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11/21/2019 G.R. No.
184458
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Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 184458 January 14, 2015
RODRIGO RIVERA, Petitioner,

vs.
SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA, Respondents.
x-----------------------x
G.R. No. 184472
SPS. SALVADOR CHUA and VIOLETA S. CHUA, Petitioners,

vs.
RODRIGO RIVERA, Respondent.
DECISION
PEREZ, J.:
Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court assailing the
Decision1 of the Court of Appeals in CA-G.R. SP No. 90609 which affirmed with modification the separate rulings of
the Manila City trial courts, the Regional Trial Court, Branch 17 in Civil Case No. 02-1052562 and the Metropolitan
Trial Court (MeTC), Branch 30, in Civil Case No. 163661,3 a case for collection of a sum of money due a promissory
note. While all three (3) lower courts upheld the validity and authenticity of the promissory note as duly signed by the
obligor, Rodrigo Rivera (Rivera), petitioner in G.R. No. 184458, the appellate court modified the trial courts’
consistent awards: (1) the stipulated interest rate of sixty percent (60%) reduced to twelve percent (12%) per
annumcomputed from the date of judicial or extrajudicial demand, and (2) reinstatement of the award of attorney’s
fees also in a reduced amount of ₱50,000.00.
In G.R. No. 184458, Rivera persists in his contention that there was no valid promissory note and questions the
entire ruling of the lower courts. On the other hand, petitioners in G.R. No. 184472, Spouses Salvador and Violeta
Chua (Spouses Chua), take exception to the appellate court’s reduction of the stipulated interest rate of sixty
percent (60%) to twelve percent (12%) per annum.
We proceed to the facts.
The parties were friends of long standing having known each other since 1973: Rivera and Salvador are kumpadres,
the former is the godfather of the Spouses Chua’s son.
On 24 February 1995, Rivera obtained a loan from the Spouses Chua:
PROMISSORY NOTE
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA and
VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine Currency (₱120,000.00) on
December 31, 1995.
It is agreed and understood that failure on my part to pay the amount of (120,000.00) One Hundred
Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE
PERCENT (5%) interest monthly from the date of default until the entire obligation is fully paid for.
Should this note be referred to a lawyer for collection, I agree to pay the further sum equivalent to
twenty percent (20%) of the total amount due and payable as and for attorney’s fees which in no case
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shall be less than ₱5,000.00 and to pay in addition the cost of suit and other incidental litigation
expense.
Any action which may arise in connection with this note shall be brought in the proper Court of the City
of Manila.
Manila, February 24, 1995[.]
(SGD.) RODRIGO RIVERA4
In October 1998, almost three years from the date of payment stipulated in the promissory note, Rivera, as partial
payment for the loan, issued and delivered to the SpousesChua, as payee, a check numbered 012467, dated 30
December 1998, drawn against Rivera’s current account with the Philippine Commercial International Bank (PCIB)
in the amount of ₱25,000.00.
On 21 December 1998, the Spouses Chua received another check presumably issued by Rivera, likewise drawn
against Rivera’s PCIB current account, numbered 013224, duly signed and dated, but blank as to payee and
amount. Ostensibly, as per understanding by the parties, PCIB Check No. 013224 was issued in the amount of
₱133,454.00 with "cash" as payee. Purportedly, both checks were simply partial payment for Rivera’s loan in the
principal amount of ₱120,000.00.
Upon presentment for payment, the two checks were dishonored for the reason "account closed."
As of 31 May 1999, the amount due the Spouses Chua was pegged at ₱366,000.00 covering the principal of
₱120,000.00 plus five percent (5%) interest per month from 1 January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail. Because of
Rivera’s unjustified refusal to pay, the Spouses Chua were constrained to file a suit on 11 June 1999. The case was
raffled before the MeTC, Branch 30, Manila and docketed as Civil Case No. 163661.
In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never executed the subject Promissory
Note; (2) in all instances when he obtained a loan from the Spouses Chua, the loans were always covered by a
security; (3) at the time of the filing of the complaint, he still had an existing indebtedness to the Spouses Chua,
secured by a real estate mortgage, but not yet in default; (4) PCIB Check No. 132224 signed by him which he
delivered to the Spouses Chua on 21 December 1998, should have been issued in the amount of only 1,300.00,
representing the amount he received from the Spouses Chua’s saleslady; (5) contrary to the supposed agreement,
the Spouses Chua presented the check for payment in the amount of ₱133,454.00; and (6) there was no demand
for payment of the amount of ₱120,000.00 prior to the encashment of PCIB Check No. 0132224.5
In the main, Rivera claimed forgery of the subject Promissory Note and denied his indebtedness thereunder.
The MeTC summarized the testimonies of both parties’ respective witnesses:
[The spouses Chua’s] evidence include[s] documentary evidence and oral evidence (consisting of the testimonies of
[the spouses] Chua and NBI Senior Documents Examiner Antonio Magbojos). x x x
xxxx
Witness Magbojos enumerated his credentials as follows: joined the NBI (1987); NBI document examiner (1989);
NBI Senior Document Examiner (1994 to the date he testified); registered criminologist; graduate of 18th Basic
Training Course [i]n Questioned Document Examination conducted by the NBI; twice attended a seminar on US
Dollar Counterfeit Detection conducted by the US Embassy in Manila; attended a seminar on Effective Methodology
in Teaching and Instructional design conducted by the NBI Academy; seminar lecturer on Questioned Documents,
Signature Verification and/or Detection; had examined more than a hundred thousand questioned documents at the
time he testified.
Upon [order of the MeTC], Mr. Magbojos examined the purported signature of [Rivera] appearing in the Promissory
Note and compared the signature thereon with the specimen signatures of [Rivera] appearing on several
documents. After a thorough study, examination, and comparison of the signature on the questioned document
(Promissory Note) and the specimen signatures on the documents submitted to him, he concluded that the
questioned signature appearing in the Promissory Note and the specimen signatures of [Rivera] appearing on the
other documents submitted were written by one and the same person. In connection with his findings, Magbojos
prepared Questioned Documents Report No. 712-1000 dated 8 January 2001, with the following conclusion: "The
questioned and the standard specimen signatures RODGRIGO RIVERA were written by one and the same person."
[Rivera] testified as follows: he and [respondent] Salvador are "kumpadres;" in May 1998, he obtained a loan from
[respondent] Salvador and executed a real estate mortgage over a parcel of land in favor of [respondent Salvador]
as collateral; aside from this loan, in October, 1998 he borrowed ₱25,000.00 from Salvador and issued PCIB Check
No. 126407 dated 30 December 1998; he expressly denied execution of the Promissory Note dated 24 February
1995 and alleged that the signature appearing thereon was not his signature; [respondent Salvador’s] claim that
11/21/2019 G.R. No. 184458
PCIB Check No. 0132224 was partial payment for the Promissory Note was not true, the truth being that he
delivered the check to [respondent Salvador] with the space for amount left blank as he and [respondent] Salvador
had agreed that the latter was to fill it in with the amount of ₱1,300.00 which amount he owed [the spouses Chua];
however, on 29 December 1998 [respondent] Salvador called him and told him that he had written ₱133,454.00
instead of ₱1,300.00; x x x. To rebut the testimony of NBI Senior Document Examiner Magbojos, [Rivera] reiterated
his averment that the signature appearing on the Promissory Note was not his signature and that he did not execute
the Promissory Note.6
After trial, the MeTC ruled in favor of the Spouses Chua:
WHEREFORE, [Rivera] is required to pay [the spouses Chua]: ₱120,000.00 plus stipulated interest at the rate of 5%
per month from 1 January 1996, and legal interest at the rate of 12% percent per annum from 11 June 1999, as
actual and compensatory damages; 20% of the whole amount due as attorney’s fees.7
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of the MeTC, but deleted the award of
attorney’s fees to the Spouses Chua:
WHEREFORE, except as to the amount of attorney’s fees which is hereby deleted, the rest of the Decision dated
October 21, 2002 is hereby AFFIRMED.8
Both trial courts found the Promissory Note as authentic and validly bore the signature of Rivera. Undaunted, Rivera
appealed to the Court of Appeals which affirmed Rivera’s liability under the Promissory Note, reduced the imposition
of interest on the loan from 60% to 12% per annum, and reinstated the award of attorney’s fees in favor of the
Spouses Chua:
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the MODIFICATION that the interest
rate of 60% per annum is hereby reduced to12% per annum and the award of attorney’s fees is reinstated atthe
reduced amount of ₱50,000.00 Costs against [Rivera].9
Hence, these consolidated petitions for review on certiorariof Rivera in G.R. No. 184458 and the Spouses Chua in
G.R. No. 184472, respectively raising the following issues:
A. In G.R. No. 184458
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING

THE RULING OF THE RTC AND M[e]TC THAT THERE WAS A VALID PROMISSORY NOTE
EXECUTED BY [RIVERA].
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

DEMAND IS NO LONGER NECESSARY AND IN APPLYING THE PROVISIONS OF THE
NEGOTIABLE INSTRUMENTS LAW.
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN AWARDING

ATTORNEY’S FEES DESPITE THE FACT THAT THE SAME HAS NO BASIS IN FACT AND IN
LAW AND DESPITE THE FACT THAT [THE SPOUSES CHUA] DID NOT APPEAL FROM THE
DECISION OF THE RTC DELETING THE AWARD OF ATTORNEY’S FEES.10
B. In G.R. No. 184472
[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED GROSS LEGAL

