conservatorship o liquidation. No restraining order or injunction shall be issued by an court enjoining
the Central Bank from implementing its actions under this Section and the second paragraph of Section 34 of this Act in
th absence of any convincing proof that the action of the Monetary Board is plainly arbitrary and made in bad faith and
the petitioner or plaintiff files a bond, executed in favor of the Central Bank, in an amount be fixed by the court. The
restraining order or injunction shall be refused or, if granted, shall be dissolved upon filing by the Central Bank of a bond,
which shall be in the form of cash or Central Bank cashier's check, in an amount twice the amount of the bond of th
petitioner or plaintiff conditioned that it will pay the damages which the petitioner or plaintiff may suffer by the refusal
or the dissolution of the injunction. The provisions of Rule 58 of the New Rules of Court insofar as they are applicable and
not inconsistent with the provision of this Section shall govern the issuance and dissolution of the re straining order or
injunction contemplated in this Section.

xxx xxx xxx

Based on the aforequoted provision, the Monetary Board may order the cessation of operations of a bank in the Philippine
and place it under receivership upon a finding of insolvency or when its continuance in business would involve probable
loss its depositors or creditors. If the Monetary Board shall determine and confirm within sixty (60) days that the bank is
insolvent or can no longer resume business with safety to its depositors, creditors and the general public, it shall, if public
interest will be served, order its liquidation.

Specifically, the basic question to be resolved in G.R. Nos. 70054, 78767 and 78894 is whether or not the Central Bank and
the Monetary Board acted arbitrarily and in bad faith in finding and thereafter concluding that petitioner bank is insolvent,
and in ordering its closure on January 25, 1985.

As We have stated in Our resolution dated August 3, 1989, the documents pertinent to the resolution of these petitions
are the Teodoro Report, Tiaoqui Report, and the Valenzuela, Aurellano and Tiaoqui Report and the supporting documents
made as bases by the supporters of their conclusions contained in their respective reports. We will focus Our study and
discussion however on the Tiaoqui Report and the Valenzuela, Aurellano and Tiaoqui Report. The former recommended
the closure and receivership of petitioner bank while the latter report made the recommendation to eventually place the
petitioner bank under liquidation. This Court shall likewise take into consideration the findings contained in the reports of
the two commissioners who were appointed by this Court to hold the referral hearings, namely the report by Judge
Manuel Cosico submitted February 20, 1988 and the report submitted by Justice Consuelo Santiago on January 28, 1991.

There is no question that under Section 29 of the Central Bank Act, the following are the mandatory requirements to be
complied with before a bank found to be insolvent is ordered closed and forbidden to do business in the Philippines:
Firstly, an examination shall be conducted by the head of the appropriate supervising or examining department or his
examiners or agents into the condition of the bank; secondly, it shall be disclosed in the examination that the condition of
the bank is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors;
thirdly, the department head concerned shall inform the Monetary Board in writing, of the facts; and lastly, the Monetary
Board shall find the statements of the department head to be true.

Anent the first requirement, the Tiaoqui report, submitted on January 23, 1985, revealed that the finding of insolvency of
petitioner was based on the partial list of exceptions and findings on the regular examination of the bank as of July 31,
1984 conducted by the Supervision and Examination Sector II of the Central Bank of the PhilippinesCentral Bank (p. 1,
Tiaoqui Report).

On December 17, 1984, this list of exceptions and finding was submitted to the petitioner bank (p. 6, Tiaoqui Report) This
was attached to the letter dated December 17, 1984, of examiner-in-charge Dionisio Domingo of SES Department II of the
Central Bank to Teodoro Arcenas, president of petitione bank, which disclosed that the examination of the petitioner bank
as to its financial condition as of July 31, 1984 was not yet completed or finished on December 17, 1984 when the Central
Bank submitted the partial list of findings of examination to th petitioner bank. The letter reads:

In connection with the regular examination of your institution a of July 31, 1984, we are submitting herewith a partial list
of our exceptions/findings for your comments.

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Please be informed that we have not yet officially terminated our examination (tentatively scheduled last December 7,
1984) and that we are still awaiting for the unsubmitted replies to our previous letters requests. Moreover, other findings/
observations are still being summarized including the classification of loans and other risk assets. These shall be submitted
to you in due time (p. 810, Rollo, Vol. III; emphasis ours).

It is worthy to note that a conference was held on January 21, 1985 at the Central Bank between the officials of the latter
an of petitioner bank. What transpired and what was agreed upon during the conference was explained in the Tiaoqui
report.

