G.R. No.

179901

April 14, 2008

BANCO DE ORO-EPCI, INC.,* petitioner, vs.JAPRL DEVELOPMENT CORPORATION, RAPID FORMING CORPORATION and JOSE U. AROLLADO, respondents. DECISION CORONA, J.: This petition for review on certiorari1 seeks to set aside the decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 95659 and its resolution3 denying reconsideration. After evaluating the financial statements of respondent JAPRL Development Corporation (JAPRL) for fiscal years 1998, 1999 and 2000,4 petitioner Banco de Oro-EPCI, Inc. extended credit facilities to it amounting to P230,000,0005 on March 28, 2003. Respondents Rapid Forming Corporation (RFC) and Jose U. Arollado acted as JAPRL's sureties. Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust receipts soon after the approval of its loan.6 Petitioner later learned from MRM Management, JAPRL's financial adviser, that JAPRL had altered and falsified its financial statements. It allegedly bloated its sales revenues to post a big income from operations for the concerned fiscal years to project itself as a viable investment.7 The information alarmed petitioner. Citing relevant provisions of the Trust Receipt Agreement, 8 it demanded immediate payment of JAPRL's outstanding obligations amounting to P194,493,388.98.9 SP Proc. No. Q-03-064 On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the Regional Trial Court (RTC) of Quezon City, Branch 90 (Quezon City RTC). 10 It disclosed that it had been experiencing a decline in sales for the three preceding years and a staggering loss in 2002.11 Because the petition was sufficient in form and substance, a stay order12 was issued on September 28, 2003.13 However, the proposed rehabilitation plan for JAPRL and RFC was eventually rejected by the Quezon City RTC in an order dated May 9, 2005.14

Civil Case No. 03-991 Because JAPRL ignored its demand for payment, petitioner filed a complaint for sum of money with an application for the issuance of a writ of preliminary attachment against respondents in the RTC of Makati City, Branch 145 (Makati RTC) on August 21, 2003.15 Petitioner essentially asserted that JAPRL was guilty of fraud because it (JAPRL) altered and falsified its financial statements.16 The Makati RTC subsequently denied the application (for the issuance of a writ of preliminary attachment) for lack of merit as petitioner was unable to substantiate its allegations. Nevertheless, it ordered the service of summons on respondents. 17 Pursuant to the said order, summonses were issued against respondents and were served upon them. Respondents moved to dismiss the complaint due to an allegedly invalid service of summons. 18 Because the officer's return stated that an "administrative assistant" had received the summons, 19 JAPRL and RFC argued that Section 11, Rule 14 of the Rules of Court20 contained an exclusive list of persons on whom summons against a corporation must be served.21 An "administrative assistant" was not one of them. Arollado, on the other hand, cited Section 6, Rule 14 thereof22 which mandated personal service of summons on an individual defendant.23 The Makati RTC, in its October 10, 2005 order,24 noted that because corporate officers are often busy, summonses to corporations are usually received only by administrative assistants or secretaries of corporate officers in the regular course of business. Hence, it denied the motion for lack of merit. Respondents moved for reconsideration25 but withdrew it before the Makati RTC could resolve the matter.26 RTC SEC Case No. 68-2008-C On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the RTC of Calamba, Laguna, Branch 34 (Calamba RTC). Finding JAPRL's petition sufficient in form and in substance, the Calamba RTC issued a stay order27 on March 13, 2006. In view of the said order, respondents hastily moved to suspend

the proceedings in Civil Case No. 03-991 pending in the Makati RTC.28 On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL and RFC but ordered Arollado to file an answer. It ruled that, because he was jointly and solidarily liable with JAPRL and RFC, the proceedings against him should continue. 29 Respondents moved for reconsideration30 but it was denied.31 On August 11, 2006, respondents filed a petition for certiorari32 in the CA alleging that the Makati RTC committed grave abuse of discretion in issuing the October 10, 2005 and July 7, 2006 orders.33 They asserted that the court did not acquire jurisdiction over their persons due to defective service of summons. Thus, the Makati RTC could not hear the complaint for sum of money.34 In its June 7, 2007 decision, the CA held that because the summonses were served on a mere administrative assistant, the Makati RTC never acquired jurisdiction over respondents. Thus, it granted the petition.35 Petitioner moved for reconsideration but it was denied.36 Hence, this petition. Petitioner asserts that respondents maliciously evaded the service of summonses to prevent the Makati RTC from acquiring jurisdiction over their persons. Furthermore, they employed bad faith to delay proceedings by cunningly exploiting procedural technicalities to avoid the payment of their obligations.37 We grant the petition. Respondents, in their petition for certiorari in the CA, questioned the jurisdiction of the Makati RTC over their persons (i.e., whether or not the service of summons was validly made). Therefore, it was only the October 10, 2005 order of the said trial court which they in effect assailed.38 However, because they withdrew their motion for reconsideration of the said order, it became final. Moreover, the petition was filed 10 months and 1 day after the assailed order was issued by the Makati RTC,39 way past the 60 days allowed by the Rules of Court. For these reasons, the said petition should have been dismissed outright by the CA. More importantly, when respondents moved for the suspension of

proceedings in Civil Case No. 03-991 before the Makati RTC (on the basis of the March 13, 2006 order of the Calamba RTC), they waived whatever defect there was in the service of summons and were deemed to have submitted themselves voluntarily to the jurisdiction of the Makati RTC.40 We withhold judgment for the moment on the July 7, 2006 order of the Makati RTC suspending the proceedings in Civil Case No. 03991 insofar as JAPRL and RFC are concerned. Under the Interim Rules of Procedure on Corporate Rehabilitation, a stay order defers all actions or claims against the corporation seeking rehabilitation41 from the date of its issuance until the dismissal of the petition or termination of the rehabilitation proceedings.42 The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if there is no ground to go after JAPRL and RFC (as will later be discussed). A creditor can demand payment from the surety solidarily liable with the corporation seeking rehabilitation. 43 Respondents abused procedural technicalities (albeit unsuccessfully) for the sole purpose of preventing, or at least delaying, the collection of their legitimate obligations. Their reprehensible scheme impeded the speedy dispensation of justice. More importantly, however, considering the amount involved, respondents utterly disregarded the significance of a stable and efficient banking system to the national economy.44 Banks are entities engaged in the lending of funds obtained through deposits45 from the public.46 They borrow the public's excess money (i.e., deposits) and lend out the same. 47 Banks therefore redistribute wealth in the economy by channeling idle savings to profitable investments. Banks operate (and earn income) by extending credit facilities financed primarily by deposits from the public.48 They plough back the bulk of said deposits into the economy in the form of loans. 49 Since banks deal with the public's money, their viability depends largely on their ability to return those deposits on demand. For this reason, banking is undeniably imbued with public interest. Consequently, much importance is given to sound lending practices and good corporate governance.50 Protecting the integrity of the banking system has become, by

large, the responsibility of banks. The role of the public, particularly individual borrowers, has not been emphasized. Nevertheless, we are not unaware of the rampant and unscrupulous practice of obtaining loans without intending to pay the same. In this case, petitioner alleged that JAPRL fraudulently altered and falsified its financial statements in order to obtain its credit facilities. Considering the amount of petitioner's exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether or not respondents indeed committed fraud in securing the credit accomodation. A finding of fraud will change the whole picture. In this event, petitioner can use the finding of fraud to move for the dismissal of the rehabilitation case in the Calamba RTC. The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty of fraud. Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against the three respondents guided by Section 40 of the General Banking Law which states: Section 40. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank. Towards this end, a bank may demand from its credit applicants a statement of their assets and liabilities and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal Revenue. Should such statements prove to be false or incorrect in any material detail, the bank may terminate any loan or credit accommodation granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of the obligation. In formulating the rules and regulations under this Section, the Monetary Board shall recognize the peculiar characteristics of microfinancing, such as cash flow-based lending to the basic

sectors that are not covered by traditional collateral. (emphasis supplied) Under this provision, banks have the right to annul any credit accommodation or loan, and demand the immediate payment thereof, from borrowers proven to be guilty of fraud. Petitioner would then be entitled to the immediate payment of P194,493,388.98 and other appropriate damages.51 Finally, considering that respondents failed to pay the four trust receipts, the Makati City Prosecutor should investigate whether or not there is probable cause to indict respondents for violation of Section 13 of the Trust Receipts Law.52 ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and August 31, 2007 resolution of the Court of Appeals in CA-G.R. SP No. 95659 are REVERSED and SET ASIDE. The Regional Trial Court of Makati City, Branch 145 is ordered to proceed expeditiously with the trial of Civil Case No. 03-991 with regard to respondent Jose U. Arollado, and the other respondents if warranted. SO ORDERED. G.R. No. L-20583 January 23, 1967

REPUBLIC OF THE PHILIPPINES, petitioner, vs.SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO T. RESUELLO, PABLO TANJUTCO, ARTURO SORIANO, RUBEN BELTRAN, BIENVENIDO V. ZAPA, PILAR G. RESUELLO, RICARDO D. BALATBAT, JOSE SEBASTIAN and VITO TANJUTCO JR., respondents. Office of the Solicitor General Arturo A. Alafriz and Solicitor E. M. Salva for petitioner.Sycip, Salazar, Luna, Manalo & Feliciano for respondents.Natalio M. Balboa and F. E. Evangelista for the receiver.

CONCEPCION, C.J.: This is an original quo warranto proceeding, initiated by the

Solicitor General, to dissolve the Security and Acceptance Corporation for allegedly engaging in banking operations without the authority required therefor by the General Banking Act (Republic Act No. 337). Named as respondents in the petition are, in addition to said corporation, the following, as alleged members of its Board of Directors and/or Executive Officers, namely: NAME Rosendo T. Resuello Pablo Tanjutco Arturo Soriano Ruben Beltran POSITION President & Chairman of the Board Director Director Director

Bienvenido V. Zapa Director & Vice-President Pilar G. Resuello Director & Secretary-Treasurer

Ricardo D. Balatbat Director & Auditor Jose R. Sebastian Vito Tanjutco Jr. Director & Legal Counsel Director & Personnel Manager

The record shows that the Articles of Incorporation of defendant corporation1 were registered with the Securities and Exchange Commission on March 27, 1961; that the next day, the Board of Directors of the corporation adopted a set of by-laws, 2 which were filed with said Commission on April 5, 1961; that on September 19, 1961, the Superintendent of Banks of the Central Bank of the Philippines asked its legal counsel an opinion on whether or not said corporation is a banking institution, within the purview of Republic Act No. 337; that, acting upon this request, on October 11, 1961, said legal counsel rendered an opinion resolving the query in the affirmative; that in a letter, dated January 15, 1962, addressed to said Superintendent of Banks, the corporation through its president, Rosendo T. Resuello, one of defendants herein, sought a reconsideration of the aforementioned opinion, which reconsideration was denied on March 16, 1962; that, prior thereto, or on March 9, 1961, the corporation had applied with the Securities and Exchange Commission for the registration and licensing of its securities under the Securities Act; that, before acting on this application, the Commission referred it to the Central

Bank, which, in turn, gave the former a copy of the abovementioned opinion, in line with which, the Commission advised the corporation on December 5, 1961, to comply with the requirements of the General Banking Act; that, upon application of members of the Manila Police Department and an agent of the Central Bank, on May 18, 1962, the Municipal Court of Manila issued Search Warrant No. A-1019; that, pursuant thereto, members of the intelligence division of the Central Bank and of the Manila Police Department searched the premises of the corporation and seized documents and records thereof relative to its business operations; that, upon the return of said warrant, the seized documents and records were, with the authority of the court, placed under the custody of the Central Bank of the Philippines; that, upon examination and evaluation of said documents and records, the intelligence division of the Central Bank submitted, to the Acting Deputy Governor thereof, a memorandum dated September 10, 1962, finding that the corporation is: 1. Performing banking functions, without requisite certificate of authority from the Monetary Board of the Central Bank, in violation of Secs. 2 and 6 of Republic Act 337, in that it is soliciting and accepting deposit from the public and lending out the funds so received; 2. Soliciting and accepting savings deposits from the general public when the company's articles of incorporation authorize it only to engage primarily in financing agricultural, commercial and industrial projects, and secondarily, in buying and selling stocks and bonds of any corporation, thereby exceeding the scope of its powers and authority as granted under its charter; consequently such acts are ultra-vires: 3. Soliciting subscriptions to the corporate shares of stock and accepting deposits on account thereof, without prior registration and/or licensing of such shares or securing exemption therefor, in violation of the Securities Act; and 4. That being a private credit and financial institution, it should come under the supervision of the Monetary Board of the Central Bank, by virtue of the transfer of the authority, power, duties and functions of the Secretary of Finance, Bank Commissioner and the defunct Bureau of Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic Act 265 and Secs. 88 and 89 of Republic

Act 337." (Emphasis Supplied.) that upon examination and evaluation of the same records of the corporation, as well as of other documents and pertinent pipers obtained elsewhere, the Superintendent of Banks, submitted to the Monetary Board of the Central Bank a memorandum dated August 28, 1962, stating inter alia. 11. Pursuant to the request for assistance by the Chief, Intelligence Division, contained in his Memorandum to the Governor dated May 23, 1962 and in accordance with the written instructions of Governor Castillo dated May 31, 1962, an examination of the books and records of the Security Credit and Loans Organizations, Inc. seized by the combined MPD-CB team was conducted by this Department. The examination disclosed the following findings: a. Considering the extent of its operations, the Security Credit and Acceptance Corporation, Inc., receives deposits from the public regularly. Such deposits are treated in the Corporation's financial statements as conditional subscription to capital stock. Accumulated deposits of P5,000 of an individual depositor may be converted into stock subscription to the capital stock of the Security Credit and Acceptance Corporation at the option of the depositor. Sale of its shares of stock or subscriptions to its capital stock are offered to the public as part of its regular operations. b. That out of the funds obtained from the public through the receipt of deposits and/or the sale of securities, loans are made regularly to any person by the Security Credit and Acceptance Corporation. A copy of the Memorandum Report dated July 30, 1962 of the examination made by Examiners of this Department of the seized books and records of the Corporation is attached hereto. 12. Section 2 of Republic Act No. 337, otherwise known as the General Banking Act, defines the term, "banking institution" as follows: Sec. 2. Only duly authorized persons and entities may engage in the lending of funds obtained from the public through the receipts of deposits or the sale of bonds, securities, or obligations of any kind and all entities regularly conducting operations shall be considered as banking institutions and shall be subject to the

provisions of this Act, of the Central Bank Act, and of other pertinent laws. ... 13. Premises considered, the examination disclosed that the Security Credit and Acceptance Corporation is regularly lending funds obtained from the receipt of deposits and/or the sale of securities. The Corporation therefore is performing 'banking functions' as contemplated in Republic Act No. 337, without having first complied with the provisions of said Act. Recommendations: In view of all the foregoing, it is recommended that the Monetary Board decide and declare: 1. That the Security Credit and Acceptance Corporation is performing banking functions without having first complied with the provisions of Republic Act No. 337, otherwise known as the General Banking Act, in violation of Sections 2 and 6 thereof; and 2. That this case be referred to the Special Assistant to the Governor (Legal Counsel) for whatever legal actions are warranted, including, if warranted criminal action against the Persons criminally liable and/or quo warranto proceedings with preliminary injunction against the Corporation for its dissolution. (Emphasis supplied.) that, acting upon said memorandum of the Superintendent of Banks, on September 14, 1962, the Monetary Board promulgated its Resolution No. 1095, declaring that the corporation is performing banking operations, without having first complied with the provisions of Sections 2 and 6 of Republic Act No. 337;3 that on September 25, 1962, the corporation was advised of the aforementioned resolution, but, this notwithstanding, the corporation, as well as the members of its Board of Directors and the officers of the corporation, have been and still are performing the functions and activities which had been declared to constitute illegal banking operations; that during the period from March 27, 1961 to May 18, 1962, the corporation had established 74 branches in principal cities and towns throughout the Philippines; that through a systematic and vigorous campaign undertaken by the corporation, the same had managed to induce the public to open 59,463 savings deposit accounts with an aggregate deposit of P1,689,136.74; that, in consequence of the foregoing deposits

with the corporation, its original capital stock of P500,000, divided into 20,000 founders' shares of stock and 80,000 preferred shares of stock, both of which had a par value of P5.00 each, was increased, in less than one (1) year, to P3,000,000 divided into 130,000 founders' shares and 470,000 preferred shares, both with a par value of P5.00 each; and that, according to its statement of assets and liabilities, as of December 31, 1961, the corporation had a capital stock aggregating P1,273,265.98 and suffered, during the year 1961, a loss of P96,685.29. Accordingly, on December 6, 1962, the Solicitor General commenced this quo warranto proceedings for the dissolution of the corporation, with a prayer that, meanwhile, a writ of preliminary injunction be issued ex parte, enjoining the corporation and its branches, as well as its officers and agents, from performing the banking operations complained of, and that a receiver be appointed pendente lite. Upon joint motion of both parties, on August 20, 1963, the Superintendent of Banks of the Central Bank of the Philippines was appointed by this Court receiver pendente lite of defendant corporation, and upon the filing of the requisite bond, said officer assumed his functions as such receiver on September 16, 1963. In their answer, defendants admitted practically all of the allegations of fact made in the petition. They, however, denied that defendants Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran, Zapa, Balatbat and Sebastian, are directors of the corporation, as well as the validity of the opinion, ruling, evaluation and conclusions, rendered, made and/or reached by the legal counsel and the intelligence division of the Central Bank, the Securities and Exchange Commission, and the Superintendent of Banks of the Philippines, or in Resolution No. 1095 of the Monetary Board, or of Search Warrant No. A-1019 of the Municipal Court of Manila, and of the search and seizure made thereunder. By way of affirmative allegations, defendants averred that, as of July 7, 1961, the Board of Directors of the corporation was composed of defendants Rosendo T. Resuello, Aquilino L. Illera and Pilar G. Resuello; that on July 11, 1962, the corporation had filed with the Superintendent of Banks an application for conversion into a Security Savings and Mortgage Bank, with defendants Zapa, Balatbat, Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran and Sebastian as proposed directors, in addition to the defendants first named above, with defendants Rosendo T. Resullo, Zapa, Pilar G. Resuello, Balatbat and Sebastian as proposed president, vice-president, secretary-

treasurer, auditor and legal counsel, respectively; that said additional officers had never assumed their respective offices because of the pendency of the approval of said application for conversion; that defendants Soriano, Beltran, Sebastian, Vito Tanjutco Jr. and Pablo Tanjutco had subsequently withdrawn from the proposed mortgage and savings bank; that on November 29, 1962 or before the commencement of the present proceedings the corporation and defendants Rosendo T. Resuello and Pilar G. Resuello had instituted Civil Case No. 52342 of the Court of First Instance of Manila against Purificacion Santos and other members of the savings plan of the corporation and the City Fiscal for a declaratory relief and an injunction; that on December 3, 1962, Judge Gaudencio Cloribel of said court issued a writ directing the defendants in said case No. 52342 and their representatives or agents to refrain from prosecuting the plaintiff spouses and other officers of the corporation by reason of or in connection with the acceptance by the same of deposits under its savings plan; that acting upon a petition filed by plaintiffs in said case No. 52342, on December 6, 1962, the Court of First Instance of Manila had appointed Jose Ma. Ramirez as receiver of the corporation; that, on December 12, 1962, said Ramirez qualified as such receiver, after filing the requisite bond; that, except as to one of the defendants in said case No. 52342, the issues therein have already been joined; that the failure of the corporation to honor the demands for withdrawal of its depositors or members of its savings plan and its former employees was due, not to mismanagement or misappropriation of corporate funds, but to an abnormal situation created by the mass demand for withdrawal of deposits, by the attachment of property of the corporation by its creditors, by the suspension by debtors of the corporation of the payment of their debts thereto and by an order of the Securities and Exchange Commission dated September 26, 1962, to the corporation to stop soliciting and receiving deposits; and that the withdrawal of deposits of members of the savings plan of the corporation was understood to be subject, as to time and amounts, to the financial condition of the corporation as an investment firm. In its reply, plaintiff alleged that a photostat copy, attached to said pleading, of the anniversary publication of defendant corporation showed that defendants Pablo Tanjutco, Arturo Soriano, Ruben Beltran, Bienvenido V. Zapa, Ricardo D. Balatbat, Jose R. Sebastian and Vito Tanjutco Jr. are officers and/or directors thereof; that this is confirmed by the minutes of a meeting of

stockholders of the corporation, held on September 27, 1962, showing that said defendants had been elected officers thereof; that the views of the legal counsel of the Central Bank, of the Securities and Exchange Commission, the Intelligence Division, the Superintendent of Banks and the Monetary Board above referred to have been expressed in the lawful performance of their respective duties and have not been assailed or impugned in accordance with law; that neither has the validity of Search Warrant No. A-1019 been contested as provided by law; that the only assets of the corporation now consist of accounts receivable amounting approximately to P500,000, and its office equipment and appliances, despite its increased capitalization of P3,000,000 and its deposits amounting to not less than P1,689,136.74; and that the aforementioned petition of the corporation, in Civil Case No. 52342 of the Court of First Instance of Manila, for a declaratory relief is now highly improper, the defendants having already committed infractions and violations of the law justifying the dissolution of the corporation. Although, admittedly, defendant corporation has not secured the requisite authority to engage in banking, defendants deny that its transactions partake of the nature of banking operations. It is conceded, however, that, in consequence of a propaganda campaign therefor, a total of 59,463 savings account deposits have been made by the public with the corporation and its 74 branches, with an aggregate deposit of P1,689,136.74, which has been lent out to such persons as the corporation deemed suitable therefor. It is clear that these transactions partake of the nature of banking, as the term is used in Section 2 of the General Banking Act. Indeed, a bank has been defined as: ... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347, 348] founded to facilitate the borrowing, lending and safe-keeping of money (Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243, 255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of exchange, and credits (State vs. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338). (Banks & Banking, by Zellmann Vol. 1, p. 46). Moreover, it has been held that: An investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and borrower, is a bank. (Western Investment Banking Co.

vs. Murray, 56 P. 728, 730, 731; 6 Ariz 215.) ... any person engaged in the business carried on by banks of deposit, of discount, or of circulation is doing a banking business, although but one of these functions is exercised. (MacLaren vs. State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S. 30.) Accordingly, defendant corporation has violated the law by engaging in banking without securing the administrative authority required in Republic Act No. 337. That the illegal transactions thus undertaken by defendant corporation warrant its dissolution is apparent from the fact that the foregoing misuser of the corporate funds and franchise affects the essence of its business, that it is willful and has been repeated 59,463 times, and that its continuance inflicts injury upon the public, owing to the number of persons affected thereby. It is urged, however, that this case should be remanded to the Court of First Instance of Manila upon the authority of Veraguth vs. Isabela Sugar Co. (57 Phil. 266). In this connection, it should be noted that this Court is vested with original jurisdiction, concurrently with courts of first instance, to hear and decide quo warranto cases and, that, consequently, it is discretionary for us to entertain the present case or to require that the issues therein be taken up in said Civil Case No. 52342. The Veraguth case cited by herein defendants, in support of the second alternative, is not in point, because in said case there were issues of fact which required the presentation of evidence, and courts of first instance are, in general, better equipped than appellate courts for the taking of testimony and the determination of questions of fact. In the case at bar, there is, however, no dispute as to the principal facts or acts performed by the corporation in the conduct of its business. The main issue here is one of law, namely, the legal nature of said facts or of the aforementioned acts of the corporation. For this reason, and because public interest demands an early disposition of the case, we have deemed it best to determine the merits thereof. Wherefore, the writ prayed for should be, as it is hereby granted and defendant corporation is, accordingly, ordered dissolved. The appointment of receiver herein issued pendente lite is hereby made permanent, and the receiver is, accordingly, directed to

administer the properties, deposits, and other assets of defendant corporation and wind up the affairs thereof conformably to Rules 59 and 66 of the Rules of Court. It is so ordered.

[G.R. No. 128703. October 18, 2000]

TEODORO BAAS,* C. G. DIZON CONSTRUCTION, INC., and CENEN DIZON, petitioners, vs. ASIA PACIFIC FINANCE CORPORATION,[1] substituted by INTERNATIONAL CORPORATE BANK now known as UNION BANK OF THE PHILIPPINES, respondent. DECISION
BELLOSILLO, J.:

C. G. DIZON CONSTRUCTION INC. and CENEN DIZON in this petition for review seek the reversal of the 24 July 1996 Decision of the Court of Appeals dismissing their appeal for lack of merit and affirming in toto the decision of the trial court holding them liable to Asia Pacific Finance Corporation in the amount of P87,637.50 at 14% interest per annum in addition to attorney's fees and costs of suit, as well as its 21 March 1997 Resolution denying reconsideration thereof.[2] On 20 March 1981 Asia Pacific Finance Corporation (ASIA PACIFIC for short) filed a complaint for a sum of money with prayer for a writ of replevin against Teodoro Baas, C. G. Dizon Construction and Cenen Dizon. Sometime in August 1980 Teodoro Baas executed a Promissory Note in favor of C. G. Dizon Construction whereby for value received he promised to pay to the order of C. G. Dizon Construction the sum of P390,000.00 in installments of "P32,500.00 every 25th day of the month

starting from September 25, 1980 up to August 25, 1981."[3] Later, C. G. Dizon Construction endorsed with recourse the Promissory Note to ASIA PACIFIC, and to secure payment thereof, C. G. Dizon Construction, through its corporate officers, Cenen Dizon, President, and Juliette B. Dizon, Vice President and Treasurer, executed a Deed of Chattel Mortgage covering three (3) heavy equipment units of Caterpillar Bulldozer Crawler Tractors with Model Nos. D8-14A, D8-2U and D8H in favor of ASIA PACIFIC.[4] Moreover, Cenen Dizon executed on 25 August 1980 a Continuing Undertaking wherein he bound himself to pay the obligation jointly and severally with C. G. Dizon Construction.[5] In compliance with the provisions of the Promissory Note, C. G. Dizon Construction made the following installment payments to ASIA PACIFIC: P32,500.00 on 25 September 1980, P32,500.00 on 27 October 1980 and P65,000.00 on 27 February 1981, or a total of P130,000.00. Thereafter, however, C. G. Dizon Construction defaulted in the payment of the remaining installments, prompting ASIA PACIFIC to send a Statement of Account to Cenen Dizon for the unpaid balance of P267,737.50 inclusive of interests and charges, and P66,909.38 representing attorney's fees. As the demand was unheeded, ASIA PACIFIC sued Teodoro Baas, C. G. Dizon Construction and Cenen Dizon. While defendants (herein petitioners) admitted the genuineness and due execution of the Promissory Note, the Deed of Chattel Mortgage and the Continuing Undertaking, they nevertheless maintained that these documents were never intended by the parties to be legal, valid and binding but a mere subterfuge to conceal the loan of P390,000.00 with usurious interests. Defendants claimed that since ASIA PACIFIC could not

directly engage in banking business, it proposed to them a scheme wherein plaintiff ASIA PACIFIC could extend a loan to them without violating banking laws: first, Cenen Dizon would secure a promissory note from Teodoro Baas with a face value of P390,000.00 payable in installments; second, ASIA PACIFIC would then make it appear that the promissory note was sold to it by Cenen Dizon with the 14% usurious interest on the loan or P54,000.00 discounted and collected in advance by ASIA PACIFIC; and, lastly, Cenen Dizon would provide sufficient collateral to answer for the loan in case of default in payment and execute a continuing guaranty to assure continuous and prompt payment of the loan. Defendants also alleged that out of the loan of P390,000.00 defendants actually received only P329,185.00 after ASIA PACIFIC deducted the discounted interest, service handling charges, insurance premium, registration and notarial fees. Sometime in October 1980 Cenen Dizon informed ASIA PACIFIC that he would be delayed in meeting his monthly amortization on account of business reverses and promised to pay instead in February 1981. Cenen Dizon made good his promise and tendered payment to ASIA PACIFIC in an amount equivalent to two (2) monthly amortizations. But ASIA PACIFIC attempted to impose a 3% interest for every month of delay, which he flatly refused to pay for being usurious. Afterwards, ASIA PACIFIC allegedly made a verbal proposal to Cenen Dizon to surrender to it the ownership of the two (2) bulldozer crawler tractors and, in turn, the latter would treat the former's account as closed and the loan fully paid. Cenen Dizon supposedly agreed and accepted the offer. Defendants averred that the value of the bulldozer crawler tractors was more than adequate to cover their obligation to ASIA PACIFIC. Meanwhile, on 21 April 1981 the trial court issued a writ of replevin against defendant C. G. Dizon Construction for

the surrender of the bulldozer crawler tractors subject of the Deed of Chattel Mortgage. Of the three (3) bulldozer crawler tractors, only two (2) were actually turned over by defendants - D8-14A and D8-2U - which units were subsequently foreclosed by ASIA PACIFIC to satisfy the obligation. D8-14A was sold for P120,000.00 and D8-2U for P60,000.00 both to ASIA PACIFIC as the highest bidder. During the pendency of the case, defendant Teodoro Baas passed away, and on motion of the remaining defendants, the trial court dismissed the case against him. On the other hand, ASIA PACIFIC was substituted as party plaintiff by International Corporate Bank after the disputed Promissory Note was assigned and/or transferred by ASIA PACIFIC to International Corporate Bank. Later, International Corporate Bank merged with Union Bank of the Philippines. As the surviving entity after the merger, and having succeeded to all the rights and interests of International Corporate Bank in this case, Union Bank of the Philippines was substituted as a party in lieu of International Corporate Bank.[6] On 25 September 1992 the Regional Trial Court ruled in favor of ASIA PACIFIC holding the defendants jointly and severally liable for the unpaid balance of the obligation under the Promissory Note in the amount of P87,637.50 at 14% interest per annum, and attorney's fees equivalent to 25% of the monetary award.[7] On 24 July 1996 the Court of Appeals affirmed in toto the decision of the trial court thus Defendant-appellants' contention that the instruments were executed merely as a subterfuge to skirt banking laws is an untenable defense. If that were so then they too were parties to the illegal scheme. Why should they now be allowed to take advantage of their own knavery to escape the liabilities that their own chicanery created?

Defendant-appellants also want us to believe their story that there was an agreement between them and the plaintiff-appellee that if the former would deliver their 2 bulldozer crawler tractors to the latter, the defendant-appellants' obligation would fully be extinguished. Again, nothing but the word that comes out between the teeth supports such story. Why did they not write down such an important agreement? Is it believable that seasoned businessmen such as the defendant-appellant Cenen G. Dizon and the other officers of the appellant corporation would deliver the bulldozers without a receipt of acquittance from the plaintiff-appellee x x x x In our book, that is not credible. The pivotal issues raised are: (a) Whether the disputed transaction between petitioners and ASIA PACIFIC violated banking laws, hence, null and void; and (b) Whether the surrender of the bulldozer crawler tractors to respondent resulted in the extinguishment of petitioners' obligation. On the first issue, petitioners insist that ASIA PACIFIC was organized as an investment house which could not engage in the lending of funds obtained from the public through receipt of deposits. The disputed Promissory Note, Deed of Chattel Mortgage and Continuing Undertaking were not intended to be valid and binding on the parties as they were merely devices to conceal their real intention which was to enter into a contract of loan in violation of banking laws. We reject the argument. An investment company refers to any issuer which is or holds itself out as being engaged or proposes to engage primarily in the business of investing, reinvesting or trading in securities.[8] As defined in Sec. 2, par. (a), of the Revised Securities Act,[9] securities "shall include x x x x commercial papers evidencing indebtedness of any person, financial or nonfinancial entity, irrespective of maturity, issued, endorsed,

sold, transferred or in any manner conveyed to another with or without recourse, such as promissory notes x x x x" Clearly, the transaction between petitioners and respondent was one involving not a loan but purchase of receivables at a discount, well within the purview of "investing, reinvesting or trading in securities" which an investment company, like ASIA PACIFIC, is authorized to perform and does not constitute a violation of the General Banking Act. [10] Moreover, Sec. 2 of the General Banking Act provides in part Sec. 2. Only entities duly authorized by the Monetary Board of the Central Bank may engage in the lending of funds obtained from the public through the receipt of deposits of any kind, and all entities regularly conducting such operations shall be considered as banking institutions and shall be subject to the provisions of this Act, of the Central Bank Act, and of other pertinent laws (underscoring supplied). Indubitably, what is prohibited by law is for investment companies to lend funds obtained from the public through receipts of deposit, which is a function of banking institutions. But here, the funds supposedly "lent" to petitioners have not been shown to have been obtained from the public by way of deposits, hence, the inapplicability of banking laws. On petitioners' submission that the true intention of the parties was to enter into a contract of loan, we have examined the Promissory Note and failed to discern anything therein that would support such theory. On the contrary, we find the terms and conditions of the instrument clear, free from any ambiguity, and expressive of the real intent and agreement of the parties. We quote the pertinent portions of the Promissory Note FOR VALUE RECEIVED, I/We, hereby promise to pay to the

order of C.G. Dizon Construction, Inc. the sum of THREE HUNDRED NINETY THOUSAND ONLY (P390,000.00), Philippine Currency in the following manner: P32,500.00 due every 25th of the month starting from September 25, 1980 up to August 25, 1981. I/We agree that if any of the said installments is not paid as and when it respectively falls due, all the installments covered hereby and not paid as yet shall forthwith become due and payable at the option of the holder of this note with interest at the rate of 14% per annum on each unpaid installment until fully paid. If any amount due on this note is not paid at its maturity and this note is placed in the hands of an attorney for collection, I/We agree to pay in addition to the aggregate of the principal amount and interest due, a sum equivalent to TEN PERCENT (10%) thereof as Attorney's fees, in case no action is filed, otherwise, the sum will be equivalent to TWENTY FIVE (25%) of the said principal amount and interest due x x x x Makati, Metro Manila, August 25, 1980. (Sgd) Teodoro Baas ENDORSED TO ASIA PACIFIC FINANCE CORPORATION WITH RECOURSE, C.G. DIZON CONSTRUCTION, INC. By: (Sgd.) Cenen Dizon (Sgd.) Juliette B. Dizon President VP/Treasurer Likewise, the Deed of Chattel Mortgage and Continuing

Undertaking were duly acknowledged before a notary public and, as such, have in their favor the presumption of regularity. To contradict them there must be clear, convincing and more than merely preponderant evidence. In the instant case, the records do not show even a preponderance of evidence in favor of petitioners' claim that the Deed of Chattel Mortgage and Continuing Undertaking were never intended by the parties to be legal, valid and binding. Notarial documents are evidence of the facts in clear and unequivocal manner therein expressed.[11] Interestingly, petitioners' assertions were based mainly on the self-serving testimony of Cenen Dizon, and not on any other independent evidence. His testimony is not only unconvincing, as found by the trial court and the Court of Appeals, but also self-defeating in light of the documents presented by respondent, i.e., Promissory Note, Deed of Chattel Mortgage and Continuing Undertaking, the accuracy, correctness and due execution of which were admitted by petitioners. Oral evidence certainly cannot prevail over the written agreements of the parties. The courts need only rely on the faces of the written contracts to determine their true intention on the principle that when the parties have reduced their agreements in writing, it is presumed that they have made the writings the only repositories and memorials of their true agreement. The second issue deals with a question of fact. We have ruled often enough that it is not the function of this Court to analyze and weigh the evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court.[12] At any rate, while we are not a trier of facts, hence, not required as a rule to look into the factual bases of the assailed decision of the Court of Appeals, we did so just the same in this case if only to satisfy petitioners that we have carefully studied and evaluated the case, all too mindful of the tenacity and vigor with which the parties, through their

respective counsel, have pursued this case for nineteen (19) years. Petitioners contend that the parties already had a verbal understanding wherein ASIA PACIFIC actually agreed to consider petitioners' account closed and the principal obligation fully paid in exchange for the ownership of the two (2) bulldozer crawler tractors. We are not persuaded. Again, other than the bare allegations of petitioners, the records are bereft of any evidence of the supposed agreement. As correctly observed by the Court of Appeals, it is unbelievable that the parties entirely neglected to write down such an important agreement. Equally incredulous is the fact that petitioner Cenen Dizon, a seasoned businessman, readily consented to deliver the bulldozers to respondent without a corresponding receipt of acquittance. Indeed, even the testimony of petitioner Cenen Dizon himself negates the supposed verbal understanding between the parties Q: You said and is it not a fact that you surrendered the bulldozers to APCOR by virtue of the seizure order? A: There was no seizure order. Atty. Carag during that time said if I surrender the two equipment, we might finally close a deal if the equipment would come up to the balance of the loan. So I voluntarily surrendered, I pulled them from the job site and returned them to APCOR x x x x Q: You mentioned a certain Atty. Carag, who is he? A: He was the former legal counsel of APCOR. They were handling cases. In fact, I talked with Atty. Carag, we have a verbal agreement if I surrender the equipment it might suffice to pay off the debt so I did just that (underscoring ours).[13]

In other words, there was no binding and perfected contract between petitioners and respondent regarding the settlement of the obligation, but only a conditional one, a

mere conjecture in fact, depending on whether the value of the tractors to be surrendered would equal the balance of the loan plus interests. And since the bulldozer crawler tractors were sold at the foreclosure sale for only P180,000.00,[14] which was not enough to cover the unpaid balance of P267,637.50, petitioners are still liable for the deficiency. Barring therefore a showing that the findings complained of are totally devoid of support in the records, or that they are so glaringly erroneous as to constitute serious abuse of discretion, we see no valid reason to discard them. More so in this case where the findings of both the trial court and the appellate court coincide with each other on the matter. With regard to the computation of petitioners' liability, the records show that petitioners actually paid to respondent a total sum of P130,000.00 in addition to the P180,000.00 proceeds realized from the sale of the bulldozer crawler tractors at public auction. Deducting these amounts from the principal obligation of P390,000.00 leaves a balance of P80,000.00, to which must be added P7,637.50 accrued interests and charges as of 20 March 1981, or a total unpaid balance of P87,637.50 for which petitioners are jointly and severally liable. Furthermore, the unpaid balance should earn 14% interest per annum as stipulated in the Promissory Note, computed from 20 March 1981 until fully paid. On the amount of attorney's fees which under the Promissory Note is equivalent to 25% of the principal obligation and interests due, it is not, strictly speaking, the attorney's fees recoverable as between the attorney and his client regulated by the Rules of Court. Rather, the attorney's fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It has been said that so long as such stipulation does not contravene the law, morals and public order, it is strictly

binding upon the obligor. It is the litigant, not the counsel, who is the judgment creditor entitled to enforce the judgment by execution.[15] Nevertheless, it appears that petitioners' failure to fully comply with their part of the bargain was not motivated by ill will or malice, but due to financial distress occasioned by legitimate business reverses. Petitioners in fact paid a total of P130,000.00 in three (3) installments, and even went to the extent of voluntarily turning over to respondent their heavy equipment consisting of two (2) bulldozer crawler tractors, all in a bona fide effort to settle their indebtedness in full. Article 1229 of the New Civil Code specifically empowers the judge to equitably reduce the civil penalty when the principal obligation has been partly or irregularly complied with. Upon the foregoing premise, we hold that the reduction of the attorney's fees from 25% to 15% of the unpaid principal plus interests is in order. Finally, while we empathize with petitioners, we cannot close our eyes to the overriding considerations of the law on obligations and contracts which must be upheld and honored at all times. Petitioners have undoubtedly benefited from the transaction; they cannot now be allowed to impugn its validity and legality to escape the fulfillment of a valid and binding obligation. WHEREFORE, no reversible error having been committed by the Court of Appeals, its assailed Decision of 24 July 1996 and its Resolution of 21 March 1997 are AFFIRMED. Accordingly, petitioners C.G. Construction Inc. and Cenen Dizon are ordered jointly and severally to pay respondent Asia Pacific Finance Corporation, substituted by International Corporate Bank (now known as Union Bank of the Philippines), P87,637.50 representing the unpaid balance on the Promissory Note, with interest at fourteen percent (14%) per annum computed from 20 March 1981 until fully paid, and fifteen percent (15%) of the principal obligation and interests due by way of attorney's

fees. Costs against petitioners. SO ORDERED.