ERROR WHEN IT MODIFIED THE APPEALED JUDGMENT BY REDUCING THE INTEREST RATE
FROM 60% PER ANNUM TO 12% PER ANNUM IN SPITE OF THE FACT THAT RIVERA NEVER
RAISED IN HIS ANSWER THE DEFENSE THAT THE SAID STIPULATED RATE OF INTEREST IS
EXORBITANT, UNCONSCIONABLE, UNREASONABLE, INEQUITABLE, ILLEGAL, IMMORAL OR
VOID.11
As early as 15 December 2008, wealready disposed of G.R. No. 184472 and denied the petition, via a Minute
Resolution, for failure to sufficiently show any reversible error in the ruling of the appellate court specifically
concerning the correct rate of interest on Rivera’s indebtedness under the Promissory Note.12
On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.
Thus, what remains for our disposition is G.R. No. 184458, the appeal of Rivera questioning the entire ruling of the
Court of Appeals in CA-G.R. SP No. 90609.
Rivera continues to deny that heexecuted the Promissory Note; he claims that given his friendship withthe Spouses
Chua who were money lenders, he has been able to maintain a loan account with them. However, each of these
loan transactions was respectively "secured by checks or sufficient collateral."
11/21/2019 G.R. No. 184458
Rivera points out that the Spouses Chua "never demanded payment for the loan nor interest thereof (sic) from
[Rivera] for almost four (4) years from the time of the alleged default in payment [i.e., after December 31, 1995]."13
On the issue of the supposed forgery of the promissory note, we are not inclined to depart from the lower courts’
uniform rulings that Rivera indeed signed it.
Rivera offers no evidence for his asseveration that his signature on the promissory note was forged, only that the
signature is not his and varies from his usual signature. He likewise makes a confusing defense of having previously
obtained loans from the Spouses Chua who were money lenders and who had allowed him a period of "almost four
(4) years" before demanding payment of the loan under the Promissory Note.
First, we cannot give credence to such a naked claim of forgery over the testimony of the National Bureau of
Investigation (NBI) handwriting expert on the integrity of the promissory note. On that score, the appellate court aptly
disabled Rivera’s contention:
[Rivera] failed to adduce clear and convincing evidence that the signature on the promissory note is a forgery. The
fact of forgery cannot be presumed but must be proved by clear, positive and convincing evidence. Mere variance of
signatures cannot be considered as conclusive proof that the same was forged. Save for the denial of Rivera that
the signature on the note was not his, there is nothing in the records to support his claim of forgery. And while it is
true that resort to experts is not mandatory or indispensable to the examination of alleged forged documents, the
opinions of handwriting experts are nevertheless helpful in the court’s determination of a document’s authenticity.
To be sure, a bare denial will not suffice to overcome the positive value of the promissory note and the testimony of
the NBI witness. In fact, even a perfunctory comparison of the signatures offered in evidence would lead to the
conclusion that the signatures were made by one and the same person.
It is a basic rule in civil cases that the party having the burden of proof must establish his case by preponderance of
evidence, which simply means "evidence which is of greater weight, or more convincing than that which is offered in
opposition to it."
Evaluating the evidence on record, we are convinced that [the Spouses Chua] have established a prima faciecase in
their favor, hence, the burden of evidence has shifted to [Rivera] to prove his allegation of forgery. Unfortunately for
[Rivera], he failed to substantiate his defense.14 Well-entrenched in jurisprudence is the rule that factual findings of
the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and are
considered conclusive between the parties.15 A review of such findings by this Court is not warranted except upon a
showing of highly meritorious circumstances, such as: (1) when the findings of a trial court are grounded entirely on
speculation, surmises or conjectures; (2) when a lower court's inference from its factual findings is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the
findings of the appellate court go beyond the issues of the case, or fail to notice certain relevant facts which, if
properly considered, will justify a different conclusion; (5) when there is a misappreciation of facts; (6) when the
findings of fact are conclusions without mention of the specific evidence on which they are based, are premised on
the absence of evidence, or are contradicted by evidence on record.16 None of these exceptions obtains in this
instance. There is no reason to depart from the separate factual findings of the three (3) lower courts on the validity
of Rivera’s signature reflected in the Promissory Note.
Indeed, Rivera had the burden ofproving the material allegations which he sets up in his Answer to the plaintiff’s
claim or cause of action, upon which issue is joined, whether they relate to the whole case or only to certain issues
in the case.17
In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by the testimony of a handwriting
expert from the NBI. While it is true that resort to experts is not mandatory or indispensable to the examination or
the comparison of handwriting, the trial courts in this case, on its own, using the handwriting expert testimony only
as an aid, found the disputed document valid.18
Hence, the MeTC ruled that:
[Rivera] executed the Promissory Note after consideration of the following: categorical statement of [respondent]
Salvador that [Rivera] signed the Promissory Note before him, in his ([Rivera’s]) house; the conclusion of NBI Senior
Documents Examiner that the questioned signature (appearing on the Promissory Note) and standard specimen
signatures "Rodrigo Rivera" "were written by one and the same person"; actual view at the hearing of the enlarged
photographs of the questioned signature and the standard specimen signatures.19
Specifically, Rivera insists that: "[i]f that promissory note indeed exists, it is beyond logic for a money lender to
extend another loan on May 4, 1998 secured by a real estate mortgage, when he was already in default and has not
been paying any interest for a loan incurred in February 1995."20
We disagree.
11/21/2019 G.R. No. 184458
It is likewise likely that precisely because of the long standing friendship of the parties as "kumpadres," Rivera was
allowed another loan, albeit this time secured by a real estate mortgage, which will cover Rivera’s loan should
Rivera fail to pay. There is nothing inconsistent with the Spouses Chua’s two (2) and successive loan
accommodations to Rivera: one, secured by a real estate mortgage and the other, secured by only a Promissory
Note.
Also completely plausible is thatgiven the relationship between the parties, Rivera was allowed a substantial amount
of time before the Spouses Chua demanded payment of the obligation due under the Promissory Note.
In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of forgery and a discordant defense to
assail the authenticity and validity of the Promissory Note. Although the burden of proof rested on the Spouses
Chua having instituted the civil case and after they established a prima facie case against Rivera, the burden of
evidence shifted to the latter to establish his defense.21 Consequently, Rivera failed to discharge the burden of
evidence, refute the existence of the Promissory Note duly signed by him and subsequently, that he did not fail to
pay his obligation thereunder. On the whole, there was no question left on where the respective evidence of the
parties preponderated—in favor of plaintiffs, the Spouses Chua. Rivera next argues that even assuming the validity
of the Promissory Note, demand was still necessary in order to charge him liable thereunder. Rivera argues that it
was grave error on the part of the appellate court to apply Section 70 of the Negotiable Instruments Law (NIL).22
We agree that the subject promissory note is not a negotiable instrument and the provisions of the NIL do not apply
to this case. Section 1 of the NIL requires the concurrence of the following elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
On the other hand, Section 184 of the NIL defines what negotiable promissory note is: SECTION 184. Promissory
Note, Defined. – A negotiable promissory note within the meaning of this Act is an unconditional promise in writing
made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable
future time, a sum certain in money to order or to bearer. Where a note is drawn to the maker’s own order, it is not
complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses Chua, and not
to order or to bearer, or to the order of the Spouses Chua as payees. However, even if Rivera’s Promissory Note is
not a negotiable instrument and therefore outside the coverage of Section 70 of the NIL which provides that
presentment for payment is not necessary to charge the person liable on the instrument, Rivera is still liable under
the terms of the Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the obligation falls due and becomes demandable—31
December 1995. As of 1 January 1996, Rivera had already incurred in delay when he failed to pay the amount of
₱120,000.00 due to the Spouses Chua on 31 December 1995 under the Promissory Note.
Article 1169 of the Civil Code explicitly provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins. (Emphasis supplied)
There are four instances when demand is not necessary to constitute the debtor in default: (1) when there is an
express stipulation to that effect; (2) where the law so provides; (3) when the period is the controlling motive or the
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principal inducement for the creation of the obligation; and (4) where demand would be useless. In the first two
paragraphs, it is not sufficient that the law or obligation fixes a date for performance; it must further state expressly
that after the period lapses, default will commence.
We refer to the clause in the Promissory Note containing the stipulation of interest:
It is agreed and understood that failure on my part to pay the amount of (₱120,000.00) One Hundred Twenty
Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%) interest
monthly from the date of default until the entire obligation is fully paid for.23
which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the "date of default" until the entire
obligation is fully paid for. The parties evidently agreed that the maturity of the obligation at a date certain, 31
December 1995, will give rise to the obligation to pay interest. The Promissory Note expressly provided that after 31
December 1995, default commences and the stipulation on payment of interest starts.
The date of default under the Promissory Note is 1 January 1996, the day following 31 December 1995, the due
date of the obligation. On that date, Rivera became liable for the stipulated interest which the Promissory Note says
is equivalent to 5% a month. In sum, until 31 December 1995, demand was not necessary before Rivera could be
held liable for the principal amount of ₱120,000.00. Thereafter, on 1 January 1996, upon default, Rivera became
liable to pay the Spouses Chua damages, in the form of stipulated interest.
The liability for damages of those who default, including those who are guilty of delay, in the performance of their
obligations is laid down on Article 117024 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an indemnity for damages when
the obligor incurs in delay:
Art. 2209. If the obligation consists inthe payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six percent per annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the obligation is for a sum of money; (2) the debtor,
Rivera, incurred in delay when he failed to pay on or before 31 December 1995; and (3) the Promissory Note
provides for an indemnity for damages upon default of Rivera which is the payment of a 5%monthly interest from the
date of default.
We do not consider the stipulation on payment of interest in this case as a penal clause although Rivera, as obligor,
assumed to pay additional 5% monthly interest on the principal amount of ₱120,000.00 upon default.
Article 1226 of the Civil Code provides:
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment
of interests in case of noncompliance, if there isno stipulation to the contrary. Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.
The penal clause is generally undertaken to insure performance and works as either, or both, punishment and
reparation. It is an exception to the general rules on recovery of losses and damages. As an exception to the
general rule, a penal clause must be specifically set forth in the obligation.25
In high relief, the stipulation in the Promissory Note is designated as payment of interest, not as a penal clause, and
is simply an indemnity for damages incurred by the Spouses Chua because Rivera defaulted in the payment of the
amount of ₱120,000.00. The measure of damages for the Rivera’s delay is limited to the interest stipulated in the
Promissory Note. In apt instances, in default of stipulation, the interest is that provided by law.26
In this instance, the parties stipulated that in case of default, Rivera will pay interest at the rate of 5% a month or
60% per annum. On this score, the appellate court ruled:
It bears emphasizing that the undertaking based on the note clearly states the date of payment tobe 31 December
1995. Given this circumstance, demand by the creditor isno longer necessary in order that delay may exist since the
contract itself already expressly so declares. The mere failure of [Spouses Chua] to immediately demand or collect
payment of the value of the note does not exonerate [Rivera] from his liability therefrom. Verily, the trial court
committed no reversible error when it imposed interest from 1 January 1996 on the ratiocination that [Spouses
Chua] were relieved from making demand under Article 1169 of the Civil Code.
xxxx
As observed by [Rivera], the stipulated interest of 5% per month or 60% per annum in addition to legal interests and
attorney’s fees is, indeed, highly iniquitous and unreasonable. Stipulated interest rates are illegal if they are
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unconscionable and the Court is allowed to temper interest rates when necessary. Since the interest rate agreed
upon is void, the parties are considered to have no stipulation regarding the interest rate, thus, the rate of interest
should be 12% per annum computed from the date of judicial or extrajudicial demand.27
The appellate court found the 5% a month or 60% per annum interest rate, on top of the legal interest and attorney’s
fees, steep, tantamount to it being illegal, iniquitous and unconscionable. Significantly, the issue on payment of
interest has been squarely disposed of in G.R. No. 184472 denying the petition of the Spouses Chua for failure to
sufficiently showany reversible error in the ruling of the appellate court, specifically the reduction of the interest rate
imposed on Rivera’s indebtedness under the Promissory Note. Ultimately, the denial of the petition in G.R. No.
184472 is res judicata in its concept of "bar by prior judgment" on whether the Court of Appeals correctly reduced
the interest rate stipulated in the Promissory Note.
Res judicata applies in the concept of "bar by prior judgment" if the following requisites concur: (1) the former
judgment or order must be final; (2) the judgment or order must be on the merits; (3) the decision must have been
rendered by a court having jurisdiction over the subject matter and the parties; and (4) there must be, between the
first and the second action, identity of parties, of subject matter and of causes of action.28
In this case, the petitions in G.R. Nos. 184458 and 184472 involve an identity of parties and subject matter raising
specifically errors in the Decision of the Court of Appeals. Where the Court of Appeals’ disposition on the propriety
of the reduction of the interest rate was raised by the Spouses Chua in G.R. No. 184472, our ruling thereon
affirming the Court of Appeals is a "bar by prior judgment."
At the time interest accrued from 1 January 1996, the date of default under the Promissory Note, the then prevailing
rate of legal interest was 12% per annum under Central Bank (CB) Circular No. 416 in cases involving the loan or
for bearance of money.29 Thus, the legal interest accruing from the Promissory Note is 12% per annum from the
date of default on 1 January 1996. However, the 12% per annumrate of legal interest is only applicable until 30 June
2013, before the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013
reducing the rate of legal interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery Frames,30 BSP
Circular No. 799 is prospectively applied from 1 July 2013. In short, the applicable rate of legal interest from 1
January 1996, the date when Rivera defaulted, to date when this Decision becomes final and executor is divided
into two periods reflecting two rates of legal interest: (1) 12% per annum from 1 January 1996 to 30 June 2013; and
(2) 6% per annum FROM 1 July 2013 to date when this Decision becomes final and executory.
As for the legal interest accruing from 11 June 1999, when judicial demand was made, to the date when this
Decision becomes final and executory, such is likewise divided into two periods: (1) 12% per annum from 11 June
1999, the date of judicial demand to 30 June 2013; and (2) 6% per annum from 1 July 2013 to date when this
Decision becomes final and executor.31 We base this imposition of interest on interest due earning legal interest on
Article 2212 of the Civil Code which provides that "interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent on this point."
From the time of judicial demand, 11 June 1999, the actual amount owed by Rivera to the Spouses Chua could
already be determined with reasonable certainty given the wording of the Promissory Note.32
We cite our recent ruling in Nacar v. Gallery Frames:33
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable damages.
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 for
bearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e.,
from judicial or extra judicial demand under and subject to the provisions ofArticle 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or
1âwphi1
until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money
11/21/2019 G.R. No. 184458
becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a for bearance of credit. And, in addition to the above,
judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed therein. (Emphasis supplied)
On the reinstatement of the award of attorney’s fees based on the stipulation in the Promissory Note, weagree with
the reduction thereof but not the ratiocination of the appellate court that the attorney’s fees are in the nature of
liquidated damages or penalty. The interest imposed in the Promissory Note already answers as liquidated damages
for Rivera’s default in paying his obligation. We award attorney’s fees, albeit in a reduced amount, in recognition that
the Spouses Chua were compelled to litigate and incurred expenses to protect their interests.34 Thus, the award of
₱50,000.00 as attorney’s fees is proper.
For clarity and to obviate confusion, we chart the breakdown of the total amount owed by Rivera to the Spouses
Chua:
Face value of the Stipulated Interest A & Interest due earning Attorney’s Total
Promissory Note B legal interest A & B fees Amount
February 24, 1995 A. January 1, 1996 to A. June 11, 1999 (date Wholesale
to June 30, 2013 of judicial demand) to Amount
December 31, June 30, 2013
1995 B. July 1 2013 to date B. July 1, 2013 to date
when this Decision when this Decision
becomes final and becomes final and
executory executory
₱120,000.00 A. 12 % per annumon A. 12% per annumon ₱50,000.00 Total amount