... The discussion centered on the substantial exposure of the bank to the various entities which would have a relationship
with the bank; the manner by which some bank funds were made indirectly available to several entities within the group;
and the unhealth financial status of these firms in which the bank was additionally exposed through new funds or
refinancing accommodation including accrued interest.

Queried in the impact of these clean loans, on the bank solvency Mr. Dizon (BF Executive Vice President) intimated that,
collectively these corporations have large undeveloped real estate properties in the suburbs which can be made
answerable for the unsecured loans a well as the Central Bank's credit accommodations. A formal reply of the bank would
still be forthcoming. (pp. 58-59, Rollo, Vol. I; emphasis ours)

Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank and outrightly concluded therein that
the latter's financial status was one of insolvency or illiquidity. He arrived at the said conclusion from the following facts:
that as of July 31, 1984, total capital accounts consisting of paid-in capital and other capital accounts such as surplus,
surplus reserves and undivided profits aggregated P351.8 million; that capital adjustments, however, wiped out the capital
accounts and placed the bank with a capital deficiency amounting to P334.956 million; that the biggest adjustment which
contributed to the deficit is the provision for estimated losses on accounts classified as doubtful and loss which was
computed at P600.4 million pursuant to the examination. This provision is also known as valuation reserves which was set
up or deducted against the capital accounts of the bank in arriving at the latter's financial condition.

Tiaoqui however admits the insufficiency and unreliability of the findings of the examiner as to the setting up of
recommended valuation reserves from the assets of petitioner bank. He stated:

The recommended valuation reserves as bases for determining the financial status of the bank would need to be discussed
with the bank, consistent with standard examination procedure, for which the bank would in turn reply. Also, the
examination has not been officially terminated. (p. 7. Tiaoqui report; p. 59, Rollo, Vol. I)

In his testimony in the second referral hearing before Justice Santiago, Tiaoqui testified that on January 21, 1985, he met
with officers of petitioner bank to discuss the advanced findings and exceptions made by Mr. Dionisio Domingo which
covered 70%-80% of the bank's loan portfolio; that at that meeting, Fortunato Dizon (BF's Executive Vice President) said
that as regards the unsecured loans granted to various corporations, said corporations had large undeveloped real estate
properties which could be answerable for the said unsecured loans and that a reply from BF was forthcoming, that he
(Tiaoqui) however prepared his report despite the absence of such reply; that he believed, as in fact it is stated in his
report, that despite the meeting on January 21, 1985, there was still a need to discuss the recommended valuation
reserves of petitioner bank and; that he however, did not wait anymore for a discussion of the recommended valuation
reserves and instead prepared his report two days after January 21, 1985 (pp. 3313-3314, Rollo).

Records further show that the examination of petitioner bank was officially terminated only when Central Bank
Examination-charge Dionisio Domingo submitted his final report of examination on March 4,1985.

It is evident from the foregoing circumstances that the examination contemplated in Sec. 29 of the CB Act as a mandatory
requirement was not completely and fully complied with. Despite the existence of the partial list of findings in the
examination of the bank, there were still highly significant items to be weighed and determined such as the matter of
valuation reserves, before these can be considered in the financial condition of the bank. It would be a drastic move to
conclude prematurely that a bank is insolvent if the basis for such conclusion is lacking and insufficient, especially if doubt
exists as to whether such bases or findings faithfully represent the real financial status of the bank.

The actuation of the Monetary Board in closing petitioner bank on January 25, 1985 barely four days after a conference
with the latter on the examiners' partial findings on its financial position is also violative of what was provided in the CB
Manual of Examination Procedures. Said manual provides that only after the examination is concluded, should a pre-
closing conference led by the examiner-in-charge be held with the officers/representatives of the institution on the
findings/exception, and a copy of the summary of the findings/violations should be furnished the institution examined so
that corrective action may be taken by them as soon as possible (Manual of Examination Procedures, General Instruction,
p. 14). It is hard to understand how a period of four days after the conference could be a reasonable opportunity for a
bank to undertake a responsive and corrective action on the partial list of findings of the examiner-in-charge.

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We recognize the fact that it is the responsibility of the Central Bank of the Philippines to administer the monetary, banking
and credit system of the country and that its powers and functions shall be exercised by the Monetary Board pursuant to
Rep. Act No. 265, known as the Central Bank Act. Consequently, the power and authority of the Monetary Board to close
banks and liquidate them thereafter when public interest so requires is an exercise of the police power of the state. Police
power, however, may not be done arbitratrily or unreasonably and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust or is tantamount to a denial of due process and equal protection clauses of the
Constitution (Central Bank v. Court of Appeals, Nos. L-50031-32, July 27, 1981, 106 SCRA 143).