G.R. No. 174134 July 30, 2008

FIRST PLANTERS PAWNSHOP, INC., Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION AUSTRIA-MARTINEZ, J.: First Planters Pawnshop, Inc. (petitioner) contests the deficiency value-added and documentary stamp taxes imposed upon it by the Bureau of Internal Revenue (BIR) for the year 2000. The core of petitioner's argument is that it is not a lending investor within the purview of Section 108(A) of the National Internal Revenue Code (NIRC), as amended, and therefore not subject to value-added tax (VAT). Petitioner also contends that a pawn ticket is not subject to documentary stamp tax (DST) because it is not proof of the pledge transaction, and even assuming that it is so, still, it is not subject to tax since a documentary stamp tax is levied on the document issued and not on the transaction. The facts: In a Pre-Assessment Notice dated July 7, 2003, petitioner was informed by the BIR that it has an existing tax deficiency on its VAT and DST liabilities for the year 2000. The deficiency assessment was at P541,102.79 for VAT and P23,646.33 for DST.1 Petitioner protested the assessment for lack of legal and factual bases.2 Petitioner subsequently received a Formal Assessment Notice on December 29, 2003, directing payment of VAT deficiency in the amount of P541,102.79 and DST deficiency in the amount of P24,747.13, inclusive of surcharge and interest.3 Petitioner filed a protest,4 which was denied by Acting Regional Director Anselmo G. Adriano per Final Decision on Disputed Assessment dated January 29, 2004.5 Petitioner then filed a petition for review with the Court of Tax Appeals (CTA).6 In a Decision dated May 9, 2005, the 2nd Division

of the CTA upheld the deficiency assessment. 7 Petitioner filed a motion for reconsideration8 which was denied in a Resolution dated October 7, 2005.9 Petitioner appealed to the CTA En Banc which rendered a Decision dated June 7, 2006, the dispositive portion of which reads as follows: WHEREFORE, premises considered, the Petition for Review is hereby DENIED for lack of merit. The assailed Decision dated May 9, 2005 and Resolution dated October 7, 2005 are hereby AFFIRMED. SO ORDERED. 10 Petitioner sought reconsideration but this was denied by the CTA En Banc per Resolution dated August 14, 2006.11 Hence, the present petition for review under Rule 45 of the Rules of Court based on the following grounds: I THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN FINDING PETITIONER LIABLE FOR VAT. II THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN RULING THAT PETITIONER IS LIABLE FOR DST ON PAWN TICKETS. 12 The determination of petitioner's tax liability depends on the tax treatment of a pawnshop business. Oddly, there has not been any definitive declaration in this regard despite the fact that pawnshops have long been in existence. All that has been stated is what pawnshops are not, but not what pawnshops are. The BIR itself has maintained an ambivalent stance on this issue. Initially, in Revenue Memorandum Order No. 15-91 issued on March 11, 1991, a pawnshop business was considered as "akin to lending investors business activity" and subject to 5% percentage tax beginning January 1, 1991, under Section 116 of the Tax Code of 1977, as amended by E.O. No. 273.13

With the passage of Republic Act (R.A.) No. 7716 or the EVAT Law in 1994,14 the BIR abandoned its earlier position and maintained that pawnshops are subject to 10% VAT, as implemented by Revenue Regulations No. 7-95. This was complemented by Revenue Memorandum Circular No. 45-01 dated October 12, 2001, which provided that pawnshop operators are liable to the 10% VAT based on gross receipts beginning January 1, 1996, while pawnshops whose gross annual receipts do not exceed P550,000.00 are liable for percentage tax, pursuant to Section 109(z) of the Tax Code of 1997. CTA decisions affirmed the BIR's position that pawnshops are subject to VAT. In H. Tambunting Pawnshop, Inc. v. Commissioner of Internal Revenue,15 the CTA ruled that the petitioner therein was subject to 10% VAT under Section 108 of the Tax Code of 1997. Antam Pawnshop Corporation v. Commissioner of Internal Revenue 16 reiterates said ruling. It was the CTA's view that the services rendered by pawnshops fall under the general definition of "sale or exchange of services" under Section 108(A) of the Tax Code of 1997. On July 15, 2003, the Court rendered Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc. 17 in which it was categorically ruled that while pawnshops are engaged in the business of lending money, they are not considered "lending investors" for the purpose of imposing percentage taxes. 18 The Court gave the following reasons: first, under the 1997 Tax Code, pawnshops and lending investors were subjected to different tax treatments; second, Congress never intended pawnshops to be treated in the same way as lending investors; third, Section 116 of the NIRC of 1977 subjects to percentage tax dealers in securities and lending investors only; and lastly, the BIR had ruled several times prior to the issuance of RMO No. 15-91 and RMC 43-91 that pawnshops were not subject to the 5% percentage tax on lending investors imposed by Section 116 of the NIRC of 1977, as amended by Executive Order No. 273. In view of said ruling, the BIR issued Revenue Memorandum Circular No. 36-2004 dated June 16, 2004, canceling the previous lending investor's tax assessments on pawnshops. Said Circular stated, inter alia: In view of the said Supreme Court decision, all assessments on

pawnshops for percentage taxes as lending investors are hereby cancelled. This Circular is being issued for the sole purpose of resolving the tax liability of pawnshops to the 5% lending investors tax provided under the then Section 116 of the NIRC of 1977, as amended, and shall not cover issues relating to their other tax liabilities. All internal revenue officials are enjoined from issuing assessments on pawnshops for percentage taxes on lending investors, under the then Section 116 of the NIRC of 1977, as amended. For purposes of the gross receipt tax provided for under Republic Act No. 9294, the pawnshops are now subject thereof. This shall however, be covered by another issuance.19 Revenue Memorandum Circular No. 37-2004 was issued on the same date whereby pawnshop businesses were allowed to settle their VAT liabilities for the tax years 1996-2002 pursuant to a memorandum of agreement entered into by the Commissioner of Internal Revenue and the Chambers of Pawnbrokers of the Philippines, Inc. The Circular likewise instructed all revenue officers to ensure that "all VAT due from pawnshops beginning January 1, 2003, including increments thereto, if any, are assessed and collected from pawnshops under its jurisdiction." In the interim, however, Congress passed Republic Act (R.A.) No. 9238 on February 5, 2004 entitled, "An Act Amending Certain Sections of the National Internal Revenue Code of 1997, as amended, by Excluding Several Services from the Coverage of the Value-added Tax and Re-imposing the Gross Receipts Tax on Banks and Non-bank Financial Intermediaries Performing Quasibanking Functions and Other Non-bank Financial Intermediaries beginning January 01, 2004."20 Pending publication of R.A. No. 9238, the BIR issued Bank Bulletin No. 2004-01 on February 10, 2004 advising all banks and nonbank financial intermediaries that they shall remain liable under the VAT system. When R.A. No. 9238 took effect on February 16, 2004, the Department of Finance issued Revenue Regulations No. 10-2004 dated October 18, 2004, classifying pawnshops as Other Nonbank Financial Intermediaries. The BIR then issued Revenue Memorandum Circular No. 73-2004 on November 25, 2004, prescribing the guidelines and policies on the assessment and

collection of 10% VAT for gross annual sales/receipts exceeding P550,000.00 or 3% percentage tax for gross annual sales/receipts not exceeding P550,000.00 of pawnshops prior to January 1, 2005. In fine, prior to the EVAT Law, pawnshops were treated as lending investors subject to lending investor's tax. Subsequently, with the Court's ruling in Lhuillier, pawnshops were then treated as VATable enterprises under the general classification of "sale or exchange of services" under Section 108(A) of the Tax Code of 1997, as amended. R.A. No. 9238 finally classified pawnshops as Other Non-bank Financial Intermediaries. The Court finds that pawnshops should have been treated as nonbank financial intermediaries from the very beginning, subject to the appropriate taxes provided by law, thus Under the National Internal Revenue Code of 1977, 21 pawnshops should have been levied the 5% percentage tax on gross receipts imposed on bank and non-bank financial intermediaries under Section 119 (now Section 121 of the Tax Code of 1997); With the imposition of the VAT under R.A. No. 7716 or the EVAT Law,22 pawnshops should have been subjected to the 10% VAT imposed on banks and non-bank financial intermediaries and financial institutions under Section 102 of the Tax Code of 1977 (now Section 108 of the Tax Code of 1997);23 This was restated by R.A. No. 8241, 24 which amended R.A. No. 7716, although the levy, collection and assessment of the 10% VAT on services rendered by banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions, were made effective January 1, 1998;25 R.A. No. 8424 or the Tax Reform Act of 199726 likewise imposed a 10% VAT under Section 108 but the levy, collection and assessment thereof were again deferred until December 31, 1999;27 The levy, collection and assessment of the 10% VAT was further deferred by R.A. No. 8761 until December 31, 2000, and by R.A. No. 9010, until December 31, 2002;

 With no further deferments given by law, the levy, collection and assessment of the 10% VAT on banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions were finally made effective beginning January 1, 2003; Finally, with the enactment of R.A. No. 9238, the services of banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions were specifically exempted from VAT,28 and the 0% to 5% percentage tax on gross receipts on other non-bank financial intermediaries was reimposed under Section 122 of the Tax Code of 1997.29 At the time of the disputed assessment, that is, for the year 2000, pawnshops were not subject to 10% VAT under the general provision on "sale or exchange of services" as defined under Section 108(A) of the Tax Code of 1997, which states: "'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration x x x." Instead, due to the specific nature of its business, pawnshops were then subject to 10% VAT under the category of non-bank financial intermediaries, as provided in the same Section 108(A), which reads: SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. The phrase "sale or exchange of services" means the performance of all kinds or services in the Philippines for others for a fee, remuneration or consideration, including x x x services of banks, non-bank financial intermediaries and finance companies; and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase 'sale or exchange of services' shall likewise include: x x x (Emphasis and underscoring supplied)

The tax treatment of pawnshops as non-bank financial intermediaries is not without basis. R.A. No. 337, as amended, or the General Banking Act characterizes the terms banking institution and bank as synonymous and interchangeable and specifically include commercial banks, savings bank, mortgage banks, development banks, rural banks, stock savings and loan associations, and branches and agencies in the Philippines of foreign banks.30 R.A. No. 8791 or the General Banking Law of 2000, meanwhile, provided that banks shall refer to entities engaged in the lending of funds obtained in the form of deposits. 31 R.A. No. 8791 also included cooperative banks, Islamic banks and other banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas in the classification of banks.32
lavvphi1

Financial intermediaries, on the other hand, are defined as "persons or entities whose principal functions include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through them, either for their own account or for the account of others."33 It need not be elaborated that pawnshops are non-banks/banking institutions. Moreover, the nature of their business activities partakes that of a financial intermediary in that its principal function is lending. A pawnshop's business and operations are governed by Presidential Decree (P.D.) No. 114 or the Pawnshop Regulation Act and Central Bank Circular No. 374 (Rules and Regulations for Pawnshops). Section 3 of P.D. No. 114 defines pawnshop as "a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage." That pawnshops are to be treated as non-bank financial intermediaries is further bolstered by the fact that pawnshops are under the regulatory supervision of the Bangko Sentral ng Pilipinas and covered by its Manual of Regulations for Non-Bank Financial Institutions. The Manual includes pawnshops in the list of non-bank financial intermediaries, viz.:

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

is subject to percentage tax on gross receipts from 0% to 5 %, as the case may be. Lastly, petitioner is liable for documentary stamp taxes. The Court has settled this issue in Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue, 35 in which it was ruled that the subject of DST is not limited to the document alone. Pledge, which is an exercise of a privilege to transfer obligations, rights or properties incident thereto, is also subject to DST, thus x x x the subject of a DST is not limited to the document embodying the enumerated transactions. A DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident thereto. In Philippine Home Assurance Corporation v. Court of Appeals, it was held that: xxxx Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined as an accessory, real and unilateral contract by virtue of which the debtor or a third person delivers to the creditor or to a third person movable property as security for the performance of the principal obligation, upon the fulfillment of which the thing pledged, with all its accessions and accessories, shall be returned to the debtor or to the third person. This is essentially the business of pawnshops which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending money on personal property delivered as security for loans. Section 12 of the Pawnshop Regulation Act and Section 21 of the Rules and Regulations For Pawnshops issued by the Central Bank to implement the Act, require every pawnshop or pawnbroker to issue, at the time of every such loan or pledge, a memorandum or ticket signed by the pawnbroker and containing the following details: (1) name and residence of the pawner; (2) date the loan is granted; (3) amount of principal loan; (4) interest rate in percent; (5) period of maturity; (6) description of pawn; (7) signature of pawnbroker or his authorized agent; (8) signature or thumb mark of pawner or his authorized agent; and (9) such other terms and conditions as may be agreed upon between the pawnbroker and the pawner. In addition, Central Bank Circular No. 445, prescribed a standard form of pawn tickets with entries for the required details

on its face and the mandated terms and conditions of the pledge at the dorsal portion thereof. Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows: xxxx True, the law does not consider said ticket as an evidence of security or indebtedness. However, for purposes of taxation, the same pawn ticket is proof of an exercise of a taxable privilege of concluding a contract of pledge. At any rate, it is not said ticket that creates the pawnshops obligation to pay DST but the exercise of the privilege to enter into a contract of pledge. There is therefore no basis in petitioners assertion that a DST is literally a tax on a document and that no tax may be imposed on a pawn ticket. The settled rule is that tax laws must be construed in favor of the taxpayer and strictly against the government; and that a tax cannot be imposed without clear and express words for that purpose. Taking our bearing from the foregoing doctrines, we scrutinized Section 195 of the NIRC, but there is no way that said provision may be interpreted in favor of petitioner. Section 195 unqualifiedly subjects all pledges to DST. It states that "[o]n every x x x pledge x x x there shall be collected a documentary stamp tax x x x." It is clear, categorical, and needs no further interpretation or construction. The explicit tenor thereof requires hardly anything than a simple application. xxxx In the instant case, there is no law specifically and expressly exempting pledges entered into by pawnshops from the payment of DST. Section 199 of the NIRC enumerated certain documents which are not subject to stamp tax; but a pawnshop ticket is not one of them. Hence, petitioners nebulous claim that it is not subject to DST is without merit. It cannot be over-emphasized that tax exemption represents a loss of revenue to the government and must, therefore, not rest on vague inference. Exemption from taxation is never presumed. For tax exemption to be recognized, the grant must be clear and express; it cannot be made to rest on doubtful implications. Under the principle of stare decisis et non quieta movere (follow

past precedents and do not disturb what has been settled), once a case has been decided one way, any other case involving exactly the same point at issue, as in the case at bar, should be decided in the same manner.36 WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated June 7, 2006 and Resolution dated August 14, 2006 of the Court of Tax Appeals En Banc is MODIFIED to the effect that the Bureau of Internal Revenue assessment for VAT deficiency in the amount of P541,102.79 for the year 2000 is REVERSED and SET ASIDE, while its assessment for DST deficiency in the amount of P24,747.13, inclusive of surcharge and interest, is UPHELD. SO ORDERED. G.R. No. 88013 March 19, 1990 SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner, vs.THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents. Don P. Porcuincula for petitioner. San Juan, Gonzalez, San Agustin & Sinense for private respondent.

CRUZ, J.: We are concerned in this case with the question of damages, specifically moral and exemplary damages. The negligence of the private respondent has already been established. All we have to ascertain is whether the petitioner is entitled to the said damages and, if so, in what amounts. The parties agree on the basic facts. The petitioner is a private corporation engaged in the exportation of food products. It buys these products from various local suppliers and then sells them abroad, particularly in the United States, Canada and the Middle East. Most of its exports are purchased by the petitioner on credit. The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at Romulo Avenue,

Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its account in the said bank the amount of P100,000.00, thus increasing its balance as of that date to P190,380.74. 1 Subsequently, the petitioner issued several checks against its deposit but was suprised to learn later that they had been dishonored for insufficient funds. The dishonored checks are the following: 1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing Company, Inc. for P16,480.00: 2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue in the amount of P3,386.73: 3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in the amount of P7,080.00; 4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P42,906.00: 5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P12,953.00: 6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of P27,024.45: 7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in the amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of P6,275.00. 2

As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the petitioner, threatening prosecution if the dishonored check issued to it was not made good. It also withheld delivery of the order made by the petitioner. Similar letters were sent to the petitioner by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled the petitioner's credit line and demanded that future payments be made by it in cash or certified check. Meantime, action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also deferred.

The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on June 17, 1981, and the dishonored checks were paid after they were re-deposited. 4 In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its "gross and wanton negligence." This demand was not met. The petitioner then filed a complaint in the then Court of First Instance of Rizal claiming from the private respondent moral damages in the sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and costs. After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages were not called for under the circumstances. However, observing that the plaintiff's right had been violated, he ordered the defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by the respondent court.
6

The respondent court found with the trial court that the private respondent was guilty of negligence but agreed that the petitioner was nevertheless not entitled to moral damages. It said: The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the omission by the defendant-appellee bank to credit appellant's deposit of P100,000.00 on May 25, 1981. But the bank rectified its records. It credited the said amount in favor of plaintiff-appellant in less than a month. The dishonored checks were eventually paid. These circumstances negate any imputation or insinuation of malicious, fraudulent, wanton and gross bad faith and negligence on the part of the defendant-appellant. It is this ruling that is faulted in the petition now before us. This Court has carefully examined the facts of this case and finds that it cannot share some of the conclusions of the lower courts. It seems to us that the negligence of the private respondent had been brushed off rather lightly as if it were a minor infraction requiring no more than a slap on the wrist. We feel it is not enough to say that the private respondent rectified its records and credited

the deposit in less than a month as if this were sufficient repentance. The error should not have been committed in the first place. The respondent bank has not even explained why it was committed at all. It is true that the dishonored checks were, as the Court of Appeals put it, "eventually" paid. However, this took almost a month when, properly, the checks should have been paid immediately upon presentment. As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the complaining depositor constituted the gross negligence, if not wanton bad faith, that the respondent court said had not been established by the petitioner. We also note that while stressing the rectification made by the respondent bank, the decision practically ignored the prejudice suffered by the petitioner. This was simply glossed over if not, indeed, disbelieved. The fact is that the petitioner's credit line was canceled and its orders were not acted upon pending receipt of actual payment by the suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in the business community. All this was due to the fault of the respondent bank which was undeniably remiss in its duty to the petitioner. Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to the plaintiff s business standing or commercial credit." There is no question that the petitioner did sustain actual injury as a result of the dishonored checks and that the existence of the loss having been established "absolute certainty as to its amount is not required." 7 Such injury should bolster all the more the demand of the petitioner for moral damages and justifies the examination by this Court of the validity and reasonableness of the said claim. We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may have suffered. 8 In the case at bar, the petitioner is seeking such damages for the prejudice sustained by it as a result of the private respondent's fault. The respondent court said that the claimed losses are purely speculative and are not supported by substantial evidence, but if failed to consider that the amount of such losses need not be established with exactitude precisely because of their

nature. Moral damages are not susceptible of pecuniary estimation. Article 2216 of the Civil Code specifically provides that "no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated." That is why the determination of the amount to be awarded (except liquidated damages) is left to the sound discretion of the court, according to "the circumstances of each case." From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of P1,000,000.00 is nothing short of preposterous. Its business certainly is not that big, or its name that prestigious, to sustain such an extravagant pretense. Moreover, a corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is where the corporation has a good reputation that is debased, resulting in its social humiliation. 9 We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor of the checks issued by it. The immediate consequence was that its prestige was impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished. The private respondent makes much of the one instance when the petitioner was sued in a collection case, but that did not prove that it did not have a good reputation that could not be marred, more so since that case was ultimately settled. 10 It does not appear that, as the private respondent would portray it, the petitioner is an unsavory and disreputable entity that has no good name to protect. Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not the proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him." As we have found that the petitioner has indeed incurred loss through the fault of the private respondent, the proper remedy is the award to it of moral damages, which we impose, in our discretion, in the same amount of P20,000.00.

Now for the exemplary damages. The pertinent provisions of the Civil Code are the following: Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his life's savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks. In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation. The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation

to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship. What is especially deplorable is that, having been informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty-three days after the deposit was made. It bears repeating that the record does not contain any satisfactory explanation of why the error was made in the first place and why it was not corrected immediately after its discovery. Such ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages. After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes upon the respondent bank exemplary damages in the amount of P50,000.00, "by way of example or correction for the public good," in the words of the law. It is expected that this ruling will serve as a warning and deterrent against the repetition of the ineptness and indefference that has been displayed here, lest the confidence of the public in the banking system be further impaired. ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the petitioner, in lieu of nominal damages, moral damages in the amount of P20,000.00, and exemplary damages in the amount of P50,000.00 plus the original award of attorney's fees in the amount of P5,000.00, and costs. SO ORDERED. G.R. No. 155033 December 19, 2007

ALICE A.I. SANDEJAS, ROSITA A.I. CUSI, PATRICIA A.I. SANDEJAS and BENJAMIN A.I. ESPIRITU, Petitioners, vs.SPS. ARTURO IGNACIO, JR. and EVELYN IGNACIO, Respondents. DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision 1 of the Court of

Appeals (CA) in CA-G.R. CV No. 62404 promulgated on August 27, 2002, which affirmed with modification the Decision of the Regional Trial Court (RTC) of Pasig City, Branch 158, in Civil Case No. 65146 dated December 18, 1998. The facts of the case, as summarized by the RTC, are as follows: It appears from the plaintiffs' [petitioners] evidence that Arturo [respondent] is the elder brother of Alice [petitioner] and Rosita [petitioner], Benjamin [petitioner] and Patricia [petitioner] are Arturo's nephew and niece. Arturo and his wife Evelyn [respondent] are residents of the United States. In October 1993, Arturo leased from Dr. Borja a condominium unit identified as Unit 28-C Gilmore Townhomes located at Granada St., Quezon City. The lease was for the benefit of Benjamin who is the occupant of the unit. The rentals were paid by Ignacio. The term of the lease is for one (1) year and will expire on October 15, 1994. It appears that Arturo was intending to renew the lease contract. As he had to leave for the U.S., Arturo drew up a check, UCPB Check No. GRH-560239 and wrote on it the name of the payee, Dr. Manuel Borja, but left blank the date and amount. He signed the check. The check was intended as payment for the renewal of the lease. The date and the amount were left blank because Arturo does not know when it will be renewed and the new rate of the lease. The check was left with Arturo's sister-in-law, who was instructed to deliver or give it to Benjamin. The check later came to the possession of Alice who felt that Arturo cheated their sister in the amount of three million pesos (P3,000,000.00). She believed that Arturo and Rosita had a joint "and/or" money market placement in the amount of P3 million with the UCPB branch at Ortigas Ave., San Juan and that Ignacio preterminated the placement and ran away with it, which rightfully belonged to Rosita. Alice then inquired from UCPB Greenhills branch if Arturo still has an account with them. On getting a confirmation, she together with Rosita drew up a scheme to recover the P3 million from Arturo. Alice filled up the date of the check with "March 17, 1995" and the amount with "three million only." Alice got her driver, Kudera, to stand as the payee of the check, Dr. Borja. Alice and Rosita came to SBC 2 Greenhills Branch together with a man (Kudera) who[m] they introduced as Dr. Borja to the then Assistant Cashier Luis. After introducing the said man as Dr. Borja, Rosita, Alice and the man who was later identified as

Kudera opened a Joint Savings Account No. 271-410554-7. As initial deposit for the Joint Savings Account, Alice, Rosita and Kudera deposited the check. No ID card was required of Mr. Kudera because it is an internal policy of the bank that when a valued client opens an account, an identification card is no longer required (TSN, April 21, 1997, pp. 15-16). SBC also allowed the check to be deposited without the endorsement of the impostor Kudera. SBC officials stamped on the dorsal portion of the check "endorsement/lack of endorsement guaranteed" and sent the check for clearing to the Philippine Clearing House Corporation. On 21 March 1995, after the check had already been cleared by the drawer bank UCPB, Rosita withdrew P1 million from Joint Savings Account and deposited said amount to the current account of Alice with SBC Greenhills Branch. On the same date, Alice caused the transfer of P2 million from the Joint Savings Account to two (2) Investment Savings Account[s] in the names of Alice, Rosita and/or Patricia. ... On April 4, 1995, a day after Evelyn and Atty. Sanz inquired about the identity of the persons and the circumstances surrounding the deposit and withdrawal of the check, the three million pesos in the two investment savings account[s] and in the current account just opened with SBC were withdrawn by Alice and Rosita.3 On June 18, 1995, Arturo Ignacio, Jr. and Evelyn Ignacio (respondents) filed a verified complaint for recovery of a sum of money and damages against Security Bank and Trust Company (SBTC) and its officers, namely: Rene Colin D. Gray, Manager; and Sonia Ortiz-Luis, Cashier. The complaint also impleaded herein petitioner Benjamin A.I. Espiritu (Benjamin), a "John Doe," representing himself as Manuel N. Borja; and a "Jane Doe." On November 7, 1995, the complaint was amended by additionally impleading herein petitioners Alice A.I. Sandejas (Alice), Rosita A.I. Cusi (Rosita) and Patricia A.I. Sandejas (Patricia) as defendants who filed their respective answers and counterclaims. After trial, the RTC rendered judgment dated December 18, 1998 with the following dispositive portion: WHEREFORE, in view of the foregoing, judgment is rendered in favor of plaintiffs as against defendants Security Bank and Trust Co., Rene Colin Gray, Sonia Ortiz Luis, Alice A.I. Sandejas and

Rosita A.I. Cusi, ordering them to pay jointly and severally the plaintiffs the following amounts: (1) P3,000,000.00 plus legal interest on it from March 17, 1995 until the entire amount is fully paid; (2) P500,000.00 as moral damages; (3) P200,000.00 as exemplary damages; (4) P300,000.00 as attorney's fees; plus (5) the cost of suit. In turn, plaintiffs are directed to pay Benjamin A.I. Espiritu the amount of P100,000.00 as moral damages, P50,000.00 as exemplary damages and another P50,000.00 as attorney's fees. The counterclaims of Patricia A.I. Sandejas are dismissed. SO ORDERED. 4 Both parties appealed the RTC Decision to the CA. On August 14, 1999, during the pendency of the appeal with the CA, herein respondent Arturo Ignacio, Jr. (Arturo) died.5 On August 27, 2002, the CA promulgated the presently assailed Decision, disposing as follows: WHEREFORE, in view of the foregoing, the assailed decision of the trial court is hereby AFFIRMED with the MODIFICATION that the judgment shall read as follows: The defendants-appellants Security Bank and Trust Company, Rene Colin D. Gray, Sonia Ortiz-Luis, Alice A.I. Sandejas, and Rosita A.I. Cusi, are hereby ordered to jointly and severally pay the plaintiffs the following amounts: 1. P3,000,000.00 plus legal interest computed from March 17, 1995 until the entire amount is fully paid; 2. P200,000.00 as moral damages; 3. P100,000.00 as exemplary damages;

4. P50,000.00 as attorney's fees; plus 5. the costs of suit. The award of moral damages, exemplary damages, and attorney's fees in favor of Benjamin Espiritu is DELETED. SO ORDERED. 6 Petitioners and SBTC, together with Gray and Ortiz-Luis, filed their respective petitions for review before this Court. However, the petition filed by SBTC, Gray and Ortiz-Luis, docketed as G.R. No. 155038, was denied in a Resolution 7 issued by this Court on November 20, 2002, for their failure to properly verify the petition, submit a valid certification of non-forum shopping, and attach to the petition the duplicate original or certified true copy of the assailed CA Decision. Said Resolution became final and executory on April 9, 2003.8 On the other hand, the instant petition was given due course. Petitioners enumerated the following grounds in support of their petition: I. THE COURT OF APPEALS HAD DECIDED A QUESTION OF SUBSTANCE NOT HERETOFORE DECIDED BY THIS COURT AND/OR HAD DECIDED IT IN A WAY PROBABLY NOT IN ACCORD WITH EQUITY, THE LAW AND THE APPLICABLE DECISIONS OF THIS COURT, SUCH AS: (a) IN NOT HOLDING THAT AS BETWEEN SIBLINGS, THE AGGRIEVED SIBLING HAS THE RIGHT TO TAKE MEASURES OR STEPS TO PROTECT HIS OWN INTEREST OR PROPERTY RIGHTS FROM AN ACT OF THE GUILTY SIBLING; (b) IN NOT HOLDING THAT THE ACT OF ROSITA AND ALICE IN FILLING OUT THE BLANK PORTIONS OF THE CHECK TO RECOVER WHAT ARTURO, JR. TOOK FROM AND DUE ROSITA, DID NOT GIVE RISE TO AN ACTIONABLE TORT; (c) IN NOT HOLDING THAT THE CRIMINAL ACT OF ARTURO, JR. IN SUBMITTING AN AFFIDAVIT OF LOSS OF THE CERTIFICATE OF TIME DEPOSIT FOR P3,000,000 THAT

RIGHTFULLY BELONGED TO ROSITA JUST TO BE ABLE TO PRE-TERMINATE THE TIME DEPOSIT AND GET ITS FACE VALUE, WHEN HE KNEW IT WAS NOT LOST BUT IN FACT INTACT AND IN THE POSSESSION OF ROSITA, IS A DISHONEST AND REPREHENSIBLE ACT THAT JUSTIFIED ROSITA AND ALICE IN TAKING MEANS TO REGAIN THE MONEY AND TO DENY ARTURO, JR. ANY RIGHT TO RECOVER THE SAID AMOUNT AS WELL AS TO AN AWARD OF DAMAGES; (d) IN NOT HOLDING THAT THE CRIMINAL ACT OF ARTURO, JR. IN SUBMITTING AN AFFIDAVIT OF LOSS OF THE OWNER'S COPY OF THE TITLE IN MORAYTA AND IN TESTIFYING IN COURT AS TO SUCH, WHEN THAT IS NOT THE TRUTH AS HE KNEW THAT THE ORIGINAL OWNER'S COPY OF THE TITLE WAS WITH ROSITA, IS ANOTHER DISHONEST AND REPREHENSIBLE ACT THAT SHOULD NOT HAVE ENTITLED HIM TO ANY AWARD OF DAMAGES; AND (e) IN NOT APPLYING THE RULE ON PARI DELICTO UNDER ART. 1412 OF THE CIVIL CODE. II. THE COURT OF APPEALS HAD DEPARTED FROM THE USUAL COURSE OF JUDICIAL PROCEEDINGS WHEN IT FAILED TO RESOLVE IN THE APPEAL THE COUNTERCLAIM OF ROSITA AGAINST ARTURO, JR. FOR THE RECOVERY OF THE AMOUNTS LEGALLY HERS THAT SHOULD JUSTIFY ALICE'S BEING ABSOLVED FROM ANY LIABILITY FOR USING THE CHECK IN RECOVERING THE AMOUNT RIGHTFULLY BELONGING TO ROSITA; III. THE COURT OF APPEALS HAD DEPARTED FROM THE USUAL COURSE OF JUDICIAL PROCEEDINGS WHEN IT REVERSED THE TRIAL COURT'S FINDING THAT RESPONDENT WAS GUILTY OF BAD FAITH AND MALICE THAT ENTITLED PETITIONER BENJAMIN A.I. ESPIRITU TO THE AWARD OF DAMAGES NOTWITHSTANDING THAT THERE WAS AMPLE EVIDENCE SHOWN THAT SUCH BAD FAITH AND MALICE WAS MADE AS A LEVERAGE TO COMPEL ARTURO'S SIBLINGS TO RETURN TO HIM THE P3,000,000 WHICH WAS NOT HIS; and, IV. THE COURT OF APPEALS HAD DECIDED THE CASE NOT IN ACCORD WITH LAW WHEN IT DELETED THE AWARD OF

DAMAGES TO PETITIONER ESPIRITU AND IN NOT HAVING RULED THAT HE WAS ENTITLED TO A HIGHER AWARD OF DAMAGES CONSIDERING THE CIRCUMSTANCES OF THE CASE AS WELL AS IN NOT HAVING RULED THAT PATRICIA WAS ENTITLED TO AN AWARD OF DAMAGES. 9 Petitioners argue that the CA overlooked and ignored vital pieces of evidence showing that the encashment of the subject check was not fraudulent and, on the contrary, was justified under the circumstances; and that such encashment did not amount to an actionable tort and that it merely called for the application of the civil law rule on pari delicto. In support of these arguments, petitioners contend that the principal adversaries in the present case are full blooded siblings; that the law recognizes the solidarity of family which is why it is made a condition that earnest efforts towards a compromise be exerted before one family member can institute a suit against the other; that even if Arturo previously defrauded Rosita and deprived her of her lawful share in the sale of her property, petitioners Rosita and Alice did not precipitately file suit against him and instead took extra-legal measures to protect Rosita's property rights and at the same time preserve the solidarity of their family and save it from public embarrassment. Petitioners also aver that Rosita's and Alice's act of encashing the subject check is not fraudulent because they did not have any unlawful intent and that they merely took from Arturo what rightfully belonged to Rosita. Petitioners contend that even granting that the act of Rosita and Alice amounted to an actionable tort, they could not be adjudged liable to return the amount to respondents or to pay damages in their favor, because the civil law rule on pari delicto dictates that, when both parties are at fault, neither of them could expect positive relief from courts of justice and, instead, are left in the state where they were at the time of the filing of the case. Petitioners also contend that the CA erred in failing to award damages to Patricia even if the appellate court sustained the trial court's finding that she was not a party to the fraudulent acts committed by Rosita and Alice. Petitioners argue that even if Patricia did not bother to know the details of the cases against her and left everything to her mother, she did not even know the nature of the case against her, or her superiors in the bank where she worked did not know whether she was the plaintiff or
1avvphi1

defendant, these were not reasons to deny her award of damages. The fact remains that she had been maliciously dragged into the case, and that the suit had adversely affected her work and caused her mental worries and anguish, besmirched reputation, embarrassment and humiliation. As to Benjamin, petitioners aver that the CA also erred in deleting the award of damages and attorney's fees in his favor. Petitioners assert that the trial court found that Benjamin suffered mental anguish, wounded feelings and moral shock as a result of the filing of the present case. Citing the credentials and social standing of Benjamin, petitioners claim that the award of damages and attorney's fees in his favor should be increased. Lastly, petitioners contend that the award of damages and attorney's fees to respondents should be deleted for their failure to establish malice or bad faith on the part of petitioners Alice and Rosita in recovering the P3,000,000.00 which Arturo took from Rosita; and that it is Rosita who is entitled to damages and attorney's fees for Arturo's failure and refusal to give her share in the sale of her property in Morayta. In their Memorandum, respondents simply contend that the issues raised by petitioners are factual in nature and that the settled rule is that questions of fact are not subject to review by the Supreme Court in a petition for review on certiorari under Rule 45 of the Rules of Court. While there are exceptions to this rule, respondents assert that petitioners failed to show that the instant case falls under any of these exceptions. The Courts Ruling The Court finds the petition bereft of merit. There is no compelling reason for the Court to disturb the findings of facts of the lower courts. The trial court's findings are as follows: (1) Rosita failed to establish that there is an agreement between her and Arturo that the latter will give her one-third of the proceeds of the sale of the Morayta property; (2) petitioners were not able to establish by clear and sufficient evidence that the P3,000,000.00 which they took from Arturo when they encashed the subject check was part of the proceeds of the sale of the Morayta property; (3) Rosita's counterclaim is permissive and she failed to pay the full docket and

filing fees for her counterclaim.10 Petitioners challenge the findings of the RTC and insist that they should not be held liable for encashing the subject check because Arturo defrauded Rosita and that he committed deceitful acts which deprived her of her rightful share in the sale of her building in Morayta; that the amount of P3,000,000.00 represented by the check which they encashed formed part of the proceeds of the said sale; that Alice and Rosita were merely moved by their desire to recover from Arturo, Rosita's supposed share in the sale of her property. However, the Court agrees with respondents that only questions of law are entertained in petitions for review on certiorari under Rule 45 of the Rules of Court.11 The trial courts findings of fact, which the Court of Appeals affirmed, are generally binding and conclusive upon this court.12 There are recognized exceptions to this rule, among which are: (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings of facts are conflicting; (6) there is no citation of specific evidence on which the factual findings are based; (7) the finding of absence of facts is contradicted by the presence of evidence on record; (8) the findings of the CA are contrary to the findings of the trial court; (9) the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a different conclusion; (10) the findings of the CA are beyond the issues of the case; and (11) such findings are contrary to the admissions of both parties. 13 In the instant case, petitioners failed to demonstrate that their petition falls under any one of the above exceptions. Petitioners' assignments of errors boil down to the basic issue of whether or not Alice and Rosita are justified in encashing the subject check given the factual circumstances established in the present case. Petitioners' posture is not sanctioned by law. If they truly believe that Arturo took advantage of and violated the rights of Rosita, petitioners should have sought redress from the courts and should not have simply taken the law into their own hands. Our laws are replete with specific remedies designed to provide relief for the

violation of one's rights. In the instant case, Rosita could have immediately filed an action for the nullification of the sale of the building she owns in light of petitioners' claim that the document bearing her conformity to the sale of the said building was taken by Arturo from her without her knowledge and consent. Or, in the alternative, as the CA correctly held, she could have brought a suit for the collection of a sum of money to recover her share in the sale of her property in Morayta. In a civilized society such as ours, the rule of law should always prevail. To allow otherwise would be productive of nothing but mischief, chaos and anarchy. As a lawyer, who has sworn to uphold the rule of law, Rosita should know better. She must go to court for relief. It is true that Article 151 of the Family Code requires that earnest efforts towards a compromise be made before family members can institute suits against each other. However, nothing in the law sanctions or allows the commission of or resort to any extra-legal or illegal measure or remedy in order for family members to avoid the filing of suits against another family member for the enforcement or protection of their respective rights. Petitioners invoke the rule of pari delicto to support their contention that respondents do not deserve any relief from the courts. The principle of pari delicto provides that when two parties are equally at fault, the law leaves them as they are and denies recovery by either one of them.14 Indeed, one who seeks equity and justice must come to court with clean hands.15 However, in the present case, petitioners were not able to establish that respondents are also at fault. Thus, the principle of pari delicto cannot apply. In any case, the application of the pari delicto principle is not absolute, as there are exceptions to its application.16 One of these exceptions is where the application of the pari delicto rule would violate well-established public policy.17 The prevention of lawlessness and the maintenance of peace and order are established public policies. In the instant case, to deny respondents relief on the ground of pari delicto would put a premium on the illegal act of petitioners in taking from respondents what the former claim to be rightfully theirs. Petitioners also question the trial court's ruling that their counterclaim is permissive. This Court has laid down the following

tests to determine whether a counterclaim is compulsory or not, to wit: (1) Are the issues of fact or law raised by the claim and the counterclaim largely the same? (2) Would res judicata bar a subsequent suit on defendants claims, absent the compulsory counterclaim rule? (3) Will substantially the same evidence support or refute plaintiffs claim as well as the defendants counterclaim? and (4) Is there any logical relation between the claim and the counterclaim, such that the conduct of separate trials of the respective claims of the parties would entail a substantial duplication of effort and time by the parties and the court?18 Tested against the above-mentioned criteria, this Court agrees with the view of the RTC that Rosita's counterclaim for the recovery of her alleged share in the sale of the Morayta property is permissive in nature. The evidence needed to prove respondents' claim to recover the amount of P3,000,000.00 from petitioners is different from that required to establish Rosita's demands for the recovery of her alleged share in the sale of the subject Morayta property. The recovery of respondents' claim is not contingent or dependent upon the establishment of Rosita's counterclaim such that conducting separate trials will not result in the substantial duplication of the time and effort of the court and the parties. In Sun Insurance Office, Ltd., (SIOL) v. Asuncion,19 this Court laid down the rules on the payment of filing fees, to wit: 1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment of the prescribed docket fee, that vests a trial court with jurisdiction over the subject-matter or nature of the action. Where the filing of the initiatory pleading is not accompanied by payment of the docket fee, the court may allow payment of the fee within a reasonable time but in no case beyond the applicable prescriptive or reglementary period. 2. The same rule applies to permissive counterclaims, third-party claims and similar pleadings, which shall not be considered filed until and unless the filing fee prescribed therefor is paid. The court may allow payment of said fee within a reasonable time but also in no case beyond its applicable prescriptive or reglementary period. 3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a claim not specified in the pleading, or if specified the same has been left for

determination by the court, the additional filing fee therefor shall constitute a lien on the judgment. It shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess and collect the additional fee.20 In order for the trial court to acquire jurisdiction over her permissive counterclaim, Rosita is bound to pay the prescribed docket fees.21 Since it is not disputed that Rosita never paid the docket and filing fees, the RTC did not acquire jurisdiction over her permissive counterclaim. Nonetheless, the trial court ruled on the merits of Rosita's permissive counterclaim by dismissing the same on the ground that she failed to establish that there is a sharing agreement between her and Arturo with respect to the proceeds of the sale of the subject Morayta property and that the amount of P3,000,000.00 represented by the check which Rosita and Alice encashed formed part of the proceeds of the said sale. It is settled that any decision rendered without jurisdiction is a total nullity and may be struck down at any time, even on appeal before this Court.22 In the present case, considering that the trial court did not acquire jurisdiction over the permissive counterclaim of Rosita, any proceeding taken up by the trial court and any ruling or judgment rendered in relation to such counterclaim is considered null and void. In effect, Rosita may file a separate action against Arturo for recovery of a sum of money. However, Rosita's claims for damages and attorney's fees are compulsory as they necessarily arise as a result of the filing by respondents of their complaint. Being compulsory in nature, payment of docket fees is not required. 23 Nonetheless, since petitioners are found to be liable to return to respondents the amount of P3,000,000.00 as well as to pay moral and exemplary damages and attorney's fees, it necessarily follows that Rosita's counterclaim for damages and attorney's fees should be dismissed as correctly done by the RTC and affirmed by the CA. As to Patricia's entitlement to damages, this Court has held that while no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of indemnity being left to the discretion of the court, it is nevertheless essential that the claimant should satisfactorily show the existence of the factual basis of damages and its causal connection to defendants acts. 24

This is so because moral damages, though incapable of pecuniary estimation, are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. 25 Moreover, additional facts must be pleaded and proven to warrant the grant of moral damages under the Civil Code, these being, social humiliation, wounded feelings, grave anxiety, etc. that resulted from the act being complained of.26 In the present case, both the RTC and the CA were not convinced that Patricia is entitled to damages. Quoting the RTC, the CA held thus: With respect to Patricia, she did not even bother to know the details of the case against her, she left everything to the hands of her mother Alice. Her attitude towards the case appears weird, she being a banker who seems so concerned of her reputation. Aside from the parties to this case, her immediate superiors in the BPI knew that she is involved in a case. They did not however know whether she is the plaintiff or the defendant in the case. Further, they did not know the nature of the case that she is involved in. It appears that Patricia has not suffered any of the injuries enumerated in Article 2217 of the Civil Code, thus, she is not entitled to moral damages and attorney's fees.27 This Court finds no cogent reason to depart from the above-quoted findings as Patricia failed to satisfactorily show the existence of the factual basis for granting her moral damages and the causal connection of such fact to the act of respondents in filing a complaint against her. In addition, and with respect to Benjamin, the Court agrees with the CA that in the absence of a wrongful act or omission, or of fraud or bad faith, moral damages cannot be awarded. 28 The adverse result of an action does not per se make the action wrongful, or the party liable for it.29 One may err, but error alone is not a ground for granting such damages.30 In the absence of malice and bad faith, the mental anguish suffered by a person for having been made a party in a civil case is not the kind of anxiety which would warrant the award of moral damages. 31 A resort to judicial processes is not, per se, evidence of ill will upon which a claim for damages may be based.32 In China Banking Corporation v. Court of Appeals,33 this Court

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

be a fair amount of moral damages since each case must be governed by its own peculiar facts.38 The yardstick should be that it is not palpably and scandalously excessive. 39 Moreover, the social standing of the aggrieved party is essential to the determination of the proper amount of the award.40 Otherwise, the goal of enabling him to obtain means, diversions, or amusements to restore him to the status quo ante would not be achieved. 41 In the present case, the Court finds no cogent reason to modify the amount of moral damages granted by the CA. Likewise, the Court finds no compelling reason to disturb the modifications made by the CA on the award of exemplary damages and attorney's fees. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. In the instant case, the award of exemplary damages in favor of respondents is in order for the purpose of deterring those who intend to enforce their rights by taking measures or remedies which are not in accord with law and public policy. On the part of respondent bank, the public relies on a bank's sworn profession of diligence and meticulousness in giving irreproachable service.42 Hence, the level of meticulousness must be maintained at all times by the banking sector. 43 In the present case the award of exemplary damages is justified by the brazen acts of petitioners Rosita and Alice in violating the law coupled with the gross negligence committed by respondent bank and its officers in allowing the subject check to be deposited which later paved the way for its encashment. As to attorney's fees, Article 2208 of the same Code provides, among others, that attorney's fees may be recovered when exemplary damages are awarded or when the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals dated August 27, 2002 in CA-G.R. CV No. 62404 is AFFIRMED. Costs against the petitioners. SO ORDERED.