the principal amount of the total amount of of Columns
₱120,000.00 column 2 1-4
B. 6% per annumon the B. 6% per annumon the
principal amount of total amount of column
₱120,000.00 235
The total amount owing to the Spouses Chua set forth in this Decision shall further earn legal interest at the rate of
6% per annum computed from its finality until full payment thereof, the interim period being deemed to be a
forbearance of credit.
WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No.
90609 is MODIFIED. Petitioner Rodrigo Rivera is ordered to pay respondents Spouse Salvador and Violeta Chua
the following:
(1) the principal amount of ₱120,000.00;
(2) legal interest of 12% per annumof the principal amount of ₱120,000.00 reckoned from 1 January 1996
until 30 June 2013;
(3) legal interest of 6% per annumof the principal amount of ₱120,000.00 form 1 July 2013 to date when this
Decision becomes final and executory;
(4) 12% per annumapplied to the total of paragraphs 2 and 3 from 11 June 1999, date of judicial demand, to
30 June 2013, as interest due earning legal interest;
(5) 6% per annumapplied to the total amount of paragraphs 2 and 3 from 1 July 2013 to date when this
Decision becomes final and executor, asinterest due earning legal interest;
(6) Attorney’s fees in the amount of ₱50,000.00; and
(7) 6% per annum interest on the total of the monetary awards from the finality of this Decision until full
payment thereof.
Costs against petitioner Rodrigo Rivera.
SO ORDERED.
JOSE PORTUGAL PEREZ

Associate Justice
WE CONCUR:
11/21/2019 G.R. No. 184458
MARIA LOURDES P.A. SERENO
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE CASTRO LUCAS P. BERSAMIN

Associate Justice Associate Justice
ESTELA M. PERLAS-BERNABE
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the Court's Div.ision.

Chief Justice
Footnotes
1
Rollo in G.R. No. 184458, pp. 52-62; Penned by Associate Justice Ricardo R. Rosario with Associate
Justices Mariano C. Del Castillo (now a member of this Court) and Arcangelita Romilla-Lontok concurring.
2
Id. at 152-156; Penned by Presiding Judge Eduardo B. Peralta, Jr.
3
Rolloin G.R. No. 184472, pp. 52-56; Penned by Presiding Judge Nina G. Antonio-Valenzuela.
4
Rollo in G.R. No. 184458, p. 76.
5
Id. at 53-54.
6
Rollo in G.R. No. 184472, pp. 53-54.
7
Id. at 56.
8
Id. at 61.
9
Rollo in G.R. No. 184458, p. 62.
10
Id. at 29.
11
Rollo in G.R. No. 184472, p. 13
12
Id. at p. 103.
13
Rollo in G.R. No. 184458, p. 32.
14
Id. at 58-59.
15
Siain Enterprises v. Cupertino Realty Corp., G.R. No. 170782, 22 June 2009, 590 SCRA 435, 445.
16
Durban Apartments Corporation v. Pioneer Insurance and Surety Corporation, G.R. No. 179419, 12
January 2011, 639 SCRA 441, 449.
17
Francisco, Evidence, (3rd Ed. 1996), p. 385.
18
Lorzano v. Tabayag, Jr., G.R. No. 189647, 6 February 2012, 665 SCRA 38, 47.
19
Rollo in G.R. No. 184458, p. 113.
20
Id. at 33.
21
De Leon v. Bank of the Philippine Islands, G.R. No. 184565, 20 November 2013.
22
Sec. 70. Effect of want of demand on principal debtor.- Presentment for payment is not necessary in order
to charge the person primarily liable on the instrument; but if the instrument is, by its terms, payable at a
special place, and he isable and willing to pay it there at maturity, such liability and willingness are equivalent
to a tender of payment upon his part. But except as herein otherwise provided, presentment for payment is
necessary in order to charge the drawer and indorsers.
11/21/2019 G.R. No. 184458
23
Rollo in G.R. No. 184472, p. 76.
24
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravenethe tenor thereof, are liable for damages.
25
4 Tolentino, Civil Code of the Philippines, p. 260.
26
5 Tolentino, Civil Code of the Philippines, pp. 649-650.
27
Rollo in G.R. No. 184458, pp. 59-61.
28
Agustin v. Sps. Delos Santos, 596 Phil. 630, 642-643 (2009).
29
See Eastern Shipping Lines v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78.
30
G.R. No. 189871, 13 August 2013.
31
BSP Circular No. 799, Series of 2013 amending BSP Circular No. 905, Series of 1982.
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of contracts as to such rate or interest, shall be six percent (6%)
per annum.
<http://www.bsp.gov.ph/downloads/regulations/attachments/2013/c799.pdf> visited 11 May 2014.

32
Article 2213 of the Civil Code: Interest cannot be recovered upon unliquidated claims or damages except
when the demand can be established with reasonable certainty.
33
Supra note 30.
34
Article 2208 of the Civil Code: In the absence ofstipulation, attorney’s fees, and expenses of litigation, other
than judicial costs, cannot be recovered, except:
xxxx
(2) when the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest;
xxxx
35
Based on Article 2212 of the Civil Code: Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point.
The Lawphil Project - Arellano Law Foundation
11/21/2019 G.R. No. 187769
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SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 187769 June 4, 2014
ALVIN PATRIMONIO, Petitioner,

vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is the decision2 dated
September 24, 2008 and the resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-G.R. CV No.
82301. The appellate court affirmed the decision of the Regional Trial Court (RTC) of Quezon City, Branch 77,
dismissing the complaint for declaration of nullity of loan filed by petitioner Alvin Patrimonio and ordering him to pay
respondent Octavio Marasigan III (Marasigan) the sum of ₱200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly summarized below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under the name
of Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-concerts and shows related to
basketball. Petitioner was already then a decorated professional basketball player while Gutierrez was a well-known
sports columnist.
In the course of their business, the petitioner pre-signed several checks to answer for the expenses of Slam Dunk.
Although signed, these checks had no payee’s name, date or amount. The blank checks were entrusted to Gutierrez
with the specific instruction not to fill them out without previous notification to and approval by the petitioner.
According to petitioner, the arrangement was made so that he could verify the validity of the payment and make the
proper arrangements to fund the account.
In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to Marasigan (the petitioner’s
former teammate), to secure a loan in the amount of ₱200,000.00 on the excuse that the petitioner needed the
money for the construction of his house. In addition to the payment of the principal, Gutierrez assured Marasigan
that he would be paid an interest of 5% per month from March to May 1994.
After much contemplation and taking into account his relationship with the petitioner and Gutierrez, Marasigan
acceded to Gutierrez’ request and gave him ₱200,000.00 sometime in February 1994. Gutierrez simultaneously
delivered to Marasigan one of the blank checks the petitioner pre-signed with Pilipinas Bank, Greenhills Branch,
Check No. 21001764 with the blank portions filled out with the words "Cash" "Two Hundred Thousand Pesos Only",
and the amount of "₱200,000.00". The upper right portion of the check corresponding to the date was also filled out
with the words "May 23, 1994" but the petitioner contended that the same was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason "ACCOUNT CLOSED." It
was later revealed that petitioner’s account with the bank had been closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the petitioner
asking for the payment of ₱200,000.00, but his demands likewise went unheeded. Consequently, he filed a criminal
case for violation of B.P. 22 against the petitioner, docketed as Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint for Declaration of
Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent Marasigan. He completely denied
https://www.lawphil.net/judjuris/juri2014/jun2014/gr_187769_2014.html 1/9
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authorizing the loan or the check’s negotiation, and asserted that he was not privy to the parties’ loan agreement.
Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22, 1997,Gutierrez was
declared in default.
The Ruling of the RTC
The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the petitioner, in issuing the pre-signed blank
checks, had the intention of issuing a negotiable instrument, albeit with specific instructions to Gutierrez not to
negotiate or issue the check without his approval. While under Section 14 of the Negotiable Instruments Law
Gutierrez had the prima facie authority to complete the checks by filling up the blanks therein, the RTC ruled that he
deliberately violated petitioner’s specific instructions and took advantage of the trust reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the petitioner’s
complaint for declaration of nullity of the loan. It ordered the petitioner to pay Marasigan the face value of the check
with a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a holder in due course.
He contended that when Marasigan received the check, he knew that the same was without a date, and hence,
incomplete. He also alleged that the loan was actually between Marasigan and Gutierrez with his check being used
only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual findings. After
careful analysis, the CA agreed with the petitioner that Marasigan is not a holder in due course as he did not receive
the check in good faith.
The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with the petitioner’s
authority. It held that the loan may not be nullified since it is grounded on an obligation arising from law and ruled
that the petitioner is still liable to pay Marasigan the sum of ₱200,000.00.
After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed the present petition
for review on certiorari under Rule 45 of the Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between him and Marasigan since he never authorized the
borrowing of money nor the check’s negotiation to the latter; (2) under Article 1878 of the Civil Code, a special
power of attorney is necessary for an individual to make a loan or borrow money in behalf of another; (3) the loan
transaction was between Gutierrez and Marasigan, with his check being used only as a security; (4) the check had
not been completely and strictly filled out in accordance with his authority since the condition that the subject check
can only be used provided there is prior approval from him, was not complied with; (5) even if the check was strictly
filled up as instructed by the petitioner, Marasigan is still not entitled to claim the check’s value as he was not a
holder in due course; and (6) by reason of the bad faith in the dealings between the respondents, he is entitled to
claim for damages.
The Issues
Reduced to its basics, the case presents to us the following issues:
1. Whether the contract of loan in the amount of ₱200,000.00 granted by respondent Marasigan to petitioner,
through respondent Gutierrez, may be nullified for being void;
2. Whether there is basis to hold the petitioner liable for the payment of the ₱200,000.00 loan;
3. Whether respondent Gutierrez has completely filled out the subject check strictly under the authority given
by the petitioner; and
4. Whether Marasigan is a holder in due course.
The Court’s Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this petition are essentially factual in nature. The main point of inquiry
of whether the contract of loan may be nullified, hinges on the very existence of the contract of loan – a question
that, as presented, is essentially, one of fact. Whether the petitioner authorized the borrowing; whether Gutierrez
11/21/2019 G.R. No. 187769
completely filled out the subject check strictly under the petitioner’s authority; and whether Marasigan is a holder in
due course are also questions of fact, that, as a general rule, are beyond the scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for review under
Rule 45 is limited only to questions of law, is not an absolute rule that admits of no exceptions. One notable
exception is when the findings off act of both the trial court and the CA are conflicting, making their review
necessary.5 In the present case, the tribunals below arrived at two conflicting factual findings, albeit with the same
conclusion, i.e., dismissal of the complaint for nullity of the loan. Accordingly, we will examine the parties’ evidence
presented.
I. Liability Under the Contract of Loan
The petitioner seeks to nullify the contract of loan on the ground that he never authorized the borrowing of money.
He points to Article 1878, paragraph 7 of the Civil Code, which explicitly requires a written authority when the loan is
contracted through an agent. The petitioner contends that absent such authority in writing, he should not be held
liable for the face value of the check because he was not a party or privy to the agreement.
Contracts of Agency May be Oral Unless The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds himself to render
some service or to do something in representation or on behalf of another, with the consent or authority of the latter."
Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his behalf without authority.
As a general rule, a contract of agency may be oral.6 However, it must be written when the law requires a specific
form, for example, in a sale of a piece of land or any interest therein through an agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent can loan
or borrow money in behalf of the principal, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things
which are under administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as the mandate is express, such authority may be
either oral or written. We unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the requirement under Article
1878 of the Civil Code refers to the nature of the authorization and not to its form. Be that as it may, the authority
must be duly established by competent and convincing evidence other than the self serving assertion of the party
claiming that such authority was verbally given, thus:
The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special authority in Rule
138 of the Rules of Court refer to the nature of the authorization and not its form. The requirements are met if there
is a clear mandate from the principal specifically authorizing the performance of the act. As early as 1906, this Court
in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such a mandate may be either oral or written, the one vital
thing being that it shall be express. And more recently, We stated that, if the special authority is not written, then it
must be duly established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And while the
same does not state that the special authority be in writing the Court has every reason to expect that, if not in
writing, the same be duly established by evidence other than the self-serving assertion of counsel himself that such
authority was verbally given him.(Home Insurance Company vs. United States lines Company, et al., 21 SCRA 863;
866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for Being Void;
Petitioner is Not Bound by the Contract of Loan.
A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf of the petitioner. 1âwphi1
Records do not show that the petitioner executed any special power of attorney (SPA) in favor of Gutierrez. In fact,
the petitioner’s testimony confirmed that he never authorized Gutierrez (or anyone for that matter), whether verbally
or in writing, to borrow money in his behalf, nor was he aware of any such transaction:
ALVIN PATRIMONIO (witness)
11/21/2019 G.R. No. 187769
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing authorizing him to borrow
using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioner’s acts of pre-signing the blank checks and releasing them to
Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill them out and contract the loan in his
behalf.
Marasigan’s submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of the petitioner. As
held in Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa secured by real estate mortgages in the
name of East Cordillera Mining Corporation, in the absence of an SPA conferring authority on de Villa, there is no
basis to hold the corporation liable, to wit:
The power to borrow money is one of those cases where corporate officers as agents of the corporation need a
special power of attorney. In the case at bar, no special power of attorney conferring authority on de Villa was ever
presented. x x x There was no showing that respondent corporation ever authorized de Villa to obtain the loans on
its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the corporation liable
since there was no authority, express, implied or apparent, given to de Villa to borrow money from petitioner. Neither
was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his death). (citations
omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held:
Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian to obtain a
loan from him.
xxxx
Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf of respondent or
of his wife. While petitioner claims that Lilian was authorized by respondent, the statement of account marked as
Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was acting for
and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent of respondent or
anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed
by an agent, it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it
will bind the agent only. It is not enough merely that the agent was in fact authorized to make the mortgage, if he has
not acted in the name of the principal. x x x (emphasis supplied).
In the absence of any showing of any agency relations or special authority to act for and in behalf of the petitioner,
the loan agreement Gutierrez entered into with Marasigan is null and void. Thus, the petitioner is not bound by the
parties’ loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally sufficient because
the authority to enter into a loan can never be presumed. The contract of agency and the special fiduciary
relationship inherent in this contract must exist as a matter of fact. The person alleging it has the burden of proof to
show, not only the fact of agency, but also its nature and extent.11 As we held in People v. Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in Caloocan City
cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery of the checks to the
complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not take delivery of the checks as holder,
i.e., as "payee" or "indorsee." And there appears to beno contract of agency between Yambao and Andan so as to
bind the latter for the acts of the former. Alicia P. Andan declared in that sworn testimony before the investigating
11/21/2019 G.R. No. 187769
fiscal that Yambao is but her "messenger" or "part-time employee." There was no special fiduciary relationship that
permeated their dealings. For a contract of agency to exist, the consent of both parties is essential, the principal
consents that the other party, the agent, shall act on his behalf, and the agent consents so to act. It must exist as a
fact. The law makes no presumption thereof. The person alleging it has the burden of proof to show, not only the
fact of its existence, but also its nature and extent. This is more imperative when it is considered that the transaction
dealt with involves checks, which are not legal tender, and the creditor may validly refuse the same as payment of
obligation.(at p. 630). (emphasis supplied)
The records show that Marasigan merely relied on the words of Gutierrez without securing a copy of the SPA in
favor of the latter and without verifying from the petitioner whether he had authorized the borrowing of money or
release of the check. He was thus bound by the risk accompanying his trust on the mere assurances of Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latter’s Consent Was Not Obtained.
Another significant point that the lower courts failed to consider is that a contract of loan, like any other contract, is
subject to the rules governing the requisites and validity of contracts in general.13 Article 1318 of the Civil Code14
enumerates the essential requisites for a valid contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract lacked the essential element of consent.
We agree with the petitioner. As we explained above, Gutierrez did not have the petitioner’s written/verbal authority
to enter into a contract of loan. While there may be a meeting of the minds between Gutierrez and Marasigan, such
agreement cannot bind the petitioner whose consent was not obtained and who was not privy to the loan
agreement. Hence, only Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the hands of
Marasigan. This act, however, does not constitute sufficient authority to borrow money in his behalf and neither
should it be construed as petitioner’s grant of consent to the parties’ loan agreement. Without any evidence to prove
Gutierrez’ authority, the petitioner’s signature in the check cannot be taken, even remotely, as sufficient
authorization, much less, consent to the contract of loan. Without the consent given by one party in a purported
contract, such contract could not have been perfected; there simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine whether the petitioner can be made liable under
the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in Section 14 of the Negotiable Instruments Law
(NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a
blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable
instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such
instrument when completed may be enforced against any person who became a party thereto prior to its completion,
it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such
instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his
hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a
reasonable time.
This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or drawer delivers a
pre-signed blank paper to another person for the purpose of converting it into a negotiable instrument, that person is
deemed to have prima facie authority to fill it up. It merely requires that the instrument be in the possession of a
person other than the drawer or maker and from such possession, together with the fact that the instrument is
wanting in a material particular, the law presumes agency to fill up the blanks.16
In order however that one who is not a holder in due course can enforce the instrument against a party prior to the
instrument’s completion, two requisites must exist: (1) that the blank must be filled strictly in accordance with the
authority given; and (2) it must be filled up within a reasonable time. If it was proven that the instrument had not
been filled up strictly in accordance with the authority given and within a reasonable time, the maker can set this up
as a personal defense and avoid liability. However, if the holder is a holder in due course, there is a conclusive
presumption that authority to fill it up had been given and that the same was not in excess of authority.17
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In the present case, the petitioner contends that there is no legal basis to hold him liable both under the contract and
loan and under the check because: first, the subject check was not completely filled out strictly under the authority
he has given and second, Marasigan was not a holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
Sec. 52 — A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the
title of the person negotiating it.(emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who takes the instrument "in good faith and for
value." It also provides in Section 52(d) that in order that one may be a holder in due course, it is necessary that at
the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person
negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities of any sort which could beset up
against a prior holder of the instrument.18 It means that he does not have any knowledge of fact which would render
it dishonest for him to take a negotiable paper. The absence of the defense, when the instrument was taken, is the
essential element of good faith.19
As held in De Ocampo v. Gatchalian:20
In order to show that the defendant had "knowledge of such facts that his action in taking the instrument amounted
to bad faith," it is not necessary to prove that the defendant knew the exact fraud that was practiced upon the
plaintiff by the defendant's assignor, it being sufficient to show that the defendant had notice that there was
something wrong about his assignor's acquisition of title, although he did not have notice of the particular wrong that
was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted with fraud. It is
not necessary that he should know the particulars or even the nature of the fraud, since all that is required is
knowledge of such facts that his action in taking the note amounted bad faith.
The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in a commercial sense. The
manner in which the defendants conducted their Liberty Loan department provided an easy way for thieves to
dispose of their plunder. It was a case of "no questions asked." Although gross negligence does not of itself
constitute bad faith, it is evidence from which bad faith may be inferred. The circumstances thrust the duty upon the
defendants to make further inquiries and they had no right to shut their eyes deliberately to obvious facts. (emphasis
supplied).
In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to the contract of loan, and
correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith. The following
exchange is significant on this point:
WITNESS: AMBET NABUS
Q: Now, I refer to the second call… after your birthday. Tell us what you talked about?
A: Since I celebrated my birthday in that place where Nap and I live together with the other crew, there were several
visitors that included Danny Espiritu. So a week after my birthday, Bong Marasigan called me up again and he was
fuming mad. Nagmumura na siya. Hinahanap niya si… hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi
na niya na kailangan I-settle na niya yung utang ni Nap, dahil…
xxxx
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang tsekeng tumalbog…
(He told me that we have to fix it up before it…) mauwi pa kung saan…
xxxx
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Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvin’s check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin who borrowed money from you or what you want to appear…
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito.(T.S.N., Ambet Nabus, July
27, 2000; pp.65-71; emphasis supplied)21
Since he knew that the underlying obligation was not actually for the petitioner, the rule that a possessor of the
instrument is prima facie a holder in due course is inapplicable. As correctly noted by the CA, his inaction and failure
to verify, despite knowledge of that the petitioner was not a party to the loan, may be construed as gross negligence
amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already totally barred from
recovery. The NIL does not provide that a holder who is not a holder in due course may not in any case recover on
the instrument.22 The only disadvantage of a holder who is not in due course is that the negotiable instrument is
subject to defenses as if it were non-negotiable.23 Among such defenses is the filling up blank not within the
authority.
On this point, the petitioner argues that the subject check was not filled up strictly on the basis of the authority he
gave. He points to his instruction not to use the check without his prior approval and argues that the check was filled
up in violation of said instruction.
Check Was Not Completed Strictly Under The Authority Given by The Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the blanks and use
the check. To repeat, petitioner gave Gutierrez pre-signed checks to be used in their business provided that he
1âwphi1
could only use them upon his approval. His instruction could not be any clearer as Gutierrez’ authority was limited to
the use of the checks for the operation of their business, and on the condition that the petitioner’s prior approval be
first secured.
While under the law, Gutierrez had a prima facie authority to complete the check, such prima facie authority does
not extend to its use (i.e., subsequent transfer or negotiation)once the check is completed. In other words, only the
authority to complete the check is presumed. Further, the law used the term "prima facie" to underscore the fact that
the authority which the law accords to a holder is a presumption juris tantumonly; hence, subject to subject to
contrary proof. Thus, evidence that there was no authority or that the authority granted has been exceeded may be
presented by the maker in order to avoid liability under the instrument.
In the present case, no evidence is on record that Gutierrez ever secured prior approval from the petitioner to fill up
the blank or to use the check. In his testimony, petitioner asserted that he never authorized nor approved the filling
up of the blank checks, thus:
ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date, May 23, 1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?
A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the figure ₱200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words ₱200,000 only xx in this check?
11/21/2019 G.R. No. 187769
24
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).
Notably, Gutierrez was only authorized to use the check for business expenses; thus, he exceeded the authority
when he used the check to pay the loan he supposedly contracted for the construction of petitioner's house. This is
a clear violation of the petitioner's instruction to use the checks for the expenses of Slam Dunk. It cannot therefore
be validly concluded that the check was completed strictly in accordance with the authority given by the petitioner.
Considering that Marasigan is not a holder in due course, the petitioner can validly set up the personal defense that
the blanks were not filled up in accordance with the authority he gave. Consequently, Marasigan has no right to
enforce payment against the petitioner and the latter cannot be obliged to pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner Alvin Patrimonio's
petition for review on certiorari. The appealed Decision dated September 24, 2008 and the Resolution dated April
30, 2009 of the Court of Appeals are consequently ANNULLED AND SET ASIDE. Costs against the respondents.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
MARIANO C. DEL CASTILLO JOSE PORTUGAL PEREZ