In the instant case, the basic standards of substantial due process were not observed. Time and again, We have held in
several cases, that the procedure of administrative tribunals must satisfy the fundamentals of fair play and that their
judgment should express a well-supported conclusion.

In the celebrated case of Ang Tibay v. Court of Industrial Relations, 69 Phil. 635, this Court laid down several cardinal
primary rights which must be respected in a proceeding before an administrative body.

However, as to the requirement of notice and hearing, Sec. 29 of RA 265 does not require a previous hearing before the
Monetary Board implements the closure of a bank, since its action is subject to judicial scrutiny as provided for under the
same law (Rural Bank of Bato v. IAC, G.R. No. 65642, October 15, 1984, Rural Bank v. Court of Appeals, G.R. 61689, June
20, 1988,162 SCRA 288).

Notwithstanding the foregoing, administrative due process does not mean that the other important principles may be
dispensed with, namely: the decision of the administrative body must have something to support itself and the evidence
must be substantial. Substantial evidence is more than a mere scintilla. It means such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion (Ang Tibay vs. CIR, supra). Hence, where the decision is merely
based upon pieces of documentary evidence that are not sufficiently substantial and probative for the purpose and
conclusion they are presented, the standard of fairness mandated in the due process clause is not met. In the case at bar,
the conclusion arrived at by the respondent Board that the petitioner bank is in an illiquid financial position on January
23, 1985, as to justify its closure on January 25, 1985 cannot be given weight and finality as the report itself admits the
inadequacy of its basis to support its conclusion.

The second requirement provided in Section 29, R.A. 265 before a bank may be closed is that the examination should
disclose that the condition of the bank is one of insolvency.

As to the concept of whether the bank is solvent or not, the respondents contend that under the Central Bank Manual of
Examination Procedures, Central Bank examiners must recommend valuation reserves, when warranted, to be set up or
deducted against the corresponding asset account to determine the bank's true condition or net worth. In the case of loan
accounts, to which practically all the questioned valuation reserves refer, the manual provides that:

1. For doubtful loans, or loans the ultimate collection of which is doubtful and in which a substantial loss is probable
but not yet definitely ascertainable as to extent, valuation reserves of fifty per cent (50%) of the accounts should be
recommended to be set up.

2. For loans classified as loss, or loans regarded by the examiner as absolutely uncollectible or worthless, valuation
reserves of one hundred percent (100%) of the accounts should be recommended to be set up (p. 8, Objections to Santiago
report).

The foregoing criteria used by respondents in determining the financial condition of the bank is based on Section 5 of RA
337, known as the General Banking Act which states:

Sec. 5. The following terms shall be held to be synonymous and interchangeable:

... f. Unimpaired Capital and Surplus, "Combined capital accounts," and "Net worth," which terms shall mean for the
purposes of this Act, the total of the "unimpaired paid-in capital, surplus, and undivided profits net of such valuation
reserves as may be required by the Central Bank."

There is no doubt that the Central Bank Act vests authority upon the Central Bank and Monetary Board to take charge and
administer the monetary and banking system of the country and this authority includes the power to examine and
determine the financial condition of banks for purposes provided for by law, such as for the purpose of closure on the
ground of insolvency stated in Section 29 of the Central Bank Act. But express grants of power to public officers should be
subjected to a strict interpretation, and will be construed as conferring those powers which are expressly imposed or
necessarily implied (Floyd Mechem, Treatise on the Law of Public Offices and Officers, p. 335).

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In this case, there can be no clearer explanation of the concept of insolvency than what the law itself states. Sec. 29 of the
Central Bank Act provides that insolvency under the Act, shall be understood to mean that "the realizable assets of a bank
or a non-bank financial intermediary performing quasi-banking functions as determined by the Central Bank are
insufficient to meet its liabilities."

Hence, the contention of the Central Bank that a bank's true financial condition is synonymous with the terms "unimpaired
capital and surplus," "combined capital accounts" and net worth after deducting valuation reserves from the capital,
surplus and unretained earnings, citing Sec. 5 of RA 337 is misplaced.

Firstly, it is clear from the law that a solvent bank is one in which its assets exceed its liabilities. It is a basic accounting
principle that assets are composed of liabilities and capital. The term "assets" includes capital and surplus" (Exley v. Harris,
267 p. 970, 973, 126 Kan., 302). On the other hand, the term "capital" includes common and preferred stock, surplus
reserves, surplus and undivided profits. (Manual of Examination Procedures, Report of Examination on Department of
Commercial and Savings Banks, p. 3-C). If valuation reserves would be deducted from these items, the result would merely
be the networth or the unimpaired capital and surplus of the bank applying Sec. 5 of RA 337 but not the total financial
condition of the bank.