G.R. No. 170984

January 30, 2009

SECURITY BANK AND TRUST COMPANY, Petitioner, vs.RIZAL COMMERCIAL BANKING CORPORATION, Respondent. x-------------------------x G.R. No. 170987 January 30, 2009

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs. SECURITY BANK AND TRUST COMPANY, Respondent. DECISION QUISUMBING, Acting C.J.: Before us are opposing parties petitions for review of the Decision1 dated March 29, 2005 and Resolution2 dated December 12, 2005 of the Court of Appeals in CA-G.R. CV No. 67387. The two petitions are herein consolidated as they stem from the same set of factual circumstances. The facts, as found by the trial and appellate courts, are as follows: On January 9, 1981, Security Bank and Trust Company (SBTC) issued a managers check for P8 million, payable to "CASH," as proceeds of the loan granted to Guidon Construction and Development Corporation (GCDC). On the same day, the P8million check, along with other checks, was deposited by Continental Manufacturing Corporation (CMC) in its Current Account No. 0109-022888 with Rizal Commercial Banking Corporation (RCBC). Immediately, RCBC honored the P8-million check and allowed CMC to withdraw the same.3 On the next banking day, January 12, 1981, GCDC issued a "Stop Payment Order" to SBTC, claiming that the P8-million check was released to a third party by mistake. Consequently, SBTC dishonored and returned the managers check to RCBC. Thereafter, the check was returned back and forth between the two banks, resulting in automatic debits and credits in each banks clearing balance.4 On February 13, 1981, RCBC filed a complaint 5 for damages against SBTC with the then Court of First Instance of Rizal, Branch

XXII. Said case was docketed as Civil Case No. 1081 and later transferred to the Regional Trial Court (RTC) of Makati City, Branch 143. Meanwhile, following the rules of the Philippine Clearing House, RCBC and SBTC stopped returning the checks to each other. By way of a temporary arrangement pending resolution of the case, the P8-million check was equally divided between, and credited to, RCBC and SBTC. 6 On May 9, 2000, the RTC of Makati City, Branch 143, rendered a Decision7 in favor of RCBC. The dispositive portion of the decision reads: PREMISES CONSIDERED, the Court renders judgment in favor of plaintiff [RCBC] and finds defendant SBTC justly liable to [RCBC] and sentences [SBTC] to pay [RCBC] the amount of: 1. PhP4,000,000.00 as and for actual damages; 2. PhP100,000.00 as and for attorneys fees; and, 3. the costs. SO ORDERED. 8 On appeal, the Court of Appeals affirmed with modification the above Decision, to wit: WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant Security Bank and Trust Co. shall pay appellee Rizal Commercial Banking Corporation not only the principal amount of P4,000,000.00 but also interest thereon at (6%) per annum covering appellees unearned income on interest computed from the time of filing of the complaint on February 13, 1981 to the date of finality of this Decision. For lack of factual and legal basis, the award of attorneys fees is DELETED. SO ORDERED. 9 Now for our resolution are the opposing parties petitions for review on certiorari of the abovecited decision. On its part, SBTC alleges the following to support its petition:

I. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN REFUSING TO APPLY THE LAW BECAUSE, IN ITS OPINION, TO DO SO WOULD "RESULT IN AN INJUSTICE." II. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT TO DETERMINE WHETHER OR NOT A BANK IS A HOLDER IN DUE COURSE, ONLY THE NEGOTIABLE INSTRUMENTS LAW NEED BE APPLIED TO THE EXCLUSION OF CENTRAL BANK RULES AND REGULATIONS. III. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO NOTE THAT THE MANAGERS CHECK IN QUESTION WAS ACCEPTED FOR DEPOSIT BY THE RCBC AND WAS NOT ENCASHED BY THE PAYEE. IV. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDER THAT PRIOR TO THE DEPOSIT OF THE CHECKS WORTH PhP53 MILLION, RCBC WAS HOLDING 43 CHECKS TOTALING P49,017,669.66 DRAWN BY CONTINENTAL MANUFACTURING CORPORATION AGAINST ITS CURRENT ACCOUNT WHEN THE BALANCE OF THAT ACCOUNT WAS A MERE P573.62. V. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDER THAT THE CHECKS DEPOSITED WITH RCBC THE PROCEEDS OF WHICH WERE IMMEDIATELY WITHDRAWN TO HONOR THE 43 CHECKS TOTALING P49,017,669.66 DRAWN BY CONTINENTAL MANUFACTURING CORPORATION ON ITS CURRENT ACCOUNT WERE NOT ALL MANAGERS CHECK[S] BUT INCLUDED ORDINARY CHECKS IN THE TOTAL AMOUNT OF PhP15,436,140.81. VI.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDER THAT EACH OF THE 43 CHECKS DRAWN BY THE CONTINENTAL MANUFACTURING CORPORATION WERE ALL HONORED BY RCBC ON THE BASIS OF A MIXTURE OF ALL THE MANAGERS AND ORDINARY CHECKS DEPOSITED ON THAT DAY OF 9 JANUARY 1981. VII. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT THE RCBC IS A HOLDER IN DUE COURSE. VIII. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT SBTC WAITED FOR THREE (3) DAYS TO NOTIFY THE RCBC OF THE STOP PAYMENT ORDER. IX. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT SBTC SHOULD HAVE FIRST ACQUIRED PERSONAL KNOWLEDGE OF THE FACTS WHICH GAVE RISE TO THE REQUEST FOR THE STOP PAYMENT ORDER BEFORE HONORING SUCH REQUEST. X. THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN REFUSING TO HOLD SBTC LIABLE FOR DAMAGE CLAIMS BASED SOLELY ON SPECULATION, CONJECTURE AND GUESSWORK. XI. THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN HOLDING THAT RCBC IS NOT ENTITLED TO EXEMPLARY DAMAGES. XII. THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING SBTC LIABLE FOR THE ATTORNEYS FEES OF

RCBC [SIC].10 On RCBCs part, the following issues are submitted for resolution: I. WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGERS CHECK IT ISSUED. II. WHETHER OR NOT RCBC IS ENTITLED TO COMPENSATORY DAMAGES EQUIVALENT TO THE INTEREST INCOME LOST AS A RESULT OF THE ILLEGAL REFUSAL OF SBTC TO HONOR ITS OWN MANAGERS CHECK, AS WELL AS FOR EXEMPLARY DAMAGES AND ATTORNEYS FEES.11 Simply stated, we find that in these consolidated petitions, the legal issues for our resolution are: (1) Is SBTC liable to RCBC for the remaining P4 million? and (2) Is SBTC liable to pay for lost interest income on the remaining P4 million, exemplary damages and attorneys fees? RCBC avers that the managers check issued by SBTC is substantially as good as the money it represents because by its peculiar character, its issuance has the effect of an advance acceptance. RCBC claims that it is a holder in due course when it credited the P8-million managers check to CMCs account. Accordingly, RCBC asserts that SBTCs refusal to honor its obligation justifies RCBC claim for lost interest income, exemplary damages and attorneys fees. On the other hand, SBTC contends that RCBC violated Monetary Board Resolution No. 2202 of the Central Bank of the Philippines mandating all banks to verify the genuineness and validity of all checks before allowing drawings of the same. SBTC insists that RCBC should bear the consequences of allowing CMC to withdraw the amount of the check before it was cleared.12 We shall rule on the issues seriatim. At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary check but a managers check. A managers check is one drawn by a banks manager upon the

bank itself. It stands on the same footing as a certified check, 13 which is deemed to have been accepted by the bank that certified it.14 As the banks own check, a managers check becomes the primary obligation of the bank and is accepted in advance by the act of its issuance.15 In this case, RCBC, in immediately crediting the amount of P8 million to CMCs account, relied on the integrity and honor of the check as it is regarded in commercial transactions. Where the questioned check, which was payable to "Cash," appeared regular on its face, and the bank found nothing unusual in the transaction, as the drawer usually issued checks in big amounts made payable to cash, RCBC cannot be faulted in paying the value of the questioned check.16 In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting drawings against uncollected deposits. For we must point out that the Central Bank at that time issued a Memorandum dated July 9, 1980, which interpreted said Monetary Board Resolution No. 2202. In its pertinent portion, said Memorandum reads: "MEMORANDUM TO ALL BANKS July 9, 1980 For the guidance of all concerned, Monetary Board Resolution No. 2202 dated December 31, 1979 prohibiting, as a matter of policy, drawing against uncollected deposit effective July 1, 1980, uncollected deposits representing managers cashiers/ treasurers checks, treasury warrants, postal money orders and duly funded "on us" checks which may be permitted at the discretion of each bank, covers drawings against demand deposits as well as withdrawals from savings deposits."17 Thus, it is clear from the July 9, 1980 Memorandum that banks were given the discretion to allow immediate drawings on uncollected deposits of managers checks, among others. Consequently, RCBC, in allowing the immediate withdrawal against the subject managers check, only exercised a prerogative expressly granted to it by the Monetary Board. Moreover, neither Monetary Board Resolution No. 2202 nor the

July 9, 1980 Memorandum alters the extraordinary nature of the managers check and the relative rights of the parties thereto. SBTCs liability as drawer remains the same by drawing the instrument, it admits the existence of the payee and his then capacity to indorse; and engages that on due presentment, the instrument will be accepted, or paid, or both, according to its tenor.18 Concerning RCBCs claim for lost interest income on the remaining P4 million, this is already covered by the amount of damages in the form of legal interest of 6%, based on Article 2200 19 and 220920 of the Civil Code of the Philippines, as awarded by the Court of Appeals in its decision. In addition to the above-mentioned award of compensatory damages, we also find merit in the need to award exemplary damages in order to set an example for the public good. The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have attained an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, above all, trust and confidence. In this connection, it is important that banks should guard against injury attributable to negligence or bad faith on its part. As repeatedly emphasized, since the banking business is impressed with public interest, the trust and confidence of the public in it is of paramount importance. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are required of it. SBTC having failed in this respect, the award of exemplary damages to RCBC in the amount of P50,000.00 is warranted.21 Pursuant to current jurisprudence, with the finding of liability for exemplary damages, attorneys fees in the amount of P25,000.0022 must also be awarded against SBTC and in favor of RCBC. WHEREFORE, the assailed Decision dated March 29, 2005 and Resolution dated December 12, 2005 of the Court of Appeals in CA-G.R. CV No. 67387 is hereby AFFIRMED with MODIFICATION. Security Bank and Trust Company is ordered to pay Rizal Commercial Banking Corporation: (1) the remaining

P4,000,000.00, with legal interest thereon at six percent (6%) per annum from the time of filing of the complaint on February 13, 1981 to the date of finality of this Decision; (2) exemplary damages of P50,000.00; and (3) attorneys fees of P25,000.00. No pronouncement as to costs. SO ORDERED. G.R. No. 161319 January 23, 2007

SPS. EDGAR AND DINAH OMENGAN, Petitioners, vs. PHILIPPPINE NATIONAL BANK, HENRY M. MONTALVO AND MANUEL S. ACIERTO,* Respondents. DECISION CORONA, J.: This petition for review on certiorari1 seeks a review and reversal of the Court of Appeals (CA) decision2 and resolution3 in CA-G.R. CV No. 71302. In October 1996, the Philippine National Bank (PNB) Tabuk (Kalinga) Branch approved petitioners-spouses application for a revolving credit line of P3 million. The loan was secured by two residential lots in Tabuk, Kalinga-Apayao covered by Transfer Certificate of Title (TCT) Nos. 12954 and 12112. The certificates of title, issued by the Registry of Deeds of the Province of KalingaApayao, were in the name of Edgar 4 Omengan married to Dinah Omengan. The first P2.5 million was released by Branch Manager Henry Montalvo on three separate dates. The release of the final half million was, however, withheld by Montalvo because of a letter allegedly sent by Edgars sisters. It read: Appas, Tabuk Kalinga 7 November 1996 The ManagerPhilippine National BankTabuk BranchPoblacion, TabukKalinga Sir:

This refers to the land at Appas, Tabuk in the name of our brother, Edgar Omengan, which was mortgaged to [the] Bank in the amount of Three Million Pesos (P3,000,000.00), the sum of [P2.5 Million] had already been released and received by our brother, Edgar. In this connection, it is requested that the remaining unreleased balance of [half a million pesos] be held in abeyance pending an understanding by the rest of the brothers and sisters of Edgar. Please be informed that the property mortgaged, while in the name of Edgar Omengan, is owned in co-ownership by all the children of the late Roberto and Elnora Omengan. The lawyer who drafted the document registering the subject property under Edgars name can attest to this fact. We had a prior understanding with Edgar in allowing him to make use of the property as collateral, but he refuses to comply with such arrangement. Hence, this letter. (emphasis ours) Very truly yours, (Sgd.) Shirley O. Gamon (Sgd.) Imogene O. Bangao (Sgd.) Caroline O. Salicob (Sgd.) Alice O. Claver5 Montalvo was eventually replaced as branch manager by Manuel Acierto who released the remaining half million pesos to petitioners on May 2, 1997. Acierto also recommended the approval of a P2 million increase in their credit line to the Cagayan Valley Business Center Credit Committee in Santiago City. The credit committee approved the increase of petitioners credit line (from P3 million to P5 million), provided Edgars sisters gave their conformity. Acierto informed petitioners of the conditional approval of their credit line. But petitioners failed to secure the consent of Edgars sisters; hence, PNB put on hold the release of the additional P2 million. On October 7, 1998, Edgar Omengan demanded the release of the P2 million. He claimed that the condition for its release was not part of his credit line agreement with PNB because it was added without his consent. PNB denied his request. On March 3, 1999, petitioners filed a complaint for breach of

contract and damages against PNB with the Regional Trial Court (RTC), Branch 25 in Tabuk, Kalinga. After trial, the court decided in favor of petitioners. Accordingly, judgment is hereby rendered finding in favor of [petitioners.] [PNB is ordered]: 1) To release without delay in favor of [petitioners] the amount of P2,000,000.00 to complete the P5,000,000.00 credit line agreement; 2) To pay [petitioners] the amount of P2,760,000.00 representing the losses and/or expected income of the [petitioners] for three years; 3) To pay lawful interest, until the amount aforementioned on paragraphs 1 and 2 above are fully paid; and 4) To pay the costs. SO ORDERED. 6 The CA, however, on June 18, 2003, reversed and set aside the RTC decision dated April 21, 2001.7 Petitioners now contend that the CA erred when it did not sustain the finding of breach of contract by the RTC. 8 The existence of breach of contract is a factual matter not usually reviewed in a petition filed under Rule 45. But since the RTC and the CA had contradictory findings, we are constrained to rule on this issue. Was there a breach of contract? There was none. Breach of contract is defined as follows: [It] is the "failure without legal reason to comply with the terms of a contract." It is also defined as the "[f]ailure, without legal excuse, to perform any promise which forms the whole or part of the contract."9 In this case, the parties agreed on a P3 million credit line. This sum was completely released to petitioners who subsequently applied10 for an increase in their credit line. This was conditionally
1awphi1.net

approved by PNBs credit committee. For all intents and purposes, petitioners sought an additional loan. The condition attached to the increase in credit line requiring petitioners to acquire the conformity of Edgars sisters was never acknowledged and accepted by petitioners. Thus, as to the additional loan, no meeting of the minds actually occurred and no breach of contract could be attributed to PNB. There was no perfected contract over the increase in credit line. "[T]he business of a bank is one affected with public interest, for which reason the bank should guard against loss due to negligence or bad faith. In approving the loan of an applicant, the bank concerns itself with proper [information] regarding its debtors."11 Any investigation previously conducted on the property offered by petitioners as collateral did not preclude PNB from considering new information on the same property as security for a subsequent loan. The credit and property investigation for the original loan of P3 million did not oblige PNB to grant and release any additional loan. At the time the original P3 million credit line was approved, the title to the property appeared to pertain exclusively to petitioners. By the time the application for an increase was considered, however, PNB already had reason to suspect petitioners claim of exclusive ownership.
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A mortgagee can rely on what appears on the certificate of title presented by the mortgagor and an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagors title. This rule is strictly applied to banking institutions. xxx Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, as their business is one affected with public interest. xxx Thus, this Court clarified that the rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.12 (emphasis supplied) Here, PNB had acquired information sufficient to induce a reasonably prudent person to inquire into the status of the title over the subject property. Instead of defending their position, petitioners merely insisted that reliance on the face of the certificate of title (in their name) was sufficient. This principle, as already mentioned, was not applicable to financial institutions like PNB.

In truth, petitioners had every chance to turn the situation in their favor if, as they said, they really owned the subject property alone, to the exclusion of any other owner(s). Unfortunately, all they offered were bare denials of the co-ownership claimed by Edgars sisters. PNB exercised reasonable prudence in requiring the abovementioned condition for the release of the additional loan. If the condition proved unacceptable to petitioners, the parties could have discussed other terms instead of making an obstinate and outright demand for the release of the additional amount. If the alleged co-ownership in fact had no leg to stand on, petitioners could have introduced evidence other than a simple denial of its existence. Since PNB did not breach any contract and since it exercised the degree of diligence expected of it, it cannot be held liable for damages. WHEREFORE, the decision and resolution of the Court of Appeals in CA-G.R. CV No. 71302 are hereby AFFIRMED. Costs against petitioners. SO ORDERED. G.R. No. 136202 January 25, 2007

BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs.COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. TEMPLONUEVO, Respondents DECISION AZCUNA, J.: This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the Decision1 dated April 3, 1998, and the Resolution2 dated November 9, 1998, of the Court of Appeals in CA-G.R. CV No. 42241. The facts3 are as follows: A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages against herein petitioner Bank of

the Philippine Islands (BPI) on December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The complaint was later amended by substituting the name of Annabelle A. Salazar as the real party in interest in place of A.A. Salazar Construction and Engineering Services. Private respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from her account. She likewise prayed for damages and attorneys fees. Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party defendant and herein also a private respondent, demanded from the former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of three (3) checks, which were allegedly payable to him, but which were deposited with the petitioner bank to private respondent Salazars account (Account No. 0203-1187-67) without his knowledge and corresponding endorsement. Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering Services, instead of Account No. 0203-1187-67 where the checks were deposited, since this account was already closed by private respondent Salazar or had an insufficient balance. Private respondent Salazar was advised to settle the matter with Templonuevo but they did not arrive at any settlement. As it appeared that private respondent Salazar was not entitled to the funds represented by the checks which were deposited and accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account No. 0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a cashiers check. The difference between the value of the checks (P267,692.50) and the amount actually debited from her account (P267,707.70) represented bank charges in connection with the issuance of a cashiers check to Templonuevo. In the answer to the third-party complaint, private respondent Templonuevo admitted the payment to him of P267,692.50 and argued that said payment was to correct the malicious deposit made by private respondent Salazar to her private account, and

that petitioner banks negligence and tolerance regarding the matter was violative of the primary and ordinary rules of banking. He likewise contended that the debiting or taking of the reimbursed amount from the account of private respondent Salazar by petitioner BPI was a matter exclusively between said parties and may be pursuant to banking rules and regulations, but did not in any way affect him. The debiting from another account of private respondent Salazar, considering that her other account was effectively closed, was not his concern. After trial, the RTC rendered a decision, the dispositive portion of which reads thus: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [private respondent Salazar] and against the defendant [petitioner BPI] and ordering the latter to pay as follows: 1. The amount of P267,707.70 with 12% interest thereon from September 16, 1991 until the said amount is fully paid; 2. The amount of P30,000.00 as and for actual damages; 3. The amount of P50,000.00 as and for moral damages; 4. The amount of P50,000.00 as and for exemplary damages; 5. The amount of P30,000.00 as and for attorneys fees; and 6. Costs of suit. The counterclaim is hereby ordered DISMISSED for lack of factual basis. The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of merit. Third-party defendants [i.e., private respondent Templonuevos] counterclaim is hereby likewise DISMISSED for lack of factual basis. SO ORDERED. 4 On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent Salazar was entitled to the proceeds of the three (3) checks notwithstanding the lack of

endorsement thereon by the payee. The CA concluded that Salazar and Templonuevo had previously agreed that the checks payable to JRT Construction and Trading5 actually belonged to Salazar and would be deposited to her account, with petitioner acquiescing to the arrangement.6 Petitioner therefore filed this petition on these grounds: I. The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on Evidence. II. The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI. III. The Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that the account from which BPI debited the amount of P267,707.70 belonged to a corporation with a separate and distinct personality. IV. The Court of Appeals committed a reversible error in holding, based entirely on speculations, surmises or conjectures, that there was an agreement between SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO may be deposited by SALAZAR to her personal account and that BPI was privy to this agreement. V. The Court of Appeals committed reversible error in holding, based entirely on speculation, surmises or conjectures, that SALAZAR suffered great damage and prejudice and that her business standing was eroded. VI.

The Court of Appeals erred in affirming instead of reversing the decision of the lower court against BPI and dismissing SALAZARs complaint. VII. The Honorable Court erred in affirming the decision of the lower court dismissing the third-party complaint of BPI.7 The issues center on the propriety of the deductions made by petitioner from private respondent Salazars account. Stated otherwise, does a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally from such depositors account the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another account that she later closed? Petitioner argues thus: 1. There is no presumption in law that a check payable to order, when found in the possession of a person who is neither a payee nor the indorsee thereof, has been lawfully transferred for value. Hence, the CA should not have presumed that Salazar was a transferee for value within the contemplation of Section 49 of the Negotiable Instruments Law,8 as the latter applies only to a holder defined under Section 191of the same.9 2. Salazar failed to adduce sufficient evidence to prove that her possession of the three checks was lawful despite her allegations that these checks were deposited pursuant to a prior internal arrangement with Templonuevo and that petitioner was privy to the arrangement. 3. The CA should have applied the Civil Code provisions on legal compensation because in deducting the subject amount from Salazars account, petitioner was merely rectifying the undue payment it made upon the checks and exercising its prerogative to alter or modify an erroneous credit entry in the regular course of its business. 4. The debit of the amount from the account of A.A. Salazar Construction and Engineering Services was proper even though the value of the checks had been originally credited to the personal account of Salazar because A.A. Salazar Construction and

Engineering Services, an unincorporated single proprietorship, had no separate and distinct personality from Salazar. 5. Assuming the deduction from Salazars account was improper, the CA should not have dismissed petitioners third-party complaint against Templonuevo because the latter would have the legal duty to return to petitioner the proceeds of the checks which he previously received from it. 6. There was no factual basis for the award of damages to Salazar. The petition is partly meritorious. First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA. The CAs conclusion that the deductions from the bank account of A.A. Salazar Construction and Engineering Services were improper stemmed from its finding that there was no ineffective payment to Salazar which would call for the exercise of petitioners right to set off against the formers bank deposits. This finding, in turn, was drawn from the pleadings of the parties, the evidence adduced during trial and upon the admissions and stipulations of fact made during the pre-trial, most significantly the following: (a) That Salazar previously had in her possession the following checks: (1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount of P57,712.50; (2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of P55,180.00; and, (3) Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for the amount of P154,800.00; (b) That these checks which had an aggregate amount of P267,692.50 were payable to the order of JRT Construction and Trading, the name and style under which Templonuevo does business; (c) That despite the lack of endorsement of the designated payee upon such checks, Salazar was able to deposit the checks in her

personal savings account with petitioner and encash the same; (d) That petitioner accepted and paid the checks on three (3) separate occasions over a span of eight months in 1990; and (e) That Templonuevo only protested the purportedly unauthorized encashment of the checks after the lapse of one year from the date of the last check.10 Petitioner concedes that when it credited the value of the checks to the account of private respondent Salazar, it made a mistake because it failed to notice the lack of endorsement thereon by the designated payee. The CA, however, did not lend credence to this claim and concluded that petitioners actions were deliberate, in view of its admission that the "mistake" was committed three times on three separate occasions, indicating acquiescence to the internal arrangement between Salazar and Templonuevo. The CA explained thus: It was quite apparent that the three checks which appellee Salazar deposited were not indorsed. Three times she deposited them to her account and three times the amounts borne by these checks were credited to the same. And in those separate occasions, the bank did not return the checks to her so that she could have them indorsed. Neither did the bank question her as to why she was depositing the checks to her account considering that she was not the payee thereof, thus allowing us to come to the conclusion that defendant-appellant BPI was fully aware that the proceeds of the three checks belong to appellee. For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most unlikely that appellant BPI (or any bank for that matter) would have accepted the checks for deposit on three separate times nary any question. Banks are most finicky over accepting checks for deposit without the corresponding indorsement by their payee. In fact, they hesitate to accept indorsed checks for deposit if the depositor is not one they know very well.11 The CA likewise sustained Salazars position that she received the checks from Templonuevo pursuant to an internal arrangement between them, ratiocinating as follows: If there was indeed no arrangement between Templonuevo and

the plaintiff over the three questioned checks, it baffles us why it was only on August 31, 1991 or more than a year after the third and last check was deposited that he demanded for the refund of the total amount of P267,692.50. A prudent man knowing that payment is due him would have demanded payment by his debtor from the moment the same became due and demandable. More so if the sum involved runs in hundreds of thousand of pesos. By and large, every person, at the very moment he learns that he was deprived of a thing which rightfully belongs to him, would have created a big fuss. He would not have waited for a year within which to do so. It is most inconceivable that Templonuevo did not do this.12 Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the Rules of Court.13 Factual findings of the CA are entitled to great weight and respect, especially when the CA affirms the factual findings of the trial court.14 Such questions on whether certain items of evidence should be accorded probative value or weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the other are clear and convincing and adequate to establish a proposition in issue, are questions of fact. The same holds true for questions on whether or not the body of proofs presented by a party, weighed and analyzed in relation to contrary evidence submitted by the adverse party may be said to be strong, clear and convincing, or whether or not inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to give said proofs weight all these are issues of fact which are not reviewable by the Court.15 This rule, however, is not absolute and admits of certain exceptions, namely: a) when the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; b) when the inference made is manifestly mistaken, absurd, or impossible; c) when there is a grave abuse of discretion; d) when the judgment is based on a misapprehension of facts; e) when the findings of fact are conflicting; f) when the CA, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee; g) when the findings of the CA are contrary to those of the trial court; h) when the findings of fact are conclusions without citation of specific evidence on which they are based; i) when the finding of fact of the CA is premised on the supposed absence of evidence but is contradicted

by the evidence on record; and j) when the CA manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion.16 In the present case, the records do not support the finding made by the CA and the trial court that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as Salazars entitlement to the value of the instruments is based on the assumption that she is a transferee within the contemplation of Section 49 of the Negotiable Instruments Law. Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a negotiable instrument for value without indorsing it, thus: Transfer without indorsement; effect of- Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made. 17 It bears stressing that the above transaction is an equitable assignment and the transferee acquires the instrument subject to defenses and equities available among prior parties. Thus, if the transferor had legal title, the transferee acquires such title and, in addition, the right to have the indorsement of the transferor and also the right, as holder of the legal title, to maintain legal action against the maker or acceptor or other party liable to the transferor. The underlying premise of this provision, however, is that a valid transfer of ownership of the negotiable instrument in question has taken place. Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees or indorsers of the

instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment may be inferred.18 The CA and the trial court surmised that the subject checks belonged to private respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a one-year delay in demanding reimbursement for the proceeds of the same. To the Courts mind, however, such period of delay is not of such unreasonable length as to estop Templonuevo from asserting ownership over the checks especially considering that it was readily apparent on the face of the instruments 19 that these were crossed checks. In State Investment House v. IAC,20 the Court enumerated the effects of crossing a check, thus: (1) that the check may not be encashed but only deposited in the bank; (2) that the check may be negotiated only once - to one who has an account with a bank; and (3) that the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that such holder must inquire if the check has been received pursuant to that purpose. Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazars possession of the checks, it cannot be said that the presumption of ownership in Templonuevos favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if instruments payable to named payees or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right.21 The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of Salazar because the term "given" does not pertain merely to a transfer of physical possession of the instrument. The phrase "given or indorsed" in the context of a negotiable instrument refers to the manner in which such instrument may be negotiated. Negotiable instruments are negotiated by "transfer to one person or another in such a manner as to constitute the transferee the holder thereof. If payable to bearer it is negotiated by delivery. If payable to order it is negotiated by the indorsement completed by delivery."22 The

present case involves checks payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could not be a holder thereof. It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder.23 Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the back of the checks the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby making the assurance that it had ascertained the genuineness of all prior endorsements. Having assumed the liability of a general indorser, petitioners liability to the designated payee cannot be denied. Consequently, petitioner, as the collecting bank, had the right to debit Salazars account for the value of the checks it previously credited in her favor. It is of no moment that the account debited by petitioner was different from the original account to which the proceeds of the check were credited because both admittedly belonged to Salazar, the former being the account of the sole proprietorship which had no separate and distinct personality from her, and the latter being her personal account. The right of set-off was explained in Associated Bank v. Tan:24 A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a depositor. The right of a collecting bank to debit a client's account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan." Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal compensation

under Article 1278 of the Civil Code may take place "when all the requisites mentioned in Article 1279 are present," as follows: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. While, however, it is conceded that petitioner had the right of setoff over the amount it paid to Templonuevo against the deposit of Salazar, the issue of whether it acted judiciously is an entirely different matter.25 As businesses affected with public interest, and because of the nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship.26 In this regard, petitioner was clearly remiss in its duty to private respondent Salazar as its depositor. To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of these checks three times on three separate occasions. This negates petitioners claim that it merely made a mistake in crediting the value of the checks to Salazars account and instead bolsters the conclusion of the CA that petitioner recognized Salazars claim of ownership of checks and acted deliberately in paying the same, contrary to ordinary banking policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct. 27 The taking and collection of a check without the proper indorsement amount to a conversion of the check by the bank.28

More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited the account held in the name of the sole proprietorship of Salazar without even serving due notice upon her. This ran contrary to petitioners assurances to private respondent Salazar that the account would remain untouched, pending the resolution of the controversy between her and Templonuevo.29 In this connection, the CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner banks Pasig/Ortigas branch, to private respondent Salazar informing her that her account had been frozen, thus: From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201-0588-48 will remain frozen or untouched until herein [Salazar] has settled matters with Templonuevo. But, in an unexpected move, in less than two weeks (eleven days to be precise) from the time that letter was written, [petitioner] bank issued a cashiers check in the name of Julio R. Templonuevo of the J.R.T. Construction and Trading for the sum of P267,692.50 (Exhibit "8") and debited said amount from Ms. Arcillas account No. 0201-0588-48 which was supposed to be frozen or controlled. Such a move by BPI is, to Our minds, a clear case of negligence, if not a fraudulent, wanton and reckless disregard of the right of its depositor. The records further bear out the fact that respondent Salazar had issued several checks drawn against the account of A.A. Salazar Construction and Engineering Services prior to any notice of deduction being served. The CA sustained private respondent Salazars claim of damages in this regard: The act of the bank in freezing and later debiting the amount of P267,692.50 from the account of A.A. Salazar Construction and Engineering Services caused plaintiff-appellee great damage and prejudice particularly when she had already issued checks drawn against the said account. As can be expected, the said checks bounced. To prove this, plaintiff-appellee presented as exhibits photocopies of checks dated September 8, 1991, October 28, 1991, and November 14, 1991 (Exhibits "D", "E" and "F" respectively)30 These checks, it must be emphasized, were subsequently

dishonored, thereby causing private respondent Salazar undue embarrassment and inflicting damage to her standing in the business community. Under the circumstances, she was clearly not given the opportunity to protect her interest when petitioner unilaterally withdrew the above amount from her account without informing her that it had already done so. For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the banks negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation.31 Moral damages are not meant to enrich a complainant at the expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The award of exemplary damages is justified, on the other hand, when the acts of the bank are attended by malice, bad faith or gross negligence. The award of reasonable attorneys fees is proper where exemplary damages are awarded. It is proper where depositors are compelled to litigate to protect their interest.32 WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the Philippine Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion is REVERSED and SET ASIDE. In all other respects, the same are AFFIRMED. No costs. SO ORDERED. G.R. No. 167346 April 2, 2007

SOLIDBANK CORPORATION/ METROPOLITAN BANK AND TRUST COMPANY, * Petitioner, vs.SPOUSES PETER and SUSAN TAN, Respondents. DECISION

CORONA, J.: Assailed in this petition for review by certiorari under Rule 45 of the Rules of Court are the decision1 and resolution2 of the Court of Appeals (CA) dated November 26, 2004 and March 1, 2005, respectively, in CA-G.R. CV No. 58618,3 affirming the decision of the Regional Trial Court (RTC) of Manila, Branch 31.4 On December 2, 1991, respondents representative, Remigia Frias, deposited with petitioner ten checks worth P455,962. Grace Neri, petitioners teller no. 8 in its Juan Luna, Manila Branch, received two deposit slips for the checks, an original and a duplicate. Neri verified the checks and their amounts in the deposit slips then returned the duplicate copy to Frias and kept the original copy for petitioner. In accordance with the usual practice between petitioner and respondents, the latters passbook was left with petitioner for the recording of the deposits on the banks ledger. Later, respondents retrieved the passbook and discovered that one of the checks, Metropolitan Bank and Trust Company (Metrobank) check no. 403954, payable to cash in the sum of P250,000 was not posted therein. Immediately, respondents notified petitioner of the problem. Petitioner showed respondent Peter Tan a duplicate copy of a deposit slip indicating the list of checks deposited by Frias. But it did not include the missing check. The deposit slip bore the stamp mark "teller no. 7" instead of "teller no. 8" who previously received the checks. Still later, respondent Peter Tan learned from Metrobank (where he maintained an account) that Metrobank check no. 403954 had cleared after it was inexplicably deposited by a certain Dolores Lagsac in Premier Bank in San Pedro, Laguna. Respondents demanded that petitioner pay the amount of the check but it refused, hence, they filed a case for collection of a sum of money in the RTC of Manila, Branch 31. In its answer, petitioner averred that the deposit slips Frias used when she deposited the checks were spurious. Petitioner accused respondents of engaging in a scheme to illegally exact money from it. It added that, contrary to the claim of respondents, it was "teller

no. 7" who received the deposit slips and, although respondents insisted that Frias deposited ten checks, only nine checks were actually received by said teller. By way of counterclaim, it sought payment of P1,000,000 as actual and moral damages and P500,000 as exemplary damages. After trial, the RTC found petitioner liable to respondents: Upon examination of the oral, as well as of the documentary evidence which the parties presented at the trial in support of their respective contentions, and after taking into consideration all the circumstances of the case, this Court believes that the loss of Metrobank Check No. 403954 in the sum of P250,000.00 was due to the fault of [petitioner][It] retained the original copy of the [deposit slip marked by "Teller No. 7"]. There is a presumption in law that evidence willfully suppressed would be adverse if produced. Art. 1173 of the Civil Code states that "the fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the person of the time and of the place"; and that "if the law or contract does not state the diligence which is to be observed in the performance, the same as expected of a good father of a family shall be required." For failure to comply with its obligation, [petitioner] is presumed to have been at fault or to have acted negligently unless they prove that they observe extraordinary diligence as prescribed in Arts. 1733 and 1735 of the Civil Code (Art. 1756) xxx xxx xxx WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondents], ordering [petitioner] to pay the sum of P250,000, with legal interest from the time the complaint [for collection of a sum of money] was filed until satisfied; P25,000.00 moral damages; P25,000.00 exemplary damages plus 20% of the amount due [respondents] as and for attorneys fees. With costs. SO ORDERED. 5 Petitioner appealed to the CA which affirmed in toto the RTCs assailed decision:

Serious doubt [was] engendered by the fact that [petitioner] did not present the original of the deposit slip marked with "Teller No. 7" and on which the entry as to Metrobank Check No. 403954 did not appear. Even the most cursory look at the handwriting thereon reveal[ed] a very marked difference with that in the other deposit slips filled up [by Frias] on December 2, 1991. Said circumstances spawn[ed] the belief thus, the said deposit slip was prepared by [petitioner] itself to cover up for the lost check.6 Petitioner filed a motion for reconsideration but the CA dismissed it. Hence, this appeal.
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Before us, petitioner faults the CA for upholding the RTC decision. Petitioner argues that: (1) the findings of the RTC and the CA were not supported by the evidence and records of the case; (2) the award of damages in favor of respondents was unwarranted and (3) the application by the RTC, as affirmed by the CA, of the provisions of the Civil Code on common carriers to the instant case was erroneous.7 The petition must fail. On the first issue, petitioner contends that the lower courts erred in finding it negligent for the loss of the subject check. According to petitioner, the fact that the check was deposited in Premier Bank affirmed its claim that it did not receive the check. At the outset, the Court stresses that it accords respect to the factual findings of the trial court and, unless it overlooked substantial matters that would alter the outcome of the case, this Court will not disturb such findings.8 We meticulously reviewed the records of the case and found no reason to deviate from the rule. Moreover, since the CA affirmed these findings on appeal, they are final and conclusive on us.9 We therefore sustain the RTCs and CAs findings that petitioner was indeed negligent and responsible for respondents lost check. On the issue of damages, petitioner argues that the moral and exemplary damages awarded by the lower courts had no legal basis. For the award of moral damages to stand, petitioner avers that respondents should have proven the existence of bad faith by clear and convincing evidence. According to petitioner, simple negligence cannot be a basis for its award. It insists that the award of exemplary damages is justified only when the act complained of

was done in a wanton, fraudulent and oppressive manner.10 We disagree. While petitioner may argue that simple negligence does not warrant the award of moral damages, it nonetheless cannot insist that that was all it was guilty of. It refused to produce the original copy of the deposit slip which could have proven its claim that it did not receive respondents missing check. Thus, in suppressing the best evidence that could have bolstered its claim and confirmed its innocence, the presumption now arises that it withheld the same for fraudulent purposes.11 Moreover, in presenting a false deposit slip in its attempt to feign innocence, petitioners bad faith was apparent and unmistakable. Bad faith imports a dishonest purpose or some moral obliquity or conscious doing of a wrong that partakes of the nature of fraud.12 As to the award of exemplary damages, the law allows it by way of example for the public good. The business of banking is impressed with public interest and great reliance is made on the banks sworn profession of diligence and meticulousness in giving irreproachable service.13 For petitioners failure to carry out its responsibility and to account for respondents lost check, we hold that the lower courts did not err in awarding exemplary damages to the latter. On the last issue, we hold that the trial court did not commit any error. A cursory reading of its decision reveals that it anchored its conclusion that petitioner was negligent on Article 1173 of the Civil Code.14
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In citing the different provisions of the Civil Code on common carriers,15 the trial court merely made reference to the kind of diligence that petitioner should have performed under the circumstances. In other words, like a common carrier whose business is also imbued with public interest, petitioner should have exercised extraordinary diligence to negate its liability to respondents. Assuming arguendo that the trial court indeed used the provisions on common carriers to pin down liability on petitioner, still we see no reason to strike down the RTC and CA rulings on this ground alone.

In one case,16 the Court did not hesitate to apply the doctrine of last clear chance (commonly used in transportation laws involving common carriers) to a banking transaction where it adjudged the bank responsible for the encashment of a forged check. There, we enunciated that the degree of diligence required of banks is more than that of a good father of a family in keeping with their responsibility to exercise the necessary care and prudence in handling their clients money. We find no compelling reason to disallow the application of the provisions on common carriers to this case if only to emphasize the fact that banking institutions (like petitioner) have the duty to exercise the highest degree of diligence when transacting with the public. By the nature of their business, they are required to observe the highest standards of integrity and performance, and utmost assiduousness as well.17 WHEREFORE, the assailed decision and resolution of the Court of Appeals dated November 26, 2004 and March 1, 2005, respectively, in CA-G.R. CV No. 58618 are hereby AFFIRMED. Accordingly, the petition is DENIED. Costs against petitioner. SO ORDERED. G.R. No. 180257 February 23, 2011

EUSEBIO GONZALES, Petitioner, vs.PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK, EDNA OCAMPO, and ROBERTO NOCEDA, Respondents. DECISION VELASCO, JR., J.: The Case This is an appeal via a Petition for Review on Certiorari under Rule 45 from the Decision1 dated October 22, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 74466, which denied petitioners appeal from the December 10, 2001 Decision 2 in Civil Case No. 99-1324 of the Regional Trial Court (RTC), Branch 138 in Makati City. The RTC found justification for respondents dishonor of

petitioners check and found petitioner solidarily liable with the spouses Jose and Jocelyn Panlilio (spouses Panlilio) for the three promissory notes they executed in favor of respondent Philippine Commercial and International Bank (PCIB). The Facts Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years before he filed the instant case. His account with PCIB was handled by respondent Edna Ocampo (Ocampo) until she was replaced by respondent Roberto Noceda (Noceda). In October 1992, PCIB granted a credit line to Gonzales through the execution of a Credit-On-Hand Loan Agreement 3 (COHLA), in which the aggregate amount of the accounts of Gonzales with PCIB served as collateral for and his availment limit under the credit line. Gonzales drew from said credit line through the issuance of check. At the institution of the instant case, Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB. On October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000. Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio and Gonzales obtained two additional loans from PCIB in the amounts of PhP 1,000,000 and PhP 300,000, respectively. These three loans amounting to PhP 1,800,000 were covered by three promissory notes. 4 To secure the loans, a real estate mortgage (REM) over a parcel of land covered by Transfer Certificate of Title (TCT) No. 38012 was executed by Gonzales and the spouses Panlilio. Notably, the promissory notes specified, among others, the solidary liability of Gonzales and the spouses Panlilio for the payment of the loans. However, it was the spouses Panlilio who received the loan proceeds of PhP 1,800,000. The monthly interest dues of the loans were paid by the spouses Panlilio through the automatic debiting of their account with PCIB. But the spouses Panlilio, from the month of July 1998, defaulted in the payment of the periodic interest dues from their PCIB account which apparently was not maintained with enough deposits. PCIB allegedly called the attention of Gonzales regarding the July 1998 defaults and the subsequent accumulating periodic interest dues which were left still left unpaid.

In the meantime, Gonzales issued a check dated September 30, 1998 in favor of Rene Unson (Unson) for PhP 250,000 drawn against the credit line (COHLA). However, on October 13, 1998, upon presentment for payment by Unson of said check, it was dishonored by PCIB due to the termination by PCIB of the credit line under COHLA on October 7, 1998 for the unpaid periodic interest dues from the loans of Gonzales and the spouses Panlilio. PCIB likewise froze the FCD account of Gonzales. Consequently, Gonzales had a falling out with Unson due to the dishonor of the check. They had a heated argument in the premises of the Philippine Columbian Association (PCA) where they are both members, which caused great embarrassment and humiliation to Gonzales. Thereafter, on November 5, 1998, Unson sent a demand letter5 to Gonzales for the PhP 250,000. And on December 3, 1998, the counsel of Unson sent a second demand letter6 to Gonzales with the threat of legal action. With his FCD account that PCIB froze, Gonzales was forced to source out and pay the PhP 250,000 he owed to Unson in cash. On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the check he issued had been fully funded, and demanded the return of the proceeds of his FCD as well as damages for the unjust dishonor of the check. 7 PCIB replied on March 22, 1999 and stood its ground in freezing Gonzales accounts due to the outstanding dues of the loans. 8 On May 26, 1999, Gonzales reiterated his demand, reminding PCIB that it knew well that the actual borrowers were the spouses Panlilio and he never benefited from the proceeds of the loans, which were serviced by the PCIB account of the spouses Panlilio.9 PCIBs refusal to heed his demands compelled Gonzales to file the instant case for damages with the RTC, on account of the alleged unjust dishonor of the check issued in favor of Unson. The Ruling of the RTC After due trial, on December 10, 2001, the RTC rendered a Decision in favor of PCIB. The decretal portion reads: WHEREFORE, judgment is rendered as follows (a) on the first issue, plaintiff is liable to pay defendant Bank as principal under the promissory notes, Exhibits A, B and C;

(b) on the second issue, the Court finds that there is justification on part of the defendant Bank to dishonor the check, Exhibit H; (c) on the third issue, plaintiff and defendants are not entitled to damages from each other. No pronouncement as to costs. SO ORDERED. 10 The RTC found Gonzales solidarily liable with the spouses Panlilio on the three promissory notes relative to the outstanding REM loan. The trial court found no fault in the termination by PCIB of the COHLA with Gonzales and in freezing the latters accounts to answer for the past due PhP 1,800,000 loan. The trial court ruled that the dishonor of the check issued by Gonzales in favor of Unson was proper considering that the credit line under the COHLA had already been terminated or revoked before the presentment of the check. Aggrieved, Gonzales appealed the RTC Decision before the CA. The Ruling of the CA On September 26, 2007, the appellate court rendered its Decision dismissing Gonzales appeal and affirming in toto the RTC Decision. The fallo reads: WHEREFORE, in view of the foregoing, the decision, dated December 10, 2001, in Civil Case No. 99-1324 is hereby AFFIRMED in toto. SO ORDERED. 11 In dismissing Gonzales appeal, the CA, first, confirmed the RTCs findings that Gonzales was indeed solidarily liable with the spouses Panlilio for the three promissory notes executed for the REM loan; second, it likewise found neither fault nor negligence on the part of PCIB in dishonoring the check issued by Gonzales in favor of Unson, ratiocinating that PCIB was merely exercising its rights under the contractual stipulations in the COHLA brought about by the outstanding past dues of the REM loan and interests for which Gonzales was solidarily liable with the spouses Panlilio to pay under the promissory notes.

Thus, we have this petition. The Issues Gonzales, as before the CA, raises again the following assignment of errors: I - IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM PROMISSORY NOTES (EXHIBITS "A", "B" AND "C", PETITIONER; EXHIBITS "1", "2" AND "3", RESPONDENT) PERTAINED TO BORROWER JOSE MA. PANLILIO AND NOT TO APPELLANT AS RECOGNIZED AND ACKNOWLEDGE[D] BY RESPONDENT PHILIPPINE COMMERCIAL & INDUSTRIAL BANK (RESPONDENT BANK). II - IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NOR GUILTY OF GROSS NEGLIGENCE IN DISHONORING PETITIONERS CHECK DATED 30 SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00 FOR THE REASON "ACCOUNT CLOSED", INSTEAD OF MERELY "REFER TO DRAWER" GIVEN THE FACT THAT EVEN AFTER DISHONOR, RESPONDENT SIGNED A CERTIFICATION DATED 7 DECEMBER 1998 THAT CREDIT ON HAND (COH) LOAN AGREEMENT WAS STILL VALID WITH A COLLATERAL OF FOREIGN CURRENCY DEPOSIT (FCD) OF [USD] 48,715.72. III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITE PRESENTATION OF CLEAR PROOF TO SUPPORT ACTION FOR DAMAGES. 12 The Courts Ruling The core issues can be summarized, as follows: first, whether Gonzales is liable for the three promissory notes covering the PhP 1,800,000 loan he made with the spouses Panlilio where a REM over a parcel of land covered by TCT No. 38012 was constituted as security; and second, whether PCIB properly dishonored the check of Gonzales drawn against the COHLA he had with the bank. The petition is partly meritorious. First Issue: Solidarily Liability on Promissory Notes

A close perusal of the records shows that the courts a quo correctly found Gonzales solidarily liable with the spouses Panlilio for the three promissory notes. The promissory notes covering the PhP 1,800,000 loan show the following: (1) Promissory Note BD-090-1766-95,13 dated October 30, 1995, for PhP 500,000 was signed by Gonzales and his wife, Jessica Gonzales; (2) Promissory Note BD-090-2122-95,14 dated December 26, 1995, for PhP 1,000,000 was signed by Gonzales and the spouses Panlilio; and (3) Promissory Note BD-090-011-96,15 dated January 3, 1996, for PhP 300,000 was signed by Gonzales and the spouses Panlilio. Clearly, Gonzales is liable for the loans covered by the above promissory notes. First, Gonzales admitted that he is an accommodation party which PCIB did not dispute. In his testimony, Gonzales admitted that he merely accommodated the spouses Panlilio at the suggestion of Ocampo, who was then handling his accounts, in order to facilitate the fast release of the loan. Gonzales testified: ATTY. DE JESUS: Now in this case you filed against the bank you mentioned there was a loan also applied for by the Panlilios in the sum of P1.8 Million Pesos. Will you please tell this Court how this came about? GONZALES: Mr. Panlilio requested his account officer . . . . at that time it is a P42.0 Million loan and if he secures another P1.8 Million loan the release will be longer because it has to pass to XO. Q: After that what happened? A: So as per suggestion since Mr. Panlilio is a good friend of mine and we co-owned the property I agreed initially to use my name so that the loan can be utilized immediately by Mr. Panlilio.

Q: Who is actually the borrower of this P1.8 Million Pesos? A: Well, in paper me and Mr. Panlilio. Q: Who received the proceeds of said loan? A: Mr. Panlilio. Q: Do you have any proof that it was Mr. Panlilio who actually received the proceeds of this P1.8 Million Pesos loan? A: A check was deposited in the account of Mr. Panlilio.16 xxxx Q: By the way upon whose suggestion was the loan of Mr. Panlilio also placed under your name initially? A: Well it was actually suggested by the account officer at that time Edna Ocampo. Q: How about this Mr. Rodolfo Noceda? A: As you look at the authorization aspect of the loan Mr. Noceda is the boss of Edna so he has been familiar with my account ever since its inception. Q: So these two officers Ocampo and Noceda knew that this was actually the account of Mr. Panlilio and not your account? A: Yes, sir. In fact even if there is a change of account officer they are always informing me that the account will be debited to Mr. Panlilios account.17 Moreover, the first note for PhP 500,000 was signed by Gonzales and his wife as borrowers, while the two subsequent notes showed the spouses Panlilio sign as borrowers with Gonzales. It is, thus, evident that Gonzales signed, as borrower, the promissory notes covering the PhP 1,800,000 loan despite not receiving any of the proceeds. Second, the records of PCIB indeed bear out, and was admitted by Noceda, that the PhP 1,800,000 loan proceeds went to the spouses Panlilio, thus:

ATTY. DE JESUS: [on Cross-Examination] Is it not a fact that as far as the records of the bank [are] concerned the proceeds of the 1.8 million loan was received by Mr. Panlilio? NOCEDA: Yes sir.18 The fact that the loans were undertaken by Gonzales when he signed as borrower or co-borrower for the benefit of the spouses Panlilioas shown by the fact that the proceeds went to the spouses Panlilio who were servicing or paying the monthly dues is beside the point. For signing as borrower and co-borrower on the promissory notes with the proceeds of the loans going to the spouses Panlilio, Gonzales has extended an accommodation to said spouses. Third, as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans. In Ang v. Associated Bank,19 quoting the definition of an accommodation party under Section 29 of the Negotiable Instruments Law, the Court cited that an accommodation party is a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person."20 The Court further explained: [A]n accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other party/ies thereto. The accommodation party is liable on the instrument to a holder for value even though the holder, at the time of taking the instrument, knew him or her to be merely an accommodation party, as if the contract was not for accommodation. As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is one of principal and suretythe accommodation party being the surety.