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court's Division.
MARIA LOURDES P. A. SERENO

Chief Justice
Footnotes
1
Under Rule 45 of the Rules of Coui1, rollo, pp. 9-31,
2
Id. at 30-47; penned by Associate Justice Monina Arevalo-Zenarosa, and concurred in by Associate Justice
Regalado E. Maambong and Associate Justice Sixto C. Marella, Jr.
3
Id. at 48-50.
4
Rollo, pp. 67-72.
5
Republic v. Bellate, G.R. No. 175685, August 7, 2013, 703 SCRA 210, 218.
6
Article 1869, Civil Code of the Philippines.
7
200 Phil. 685 (1982).
11/21/2019 G.R. No. 187769
8
Rollo, p. 82.
9
G.R. No. 150350, August 22, 2006, 499 SCRA 466, 472.
10
G.R. No. 167812, December 19, 2006, 511 SCRA 305, 313-314.
11
People v. Yabut, G.R. No. L-42847 and L-42902, April 29, 1977, 167 Phil. 336, 343.
12
Id.
13
Pentacapital Investment Corporation v. Mahinay, G.R. No. 171736, July 5, 2010, 623 SCRA 284, 302.
14
Art. 1318. There is no contract unless the following requisites concur:
(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. (1261).

15
Deheza-Inamarga v. Alano, G.R. No. 171321, December 18, 2008, 574 SCRA 651, 660.
16
Dy v. People, G.R. No. 158312, November 14, 2008, 571 SCRA 59, 71-72.
17
T.B. Aquino, Notes and Cases on Banks, Negotiable Instruments and Other Commercial Documents, p.
234 (2006 ed.).
18
A.F. Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, p. 281 (1992
ed.).
19
Id.
20
G.R. No. L-15126, November 30, 1961, 3 SCRA 596, 598.
21
Rollo, pp. 141-142.
22
Dino v. Loot, G.R. No. 170912, April 19, 2010, 618 SCRA 393, 404.
23
Id.
24
Rollo, p: 117.
11/21/2019 G.R. No. 185945
Custom Search

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 185945 December 05, 2012
FIDELIZA J. AGLIBOT, Petitioner,