Secondly, the statement of assets and liabilities is used in balance sheets. Banks use statements of condition to reflect the
amounts, nature and changes in the assets and liabilities. The Central Bank Manual of Examination Procedures provides a
format or checklist of a statement of condition to be used by examiners as guide in the examination of banks. The format
enumerates the items which will compose the assets and liabilities of a bank. Assets include cash and those due from
banks, loans, discounts and advances, fixed assets and other property owned or acquired and other miscellaneous assets.
The amount of loans, discounts and advances to be stated in the statement of condition as provided for in the manual is
computed after deducting valuation reserves when deemed necessary. On the other hand, liabilities are composed of
demand deposits, time and savings deposits, cashier's, manager's and certified checks, borrowings, due to head office,
branches; and agencies, other liabilities and deferred credits (Manual of Examination Procedure, p. 9). The amounts stated
in the balance sheets or statements of condition including the computation of valuation reserves when justified, are based
however, on the assumption that the bank or company will continue in business indefinitely, and therefore, the networth
shown in the statement is in no sense an indication of the amount that might be realized if the bank or company were to
be liquidated immediately (Prentice Hall Encyclopedic Dictionary of Business Finance, p. 48). Further, based on
respondents' submissions, the allowance for probable losses on loans and discounts represents the amount set up against
current operations to provide for possible losses arising from non-collection of loans and advances, and this account is
also referred to as valuation reserve (p. 9, Objections to Santiago report). Clearly, the statement of condition which
contains a provision for recommended valuation reserves should not be used as the ultimate basis to determine the
solvency of an institution for the purpose of termination of its operations.

Respondents acknowledge that under the said CB manual, CB examiners must recommend valuation reserves, when
warranted, to be set up against the corresponding asset account (p. 8, Objections to Santiago report). Tiaoqui himself, as
author of the report recommending the closure of petitioner bank admits that the valuation reserves should still be
discussed with the petitioner bank in compliance with standard examination procedure. Hence, for the Monetary Board
to unilaterally deduct an uncertain amount as valuation reserves from the assets of a bank and to conclude therefrom
without sufficient basis that the bank is insolvent, would be totally unjust and unfair.

The test of insolvency laid down in Section 29 of the Central Bank Act is measured by determining whether the realizable
assets of a bank are leas than its liabilities. Hence, a bank is solvent if the fair cash value of all its assets, realizable within
a reasonable time by a reasonable prudent person, would equal or exceed its total liabilities exclusive of stock liability;
but if such fair cash value so realizable is not sufficient to pay such liabilities within a reasonable time, the bank is insolvent.
(Gillian v. State, 194 N.E. 360, 363, 207 Ind. 661). Stated in other words, the insolvency of a bank occurs when the actual
cash market value of its assets is insufficient to pay its liabilities, not considering capital stock and surplus which are not
liabilities for such purpose (Exley v. Harris, 267 p. 970, 973,126 Kan. 302; Alexander v. Llewellyn, Mo. App., 70 S.W. 2n
115,117).

In arriving at the computation of realizable assets of petitioner bank, respondents used its books which undoubtedly are
not reflective of the actual cash or fair market value of its assets. This is not the proper procedure contemplated in Sec.
29 of the Central Bank Act. Even the CB Manual of Examination Procedures does not confine examination of a bank solely
with the determination of the books of the bank. The latter is part of auditing which should not be confused with
examination. Examination appraises the soundness of the institution's assets, the quality and character of management
and determines the institution's compliance with laws, rules and regulations. Audit is a detailed inspection of the
institution's books, accounts, vouchers, ledgers, etc. to determine the recording of all assets and liabilities. Hence,
examination concerns itself with review and appraisal, while audit concerns itself with verification (CB Manual of
Examination Procedures, General Instructions, p. 5). This Court however, is not in the position to determine how much
cash or market value shall be assigned to each of the assets and liabilities of the bank to determine their total realizable
value. The proper determination of these matters by using the actual cash value criteria belongs to the field of fact-finding
expertise of the Central Bank and the Monetary Board. Notwithstanding the fact that the figures arrived at by the

171
respondent Board as to assets and liabilities do not truly indicate their realizable value as they were merely based on book
value, We will however, take a look at the figures presented by the Tiaoqui Report in concluding insolvency as of July 31,
1984 and at the figures presented by the CB authorized deputy receiver and by the Valenzuela, Aurellano and Tiaoqui
Report which recommended the liquidation of the bank by reason of insolvency as o January 25,1985.