As such, he is deemed an original promisor and debtor from the beginning; he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be inseparable. Although a contract of suretyship is in essence accessory or collateral to a valid principal obligation, the suretys liability to the creditor is immediate, primary and absolute; he is directly and equally bound with the principal. As an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations nor does he receive any benefit therefrom.21 Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation by Gonzales in order to extend the credit or loan of PhP 1,800,000 to the spouses Panlilio does not exonerate Gonzales from liability on the three promissory notes. Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory notes which uniformly begin, "For value received, the undersigned (the "BORROWER") jointly and severally promise to pay x x x." Solidary liability cannot be presumed but must be established by law or contract.22 Article 1207 of the Civil Code pertinently states that "there is solidary liability only when the obligation expressly so states, or when the obligation requires solidarity." This is true in the instant case where Gonzales, as accommodation party, is immediately, equally, and absolutely bound with the spouses Panlilio on the promissory notes which indubitably stipulated solidary liability for all the borrowers. Moreover, the three promissory notes serve as the contract between the parties. Contracts have the force of law between the parties and must be complied with in good faith.23 Second Issue: Improper Dishonor of Check Having ruled that Gonzales is solidarily liable for the three promissory notes, We shall now touch upon the question of whether it was proper for PCIB to dishonor the check issued by Gonzales against the credit line under the COHLA. We answer in the negative. As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review of errors of law.24 The factual findings of

the trial court, especially when affirmed by the appellate court, are generally binding on us unless there was a misapprehension of facts or when the inference drawn from the facts was manifestly mistaken.25 The instant case falls within the exception. The courts a quo found and held that there was a proper dishonor of the PhP 250,000 check issued by Gonzales against the credit line, because the credit line was already closed prior to the presentment of the check by Unson; and the closing of the credit line was likewise proper pursuant to the stipulations in the promissory notes on the banks right to set off or apply all moneys of the debtor in PCIBs hand and the stipulations in the COHLA on the PCIBs right to terminate the credit line on grounds of default by Gonzales. Gonzales argues otherwise, pointing out that he was not informed about the default of the spouses Panlilio and that the September 21, 1998 account statement of the credit line shows a balance of PhP 270,000 which was likewise borne out by the December 7, 1998 PCIBs certification that he has USD 8,715.72 in his FCD account which is more than sufficient collateral to guarantee the PhP 250,000 check, dated September 30, 1998, he issued against the credit line. A careful scrutiny of the records shows that the courts a quo committed reversible error in not finding negligence by PCIB in the dishonor of the PhP 250,000 check. First. There was no proper notice to Gonzales of the default and delinquency of the PhP 1,800,000 loan. It must be borne in mind that while solidarily liable with the spouses Panlilio on the PhP 1,800,000 loan covered by the three promissory notes, Gonzales is only an accommodation party and as such only lent his name and credit to the spouses Panlilio. While not exonerating his solidary liability, Gonzales has a right to be properly apprised of the default or delinquency of the loan precisely because he is a cosignatory of the promissory notes and of his solidary liability. We note that it is indeed understandable for Gonzales to push the spouses Panlilio to pay the outstanding dues of the PhP 1,800,000 loan, since he was only an accommodation party and was not personally interested in the loan. Thus, a meeting was set by Gonzales with the spouses Panlilio and the PCIB officers, Noceda and Ocampo, in the spouses Panlilios jewelry shop in SM

Megamall on October 5, 1998. Unfortunately, the meeting did not push through due to the heavy traffic Noceda and Ocampo encountered. Such knowledge of the default by Gonzales was, however, not enough to properly apprise Gonzales about the default and the outstanding dues. Verily, it is not enough to be merely informed to pay over a hundred thousand without being formally apprised of the exact aggregate amount and the corresponding dues pertaining to specific loans and the dates they became due. Gonzales testified that he was not duly notified about the outstanding interest dues of the loan: ATTY. DE JESUS: Now when Mr. Panlilios was encountering problems with the bank did the defendant bank [advise] you of any problem with the same account? GONZALES: They never [advised] me in writing. Q: How did you come to know that there was a problem? A: When my check bounced sir.26 On the other hand, the PCIB contends otherwise, as Corazon Nepomuceno testified: ATTY. PADILLA: Can you tell this Honorable Court what is it that you told Mr. Gonzales when you spoke to him at the celphone? NEPOMUCENO: I just told him to update the interest so that we would not have to cancel the COH Line and he could withdraw the money that was in the deposit because technically, if an account is past due we are not allowed to let the client withdraw funds because they are allowed to offset funds so, just to help him get his money, just to update the interest so that we could allow him to withdraw.

Q: Withdraw what? A: His money on the COH, whatever deposit he has with us. Q: Did you inform him that if he did not update the interest he would not be able to withdraw his money? A: Yes sir, we will be forced to hold on to any assets that he has with us so thats why we suggested just to update the interest because at the end of everything, he would be able to withdraw more funds than the interest that the money he would be needed to update the interest.27 From the foregoing testimonies, between the denial of Gonzales and the assertion by PCIB that Gonzales was properly apprised, we find for Gonzales. We find the testimonies of the former PCIB employees to be self-serving and tenuous at best, for there was no proper written notice given by the bank. The record is bereft of any document showing that, indeed, Gonzales was formally informed by PCIB about the past due periodic interests. PCIB is well aware and did not dispute the fact that Gonzales is an accommodation party. It also acted in accordance with such fact by releasing the proceeds of the loan to the spouses Panlilio and likewise only informed the spouses Panlilio of the interest dues. The spouses Panlilio, through their account28 with PCIB, were paying the periodic interest dues and were the ones periodically informed by the bank of the debiting of the amounts for the periodic interest payments. Gonzales never paid any of the periodic interest dues. PCIBs Noceda admitted as much in his cross-examination: ATTY. DE JESUS: [on Cross-Examination] And there was no instance that Mr. Gonzales ever made even interest for this loan, is it not, its always Mr. Panlilio who was paying the interest for this loan? NOCEDA: Yes sir.29 Indeed, no evidence was presented tending to show that Gonzales was periodically sent notices or notified of the various periodic

interest dues covering the three promissory notes. Neither do the records show that Gonzales was aware of amounts for the periodic interests and the payment for them. Such were serviced by the spouses Panlilio. Thus, PCIB ought to have notified Gonzales about the status of the default or delinquency of the interest dues that were not paid starting July 1998. And such notification must be formal or in written form considering that the outstanding periodic interests became due at various dates, i.e., on July 8, 17, and 28, 1998, and the various amounts have to be certain so that Gonzales is not only properly apprised but is given the opportunity to pay them being solidarily liable for the loans covered by the promissory notes. It is the bank which computes these periodic interests and such dues must be put into writing and formally served to Gonzales if he were asked to pay them, more so when the payments by the spouses Panlilio were charged through the account of the spouses Panlilio where the interest dues were simply debited. Such arrangement did not cover Gonzales bank account with PCIB, since he is only an accommodation party who has no personal interest in the PhP 1,800,000 loan. Without a clear and determinate demand through a formal written notice for the exact periodic interest dues for the loans, Gonzales cannot be expected to pay for them. In business, more so for banks, the amounts demanded from the debtor or borrower have to be definite, clear, and without ambiguity. It is not sufficient simply to be informed that one must pay over a hundred thousand aggregate outstanding interest dues without clear and certain figures. Thus, We find PCIB negligent in not properly informing Gonzales, who is an accommodation party, about the default and the exact outstanding periodic interest dues. Without being properly apprised, Gonzales was not given the opportunity to properly act on them. It was only through a letter30 sent by PCIB dated October 2, 1998 but incongruously showing the delinquencies of the PhP 1,800,000 loan at a much later date, i.e., as of October 31, 1998, when Gonzales was formally apprised by PCIB. In it, the interest due was PhP 106,1616.71 and penalties for the unpaid interest due of PhP 64,766.66, or a total aggregate due of PhP 171,383.37. But it

is not certain and the records do not show when the letter was sent and when Gonzales received it. What is clear is that such letter was belatedly sent by PCIB and received by Gonzales after the fact that the latters FCD was already frozen, his credit line under the COHLA was terminated or suspended, and his PhP 250,000 check in favor of Unson was dishonored. And way much later, or on May 4, 1999, was a demand letter from the counsel of PCIB sent to Gonzales demanding payment of the PhP 1,800,000 loan. Obviously, these formal written notices sent to Gonzales were too late in the day for Gonzales to act properly on the delinquency and he already suffered the humiliation and embarrassment from the dishonor of his check drawn against the credit line. To reiterate, a written notice on the default and deficiency of the PhP 1,800,000 loan covered by the three promissory notes was required to apprise Gonzales, an accommodation party. PCIB is obliged to formally inform and apprise Gonzales of the defaults and the outstanding obligations, more so when PCIB was invoking the solidary liability of Gonzales. This PCIB failed to do. Second. PCIB was grossly negligent in not giving prior notice to Gonzales about its course of action to suspend, terminate, or revoke the credit line, thereby violating the clear stipulation in the COHLA. The COHLA, in its effectivity clause, clearly provides: 4. EFFECTIVITY The COH shall be effective for a period of one (1) year commencing from the receipt by the CLIENT of the COH checkbook issued by the BANK, subject to automatic renewals for same periods unless terminated by the BANK upon prior notice served on CLIENT.31 (Emphasis ours.) It is undisputed that the bank unilaterally revoked, suspended, and terminated the COHLA without giving Gonzales prior notice as required by the above stipulation in the COHLA. Noceda testified on cross-examination on the Offering Ticket 32 recommending the termination of the credit line, thus: ATTY. DE JESUS: [on Cross-Examination] This Exhibit 8, you have not furnished at anytime a copy to the

plaintiff Mr. Gonzales is it not? NOCEDA: No sir but verbally it was relayed to him. Q: But you have no proof that Mr. Gonzales came to know about this Exhibit 8? A: It was relayed to him verbally. Q: But there is no written proof? A: No sir. Q: And it is only now that you claim that it was verbally relayed to him, its only now when you testified in Court? A: Before . . . Q: To whom did you relay this information? A: It was during the time that we were going to Megamall, it was relayed by Liza that he has to pay his obligations or else it will adversely affect the status of the account.33 On the other hand, the testimony of Corazon Nepomuceno shows: ATTY. DE JESUS: [on Cross-Examination] Now we go to the other credit facility which is the credit on hand extended solely of course to Mr. Eusebio Gonzales who is the plaintiff here, Mr. Panlilio is not included in this credit on hand facility. Did I gather from you as per your Exhibit 7 as of October 2, 1998 you were the one who recommended the cancellation of this credit on hand facility? NEPOMUCENO: It was recommended by the account officer and I supported it. Q: And you approved it? A: Yes sir.

Q: Did you inform Mr. Gonzales that you have already cancelled his credit on hand facility? A: As far as I know, it is the account officer who will inform him. Q: But you have no record that he was informed? A: I dont recall and we have to look at the folder to determine if they were informed. Q: If you will notice, this letter . . . what do you call this letter of yours? A: That is our letter advising them or reminding them of their unpaid interest and that if he is able to update his interest he can extend the promissory note or restructure the outstanding. Q: Now, I call your attention madam witness, there is nothing in this letter to the clients advising them or Mr. Gonzales that his credit on hand facility was already cancelled? A: I dont know if there are other letters aside from this. Q: So in this letter there is nothing to inform or to make Mr. Eusebio aware that his credit on hand facility was already cancelled? A: No actually he can understand it from the last sentence. "If you will be able to update your outstanding interest, we can apply the extention of your promissory note" so in other words we are saying that if you dont, you cannot extend the promissory note. Q: You will notice that the subject matter of this October 2, 1998 letter is only the loan of 1.8 million is it not, as you can see from the letter? Okay? A: Ah . . . Q: Okay. There is nothing there that will show that that also refers to the credit on hand facility which was being utilized by Mr. Gonzales is it not? A: But I dont know if there are other letters that are not presented to me now.34

The foregoing testimonies of PCIB officers clearly show that not only did PCIB fail to give prior notice to Gonzales about the Offering Ticket for the process of termination, suspension, or revocation of the credit line under the COHLA, but PCIB likewise failed to inform Gonzales of the fact that his credit line has been terminated. Thus, we find PCIB grossly negligent in the termination, revocation, or suspension of the credit line under the COHLA. While PCIB invokes its right on the so-called "cross default provisions," it may not with impunity ignore the rights of Gonzales under the COHLA. Indeed, the business of banking is impressed with public interest and great reliance is made on the banks sworn profession of diligence and meticulousness in giving irreproachable service. Like a common carrier whose business is imbued with public interest, a bank should exercise extraordinary diligence to negate its liability to the depositors.35 In this instance, PCIB is sorely remiss in the diligence required in treating with its client, Gonzales. It may not wantonly exercise its rights without respecting and honoring the rights of its clients. Art. 19 of the New Civil Code clearly provides that "[e]very person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." This is the basis of the principle of abuse of right which, in turn, is based upon the maxim suum jus summa injuria (the abuse of right is the greatest possible wrong).36 In order for Art. 19 to be actionable, the following elements must be present: "(1) the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another."37 We find that such elements are present in the instant case. The effectivity clause of the COHLA is crystal clear that termination of the COH should be done only upon prior notice served on the CLIENT. This is the legal duty of PCIBto inform Gonzales of the termination. However, as shown by the above testimonies, PCIB failed to give prior notice to Gonzales. Malice or bad faith is at the core of Art. 19. Malice or bad faith "implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity."38 In the instant case, PCIB was able to send a letter advising Gonzales of the unpaid interest on the loans39 but failed to mention anything about the termination

of the COHLA. More significantly, no letter was ever sent to him about the termination of the COHLA. The failure to give prior notice on the part of PCIB is already prima facie evidence of bad faith. 40 Therefore, it is abundantly clear that this case falls squarely within the purview of the principle of abuse of rights as embodied in Art. 19. Third. There is no dispute on the right of PCIB to suspend, terminate, or revoke the COHLA under the "cross default provisions" of both the promissory notes and the COHLA. However, these cross default provisions do not confer absolute unilateral right to PCIB, as they are qualified by the other stipulations in the contracts or specific circumstances, like in the instant case of an accommodation party. The promissory notes uniformly provide: The lender is hereby authorized, at its option and without notice, to set off or apply to the payment of this Note any and all moneys which may be in its hands on deposit or otherwise belonging to the Borrower. The Borrower irrevocably appoint/s the Lender, effective upon the nonpayment of this Note on demand/at maturity or upon the happening of any of the events of default, but without any obligation on the Lenders part should it choose not to perform this mandate, as the attorney-in-fact of the Borrower, to sell and dispose of any property of the Borrower, which may be in the Lenders possession by public or private sale, and to apply the proceeds thereof to the payment of this Note; the Borrower, however, shall remain liable for any deficiency. 41 (Emphasis ours.) The above provisos are indeed qualified with the specific circumstance of an accommodation party who, as such, has not been servicing the payment of the dues of the loans, and must first be properly apprised in writing of the outstanding dues in order to answer for his solidary obligation. The same is true for the COHLA, which in its default clause provides: 16. DEFAULT The CLIENT shall be considered in default under the COH if any of the following events shall occur: 1. x x x

2. Violation of the terms and conditions of this Agreement or any contract of the CLIENT with the BANK or any bank, persons, corporations or entities for the payment of borrowed money, or any other event of default in such contracts.42 The above pertinent default clause must be read in conjunction with the effectivity clause (No. 4 of the COHLA, quoted above), which expressly provides for the right of client to prior notice. The rationale is simple: in cases where the bank has the right to terminate, revoke, or suspend the credit line, the client must be notified of such intent in order for the latter to act accordingly whether to correct any ground giving rise to the right of the bank to terminate the credit line and to dishonor any check issued or to act in accord with such termination, i.e., not to issue any check drawn from the credit line or to replace any checks that had been issued. This, the bankwith gross negligencefailed to accord Gonzales, a valued client for more than 15 years. Fourth. We find the testimony 43 of Ocampo incredible on the point that the principal borrower of the PhP 1,800,000 loan covered by the three promissory notes is Gonzales for which the bank officers had special instructions to grant and that it was through the instructions of Gonzales that the payment of the periodic interest dues were debited from the account of the spouses Panlilio. For one, while the first promissory note dated October 30, 1995 indeed shows Gonzales as the principal borrower, the other promissory notes dated December 26, 1995 and January 3, 1996 evidently show that it was Jose Panlilio who was the principal borrower with Gonzales as co-borrower. For another, Ocampo cannot feign ignorance on the arrangement of the payments by the spouses Panlilio through the debiting of their bank account. It is incredulous that the payment arrangement is merely at the behest of Gonzales and at a mere verbal directive to do so. The fact that the spouses Panlilio not only received the proceeds of the loan but were servicing the periodic interest dues reinforces the fact that Gonzales was only an accommodation party. Thus, due to PCIBs negligence in not giving Gonzalesan accommodation partyproper notice relative to the delinquencies in the PhP 1,800,000 loan covered by the three promissory notes, the unjust termination, revocation, or suspension of the credit line under the COHLA from PCIBs gross negligence in not honoring its

obligation to give prior notice to Gonzales about such termination and in not informing Gonzales of the fact of such termination, treating Gonzales account as closed and dishonoring his PhP 250,000 check, was certainly a reckless act by PCIB. This resulted in the actual injury of PhP 250,000 to Gonzales whose FCD account was frozen and had to look elsewhere for money to pay Unson. With banks, the degree of diligence required is more than that of a good father of the family considering that the business of banking is imbued with public interest due to the nature of their function. The law imposes on banks a high degree of obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of banking. 44 Had Gonzales been properly notified of the delinquencies of the PhP 1,800,000 loan and the process of terminating his credit line under the COHLA, he could have acted accordingly and the dishonor of the check would have been avoided. Third Issue: Award of Damages The banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized societybanks have attained a ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all, confidence, and it is for this reason, banks should guard against injury attributable to negligence or bad faith on its part.45 In the instant case, Gonzales suffered from the negligence and bad faith of PCIB. From the testimonies of Gonzales witnesses, particularly those of Dominador Santos 46 and Freddy Gomez, 47 the embarrassment and humiliation Gonzales has to endure not only before his former close friend Unson but more from the members and families of his friends and associates in the PCA, which he continues to experience considering the confrontation he had with Unson and the consequent loss of standing and credibility among them from the fact of the apparent bouncing check he issued. Credit is very important to businessmen and its loss or impairment needs to be recognized and compensated.48 The termination of the COHLA by PCIB without prior notice and the subsequent dishonor of the check issued by Gonzales constitute acts of contra bonus mores. Art. 21 of the Civil Code

refers to such acts when it says, "Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for damage." Accordingly, this Court finds that such acts warrant the payment of indemnity in the form of nominal damages. Nominal damages "are recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind x x x."49 We further explained the nature of nominal damages in Almeda v. Cario:
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x x x Its award is thus not for the purpose of indemnification for a loss but for the recognition and vindication of a right. Indeed, nominal damages are damages in name only and not in fact. When granted by the courts, they are not treated as an equivalent of a wrong inflicted but simply a recognition of the existence of a technical injury. A violation of the plaintiffs right, even if only technical, is sufficient to support an award of nominal damages. Conversely, so long as there is a showing of a violation of the right of the plaintiff, an award of nominal damages is proper. 50 (Emphasis Ours.) In the present case, Gonzales had the right to be informed of the accrued interest and most especially, for the suspension of his COHLA. For failure to do so, the bank is liable to pay nominal damages. The amount of such damages is addressed to the sound discretion of the court, taking into account the relevant circumstances. 51 In this case, the Court finds that the grant of PhP 50,000 as nominal damages is proper. Moreover, as We held in MERALCO v. CA,52 failure to give prior notice when required, such as in the instant case, constitutes a breach of contract and is a clear violation of Art. 21 of the Code. In cases such as this, Art. 2219 of the Code provides that moral damages may be recovered in acts referred to in its Art. 21. Further, Art. 2220 of the Code provides that "[w]illful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith." Similarly, "every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same."53 Evidently,

Gonzales is entitled to recover moral damages. Even in the absence of malice or bad faith, a depositor still has the right to recover reasonable moral damages, if the depositor suffered mental anguish, serious anxiety, embarrassment, and humiliation. 54 Although incapable of pecuniary estimation, moral damages are certainly recoverable if they are the proximate result of the defendants wrongful act or omission. The factual antecedents bolstered by undisputed testimonies likewise show the mental anguish and anxiety Gonzales had to endure with the threat of Unson to file a suit. Gonzales had to pay Unson PhP 250,000, while his FCD account in PCIB was frozen, prompting Gonzales to demand from PCIB and to file the instant suit. The award of moral damages is aimed at a restoration within the limits of the possible, of the spiritual status quo anteit must always reasonably approximate the extent of injury and be proportional to the wrong committed. 55 Thus, an award of PhP 50,000 is reasonable moral damages for the unjust dishonor of the PhP 250,000 which was the proximate cause of the consequent humiliation, embarrassment, anxiety, and mental anguish suffered by Gonzales from his loss of credibility among his friends, colleagues and peers. Furthermore, the initial carelessness of the banks omission in not properly informing Gonzales of the outstanding interest dues aggravated by its gross neglect in omitting to give prior notice as stipulated under the COHLA and in not giving actual notice of the termination of the credit linejustifies the grant of exemplary damages of PhP 10,000. Such an award is imposed by way of example or correction for the public good. Finally, an award for attorneys fees is likewise called for from PCIBs negligence which compelled Gonzales to litigate to protect his interest. In accordance with Art. 2208(1) of the Code, attorneys fees may be recovered when exemplary damages are awarded. We find that the amount of PhP 50,000 as attorneys fees is reasonable. WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA Decision dated October 22, 2007 in CA-G.R. CV No. 74466 is hereby REVERSED and SET ASIDE. The Philippine Commercial and International Bank (now Banco De Oro) is ORDERED to pay Eusebio Gonzales PhP 50,000 as nominal

damages, PhP 50,000 as moral damages, PhP 10,000 as exemplary damages, and PhP 50,000 as attorneys fees. No pronouncement as to costs. SO ORDERED. G.R. No. 150228 July 30, 2009

BANK OF AMERICA NT & SA, Petitioner, vs.PHILIPPINE RACING CLUB, Respondent. DECISION LEONARDO-DE CASTRO, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision1 promulgated on July 16, 2001 by the former Second Division of the Court of Appeals (CA), in CA-G.R. CV No. 45371 entitled "Philippine Racing Club, Inc. v. Bank of America NT & SA," affirming the Decision2 dated March 17, 1994 of the Regional Trial Court (RTC) of Makati, Branch 135 in Civil Case No. 89-5650, in favor of the respondent. Likewise, the present petition assails the Resolution3 promulgated on September 28, 2001, denying the Motion for Reconsideration of the CA Decision. The facts of this case as narrated in the assailed CA Decision are as follows: Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts with different banks in the Metro Manila area. Among the accounts maintained was Current Account No. 58891012 with defendant-appellant BA (Paseo de Roxas Branch). The authorized joint signatories with respect to said Current Account were plaintiff-appellees President (Antonia Reyes) and Vice President for Finance (Gregorio Reyes). On or about the 2nd week of December 1988, the President and Vice President of plaintiff-appellee corporation were scheduled to go out of the country in connection with the corporations business. In order not to disrupt operations in their absence, they pre-signed several checks relating to Current Account No. 58891-012. The intention was to insure continuity of plaintiff-appellees operations

by making available cash/money especially to settle obligations that might become due. These checks were entrusted to the accountant with instruction to make use of the same as the need arose. The internal arrangement was, in the event there was need to make use of the checks, the accountant would prepare the corresponding voucher and thereafter complete the entries on the pre-signed checks. It turned out that on December 16, 1988, a John Doe presented to defendant-appellant bank for encashment a couple of plaintiffappellee corporations checks (Nos. 401116 and 401117) with the indicated value of P110,000.00 each. It is admitted that these 2 checks were among those presigned by plaintiff-appellee corporations authorized signatories. The two (2) checks had similar entries with similar infirmities and irregularities. On the space where the name of the payee should be indicated (Pay To The Order Of) the following 2-line entries were instead typewritten: on the upper line was the word "CASH" while the lower line had the following typewritten words, viz: "ONE HUNDRED TEN THOUSAND PESOS ONLY." Despite the highly irregular entries on the face of the checks, defendant-appellant bank, without as much as verifying and/or confirming the legitimacy of the checks considering the substantial amount involved and the obvious infirmity/defect of the checks on their faces, encashed said checks. A verification process, even by was of a telephone call to PRCI office, would have taken less than ten (10) minutes. But this was not done by BA. Investigation conducted by plaintiff-appellee corporation yielded the fact that there was no transaction involving PRCI that call for the payment of P220,000.00 to anyone. The checks appeared to have come into the hands of an employee of PRCI (one Clarita Mesina who was subsequently criminally charged for qualified theft) who eventually completed without authority the entries on the presigned checks. PRCIs demand for defendant-appellant to pay fell on deaf ears. Hence, the complaint.4 After due proceedings, the trial court rendered a Decision in favor of respondent, the dispositive portion of which reads: PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against the defendant, and the latter is ordered to pay plaintiff:

(1) The sum of Two Hundred Twenty Thousand (P220,000.00) Pesos, with legal interest to be computed from date of the filing of the herein complaint; (2) The sum of Twenty Thousand (P20,000.00) Pesos by way of attorneys fees; (3) The sum of Ten Thousand (P10,000.00) Pesos for litigation expenses, and (4) To pay the costs of suit. SO ORDERED. 5 Petitioner appealed the aforesaid trial court Decision to the CA which, however, affirmed said decision in toto in its July 16, 2001 Decision. Petitioners Motion for Reconsideration of the CA Decision was subsequently denied on September 28, 2001. Petitioner now comes before this Court arguing that: I. The Court of Appeals gravely erred in holding that the proximate cause of respondents loss was petitioners encashment of the checks. A. The Court of Appeals gravely erred in holding that petitioner was liable for the amount of the checks despite the fact that petitioner was merely fulfilling its obligation under law and contract. B. The Court of Appeals gravely erred in holding that petitioner had a duty to verify the encashment, despite the absence of any obligation to do so. C. The Court of Appeals gravely erred in not applying Section 14 of the Negotiable Instruments Law, despite its clear applicability to this case; II. The Court of Appeals gravely erred in not holding that the proximate cause of respondents loss was its own grossly negligent practice of pre-signing checks without payees and amounts and delivering these pre-signed checks to its employees (other than their signatories). III. The Court of Appeals gravely erred in affirming the trial courts

award of attorneys fees despite the absence of any applicable ground under Article 2208 of the Civil Code. IV. The Court of Appeals gravely erred in not awarding attorneys fees, moral and exemplary damages, and costs of suit in favor of petitioner, who clearly deserves them.6 From the discussions of both parties in their pleadings, the key issue to be resolved in the present case is whether the proximate cause of the wrongful encashment of the checks in question was due to (a) petitioners failure to make a verification regarding the said checks with the respondent in view of the misplacement of entries on the face of the checks or (b) the practice of the respondent of pre-signing blank checks and leaving the same with its employees. Petitioner insists that it merely fulfilled its obligation under law and contract when it encashed the aforesaid checks. Invoking Sections 1267 and 1858 of the Negotiable Instruments Law (NIL), petitioner claims that its duty as a drawee bank to a drawer-client maintaining a checking account with it is to pay orders for checks bearing the drawer-clients genuine signatures. The genuine signatures of the clients duly authorized signatories affixed on the checks signify the order for payment. Thus, pursuant to the said obligation, the drawee bank has the duty to determine whether the signatures appearing on the check are the drawer-clients or its duly authorized signatories. If the signatures are genuine, the bank has the unavoidable legal and contractual duty to pay. If the signatures are forged and falsified, the drawee bank has the corollary, but equally unavoidable legal and contractual, duty not to pay.9 Furthermore, petitioner maintains that there exists a duty on the drawee bank to inquire from the drawer before encashing a check only when the check bears a material alteration. A material alteration is defined in Section 125 of the NIL to be one which changes the date, the sum payable, the time or place of payment, the number or relations of the parties, the currency in which payment is to be made or one which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect. With respect to the checks at issue, petitioner points out that they do not contain any material alteration.10 This is a fact which was

affirmed by the trial court itself.11 There is no dispute that the signatures appearing on the subject checks were genuine signatures of the respondents authorized joint signatories; namely, Antonia Reyes and Gregorio Reyes who were respondents President and Vice-President for Finance, respectively. Both pre-signed the said checks since they were both scheduled to go abroad and it was apparently their practice to leave with the company accountant checks signed in black to answer for company obligations that might fall due during the signatories absence. It is likewise admitted that neither of the subject checks contains any material alteration or erasure. However, on the blank space of each check reserved for the payee, the following typewritten words appear: "ONE HUNDRED TEN THOUSAND PESOS ONLY." Above the same is the typewritten word, "CASH." On the blank reserved for the amount, the same amount of One Hundred Ten Thousand Pesos was indicated with the use of a check writer. The presence of these irregularities in each check should have alerted the petitioner to be cautious before proceeding to encash them which it did not do. It is well-settled that banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact business with them. They have the obligation to treat their clients account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family.12 Petitioner asserts that it was not duty-bound to verify with the respondent since the amount below the typewritten word "CASH," expressed in words, is the very same amount indicated in figures by means of a check writer on the amount portion of the check. The amount stated in words is, therefore, a mere reiteration of the amount stated in figures. Petitioner emphasizes that a reiteration of the amount in words is merely a repetition and that a repetition is not an alteration which if present and material would have enjoined it to commence verification with respondent.13 We do not agree with petitioners myopic view and carefully crafted defense. Although not in the strict sense "material alterations," the misplacement of the typewritten entries for the payee and the amount on the same blank and the repetition of the amount using

a check writer were glaringly obvious irregularities on the face of the check. Clearly, someone made a mistake in filling up the checks and the repetition of the entries was possibly an attempt to rectify the mistake. Also, if the check had been filled up by the person who customarily accomplishes the checks of respondent, it should have occurred to petitioners employees that it would be unlikely such mistakes would be made. All these circumstances should have alerted the bank to the possibility that the holder or the person who is attempting to encash the checks did not have proper title to the checks or did not have authority to fill up and encash the same. As noted by the CA, petitioner could have made a simple phone call to its client to clarify the irregularities and the loss to respondent due to the encashment of the stolen checks would have been prevented. In the case at bar, extraordinary diligence demands that petitioner should have ascertained from respondent the authenticity of the subject checks or the accuracy of the entries therein not only because of the presence of highly irregular entries on the face of the checks but also of the decidedly unusual circumstances surrounding their encashment. Respondents witness testified that for checks in amounts greater than Twenty Thousand Pesos (P20,000.00) it is the companys practice to ensure that the payee is indicated by name in the check. 14 This was not rebutted by petitioner. Indeed, it is highly uncommon for a corporation to make out checks payable to "CASH" for substantial amounts such as in this case. If each irregular circumstance in this case were taken singly or isolated, the banks employees might have been justified in ignoring them. However, the confluence of the irregularities on the face of the checks and circumstances that depart from the usual banking practice of respondent should have put petitioners employees on guard that the checks were possibly not issued by the respondent in due course of its business. Petitioners subtle sophistry cannot exculpate it from behavior that fell extremely short of the highest degree of care and diligence required of it as a banking institution. Indeed, taking this with the testimony of petitioners operations manager that in case of an irregularity on the face of the check (such as when blanks were not properly filled out) the bank may or may not call the client depending on how busy the bank is on a particular day,15 we are even more convinced that petitioners safeguards to protect clients from check fraud are arbitrary and

subjective. Every client should be treated equally by a banking institution regardless of the amount of his deposits and each client has the right to expect that every centavo he entrusts to a bank would be handled with the same degree of care as the accounts of other clients. Perforce, we find that petitioner plainly failed to adhere to the high standard of diligence expected of it as a banking institution. In defense of its cashier/tellers questionable action, petitioner insists that pursuant to Sections 1416 and 1617 of the NIL, it could validly presume, upon presentation of the checks, that the party who filled up the blanks had authority and that a valid and intentional delivery to the party presenting the checks had taken place. Thus, in petitioners view, the sole blame for this debacle should be shifted to respondent for having its signatories pre-sign and deliver the subject checks.18 Petitioner argues that there was indeed delivery in this case because, following American jurisprudence, the gross negligence of respondents accountant in safekeeping the subject checks which resulted in their theft should be treated as a voluntary delivery by the maker who is estopped from claiming non-delivery of the instrument.19 Petitioners contention would have been correct if the subject checks were correctly and properly filled out by the thief and presented to the bank in good order. In that instance, there would be nothing to give notice to the bank of any infirmity in the title of the holder of the checks and it could validly presume that there was proper delivery to the holder. The bank could not be faulted if it encashed the checks under those circumstances. However, the undisputed facts plainly show that there were circumstances that should have alerted the bank to the likelihood that the checks were not properly delivered to the person who encashed the same. In all, we see no reason to depart from the finding in the assailed CA Decision that the subject checks are properly characterized as incomplete and undelivered instruments thus making Section 1520 of the NIL applicable in this case. However, we do agree with petitioner that respondents officers practice of pre-signing of blank checks should be deemed seriously negligent behavior and a highly risky means of purportedly ensuring the efficient operation of businesses. It should have occurred to respondents officers and managers that the pre-signed blank checks could fall into the wrong hands as

they did in this case where the said checks were stolen from the company accountant to whom the checks were entrusted. Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the loss, petitioner will still emerge as the party foremost liable in this case. In instances where both parties are at fault, this Court has consistently applied the doctrine of last clear chance in order to assign liability. In Westmont Bank v. Ong,21 we ruled: [I]t is petitioner [bank] which had the last clear chance to stop the fraudulent encashment of the subject checks had it exercised due diligence and followed the proper and regular banking procedures in clearing checks. As we had earlier ruled, the one who had a last clear opportunity to avoid the impending harm but failed to do so is chargeable with the consequences thereof. 22 (emphasis ours) In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence on the part of respondent because, even if we concur that the latter was indeed negligent in presigning blank checks, the former had the last clear chance to avoid the loss. To reiterate, petitioners own operations manager admitted that they could have called up the client for verification or confirmation before honoring the dubious checks. Verily, petitioner had the final opportunity to avert the injury that befell the respondent. Failing to make the necessary verification due to the volume of banking transactions on that particular day is a flimsy and unacceptable excuse, considering that the "banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be a high degree of diligence, if not the utmost diligence."23 Petitioners negligence has been undoubtedly established and, thus, pursuant to Art. 1170 of the NCC,24 it must suffer the consequence of said negligence. In the interest of fairness, however, we believe it is proper to consider respondents own negligence to mitigate petitioners liability. Article 2179 of the Civil Code provides: Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and

proximate cause of the injury being the defendants lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.
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Explaining this provision in Lambert v. Heirs of Ray Castillon, 25 the Court held: The underlying precept on contributory negligence is that a plaintiff who is partly responsible for his own injury should not be entitled to recover damages in full but must bear the consequences of his own negligence. The defendant must thus be held liable only for the damages actually caused by his negligence. xxx xxx xxx As we previously stated, respondents practice of signing checks in blank whenever its authorized bank signatories would travel abroad was a dangerous policy, especially considering the lack of evidence on record that respondent had appropriate safeguards or internal controls to prevent the pre-signed blank checks from falling into the hands of unscrupulous individuals and being used to commit a fraud against the company. We cannot believe that there was no other secure and reasonable way to guarantee the non-disruption of respondents business. As testified to by petitioners expert witness, other corporations would ordinarily have another set of authorized bank signatories who would be able to sign checks in the absence of the preferred signatories. 26 Indeed, if not for the fortunate happenstance that the thief failed to properly fill up the subject checks, respondent would expectedly take the blame for the entire loss since the defense of forgery of a drawers signature(s) would be unavailable to it. Considering that respondent knowingly took the risk that the pre-signed blank checks might fall into the hands of wrongdoers, it is but just that respondent shares in the responsibility for the loss. We also cannot ignore the fact that the person who stole the presigned checks subject of this case from respondents accountant turned out to be another employee, purportedly a clerk in respondents accounting department. As the employer of the "thief," respondent supposedly had control and supervision over its own employee. This gives the Court more reason to allocate part of the loss to respondent. Following established jurisprudential precedents,27 we believe the allocation of sixty percent (60%) of the actual damages involved in this case (represented by the amount of the checks with legal

interest) to petitioner is proper under the premises. Respondent should, in light of its contributory negligence, bear forty percent (40%) of its own loss. Finally, we find that the awards of attorneys fees and litigation expenses in favor of respondent are not justified under the circumstances and, thus, must be deleted. The power of the court to award attorneys fees and litigation expenses under Article 2208 of the NCC28 demands factual, legal, and equitable justification. An adverse decision does not ipso facto justify an award of attorneys fees to the winning party.29 Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorneys fees may not be awarded where no sufficient showing of bad faith could be reflected in a partys persistence in a case other than an erroneous conviction of the righteousness of his cause.30 WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its Resolution dated September 28, 2001 are AFFIRMED with the following MODIFICATIONS: (a) petitioner Bank of America NT & SA shall pay to respondent Philippine Racing Club sixty percent (60%) of the sum of Two Hundred Twenty Thousand Pesos (P220,000.00) with legal interest as awarded by the trial court and (b) the awards of attorneys fees and litigation expenses in favor of respondent are deleted. Proportionate costs. SO ORDERED. G.R. No. 164159 July 17, 2007

HONORIO C. BULOS, JR., Petitioner, vs.KOJI YASUMA, Respondent. DECISION CHICO-NAZARIO, J.: This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Revised Rules of Civil Procedure seeking to set aside and to declare null and void (1) the Decision, 2 dated 5 January 2004, of the Court of Appeals in CA-G.R. CV No. 54969, which affirmed the

Decision,3 dated 30 August 1996, of the Makati City Regional Trial Court (RTC), Branch 148, in Civil Case No. 90-1053; and (2) the Resolution4 of the Court of Appeals, dated 11 June 2004, which denied the petitioners Motion for Reconsideration. Herein petitioner Honorio C. Bulos (petitioner) was one of the defendants in a Complaint for collection of sum of money plus damages with prayer for a writ of preliminary attachment, docketed as Civil Case No. 90-1053, entitled, "Koji Yasuma v. Ramon R. Lim, Honorio C. Bulos and Bede S. Tabalingcos," filed with the RTC by herein respondent Koji Yasuma, a Japanese national. The controversy in the present case arose from the following antecedents: Petitioner, together with Dr. Ramon R. Lim (Dr. Lim) and Atty. Bede S. Tabalingcos (Atty. Tabalingcos), obtained a loan from Koji Yasuma (respondent) in the amount of P2,500,000.00, as evidenced by a promissory note,5 dated 11 October 1988, signed solely by Dr. Lim per agreement among the petitioner, Dr. Lim and Atty. Tabalingcos.6 The said promissory note provides for the following conditions: (1) payment of interest at the rate of 4% for a period of three months or until 10 January 1989; (2) in case of a "roll over" for failure of the borrowers to pay on the agreed period, the extension will be considered running monthly under the same terms and rate of interest until the principal amount has been fully paid; and (3) should the said promissory note be brought to court for collection, the borrowers agree to pay an additional amount equivalent to 10% of the principal amount plus attorneys fee, which in no case shall be less than P10,000.00. As a security for the said loan, both petitioner and Dr. Lim executed Real Estate Mortgages7 over their respective properties. On 16 December 1988, petitioner and Dr. Lim executed a Deed of Assumption,8 to the effect that petitioner assumed the loan obligation of Dr. Lim due respondent with the condition that Dr. Lim shall first secure the respondents consent to and approval of the said Deed of Assumption. However, the conformity of respondent to the said Deed of Assumption was not obtained by Dr. Lim. When the loan obligation became due and demandable on 10 January 1989, respondent demanded payment from the petitioner, Dr. Lim and Atty. Tabalingcos, but they failed and refused to pay the same. Respondent then made a demand in writing and through

telephone calls to Atty. Tabalingcos. Atty. Tabalingcos just told respondent that he would talk first to the petitioner and Dr. Lim and he will then inform the respondent of their response, but Atty. Tabalingcos never called back. After painstaking efforts to collect the loan from the petitioner, Dr. Lim and Atty. Tabalingcos, respondent requested Atty. Tabalingcos, who happened to be his legal adviser at that time, to foreclose the Real Estate Mortgages executed by the petitioner and Dr. Lim over their respective properties. Atty. Tabalingcos failed to do so. Instead, he made a proposal to respondent that the petitioner had certain properties in Paraaque City which he was willing to sell to the respondent to cover the obligation of the petitioner, Dr. Lim and Atty. Tabalingcos. Out of respondents desperation to collect the loan that he had extended to the petitioner, Dr. Lim and Atty. Tabalingcos, respondent agreed to the aforesaid proposal. Thus, on 24 February 1989, a Deed of Sale, 9 over certain parcels of land located in Paraaque City and covered by Transfer Certificates of Title (TCTs) No. 467734 and 332355 in the name of petitioner, was executed in favor of the respondent for a total consideration of P1,630,750.00, paid via a dacion en pago arrangement. After the execution of the Deed of Sale, all the parties agreed that there was still a balance of P2,240,000.00 owed to the respondent. In a Certification10 dated 27 February 1989, which the petitioner and Dr. Lim considered as another Deed of Assumption, petitioner assumed the P1,500,000.00 obligation of Dr. Lim. The consideration for the said assumption of obligation is the transfer 11 of the shares of stocks of the Rural Bank of Paraaque to the respondent to offset the obligation. Petitioner thus offered the said shares of stocks to the respondent. Atty. Tabalingcos, for his part and in his capacity as Chairman of the Board of the said bank, issued a certification12 to the effect that the respondent holds P1,250,000.00 worth of shares of stocks, equivalent to 20% shareholdings in the Rural Bank of Paraaque. However, during that time, the Rural Bank of Paraaque must first increase its authorized capital stock subject to the approval of the Securities and Exchange Commission (SEC) because the original shares had already been fully subscribed and fully paid. Because of this and of the information provided by his then counsel, the late Atty. Bayani M. Timario, Jr. (Atty. Timario, Jr.), that a foreigner cannot be a stockholder of a rural bank, the respondent absolutely refused to

accept the shares of stocks and demanded instead an outright payment of the loan obligation. As the shares of stocks were already assigned to the respondent via a certification issued by Atty. Tabalingcos, the latter then issued a check 13 in the amount of P2,240,000.00 to the order of the respondent, dated 25 December 1989, to buy the said shares in behalf of an interested buyer. When the respondent presented the check to the bank, it was dishonored for having been drawn against insufficient funds. Subsequently, the respondent sent a demand letter14 to each of the borrowers -- the petitioner, Dr. Lim and Atty. Tabalingcos -- for the full payment of their outstanding obligation; but, to no avail. This prompted the respondent to file with the RTC a Complaint for Sum of Money with Damages and with Prayer for a Writ of Preliminary Attachment against the petitioner, Dr. Lim and Atty. Tabalingcos. On 23 April 1990, the trial court issued an Order 15 granting the writ of preliminary attachment applied for by the respondent upon his filing of a bond fixed at P2,240,000.00. By virtue of the said writ, several lots of the petitioner, and the house and lot of Dr. Lim located in Quezon City, were attached. Petitioner filed a Motion to Dissolve Writ of Attachment which was granted by the trial court in its Order dated 7 October 199216 conditioned upon petitioners posting of a counter-bond in the amount of P2,240,000.00. Petitioner moved for the reduction of his counter-bond to P770,000.00 considering that the respondent made an admission that the petitioner partially paid the loan obligation in the amount of P1,630,750.00. The said motion was granted by the court a quo in its Order dated 1 August 1995.17 On 30 August 1996, the trial court rendered a Decision in favor of the respondent and against the petitioner, Dr. Lim and Atty. Tabalingcos, the decretal portion of which reads as follows: WHEREFORE, premises considered, and finding that [herein respondent] has fully established not only by preponderance of evidence by competent proof of his entitlement to his claims in the [C]omplaint, judgment is hereby rendered in favor of [respondent] and against [herein petitioner, together with Dr. Lim and Atty. Tabalingcos]. Ordering [the petitioner, Dr. Lim and Atty. Tabalingcos] to jointly and severally pay the [respondent] the following: (1) The amount of P2,240,000.00 plus interest of 21% per annum

as of April, 1990, the time of the filing of the [C]omplaint; (2) The sum equivalent to 20% of P2,240,000.00 plus P500.00 per appearance in the case, for and as attorneys fees. (3) Costs of the suit. The cross-claim filed by [Atty. Tabalingcos] against the [petitioner] is hereby DISMISSED for reasons stated above. Costs against [petitioner, Dr. Lim and Atty. Tabalingcos].18 Aggrieved by the aforesaid Decision of the trial court, the petitioner, Dr. Lim and Atty. Tabalingcos appealed to the Court of Appeals. However, Atty. Tabalingcos did not file his appellants brief. On 5 January 2004, the Court of Appeals rendered a Decision affirming in toto the Decision of the trial court. The petitioner moved for its reconsideration, but it was denied in a Resolution dated 11 June 2004 issued by the appellate court. Hence, this petition by petitioner. However, Dr. Lim and Atty. Tabalingcos did not appeal before this Court. Petitioner submits the following issues for this Courts resolution: I. Whether or not the obligation of petitioner to pay respondent has already (sic) fully extinguished. II. Whether or not the offer to purchase shares of stock of Rural Bank of Paraaque amounting to P1,250,000.00 extinguished petitioner Bulos obligation to pay the balance of the loan with (sic) respondent. III. Whether or not petitioner Bulos is entitled to claim for damages. IV. Whether or not [the] imposition of 21% interest on P2,240,000.00 and 20% of the said amount as attorneys fees has no legal and factual basis (sic). Petitioner argues that despite the partial payment made by him in the amount P1,630,750.00, and in spite of the respondents unequivocal admission of the same, still, the respondent did not deduct the said amount from the total amount of the obligation due him. Instead, the respondent continuously claimed the amount of

P2,240,000.00 as of 25 December 1989, plus interest at the rate of 4% per month from 25 December 1989 when he filed his Complaint on 7 April 1990. The petitioner likewise avers that his obligation to pay the balance of the loan to the respondent had already been extinguished when he offered to the respondent the shares of stocks of the Rural Bank of Paraaque amounting to P1,250,000.00. Respondents assertion that he did not accept the offer of the shares of stocks because of his nationality deserves scant consideration as in fact, he had religiously followed up with petitioner and Atty. Tabalingcos the issuance of the certificate for the said shares of stocks. Petitioner further alleges that he is entitled to claim damages for he had been subjected to ridicule, mental anguish, besmirched reputation, and extreme anxiety as a result of the respondents unfounded and malicious suit. Petitioner lost business opportunities as a consequence of the attachment made on his real properties in Tarlac; thus, respondent should be made liable for the payment of damages for all that he had suffered. As to the imposition of 21% interest on the P2,240,000.00 outstanding loan obligation and 20% of the said amount as attorneys fees, petitioner asserts that the same has no legal and factual bases. The imposition of the said interest is highly excessive and exorbitant in light of the dacion en pago arrangement and the assignment of shares of stocks of the Rural Bank of Paraaque. It is well-settled that the findings of fact of the trial court, especially when affirmed by the Court of Appeals, are accorded the highest degree of respect, and generally will not be disturbed on appeal. Such findings are binding and conclusive to the Court. Furthermore, it is not the Courts function under Rule 45 of the 1997 Revised Rules of Civil Procedure to review, examine and evaluate or weigh the probative value of the evidence presented. The jurisdiction of the Court in a Petition for Review under Rule 45 is limited to reviewing only errors of law. 19 Unless the case falls under the recognized exceptions,20 the rule shall not be disturbed. The following findings of fact, properly supported by evidence, made by both the trial court and the appellate court can no longer be modified and are binding on this Court: (1) the original loan obtained by the petitioner, together with Dr. Lim and Atty. Tabalingcos, from the respondent amounted to P2,500,000.00 with

4% interest for three months, or from 11 October 1988 up to 10 January 1989, and in case of extension of the loan, the interest of 5% per month will be imposed; (2) the obligation of the petitioner, Dr. Lim and Atty. Tabalingcos was joint and solidary as evidenced by the following acts: (a) the promissory note was solely signed by Dr. Lim per agreement among the parties; (b) the act of Dr. Lim in executing a Deed of Real Estate Mortgage in favor of respondent to cover the amount of the promissory note; (c) the act of the petitioner in executing a second Deed of Real Estate Mortgage as additional security to the loan; and (d) the act of Atty. Tabalingcos in issuing a check in the amount of P2, 240,000.00 to cover the balance of the obligation; (3) petitioner failed to pay the loan by 10 January 1989; thus, from 11 October 1988 up to February 1989, the loan obligation, including interest, reached a total amount of P2,700,000.00; (4) petitioner made a partial payment via a dacion en pago, amounting to P1,630,750.00, which was deducted from the total loan obligation of P2,700,000.00 leaving a balance of P1,069,000.00 as of 24 February 1989; (5) by March 1989, the balance of the loan began earning a 5% interest per month after all the parties agreed to an increase in the interest rate during the extended period; (6) taking into consideration the outstanding loan balance of P1,069,000.00, plus interest, and minus a discount granted by respondent, the amount still due respondent was determined by the parties to be P2,240,000.00; and (7) to pay the remaining indebtedness, Atty. Tabalingcos issued a check covering the amount but it was dishonored, therefore, the indebtedness remains at P2,240,000.00. When the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such defense. The debtor has the burden of showing with legal certainty that the obligation has been discharged by payment. 21 In the present case, the petitioner failed to prove that indeed, his liability to pay the remaining balance of his obligation with the respondent had been extinguished by his offer to transfer to respondent his shares of stocks in the Rural Bank of Paraaque.