vs.
INGERSOL L. SANTIA, Respondent.
DECISION
REYES, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure seeking to
annul and set aside the Decision1 dated March I 8, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 100021,
which reversed the Decision2 dated April 3, 2007 of the Regional Trial Court (RTC) of Dagupan City, Branch 40, in
Criminal Case Nos. 2006-0559-D to 2006-0569-D and entered a new judgment. The fallo reads as follows:
WHEREFORE, the instant petition is GRANTED and the assailed Joint Decision dated April 3, 2007 of the RTC of
Dagupan City, Branch 40, and its Order dated June 12, 2007 are REVERSED AND SET ASIDE and a new one is
entered ordering private respondent Fideliza J. Aglibot to pay petitioner the total amount of ₱3,000,000.00 with 12%
interest per annum from the filing of the Informations until the finality of this Decision, the sum of which, inclusive of
interest, shall be subject thereafter to 12% annual interest until fully paid.
SO ORDERED.3
On December 23, 2008, the appellate court denied herein petitioner’s motion for reconsideration.
Antecedent Facts
Private respondent-complainant Engr. Ingersol L. Santia (Santia) loaned the amount of ₱2,500,000.00 to Pacific
Lending & Capital Corporation (PLCC), through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The loan was
evidenced by a Promissory Note dated July 1, 2003, issued by Aglibot in behalf of PLCC, payable in one year
subject to interest at 24% per annum. Allegedly as a guaranty or security for the payment of the note, Aglibot also
issued and delivered to Santia eleven (11) post-dated personal checks drawn from her own demand account
maintained at Metrobank, Camiling Branch. Aglibot is a major stockholder of PLCC, with headquarters at 27
Casimiro Townhouse, Casimiro Avenue, Zapote, Las Piñas, Metro Manila, where most of the stockholders also
reside.4
Upon presentment of the aforesaid checks for payment, they were dishonored by the bank for having been drawn
against insufficient funds or closed account. Santia thus demanded payment from PLCC and Aglibot of the face
value of the checks, but neither of them heeded his demand. Consequently, eleven (11) Informations for violation of
Batas Pambansa Bilang 22 (B.P. 22), corresponding to the number of dishonored checks, were filed against Aglibot
before the Municipal Trial Court in Cities (MTCC), Dagupan City, Branch 3, docketed as Criminal Case Nos. 47664
to 47674. Each Information, except as to the amount, number and date of the checks, and the reason for the
dishonor, uniformly alleged, as follows:
That sometime in the month of September, 2003 in the City of Dagupan, Philippines and within the jurisdiction of this
Honorable Court, the above-named accused, FIDELIZA J. AGLIBOT, did then and there, willfully, unlawfully and
criminally, draw, issue and deliver to one Engr. Ingersol L. Santia, a METROBANK Check No. 0006766, Camiling
Tarlac Branch, postdated November 1, 2003, in the amount of ₱50,000.00, Philippine Currency, payable to and in
payment of an obligation with the complainant, although the said accused knew fully well that she did not have
sufficient funds in or credit with the said bank for the payment of such check in full upon its presentment, such that
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when the said check was presented to the drawee bank for payment within ninety (90) days from the date thereof,
the same was dishonored for reason "DAIF", and returned to the complainant, and despite notice of dishonor,
accused failed and/or refused to pay and/or make good the amount of said check within five (5) days banking days
[sic], to the damage and prejudice of one Engr. Ingersol L. Santia in the aforesaid amount of ₱50,000.00 and other
consequential damages.5
Aglibot, in her counter-affidavit, admitted that she did obtain a loan from Santia, but claimed that she did so in behalf
of PLCC; that before granting the loan, Santia demanded and obtained from her a security for the repayment thereof
in the form of the aforesaid checks, but with the understanding that upon remittance in cash of the face amount of
the checks, Santia would correspondingly return to her each check so paid; but despite having already paid the said
checks, Santia refused to return them to her, although he gave her assurance that he would not deposit them; that in
breach of his promise, Santia deposited her checks, resulting in their dishonor; that she did not receive any notice of
dishonor of the checks; that for want of notice, she could not be held criminally liable under B.P. 22 over the said
checks; and that the reason Santia filed the criminal cases against her was because she refused to agree to his
demand for higher interest.
On August 18, 2006, the MTCC in its Joint Decision decreed as follows:
WHEREFORE, in view of the foregoing, the accused, FIDELIZA J. AGLIBOT, is hereby ACQUITTED of all counts
of the crime of violation of the bouncing checks law on reasonable doubt. However, the said accused is ordered to
pay the private complainant the sum of ₱3,000,000.00 representing the total face value of the eleven checks plus
interest of 12% per annum from the filing of the cases on November 2, 2004 until fully paid, attorney’s fees of
₱30,000.00 as well as the cost of suit.
SO ORDERED.6
On appeal, the RTC rendered a Decision dated April 3, 2007 in Criminal Case Nos. 2006-0559-D to 2006-0569-D,
which further absolved Aglibot of any civil liability towards Santia, to wit:
WHEREFORE, premises considered, the Joint Decision of the court a quo regarding the civil aspect of these cases
is reversed and set aside and a new one is entered dismissing the said civil aspect on the ground of failure to fulfill,
a condition precedent of exhausting all means to collect from the principal debtor.
SO ORDERED.7
Santia’s motion for reconsideration was denied in the RTC’s Order dated June 12, 2007.8 On petition for review to
the CA docketed as CA-G.R. SP No. 100021, Santia interposed the following assignment of errors, to wit:
"In brushing aside the law and jurisprudence on the matter, the Regional Trial Court seriously erred:
1. In reversing the joint decision of the trial court by dismissing the civil aspect of these cases;
2. In concluding that it is the Pacific Lending and Capital Corporation and not the private respondent which is
principally responsible for the amount of the checks being claimed by the petitioner;
3. In finding that the petitioner failed to exhaust all available legal remedies against the principal debtor Pacific
Lending and Capital Corporation;
4. In finding that the private respondent is a mere guarantor and not an accommodation party, and thus,
cannot be compelled to pay the petitioner unless all legal remedies against the Pacific Lending and Capital
Corporation have been exhausted by the petitioner;
5. In denying the motion for reconsideration filed by the petitioner."9
In its now assailed decision, the appellate court rejected the RTC’s dismissal of the civil aspect of the aforesaid B.P.
22 cases based on the ground it cited, which is that the "failure to fulfill a condition precedent of exhausting all
means to collect from the principal debtor." The appellate court held that since Aglibot’s acquittal by the MTCC in
Criminal Case Nos. 47664 to 47674 was upon a reasonable doubt10 on whether the prosecution was able to
satisfactorily establish that she did receive a notice of dishonor, a requisite to hold her criminally liable under B.P. 22,
her acquittal did not operate to bar Santia’s recovery of civil indemnity.
It is axiomatic that the "extinction of penal action does not carry with it the eradication of civil liability, unless the
extinction proceeds from a declaration in the final judgment that the fact from which the civil liability might arise did
not exist. Acquittal will not bar a civil action in the following cases: (1) where the acquittal is based on reasonable
doubt as only preponderance of evidence is required in civil cases; (2) where the court declared the accused’s
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liability is not criminal but only civil in nature[;] and (3) where the civil liability does not arise from or is not based
upon the criminal act of which the accused was acquitted."11 (Citation omitted)
The CA therefore ordered Aglibot to personally pay Santia ₱3,000,000.00 with interest at 12% per annum, from the
filing of the Informations until the finality of its decision. Thereafter, the sum due, to be compounded with the accrued
interest, will in turn be subject to annual interest of 12% from the finality of its judgment until full payment. It thus
modified the MTCC judgment, which simply imposed a straight interest of 12% per annum from the filing of the
cases on November 2, 2004 until the ₱3,000,000.00 due is fully paid, plus attorney’s fees of ₱30,000.00 and the
costs of the suit.
Issue
Now before the Court, Aglibot maintains that it was error for the appellate court to adjudge her personally liable for
issuing her own eleven (11) post-dated checks to Santia, since she did so in behalf of her employer, PLCC, the true
borrower and beneficiary of the loan. Still maintaining that she was a mere guarantor of the said debt of PLCC when
she agreed to issue her own checks, Aglibot insists that Santia failed to exhaust all means to collect the debt from
PLCC, the principal debtor, and therefore he cannot now be permitted to go after her subsidiary liability.
Ruling of the Court
The petition is bereft of merit.
Aglibot cannot invoke the benefit of excussion
The RTC in its decision held that, "It is obvious, from the face of the Promissory Note x x x that the accused-
appellant signed the same on behalf of PLCC as Manager thereof and nowhere does it appear therein that she
signed as an accommodation party."12 The RTC further ruled that what Aglibot agreed to do by issuing her personal
checks was merely to guarantee the indebtedness of PLCC. So now petitioner Aglibot reasserts that as a guarantor
she must be accorded the benefit of excussion – prior exhaustion of the property of the debtor – as provided under
Article 2058 of the Civil Code, to wit:
Art. 2058. The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of
the debtor, and has resorted to all the legal remedies against the debtor.
It is settled that the liability of the guarantor is only subsidiary, and all the properties of the principal debtor, the
PLCC in this case, must first be exhausted before the guarantor may be held answerable for the debt.13 Thus, the
creditor may hold the guarantor liable only after judgment has been obtained against the principal debtor and the
latter is unable to pay, "for obviously the ‘exhaustion of the principal’s property’ — the benefit of which the guarantor
claims — cannot even begin to take place before judgment has been obtained."14 This rule is contained in Article
206215 of the Civil Code, which provides that the action brought by the creditor must be filed against the principal
debtor alone, except in some instances mentioned in Article 205916 when the action may be brought against both the
guarantor and the principal debtor.
The Court must, however, reject Aglibot’s claim as a mere guarantor of the indebtedness of PLCC to Santia for want
of proof, in view of Article 1403(2) of the Civil Code, embodying the Statute of Frauds, which provides:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
xxxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of its contents:
a) An agreement that by its terms is not to be performed within a year from the making thereof;
b) A special promise to answer for the debt, default, or miscarriage of another;
c) An agreement made in consideration of marriage, other than a mutual promise to marry;
d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos,
unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, or
such things in action, or pay at the time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind
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of property sold, terms of sale, price, names of purchasers and person on whose account the sale is made, it
is a sufficient memorandum;
e) An agreement for the leasing of a longer period than one year, or for the sale of real property or of an
interest therein;
f) A representation to the credit of a third person. (Italics ours)
Under the above provision, concerning a guaranty agreement, which is a promise to answer for the debt or default
of another,17 the law clearly requires that it, or some note or memorandum thereof, be in writing. Otherwise, it would
be unenforceable unless ratified,18 although under Article 135819 of the Civil Code, a contract of guaranty does not
have to appear in a public document.20 Contracts are generally obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present, and the Statute of Frauds simply
provides the method by which the contracts enumerated in Article 1403(2) may be proved, but it does not declare
them invalid just because they are not reduced to writing. Thus, the form required under the Statute is for
convenience or evidentiary purposes only.21
On the other hand, Article 2055 of the Civil Code also provides that a guaranty is not presumed, but must be
express, and cannot extend to more than what is stipulated therein. This is the obvious rationale why a contract of
guarantee is unenforceable unless made in writing or evidenced by some writing. For as pointed out by Santia,
Aglibot has not shown any proof, such as a contract, a secretary’s certificate or a board resolution, nor even a note
or memorandum thereof, whereby it was agreed that she would issue her personal checks in behalf of the company
to guarantee the payment of its debt to Santia. Certainly, there is nothing shown in the Promissory Note signed by
Aglibot herself remotely containing an agreement between her and PLCC resembling her guaranteeing its debt to
Santia. And neither is there a showing that PLCC thereafter ratified her act of "guaranteeing" its indebtedness by
issuing her own checks to Santia.
Thus did the CA reject the RTC’s ruling that Aglibot was a mere guarantor of the indebtedness of PLCC, and as
such could not "be compelled to pay [Santia], unless the latter has exhausted all the property of PLCC, and has
resorted to all the legal remedies against PLCC x x x."22
Aglibot is an accommodation party and therefore liable to Santia
Section 185 of the Negotiable Instruments Law defines a check as "a bill of exchange drawn on a bank payable on
demand," while Section 126 of the said law defines a bill of exchange as "an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to
pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer."
The appellate court ruled that by issuing her own post-dated checks, Aglibot thereby bound herself personally and
solidarily to pay Santia, and dismissed her claim that she issued her said checks in her official capacity as PLCC’s
manager merely to guarantee the investment of Santia. It noted that she could have issued PLCC’s checks, but
instead she chose to issue her own checks, drawn against her personal account with Metrobank. It concluded that
Aglibot intended to personally assume the repayment of the loan, pointing out that in her Counter-Affidavit, she even
admitted that she was personally indebted to Santia, and only raised payment as her defense, a clear admission of
her liability for the said loan.
The appellate court refused to give credence to Aglibot’s claim that she had an understanding with Santia that the
checks would not be presented to the bank for payment, but were to be returned to her once she had made cash
payments for their face values on maturity. It noted that Aglibot failed to present any proof that she had indeed paid
cash on the above checks as she claimed. This is precisely why Santia decided to deposit the checks in order to
obtain payment of his loan.
The facts below present a clear situation where Aglibot, as the manager of PLCC, agreed to accommodate its loan
to Santia by issuing her own post-dated checks in payment thereof. She is what the Negotiable Instruments Law
calls an accommodation party.23 Concerning the liability of an accommodation party, Section 29 of the said law
provides:
Sec. 29. Liability of an accommodation party. — An accommodation party is one 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. Such a person is liable on the instrument to a holder for value notwithstanding such holder at
the time of taking the instrument knew him to be only an accommodation party.
As elaborated in The Phil. Bank of Commerce v. Aruego:24
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An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value
therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an
accommodation party. In lending his name to the accommodated party, the accommodation party is in effect a surety
for the latter. He 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 parties thereto because he wants to
accommodate another. x x x.25 (Citation omitted)
The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety
— the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with
the principal and is deemed an original promisor and debtor from the beginning. The liability is immediate and
direct.26 It is not a valid defense that the accommodation party did not receive any valuable consideration when he
executed the instrument; nor is it correct to say that the holder for value is not a holder in due course merely
because at the time he acquired the instrument, he knew that the indorser was only an accommodation party.27 1âwphi1
Moreover, it was held in Aruego that unlike in a contract of suretyship, the liability of the accommodation party
remains not only primary but also unconditional to a holder for value, such that even if the accommodated party
receives an extension of the period for payment without the consent of the accommodation party, the latter is still
liable for the whole obligation and such extension does not release him because as far as a holder for value is
concerned, he is a solidary co-debtor.
The mere fact, then, that Aglibot issued her own checks to Santia made her personally liable to the latter on her
checks without the need for Santia to first go after PLCC for the payment of its loan.28 It would have been otherwise
had it been shown that Aglibot was a mere guarantor, except that since checks were issued ostensibly in payment
for the loan, the provisions of the Negotiable Instruments Law must take primacy in application.
WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED and the Decision dated March
18, 2008 of the Court of Appeals in CA-G.R. SP No. I 00021 is hereby AFFIRMED.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
WE CONCUR:
TERESITA J. LEONARDO-DE CASTRO

Associate Justice
Acting Chairperson
MARIANO C. DEL CASTILLO* MARTIN S. VILLARAMA, JR.

JOSE PORTUGAL PEREZ**

Associate Justice
ATTESTATION

Acting Chairperson
CERTIFICATION
Pursuant to Section t 3, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision has been reached in consultation before the case was assigned to the writer of
ANTONIO T. CARPIO
Acting Chief Justice
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Footnotes
*
Additional member per Raflle dated November 7, 2012 vice Associate Justice Lucas P. Bersamin.
**
Acting member per Special Order No. 1385 dated December 4, 2012 vice Chief Justice Maria Lourdes P. A.
Sereno.
1
Penned by Associate Justice Estela M. Perlas-Bemabe (now a member of this Court), with Associate
Justices Portia Alifio-1-lormachuelos and Luca<; P. Bersamin (now also a member of this Court), concurring:
roflo. pp. 88-94.
2
ld. at 40-44.
3
Id. at 93.
4
Id. at 75-80.
5
Id. at 10-11.
6
Id. at 26.
7
Id. at 44.
8
Id. at 90.
9
Id. at 91.
10
Id.
11
Id.
12
Id. at 43.
13
Baylon v. Court of Appeals, 371 Phil. 435, 443 (1999), citing World Wide Insurance and Surety Co., Inc. v.
Jose, 96 Phil. 45 (1954); Visayan Surety and Insurance Corp. v. De Laperal, 69 Phil. 688 (1940).
14
Id. at 443-444, citing Viuda de Syquia v. Jacinto, 60 Phil. 861, 868 (1934).
15
Art. 2062. In every action by the creditor, which must be against the principal debtor alone, except in the
cases mentioned in Article 2059, the former shall ask the court to notify the guarantor of the action. The
guarantor may appear so that he may, if he so desire, set up such defenses as are granted him by law. The
benefit of excussion mentioned in Article 2058 shall always be unimpaired, even if judgment should be
rendered against the principal debtor and the guarantor in case of appearance by the latter.
16
Art. 2059. This excussion shall not take place:
(1) If the guarantor has expressly renounced it;
(2) If he has bound himself solidarily with the debtor;
(3) In case of insolvency of the debtor;
(4) When he has absconded, or cannot be sued within the Philippines unless he has left manager or
representative;
(5) If it may be presumed that an execution on the property of the principal debtor would not result in
the satisfaction of the obligation.
17
Article 2047 of the Civil Code defines it as follows:
By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.
18
Prudential Bank v. Intermediate Appellate Court, G.R. No. 74886, December 8, 1992, 216 SCRA 257, 275-
276.
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19
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest therein
are governed by Articles 1403, No. 2 and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership
of gains;
(3) The power to administer property, or any other power which has for its object an act appearing or
which should appear in a public document, or should prejudice a third person; and
(4) The cession of actions or rights proceeding from an act appearing in a public document. All other
contracts where the amount involved exceeds five hundred pesos must appear in writing, even a
private one. But sales of goods, chattels or things in action are governed by Articles 1403, No. 2 and
1405.
20
Supra note 18.
21
Orduña v. Fuentebella, G.R. No. 176841, June 29, 2010, 622 SCRA 146, 158; Municipality of Hagonoy,
Bulacan v. Dumdum, Jr., G.R. No. 168289, March 22, 2010, 616 SCRA 315.
22
Rollo, p. 92.
23
See Stelco Marketing Corporation v. Court of Appeals, G.R. No. 96160, June 17, 1992, 210 SCRA 51, 57
citing Agbayani, COMMERCIAL LAWS OF THE PHILIPPINES, 1975 ed., Vol. I.
24
102 SCRA 530.
25
Id. at 539-540.
26
Garcia v. Llamas, 462 Phil. 779, 794 (2003), citing Spouses Gardose v. Tarroza, 352 Phil. 797 (1998),
Palmares v. CA, 351 Phil. 664 (1998).
27
Ang Tiong v. Ting, 130 Phil. 741, 744 (1968).
28
Sps. Gardose v. Tarroza, 352 Phil. 797 ( 1998).
11/21/2019 G.R. No. 170912
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Constitution Statutes Executive Issuances Judicial Issuances Other Issuances Jurispr