The Tiaoqui report dated January 23, 1985, which was based on partial examination findings on the bank's condition as of
July 31, 1984, states that total liabilities of P5,282.1 million exceeds total assets of P4,947.2 million after deducting from
the assets valuation reserves of P612.2 million. Since, as We have explained in our previous discussion that valuation
reserves can not be legally deducted as there was no truthful and complete evaluation thereof as admitted by the Tiaoqui
report itself, then an adjustment of the figures win show that the liabilities of P5,282.1 million will not exceed the total
assets which will amount to P5,559.4 if the 612.2 million allotted to valuation reserves will not be deducted from the
assets. There can be no basis therefore for both the conclusion of insolvency and for the decision of the respondent Board
to close petitioner bank and place it under receivership.

Concerning the financial position of the bank as of January 25, 1985, the date of the closure of the bank, the consolidated
statement of condition thereof as of the aforesaid date shown in the Valenzuela, Aurellano and Tiaoqui report on the
receivership of petitioner bank, dated March 19, 1985, indicates that total liabilities of 4,540.84 million does not exceed
the total assets of 4,981.53 million. Likewise, the consolidated statement of condition of petitioner bank as of January 25,
1985 prepared by the Central Bank Authorized Deputy Receiver Artemio Cruz shows that total assets amounting to
P4,981,522,996.22 even exceeds total liabilities amounting to P4,540,836,834.15. Based on the foregoing, there was no
valid reason for the Valenzuela, Aurellano and Tiaoqui report to finally recommend the liquidation of petitioner bank
instead of its rehabilitation.

We take note of the exhaustive study and findings of the Cosico report on the petitioner bank's having engaged in unsafe,
unsound and fraudulent banking practices by the granting of huge unsecured loans to several subsidiaries and related
companies. We do not see, however, that this has any material bearing on the validity of the closure. Section 34 of the RA
265, Central Bank Act empowers the Monetary Board to take action under Section 29 of the Central Bank Act when a bank
"persists in carrying on its business in an unlawful or unsafe manner." There was no showing whatsoever that the bank
had persisted in committing unlawful banking practices and that the respondent Board had attempted to take effective
action on the bank's alleged activities. During the period from July 27, 1984 up to January 25, 1985, when petitioner bank
was under conservatorship no official of the bank was ever prosecuted, suspended or removed for any participation in
unsafe and unsound banking practices, and neither was the entire management of the bank replaced or substituted. In
fact, in her testimony during the second referral hearing, Carlota Valenzuela, CB Deputy Governor, testified that the reason
for petitioner bank's closure was not unsound, unsafe and fraudulent banking practices but the alleged insolvency position
of the bank (TSN, August 3, 1990, p. 3316, Rollo, Vol. VIII).

Finally, another circumstance which point to the solvency of petitioner bank is the granting by the Monetary Board in
favor of the former a credit line in the amount of P3 billion along with the placing of petitioner bank under conservatorship
by virtue of M.B. Resolution No. 955 dated July 27, 1984. This paved the way for the reopening of the bank on August 1,
1984 after a self-imposed bank holiday on July 23, 1984.

On emergency loans and advances, Section 90 of RA 265 provides two types of emergency loans that can be granted by
the Central Bank to a financially distressed bank:

Sec. 90. ... In periods of emergency or of imminent financial panic which directly threaten monetary and banking stability,
the Central Bank may grant banking institutions extraordinary advances secured by any assets which are defined as
acceptable by by a concurrent vote of at least five members of the Monetary Board. While such advances are outstanding,
the debtor institution may not expand the total volume of its loans or investments without the prior authorization of the
Monetary Board.

The Central Bank may, at its discretion, likewise grant advances to banking institutions, even during normal periods, for
the purpose of assisting a bank in a precarious financial condition or under serious financial pressures brought about by
unforeseen events, or events which, though foreseeable, could not be prevented by the bank concerned. Provided,
however, That the Monetary Board has ascertained that the bank is not insolvent and has clearly realizable assets to
secure the advances. Provided, further, That a concurrent vote of at least five members of the Monetary Board is obtained.
(Emphasis ours)

The first paragraph of the aforequoted provision contemplates a situation where the whole banking community is
confronted with financial and economic crisis giving rise to serious and widespread confusion among the public, which
may eventually threaten and gravely prejudice the stability of the banking system. Here, the emergency or financial
confusion involves the whole banking community and not one bank or institution only. The second situation on the other
hand, provides for a situation where the Central Bank grants a loan to a bank with uncertain financial condition but not
insolvent.