The defense of the petitioner that the offer he made to respondent of his shares of stocks in Rural Bank of Paraaque amounting to P1,250,000.00 had already extinguished his obligation to pay the balance of the loan stands on hollow ground. Section 4, Republic Act No. 7353, otherwise known as "The Rural Banks Act of 1992," provides: Section. 4. x x x. With the exception of shareholdings of corporations organized primarily to hold equities in rural banks as provided for under Section 12-C of Republic Act No. 337, as amended, and of Filipino-controlled domestic banks, the capital stock of any rural bank shall be fully owned and held directly or indirectly by citizens of the Philippines or corporations, associations or cooperatives qualified under Philippine laws to own and hold such capital stock: x x x. (Emphasis supplied.) Given the foregoing provision of law, this Court agrees with the Court of Appeals that the respondent, being a foreigner, is not qualified to own capital stock in the Rural Bank of Paraaque. This renders the assignment of shares of stocks in the Rural Bank of Paraaque in favor of respondent void. As previously stated, the assignment of the shares of stocks in the rural bank was not accepted by the respondent precisely because of the prohibition stated under Republic Act No. 7353, which was explained 22 to him by his counsel, the late Atty. Timario, Jr. Moreover, petitioner mentioned in his testimony before the trial court that all the shares of stocks of the Rural Bank of Paraaque had already been fully subscribed and, for shares to be made available, additional capital should be infused and the SEC should approved the additional shares for subscription. Here we quote that part of the petitioners testimony: Q: Now, you have stated a while ago Mr. Witness, that the balance be paid by shares of stocks and as a matter of fact the [respondent] has accepted that preposition, what happened if any, afterwards? A: In my case, I transferred 330 something shares of stocks in the name of [the respondent] and I believe [Atty.] Tabalingcos have done the same. Q: Did you find out for yourselves what happened afterwards if

any? A: However we have transferred in their name however there are technicalities in the issuance, Central Bank technicalities. Q: What are these Central Bank technicalities? A: Issuance of shares of stocks certificate, during that period we have to increase our authorized capital stock with the [SEC] because the original one were already fully subscribed and fully paid. [Emphasis supplied]. Q: Then what happened? A: The only way for us, for the bank to issue additional shares of stocks certificate is to wait for the approval of the increase of capitalization from the [SEC] so that these assigned shares to [Atty.] Tabalingcos can be lodge. Q: What did you do if any afterwards? A: We informed the [respondent] about that. x x x x. Q: What was his reply if any? A: He started complaining and said, "just return to me my money" that is how it all started.23 From the aforesaid testimony of the petitioner, it is highly impossible for respondent to have acquired by assignment any shares of stocks in the Rural Bank of Paraaque. Thus, the obligation of the petitioner to pay the balance of the loan remains subsisting. In the face of all of the above, this Court nevertheless sustains the assertion of the petitioner that the imposition of 21% interest on the outstanding loan obligation of P2,240,000.00 has no legal and factual bases. According to the promissory note executed by Dr. Lim, and agreed to by all the parties, in case of the borrowers failure to pay the loan obligation within the stipulated period, the extended period shall be considered running monthly under the same terms and

rate of interest, which is 4% per month, until the principal has been fully paid. Thus, the remaining balance of P2,240,000.00 is still subject to the interest rate of 4% per month24 or 48% per annum. To our mind such rate of interest is highly unconscionable and inordinate. In the case of Ruiz v. Court of Appeals, 25 citing the cases of Medel v. Court of Appeals,26 Garcia v. Court of Appeals, 27 Spouses Bautista v. Pilar Development Corporation28 and the recent case of Spouses Solangon v. Salazar,29 this Court considered the 3% interest per month or 36% interest per annum as excessive and unconscionable. Thereby, the Court, in the said case, equitably reduced the rate of interest to 1% interest per month or 12% interest per annum. The Court also held that while the Usury Law has been suspended by Central Bank Circular No. 905, s. 1982, effective on 1 January 1983, and parties to a loan agreement have been given wide latitude to agree on any interest rate, still stipulated interest rates are illegal if they are unconscionable. Nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. 30 Surely, it is more consonant with justice that the rate of interest in the present case, which is 4% per month or 48% per annum, be reduced equitably. We find, that the reduction of the interest rate by the trial court, pegged at 21% per annum, was not proper. In Eastern Shipping Lines, Inc. v. Court of Appeals, 31 the Court formulated the following rules of thumb to guide the lower courts in the imposition of the proper interest on the amounts due, to wit: I. x x x x. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil

Code. 2. x x x x. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.32 [Emphasis supplied]. The agreed interest rate of 4% per month or 48% per annum is unconscionable and must be mitigated. Following established jurisprudence, the legal interest rate of 12% should apply, computed from the date of judicial demand, that is, 7 April 1990. The aforequoted paragraph 3 of the guidelines is also appropriate herein, and a 12% interest per annum is imposed on petitioners monetary liability to respondent from the date of the finality of this Decision until it is fully paid.
1avv phi1

As regards the argument of the petitioner that the award of attorneys fees equivalent to 20% of P2,240,000.00 is excessive, this Court finds the same specious. The lower courts found that by reason of the acts of the petitioner and his cohorts, the respondent had to secure the services of counsel in order to preserve and protect his rights. If not for the refusal of the petitioner to settle his obligation, the respondent would not have incurred expenses in filing a case which dragged on for more than a decade in order to recover the loan which he extended to the petitioner, Dr. Lim and Atty. Tabalingcos. Hence, the award of 20% of P2,240,000.00 as attorneys fees is only reasonable. Conspicuously, there appears to be a variation as to the percentage of attorneys fees awarded in the dispositive portion and in the body of the RTC decision. In the dispositive portion of the RTC decision, the attorneys fees awarded was 20% of P2,240,000.00; while in the body of the same decision, the rate referred to 10% of P2,240,000.00.33 The general rule is that, where there is conflict between the dispositive portion or the fallo and the body of a decision, the fallo controls. This rule rests on the theory that the fallo is the final order while the opinion in the body is merely a statement ordering nothing. However, where the inevitable conclusion from the body of the decision is so clear as to show that there was a mistake in the dispositive portion, the body of the decision prevails.34 In his

complaint before the RTC, the respondent prayed for 20% of P2,240,000.00 as attorneys fees. In the body of the RTC decision, the trial court awarded outright respondents prayer for attorneys fees without any discussion that it found the 20% respondent prayed for as excessive and that it was reducing the percentage of the attorneys fees to 10%. This court is more inclined to believe that the 10% attorneys fees in the body of the RTC decision is merely a typographical error. Consequently, the general rule applies to this case, and the 20% attorneys fees ordered paid by the fallo of the RTC decision controls. WHEREFORE, premises considered, the instant Petition is PARTIALLY GRANTED. The Decision and Resolution of the Court of Appeals dated 5 January 2004 and 11 June 2004, respectively, in CA-G.R. CV No. 54969, which affirmed the Decision, dated 30 August 1996, of the Makati City RTC, Branch 148, in Civil Case No. 90-1053, are hereby AFFIRMED with the MODIFICATION that an interest rate of 12% per annum shall be applied to the balance of the loan amounting to P2,240,000.00, computed from the date of judicial demand, i.e., 7 April 1990; and of 12% interest per annum on the amount due from the date of the finality of this Decision until fully paid. Costs against the petitioner. SO ORDERED. G.R. No. 178306 December 18, 2008

FRANCISCO R. NUNGA, JR. and VICTOR D. NUNGA, petitioners, vs.FRANCISCO N. NUNGA III, respondent. DECISION CHICO-NAZARIO, J.: Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision1 dated 31 January 2007 and Resolution2 dated 4 June 2007 of the Court of Appeals in CA-G.R. CV No. 78424. The appellate court, in its assailed decision, reversed the Decision3 dated 25 October 2002 of the Regional Trial Court (RTC) of the City of San Fernando, Pampanga, Branch 42, in Commercial Case No. 018, which ordered the registration of the transfer of ownership of the disputed shares of stock in the Rural Bank of Apalit, Inc. (RBA) in favor of petitioners; and in its resolution, denied the Motion for

Reconsideration of the aforementioned decision. Presented hereunder are the factual antecedents of the case. On 30 January 1996, the RBA conducted its Annual Stockholders Meeting at its principal office in San Vicente, Apalit, Pampanga. Attending the said meeting were stockholders representing 28,150 out of the 35,956 total outstanding shares of stock of RBA. 4 Petitioner Francisco R. Nunga, Jr. (Francisco Jr.), his son petitioner Victor D. Nunga (Victor), and his nephew respondent Francisco N. Nunga III (Francisco III) were among the stockholders of RBA. However, petitioner Francisco Jr. was not present at the meeting, as he was then in the United States of America where he is a naturalized citizen. Quorum having been established at the meeting, the stockholders proceeded with the election of the RBA Board of Directors to serve for the fiscal year 1996. Francisco III was voted the Chairman of the Board; with Ma. Elena Rueda, Ma. Rosario Elena Nacario, Cecilia Viray and Dwight Nunga, the Members. In the same meeting, stockholder Jesus Gonzalez (Gonzalez) made known his intention to sell his shareholdings. Victor, thereafter, informed his father, Francisco Jr., of Gonzalezs intention to sell his shares. Francisco Jr. then instructed Victor to inquire from Gonzalez the terms of the sale. After a series of negotiations, Gonzalez ultimately agreed to sell his shares of stock to Francisco Jr. On 19 February 1996, Gonzalez executed a Contract to Sell5 in favor of Francisco Jr., which pertinently provided: CONTRACT TO SELL KNOW ALL MEN BY THESE PRESENTS: This CONTRACT TO SELL, executed this 19th day of February, 1996, at Quezon City, by: JESUS J. GONZALE[Z], of legal age, Filipino citizen, married to Cristina D. Gonzale[z], residing at No. 10 2nd Ave., Crame, Quezon City, hereinafter referred to as the VENDOR; in favor of

FRANCISCO D. (sic) NUNGA, JR., of legal age, single, residing at Poblacion, Masantol, Pampanga[,] hereinafter referred to as the "PURCHASER"; WITNESSETH: That the VENDOR is the absolute registered owner of several shares of stocks of the RURAL BANK OF APALIT, INC. located at Apalit, Pampanga, more particularly described as follows: Stock Cert. No. 5 36 105 152 166 181 213 No. of Shares Represented 250 122 264 487 8 525 336 Date of Issue May, 1978 Jan., 1991 Feb., 1991 Nov., 1993 Feb., 1994 July, 1994 Journal Folio No. 1 1 5 7 7 8

That the VENDOR has offered to sell the abovestated (sic) shares of stocks and the PURCHASER has agreed to purchase the same for a total consideration of P200,000; That it is hereby agreed that out of the total consideration or contract price, the purchaser will pay the amount of FIFTY THOUSAND PESOS (P50,000.00), receipt of which is herein acknowledged by the purchaser, at the date and place below stated and the remaining balance of P150,000 will be paid in full on February, (sic) 28, 1996; That it is further agreed that the VENDOR will execute an authorization in favor of the herein purchaser or his representative, Victor D. Nunga[,] to retrieve all the corresponding Stocks (sic) Certificates as above indicated from the Apalit Rural Bank, Inc. WHEREFORE, for and in consideration of the total amount of

P200,000 (sic) receipt in part of which is herein acknowledged in the amount of P50,000.00, the vendor hereby agrees to sell, cede and transfer all the above stated shares of stocks to the PURCHASER, his heirs[,] successors, and assigns, absolutely free from any encumbrance and lien whatsoever. IN WITNESS WHEREOF, I have hereunto set my signature this 19th day of FEBRUARY, (sic) 1996, at Quezon City, Philippines. (signed) JESUS J. GONZALESVendor On even date, Victor gave the initial payment of P50,000.00 to Gonzalez, who duly acknowledged the same. 6 In exchange, Gonzalez handed Victor RBA Stock Certificates No. 105, No. 152 and No. 166. As to the four other certificates that were in the possession of the RBA, Gonzalez issued a letter7 addressed to Isabel Firme (Firme), the RBA Corporate Secretary, which instructed the latter to turn over to Victor the remaining stock certificates in Gonzalezs name. Upon being presented with Gonzalezs letter, Firme gave Victor Stock Certificate No. 181, but alleged that Stock Certificates No. 5 and No. 36 could no longer be located in the files of RBA. Firme advised Victor to merely reconstitute the missing stock certificates.8 A reading of the said Contract to Sell would reveal, however, that the same was only notarized on 28 February 1996. Before Francisco Jr. and Victor could pay the balance of the contract price for Gonzalezs RBA shares of stock, Gonzalez entered into another contract involving the very same shares. It would appear that on 27 February 1996, Gonzalez executed a Deed of Assignment9 of his RBA shares of stock in favor of Francisco III, the relevant terms of which recite: DEED OF ASSIGNMENT KNOW ALL MEN BY THESE PRESENTS: For value (sic) consideration received, the undersigned ASSIGNOR JESUS GONZALE[Z], of legal age, Filipino and resident of #10 2ND AVENUE, CUBAO, QUEZON CITY, METRO MANILA hereby sells, assigns and transfers unto FRANCISCO N. NUNGA III (AS ASSIGNEE), Filipino, of legal age and with postal

address at 1122 Alhambra St., Ermita 1000 Metro Manila, his assigns and successors, all their rights, titles and interests to the following shares of stocks owned by the ASSIGNOR in Apalit Rural Bank, Inc., with par value of one hundred pesos only (P100.00) per share, free from all liens and encumbrances. Date May 24, 1969 January 02, 1975 February 19, 1991 November 10, 1993 February 22, 1994 July 25, 1994 February 2, 1996 SC. No. 4 (sic) 36 105 152 166 181 213 No. of Shares 250 122 264 487 8 525 336 Amount P 25,000.00 12,200.00 26,400.00 48,700.00 800.00 52,500.00 33,600.00

IN WITNESS WHEREOF, the ASSIGNOR have (sic) cause (sic) these presents to be signed at Quezon City, this 27 day of February, 1996. (signed) JESUS J. GONZALE[Z]Assignor At the same time the afore-quoted Deed was executed, Francisco III paid in full the agreed purchase price of P300,000.00 using a BPI (Bank of the Philippine Islands) Family Bank Check No. 0347505 issued in favor of Gonzalez. An acknowledgment receipt signed by Gonzalez and witnessed by his wife Cristina D. Gonzalez evidenced the payment.10 Since the stock certificates covering the shares were already in Victors possession, Gonzalez immediately wrote Victor a letter,11 demanding that Victor hand over the said stock certificates to Francisco III, the supposed new owner of the shares. The next day, on 28 February 1996, Francisco Jr. arrived from the United States of America. He and Victor then promptly proceeded

to the residence of Gonzalez in order to pay the balance of P150,000.00 of the purchase price stated in their Contract to Sell with Gonzalez. Gonzalez, however, informed them that he already sold his shares of stock to Francisco III.12 After discussing the matter, Gonzalez was somehow convinced to accept the balance of the purchase price and sign his name at the dorsal portion of the stock certificates to endorse the same to Francisco Jr. Gonzalez also executed a Deed of Absolute Sale13 in favor of Francisco Jr., which states: DEED OF ABSOLUTE SALE KNOW ALL MEN BY THESE PRESENTS: This DEED OF ABSOLUTE SALE, executed this 28th day of February, 1996, at SAN JUAN, M.M. by: JESUS J. GONZALE[Z], of legal age, Filipino citizen, married to Cristina D. Gonzale[z], residing at No. 10 2nd Ave., Crame, Quezon City, hereinafter referred to as the VENDOR; in favor of FRANCISCO R. NUNGA, JR., of legal age, married, residing at Poblacion, Masantol, Pampanga[,] hereinafter referred to as the "PURCHASER"[;] WITNESSETH: That the VENDOR is the absolute registered owner of several shares of stocks of the RURAL BANK OF APALIT, INC. located at Apalit, Pampanga, more particularly described as follows: Stock Cert. No. 5 36 105 152 No. of Shares Represented 250 122 264 487 Date of Issue May, 1978 Jan., 1991 Feb., 1991 Nov., 1993 Journal Folio No. 1 1 5 7

166 181 213

8 525 336

Feb., 1994 July, 1994

7 8

That Stock Certificate Nos. 5 and 36 respectively representing 250 and 122 shares of the Rural Bank of Apalit[,] Inc. were lost and is (sic) currently in the process of reconstitution; That the VENDOR has offered to sell the abovestated (sic) shares of stocks and the PURCHASER has agreed to purchase the same. WHEREFORE, for and in consideration of the total amount of TWO HUNDRED THOUSAND PESOS (P 200,000.00), receipt of which in full is herein acknowledged, the VENDOR hereby sells, cedes and transfers all the above stated shares of stocks to the PURCHASER, his heirs, successors, and assigns, absolutely free from any encumbrance and lien whatsoever. IN WITNESS WHEREOF, I have hereunto set my signature this 28 day of FEB (sic), 1996, at SAN JUAN, MM, Philippines. (signed) JESUS J. GONZALE[Z]Vendor Incidentally, on that same day, Francisco III delivered to Firme the Deed of Assignment which Gonzalez executed in his favor, and a copy of Gonzalezs letter to Victor dated 27 February 1996 demanding the latter to surrender the stock certificates in his possession to Francisco III. Accordingly, on 1 March 1996, Firme wrote Victor a letter14 requesting that the latter immediately comply with the enclosed 27 February 1996 letter of Gonzalez. Victor refused to comply with Firmes request and instead demanded that the sale of shares of stock by Gonzalez in favor of Francisco Jr. on 28 February 1996 be entered into the Corporate Book of Transfer of RBA. Firme, in turn, rejected Victors demand, alleging that Francisco III already bought Gonzalezs shares.15 Consequently, on 14 March 1996, Victor filed a Petition 16 with the Securities and Exchange Commission (SEC) against Francisco III and Firme, which was docketed as SEC Case No. 03-96-5288.

Victor prayed that the SEC declare null and void the Stockholders Meeting held on 30 January 1996 for lack of the required majority quorum; as well as the votes cast for the shares of the deceased stockholders, namely, Teodorico R. Nunga, Carmencita N. Nunga and Jesus Enrico N. Nunga. Victor additionally requested that the transfer of Gonzalezs RBA shareholdings to Francisco Jr. be annotated on the RBA Corporate Transfer Book and new stock certificates be issued in favor of Francisco Jr. Victor finally pleaded that Francisco III and Firme be ordered to jointly pay him P50,000.00 as attorneys fees, damages and litigation expenses. On the same date, Francisco III likewise filed a Complaint 17 against Gonzalez, Francisco Jr., and Victor before the SEC, which was docketed as SEC Case No. 03-96-5292. Francisco III sought the issuance of a Temporary Restraining Order (TRO) against Francisco Jr. and Victor, who were allegedly conspiring to oust him and the other members of the RBA Board of Directors. Francisco III also prayed, inter alia, for judgment ordering (a) Victor to surrender Gonzalezs stock certificates in order that the same may be transferred to Francisco IIIs name; and (b) Francisco Jr. and Victor to desist from attempting to register the purported sale by Gonzales of his RBA shares of stock to Francisco Jr., who had already become a naturalized American citizen and was, thus, disqualified from owning shares in RBA. Francisco III and Firme filed their joint Answer 18 in SEC Case No. 03-96-5288, while Francisco Jr. and Victor filed their Answer 19 in SEC Case No. 03-96-5292. Gonzalez, however, was considered in default in both SEC cases for failure to file his answers despite notice. Eventually, Francisco Jr.20 and Victor filed a Motion for Consolidation21 of the two cases pending before the SEC, alleging that they involved common questions of fact and law, which required the presentation of similar evidence. Said Motion was granted in an Order22 dated 30 September 1996. Thereafter, SEC Cases No. 03-96-5288 and No. 03-96-5292 were jointly heard. After the parties submitted their respective Offers of Evidence, but before the SEC could rule on the same, the cases were eventually turned over to the RTC pursuant to Administrative Circular AM No. 00-11-0323 of the Supreme Court dated 21 November 2000.24 In the RTC, SEC Cases No. 03-96-5288 and No. 03-96-5292

were docketed as Commercial Cases No. 001 and No. 018, respectively. Francisco Jr. and Victor subsequently filed a Motion to Resolve their Formal Offer of Exhibits, which the SEC was not able to act upon. In an Order25 dated 30 April 2002, the RTC admitted the formal offers of evidence in both cases. On 25 October 2002,26 the RTC promulgated its Decision. With respect to Commercial Case No. 001, Victors Petition, the RTC ruled: The Court, after a careful study on the evidences on record finds that [herein petitioner Victor] failed to substantiate the allegation in the petition. [Victor] failed to controvert the documentary evidences presented by [herein respondent Francisco III] to wit: Minutes of the Stockholders Meeting, showing the number of shares present in person or in proxy[;] written Proxy in favor of Dwight N. Nunga in (sic) behalf of deceased Teodorico R. Nunga by virtue of the Extrajudicial Settlement of estate in (sic) behalf of Carmencita Noel Nunga proxy executed by Ma. Del Carmen N. Leveriza in her capacity as the Judicial Administratrix duly appointed by the RTC Branch 60, Makati[,] Metro Manila in Special Proceedings No. M-146127; Affidavit of respondent Isabel C. Firme stating thereat the fact that the certificate of stock delivered for registration in the Corporate Transfer Book were mere xerox copies thus, the refusal. Thus further, proved [Victors] lack of cause of action against [Francisco III] and as a result of which damages on the part of [Francisco III] and Isabel C. Firme who were constrained to hire the services of their counsel to protect their right (sic). (Emphasis ours.) As regards Commercial Case Complaint, the RTC decreed: No. 018,28 Francisco IIIs

The Court[,] after a careful study on the aforementioned evidences (sic) on record[,] finds and holds that [herein petitioner Francisco Jr.] has a better right over the subject shares considering that the Contract to Sell was executed prior to the Deed of Assignment presented by the [herein respondent Francisco III]. The Court gleaned also from the evidences (sic) that the Deed of Assignment was executed in bad faith as [Francisco III] is aware of the transaction between [herein petitioner Victor] in (sic) behalf of his father and [Gonzalez], thus, the conclusion that

the Deed of Assignment was executed with malice. The Contract to Sell may not be a public instrument 29 but being a consensual contract it is, therefore, valid there being a meeting of the mind (sic) between the parties. Further, there being no contention on (sic) the contrary, on the validity of the Deed of Absolute Sale interposed by [Gonzalez] coupled with the proof of full payment and the endorsement of the Stock Certificate at the back by the owner[,] which is the only operative act of valid transfer of shares of stock certificate provided for by law and jurisprudence, clearly convinced the Court that the latter honored the transaction between him and [Victor] in (sic) behalf of his father [Francisco Jr.] and[,] to bind third parties, the fact of transfer should be registered with the transfer book of the corporation. xxxx Further, with respect to the issue on the citizenship of [Francisco Jr.], not being qualified to own such share (sic), the Court is inclined to give credence on (sic) the contention of the latter[,] it being supported by R.A. 8179[,] known as "An Act to Further Liberalize Foreign Investment,["] to wit: "SEC. 9. Investment Rights of Former Natural-born Filipinos. For purposes of this Act, former natural born citizens of the Philippines shall have the same investment rights of a Filipino citizen in Cooperatives under Republic Act No. 6938, Rural Banks under Republic Act No. 7353, Thrift Banks and Private Development Banks under Republic Act No. 7906, and Financing Companies under Republic Act No. 5980." Furthermore, insofar as (sic) [Gonzalez], the same was (sic) considered as in default for failure to appear and participate despite notice. (Emphasis ours.) In the end, the RTC disposed of the two cases in this wise: WHEREFORE, in view of the foregoing, judgment is hereby rendered in Commercial Case No. 001 ordering the dismissal of the Petition filed by [herein petitioner Victor] against [herein respondent Francisco III] and Isabel C. Firme. Insofar as Commercial Case No. 018[,] judgment is hereby rendered in favor of the [herein petitioners Victor and Francisco Jr.] and against [Francisco III] ordering the following:

1) Ordering the Corporate Secretary of the Rural Bank of Apalit, Inc, (sic) to register the fact of the transfer of ownership in favor of [Francisco Jr.] and to cancel Stock certificate (sic) in the name of Jesus [Gonzalez] and to issue a new one (sic) in the name of [Francisco Jr.] upon presentation of Stock Certificate Nos. 105, 152, 166, 181, 213, 5 and 36 duly endorsed by Jesus [Gonzalez]; 2) The [respondent Francisco III] to pay the [petitioners Victor and Francisco Jr.] the amount of P100,000.00 [for] moral damages[;] 3) The amount of P100,000.00 [for] exemplary damages[;] 4) The amount of P50,000.00 [for] attorneys (sic) fees and the cost of suit.30 Francisco III filed a Motion for Partial Reconsideration31 of the afore-quoted Decision, but it was denied by the RTC in an Order 32 dated 31 January 2003. Thus, Francisco III filed with the RTC a Notice of Appeal.33 His appeal before the Court of Appeals was docketed as CA-G.R. CV No. 78424. Before the Court of Appeals, Francisco III argued that the RTC erred in: (1) ruling that Francisco Jr. had a better right over the disputed shares of stock, considering that the prior contract which he had entered into with Gonzalez was a mere contract to sell; (2) finding that the Deed of Assignment in Francisco IIIs favor was executed in bad faith, inasmuch as it was not supported by any of the evidence presented by all the parties; and (3) giving retroactive effect to Republic Act No. 8179,34 which grants former natural born citizens (such as Francisco Jr.) equal investment rights in rural banks of the Philippines as Philippine citizens. In relation to his third assignment of error, Francisco III pointed out that Republic Act No. 8179 took effect only on 16 April 1996, after Francisco Jr. entered into the questionable contracts with Gonzalez; hence, the said statute cannot benefit Francisco Jr. On 31 January 2007, the Court of Appeals rendered its assailed Decision favoring Francisco III. It held that Francisco Jr. cannot invoke the provisions of Republic Act No. 8179 based on the following ratiocination: In the instant case, there is nothing in Republic Act No. 8179 [An Act to Further Liberalize Foreign Investment] which provides that it should retroact to the date of effectivity of

Republic Act No. 7353 [The Rural Banks Act of 1992]. Neither is it necessarily implied from Republic Act No. 8179 that it or any of its provisions should be given a retroactive effect. On the contrary, there is an express provision in Republic Act No. 8179 that it "shall take effect fifteen (15) days after publication in two (2) newspapers of general circulation in the Philippines." Being crystal clear on its prospective application, it must be given its literal meaning and applied without further interpretation (BPI Leasing Corporation vs. Court of Appeals, 416 SCRA 4, 13 [2003]). Republic Act No. 8179 was published on March 31, 1996 at the Manila Times and Malaya; hence, it took effect on April 15, 1996. x x x. Republic Act No. 7353 specifically states that "the capital stock of any rural bank shall be fully owned and held directly or indirectly by citizens of the Philippines xxx." It bears stressing that the use of the word "shall" alone, applying the rule on statutory construction, already underscores the mandatory nature of the law, and hence; (sic) requires adherence thereto. xxx Therefore, it is Our considered view that the sale and the subsequent transfer on February 28, 1996 of the shares of stock of JESUS [Gonzalez] to FRANCISCO, JR., a naturalized American citizen, were made in patent violation of Republic Act No. 7353. Considering that Republic Act No. 7353 did not contain any provision authorizing the validity of the sale and transfer of the shares of stock to a foreigner, specifically to a former natural-born citizen of the Philippines, the same should be deemed null and void pursuant to Article 5 of the Civil Code of the Philippines, which reads: "ART. 5. Acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity." x x x The fact that Republic Act No. 8179 expressly granted to former natural-born citizens of the Philippines investment rights similar to those of citizens of the Philippines bolsters the view that Republic Act No. 7353 indeed prohibited foreign nationals from owning shares of stock in rural banks. Had it been necessarily implied from the provisions of Republic Act No. 7353 that foreign nationals could own shares of stock in rural banks, the legislature would not have wasted time and effort in inserting a new provision granting to former natural-born citizens of the Philippines equal investment rights in Republic Act No. 8179.

Furthermore, there is no merit in the assertion of FRANCISCO JR. and VICTOR that Republic Act No. 8179 should be given a retroactive effect in accordance with the following rule: "The principle that a new law shall not have retroactive effect only governs rights arising from acts done under the rule of the former law; but if a right be declared for the first time by a new law it shall take effect from the time of such declaration, even though it has arisen from acts subject to the former laws, provided that it does not prejudice another acquired right of the same origin." x x x. Republic Act No. 8179 cannot be applied retroactively insofar as the instant case is concerned, as its application would prejudice the (sic) FRANCISCO III who had acquired vested right over the shares of stock prior to the effectivity of the said law. Such right was vested to him when the Deed of Assignment was executed by Jesus in his favor on February 27, 1996. Undoubtedly, FRANCISCO III had a better right over the shares of stock of JESUS inasmuch as the validity of the Deed of Assignment was not affected despite the prior execution of the Contract to Sell in favor of FRANCISCO JR. on February 19, 1996. As previously adverted to, the said Contract, as well as the Deed of Absolute Sale and the subsequent transfer of the shares of stock to FRANCISCO JR., was null and void for violating a mandatory provision of Republic Act No. 7353. x x x.35 The Court of Appeals, however, decided to award Francisco III only attorneys fees and cost of suit, but not moral and exemplary damages: We hold that FRANCISCO III is not entitled to moral damages. FRANCISCO III made no mention in his Complaint and during the hearing that he sustained mental anguish, serious anxiety, wounded feelings and other emotional and mental sufferings by reason of the double sale. x x x. Likewise, FRANCISCO III is not entitled to exemplary damages. x x x In the instant case, FRANCISCO III failed to sufficiently prove his entitlement to moral, temperate or compensatory damages. Hence, his claim for exemplary damages must similarly fail. However, as to his claim for attorneys fees and cost of suit, We find it to be tenable as the records of the case clearly reveal that FRANCISCO III was compelled to litigate or to incur expenses to

protect his interest because of the double sale. x x x. Under the circumstances obtaining in the instant case, We deem that the award of P20,000.00 as attorneys fees is reasonable.36 The fallo of the Court of Appeals Decision thus reads: WHEREFORE, the foregoing premises considered, the Decision dated October 25, 2002 of Branch 42 of the Regional Trial Court of San Fernando, Pampanga with respect to Commercial Case No. 018 is hereby REVERSED and SET ASIDE. A new one is hereby rendered ORDERING the following: 1) Victor Nunga to surrender the stock certificates of Jesus Gonzalez to the Corporate Secretary of Rural Bank of Apalit, Inc.; 2) [T]he Corporate Secretary of Rural Bank of Apalit, Inc. to register the assignment of shares of stock in favor of Francisco Nunga III, to cancel the stock certificates of Jesus Gonzale[z], and to issue new ones in the name of Francisco Nunga III; and, 3) Jesus Gonzale[z], Francisco Nunga, Jr., and Victor Nunga to pay, jointly and severally, the sum of P20,000.00 as attorneys fees, plus the cost of suit.37 Francisco Jr. and Victor, together with Gonzalez, filed a Motion for Reconsideration38 of the foregoing Decision. Their Motion, however, was denied by the Court of Appeals in its assailed Resolution dated 4 June 2007. Refusing to concede, Francisco Jr. and Victor filed the instant Petition, 39 which they anchor on the following assignment of errors: I. WHETHER OR NOT THE COURT OF APPEALS ERRED IN DECLARING THE SALE OF THE SHARES OF STOCK OF GONZALE[Z] TO FRANCISCO JR., NULL AND VOID AB INITIO ON THE BASIS OF THE ALLEGED DISQUALIFICATION OF FRANCISCO JR. UNDER REPUBLIC ACT NO. 7353? II. WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT FRANCISCO III HAS A VESTED

RIGHT TO THE SHARES OF STOCK OF GONZALE[Z], WHICH WOULD BE IMPAIRED BY THE RETROACTIVE APPLICATION OF REPUBLIC ACT NO. 8179? III. WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED [IN] AWARDING DAMAGES TO FRANCISCO III AND WITHDRAWING THE AWARD OF NOMINAL DAMAGES TO PETITIONERS BY THE TRIAL COURT? Essentially, the fundamental issue that this Court is called upon to resolve is who among the parties to this case has a better right to the disputed RBA shares of stock. Francisco Jr. and Victor contend that the consummated sale of the RBA shares of stock by Gonzalez to Francisco Jr. gives the latter a superior right over the same, since the transaction complied with all the elements of a valid sale. Contrary to the ruling of the Court of Appeals, Francisco Jr. and Victor claim that there was no provision in Republic Act No. 7353, prior to its amendment, which explicitly prohibited any transfer of shares to individuals who were not Philippine citizens, or which declared such a transfer void. Hence, there was an implied recognition by the legislature that to declare the nullity of such acts would be more disadvantageous and harmful to the purposes of the law. Moreover, Francisco Jr. and Victor contend that the passage of Republic Act No. 8179, An Act to Further Liberalize Foreign Investment, cured whatever legal infirmity there may have been in the purchase by Francisco Jr. of the RBA shares of stock from Gonzalez. As Republic Act No. 8179 expressly creates and declares for the first time a substantive right, then it may be given retroactive effect. The Deed of Assignment between Francisco III and Gonzalez did not confer upon Francisco III a vested interest that could be impaired by the retroactive application of Republic Act No. 8179. The Deed was not only executed later in time, but the check issued for its payment was also never encashed. There was, therefore, a total absence of consideration, making the said contract between Francisco III and Gonzalez inexistent. The Court finds the Petition devoid of merit. As the Court of Appeals declared, Francisco Jr. was disqualified from acquiring Gonzalezs shares of stock in RBA. The argument

of Francisco Jr. and Victor that there was no specific provision in Republic Act No. 7353 which prohibited the transfer of rural bank shares to individuals who were not Philippine citizens or declared such transfer void, is both erroneous and unfounded. Section 4 of Republic Act No. 7353 explicitly provides: Section 4. x x x With exception of shareholdings of corporations organized primarily to hold equities in rural banks as provided for under Section 12-C of Republic Act 337, as amended, and of Filipino-controlled domestic banks, the capital stock of any rural bank shall be fully owned and held directly or indirectly by citizens of the Philippines or corporations, associations or cooperatives qualified under Philippine laws to own and hold such capital stock: x x x. (Emphasis ours.) Otherwise stated, the afore-quoted provision categorically provides that only citizens of the Philippines can own and hold, directly or indirectly, the capital stock of a rural bank, subject only to the exception also clearly stated in the same provision. This was the very interpretation of Section 4 of Republic Act No. 7353 made by this Court in Bulos, Jr. v. Yasuma,40 on the basis of which the Court disqualified therein respondent Yasuma, a foreigner, from owning capital stock in the Rural Bank of Paraaque. In the instant case, it is undisputed that when Gonzalez executed the Contract to Sell and the Deed of Absolute Sale covering his RBA shares of stock in favor of Francisco Jr., the latter was already a naturalized citizen of the United States of America. Consequently, the acquisition by Francisco Jr. of the disputed RBA shares by virtue of the foregoing contracts is a violation of the clear and mandatory dictum of Republic Act No. 7353, which the Court cannot countenance. Even the subsequent enactment of Republic Act No. 8179 cannot benefit Francisco Jr. It is true that under the Civil Code of the Philippines, laws shall have no retroactive effect, unless the contrary is provided.41 But there are settled exceptions to this general rule, such as when the statute is CURATIVE or REMEDIAL in nature, or when it CREATES NEW RIGHTS. 42 Francisco Jr. and Victor assert that, as an exception to the cardinal rule of prospective application of laws, Republic Act No. 8179 may be retroactively applied, since it creates for the first time a substantive right in favor of natural-born citizens of the Philippines. Francisco Jr. and Victor, however, overlooked the vital exception

to the exception. While it is true that a law creating new rights may be given retroactive effect, the same can only be made possible if the new right does not prejudice or impair any vested right.43 The Court upholds the finding of the Court of Appeals that Republic Act No. 8179 cannot be applied retroactively to the present case, as to do so would prejudice the vested rights of Francisco III to the disputed RBA shares of stock. Francisco III, who is undeniably a citizen of the Philippines, and who is fully qualified to own shares of stock in a Philippine rural bank, had acquired vested rights to the disputed RBA shares of stock by virtue of the Deed of Assignment executed in his favor by Gonzalez. It would not matter that Gonzalez executed the Contract to Sell in favor of Francisco Jr. prior to the Deed of Assignment in favor of Francisco III. As established in the previous discussion, the Contract to Sell between Gonzalez and Francisco Jr. was void and without force and effect for being contrary to law. It intended to effect a transfer, which was prohibited by Republic Act No. 7353. It is even irrelevant that the terms of said Contract to Sell had been fully complied with and performed by the parties thereto, and that a Deed of Absolute Sale was already executed by Gonzalez in favor of Francisco Jr. A void agreement will not be rendered operative by the parties' alleged performance (partial or full) of their respective prestations. A contract that violates the law is null and void ab initio and vests no rights and creates no obligations. It produces no legal effect at all.44 With respect to the award of damages, the Court agrees in the findings of the Court of Appeals that Francisco III failed to establish his entitlement to moral damages in view of the absence of proof that he endured physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, or any similar injury.45 As regards the grant of exemplary damages, we likewise uphold the ruling of the appellate court that the same was not warranted under the circumstances, as FRANCISCO III was not able to prove that he was entitled to moral, temperate or compensatory damages. Exemplary damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages.46 In contracts and quasi-contracts, exemplary damages may be awarded if the defendant acted in a wanton, fraudulent,

reckless, oppressive or malevolent manner.47 It cannot, however, be considered as a matter of right; the court has to decide whether or not such damages should be adjudicated.48 Before the court may consider an award for exemplary damages, the plaintiff must first show that he is entitled to moral, temperate or compensatory damages; but it is not necessary that he prove the monetary value thereof.49 As to the contention that the Court of Appeals erred in withdrawing the award of nominal damages to the petitioners by the RTC, the Court finds the same to be utterly misleading. The appellate court did not decree any such withdrawal, as the RTC had not awarded any nominal damages in favor of the petitioners in the first place. However, as Francisco III was indeed compelled to litigate and incur expenses to protect his interests, 50 the Court sustains the award by the Court of Appeals of P20,000.00 as attorneys fees, plus costs of suit. WHEREFORE, premises considered, the Petition for Review under Rule 45 of the Rules of Court is hereby DENIED. The assailed Decision dated 31 January 2007 and Resolution dated 4 June 2007 of the Court of Appeals in CA-G.R. CV No. 78424 are hereby AFFIRMED in toto. No costs. SO ORDERED. G.R. No. 184778 October 2, 2009

BANGKO SENTRAL NG PILIPINAS MONETARY BOARD and CHUCHI FONACIER, Petitioners, vs.HON. NINA G. ANTONIOVALENZUELA, in her capacity as Regional Trial Court Judge of Manila, Branch 28; RURAL BANK OF PARAAQUE, INC.; RURAL BANK OF SAN JOSE (BATANGAS), INC.; RURAL BANK OF CARMEN (CEBU), INC.; PILIPINO RURAL BANK, INC.; PHILIPPINE COUNTRYSIDE RURAL BANK, INC.; RURAL BANK OF CALATAGAN (BATANGAS), INC. (now DYNAMIC RURAL BANK); RURAL BANK OF DARBCI, INC.; RURAL BANK OF KANANGA (LEYTE), INC. (now FIRST INTERSTATE RURAL BANK); RURAL BANK OF BISAYAS MINGLANILLA (now BANK OF EAST ASIA); and SAN PABLO CITY DEVELOPMENT BANK, INC., Respondents. DECISION