SUPREME COURT
Baguio City
SECOND DIVISION
G.R. No. 170912 April 19, 2010
ROBERT DINO, Petitioner,

vs.
MARIA LUISA JUDAL-LOOT, joined by her husband VICENTE LOOT, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 of the 16 August 2005 Decision2 and 30 November 2005 Resolution3 of the Court of
Appeals in CA-G.R. CV No. 57994. The Court of Appeals affirmed the decision of the Regional Trial Court, 7th
Judicial Region, Branch 56, Mandaue City (trial court), with the deletion of the award of interest, moral damages,
attorney’s fees and litigation expenses. The trial court ruled that respondents Maria Luisa Judal-Loot and Vicente
Loot are holders in due course of Metrobank Check No. C-MA 142119406 CA and ordered petitioner Robert Dino as
drawer, together with co-defendant Fe Lobitana as indorser, to solidarily pay respondents the face value of the
check, among others.
The Facts
Sometime in December 1992, a syndicate, one of whose members posed as an owner of several parcels of land
situated in Canjulao, Lapu-lapu City, approached petitioner and induced him to lend the group ₱3,000,000.00 to be
secured by a real estate mortgage on the properties. A member of the group, particularly a woman pretending to be
a certain Vivencia Ompok Consing, even offered to execute a Deed of Absolute Sale covering the properties,
instead of the usual mortgage contract.4 Enticed and convinced by the syndicate’s offer, petitioner issued three
Metrobank checks totaling ₱3,000,000.00, one of which is Check No. C-MA-142119406-CA postdated 13 February
1993 in the amount of ₱1,000,000.00 payable to Vivencia Ompok Consing and/or Fe Lobitana.5
Upon scrutinizing the documents involving the properties, petitioner discovered that the documents covered rights
over government properties. Realizing he had been deceived, petitioner advised Metrobank to stop payment of his
checks. However, only the payment of Check No. C-MA- 142119406-CA was ordered stopped. The other two
checks were already encashed by the payees.
Meanwhile, Lobitana negotiated and indorsed Check No. C-MA- 142119406-CA to respondents in exchange for
cash in the sum of ₱948,000.00, which respondents borrowed from Metrobank and charged against their credit line.
Before respondents accepted the check, they first inquired from the drawee bank, Metrobank, Cebu-Mabolo Branch
which is also their depositary bank, if the subject check was sufficiently funded, to which Metrobank answered in the
positive. However, when respondents deposited the check with Metrobank, Cebu-Mabolo Branch, the same was
dishonored by the drawee bank for reason "PAYMENT STOPPED."
Respondents filed a collection suit6 against petitioner and Lobitana before the trial court. In their Complaint,
respondents alleged, among other things, that they are holders in due course and for value of Metrobank Check No.
C-MA-142119406-CA and that they had no prior information concerning the transaction between defendants.
In his Answer, petitioner denied respondents’ allegations that "on the face of the subject check, no condition or
limitation was imposed" and that respondents are holders in due course and for value of the check. For her part,
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Lobitana denied the allegations in the complaint and basically claimed that the transaction leading to the issuance of
the subject check is a sale of a parcel of land by Vivencia Ompok Consing to petitioner and that she was made a
payee of the check only to facilitate its discounting.
The trial court ruled in favor of respondents and declared them due course holders of the subject check, since there
was no privity between respondents and defendants. The dispositive portion of the 14 March 1996 Decision of the
trial court reads:
In summation, this Court rules for the Plaintiff and against the Defendants and hereby orders:
1.) defendants to pay to Plaintiff, and severally, the amount of ₱1,000,000.00 representing the face value of
subject Metrobank check;
2.) to pay to Plaintiff herein, jointly and severally, the sum of ₱101,748.00 for accrued and paid interest;
3.) to pay to Plaintiff, jointly and severally, moral damages in the amount of ₱100,000.00;
4.) to pay to Plaintiff, jointly and severally, the sum of ₱200,000.00 for attorney’s fees; and
5.) to pay to Plaintiff, jointly and severally, litigation expenses in the sum of ₱10,000.00 and costs of the suit.
SO ORDERED.7
Only petitioner filed an appeal. Lobitana did not appeal the trial court’s judgment.
The Ruling of the Court of Appeals
The Court of Appeals affirmed the trial court’s finding that respondents are holders in due course of Metrobank
Check No. C-MA- 142119406-CA. The Court of Appeals pointed out that petitioner’s own admission that
respondents were never parties to the transaction among petitioner, Lobitana, Concordio Toring, Cecilia Villacarlos,
and Consing, proved respondents’ lack of knowledge of any infirmity in the instrument or defect in the title of the
person negotiating it. Moreover, respondents verified from Metrobank whether the check was sufficiently funded
before they accepted it. Therefore, respondents must be excluded from the ambit of petitioner’s stop payment order.
The Court of Appeals modified the trial court’s decision by deleting the award of interest, moral damages, attorney’s
fees and litigation expenses. The Court of Appeals opined that petitioner "was only exercising (although incorrectly),
what he perceived to be his right to stop the payment of the check which he rediscounted." The Court of Appeals
ruled that petitioner acted in good faith in ordering the stoppage of payment of the subject check and thus, he must
not be made liable for those amounts.
In its 16 August 2005 Decision, the Court of Appeals affirmed the trial court’s decision with modifications, thus:
WHEREFORE, premises considered, finding no reversible error in the decision of the lower court, WE hereby
DISMISS the appeal and AFFIRM the decision of the court a quo with modifications that the award of interest, moral
damages, attorney’s fees and litigation expenses be deleted.
No pronouncement as to costs.
SO ORDERED.8
In its 30 November 2005 Resolution, the Court of Appeals denied petitioner’s motion for reconsideration.
In denying the petitioner’s motion for reconsideration, the Court of Appeals noted that petitioner raised the defense
that the check is a crossed check for the first time on appeal (particularly in the motion for reconsideration). The
Court of Appeals rejected such defense considering that to entertain the same would be offensive to the basic rules
of fair play, justice, and due process.
Hence, this petition.
The Issues
Petitioner raises the following issues:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT THE RESPONDENTS WERE HOLDERS IN DUE
COURSE. THE FACT THAT METROBANK CHECK NO. 142119406 IS A CROSSED CHECK
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CONSTITUTES SUFFICIENT WARNING TO THE RESPONDENTS TO EXERCISE EXTRAORDINARY

DILIGENCE TO DETERMINE THE TITLE OF THE INDORSER.
II. THE COURT OF APPEALS ERRED IN DENYING PETITIONER’S MOTION FOR RECONSIDERATION
UPON THE GROUND THAT THE ARGUMENTS RELIED UPON HAVE ONLY BEEN RAISED FOR THE
FIRST TIME. EQUITY DEMANDS THAT THE COURT OF APPEALS SHOULD HAVE MADE AN
EXCEPTION TO PREVENT THE COMMISSION OF MANIFEST WRONG AND INJUSTICE UPON THE
PETITIONER.9
The Ruling of this Court
The petition is meritorious.
Respondents point out that petitioner raised the defense that Metrobank Check No. C-MA-142119406-CA is a
crossed check for the first time in his motion for reconsideration before the Court of Appeals. Respondents insist
that issues not raised during the trial cannot be raised for the first time on appeal as it would be offensive to the
elementary rules of fair play, justice and due process. Respondents further assert that a change of theory on appeal
is improper.
In his Answer, petitioner specifically denied, among others, (1) Paragraph 4 of the Complaint, concerning the
allegation that on the face of the subject check, no condition or limitation was imposed, and (2) Paragraph 8 of the
Complaint, regarding the allegation that respondents were holders in due course and for value of the subject check.
In his "Special Affirmative Defenses," petitioner claimed that "for want or lack of the prestation," he could validly stop
the payment of his check, and that by rediscounting petitioner’s check, respondents "took the risk of what might
happen on the check." Essentially, petitioner maintained that respondents are not holders in due course of the
subject check, and as such, respondents could not recover any liability on the check from petitioner.
Indeed, petitioner did not expressly state in his Answer or raise during the trial that Metrobank Check No. C-MA-
142119406-CA is a crossed check. It must be stressed, however, that petitioner consistently argues that
respondents are not holders in due course of the subject check, which is one of the possible effects of crossing a
check. The act of crossing a check serves as a warning to the holder that the check has been issued for a definite
purpose so that the holder thereof must inquire if he has received the check pursuant to that purpose; otherwise, he
is not a holder in due course.10 Contrary to respondents’ view, petitioner never changed his theory, that respondents
are not holders in due course of the subject check, as would violate fundamental rules of justice, fair play, and due
process. Besides, the subject check was presented and admitted as evidence during the trial and respondents did
not and in fact cannot deny that it is a crossed check.
In any event, the Court is clothed with ample authority to entertain issues or matters not raised in the lower courts in
the interest of substantial justice.11 In Casa Filipina Realty v. Office of the President,12 the Court held:
[T]he trend in modern-day procedure is to accord the courts broad discretionary power such that the appellate court
may consider matters bearing on the issues submitted for resolution which the parties failed to raise or which the
lower court ignored. Since rules of procedure are mere tools designed to facilitate the attainment of justice, their
strict and rigid application which would result in technicalities that tend to frustrate rather than promote substantial
justice, must always be avoided. Technicality should not be allowed to stand in the way of equitably and completely
resolving the rights and obligations of the parties.13
Having disposed of the procedural issue, the Court shall now proceed to the merits of the case. The main issue is
whether respondents are holders in due course of Metrobank Check No. C-MA 142119406 CA as to entitle them to
collect the face value of the check from its drawer or petitioner herein.
Section 52 of the Negotiable Instruments Law defines a holder in due course, thus:
A holder in due course is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it has been previously
dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the
title of the person negotiating it.
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In the case of a crossed check, as in this case, the following principles must additionally be considered: A crossed
check (a) may not be encashed but only deposited in the bank; (b) may be negotiated only once — to one who has
an account with a bank; and (c) warns the holder that it has been issued for a definite purpose so that the holder
thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due
course.14
Based on the foregoing, respondents had the duty to ascertain the indorser’s, in this case Lobitana’s, title to the
check or the nature of her possession. This respondents failed to do. Respondents’ verification from Metrobank on
the funding of the check does not amount to determination of Lobitana’s title to the check. Failing in this respect,
respondents are guilty of gross negligence amounting to legal absence of good faith,15 contrary to Section 52(c) of
the Negotiable Instruments Law. Hence, respondents are not deemed holders in due course of the subject check.16
State Investment House v. Intermediate Appellate Court17 squarely applies to this case. There, New Sikatuna Wood
Industries, Inc. sold at a discount to State Investment House three post-dated crossed checks, issued by Anita Peña
Chua naming as payee New Sikatuna Wood Industries, Inc. The Court found State Investment House not a holder
in due course of the checks. The Court also expounded on the effect of crossing a check, thus:
Under usual practice, crossing a check is done by placing two parallel lines diagonally on the left top portion of the
check. The crossing may be special wherein between the two parallel lines is written the name of a bank or a
business institution, in which case the drawee should pay only with the intervention of that bank or company, or
crossing may be general wherein between two parallel diagonal lines are written the words "and Co." or none at all
as in the case at bar, in which case the drawee should not encash the same but merely accept the same for deposit.
The effect therefore of crossing a check relates to the mode of its presentment for payment. Under Section 72 of the
Negotiable Instruments Law, presentment for payment to be sufficient must be made (a) by the holder, or by some
person authorized to receive payment on his behalf x x x As to who the holder or authorized person will be depends
on the instructions stated on the face of the check.
The three subject checks in the case at bar had been crossed generally and issued payable to New Sikatuna Wood
Industries, Inc. which could only mean that the drawer had intended the same for deposit only by the rightful person,
i.e., the payee named therein. Apparently, it was not the payee who presented the same for payment and therefore,
there was no proper presentment, and the liability did not attach to the drawer.
Thus, in the absence of due presentment, the drawer did not become liable. Consequently, no right of recourse is
available to petitioner against the drawer of the subject checks, private respondent wife, considering that petitioner
is not the proper party authorized to make presentment of the checks in question.
In this case, there is no question that the payees of the check, Lobitana or Consing, were not the ones who
presented the check for payment. Lobitana negotiated and indorsed the check to respondents in exchange for
₱948,000.00. It was respondents who presented the subject check for payment; however, the check was dishonored
for reason "PAYMENT STOPPED." In other words, it was not the payee who presented the check for payment; and
thus, there was no proper presentment. As a result, liability did not attach to the drawer. Accordingly, no right of
recourse is available to respondents against the drawer of the check, petitioner herein, since respondents are not
the proper party authorized to make presentment of the subject check.
However, the fact that respondents are not holders in due course does not automatically mean that they cannot
recover on the check.18 The Negotiable Instruments Law does not provide that a holder who is not a holder in due
course may not in any case recover on the instrument. The only disadvantage of a holder who is not in due course
is that the negotiable instrument is subject to defenses as if it were non-negotiable.19 Among such defenses is the
absence or failure of consideration,20 which petitioner sufficiently established in this case. Petitioner issued the
subject check supposedly for a loan in favor of Consing’s group, who turned out to be a syndicate defrauding gullible
individuals. Since there is in fact no valid loan to speak of, there is no consideration for the issuance of the check.
Consequently, petitioner cannot be obliged to pay the face value of the check. 1avvphi1
Respondents can collect from the immediate indorser,21 in this case Lobitana. Significantly, Lobitana did not appeal
the trial court’s decision, finding her solidarily liable to pay, among others, the face value of the subject check.
Therefore, the trial court’s judgment has long become final and executory as to Lobitana.
WHEREFORE, we GRANT the petition. We SET ASIDE the 16 August 2005 Decision and 30 November 2005
Resolution of the Court of Appeals in CA-G.R. CV No. 57994.
SO ORDERED.
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ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
ARTURO D. BRION
Associate Justice
MARIANO C. DEL CASTILLO ROBERTO A. ABAD