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As alleged by the respondents, the following are the reasons of the Central Bank in approving the resolution granting the
P3 billion loan to petitioner bank and the latter's reopening after a brief self-imposed banking holiday:

WHEREAS, the closure by Banco Filipino Savings and Mortgage Bank of its Banking offices on its own initiative has worked
serious hardships on its depositors and has affected confidence levels in the banking system resulting in a feeling of
apprehension among depositors and unnecessary deposit withdrawals;

WHEREAS, the Central Bank is charged with the function of administering the banking system;

WHEREAS, the reopening of Banco Filipino would require additional credit resources from the Central Bank as well as an
independent management acceptable to the Central Bank;

WHEREAS, it is the desire of the Central Bank to rapidly diffuse the uncertainty that presently exists;

... (M.B. Min. No. 35 dated July 27, 1984 cited in Respondents' Objections to Santiago Report, p. 26; p. 3387, Rollo, Vol. IX;
Emphasis ours).

A perusal of the foregoing "Whereas" clauses unmistakably show that the clear reason for the decision to grant the
emergency loan to petitioner bank was that the latter was suffering from financial distress and severe bank "run" as a
result of which it closed on July 23, 1984 and that the release of the said amount is in accordance with the Central Bank's
full support to meet Banco Filipino's depositors' withdrawal requirements (Excerpts of minutes of meeting on MB Min.
No. 35, p. 25, Rollo, Vol. IX). Nothing therein shows that an extraordinary emergency situation exists affecting most banks,
not only as regards petitioner bank. This Court thereby finds that the grant of the said emergency loan was intended from
the beginning to fall under the second paragraph of Section 90 of the Central Bank Act, which could not have occurred if
the petitioner bank was not solvent. Where notwithstanding knowledge of the irregularities and unsafe banking practices
allegedly committed by the petitioner bank, the Central Bank even granted financial support to the latter and placed it
under conservatorship, such actuation means that petitioner bank could still be saved from its financial distress by
adequate aid and management reform, which was required by Central Bank's duty to maintain the stability of the banking
system and the preservation of public confidence in it (Ramos v. Central Bank, No. L-29352, October 4, 1971, 41 SCRA
565).

In view of the foregoing premises, We believe that the closure of the petitioner bank was arbitrary and committed with
grave abuse of discretion. Granting in gratia argumenti that the closure was based on justified grounds to protect the
public, the fact that petitioner bank was suffering from serious financial problems should not automatically lead to its
liquidation. Section 29 of the Central Bank provides that a closed bank may be reorganized or otherwise placed in such a
condition that it may be permitted to resume business with safety to its depositors, creditors and the general public.

We are aware of the Central Bank's concern for the safety of Banco Filipino's depositors as well as its creditors including
itself which had granted substantial financial assistance up to the time of the latter's closure. But there are alternatives to
permanent closure and liquidation to safeguard those interests as well as those of the general public for the failure of
Banco Filipino or any bank for that matter may be viewed as an irreversible decline of the country's entire banking system
and ultimately, it may reflect on the Central Bank's own viability. For one thing, the Central Bank and the Monetary Board
should exercise strict supervision over Banco Filipino. They should take all the necessary steps not violative of the laws
that will fully secure the repayment of the total financial assistance that the Central Bank had already granted or would
grant in the future.

ACCORDINGLY, decision is hereby rendered as follows:

1. The motion for reconsideration in G.R. Nos. 68878 and 81303, and the petitions in G.R. Nos. 77255-58, 78766,
81304 and 90473 are DENIED;

2. The petitions in G.R. No. 70054, 78767 and 78894 are GRANTED and the assailed order of the Central Bank and
the Monetary Board dated January 25, 1985 is hereby ANNULLED AND SET ASIDE. The Central Bank and the Monetary
Board are ordered to reorganize petitioner Banco Filipino Savings and Mortgage Bank and allow the latter to resume
business in the Philippines under the comptrollership of both the Central Bank and the Monetary Board and under such
conditions as may be prescribed by the latter in connection with its reorganization until such time that petitioner bank
can continue in business with safety to its creditors, depositors and the general public.

SO ORDERED.

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 G.R. No. 112830 February 1, 1996

JERRY ONG, petitioner,

vs.
COURT OF APPEALS and RURAL BANK OF OLONGAPO, INC., represented by its Liquidator, GUILLERMO G. REYES, JR.
and Deputy Liquidator ABEL ALLANIGUE, respondents.