VELASCO, JR., J.: The Case This is a Petition for Review on Certiorari under Rule 45 with Prayer for Issuance of a Temporary Restraining Order (TRO)/Writ of Preliminary Injunction, questioning the Decision dated September 30, 20081 of the Court of Appeals (CA) in CA-G.R. SP No. 103935. The CA Decision upheld the Order2 dated June 4, 2008 of the Regional Trial Court (RTC), Branch 28 in Manila, issuing writs of preliminary injunction in Civil Case Nos. 08119243, 08-119244, 08-119245, 08-119246, 08-119247, 08119248, 08-119249, 08-119250, 08-119251, and 08-119273, and the Order dated May 21, 2008 that consolidated the civil cases. The Facts In September of 2007, the Supervision and Examination Department (SED) of the Bangko Sentral ng Pilipinas (BSP) conducted examinations of the books of the following banks: Rural Bank of Paraaque, Inc. (RBPI), Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc., Pilipino Rural Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan (Batangas), Inc. (now Dynamic Rural Bank), Rural Bank of Darbci, Inc., Rural Bank of Kananga (Leyte), Inc. (now First Interstate Rural Bank), Rural Bank de Bisayas Minglanilla (now Bank of East Asia), and San Pablo City Development Bank, Inc. After the examinations, exit conferences were held with the officers or representatives of the banks wherein the SED examiners provided them with copies of Lists of Findings/Exceptions containing the deficiencies discovered during the examinations. These banks were then required to comment and to undertake the remedial measures stated in these lists within 30 days from their receipt of the lists, which remedial measures included the infusion of additional capital. Though the banks claimed that they made the additional capital infusions, petitioner Chuchi Fonacier, officer-incharge of the SED, sent separate letters to the Board of Directors of each bank, informing them that the SED found that the banks failed to carry out the required remedial measures. In response, the banks requested that they be given time to obtain BSP approval to amend their Articles of Incorporation, that they have an opportunity to seek investors. They requested as well that the basis for the capital infusion figures be disclosed, and noted that

none of them had received the Report of Examination (ROE) which finalizes the audit findings. They also requested meetings with the BSP audit teams to reconcile audit figures. In response, Fonacier reiterated the banks failure to comply with the directive for additional capital infusions. On May 12, 2008, the RBPI filed a complaint for nullification of the BSP ROE with application for a TRO and writ of preliminary injunction before the RTC docketed as Civil Case No. 08-119243 against Fonacier, the BSP, Amado M. Tetangco, Jr., Romulo L. Neri, Vicente B. Valdepenas, Jr., Raul A. Boncan, Juanita D. Amatong, Alfredo C. Antonio, and Nelly F. Villafuerte. RBPI prayed that Fonacier, her subordinates, agents, or any other person acting in her behalf be enjoined from submitting the ROE or any similar report to the Monetary Board (MB), or if the ROE had already been submitted, the MB be enjoined from acting on the basis of said ROE, on the allegation that the failure to furnish the bank with a copy of the ROE violated its right to due process. The Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc., Pilipino Rural Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan (Batangas), Inc., Rural Bank of Darbci, Inc., Rural Bank of Kananga (Leyte), Inc., and Rural Bank de Bisayas Minglanilla followed suit, filing complaints with the RTC substantially similar to that of RBPI, including the reliefs prayed for, which were raffled to different branches and docketed as Civil Cases Nos. 08-119244, 08119245, 08-119246, 08-119247, 08-119248, 08-119249, 08119250, and 08-119251, respectively. On May 13, 2008, the RTC denied the prayer for a TRO of Pilipino Rural Bank, Inc. The bank filed a motion for reconsideration the next day. On May 14, 2008, Fonacier and the BSP filed their opposition to the application for a TRO and writ of preliminary injunction in Civil Case No. 08-119243 with the RTC. Respondent Judge Nina Antonio-Valenzuela of Branch 28 granted RBPIs prayer for the issuance of a TRO. The other banks separately filed motions for consolidation of their cases in Branch 28, which motions were granted. Judge Valenzuela set the complaint of Rural Bank of San Jose (Batangas), Inc. for hearing on May 15, 2008. Petitioners assailed

the validity of the consolidation of the nine cases before the RTC, alleging that the court had already prejudged the case by the earlier issuance of a TRO in Civil Case No. 08-119243, and moved for the inhibition of respondent judge. Petitioners filed a motion for reconsideration regarding the consolidation of the subject cases. On May 16, 2008, San Pablo City Development Bank, Inc. filed a similar complaint against the same defendants with the RTC, and this was docketed as Civil Case No. 08-119273 that was later on consolidated with Civil Case No. 08-119243. Petitioners filed an Urgent Motion to Lift/Dissolve the TRO and an Opposition to the earlier motion for reconsideration of Pilipino Rural Bank, Inc. On May 19, 2008, Judge Valenzuela issued an Order granting the prayer for the issuance of TROs for the other seven cases consolidated with Civil Case No. 08-119243. On May 21, 2008, Judge Valenzuela issued an Order denying petitioners motion for reconsideration regarding the consolidation of cases in Branch 28. On May 22, 2008, Judge Valenzuela granted the urgent motion for reconsideration of Pilipino Rural Bank, Inc. and issued a TRO similar to the ones earlier issued. On May 26, 2008, petitioners filed a Motion to Dismiss against all the complaints (except that of the San Pablo City Development Bank, Inc.), on the grounds that the complaints stated no cause of action and that a condition precedent for filing the cases had not been complied with. On May 29, 2008, a hearing was conducted on the application for a TRO and for a writ of preliminary injunction of San Pablo City Development Bank, Inc. The Ruling of the RTC After the parties filed their respective memoranda, the RTC, on June 4, 2008, ruled that the banks were entitled to the writs of preliminary injunction prayed for. It held that it had been the practice of the SED to provide the ROEs to the banks before submission to the MB. It further held that as the banks are the subjects of examinations, they are entitled to copies of the ROEs. The denial by petitioners of the banks requests for copies of the ROEs was held to be a denial of the banks right to due process. The dispositive portion of the RTCs order reads: WHEREFORE, the Court rules as follows:

1) Re: Civil Case No. 08-119243. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Rural Bank of Paranaque Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 2) Re: Civil Case No. 08-119244. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Rural Bank of San Jose (Batangas), Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 3) Re: Civil Case No. 08-119245. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Rural Bank of Carmen (Cebu), Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval

thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 4) Re: Civil Case No. 08-119246. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Pilipino Rural Bank Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 5) Re: Civil Case No. 08-119247. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Philippine Countryside Rural Bank Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary

Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 6) Re: Civil Case No. 08-119248. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Dynamic Bank Inc. (Rural Bank of Calatagan) is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 7) Re: Civil Case No. 08-119249. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Rural Bank of DARBCI, Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 8) Re: Civil Case No. 08-119250. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Rural Bank of Kananga Inc. (First Intestate Bank), is directed to post a bond executed to

the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 9) Re: Civil Case No. 08-119251. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Banco Rural De Bisayas Minglanilla (Cebu) Inc. (Bank of East Asia) is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 10) Re: Civil Case No. 08-119273. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff San Pablo City Development Bank, Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of

Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report.3 The Ruling of the CA Petitioners then brought the matter to the CA via a petition for certiorari under Rule 65 claiming grave abuse of discretion on the part of Judge Valenzuela when she issued the orders dated May 21, 2008 and June 4, 2008. The CA ruled that the RTC committed no grave abuse of discretion when it ordered the issuance of a writ of preliminary injunction and when it ordered the consolidation of the 10 cases. It held that petitioners should have first filed a motion for reconsideration of the assailed orders, and failed to justify why they resorted to a special civil action of certiorari instead. The CA also found that aside from the technical aspect, there was no grave abuse of discretion on the part of the RTC, and if there was a mistake in the assessment of evidence by the trial court, that should be characterized as an error of judgment, and should be correctable via appeal. The CA held that the principles of fairness and transparency dictate that the respondent banks are entitled to copies of the ROE. Regarding the consolidation of the 10 cases, the CA found that there was a similarity of facts, reliefs sought, issues raised, defendants, and that plaintiffs and defendants were represented by the same sets of counsels. It found that the joint trial of these cases would prejudice any substantial right of petitioners. Finding that no grave abuse of discretion attended the issuance of the orders by the RTC, the CA denied the petition. On November 24, 2008, a TRO was issued by this Court,

restraining the CA, RTC, and respondents from implementing and enforcing the CA Decision dated September 30, 2008 in CA-G.R. SP No. 103935. 4 By reason of the TRO issued by this Court, the SED was able to submit their ROEs to the MB. The MB then prohibited the respondent banks from transacting business and placed them under receivership under Section 53 of Republic Act No. (RA) 87915 and Sec. 30 of RA 76536 through MB Resolution No. 1616 dated December 9, 2008; Resolution Nos. 1637 and 1638 dated December 11, 2008; Resolution Nos. 1647, 1648, and 1649 dated December 12, 2008; Resolution Nos. 1652 and 1653 dated December 16, 2008; and Resolution Nos. 1692 and 1695 dated December 19, 2008, with the Philippine Deposit Insurance Corporation as the appointed receiver. Now we resolve the main petition. Grounds in Support of Petition I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE INJUNCTION ISSUED BY THE REGIONAL TRIAL COURT VIOLATED SECTION 25 OF THE NEW CENTRAL BANK ACT AND EFFECTIVELY HANDCUFFED THE BANGKO SENTRAL FROM DISCHARGING ITS FUNCTIONS TO THE GREAT AND IRREPARABLE DAMAGE OF THE COUNTRYS BANKING SYSTEM; II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENTS ARE ENTITLED TO BE FURNISHED COPIES OF THEIR RESPECTIVE ROEs BEFORE THE SAME IS SUBMITTED TO THE MONETARY BOARD IN VIEW OF THE PRINCIPLES OF FAIRNESS AND TRANSPARENCY DESPITE LACK OF EXPRESS PROVISION IN THE NEW CENTRAL BANK ACT REQUIRING BSP TO DO THE SAME III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DEPARTING FROM WELL-ESTABLISHED PRECEPTS OF LAW AND JURISPRUDENCE A. THE EXCEPTIONS CITED BY PETITIONER JUSTIFIED

RESORT TO PETITION FOR CERTIORARI UNDER RULE 65 INSTEAD OF FIRST FILING A MOTION FOR RECONSIDERATION B. RESPONDENT BANKS ACT OF RESORTING IMMEDIATELY TO THE COURT WAS PREMATURE SINCE IT WAS MADE IN UTTER DISREGARD OF THE PRINCIPLE OF PRIMARY JURISDICTION AND EXHAUSTION OF ADMINISTRATIVE REMEDY C. THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION BY THE REGIONAL TRIAL COURT WAS NOT ONLY IMPROPER BUT AMOUNTED TO GRAVE ABUSE OF DISCRETION 7 Our Ruling The petition is meritorious. In Lim v. Court of Appeals it was stated: The requisites for preliminary injunctive relief are: (a) the invasion of right sought to be protected is material and substantial; (b) the right of the complainant is clear and unmistakable; and (c) there is an urgent and paramount necessity for the writ to prevent serious damage. As such, a writ of preliminary injunction may be issued only upon clear showing of an actual existing right to be protected during the pendency of the principal action. The twin requirements of a valid injunction are the existence of a right and its actual or threatened violations. Thus, to be entitled to an injunctive writ, the right to be protected and the violation against that right must be shown.8 These requirements are absent in the present case. In granting the writs of preliminary injunction, the trial court held that the submission of the ROEs to the MB before the respondent banks would violate the right to due process of said banks. This is erroneous. The respondent banks have failed to show that they are entitled to copies of the ROEs. They can point to no provision of law, no section in the procedures of the BSP that shows that the BSP is

required to give them copies of the ROEs. Sec. 28 of RA 7653, or the New Central Bank Act, which governs examinations of banking institutions, provides that the ROE shall be submitted to the MB; the bank examined is not mentioned as a recipient of the ROE. The respondent banks cannot claim a violation of their right to due process if they are not provided with copies of the ROEs. The same ROEs are based on the lists of findings/exceptions containing the deficiencies found by the SED examiners when they examined the books of the respondent banks. As found by the RTC, these lists of findings/exceptions were furnished to the officers or representatives of the respondent banks, and the respondent banks were required to comment and to undertake remedial measures stated in said lists. Despite these instructions, respondent banks failed to comply with the SEDs directive. Respondent banks are already aware of what is required of them by the BSP, and cannot claim violation of their right to due process simply because they are not furnished with copies of the ROEs. Respondent banks were held by the CA to be entitled to copies of the ROEs prior to or simultaneously with their submission to the MB, on the principles of fairness and transparency. Further, the CA held that if the contents of the ROEs are essentially the same as those of the lists of findings/exceptions provided to said banks, there is no reason not to give copies of the ROEs to the banks. This is a flawed conclusion, since if the banks are already aware of the contents of the ROEs, they cannot say that fairness and transparency are not present. If sanctions are to be imposed upon the respondent banks, they are already well aware of the reasons for the sanctions, having been informed via the lists of findings/exceptions, demolishing that particular argument. The ROEs would then be superfluities to the respondent banks, and should not be the basis for a writ of preliminary injunction. Also, the reliance of the RTC on Banco Filipino v. Monetary Board9 is misplaced. The petitioner in that case was held to be entitled to annexes of the Supervision and Examination Sectors reports, as it already had a copy of the reports themselves. It was not the subject of the case whether or not the petitioner was entitled to a copy of the reports. And the ruling was made after the petitioner bank was ordered closed, and it was allowed to be supplied with annexes of the reports in order to better prepare its defense. In this instance, at the time the respondent banks requested copies of the ROEs, no action had yet been taken by the MB with regard to

imposing sanctions upon said banks. The issuance by the RTC of writs of preliminary injunction is an unwarranted interference with the powers of the MB. Secs. 29 and 30 of RA 765310 refer to the appointment of a conservator or a receiver for a bank, which is a power of the MB for which they need the ROEs done by the supervising or examining department. The writs of preliminary injunction issued by the trial court hinder the MB from fulfilling its function under the law. The actions of the MB under Secs. 29 and 30 of RA 7653 "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 writs of preliminary injunction order are precisely what cannot be done under the law by preventing the MB from taking action under either Sec. 29 or Sec. 30 of RA 7653. As to the third requirement, the respondent banks have shown no necessity for the writ of preliminary injunction to prevent serious damage. The serious damage contemplated by the trial court was the possibility of the imposition of sanctions upon respondent banks, even the sanction of closure. Under the law, the sanction of closure could be imposed upon a bank by the BSP even without notice and hearing. The apparent lack of procedural due process would not result in the invalidity of action by the MB. This was the ruling in Central Bank of the Philippines v. Court of Appeals.11 This "close now, hear later" scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the banks assets and as a valid exercise of police power to protect the depositors, creditors, stockholders, and the general public. The writ of preliminary injunction cannot, thus, prevent the MB from taking action, by preventing the submission of the ROEs and worse, by preventing the MB from acting on such ROEs. The trial court required the MB to respect the respondent banks right to due process by allowing the respondent banks to view the ROEs and act upon them to forestall any sanctions the MB might impose. Such procedure has no basis in law and does in fact violate the "close now, hear later" doctrine. We held in Rural Bank of San Miguel, Inc. v. Monetary Board, Bangko Sentral ng Pilipinas: It is well-settled that the closure of a bank may be considered as

an exercise of police power. The action of the MB on this matter is final and executory. Such exercise may nonetheless be subject to judicial inquiry and can be set aside if found to be in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction.12 The respondent banks cannotthrough seeking a writ of preliminary injunction by appealing to lack of due process, in a roundabout manner prevent their closure by the MB. Their remedy, as stated, is a subsequent one, which will determine whether the closure of the bank was attended by grave abuse of discretion. Judicial review enters the picture only after the MB has taken action; it cannot prevent such action by the MB. The threat of the imposition of sanctions, even that of closure, does not violate their right to due process, and cannot be the basis for a writ of preliminary injunction. The "close now, hear later" doctrine has already been justified as a measure for the protection of the public interest. Swift action is called for on the part of the BSP when it finds that a bank is in dire straits. Unless 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.13 The respondent banks have failed to show their entitlement to the writ of preliminary injunction. It must be emphasized that an application for injunctive relief is construed strictly against the pleader.14 The respondent banks cannot rely on a simple appeal to procedural due process to prove entitlement. The requirements for the issuance of the writ have not been proved. No invasion of the rights of respondent banks has been shown, nor is their right to copies of the ROEs clear and unmistakable. There is also no necessity for the writ to prevent serious damage. Indeed the issuance of the writ of preliminary injunction tramples upon the powers of the MB and prevents it from fulfilling its functions. There is no right that the writ of preliminary injunction would protect in this particular case. In the absence of a clear legal right, the issuance of the injunctive writ constitutes grave abuse of discretion.15 In the absence of proof of a legal right and the injury sustained by the plaintiff, an order for the issuance of a writ of

preliminary injunction will be nullified.16 Courts are hereby reminded to take greater care in issuing injunctive relief to litigants, that it would not violate any law. The grant of a preliminary injunction in a case rests on the sound discretion of the court with the caveat that it should be made with great caution.17 Thus, the issuance of the writ of preliminary injunction must have basis in and be in accordance with law. All told, while the grant or denial of an injunction generally rests on the sound discretion of the lower court, this Court may and should intervene in a clear case of abuse.18 WHEREFORE, the petition is hereby GRANTED. The assailed CA Decision dated September 30, 2008 in CA-G.R. SP No. 103935 is hereby REVERSED. The assailed order and writ of preliminary injunction of respondent Judge Valenzuela in Civil Case Nos. 08119243, 08-119244, 08-119245, 08-119246, 08-119247, 08119248, 08-119249, 08-119250, 08-119251, and 08-119273 are hereby declared NULL and VOID. SO ORDERED. G.R. No. 95326 March 11, 1999 ROMEO P. BUSUEGO, CATALINO F. BANEZ and RENATO F. LIM, petitioners, vs.THE HONORABLE COURT OF APPEALS and THE MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES, respondents.

PURISIMA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking a reversal of the Decision, 1 dated September 14, 1990, of the Court of Appeals in CA-G.R. CV No. 23656. As culled from the records; the facts of the case are as follows: The 16th regular examination of the books and records of the PAL Employees Savings and Loan Association, Inc. ("PESALA") was conducted from March 14 to April 16, 1988 by a team of CB examiners headed by Belinda Rodriguez. Following the said examination, several anomalies and irregularities committed by the

herein petitioners; PESALA's uncovered, among which are:

directors

and

officers,

were

1. Questionable investment in a multi-million peso real estate project (Pesalaville). 2. Conflict of interest in the conduct of business. 3. Unwarranted declaration and payment of dividends. 4. Commission of unsound and unsafe business practices. On July 19, 1988, Central Bank ("CB") Supervision and Examination Section ("SES") Department IV Director Ricardo F. Lirio sent a letter to the Board of Directors of PESALA inviting them to a conference on July 21, 1988 to discuss subject findings noted in the said 16th regular examination, but petitioners did not attend such conference. On July 28, 1988, petitioner Renato Lim wrote the PESALA's Board of Directors explaining his side on the said examination of PESALA's records and requesting that a copy .of his letter be furnished the CB, which was forthwith made by the Board. 2 On July 29, 1988, PESALA's Board of Directors sent to Director Lirio a letter concerning the 16th regular examination of PESALA's records. On September 9, 1988, the Monetary Board adopted and issued MB Resolution No. 805 the pertinent provisions of which are as follows: 1. To note the report on the examination of the PAL Employees' Savings and Loan Association, Inc. (PESALA) as of December 31, 1987, as submitted in a memorandum of the Director, Supervision and Examination Section (SES) Department IV, dated August 19, 1988; 2. To require the board of directors of PESALA to immediately inform the members of PESALA of the results of the "Central Bank examination. and their effects on the financial condition of the Association; xxx xxx xxx

5. To include the names of Mr. Catalino Banez, Mr. Romeo Busuego and Mr. Renato Lim in the Sector's watchlist to prevent them from holding responsible positions in any institution under Central Bank supervision; 6. To require PESALA to enforce collection of the overpayment to the Vista Grande Management and Development Corporation and to require the accounting of P12.28 million unaccounted and unremitted bank loan proceeds and P3.9 million other unsupported cash disbursements from the responsible directors and officers; or to properly charge these against their respective accounts, if necessary; 7. To require the board of directors of PESALA to file civil and criminal cases against Messrs. Catalino Banez, Romeo Busuego and Renato Lim for all the misfeasance and malfeasance committed by them, as warranted by the evidence;
8. To require the board of directors of PESALA to improve the operations of the Association; correct all violations noted, and adopt internal control measures to prevent the recurrence of similar incidents as shown in Annex E of the subject memorandum of the Director, SES Department IV;
3

xxx xxx xxx On January 23, 1989, petitioners filed a Petition for Injunction with Prayer for the Immediate Issuance of a Temporary Restraining Order 4 docketed as Civil Case No. Q-89-1617 before Branch 104 of the Regional Trial Court of Quezon City. On January 26, 1989, the said court issued. a temporary restrainingorder 5 enjoining the defendant, the Monetary Board of the Central Bank, (now Banko Sentral ng Pilipinas) from including the names of petitioners in the watchlist. On February 10, 1989, the same trial Court issued a writ of preliminary injunction, 6 conditioned upon the filing by petitioners of a bond in the amount of Ten Thousand (P10,000.00) Pesos each. The Monetary Board presented a Motion for Reconsideration 7 of the said Order, but the same was denied. On September 11, 1999, the trial court handed down its Decision, disposing thus:
8

WHEREFORE, judgment is hereby rendered declaring Monetary Board Resolution No. 805 as void and in existent. The writ of preliminary prohibitory injunctions issued on February 10, 1989 is deemed permanent. Costs against respondent. The Monetary Board appealed the aforesaid Decision to the Court of Appeals which came out with a Decision 9 of reversal on September 14, 1990, the decretal portion of which is to the following effect: WHEREFORE, the decision appealed from is hereby reversed and another one entered dismissing the petition for injunction. Dissatisfied with the said Decision of the Court of Appeals, petitioners have come to this Court via the present petition for review on certiorari. On June 5, 1992, petitioners filed an "Urgent Motion for the Immediate Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction against the Secretary of Justice and the City Prosecutor of Pasay" 10 stating that several complaints were lodged against the petitioners before the Office of the City Prosecutor of Pasay City pursuant to Monetary Board Resolution No. 805; that the said complaints were dismissed, by the City Prosecutor and the dismissals were appealed to the Secretary of Justice for review, some of which have been reversed already. Petitioners prayed that Temporary Restraining Order and/or Writ of Preliminary Injunction issue "restraining and enjoining the Secretary of Justice and the City Prosecutor of Pasay City from proceeding and taking further actions, and more specially from filing Information's in I.S. Nos. 90-1836; 90- 1831; 90-1835; 901832; 90-1248; 90-1249; 90-3031; 90-3032; 90- 1837; 90-1834, pending the final resolution of the case at bar . . ." However, in the Resolution 11 dated September 9, 1992, the court denied the said motion. The petition poses as issues for resolution: I WHETHER OR NOT THE PETITIONERS WERE DEPRIVED OF THEIR RIGHT TO A NOTICE AND THE OPPORTUNITY TO BE HEARD BY THE MONETARY BOARD PRIOR TO ITS ISSUANCE OF MONETARY BOARD RESOLUTION NO. 805.

II WHETHER OR NOT THE RESPONDENT BOARD IS LEGALLY BOUND TO OBSERVE THE ESSENTIAL REQUIREMENTS OF DUE PROCESS OF A VALID CHARGE, NOTICE AND OPPORTUNITY TO BE HEARD INSOFAR AS THE PETITIONERS SUBJECT CASE IS CONCERNED. III WHETHER OR NOT MONETARY BOARD RESOLUTION NO. 805 IS NULL AND VOID FOR BEING VIOLATIVE OF PETITIONERS' RIGHTS TO DUE PROCESS. With respect to the first issue, the trial court said:
The evidence submitted Preponderates in favor of petitioners. The deprivation of petitioners' rights in the Resolution undermines the constitutional guarantee of due process. Petitioners were never notified that they were being investigated, much so, they were not informed of any charges against them and were not afforded the opportunity to adduce countervailing evidence so as to deserve the punitive measures promulgated in Resolution No. 805 of the Monetary Board . . . 12

The foregoing disquisition by the trial court is untenable under the facts and circumstances of the case. Petitioners were duly afforded their right to due process by the Monetary Board, it appearing that: 1. Petitioners were invited by Director Lirio to a conference scheduled for July 21, 1988 to discuss the findings made in the 16th regular examination of PESALA's records. Petitioners did not attend said conference; 2. Petitioner Renato Lim's letter of July 28, 1988 to PESALA.'s Board of Directors, explaining his side of the controversy, was forwarded to the Monetary Board which the latter considered in adopting Monetary Board Resolution No. 805; and 3. PESALA's Board of Director's letter, dated July 29, 1988, to Monetary Board, explaining the Board's side of the controversy was properly considered in the adoption of Monetary Board Resolution No. 805. Petitioners therefore cannot complain of deprivation of their right to

due process, as they were given ample opportunity by the Monetary Board to air their submission and defenses as to the findings of irregularity during the said 16th regular examination. The essence of due process is to be afforded a reasonable opportunity to be heard and to submit any evidence one may have in support of his defense 13 What is offensive to due process is the denial of the opportunity to be heard. 14 Petitioner having availed of their opportunity to present their position to the Monetary Board by their letters-explanation, they were not denied due process. 15 Petitioners cite Ang Tibay v. CIR 16 and assert that the following requisites of procedural due process were not observed by the Monetary Board: 1. The right to a hearing, which includes the right to present one's case and submit evidence in support thereof; 2. The tribunal must consider the evidence presented; 3. The decision must have something to support itself; 4. The evidence must be substantial; 5. The decision must be rendered on the evidence presented at the hearing, or at least contained in the record and disclosed to the parties affected; 6. The tribunal or body or any of its judges must act on its or his own independent consideration of the law and facts of the controversy and not simply accept the view of a subordinate in arriving at a decision; 7. The board or body should, in all controversial question, renders its decision in such manner that the parties to the proceedings can know the various issues involved and the reason for the decision rendered. Contrary to petitioners' allegation, it appears that the requisites of procedural due process were complied with by the Monetary Board before it issued the questioned Monetary Board Resolution No. 805. Firstly, the petitioner were invited to a conference to discuss the findings gathered during the 16th regular examination of PESALA's records. (The requirement of a hearing is complied with as long as there was an opportunity to be heard, and not

necessarily that an actual hearing was conducted. 17) Secondly, the Monetary Board considered the evidence presented. Thirdly, fourthly, and fifthly, Monetary Board Resolution No. 805 was adopted on the basis of said findings unearthed during the 16th regular examination of PESALA's records and derived from the letter-comments submitted by the parties. Sixthly, the members of the Monetary Board acted independently on their own in issuing subject Resolution, placing reliance on the said findings made during the 16th regular examination. Lastly, the reason for the issuance of Monetary Board Resolution No. 805 is readily apparent, which is to prevent further irregularities from being committed and to prosecute the officials responsible therefor. With respect to the second issue, there is tenability in petitioners' contention that the Monetary Board, as an administrative agency, is legally bound to observe due process, although they are free from the rigidity of certain procedural requirements. As held in Adamson and Adamson, Inc. v. Amores. 18 While administrative tribunals exercising quasi-judicial functions are free from the rigidity of certain procedural requirements they are bound by law and practice to observe the fundamental and essential requirements of due process in justiciable cases presented before them. However, the standard of due process that must be met in administrative tribunals allows a certain latitude as long as the element of fairness is not ignored. Hence, there is no denial of due process where records show that hearings were held with prior notice to adverse parties. But even in the absence of previous notice, there is no denial of procedural due process as long as the parties are given the opportunity to be heard. Even Section 28, (c) and (d), of Republic Act No. 3779 ("RA 1779") delineating the powers of the Monetary Board over savings and loan associations, require observance of due process in the exercise of its powers: xxx xxx xxx (c) To conduct at least once every year, and whenever necessary, any inspection, examination or investigation of the books and records, business affairs, administration, and financial condition of any savings and loan association with or without prior notice but always with fairness and reasonable opportunity for the association or any of its officials to give their side of the case. . .

(d) After proper notice and hearing, to suspend a savings and loan association for violation of law, for unsafe and unsound practices or for reason of insolvency. . . xxx xxx xxx (f) To decide, after appropriate notice and hearings any controversy as to the rights or obligations of the savings and loan association, its directors, officers, stockholders and members under its charter, and, by order, to enforce the same; xxx xxx xxx (emphasis supplied) Anent the third issue, petitioners theorize that Monetary Board Resolution No. 805 is null and void for being violative of petitioners' right to due process. To support their stance, they cite the trial court's ruling, to wit: A reading of Monetary Board Resolution No. 805 discloses that it imposes administrative sanctions against petitioners. In fact, it does not only penalize petitioners by including them in the "watchlist to prevent them from holding responsible positions in any institution under Central Bank supervision," it mandates the PESALA Board of Directors as well to file Civil and Criminal charges against them 'for all the misfeasance and malfeasance committed by them, as warranted by the evidence.' Monetary Board Resolution No. 805 virtually deprives petitioners their respective gainful employment, and at the same time marks them for judicial prosecution. The crucial question here is that were petitioners afforded due process in the investigations conducted which prompted the issuance of Monetary Board Resolution No. 805? . . . Although the Monetary Board is free from the rigidity of certain procedural requirements, it failed "to observe the essential requirement of due process" (Adamson and Adamson, Inc. v. Amores, 152 SCRA 237) specifically its failure to afford petitioners the opportunity to be heard. In short, there is a clear showing of arbitrariness resulting in an irreparable injury against petitioners as the Resolution certainly affects their "life, liberty and property. Monetary Board Resolution No. 805 violates basic and essential requirements. It must therefore be, as it is hereby, declared, as void and inexistent because among other things, it openly

derogates the fundamental rights of petitioners. Petitioners opine that with the issuance of Monetary Board Resolution No. 805, "they are now barred from being elected or designated as officers again of PESALA, and are likewise prevented from future engagements or employments in all institutions under the supervision of the Central Bank thereby virtually depriving them of the opportunity to seek employments in the field which they can excel and are best fitted." According to them, the Monetary Board is not vested with "the authority to disqualify persons from occupying positions in institutions under the supervision of the Central Bank without proper notice and hearing" nor is it vested with authority "to file civil and criminal cases against its officers directors for suspected fraudulent acts." Petitioners' contentions are untenable. It must be remembered that the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas), through the Monetary Board, is the government agency charged with the responsibility of administering the monetary, banking and credit system of the country 19 and is granted the power of supervision and examination over banks and non-bank financial institutions performing quasi-banking functions of which savings and loan associations, such as PESALA, from part of. 20 The special law governing savings and loan associations is Republic Act No. 3779, as amended, otherwise known as the "Savings and Loan Association Act." Said law authorizes the Monetary Board to conduct regular yearly examinations of the books and records of savings and loans associations, to suspend a savings and loan association for violation of law, to decide any controversy over the obligations and duties of directors and officers, and to take remedial measures, among others. Section 28 of Rep. Act No. 3779, reads; Sec. 28. Supervisory powers over savings and loan associations. In addition to whatever powers have been conferred by the foregoing provisions, the Monetary Board shall have the power to exercise the following. xxx xxx xxx (c) To conduct atleast once every year, and whenever necessary, any inspection, examination or investigation of the books and records, business affairs, administration, and financial condition of

any savings and loan association with or without prior notice but always with fairness and reasonable opportunity for the association or any of its official to give their side of the case. Whenever an inspection, examination or investigation is conducted under this grant power, the person authorized to do so may seize books and records and keep them under his custody after giving proper receipts therefor; may make any marking or notation on any paper, record, document or book to show that it has been examined and verified; and may padlock or seal shelves, vaults, safes, receptacles or similar container and prohibit the opening thereof without first securing authority therefor, for as long as may be necessary in connection with the investigation or examination being conducted. The official of the Central Bank in charge of savings and loan associations and his deputies are hereby authorized to administer oaths to any directors, officer or employee of any association under the supervision of the Monetary Board; xxx xxx xxx (d) After proper notice and hearing, to suspend a savings and loan association for violation of law, for unsafe and unsound practices or for reason of insolvency. The Monetary Board may likewise, upon the proof that a savings and loan association or its board or directors or officers are conducting and managing its affairs in a manner contrary to laws, orders, instruction, rules and regulations promulgated by the Monetary Board or in a manner substantially prejudicial to the interest of the government, depositors or creditors, take over the management of the savings and loan association after due hearing, until a new board of directors and officers are elected and qualified without prejudice to the prosecution of the persons responsible for such violations. The management by the Monetary Board shall be without expense to the savings and loan association, except such as is actually necessary for its operation, pending the election and qualification of a new board of directors and officers to take the place of those responsible for the violation or acts contrary to the interest of the government, depositors or creditors; xxx xxx xxx (f) To decide, after appropriate notice and hearings any controversy as to the rights or obligations of the savings and loan association, its directors, officers, stockholders and members

under its charter, and, by order, to enforce the same; xxx xxx xxx (I) To conduct such investigations, take such remedial measures, exercise all powers which are now or may hereafter be conferred upon it by Republic Act Numbered Two Hundred sixty-five in the enforcement of this legislation, and impose upon associations, whether stock or non-stock their directors and/or officers administrative sanctions under Sections 34-A or 34-B of Republic Act Two Hundred sixty-five, as amended. From the foregoing, it is gleanable that the Central Bank, through the Monetary Board, is empowered to conduct investigations and examine the records of savings and loan associations. If any irregularity is discovered in the process, the Monetary Board may impose appropriate sanctions, such as suspending the offender from holding office or from being employed with the Central Bank, or placing the names of the offenders in a watchlist. The requirement of prior notice is also relaxed under Section 28 (c) of RA 3779 as investigations or examinations may be conducted with or without prior notice "but always with fairness and reasonable opportunity for the association or any of its officials to give their side." As may be gathered from the records, the said requirement was properly complied with by the respondent Monetary Board. We sustain the ruling of the Court of Appeals that petitioners' suspension was only preventive in nature and therefore, no notice or hearing was necessary. Until such time that the petitioners have proved their innocence, they may be preventively suspended from holding office so as not to influence the conduct of investigation, and to prevent the commission of further irregularities. Neither were petitioners deprived of their lawful calling as they are free to look for another employment so long as the agency or company involved is not subject to Central Bank control and supervision. Petitioners can still practise their profession or engage in business as long as these are not within the ambit of Monetary Board Resolution No. 805. All thing studiedly considered, the court upholds the validity of Monetary Board Resolution No. 805 and affirms the decision of the

respondent court. WHEREFORE, the petition is DENIED, and the assailed Decision dated September 14, 1996 of the AFFIRMED. No pronouncement as to costs. SO ORDERED. 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 P1.6 Billion Pesos (sic) constituting the Banks funds placed under their trust and administration, by unlawfully releasing loans to the Borrower Corporations or refusing or failing to impugn these, knowing before the loans were released or thereafter that the Banks cash resources would be dissipated thereby, to the prejudice of the Petitioner, other Banco Filipino depositors, and the public. 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) 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 (P500,000.00) 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. 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 P50,000.00 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 ForumShopping, 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. 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 ForumShopping 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; 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: 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 (P30,000) a day for each violation, taking into consideration the attendant circumstances, such as the nature and gravity of the violation or irregularity and the size of the bank or quasi-bank; (b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities; (c) suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments; (d) suspension of interbank clearing privileges; and/or (e) revocation of quasi-banking license. Resignation or termination from office shall not exempt such director or officer from administrative or criminal sanctions. The Monetary Board may, whenever warranted by circumstances, preventively suspend any director or officer of a bank or quasibank pending an investigation: Provided, That should the case be not finally decided by the Bangko Sentral within a period of one hundred twenty (120) days after the date of suspension, said director or officer shall be reinstated in his position: Provided, further, That when the delay in the disposition of the case is due to the fault, negligence or petition of the director or officer, the period of delay shall not be counted in computing the period of suspension herein provided. The above administrative sanctions need not be applied in the order of their severity. Whether or not there is an administrative proceeding, if the institution and/or the directors and/or officers concerned continue with or otherwise persist in the commission of the indicated practice or violation, the Monetary Board may issue an order requiring the institution and/or the directors and/or officers concerned to cease and desist from the indicated practice or violation, and may further order that immediate action be taken to correct the conditions resulting from such practice or violation. The

cease and desist order shall be immediately effective upon service on the respondents. The respondents shall be afforded an opportunity to defend their action in a hearing before the Monetary Board or any 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 (P10,000) a day for each violation, the imposition of which shall be final and executory until reversed, modified or lifted by the Monetary Board on appeal.29 Koruga also accused Arcenas, et al. of violation of the Corporation Codes provisions on self-dealing and conflict of interest. She invoked Section 31 of the Corporation Code, which defines the liability of directors, trustees, or officers of a corporation for, among others, acquiring any personal or pecuniary interest in conflict with their duty as directors or trustees, and Section 32, which prescribes the conditions under which a contract of the corporation with one or more of its directors or trustees the so-called "selfdealing 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 circumstances; and is fair and reasonable under the

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 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 IntraCorporate 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 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. 03985, pending before the Regional Trial Court of Makati City, is DISMISSED. 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. 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, petitionervs.COURT OF APPEALS, HON. MANUEL M. COSICO, in his capacity as Presiding Judge of Branch 136 of the Regional Trial Court of Makati, CENTRAL BANK OF THE PHILIPPINES AND CARLOTA P. VALENZUELA, respondents.

G.R. No. 81304 December 11, 1991 BF HOMES DEVELOPMENT CORPORATION, petitioner, vs.THE COURT OF APPEALS, CENTRAL BANK AND CARLOTA P. VALENZUELA, respondents. G.R. No. 90473 December 11, 1991 EL GRANDE DEVELOPMENT CORPORATION, petitioner, vs. THE COURT OF APPEALS, THE EXECUTIVE JUDGE of the Regional Trial Court of Cavite, CLERK OF COURT and ExOfficio Sheriff ADORACION VICTA, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND 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.:p 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 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. 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. 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 eightynine (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- 6162, Rollo) On January 25, 1985, the Monetary Board issued the assailed MB Resolution No. 75 which ordered the closure of BF and which further provides: After considering the report dated January 8, 1985 of the Conservator for Banco Filipino Savings and Mortgage Bank that the continuance in business of the bank would involve probable loss to its depositors and creditors, and after discussing and finding to be true the statements of the Special Assistant to the Governor and Head, Supervision and Examination Sector (SES) Department II as recited in his memorandum dated January 23,

1985, that the Banco Filipino Savings & 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 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 preplanned liquidation. This Court noted that during the referral hearing however, a different scheme was followed. Respondents merely submitted to the commissioner their findings on the examinations conducted on petitioner, affidavits of the private respondents relative to the findings, their reports to the Monetary Board and several other documents in support of their position while petitioner had merely submitted objections to the findings of respondents, 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; 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. 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.

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. 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-incharge 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. 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. 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). 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 nonbank 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 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. 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 selfimposed 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. G.R. No. L-20119 June 30, 1967

CENTRAL BANK OF THE PHILIPPINES, petitioner, vs.THE HONORABLE JUDGE JESUS P. MORFE and FIRST MUTUAL SAVING AND LOAN ORGANIZATION, INC., respondents. Natalio M. Balboa, F. E. Evangelista and Mariano Abaya for petitioner.Halili, Bolinao, Bolinao and Associates for respondents. CONCEPCION, C.J.:

This is an original action for certiorari, prohibition and injunction, with preliminary injunction, against an order of the Court of First Instance of Manila, the dispositive part of which reads: WHEREFORE, upon the petitioner filing an injunction bond in the amount of P3,000.00, let a writ of preliminary preventive and/or mandatory injunction issue, restraining the respondents, their agents or representatives, from further searching the premises and properties and from taking custody of the various documents and papers of the petitioner corporation, whether in its main office or in any of its branches; and ordering the respondent Central Bank and/or its co-respondents to return to the petitioner within five (5) days from service on respondents of the writ of preventive and/or mandatory injunction, all the books, documents, and papers so far seized from the petitioner pursuant to the aforesaid search warrant.
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Upon the filing of the petition herein and of the requisite bond, we issued, on August 14, 1962, a writ of preliminary injunction restraining and prohibiting respondents herein from enforcing the order above quoted. The main respondent in this case, the First Mutual Savings and Loan Organization, Inc. hereinafter referred to as the Organization is a registered non-stock corporation, the main purpose of which, according to its Articles of Incorporation, dated February 14, 1961, is "to encourage . . . and implement savings and thrift among its members, and to extend financial assistance in the form of loans," to them. The Organization has three (3) classes of "members,"1 namely: (a) founder members who originally joined the organization and have signed the pre-incorporation papers with the exclusive right to vote and be voted for ; (b) participating members with "no right to vote or be voted for" to which category all other members belong; except (c) honorary members, so made by the board of trustees, "at the exclusive discretion" thereof due to "assistance, honor, prestige or help extended in the propagation" of the objectives of the Organization without any pecuniary expenses on the part of said honorary members. On February 14, 1962, the legal department of the Central Bank of the Philippines hereinafter referred to as the Bank rendered an opinion to the effect that the Organization and others of similar

nature are banking institutions, falling within the purview of the Central Bank Act.2 Hence, on April 1 and 3, 1963, the Bank caused to be published in the newspapers the following: ANNOUNCEMENT To correct any wrong impression which recent newspaper reports on "savings and loan associations" may have created in the minds of the public and other interested parties, as well as to answer numerous inquiries from the public, the Central Bank of the Philippines wishes to announce that all "savings and loan associations" now in operation and other organizations using different corporate names, but engaged in operations similar in nature to said "associations" HAVE NEVER BEEN AUTHORIZED BY THE MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES TO ACCEPT DEPOSIT OF FUNDS FROM THE PUBLIC NOR TO ENGAGE IN THE BANKING BUSINESS NOR TO PERFORM ANY BANKING ACTIVITY OR FUNCTION IN THE PHILIPPINES. Such institutions violate Section. 2 of the General Banking Act, Republic Act No. 337, should they engage in the "lending of funds obtained from the public through the receipts of deposits or the sale of bonds, securities or obligations of any kind" without authority from the Monetary Board. Their activities and operations are not supervised by the Superintendent of Banks and persons dealing with such institutions do so at their risk. CENTRAL BANK OF THE PHILIPPINES Moreover, on April 23, 1962, the Governor of the Bank directed the coordination of "the investigation and gathering of evidence on the activities of the savings and loan associations which are operating contrary to law." Soon thereafter, or on May 18, 1962, a member of the intelligence division of the Bank filed with the Municipal Court of Manila a verified application for a search warrant against the Organization, alleging that "after close observation and personal investigation, the premises at No. 2745 Rizal Avenue, Manila" in which the offices of the Organization were housed "are being used unlawfully," because said Organization is illegally engaged in banking activities, "by receiving deposits of money for deposit, disbursement, safekeeping or otherwise or transacts the business of a savings and mortgage bank and/or building and loan association . . . without having first complied with the provisions of

Republic Act No. 337" and that the articles, papers, or effects enumerated in a list attached to said application, as Annex A thereof.3 are kept in said premises, and "being used or intended to be used in the commission of a felony, to wit: violation of Sections 2 and 6 of Republic Act No. 337."4 Said articles, papers or effects are described in the aforementioned Annex A, as follows: I. BOOKS OF ORIGINAL ENTRY (1) General Journal (2) Columnar Journal or Cash Book (a) Cash Receipts Journal or Cash Receipt Book (b) Cash Disbursements Journal or Cash Disbursement Book II. BOOKS OF FINAL ENTRY (1) General Ledger (2) Individual Deposits and Loans Ledgers (3) Other Subsidiary Ledgers III. OTHER ACCOUNTING RECORDS (1) Application for Membership (2) Signature Card (3) Deposit Slip (4) Passbook Slip (5) Withdrawal Slip (6) Tellers Daily Deposit Report (7) Application for Loan Credit Statement (8) Credit Report (9) Solicitor's Report

(10) Promissory Note (11) I n d o r s e m e n t (12) Co-makers' Statements (13) Chattel Mortgage Contracts (14) Real Estate Mortgage Contracts (15) Trial Balance (16) Minutes Book Board of Directors IV. FINANCIAL STATEMENTS (1) Income and Expenses Statements (2) Balance Sheet or Statement of Assets and Liabilities V. OTHERS (1) Articles of Incorporation (2) By-Laws

(3) Prospectus, Brochures Etc. (4) And other documents and articles which are being used or intended to be used in unauthorized banking activities and operations contrary to law. Upon the filing of said application, on May 18, 1962, Hon. Roman Cancino, as Judge of the said municipal court, issued the warrant above referred to,5 commanding the search of the aforesaid premises at No. 2745 Rizal Avenue, Manila, and the seizure of the foregoing articles, there being "good and sufficient reasons to believe" upon examination, under oath, of a detective of the Manila Police Department and said intelligence officer of the Bank that the Organization has under its control, in the address given, the aforementioned articles, which are the subject of the offense adverted to above or intended to be used as means for the commission of said off offense.

Forthwith, or on the same date, the Organization commenced Civil Case No. 50409 of the Court of First Instance of Manila, an original action for "certiorari, prohibition, with writ of preliminary injunction and/or writ of preliminary mandatory injunction," against said municipal court, the Sheriff of Manila, the Manila Police Department, and the Bank, to annul the aforementioned search warrant, upon the ground that, in issuing the same, the municipal court had acted "with grave abuse of discretion, without jurisdiction and/or in excess of jurisdiction" because: (a) "said search warrant is a roving commission general in its terms . . .;" (b) "the use of the word 'and others' in the search warrant . . . permits the unreasonable search and seizure of documents which have no relation whatsoever to any specific criminal act . . .;" and (c) "no court in the Philippines has any jurisdiction to try a criminal case against a corporation . . ." The Organization, likewise, prayed that, pending hearing of the case on the merits, a writ of preliminary injunction be issued ex parte restraining the aforementioned search and seizure, or, in the alternative, if the acts complained of have been partially performed, that a writ of preliminary mandatory injunction be forthwith issued ex parte, ordering the preservation of the status quo of the parties, as well as the immediate return to the Organization of the documents and papers so far seized under, the search warrant in question. After due hearing, on the petition for said injunction, respondent, Hon. Jesus P. Morfe, Judge, who presided over the branch of the Court of First Instance of Manila to which said Case No. 50409 had been assigned, issued, on July 2, 1962, the order complained of. Within the period stated in said order, the Bank moved for a reconsideration thereof, which was denied on August 7, 1962. Accordingly, the Bank commenced, in the Supreme Court, the present action, against Judge Morfe and the Organization, alleging that respondent Judge had acted with grave abuse of discretion and in excess of his jurisdiction in issuing the order in question. At the outset, it should be noted that the action taken by the Bank, in causing the aforementioned search to be made and the articles above listed to be seized, was predicated upon the theory that the Organization was illegally engaged in banking by receiving money for deposit, disbursement, safekeeping or otherwise, or transacting the business of a savings and mortgage bank and/or

building and loan association, without first complying with the provisions of R.A. No. 337, and that the order complained of assumes that the Organization had violated sections 2 and 6 of said Act.6 Yet respondent Judge found the searches and, seizures in question to be unreasonable, through the following process of reasoning: the deposition given in support of the application for a search warrant states that the deponent personally knows that the premises of the Organization, at No. 2745 Rizal Avenue, Manila,7 were being used unlawfully for banking and purposes. Respondent judge deduce, from this premise, that the deponent " knows specific banking transactions of the petitioner with specific persons," and, then concluded that said deponent ". . . could have, if he really knew of actual violation of the law, applied for a warrant to search and seize only books" or records: covering the specific purportedly illegal banking transactions of the petitioner with specific persons who are the supposed victims of said illegal banking transactions according to his knowledge. To authorize and seize all the records listed in Annex A to said application for search warrant, without reference to specific alleged victims of the purported illegal banking transactions, would be to harass the petitioner, and its officers with a roving commission or fishing expedition for evidence which could be discovered by normal intelligence operations or inspections (not seizure) of books and records pursuant to Section 4 of Republic Act No 337 . . ." The concern thus shown by respondent judge for the civil liberty involved is, certainly, in line with the function of courts, as ramparts of justice and liberty and deserves the greatest encouragement and warmest commendation. It lives up to the highest traditions of the Philippine Bench, which underlies the people's faith in and adherence to the Rule of Law and the democratic principle in this part of the World. At the same time, it cannot be gainsaid the Constitutional injunction against unreasonable searches and seizures seeks to forestall, not purely abstract or imaginary evils, but specific and concrete ones. Indeed, unreasonableness is, in the very nature of things, a condition dependent upon the circumstances surrounding each case, in much the same way as the question whether or not "probable cause" exists is one which must be decided in the light of the conditions obtaining in given situations.