DECISION

BELLOSILLO, J.:

The jurisdiction of a regular court over a bank undergoing liquidation is the issue in this petition for review of the decision
of the Court of Appeals.1

On 5 February 1991 Jerry Ong filed with the Regional Trial Court of Quezon City a petition for the surrender of TCT Nos.
13769 and 13770 pursuant to the provisions of Secs. 63(b) and 107 of P.D. 15292 against Rural Bank of Olongapo, Inc.
(RBO), represented by its liquidator Guillermo G. Reyes, Jr. and deputy liquidator Abel Allanigue.3 The petition averred
inter alia that

2. The RBO was the owner in fee simple of two parcels of land including the improvements thereon situated in
Tagaytay City . . . particularly described in TCT Nos. 13769 and 13770 . . . .

3. Said parcels of land were duly mortgaged by RBO in favor of petitioner on December 29, 1983 to guarantee the
payment of Omnibus Finance, Inc., which is likewise now undergoing liquidation proceedings of its money market
obligations to petitioner in the principal amount of P863,517.02 . . . .

4. Omnibus Finance, Inc., not having seasonably settled its obligations to petitioner, the latter proceeded to effect
the extrajudicial foreclosure of said mortgages, such that on March 23, 1984, the City Sheriff of Tagaytay City issued a
Certificate of Sale in favor of petitioner . . . .

5. Said Certificate of Sale . . . was duly registered with the Registry of Deeds of Tagaytay City on July 16, 1985, as
shown in the certified true copies of the aforementioned titles . . . .

6. Respondents failed to seasonably redeem said parcels of land, for which reason, petitioner has executed an
Affidavit of Consolidation of Ownership which, to date, has not been submitted to the Registry of Deeds of Tagaytay City,
in view of the fact that possession of the aforesaid titles or owner's duplicate certificates of title remains with the RBO.

7. To date, petitioner has not been able to effect the registration of said parcels of land in his name in view of the
persistent refusal of respondents, despite demand, to surrender RBO's copies of its owner's certificates of title for the
parcels of land covered by TCT Nos. 13769 and 13770.4

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Respondent RBO filed a motion to dismiss on the ground of res judicata alleging that petitioner had earlier sought a similar
relief from Br. 18 of the Regional Trial Court of Tagaytay City, which case was dismissed with finality on appeal before the
Court of Appeals.

In a supplemental motion to dismiss, respondent RBO contended that it was undergoing liquidation and, pursuant to
prevailing jurisprudence, it is the liquidation court which has exclusive jurisdiction to take cognizance of petitioner's claim.

On 7 May 1991 the trial court denied the motion to dismiss because it found that the causes of action in the previous and
present cases were different although it was silent on the jurisdictional issue. Accordingly, respondent RBO filed a motion
for reconsideration but the same was similarly rejected in the order of June 11 1991 holding that: (a) subject parcels of
land were sold to petitioner through public bidding on 23 March 1984 and, consequently, said pieces of realty were no
longer part of the assets of respondent RBO; and, (b) in the same token, subject lots were no longer considered assets of
respondent RBO when its liquidation was commenced by the Central Bank on 9 November 1984 and when the petition
for assistance in its liquidation was approved by the Regional Trial Court of Olongapo City on 30 May 1985.

On 5 July 1991 respondent RBO filed a manifestation and urgent motion for reconsideration arguing that the validity of
the certificate of sale issued to petitioner was still at issue in another case between them and therefore the properties
covered by said certificate were still part and parcel of its assets.

Still unpersuaded by respondent RBO's arguments, the trial court denied reconsideration in its order of 18 September
1991 prompting the bank to elevate the case to respondent Court of Appeals by way of a petition for certiorari and
prohibition. On 12 February 1992 respondent court rendered a decision annulling the challenged order of the court a quo
dated 19 June 1991 which sustained the jurisdiction of the trial court as well as the order of 18 September 1991 denying
reconsideration thereof. Moreover, the trial judge was ordered to dismiss Civil Case No. Q-91-8019 without prejudice to
the right of petitioner to file his claim in the liquidation proceedings (Sp. Proc. No. 170-0-85) pending before Br. 73 of the
Regional Trial Court of Olongapo City.5

In reversing the trial court the appellate court noted that Sec. 29, par. 3, of R.A. 265 as amended by P.D. 18276 does not
limit the jurisdiction of the liquidation court to claims against the assets of the insolvent bank. The provision is general in
that it clearly and unqualifiedly states that the liquidation court shall have jurisdiction to adjudicate disputed claims against
the bank. "Disputed claims" refer to all claims, whether they be against the assets of the insolvent bank, for specific
performance, breach of contract, damages, or whatever. To limit the jurisdiction of the liquidation court to those claims
against the asset's of the bank is to remove significantly and without basis the cases that may be brought against a bank
in case of insolvency.