Referring particularly to the one at bar, it is not clear from the order complained of whether respondent Judge opined that the above mentioned statement of the deponent to the effect that the Organization was engaged in the transactions mentioned in his deposition deserved of credence or not. Obviously, however, a mere disagreement with Judge Cancino, who issued the warrant, on the credibility of said statement, would not justify the conclusion that said municipal Judge had committed a grave abuse of discretion, amounting to lack of jurisdiction or excess of jurisdiction. Upon the other hand, the failure of the witness to mention particular individuals does not necessarily prove that he had no personal knowledge of specific illegal transactions of the Organization, for the witness might be acquainted with specific transactions, even if the names of the individuals concerned were unknown to him. Again, the aforementioned order would seem to assume that an illegal banking transaction, of the kind contemplated in the contested action of the officers of the Bank, must always connote the existence of a "victim." If this term is used to denote a party whose interests have been actually injured, then the assumption is not necessarily justified. The law requiring compliance with certain requirements before anybody can engage in banking obviously seeks to protect the public against actual, as well as potential, injury. Similarly, we are not aware of any rule limiting the use of warrants to papers or effects which cannot be secured otherwise. The line of reasoning of respondent Judge might, perhaps, be justified if the acts imputed to the Organization consisted of isolated transactions, distinct and different from the type of business in which it is generally engaged. In such case, it may be necessary to specify or identify the parties involved in said isolated transactions, so that the search and seizure be limited to the records pertinent thereto. Such, however, is not the situation confronting us. The records suggest clearly that the transactions objected to by the Bank constitute the general pattern of the business of the Organization. Indeed, the main purpose thereof, according to its By-laws, is "to extend financial assistance, in the form of loans, to its members," with funds deposited by them. It is true, that such funds are referred to in the Articles of Incorporation and the By-laws as their "savings." and that the depositors thereof are designated as "members," but, even a

cursory examination of said documents will readily show that anybody can be a depositor and thus be a "participating member." In other words, the Organization is, in effect, open to the "public" for deposit accounts, and the funds so raised may be lent by the Organization. Moreover, the power to so dispose of said funds is placed under the exclusive authority of the "founder members," and "participating members" are expressly denied the right to vote or be voted for, their "privileges and benefits," if any, being limited to those which the board of trustees may, in its discretion, determine from time to time. As a consequence, the "membership" of the "participating members" is purely nominal in nature. This situation is fraught, precisely, with the very dangers or evils which Republic Act No. 337 seeks to forestall, by exacting compliance with the requirements of said Act, before the transactions in question could be undertaken. It is interesting to note, also, that the Organization does not seriously contest the main facts, upon which the action of the Bank is based. The principal issue raised by the Organization is predicated upon the theory that the aforementioned transactions of the Organization do not amount to " banking," as the term is used in Republic Act No. 337. We are satisfied, however, in the light of the circumstance obtaining in this case, that the Municipal Judge did not commit a grave abuse of discretion in finding that there was probable cause that the Organization had violated Sections 2 and 6 of the aforesaid law and in issuing the warrant in question, and that, accordingly, and in line with Alverez vs. Court of First Instance (64 Phil. 33), the search and seizure complained of have not been proven to be unreasonable. Wherefore, the order of respondent Judge dated July 2, 1962, and the writ of preliminary mandatory injunction issued in compliance therewith are hereby annulled, and the writ of preliminary injunction issued by this Court on August 14, 1962, accordingly, made permanent, with costs against respondent First Mutual Savings and Loan Organization, Inc. It is so ordered. G.R. No. 150886 February 16, 2007

RURAL BANK OF SAN MIGUEL, INC. and HILARIO P. SORIANO, in his capacity as majority stockholder in the Rural 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 certiorari 1 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 P375 [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 P26.189 [million] which is the last tranche of the P375 million emergency loan for the sole purpose of servicing and meeting the withdrawals of its depositors. Of the P26.180 million, xxx P12.6 million xxx was not used to service withdrawals [and] remains unaccounted for as admitted by [RBSMs Treasury Officer and Officer-in-Charge of Treasury]. Instead of servicing withdrawals of depositors, RBSM paid Forcecollect Professional Solution, Inc. and Surecollect Professional, Inc., entities which are owned and controlled by Hilario P. Soriano and other RBSM officers. On January 4, 2000, RBSM declared a bank holiday. RBSM and all of its 15 branches were closed from doing business. Alarmed and disturbed by the unilateral declaration of bank holiday, [BSP] wanted to examine the books and records of RBSM but encountered problems. Meanwhile, on November 10, 1999, RBSMs designated comptroller, Ms. Zenaida Cabais of the BSP, submitted to the

Department of Rural Banks, BSP, a Comptrollership Report on her findings on the financial condition and operations of the bank as of October 31, 1999. Another set of findings was submitted by said comptroller [and] this second report reflected the financial status of RBSM as of December 31, 1999. The findings of the comptroller on the financial state of RBSM as of October 31, 1999 in comparison with the financial condition as of December 31, 1999 is summed up pertinently as follows: FINANCIAL CONDITION OF RBSM As of Oct. 31, 1999 Total obligations/ Liabilities Realizable Assets Deficit Cash on Hand As of Dec. 31, 1999

P1,076,863,000.0 1,009,898,000.00 0 898,588,000.00 178,275,000.00 101,441.547.00 796,930,000.00 212,968,000.00 8,266,450.00

Required Capital Infusion P252,120,000.00 Capital Infusion P5,000,000.00 (On Dec. 20, 1999)Actual Breakdown of Total Obligations: 1) Deposits of 20,000 depositors P578,201,000.00 2) Borrowings from BSP P320,907,000.00 3) Unremitted withholding P57,403,000.00.9 and gross receipt taxes

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:

(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): 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 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. 169334 September 8, 2006

LETICIA G. MIRANDA, petitioner, vs.PHILIPPINE DEPOSIT INSURANCE CORPORATION, BANGKO SENTRAL NG PILIPINAS and PRIME SAVINGS BANK, Respondents. DECISION YNARES-SANTIAGO, J.: This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks a reversal of the Decision 1 of the Court of Appeals dated February 23, 2005 in CA-G.R. CV No. 77556 which reversed and set aside the Decision2 of the Regional Trial Court of Santiago City, Branch 35, in Civil Case No. 35-2844 and the July 7, 2005 Resolution denying petitioner's Motion for Reconsideration.3 Petitioner Leticia G. Miranda was a depositor of Prime Savings Bank, Santiago City Branch. On June 3, 1999, she withdrew substantial amounts from her account, but instead of cash she opted to be issued a crossed cashier's check. She was thus issued cashier's check no. 0000000518 in the sum of P2,500,000.00 and cashier's check no. 0000000514 in the amount of P3,002,000.00.4 Petitioner deposited the two checks into her account in another bank on the same day, however, Bangko Sentral ng Pilipinas (BSP) suspended the clearing privileges of Prime Savings Bank effective 2:00 p.m. of June 3, 1999. The two checks of petitioner were returned to her unpaid.5 On June 4, 1999, Prime Savings Bank declared a bank holiday. On January 7, 2000, the BSP placed Prime Savings Bank under the receivership of the Philippine Deposit Insurance Corporation (PDIC).6 Petitioner filed a civil action for sum of money in the Regional Trial Court of Santiago City, Isabela to recover the funds from her unpaid checks against Prime Savings Bank, PDIC and the BSP.

Judgment on the pleadings was rendered on March 1, 2001, the dispositive portion of which reads: WHEREFORE, judgment is rendered against defendants namely: Philippine Deposit Insurance Corporation, Bangko Sentral ng Pilipinas and Prime Bank, to pay jointly and solidarily the amount of P5,502,000.00 to the plaintiff. SO ORDERED. 7 On appeal, the Court of Appeals reversed the trial court and ruled in favor of the PDIC and BSP, dismissing the case against them, without prejudice to the right of petitioner to file her claim before the court designated to adjudicate on claims against Prime Savings Bank. The dispositive portion of the appellate court's decision dated February 23, 2005 thus reads: WHEREFORE, the appeal is GRANTED and the decision appealed from is REVERSED and SET ASIDE and the case is DISMISSED, without prejudice to the right of Miranda to file her claim before the court designated to adjudicate on claims against Prime Savings Bank. SO ORDERED. 8 Petitioner's motion for reconsideration was denied,9 hence, this petition. The issues presented by the petitioner before this Court can be summarized as follows: (1) Whether the two cashier's checks operate as an assignment of funds in the hands of the petitioner; (2) Whether the claim lodged by the petitioner is a disputed claim under Section 30 of Republic Act (R.A.) No. 7653, otherwise known as the New Central Bank Act, and therefore, under the jurisdiction of the liquidation court; and (3) Whether the respondents are solidarily liable to the petitioner. Petitioner contends that she ceased to be a depositor upon withdrawal of her deposit and the issuance of the two cashier's checks to her. As a holder in due course of the cashier's checks as defined under Sections 52 and 191 of the Negotiable Instruments Law, she is an assignee of the funds of Prime Savings Bank as drawer thereof and entitled to its immediate payment.10

Petitioner next argues that the present claim is not a disputed claim in contemplation of Section 30 of the New Central Bank Act. Since disputed claims refer to all claims, whether they be against the assets of the insolvent bank, for specific performance, breach of contract, or damages, it is manifest that petitioner's claim cannot fall within the purview of a disputed claim because she is recovering assigned funds which are segregated monies of Prime Savings Bank.11 Petitioner further states that by the mere issuance of the cashier's check, the funds represented by the check are transferred from the credit of the maker to that of the payee or holder. Hence, petitioner alleges that she cannot be placed on the same footing with the ordinary creditors of the bank because Section 30 of R.A. No. 7653 is for equality among creditors. She avers that she is not a creditor thus is entitled to the immediate payment of her claim, pursuant to Section 189 of the Negotiable Instruments Law and existing jurisprudence. She argues that putting her on equal footing with ordinary creditors, would contravene the provisions of the Negotiable Instruments Law and would greatly diminish her rights as a holder in due course of said two cashier's checks.12 Petitioner also argues that respondents PDIC and BSP contrary to Sections 185 and 189 of the Negotiable Instruments Law have caused damage to the petitioner and should be held solidarily liable by indemnifying the petitioner for the value of the two cashier's checks.13 Respondents, on the other hand, state that the mere issuance of the cashier's checks did not operate as assignment of funds in favor of the petitioner. They argue that even prior to the issuance of the cashier's checks, the bank was already cash-strapped, which negates petitioner's claim that there was an assignment of funds in her favor.14 There can be no assignment of funds when there is no funds to speak of in the first place. They likewise argue that the cashier's checks issued to petitioner were not certified but crossed, hence, there was no assignment of funds made by the cashier or manager of respondent Prime Savings Bank-Santiago City Branch as it had insufficient funds to meet the said checks either in its cash vault or with respondent BSP to clear the said checks.15 Respondents argue that the instant case involves a disputed claim

of sum of money against a closed financial institution. Sections 30 and 31 of R.A. No. 7653, exclusively vests the authority to assess, evaluate and determine the condition of any bank with the BSP, while the PDIC has the primary responsibility of acting as receiver or liquidator of the closed financial institution. 16 Since the relationship between petitioner and Prime Savings Bank is one of creditor and debtor, petitioner should file her claim with the liquidation court constituted precisely for purposes of adjudicating claims against the bank in accordance with the rules on concurrence and preference of credits.17 Respondent PDIC alleges that it was impleaded in its representative capacity as the receiver/liquidator of the closed institution, therefore, it has no direct, personal and solidary liability for the payment of the two cashier's checks. Its involvement came about only because a bank under receivership or liquidation cannot sue or be sued except through its receiver or liquidator.18 Respondent BSP also insists that not being a party to the said checks nor for imposing sanctions on co-respondent Prime Savings Bank, is not liable on the said crossed cashier's checks.19 Anent the first issue, the two cashier's checks issued by Prime Savings Bank do not constitute an assignment of funds in the hands of the petitioner as there were no funds to speak of in the first place. The bank was financially insolvent for sometime, even before the issuance of the checks on June 3, 1999. As the Court of Appeals correctly ruled, the issuance of the cashier's checks to petitioner did not constitute an assignment of funds, of which there was practically none at the time these were issued, as the bank was in dire financial straits for some time.20 As regards the second issue, the claim lodged by the petitioner qualifies as a disputed claim subject to the jurisdiction of the liquidation court. Regular courts do not have jurisdiction over actions filed by claimants against an insolvent bank, unless there is a clear showing that the action taken by the BSP, through the Monetary Board in the closure of financial institutions was in excess of jurisdiction, or with grave abuse of discretion. The power and authority of the Monetary Board to close banks and liquidate them thereafter when public interest so requires is an exercise of the police power of the State. Police power, however, is subject to judicial inquiry. It may not be exercised arbitrarily or

unreasonably and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust, or is tantamount to a denial of due process and equal protection clauses of the Constitution.21 "Disputed claims" refer to all claims, whether they be against the assets of the insolvent bank, for specific performance, breach of contract, damages, or whatever.22 Petitioner's claim which involved the payment of the two cashier's checks that were not honored by Prime Savings Bank due to its closure falls within the ambit of a claim against the assets of the insolvent bank. The issuance of the cashier's checks by Prime Savings Bank to the petitioner created a debtor/creditor relationship between them. This disputed claim should therefore be lodged in the liquidation proceedings by the petitioner as creditor, since the closure of Prime Savings Bank has rendered all claims subsisting at that time moot which can best be threshed out by the liquidation court and not the regular courts. 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.23 In Central Bank of the Philippines v. De la Cruz,24 we held that the actions of the Monetary Board in proceedings on insolvency are explicitly declared by law to be "final and executory." They may not be set aside, or restrained, or enjoined by the courts, except upon "convincing proof that the action is plainly arbitrary and made in bad faith. Hence, as clearly laid down in Ong v. Court of Appeals,25 the rationale behind judicial liquidation is intended to prevent multiplicity of actions against the insolvent bank. It is a pragmatic arrangement designed to establish due process and orderliness in the liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice and arbitrariness. The lawmaking body contemplated that for convenience, only one court, if possible, should pass upon the claims against the insolvent bank and that

the liquidation court should assist the Superintendent of Banks and regulate his operations. Regarding the third issue, it is only Prime Savings Bank that is liable to pay for the amount of the two cashier's checks. Solidary liability cannot attach to the BSP, in its capacity as government regulator of banks, and the PDIC as statutory receiver under R.A. No. 7653, because they are the principal government agencies mandated by law to determine the financial viability of banks and quasi-banks, and facilitate receivership and liquidation of closed financial institutions, upon a factual determination of the latter's insolvency. As correctly pointed out by the Court of Appeals, the BSP should not be held liable on the crossed cashier's checks for it was not a party to the issuance of the same; nor can it be held liable for imposing the sanctions on Prime Savings Bank which indirectly affected Miranda, since it is mandated under Sec. 37 of R.A. No. 7653 to act accordingly.26 The BSP, through the Monetary Board was well within its discretion to exercise this power granted by law to issue a resolution suspending the interbank clearing privileges of Prime Savings Bank, having made a factual determination that the bank had deficient cash reserves deposited before the BSP. There is no showing that the BSP abused this discretionary power conferred upon it by law. In addition, co-respondent PDIC was impleaded as a party-litigant only in its representative capacity as the receiver/liquidator of Prime Savings Bank. Both BSP and PDIC cannot therefore be held directly and solidarily liable for the payment of the two cashier's checks. Sole liability rests with Prime Savings Bank. In the absence of fraud, the purchase of a cashier's check, like the purchase of a draft on a correspondent bank, creates the relation of creditor and debtor, not that of principal and agent, with the result that the purchaser or holder thereof is not entitled to a preference over general creditors in the assets of the bank issuing the check, when it fails before payment of the check. However, in a situation involving the element of fraud, where a cashier's check is purchased from a bank at a time when it is insolvent, as its officers know or are bound to know by the exercise of reasonable diligence, it has been held that the purchase is entitled to a preference in the assets of the bank on its

liquidation before the check is paid.27 As correctly found by the Court of Appeals: Prime Savings as a bank did not collapse overnight but was hemorrhaging and in financial extremis for some time, a fact which could not have gone unnoticed by the bank officers. They could not have issued in good faith checks for the total sum of P5,502,000.00 knowing that the bank's coffers could not meet this.28 Clearly, there was fraud or the intent to deceive when the two cashier's checks dated June 3, 1999 were issued by Prime Savings Bank to the petitioner. In the distribution of assets of Prime Savings Bank, Section 31 of the New Central Bank Act which provides that "[i]n case of liquidation of a bank or quasi-bank, after payment of the cost of proceedings, including reasonable expenses and fees of the receiver to be allowed by the court, the receiver shall pay the debts of such institution, under order of the court, in accordance with the rules on concurrence and preference of credit as provided in the Civil Code," should apply. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated February 23, 2005 and the Resolution dated July 7, 2005, in CA-G.R. CV No. 77556, are AFFIRMED with the MODIFICATION that petitioner Leticia G. Miranda is entitled to a preference in the assets of Prime Savings Bank in its liquidation for the amounts of P3,002,000.00 and P2,500,000.00, respectively stated in Cashier's Check No. 0000000514 and 0000000518 dated June 3, 1999 in the proceedings before the liquidation court designated to adjudicate on all claims against Prime Savings Bank, in accordance with the rules on concurrence and preference of credits as provided in the Civil Code. SO ORDERED. G.R. No. 88353 May 8, 1992 CENTRAL BANK OF THE PHILIPPINES and HON. JOSE B. FERNANDEZ, petitioners, vs.HON. COURT OF APPEALS, RTC JUDGE TEOFILO GUADIZ, JR., PRODUCERS BANK OF THE PHILIPPINES and PRODUCERS PROPERTIES, INC.,

respondents. G.R. No. 92943 May 8, 1992 ATTY. LEONIDA G. TANSINSIN-ENCARNACION, as the Acting Conservator of Producers Bank of the Philippines, and PRODUCERS BANK OF THE PHILIPPINES, petitioners, vs. PRODUCERS BANK OF THE PHILIPPINES, allegedly represented by HENRY L. CO, HON. COURT OF APPEALS, HON. TEOFILO GUADIZ, JR., and the "LAW FIRM OF QUISUMBING, TORRES AND EVANGELISTA" (RAMON J. QUISUMBING, VICENTE TORRES,RAFAEL E. EVANGELISTA, JR. and CHRISTOFER L. LIM), respondents. Agapito S. Fajardo, Jerry P. Rebutoc & Antonio M. Tan for petitioners in G.R. No. 88353. Leonida G.T. Encarnacion for petitioners in G.R. No. 92943. Quiason, Makalintal, Barot, Torres, Ibarra Law Office for the respondents in G.R. Nos. 88353 & 92943.

DAVIDE, JR., J.: The common origin of these cases is Civil Case No. 17692 filed before Branch 147 (Makati) of the Regional trail Court, National Capital Judicial Region and entitled Producers Bank of the Philippines and Producers Properties, Inc. versus Central Bank of the Philippines, Jose B. Fernandez. Jr. and the Monetary Board. On 21 January 1991, this Court ordered the consolidation of G.R. No. 92943 with G.R. No. 88353. 1 The first case, G.R. No. 88353, is a petition for review on certiorari of the decision of 6 October 1988 2 and the resolution of 17 May 1989 3 of the respondent Court of Appeals in C.A.-G.R. No. SP13624. The impugned decision upheld the 21 September 1987 Order of respondent Judge Teofilo Guadiz, Jr. in Civil Case No. 17692 granting the motion for issuance of a writ of preliminary injunction enjoining petitioners Central Bank of the Philippines (CB), Mr. Jose B. Fernandez, Jr. and the Monetary Board, or any of their agencies from implementing Monetary Board (MB) Resolutions No. 649 and No. 751, or from taking the threatened

appropriate alternative action and the 27 October 1987 Order in the same case denying petitioners' motion to dismiss and vacate said injunction. The challenged resolution, on the other hand, denied petitioners' motion for reconsideration of the 6 October 1988 decision. The second case, G.R. No. 92943, is a petition for review directed principally against the 17 January 1990 decision of the respondent Court of Appeals in C.A.-G.R. SP No. 16972. The said decision dismissed the petition therein filed and sustained the various Orders of the respondent Judge in Civil Case No. 17692, but directed the plaintiffs therein to amend the amended complaint by stating in its prayer the specific amount of damages which Producers Bank of the Philippines (PBP) claims to have sustained as a result of losses of operation and the conservator's bank frauds and abuses; the Clerk of Court was also ordered to determine the amount of filing fees which should be paid by the plaintiffs within the applicable prescriptive or reglementary period. 4 The records of both cases reveal the following factual and procedural antecedents: Petitioners claim that on 29 April 1983, during the regular examination of the PBP, CB examiners stumbled upon some highly questionable loans which had been extended by the PBP management to several entities. Upon further examination, it was discovered that these loans, totalling approximately P300 million, were "fictitious" as they were extended, without collateral, to certain interests related to PBP owners themselves. Said loans were deemed to be anomalous particularly because the total paidin capital of PBP at that time was only P 140.544 million. This means that the entire paid-in capital of the bank, together with some P160 million of depositors' money, was utilized by PBP management to fund these unsecured loans. Sometime in August of the same year, at the height of the controversy surrounding the discovery of the anomalous loans, several blind items about a family-owned bank in Binondo which granted fictitious loans to its stockholders appeared in major newspapers. These news items triggered a bank-run in PBP which resulted in continuous over-drawings on the bank's demand deposit account with the Central Bank; the over-drawings reached P74.109 million by 29 August 1983. By 17 January 1984, PBP's

overdraft with the CB increased to P143.955 million, an indication of PBP's continuing inability to maintain that condition of solvency and liquidity necessary to protect the interests of its depositors and creditors. Hence, on 20 January 1984, on the basis of the report submitted by the Supervision and Examination Sector, Department I of the CB, the Monetary Board (MB), pursuant to its authority under Section 28-A of R.A. No. 265 and by virtue of MB Board Resolution No. 164, placed PBP under conservatorship. 5 While PBP admits that it had no choice but to submit to the conservatorship, 6 it nonetheless requested that the same be lifted by the CB. Consequently, the MB issued on 3 February 1984 Resolution No. 169 directing the principal stockholders of PBP to increase its capital accounts by such an amount that would be necessary for the elimination of PBP's negative net worth of P424 million. On 10 April 1984, CB senior deputy Governor Gabriel Singson informed PBP that pursuant to MB Resolution No. 490 of 30 March 1984, the CB would be willing to lift the conservatorship under the following conditions: (a) PBP's unsecured overdraft with the Central Bank will be converted into an emergency loan, to be secured by sufficient collateral, including but not limited to the Following properties offered by PBP's principal stockholders: i. 6 floors and other areas of the Producers Bank Bldg., at Paseo de Roxas, owned by PBP; ii. 15 floors of the Producers Bank Bldg., at Paseo de Roxas, Makati, owned by the Producers Properties, Inc.; iii. Manhattan Bldg. on Nueva Street, Binondo, Manila; and iv. Producers Bank, Makati Branch Bldg. at Buendia Avenue, Makati; (b) A comptroller for PBP and any number of bank examiners deemed necessary to oversee PBP's operations shall be designated by the Central Bank, under terms of reference to be determined by the Governor; (c) A letter from the Management of PBP authorizing the Central Bank to automatically return clearing items that would result in an overdraft in its Central Bank account shall be submitted to the

Central Bank. On 27 April 1984, the MB adopted Resolution No. 584 approving the consolidation of PBP's other unsecured obligations to the CB with its overdraft and authorizing the conversion thereof into an emergency loan. The same resolution authorized the CB Governor to lift the conservatorship and return PBP's management to its principal stockholders upon completion of the documentation and full collateralization of the emergency loan, but directed PBP to pay the emergency loan in five (5) equal annual installments, with interest and penalty rates at MRR 180 days plus 48% per annum, and liquidated damages of 5% for delayed payments. On 4 June 1984, PBP submitted a rehabilitation plan to the CB which proposed the transfer to PBP of three (3) buildings owned by Producers Properties, Inc. (PPI), its principal stockholder and the subsequent mortgage of said properties to the CB as collateral for the bank's overdraft obligation. 7 Although said proposal was explored and discussed, no program acceptable to both the CB and PPI was arrived at because of disagreements on certain matters such as interest rates, penalties and liquidated damages. No other rehabilitation program was submitted by PBP for almost three (3) years; as a result thereof, its overdrafts with the CB continued to accumulate. By the end of June 1987, the figure swelled to a staggering P1.023 billion. Consequently, per Resolution No. 649 dated 3 July 1987, the CB Monetary Board decided to approve in principle what it considered a viable rehabilitation program for PBP. The program had these principal features: Al. The Central Bank will assign in favor of the Philippine Deposit Insurance Corporation (PDIC) its claim over the overdraft of PBP net of net peso differential arising from swap transactions and interest thereon, up to the amount of the par value of the Producers Properties, Inc. (PPI) shares of stock in PBP presently pledged to the Central Bank, and PDIC will enter into a contract of dacion en pago with PBP and PPI whereby PDIC will acquire 4,116,100 preferred shares of stock of PBP with a par value of P100 per share in consideration for which PDIC will convey its rights over the overdraft assigned to it by the Central Bank, in favor of PPI; 2. The balance of the overdraft of PBP, after the assignment to

PDIC of a portion of such overdraft referred to in Item I above, will also be assigned to PDIC and converted into preferred shares of stock of PBP; 3. The interest on the overdraft of PBP will be reduced to 11.75% p.a. retroactively to the date when the overdraft of PBP was incurred; 4. The accrued interest on the overdraft of PBP, at the reduced rate approved in Item 3 above, as well as the unbooked penalties on legal reserve deficiencies of PBP will be assigned in favor of PDIC and such amounts will be allowed to be converted into preferred shares of stock of PBP; and 5. The booking of valuation reserves will be allowed as follows: 3rd year P31 million4th year 48 million5th year 67 million 6th year 85 million7th year 105 million8th year 124.61 million subject to the following conditions: a. Fresh capital of P200.0 million shall be put up, provided that a new group of stockholders shall hold at least 40% of the total outstanding voting shares of stock of PBP; b. PBP shall submit additional collaterals to fully collateralize its overdraft with the Central Bank; c. PPI shall convey to PBP the remaining floors of the Producers Bank Centre for a value of P143.54 million partly in payment of DOSRI loans of P27.6 million, principal plus interest, and the balance of P115.94 million for shares of stock of PBP, P15.12 million common and P100.89 million preferred, with features as presently provided under PBP's Articles of Incorporation and ByLaws; d. PBP's Articles of Incorporation and By-Laws shall be amended so as to create a special class of preferred, non-voting, cumulative, non-participating shares of stock with a dividend rate of 12% which shall be issued (i) in exchange for the PPI shares that will be conveyed to PDIC under the dacion en pago mentioned in Item 1 above, (ii) in consideration of the balance of PBP's overdraft assigned to PDIC under Item 2 above, (iii) in

consideration of the accrued interest on PBP's overdraft assigned to PDIC and the unbooked penalties on legal reserve deficiencies of PBP also assigned to PDIC. The said preferred shares of stock shall be convertible into common voting shares of stock upon the sale of such preferred shares to private parties at the option of such parties. Proceeds from the sale of these shares of stock shall be used to liquidate the advances made by the Central Bank to PDIC by virtue of the various assignments under Items 1, 2, and 4 above. The said shares of stock shall not share in losses and other capital adjustments representing reduction of capital accounts as recommended by SES Department I incurred up to the date of the issuance of such shares of stock; e. PBP shall execute in favor of a trustee to be approved by the Central Bank of mortgage trust indenture covering the assets presently mortgaged/pledged to Central Bank as collateral for the overdraft of PBP as well as additional collaterals to be submitted to fully collateralize the overdraft of PBP, under which indenture PDIC as holder of preferred shares of stocks, shall have the first lien and preference over the assets subject of the indenture in case of insolvency, to the extent of the overdraft converted into preferred shares of stock, provided that PBP shall submit an opinion from the Securities and Exchange Commission that such indenture is legal and valid; and f. The principal stockholders of both PBP and PPI shall submit in writing their conformity to the above conditions, with the effect that any previous agreements to the contrary shall be set aside; and
B. To require PBP to submit to the Monetary Board for approval the identities of the new stockholders and the new management which shall not be changed without the prior approval of the Central Bank, it being understood that final approval of the above rehabilitation plan shall depend entirely upon the acceptance by the Board of the new stockholders and the new management; and to give PBP a period of two weeks after such final approval within which to implement the above rehabilitation plan 8 (Emphasis supplied).

There being no response from both PBP and PPI on the proposed rehabilitation plan, the MB issued Resolution No. 751 on 7 August 1987 instructing Central Bank management to advise the bank, through Mr. Henry Co, as follows: a. The Central Bank conservatorship over PBP may be lifted only

after PBP shall have identified the new group of stockholders who will put in new capital in PBP and after the Monetary Board shall have considered such new stockholders as acceptable; and
b. The stockholders of PBP have to decide whether or not to accept the terms of the rehabilitation plan as provided under Resolution No. 649 dated July 3, 1987 within one week from receipt of notice hereof and if such terms are not acceptable to them, the Central Bank will take appropriate alternative action on the matter; . . . 9

Additionally, in a letter dated 14 August 1987, the CB called the attention of the PBP directors and officers to Section 107 of R.A. No. 265, as amended by Executive Order No. 289 dated 23 July 1987, which provides, inter alia, that: . . . any bank which incurs an overdrawing in its deposit account with the Central Bank shall fully cover said overdraft not later than the next clearing day: Provided, further, That settlement of clearing balances shall not be effected for any account which continue (sic) to be overdrawn for five consecutive banking days until such time as the overdrawing is fully covered or otherwise converted into an emergency loan or advance pursuant to the provisions of Sec. 90 of this Act. Provided, Finally, That the appropriate clearing office shall be officially notified of banks with overdrawn balances. Banks with existing overdrafts with the Central Bank as of the effectivity of this amended section shall within such period as may be prescribed by the Monetary Board, either convert the overdraft into an emergency loan or advance with a plan of payment, or settle such overdrafts, and that upon failure to so comply herewith, the Central Bank shall take such action against the bank as may be warranted under this Act. (Emphasis provided). A. few days later, or on 27 August 1987, the PBP, without responding to the communications of the CB, filed a complaint verified by its former board chairman, Henry Co, with the Regional Trial Court of Makati against the CB, the MB and CB Governor Jose B. Fernandez, Jr. The complaint, docketed as Civil Case No. 17692, 10 devoted several pages to specific allegations in support of PBP's assertions that the conservatorship was unwarranted, illmotivated, illegal, utterly unnecessary and unjustified; that the appointment of the conservator was arbitrary; that herein petitioners acted in bad faith; that the CB-designated conservators committed bank frauds and abuses; that the CB is guilty of promissory estoppel; and that by reason of the conservatorship, it

suffered losses enumerated in paragraph 27 thereof, the total quantifiable extent of which is P108,479,771.00, exclusive of loss of profits and loss ofgoodwill. 11 It concluded with a prayer for: . . . judicial review of Monetary Board Resolutions No. 649 dated July 3, 1987 and No. 751 dated 14 August, 1987 and that judgment be rendered nullifying the same and ordering defendant Central Bank's conservator to restore the viability of PBP as mandated by section 28-A of R.A. 265 and to fully repair the damages inflicted on PBP consisting of losses of operation and the conservators' bank frauds and abuses, with costs against defendants. (emphasis supplied). and for:
. . . the issue of a temporary restraining order/preliminary injunction enjoining defendants' coercion on PBP to accept the rehabilitation plan within one week or their taking "appropriate alternative action" including exclusion of PBP from settlement of clearing balances at the Central Bank clearing house, pending judicial review of Monetary Board Resolutions No. 649 dated July 3, 1987 and No. 751 dated August 14, 1987 defendants not being above the law. 12

Only P102.00 was paid as docket fee. The case was raffled to Branch 147 of said court which was then presided over by respondent Judge. On 31 August 1987, respondent Judge issued a temporary restraining order and set the hearing of the application for preliminary injunction on 9 September 1987. 13 On 11 September 1987, petitioner filed an Opposition to the application for preliminary injunction. 14 Subsequently, on 21 September 1987, respondent Judge issued an Order granting the writ 15 and enjoining defendant-petitioners or any of their agents from: . . . implementing Monetary Board Resolutions Nos. 649 and 751 or from taking the threatened "appropriate alternative action" including exclusion of plaintiff bank from settlement of clearing balances at the Central Bank clearing house or any other action that will disturb the status quo or the viability of plaintiff bank during the pendency of this case conditioned upon the posting of a bond

in the amount of P2,000,000.00. On 25 October 1987, PBP filed the Amended Complaint 16 impleading PPI as an additional plaintiff. No new allegations or causes of action for said plaintiff were made. On 5 November 1987, petitioners filed a Motion to Dismiss the Amended Complaint. The motion contained a prayer to vacate the injunction and raised the following grounds: 1) the amended complaint states no cause of action; MB Resolution Nos. 649 and 751 are merely advisory, thus, neither effect impairment of plaintiffs' rights nor cause it prejudice, loss or damage; furthermore, there is no basis for the averments on the legality or illegality of the conservatorship since the amended complaint does not seek its annulment; 2) the amended complaint is not authorized by the management of PBP; and
3) the lower court did not acquire jurisdiction over the case except to order the amended complaint expunged from the records because the proper filing fee was not paid. 17

On 27 November 1987, the trial court, through the respondent Judge, handed down an Order denying the motion to dismiss on the following grounds: (a) the amended complaint alleges ultimate facts showing that plaintiff has a right and that such a right has been violated by defendant; the questioned MB Resolutions were issued arbitrarily and with bad faith, "being a part of a scheme to divest plaintiff's present stockholders of their control of PBP and to award the same to the PDIC or its unknown transferees"; and the averments of legality or illegality of the conservatorship are relevant to the cause of action since the complaint seeks the lifting of the conservatorship; (b) While it is true that under Section 28-A of the Central Bank Act the conservator takes over the management of a bank, the Board of Directors of such bank is not prohibited from filing a suit to lift the conservatorship and from questioning the validity of both the conservator's fraudulent acts and abuses and its principal's (MB) arbitrary action; besides, PPI is now a party-plaintiff in the action; and (c) plaintiffs have paid the correct filing fees since "the value of the case cannot be estimated." 18

G.R. No. 88353 Unable to accept the above Order, herein petitioners CB and Jose B. Fernandez, Jr. filed with respondent Court of Appeals on 11 January 1988 a petition for certiorari with preliminary injunction 19 to annul the 21 September and 27 November 1987 Orders of the respondent Judge, restrain the implementation of the same and nullify the writ of preliminary injunction. They contend therein that: 1. The trial court's injunctive order and writ are anomalous and illegal because they are directed against CB acts and measures which constitute no invasion of plaintiff's rights; and 2. The complaint filed was, on its face, dismissible: (a) for failure to state a cause of action, (b) for being unauthorized by the party in whose name it purports to have been filed, and (c) for failure of the purported plaintiff to pay the required filing fees. Confronted with the "threshold and decisive issue of whether the respondent Judge gravely abused his discretion when he issued the Writ of Preliminary Injunction to enjoin petitioner from implementing Monetary Board Resolutions Nos. 649 and 751 for having been issued arbitrarily and with bad faith," the respondent Court promulgated the challenged decision dismissing the petition for lack of merit. 20 Respondent Court ruled that the CB's sudden and untimely announcement of the conservatorship over PBP eroded the confidence which the banking public had hitherto reposed on the bank and resulted in the bank-run; it then concluded that when the CB "peremptorily and illtimely (sic) announced" the conservatorship, PBP was not given an opportunity to be heard since the CB arbitrarily brushed aside administrative due process notwithstanding PBP's having sufficiently established its inherent corporate right to autonomously perform its banking activities without undue governmental interference that would in effect divest its stockholders of their control over the operations of the bank." It further held that the challenged resolutions of the MB are not just advisory in character "because the same sought to impose upon the respondent bank petitioners' governmental acts that were specifically designed and executed to devise a scheme that would irreparably divest from the stockholders of the respondent bank control of the same." The motion filed by petitioners for the reconsideration of the above decision was denied by the respondent Court in its Resolution of

17 May1989. 21 On the issue of the non-payment of the correct docket fees, the said court, in ruling that the correct amount was paid, said that "the instant case is incapable of pecuniary estimation because the value of the losses incurred by the respondent bank cannot be calibrated nor pinned down to a specific amount in view of the damage that may be caused by the appointment of a conservator to its goodwill and standing in the community." Undaunted by the adverse decision of the Court of Appeals, petitioners filed with this Court on 30 July 1989 the instant petition for review under Rule 45 of the Rules of Court. 22 It is alleged therein that the respondent Court committed grave abuse of discretion in:
(1) Ignoring petitioners' contention that since PBP did not pay the correct filing fees, the trial court did not acquire jurisdiction over the case; hence, pursuant to Manchester Development Corp., et al. vs. Court of Appeals, et al., G.R. No. 75919, 7 May 1987, 23 the complaint should have been dismissed for lack of jurisdiction on the part of the court;

(2) . . . ruling on the propriety or impropriety of the conservatorship as a basis for determining the existence of a cause of action since the amended complaint does not seek the annulment or lifting of the conservatorship; (3) . . . not holding that the amended complaint should have been dismissed because it was filed in the name of PBP without the authority of its conservator; and (4) . . . not setting aside the Order of the trial court granting the issuance of a writ of preliminary injunction which unlawfully restrained the CB from exercising its mandated responsibilities and effectively compelled it to allow the PBP to continue incurring overdrafts with it. This petition was docketed as G.R. No. 88353. On 19 July 1989, this Court required the respondents to comment on the petition. 24 In the Comment 25 filed on 9 October 1989, private respondents maintain that: (a) the issue of whether or not they paid the correct filing fees involves a question of correctness of judgment, not

grave abuse of discretion; errors of judgment cannot be the subject of the present petition for certiorari; (b) the complaint and the amended complaint state sufficient causes of action because they both contain specific allegations of an illegal, unnecessary, disastrous and repressive conservatorship conducted contrary to its mandated purpose, and breach of promissory estoppel; furthermore, the trial court committed no grave abuse of discretion when it found that the questioned MB Resolutions were arbitrarily issued in contravention of the due process clause of the Constitution; (c) the "Filing of the complaint without authority from the conservator is an issue involving an error of judgment; besides, it would be ridiculous and absurd to require such prior authorization from the conservator for no one expects him to sanction the filing of a suit against his principal the CB; moreover, Rule 3 of the Rules of Court requires that every action must be prosecuted and defended in the name of the real party in interest; besides, no administrative authority, even the CB, can nullify judicial review of administrative action by requiring that only said administrative authority or its designated conservator can file suit for judicial review of its actuation; and (d) the writ of preliminary injunction was properly issued. Petitioners filed a Reply 26 to the Comment on 3 November 1989. In their Supplemental Comment, private respondents argue that the Manchester rule is not applicable in the case at bar because what is primarily sought for herein is a writ of injunction and not an award for damages; it is further alleged that an order denying a motion to dismiss is neither appealable nor be made the proper subject of a petition for certiorari absent a clear showing of lack of jurisdiction or grave abuse of discretion. On 15 February 1990, this Court resolved to give due course to the instant petition and require the parties to simultaneously file their respective Memoranda, 27 which they complied with. On 1 March 1990, petitioners filed an Urgent Motion 28 informing this Court of the fact that on 6 June 1989, PBP, through Henry Co, proposed another rehabilitation plan which involved the infusion of fresh capital into PBP by Banque Indosuez (Bangue) and the AFPRetirement and Separation Benefits Systems (ARSBS). Under said proposal, all existing law suits of PBP against the Central Bank and the PBP Conservator, and vice-versa, shall be

withdrawn upon approval and implementation of the plan. The plan was approved by the Monetary Board in its Resolution No. 497 dated 23 June 1989. However, before the mechanics of the rehabilitation plan could be threshed out among the parties, a "quarrel" developed between Henry and Luis Co, who both have controlling interests in PBP. Luis accused Henry of "serious manipulations" in PBP and both steadfastly refused to settle their differences notwithstanding efforts of mediators, including prospective investors. Eventually, the prospective investors, in a letter dated 20 November 1989, advised the Central Bank that they are withdrawing their offer to infuse capital in PBP and that they have terminated all discussions with the Co family. Petitioner further allege that with the withdrawal of Banque Indosuez and RSBS, the rehabilitation plan for PBP is no longer feasible. Meanwhile, the bank's overdraft with the Central Bank continues to rise. As of 13 February 1990, PBP's overdraft with the CB increased to P1.233 billion. If the injunction is not lifted, PBP will continually bleed the CB because of the former's liability to discharge its responsibilities under the law. G.R. No. 92943 Pursuant to the powers and authority conferred upon her by the Central Bank, Atty. Leonida Tansinsin-Encarnacion, in her capacity as conservator, instituted reforms aimed at making PBP more viable. With this purpose in mind, she started reorganizing the bank's personnel and committees. In order to prevent her from continuing with the reorganization, PBP filed on 24 October 1987, or after it obtained a writ of preliminary injunction in Civil Case No. 17692, an Omnibus Motion asking the trial court for an order: (a) reinstating PBP officers to their original positions and restoring the bank's standing committees to their respective compositions prior to said reorganization; (b) enjoining the lease of any portion of the bank's space in Producers Bank Centre building to third parties and the relocation of departments/offices of PBP as was contemplated; and (c) to hold, after an opportunity to be heard is given her, said conservator in contempt of court for disobedience of and resistance to the writ of injunction. An opposition to the contempt charge was later filed by said petitioner. Subsequently, upon its inclusion as party-plaintiff via the amended

complaint, PPI filed on 4 November 1987 a motion asking the lower court to order the Central Bank and its agents to restore to PPI the administration of the three (3) buildings earlier assigned to PBP pending the lifting of the conservatorship. PPI claimed that such transfer was necessary to prevent the rental income of said buildings being dissipated by the conservator. On 17 November 1987, both PBP and PPI filed a motion praying: (1) that the CB Conservator be ordered to publish PBP's financial statement for the last quarter of 1987 and every quarterly statement thereafter during the pendency of this case, with the following claims of plaintiff PBP against the Central Bank, to wit: (a) Interest in unconscionable rates of CB overdrawing illegally paid by the CB conservators to CB now totaling P56,002,000.00, (b) Penalties on reserve deficiencies illegally paid by the CB conservators to CB now totaling P20,657,000.00, (c) Penalties on reserve deficiencies not yet paid but which the conservator has booked as liabilities now totaling P31,717,000.00, (d) Losses of operation by the CB conservators from January 31, 1984 to October 31, 1987 now totaling P461,092,000.00 as "suspense" accounts; and (2) that the CB conservator be ordered to carry those "suspense" accounts in the books of PBP. The following day, respondent Judge issued an Order (a) requiring conservator Tansinsin-Encarnacion to reinstate PBP officers to their original positions prior to the reorganization of the bank's personnel and restore PBP's standing committees to their original compositions, and (b) restraining her from leasing out to third parties any portion of PBP's space in the Producers Bank Centre building. However, respondent Judge held in abeyance the contempt proceedings against the conservator pending her immediate compliance with the Order. On 22 December 1987, respondent Judge granted PPI's motion for an order transferring to it the administration of the three (3) buildings assigned to PBP. A motion for reconsideration of this

order was filed by petitioners but was subsequently denied by respondent Judge in the Order of 4 October 1988. A second Order, issued by respondent Judge on the same day, 22 December 1987, directed conservator Tansinsin-Encarnacion to publish the financial statement of PBP in the manner prayed for in the aforesaid 17 November 1987 motion. The motion to reconsider this Order was denied by respondent Judge on 3 October 1988. On several occasions thereafter, conservator TansinsinEncarnacion caused the publication of PBP's financial statement as required by regulations, without, however, carrying the items enumerated by the trial court as "suspense accounts." Consequently, two (2) contempt charges were filed against her, one for the 3 February 1988 publication in the Manila Standard of PBP's statement of condition as of 29 December 1987 and the other for the 29 July 1988 publication in the Daily Globe of the bank's statement as of 30 June 1988. Oppositions to both charges of contempt were filed. On 9 November 1988, respondent Judge declared said conservator guilty of contempt of court on three (3) counts and imposed upon her a fine of P1,000.00 for each count of contempt. The latter asked for reconsideration of the order but the respondent Judge denied the same. Another contempt charge against her was filed for publishing the statement of condition of PBP (as of 13 September 1988) in the 9 November 1988 issue of the Daily Globe without carrying the alleged "suspense accounts." She was again found guilty as charged and her motion for reconsideration was denied. Finding no other adequate relief, Tansinsin-Encarnacion filed with this Court on 11 January 1989 a petition for certiorari against respondent Judge, Henry L. Co and the law firm of Quisumbing, Torres and Evangelista. This case was docketed as G.R. No. 86526. She prays therein for judgment declaring respondent judge to be without jurisdiction to entertain both the complaint and amended complaint in Civil Case No. 17692; declaring null and void all his orders, specially the contempt orders; and finding respondent Judge and respondent lawyers guilty of violating their respective oaths of office. 29 On 8 February 1989, this Court resolved to refer said petition to the Court of Appeals which docketed it as C.A.-G.R.-SP No.