Respondent court also noted that the certificates of title are still in the name of respondent RBO. As far as third persons
are concerned (and these include claimants in the liquidation court), registration is the operative act which would convey
title to the property.

Petitioner submits that Civil Case No. Q-91-8019 may proceed independently of Sp. Proc. No. 170-0-85. He argues that the
disputed parcels of land have been extrajudicially foreclosed and the corresponding certificate of sale issued in his favor;
that considering that respondent RBO failed to redeem said properties he should now be allowed to consolidate his title
thereto; that respondent RBO's mortgage of TCT Nos. 13769 and 13770 in favor of petitioner and its subsequent
foreclosure are presumed valid and regular; and, that the liquidation court has no jurisdiction over subject parcels of land
since they are no longer assets of respondent RBO.

We find no merit in the petition. Section 29, par. 3, of R.A. 265 as amended by P. D. 1827 provides

If the Monetary Board shall determine and confirm within (sixty days) that the bank . . . is insolvent or cannot resume
business with safety to its depositors, creditors and the general public, it shall, if the public interest requires, order its
liquidation, indicate the manner of its liquidation and approve a liquidation plan. The Central Bank shall, by the Solicitor
General, file a petition in the Court of First Instance 7 reciting the proceedings which have been taken and praying the
assistance of the court in the liquidation of such institution. The court shall have jurisdiction in the same proceedings to
adjudicate disputed claims against the bank . . . . and enforce individual liabilities of the stockholders and do all that is
necessary to preserve the assets of such institution and to implement the liquidation plan approved by the Monetary
Board (emphasis supplied).

Applying the aforequoted provision in Hernandez v. Rural Bank of Lucena, Inc., 8 this Court ruled

The fact that the insolvent bank is forbidden to do business, that its assets are turned over to the Superintendent of Banks,
as a receiver, for conversion into cash, and that its liquidation is undertaken with judicial intervention means that, as far
as lawful and practicable, all claims against the insolvent bank should be filed in the liquidation proceeding (emphasis
supplied).

175
We explained therein the rationale behind the provision, i.e., the judicial liquidation is intended to prevent multiplicity of
actions against the insolvent bank. It is a pragmatic arrangement designed to establish due process and orderliness in the
liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice and arbitrariness. The lawmaking
body contemplated that for convenience only one court, if possible, should pass upon the claims against the insolvent
bank and that the liquidation court should assist the Superintendent of Banks and regulate his operations.

The phrase "(T)he court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank"
appears to have misled petitioner. He argues that to the best of his personal knowledge there is no pending action filed
before any court or agency which contests his right over subject properties. Thus his petition before the Regional Trial
Court of Quezon City cannot be considered a "disputed claim" as contemplated by law.

It is not necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation court. As may
be gleaned in the Hernandez case, the term "disputed claim" in the provision simply connotes that

[i]n the course of the liquidation, contentious cases might arise wherein a full-dress hearing would be required and legal
issues would have to be resolved. Hence, it would be necessary in justice to all concerned that a Court of First Instance
(now Regional Trial Court) . . . assist and supervise the liquidation and . . . . act as umpire or arbitrator in the allowance
and disallowance of claims.

Petitioner must have overlooked the fact that since respondent RBO is insolvent other claimants not privy to their
transaction may be involved. As far as those claimants are concerned, in the absence of certificates of title in the name of
petitioner, subject lots still form part of the assets of the insolvent bank.

On the basis of the Hernandez case as well as Sec. 29, par. 3, of R.A. 265 as amended by P.D. 1827, respondent Court of
Appeals was correct in holding that the Regional Trial Court of Quezon City, Br. 79, did not have jurisdiction over the
petition, much less in ordering the dismissal of Civil Case No. Q-91-8019, without prejudice to petitioner's right to file his
claim in Sp. Proc. No. 170-0-85 before the Regional Trial Court of Olongapo City, Br. 73.

WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals dated 12 February 1992 is AFFIRMED.
Costs against petitioner.

SO ORDERED.

176
 VI. Anti-Mon
Laundering Act
9160)
VII.

Richelle Ann Zamora

177
178