16972. In her Memorandum submitted to the Court of Appeals, TansinsinEncarnacion alleged that: (1) respondent Judge has no jurisdiction over Civil Case No. 17692 because its filing was not authorized by the petitioner or the conservator in violation of Section 28-A of R.A. No. 265, as amended, it was filed after the ten (10) day period prescribed by Section 29 of R.A. No. 265, as amended, and the correct docket fees were not paid; (2) respondent Judge illegally ordered her to return to PPI the administration of the bank's three (3) properties, contrary to his own writ of preliminary injunction and earlier order to make the bank viable, and to publish the alleged "suspense accounts" contrary to Section 28-A of R.A. No. 265, as amended, the writ of preliminary injunction and her constitutional right to silence; (3) respondent Judge erred in declaring her in contempt of court notwithstanding his lack of jurisdiction over the case and failure to set any date for the hearing and reception of evidence, in violation of her right to due process of law; and (4) respondents Judge and lawyers are administratively liable for their grossly illegal actuations and for depriving the Government of at least P13.2 million in filing fees. 30 In its decision dated 17 January 1990, the Court of Appeals (Twelfth Division) 31 dismissed the petition; while finding the claim of lack of jurisdiction to be without merit, the said court nonetheless gave the following exception: . . . except that plaintiffs in Civil Case No. 17692, within 15 days from receipt of a copy of this Decision, shall file the corresponding amendment to their amended complaint in said case, stating a specific amount "to fully repair the damages inflicted on PBP consisting of losses of operation and the conservator's bank frauds and abuses", in the prayer of their amended complaint. Thereafter, the Clerk of Court of the lower court and/or his duly authorized Docket Clerk of Court in charge, should determine the amount found due, which should be paid by complainants within the applicable prescriptive or reglementary period, failure of which said claims for damages shall be dismissed. In disposing of the issues raised, respondent Court merely adopted with approval the ruling of the respondent Judge on the question of jurisdiction and cited the decision of the Court of Appeals in C.A.-G.R. SP No. 13624 (subject of G.R. No. 88353),

sustaining the respondent Judge's ruling. As to the filing of the complaint after the lapse of the 10-day period provided for in Section 29 of R.A. No. 265, it ruled that the Section does not apply because the complaint essentially seeks to compel the conservator to perform his duties and refers to circumstances and incidents which transpired after said 10-day period. On the issue of lack of jurisdiction for non-payment of correct filing fees, to which an exception was made in the dispositive portion, the respondent Court found the same to be "partly" meritorious. It agreed with petitioner that while the other losses and damages sought to be recovered are incapable of pecuniary estimation, the damages inflicted on PBP due to losses of operation and the conservator's bank frauds and abuses were in fact pegged at P108,479,771.00 in paragraph 26 of the amended complaint. This specific amount, however, should have been stated in the prayer of the complaint. It also held that the Manchester case "has been legally construed in the subsequent case of Sun Insurance Office Ltd. 32 and the case of Filipinas Shell Petroleum Corp. 33 to the effect that applying the doctrine initiated in the case of Manchester, together with said subsequent thereto (sic), plaintiffs in Civil Case No. 17692 should be given a reasonable time to amend their complaint, more particularly, to state in their prayer in the amended complaint the specific amount of damages . . ." On the orders of contempt and the reasons therefor, respondent Court merely stated: . . . Generally, when the court has jurisdiction over the subject matter and of the person, decisions upon or questions pertinent to the cause are decisions within its jurisdiction, and however, irregular or erroneous they may be, they cannot be corrected by certiorari Whether the court's conclusions was based merely on speculations and conjecture, or on a misapprehension of facts contrary to the documents and exhibits of the case, is not for us to determine in a petition for certiorari wherein only issues of jurisdiction may be raised. . . . Thus, the instant petition cannot prosper. and opined that under the Rules of Court, a judgment of contempt may be questioned on appeal and not on certiorari. Finally, on the administrative liability of the respondent Judge and the lawyers, the respondent Court declared the claim to be without

merit. Petitioner's motion to reconsider the decision having been denied in the 2 April 1990 Resolution of the respondent Court, 34 she filed with this Court a petition under Rule 45 of the Rules of Court, which was docketed as G.R. No. 92943. Petitioner Claims that respondent Court grossly erred in confirming/affirming the allegedly void Orders of respondent Judge which denied the motion to dismiss the complaint and granted the writ of preliminary injunction, restating in this regard the issues raised by the CB in G.R. No. 88353, and in holding her in contempt of court on four occasions. As to the last ground, she asserts that the Orders were issued in violation of the Rules of Court and infringed her right to due process since there was no hearing on the motions for contempt, except for the third motion wherein respondent Judge immediately ordered the movant to present evidence. In their Comment, 35 filed in compliance with Our Resolution 21 May 1990, private respondents practically reiterated the arguments in their Comment to the petition in G.R. No. 88353; in addition, more specifically on the issue of contempt, they assert that while the motions for contempt were set for hearing, there is no showing that the scheduled hearings actually took place. Besides, the remedy to question a contempt order is an appeal; 36 since petitioner did not appeal the questioned orders, the same became final and executory. 37 After petitioner filed a Reply and private respondents submitted their Rejoinder thereto, this Court gave due course to the petition. THE ISSUES The basic issue in these cases is whether or not the respondent Court committed reversible error in affirming the challenged Orders of the respondent Judge. This necessarily calls for a determination of whether or not the respondent Judge committed grave abuse of discretion amounting to lack of jurisdiction: (1) In not dismissing Civil Case No. 17692 on the following grounds: (a) lack of legal. personality to bring the action as the same was filed in the name of the PBP without the authority of the conservator; (b) failure of the complaint and amended complaint to state a cause of action; and (c) non-payment of the correct amount of docket fee in violation of the rule enunciated in Manchester

Development Corp. vs. Court of Appeals, et al.; (2) In granting the writ of preliminary injunction; and (3) In issuing the assailed Orders in G.R. No. 92943. DISCUSSION We shall take up the issues sequentially. 1. PBP has been under conservatorship since 20 January 1984. Pursuant to Section 28-A of the Central Bank Act, 38 a conservator, once appointed, takes over the management of the bank and assumes exclusive powers to oversee every aspect of the bank's operations and affairs. Petitioners now maintain that this power includes the authority to determine "whether or not to maintain suit in the bank's name." 39 The trial court overruled this contention stating that the section alluded to "does not prohibit the Board of Directors of a bank to file suit to lift the conservatorship over it, to question the validity of the conservator's fraudulent acts and abuses and the arbitrary action of the conservator's principal the Monetary Board of the Central Bank. The conservator cannot be expected to question his own continued existence and acts. He cannot be expected to file suit to annul the action of his principal . . . or a suit that would point out the ill-motivation, the disastrous effects of the conservatorship and the conservator's bank frauds and abuses as alleged in the complaint." 40 Obviously, the trial court was of the impression that what was sought for in Civil Case No. 17692 is the lifting of the conservatorship because it was arbitrarily and illegally imposed. While it may be true that the PBP devoted the first 38 pages of its 47-page complaint and amended complaint to what it considers an unwarranted, ill-motivated, illegal, unnecessary, and unjustified conservatorship, it, nevertheless, submitted to the same. There is nothing in the amended complaint to reflect an unequivocal intention to ask for its lifting. Of course, as subsequent maneuvers would show, PBP sought to accomplish the lifting thereof through surreptitious means. That such action was not, on its face, filed to have the conservatorship lifted, is best evidenced by PBP's prayer for a judgment "ordering defendant Central Bank's conservator to restore the viability of PBP as mandated by Section 28-A of R.A. No. 265 . . ." 41 Unfortunately too, respondent Court was easily misled into believing that the amended complaint sought the lifting

of the conservatorship. Thus, although the matter was not specifically raised in issue and clearly unnecessary for the determination of the issues squarely raised, the respondent Court opined: It is Our sober assessment that the respondent bank was not given an opportunity to be heard when the Central Bank peremptorily and illtimely (sic) announced the appointment of a conservatorship over the latter (bank) for which reason We believe that administrative due process was arbitrarily brushed aside to the prejudice of the said bank. . . . If it were to lift the conservatorship because it was arbitrarily imposed, then the case should have been dismissed on the grounds of prescription and lack of personality to bring the action. Per the fifth paragraph of Section 29 of the Central Bank Act, as amended by Executive Order No. 289, the actions of the MB may be assailed in an appropriate pleading filed by the stockholders of record representing the majority of the capital stock within ten (10) days from receipt of notice by the said majority stockholders of the order placing the bank under conservatorship. The pertinent portion of said paragraph reads as follows: The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under this Section, Section 28-A, and the second paragraph of section 34 of this Act shall be final and executory, and can be set aside by a court only if there is convincing proof, after hearing, that the action is plainly arbitrary and made in bad faith: Provided, That the same is raised in an appropriate pleading filed by the stockholders of record representing the majority of the capital stock within ten (10) days from the date the receiver takes charge of the assets and liabilities of the bank or non-bank financial intermediary performing quasibanking functions or, in case of conservatorship or liquidation, within ten (10) days from receipt of notice by the said majority stockholders of said bank or non-bank financial intermediary of the order of its placement under conservatorship or liquidation. . . . The following requisites, therefore, must be present before the order of conservatorship may be set aside by a court: 1. The appropriate pleading must be filed by the stockholders of record representing the majority of the capital stock of the bank in the proper court;

2. Said pleading must be filed within ten (10) days from receipt of notice by said majority stockholders of the order placing the bank under conservatorship; and
3. There must be convincing proof, after hearing, that the action is plainly arbitrary and made in bad faith. 42

In the instant case, PBP was placed under conservatorship on 20 January 1984. The original complaint in Civil Case No. 17692 was filed only on 27 August 1987, or three (3) years, seven (7) months and seven (7) days later, long after the expiration of the 10-day period deferred to above. It is also beyond question that the complaint and the amended complaint were not initiated by the stockholders of record representing the majority of the capital stock. Accordingly, the order placing PBP under conservatorship had long become final and its validity could no longer be litigated upon before the trial court. Applying the original provision of the aforesaid Section 29 of the Central Bank Act, this Court, in Rural Bank of Lucena, Inc. vs. Arca, et al., 43 ruled that: Nor can the proceedings before Judge Arca be deemed a judicial review of the 1962 resolution No. 122 of the Monetary Board, if only because by law (Section 29, R.A. 265) such review must be asked within 10 days from notice of the resolution of the Board. Between the adoption of Resolution No. 122 and the challenged order of Judge Arca, more than one year had elapsed. Hence, the validity of the Monetary Board's resolution can no longer be litigated before Judge Arca, whose role under the fourth paragraph of section 29 is confined to assisting and supervising the liquidation of the Lucena bank. This rule is still good law notwithstanding the amendment to Section 29 which expands its scope by including the action of the MB under Section 28-A of the Act on the appointment of a conservator. It was precisely an awareness of the futility of any action to set aside the conservatorship which prompted PBP to limit its action to a claim for damages and a prayer for an injunction against the implementation of MB Resolution Nos. 649 and 751. However, to make it appear that it had a meritorious case and a valid grievance against the Central Bank, it wandered long into the past and narrated a sad story of persecution, oppression and injustice since the inception of the conservatorship obviously to gain the

sympathy of the court, which it eventually obtained. The next crucial question that suggests itself for resolution is whether an action for damages arising from the MB's act of placing the PBP under conservatorship and the acts of the conservator, and to enjoin the MB from implementing resolutions related or incident to, or in connection with the conservatorship, may be brought only for and in behalf of the PBP by the stockholders on record representing the majority of the capital stock thereof or simply upon authority of its Board of Directors, or by its Chairman. We hereby rule that as to the first kind of damages, the same may be claimed only if the MB's action is plainly arbitrary and made in bad faith, and that the action therefor is inseparable from an action to set aside the conservatorship. In other words, the same must be filed within ten (10) days from receipt of notice of the order placing the bank under conservatorship. Otherwise, the provision of the fifth paragraph of Section 29 of the Central. Bank Act could be rendered meaningless and illusory by the bank's filing, beyond the prescribed ten-day period, of an action ostensibly claiming damages but in reality questioning the conservatorship. As to actions for the second kind of damages and for injunction to restrain the enforcement of the CB's implementing resolutions, said fifth paragraph of Section 29 of the Central Bank Act, as amended, equally applies because the questioned acts are but incidental to the conservatorship. 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. The original complaint in Civil Case No. 17692 was not initiated by

the majority of the stockholders, hence it should have been dismissed. However, confronted with this fatal flaw, counsel for PBP, through shrewd maneuvering, attempted to save the day by impleading as co-plaintiff a corporation, the PPI, which was not under conservatorship. Unfortunately, the maneuver was crudely and imperfectly executed. Except for the inclusion of its name, nothing new was actually added to the original complaint in terms of causes of action and reliefs for PPI. The amendment then was an exercise in futility. We cannot, however, subscribe to the petitioner's view that: (a) once a bank is placed under conservatorship, no action may be filed on behalf of the bank without prior approval of the conservator, and (b) since in this case such approval was not secured prior to the filing of Civil Case No. 17692, the latter must also be dismissed on that ground. No such approval is necessary where the action was instituted by the majority of the bank's stockholders. To contend otherwise would be to defeat the rights of such stockholders under the fifth paragraph of Section 29 of the Central Bank Act. It must be stressed here that a bank retains its juridical personality even if placed under conservatorship; 44 it is neither replaced nor substituted by the conservator who, per Section 28-A of the Central Bank Act, as amended by P.D. No. 1932, shall only: . . . 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 . . ., any provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall deem necessary. Even assuming for the sake of argument that the action was properly brought by an authorized party, the same must nevertheless be dismissed for failure of the plaintiffs therein to pay the correct docket fees, pursuant to Manchester Development Corp. vs. Court of Appeals, et al.; 45 the said case was decided by this Court on 7 May 1987, exactly three (3) months and twenty (20) days before the filing of the original complaint and five (5) months and eighteen (18) days before the filing of the Amended Complaint in Civil Case No. 17692. We ruled therein that: The Court acquires jurisdiction over any case only upon the

payment of the prescribed docket fee. An amendment of the complaint or similar pleading will not thereby vest jurisdiction in the Court, much less the payment of the docket fee based on the amounts sought in the amended pleading. The ruling in the Magaspi case [115 SCRA 193], in so far as it is inconsistent with this pronouncement is overturned and reversed. The respondent Judge, in ruling that PBP and PPI had paid the correct docket fee of P102.00, said that "the value of the case cannot be estimated" since what is sought is an injunction against the enforcement of the challenged resolutions of the MB; in short, the claim for damages is merely incidental. Upon the other hand, respondent Court, in its Resolution of 17 May 1989 in C.A.-G.R. SP No. 13624, ruled that the case is "incapable of pecuniary estimation" because the value of the losses incurred by the PBP "cannot be calibrated nor pinned down to a specific amount in view of the damage that may be caused by the appointment of a conservator to its goodwill and standing in the community." 46 Both conclusions are unfounded and are the result of a misapprehension of the allegations and causes of action in both the complaint and amended complaint. While PBP cleverly worded its complaint in Civil Case No. 17692 to make it appear as one principally for injunction, deliberately omitting the claim for damages as a specific cause of action, a careful examination thereof bears that the same is in reality an action for damages arising out of the alleged "unwarranted, illmotivated and illegal conservatorship," or a conservatorship which "was utterly unnecessary and unjustified," and the "arbitrary" appointment of a conservator. 47 Thus, as stated earlier, it devoted the bulk of its petition to detailed events, occurrences and transactions in support thereof and patiently enumerated the losses it sustained and suffered. The pertinent portions of paragraph 27 of both the original and amended complaints read as follows: 27. The record of the Central Bank conservatorship of PBP clearly shows that it was responsible for the losses. xxx xxx xxx [Then follows an enumeration, from (a) to (u), of particular acts causing or resulting in losses, most of which are specifically stated]

xxx xxx xxx (v) Total of only the foregoing mentioned and only of those that can be quantified is P108,479,771.00. And that excludes loss of profits that PBP could have realized if that disastrous conservatorship had not been imposed on it and loss of goodwill. The causes for these abuses of the conservators are course graft and corruption of the conservators aside from fault in the system which denies private enterprise. (emphasis supplied) xxx xxx xxx These are the very damages referred to in the prayer: . . . to fully repair the damages inflicted on PBP consisting of losses of operation and the conservators' bank frauds and abuses, ... but not specified therein. To this Court's mind, this was done to evade the payment of the corresponding filing fees which, as computed by petitioner on the basis alone of the specified losses of P108,479,771.00, would amount to about P 437,000.00. 48 The PBP then clearly acted with manifest bad faith in resorting to the foregoing clever strategy to avoid paying the correct filing fees. We are thus constrained to reiterate Our pronouncements in the Manchester case: The Court cannot close this case without making the observation that it frowns at the practice of counsel who filed the original complaint in this case of omitting any specification of the amount of damages in the prayer although the amount of over P78 million is alleged in the body of the complaint. This is clearly intended for no other purpose than to evade the payment of the correct filing fees if not to mislead the docket clerk in the assessment of the filing fee. . . . The respondent Court itself, in its decision of 17 January 1990 in C.A-G.R. SP No. 16972, 49 confronted by the same issue, but perhaps unaware of its Resolution of 17 May 1989 in C.A.-G.R. SP No. 13624 aforementioned, ruled that PBP and PPI are liable for the filing fees on the claim for damages. It even directed PBP and

PPI to file "the corresponding amendment to their amended complaint in said case stating a specific amount 'to fully repair the damages inflicted on PBP consisting of losses of operation and the conservator's bank frauds and abuses' . . .," after which the Clerk of Court of the lower court or his duly authorized docket clerk should determine the amount found due, which said plaintiffs shall pay "within the applicable prescriptive or reglementary period,. . ." 50 The 17 January 1990 ruling, clearly reversing the earlier one, is of doubtful propriety in view of the petition for review of the decision in C.A.-G.R. SP No. 13624 filed by the petitioner. In granting PBP and PPI an opportunity to amend their amended complaint to reflect the specific amount of damages in the prayer of their Amended Complaint, respondent Court took refuge under the rule laid down in Sun Insurance Office, Ltd., et al. vs. Asuncion, et al. 51 and Filipinas Shell Petroleum Corp. vs. Court of Appeals, et al. 52 Of course, it was erroneous for respondent Court to apply these last two (2) cases which were decided by this Court three (3) months short of two (2) years after the promulgation of the Manchester decision on 7 May 1987. Accordingly, since the original complaint in Civil Case No. 17692 was filed on 27 August 1987, the Manchester doctrine was the controlling and applicable law. The lower court had no choice but to apply it when its attention was called by the petitioner. Moreover, even granting for the sake of argument that Sun Insurance and Pilipinas Shell 53 may apply in this case, We should not lose sight of the fact that in the former, this Court categorically stated: 1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment of the prescribed docket fee, that vests a trial court with jurisdiction over the subject-matter or nature of the action. Where the filling of the initiatory pleading is not accompanied by payment of the docket fee, the court may allow the payment of the fee within a reasonable time but in no case beyond the applicable prescriptive or reglementary period. The prescriptive period therein mentioned refers to the period within which a specific action must be filed. It means that in every case, the docket fee must be paid before the lapse of the prescriptive period. Chapter 3, Title V, Book III of the Civil Code is the principal law governing prescription of actions.

There can be no question that in the instant case, PBP's claims for damages arise out of an injury to its rights. Pursuant to Article 1146 of the Civil Code, the action therefor must be initiated within four (4) years from the time the cause of action accrued. Since the damages arose out of the alleged unwarranted, ill-motivated, illegal, unnecessary and unjustified conservatorship, the cause of action, if any, first accrued in 1984 and continued until 27 August 1987, when the original complaint was filed. Even if We are to assume that the four-year period should start running on 27 August 1987, that period lapsed on 27 August 1991. There is no showing that PBP paid the correct filing fee for the claim within the prescribed period. Hence, nothing can save Civil Case No. 17692 from being dismissed. 2. And now on the issue of the writ of preliminary injunction. The challenged Orders of the trial court granting the application for a writ of preliminary injunction and the assailed decision of the respondent Court in C.A. G.R. No. 13624 clearly betray a prejudgment of the case. In both instances, not only did said courts declare MB Resolutions Nos. 649 and 751 to be arbitrary, both also declared the conservatorship to have been issued in violation of PBP's right to administrative due process, which the CB "arbitrarily brushed aside to the prejudice" of the latter. The said courts further concluded that "the sudden and untimely announcement by the Central Bank that respondent Producers Bank will be under a conservatorship that will oversee its operations worked havoc over the confidence that the public had hitherto reposed on respondent bank so that the majority of its depositors over-reacted and rashly withdrew their accounts from said bank, thus it incurred a loss of P593.707 million or 59.5% of its deposits." Thus, save only for the determination of the full extent of PBP's claim for damages, said courts have, at the most, decided or, at the very least, prejudged the case. Courts, notwithstanding the discretion given to them, should avoid issuing writs of preliminary injunction which in effect dispose of the main case without a trial. 54 We do not then hesitate to rule that there was grave abuse of discretion in the issuance of the writ of preliminary injunction. Besides, there was neither arbitrariness nor bad faith in the issuance of MB Resolutions Nos. 649 and 751. It must be stressed

in this connection 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. 55 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. 56 It is then Government's 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 Central Bank which, pursuant to its Charter, 57 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. 58 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 vs. Philippine Veterans Bank, 59 this Court held that: . . . Unless 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. One important measure adopted by the government to protect the public against unscrupulous practices of some bankers is to require banking institutions to set up reserves against their deposit

liabilities. These reserves, pegged at a certain percentage of the volume of deposit liability, is that portion of the deposit received by a banking institution which it cannot use for loans and investments. The reserve requirement, which ordinarily takes the form of a deposit with the Central Bank, is one means by which the government ensures the liquidity of banking institutions. 60 These reserve accounts maintained by banking institutions with the Central Bank also serve as a basis for the clearing of checks and the settlement of interbank balances. 61 The need to maintain these required reserves cannot be overemphasized. Thus, where over-drawings on deposit accounts (regardless of amount) are incurred, R.A. No. 265 requires the delinquent bank to:
. . . fully cover said overdraft not later than the next clearing day: Provided, Further, That settlement of clearing balances shall not be effected for any account which continue to, be overdrawn for five consecutive banking days until such time as the overdrawing is fully covered or otherwise converted into an emergency loan or advance pursuant to the provisions of Sec. 90 of this Act. Provided, Finally, That the appropriate clearing office shall be officially notified of banks with overdrawn balances. Banks with existing overdrafts with the Central Bank as of the effectivity of this amended section shall, within such period as may be prescribed by the Monetary Board, either convert the overdraft into an emergency loan or advance with a plan of payment, or settle such overdrafts, and that, upon failure to comply herewith, the Central Bank shall take such action against the bank as may be warranted under this Act. 62 [Emphasis supplied.]

The fact that PBP is grossly overdrawn on its reserve account with the CB (up to P1.233 billion as of 13 February 1990) is not disputed by PBP. This enormous overdraft evidences the patent inability of the bank's management to keep PBP liquid. This fact alone sufficiently justifies the remedial measures taken by the Monetary Board. MB Resolutions Nos. 649 and 751 were not promulgated to arbitrarily divest the present stockholders of control over PBP, as is claimed by the latter. The same contemplates an effective and viable plan to revive and restore PBP. It is to be noted that before issuing these resolutions, the MB gave the management of PBP ample opportunity (from 30 March 1984 to June of 1987) to submit

a viable rehabilitation plan for the bank. MB Resolution Nos. 751 merely reiterated the requirement set forth in Resolution No. 649 for PBP to identify and submit the list of new stockholders who will infuse new capital into the bank for CB approval. In this Resolution, the MB gave PBP's stockholders one (1) week from notice within which to signify their acceptance or rejection of the proposed rehabilitation plan. The foregoing resolutions refer to a recommended rehabilitation plan. What was conveyed to PBP was a mere proposal. There was nothing in the resolutions to indicate that the plan was mandatory. On the contrary, PBP was given a specific period within which to accept or reject the plan. And, as petitioners correctly pointed out, the plan was not self-implementing. The warning given by the MB that should said proposal be rejected, the CB "will take appropriate alternative actions on the matter," does not make the proposed rehabilitation plan compulsory. Whether or not there is a rehabilitation plan agreed upon between PBP and the MB, the CB is authorized under R.A. No. 265 to take appropriate measures to protect the interest of the bank's depositors as well as of the general public. Furthermore, the assignment of claims to PDIC and the subsequent dacion en pago (payment of credit through shares) do not divest the present stockholders of control over PBP. As may be readily observed from the terms of Resolution No. 645, the shares which shall be issued to PDIC under the dacion are preferred, non-voting and non-participating shares. Hence, except for the instances enumerated in the Corporation Code where holders of non-voting shares are given the right to vote, PDIC shall have no hand in the bank's operation or business. In any event, these preferred shares will eventually be sold to private parties or new stockholders as soon as they are identified by PBP and approved by the CB. Prior approval by the CB of the stockholders is necessary screening purposes. There is nothing objectionable to the actions of the MB. We, therefore, find to be completely without legal or evidentiary basis the contention that the impugned resolutions are arbitrary, illegal and made in bad faith. Moreover, respondent Judge acted in complete disregard of Section 107 of R.A. No. 265 when he enjoined the CB from taking

appropriate actions against the bank, "including exclusion of (PBP) from settlement of clearing balances at the Central Bank clearing house" as warranted by law. By using his own standards, and without scrutinizing the law, respondent Judge arbitrarily determined when CB may or may not initiate measures against a bank that cannot maintain its liquidity. He also arbitrarily and capriciously decided who can continually overdraw from the deposit account with the CB, to the prejudice of other banking institutions, the banking public and the government. 3. As could be gleamed from the pleadings in G.R. No. 92943, the respondent Judge, per his order of 18 November 1987, (a) directed the conservator to restore both the PBP officers to their original positions prior to the reorganization of the bank's personnel, and the PBP's standing committees to their original compositions, and (b) restrained her from leasing out to a third party any portion of PBP's space in the Producers Bank Centre; per his Order of 22 December 1987, respondent Judge granted PPI's motion for an order transferring to the latter the administration of the three (3) buildings; and per the Order of 22 December 1987, he granted the motion directing the conservator to publish the financial statement of the PBP in the manner prayed for by the latter. The foregoing Orders were issued without due hearing. Moreover, these reliefs were not prayed for in the Amended Complaint. They were not even covered by any specific allegations therein. Except for the prohibition to lease, the rest partook of the nature of a preliminary mandatory injunction which deprived the conservator of her rights and powers under Section 28-A of R.A. No. 265 and, in effect, set aside the conservatorship with PBP itself had earlier accepted. It must be remembered that PBP did not ask, in its Amended Complaint, for the setting aside of the conservatorship. On the contrary, it even prayed that the conservator be ordered to restore the viability of PBP as mandated by said Section 28-A. The respondent Judge should not have forgotten the settled doctrine that it is improper to issue a writ of preliminary mandatory injunction prior to the final hearing, except in cases of extreme urgency, where the right is very clear, where considerations of relative inconvenience bear strongly in complainant's favor, where there is a willful and unlawful invasion of plaintiff's right against his protest and remonstrance, the injury being a continuing one, and

where the effect of the mandatory injunction is rather to reestablish and maintain a pre-existing continuing relation between the parties, recently and arbitrarily interrupted by the defendant, than to establish a new relation. 63 It is plain to this Court that respondent Judge ceased to be an impartial arbitrator; he became the godfather of PBP and PPI, granting to them practically all that they had asked for in the motions they filed. Upon the issuance of these Orders, nothing appeared clearer in the judicial horizon than this PBP and PPI had everything in the bag, so to speak, including the reliefs not even contemplated in their Amended Complaint. The challenged Orders then were whimsically and arbitrarily issued. Compounding such detestable conduct is the respondent Judge's issuance, with undue haste and unusual speed, of the orders of contempt without the proper hearing. If the conservator could, at all, be liable for contempt, it would be for indirect contempt punished under Section 3, Rule 71 of the Rules of Court, more specifically item (b) of the first paragraph which reads: Sec. 3 Indirect contempts to be punished after charge and hearing. After charge in writing has been filed, and an opportunity given to the accused to be heard by himself or counsel, a person guilty of any of the following acts may be punished for contempt: xxx xxx xxx (b) Disobedience of or resistance to a lawful writ, process, order, judgment, or command of a court, or injunction granted by a court or judge, . . .; It is clear from the said section that it is necessary that there be a charge and that the party cited for contempt be given an opportunity to be heard. The reason for this is that contempt partakes of the nature of a criminal offense. In the instant case, each motion for contempt served as the charge. It is settled that a charge may be filed by a fiscal, a judge, or even a private person. 64 Petitioner Tansinsin-Encarnacion filed oppositions thereto. Thereafter, it was the duty of the respondent Judge to hold a hearing on the motions. Respondent Judge deliberately did away with the hearing and this Court finds no justifiable reason therefor. There is, moreover, another reason why the contempt orders must

be struck down. The orders which were supposedly disobeyed and from which the motions for contempt arose were, as earlier indicated, null and void for having been issued with grave abuse of discretion amounting to lack of jurisdiction. Such Orders, therefore, cannot then be characterized as lawful. Consequently, resistance thereto cannot be punished as contempt 65 PREMISES CONSIDERED, the petitions in G.R. Nos. 88353 and 92943 are GRANTED. The 6 October 1988 decision and 17 May 1989 resolution of the Court of Appeals in C.A.-G.R. SP No. 13624 are REVERSED and SET ASIDE. Respondent Judge is ordered to dismiss Civil Case No. 17692. All proceedings undertaken and all orders issued by respondent Judge are hereby SET ASIDE for being null and void. The writ of preliminary injunction issued by the trial court in its Order dated 21 September 1987 is hereby LIFTED. IT IS 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.: 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 T106937, 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. 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 T106937. 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 PhilippinesMakati, Metro Manila Attn. Mr. Mercurio Q. RiveraManager, 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. T-106932 T-106933 T-106934 AREA 113,580 sq. m. 70,899 sq. m. 52,246 sq. m.

T-106935 T-106936 T-106937

96,768 sq. m. 187,114 sq. m. 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 ENTERPRISES142 Charisma St., Doa Andres IIRosario, Pasig, Metro Manila Attention: JOSE O. JANOLO Dear Sir: 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 BankPaseo de RoxasMakati, Metro Manila Attention: Mr. Mercurio Rivera Gentlemen:

In reply to your letter regarding my proposal to purchase your 101hectare 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 PhilippinesPaseo de Roxas, Makati Metro Manila Attention: Mr. Mercurio Rivera Re: 101 Hectares of Landin 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") 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 RiveraManager, Producers BankPaseo de Roxas, MakatiMetro 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 OFTHE PHILIPPINESPaseo de Roxas, Makati, Metro Manila Attn.: Atty. NIDA ENCARNACIONCentral 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 counteroffer 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 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? 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 shopping because:
11

that there is no forum-

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. 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 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 forumshopping. 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 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 counter claims 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. 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." 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 T106937. 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. 1617); (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"). 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 selfserving 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 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? 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. 3436.] 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. 1415.] The Fourth Issue: May the Conservator Revokethe 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 quasibanking 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. ZarateZarate Carandang Perlas & Ass.Suite 323 Rufino BuildingAyala Avenue, Makati, Metro-Manila

Dear Atty. Zarate: 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. EncarnacionLEONIDA T. EDCARNACIONActing 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 postfacto 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 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." 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 forumshopping 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. G.R. No. 176260 November 24, 2010

LUCIA BARRAMEDA VDA. DE BALLESTEROS, Petitioner, vs. RURAL BANK OF CANAMAN INC., represented by its Liquidator, the philippine deposit insurance corporation, Respondent. DECISION MENDOZA, J.: This is a petition for review on certiorari under Rule 45 of the Revised Rules of Civil Procedure assailing the August 15, 2006

Decision1 of the Court of Appeals (CA) in CA-G.R. No. 82711, modifying the decision of the Regional Trial Court of Iriga City, Branch 36 (RTC-Iriga), in Civil Case No. IR-3128, by ordering the consolidation of the said civil case with Special Proceeding Case No. M-5290 (liquidation case) before the Regional Trial Court of Makati City, Branch 59 (RTC-Makati). It appears from the records that on March 17, 2000, petitioner Lucia Barrameda Vda. De Ballesteros (Lucia) filed a complaint for Annulment of Deed of Extrajudicial Partition, Deed of Mortgage and Damages with prayer for Preliminary Injunction against her children, Roy, Rito, Amy, Arabel, Rico, Abe, Ponce Rex and Adden, all surnamed Ballesteros, and the Rural Bank of Canaman, Inc., Baao Branch (RBCI) before the RTC-Iriga. The case was docketed as Civil Case No. IR-3128. In her complaint, Lucia alleged that her deceased husband, Eugenio, left two (2) parcels of land located in San Nicolas, Baao, Camarines Sur, each with an area of 357 square meters; that on March 6, 1995, without her knowledge and consent, her children executed a deed of extrajudicial partition and waiver of the estate of her husband wherein all the heirs, including Lucia, agreed to allot the two parcels to Rico Ballesteros (Rico); that, still, without her knowledge and consent, Rico mortgaged Parcel B of the estate in favor of RBCI which mortgage was being foreclosed for failure to settle the loan secured by the lot; and that Lucia was occupying Parcel B and had no other place to live. She prayed that the deed of extrajudicial partition and waiver, and the subsequent mortgage in favor of RBCI be declared null and void having been executed without her knowledge and consent. She also prayed for damages. In its Answer, RBCI claimed that in 1979, Lucia sold one of the two parcels to Rico which represented her share in the estate of her husband. The extrajudicial partition, waiver and mortgage were all executed with the knowledge and consent of Lucia although she was not able to sign the document. RBCI further claimed that Parcel B had already been foreclosed way back in 1999 which fact was known to Lucia through the auctioning notary public. Attorneys fees were pleaded as counterclaim. The case was then set for pre-trial conference. During the pre-trial, RBCIs counsel filed a motion to withdraw after being informed that

Philippine Deposit Insurance Corporation (PDIC) would handle the case as RBCI had already been closed and placed under the receivership of the PDIC. Consequently, on February 4, 2002, the lawyers of PDIC took over the case of RBCI. On May 9, 2003, RBCI, through PDIC, filed a motion to dismiss on the ground that the RTC-Iriga has no jurisdiction over the subject matter of the action. RBCI stated that pursuant to Section 30, Republic Act No. 7653 (RA No. 7653), otherwise known as the "New Central Bank Act," the RTC-Makati, already constituted itself, per its Order dated August 10, 2001, as the liquidation court to assist PDIC in undertaking the liquidation of RBCI. Thus, the subject matter of Civil Case No. IR-3128 fell within the exclusive jurisdiction of such liquidation court. Lucia opposed the motion. On July 29, 2003, the RTC-Iriga issued an order2 granting the Motion to Dismiss, to wit: This resolves the Motion to Dismiss filed by the defendant Rural Bank of Canaman, Inc., premised on the ground that this court has no jurisdiction over the subject matter of the action. This issue of jurisdiction was raised in view of the pronouncement of the Supreme Court in Ong v. C.A. 253 SCRA 105 and in the case of Hernandez v. Rural Bank of Lucena, Inc., G.R. No. L-29791 dated January 10, 1978, wherein it was held that "the liquidation court shall have jurisdiction to adjudicate all claims against the bank whether they be against assets of the insolvent bank, for Specific Performance, Breach of Contract, Damages or whatever." It is in view of this jurisprudential pronouncement made by no less than the Supreme Court, that this case is, as far as defendant Rural Bank of Canaman Inc., is concerned, hereby ordered DISMISSED without prejudice on the part of the plaintiff to ventilate their claim before the Liquidation Court now, RTC Branch 59, Makati City. SO ORDERED. Not in conformity, Lucia appealed the RTC ruling to the CA on the ground that the RTC-Iriga erred in dismissing the case because it had jurisdiction over Civil Case No. IR-3128 under the rule on adherence of jurisdiction. On August 15, 2006, the CA rendered the questioned decision

ordering the consolidation of Civil Case No. IR-3128 and the liquidation case pending before RTC-Makati. The appellate court ratiocinated thus: The consolidation is desirable in order to prevent confusion, to avoid multiplicity of suits and to save unnecessary cost and expense. Needless to add, this procedure is well in accord with the principle that the rules of procedure shall be liberally construed in order to promote their object and to assist the parties in obtaining just, speedy and inexpensive determination of every action and proceeding (Vallacar Transit, Inc. v. Yap, 126 SCRA 500 [1983]; Suntay v. Aguiluz, 209 SCRA 500 [1992] citing Ramos v. Ebarle, 182 SCRA 245 [1990]). It would be more in keeping with the demands of equity if the cases are simply ordered consolidated. Pursuant to Section 2, Rule 1, Revised Rules of Court, the rules on consolidation should be liberally construed to achieve the object of the parties in obtaining just, speedy and inexpensive determination of their cases (Allied Banking Corporation v. Court of Appeals, 259 SCRA 371 [1996]). The dispositive portion of the decision reads: IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby MODIFIED, in such a way that the dismissal of this case (Civil Case No. IR-3128) is set aside and in lieu thereof another one is entered ordering the consolidation of said case with the liquidation case docketed as Special Proceeding No. M-5290 before Branch 59 of the Regional Trial Court of Makati City, entitled "In Re: Assistance in the Judicial Liquidation of Rural Bank of Canaman, Camarines Sur, Inc., Philippine Deposit Corporation, Petitioner." No pronouncement as to cost. SO ORDERED. 3 Lucia filed a motion for reconsideration4 but it was denied by the CA in its Resolution dated December 14, 2006.5 Hence, the present petition for review on certiorari anchored on the following GROUNDS (I)

THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE REGIONAL TRIAL COURT OF IRIGA CITY, BRANCH 36 IS VESTED WITH JURISDICTION TO CONTINUE TRYING AND ULTIMATELY DECIDE CIVIL CASE NO. IR-3128. (II) THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN ORDERING THE CONSOLIDATION OF CIVIL CASE NO. IR-3128 WITH THE LIQUIDATION CASE DOCKETED AS SPECIAL PROCEEDINGS NO. M-5290 BEFORE BRANCH 59 OF THE REGIONAL TRIAL COURT OF MAKATI CITY.6 Given the foregoing arguments, the Court finds that the core issue to be resolved in this petition involves a determination of whether a liquidation court can take cognizance of a case wherein the main cause of action is not a simple money claim against a bank ordered closed, placed under receivership of the PDIC, and undergoing a liquidation proceeding. Lucia contends that the RTC-Iriga is vested with jurisdiction over Civil Case No. 3128, the constitution of the liquidation court notwithstanding. According to her, the case was filed before the RTC-Iriga on March 17, 2000 at the time RBCI was still doing business or before the defendant bank was placed under receivership of PDIC in January 2001. She further argues that the consolidation of the two cases is improper. Her case, which is for annulment of deed of partition and waiver, deed of mortgage and damages, cannot be legally brought before the RTC-Makati with the liquidation case considering that her cause of action against RBCI is not a simple claim arising out of a creditor-debtor relationship, but one which involves her rights and interest over a certain property irregularly acquired by RBCI. Neither is she a creditor of the bank, as only the creditors of the insolvent bank are allowed to file and ventilate claims before the liquidator, pursuant to the August 10, 2001 Order of the RTCMakati which granted the petition for assistance in the liquidation of RBCI. In its Comment,7 PDIC, as liquidator of RBCI, counters that the consolidation of Civil Case No. 3128 with the liquidation proceeding is proper. It posits that the liquidation court of RBCI,

having been established, shall have exclusive jurisdiction over all claims against the said bank. After due consideration, the Court finds the petition devoid of merit. Lucias argument, that the RTC-Iriga is vested with jurisdiction to continue trying Civil Case No. IR-3128 until its final disposition, evidently falls out from a strained interpretation of the law and jurisprudence. She contends that: Since the RTC-Iriga has already obtained jurisdiction over the case it should continue exercising such jurisdiction until the final termination of the case. The jurisdiction of a court once attached cannot be ousted by subsequent happenings or events, although of a character which would have prevented jurisdiction from attaching in the first instance, and the Court retains jurisdiction until it finally disposes of the case (Aruego Jr. v. Court of Appeals, 254 SCRA 711). When a court has already obtained and is exercising jurisdiction over a controversy, its jurisdiction to proceed to final determination of the case is not affected by a new legislation transferring jurisdiction over such proceedings to another tribunal. (Alindao v. Joson, 264 SCRA 211). Once jurisdiction is vested, the same is retained up to the end of the litigation (Bernate v. Court of Appeals, 263 SCRA 323).8 The afore-quoted cases, cited by Lucia to bolster the plea for the continuance of her case, find no application in the case at bench. Indeed, the Court recognizes the doctrine on adherence of jurisdiction. Lucia, however, must be reminded that such principle is not without exceptions. It is well to quote the ruling of the CA on this matter, thus: This Court is not unmindful nor unaware of the doctrine on the adherence of jurisdiction. However, the rule on adherence of jurisdiction is not absolute and has exceptions. One of the exceptions is that when the change in jurisdiction is curative in character (Garcia v. Martinez, 90 SCRA 331 [1979]; Calderon, Sr. v. Court of Appeals, 100 SCRA 459 [1980]; Atlas Fertilizer Corporation v. Navarro, 149 SCRA 432 [1987]; Abad v. RTC of Manila, Br. Lll, 154 SCRA 664 [1987]).

For sure, Section 30, R.A. 7653 is curative in character when it declared that the liquidation court shall have jurisdiction in the same proceedings to assist in the adjudication of the disputed claims against the Bank. The interpretation of this Section (formerly Section 29, R.A. 265) becomes more obvious in the light of its intent. In Manalo v. Court of Appeals (366 SCRA 752, [2001]), the Supreme Court says: xxx The requirement that all claims against the bank be pursued in the liquidation proceedings filed by the Central Bank is intended to prevent multiplicity of actions against the insolvent bank and designed to establish due process and orderliness in the liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice and arbitrariness (citing Ong v. CA, 253 SCRA 105 [1996]). The lawmaking body contemplated that for convenience, only one court, if possible, should pass upon the claims against the insolvent bank and that the liquidation court should assist the Superintendents of Banks and regulate his operations (citing Central Bank of the Philippines, et al. v. CA, et al., 163 SCRA 482 [1988]).9 As regards Lucias contention that jurisdiction already attached when Civil Case No. IR-3128 was filed with, and jurisdiction obtained by, the RTC-Iriga prior to the filing of the liquidation case before the RTC-Makati, her stance fails to persuade this Court. In refuting this assertion, respondent PDIC cited the case of Lipana v. Development Bank of Rizal10 where it was held that the time of the filing of the complaint is immaterial, viz: It is the contention of petitioners, however, that the placing under receivership of Respondent Bank long after the filing of the complaint removed it from the doctrine in the said Morfe Case. This contention is untenable. The time of the filing of the complaint is immaterial. It is the execution that will obviously prejudice the other depositors and creditors. Moreover, as stated in the said Morfe case, the effect of the judgment is only to fix the amount of the debt, and not to give priority over other depositors and creditors. The cited Morfe case11 held that "after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the creditors, including depositors. The assets

of the insolvent banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or otherwise." Thus, to allow Lucias case to proceed independently of the liquidation case, a possibility of favorable judgment and execution thereof against the assets of RBCI would not only prejudice the other creditors and depositors but would defeat the very purpose for which a liquidation court was constituted as well. Anent the second issue, Lucia faults the CA in directing the consolidation of Civil Case No. IR-3128 with Special Proceedings No. M-5290. The CA committed no error. Lucias complaint involving annulment of deed of mortgage and damages falls within the purview of a disputed claim in contemplation of Section 30 of R.A. 7653 (The New Central Bank Act). The jurisdiction should be lodged with the liquidation court. Section 30 provides: 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. [Emphasis supplied] xxx "Disputed claims" refers to all claims, whether they be against the assets of the insolvent bank, for specific performance, breach of contract, damages, or whatever.12 Lucias action being a claim against RBCI can properly be consolidated with the liquidation proceedings before the RTC-Makati. A liquidation proceeding has been explained in the case of In Re: Petition For Assistance in the Liquidation of the Rural Bank of BOKOD (Benguet), Inc. v. Bureau of Internal Revenue13 as follows: 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. xxx

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 [Emphasis supplied.] It is clear, therefore, that the liquidation court has jurisdiction over all claims, including that of Lucia against the insolvent bank. As declared in Miranda v. Philippine Deposit Insurance Corporation,14 regular courts do not have jurisdiction over actions filed by claimants against an insolvent bank, unless there is a clear showing that the action taken by the BSP, through the Monetary Board, in the closure of financial institutions was in excess of jurisdiction, or with grave abuse of discretion. The same is not obtaining in this present case.
1avvphi1

The power and authority of the Monetary Board to close banks and liquidate them thereafter when public interest so requires is an exercise of the police power of the State. Police power, however, is subject to judicial inquiry. It may not be exercised arbitrarily or unreasonably and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust, or is tantamount to a denial of due process and equal protection clauses of the Constitution.15 In sum, this Court holds that the consolidation is proper considering that the liquidation court has jurisdiction over Lucias action. It would be more in keeping with law and equity if Lucias case is consolidated with the liquidation case in order to expeditiously determine whether she is entitled to recover the property subject of mortgage from RBCI and, if so, how much she is entitled to receive from the remaining assets of the bank. WHEREFORE, the petition is DENIED. SO ORDERED.