JOSE PORTUGAL PEREZ

Associate Justice
ATTESTATION
to the writer of the opinion of the Court’s Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the
the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Under Rule 45 of the Rules of Court.
2 Rollo, pp. 24-32. Penned by Associate Justice Enrico A. Lanzanas with Associate Justices Arsenio J.
Magpale and Sesinando E. Villon, concurring.
3 Id. at 34-36.
4 Records, p. 22.
5 Id.
6 Docketed as Civil Case No. MAN-1843.
7 Rollo, p. 77.
8 Id. at 31.
9 Id. at 14-15.
10 State Investment House v. Intermediate Appellate Court, G.R. No. 72764, 13 July 1989, 175 SCRA 310,
315.
11 Phil. Commercial & Industrial Bank v. CA, 242 Phil. 497, 503-504 (1988). See also Ortigas, Jr. v. Lufthansa
German Airlines, 159-A Phil. 863, 889 (1975).
12 311 Phil. 170, 181 (1995).
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13 Id.
14 State Investment House v. Intermediate Appellate Court, supra note 10; Bataan Cigar and Cigarette
Factory, Inc. v. Court of Appeals, G.R. No. 93048, 3 March 1994, 230 SCRA 643, 648.
15 Vicente R. de Ocampo & Co. v. Gatchalian, No. L-15126, 30 November 1961, 3 SCRA 596, 603.
16 State Investment House v. Intermediate Appellate Court, supra note 10.
17 Id. at 316-317.
18 Bataan Cigar and Cigarette Factory, Inc. v. Court of Appeals, supra note 14 at 649.
19 Id., citing Chan Wan v. Tan Kim and Chen So, 109 Phil. 706 (1960).
20 Section 28, Negotiable Instruments Law.
21 Bataan Cigar and Cigarette Factory, Inc. v. Court of Appeals, supra.
11/21/2019 G.R. No. 180144
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SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 180144 September 24, 2014
LEONARDO BOGNOT, Petitioner,

vs.
RRI LENDING CORPORATION, represented by its General Manager, DARIO J. BERNARDEZ, Respondent.
DECISION
BRION, J.:
Before the Court is the petition for review on certiorari1 filed by Leonardo Bognot (petitioner) assailing the March 28,
2007 decision2 and the October 15, 2007 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 66915.
Background Facts
RRI Lending Corporation (respondent) is an entity engaged in the business of lending money to its borrowers within
Metro Manila. It is duly represented by its General Manager, Mr. Dario J. Bernardez (Bernardez).
Sometime in September 1996, the petitioner and his younger brother, Rolando A. Bognot (collectively referred to as
the "Bognot siblings"), applied for and obtained a loan of Five Hundred Thousand Pesos (₱500,000.00) from the
respondent, payable on November 30, 1996.4 The loan was evidenced by a promissory note and was secured by a
post dated check5 dated November 30, 1996.
Evidence on record shows that the petitioner renewed the loan several times on a monthly basis. He paid a renewal
fee of ₱54,600.00 for each renewal, issued a new post-dated checkas security, and executed and/or renewed the
promissory note previouslyissued. The respondent on the other hand, cancelled and returned to the petitioner the
post-dated checks issued prior to their renewal.
Sometime in March 1997, the petitioner applied for another loan renewal. He again executed as principal and signed
Promissory Note No. 97-0356 payable on April 1, 1997; his co-maker was again Rolando. As security for the loan,
the petitioner also issued BPI Check No. 0595236,7 post dated to April 1, 1997.8
Subsequently, the loan was again renewed on a monthly basis (until June 30, 1997), as shown by the Official
Receipt No. 7979 dated May 5, 1997, and the Disclosure Statement dated May 30, 1997 duly signed by Bernardez.
The petitioner purportedly paid the renewal fees and issued a post-dated check dated June 30, 1997 as security. As
had been done in the past, the respondent superimposed the date "June 30, 1997" on the upper right portion of
Promissory Note No. 97-035 to make it appear that it would mature on the said date.
Several days before the loan’s maturity, Rolando’s wife, Julieta Bognot (Mrs. Bognot), went to the respondent’s
office and applied for another renewal of the loan. She issued in favor of the respondent Promissory Note No. 97-
051, and International Bank Exchange (IBE) Check No. 00012522, dated July 30, 1997, in the amount of
₱54,600.00 as renewal fee.
On the excuse that she needs to bring home the loan documents for the Bognot siblings’ signatures and
replacement, Mrs. Bognot asked the respondent’s clerk to release to her the promissory note, the disclosure
statement, and the check dated July 30, 1997. Mrs. Bognot, however, never returned these documents nor issued a
new post-dated check. Consequently, the respondent sent the petitioner follow-up letters demanding payment of the
loan, plus interest and penalty charges. These demands went unheeded.
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On November 27, 1997, the respondent, through Bernardez, filed a complaint for sum of money before the Regional
Trial Court (RTC) against the Bognot siblings. The respondent mainly alleged that the loan renewal payable on June
30, 1997 which the Bognot siblings applied for remained unpaid; that before June30, 1997, Mrs. Bognot applied for
another loan extension and issued IBE Check No. 00012522 as payment for the renewal fee; that Mrs. Bognot
convinced the respondent’s clerk to release to her the promissory note and the other loan documents; that since
Mrs. Bognot never issued any replacement check, no loanextension took place and the loan, originally payable on
June 30, 1997, became due on this date; and despite repeated demands, the Bognot siblings failed to pay their joint
and solidary obligation.
Summons were served on the Bognotsiblings. However, only the petitioner filed his answer.
In his Answer,10 the petitioner claimed that the complaint states no cause of action because the respondent’s claim
had been paid, waived, abandoned or otherwise extinguished. He denied being a party to any loan application
and/or renewal in May 1997. He also denied having issued the BPI check post-dated to June 30, 1997, as well as
the promissory note dated June 30, 1997, claiming that this note had been tampered. He claimed that the one (1)
month loan contracted by Rolando and his wife in November 1996 which was lastly renewed in March 1997 had
already been fully paid and extinguished in April 1997.11
Trial on the merits thereafter ensued.
The Regional Trial Court Ruling
In a decision12 dated January 17, 2000,the RTC ruled in the respondent’s favor and ordered the Bognot siblings to
pay the amount of the loan, plus interest and penalty charges. It considered the wordings of the promissory note and
found that the loan they contracted was joint and solidary. It also noted that the petitioner signed the promissory
note as a principal (and not merely as a guarantor), while Rolando was the co-maker. It brushed the petitioner’s
defense of full payment aside, ruling that the respondent had successfully proven, by preponderance of evidence,
the nonpayment of the loan. The trial court said:
Records likewise reveal that while he claims that the obligation had been fully paid in his Answer, he did not, in order
to protect his right filed (sic) a cross-claim against his co-defendant Rolando Bognot despite the fact that the latter
did not file any responsive pleading.
In fine, defendants are liable solidarily to plaintiff and must pay the loan of ₱500,000.00 plus 5% interest monthly as
well as 10% monthly penalty charges from the filing of the complaint on December 3, 1997 until fully paid. As
plaintiff was constrained to engage the services of counsel in order to protect his right,defendants are directed to
pay the former jointly and severally the amount of ₱50,000.00 as and by way of attorney’s fee.
The petitioner appealed the decision to the Court of Appeals.
The Court of Appeals Ruling
In its decision dated March 28, 2007, the CA affirmed the RTC’s findings. It found the petitioner’s defense of
payment untenable and unsupported by clear and convincing evidence. It observed that the petitioner did not
present any evidence showing that the check dated June 30, 1997 had, in fact, been encashed by the respondent
and the proceeds applied to the loan, or any official receipt evidencing the payment of the loan. It further stated that
the only document relied uponby the petitioner to substantiate his defense was the April 1, 1997 checkhe issued
which was cancelled and returned to him by the respondent.
The CA, however, noted the respondent’s established policy of cancelling and returning the post-dated checks
previously issued, as well as the subsequent loan renewals applied for by the petitioner, as manifested by the official
receipts under his name. The CA thus ruled that the petitioner failed to discharge the burden of proving payment.
The petitioner moved for the reconsideration of the decision, but the CA denied his motion in its resolution of
October 15, 2007, hence, the present recourse to us pursuant toRule 45 of the Rules of Court.
The Petition
The petitioner submits that the CA erred in holding him solidarily liable with Rolando and his wife. Heclaimed that
based on the legal presumption provided by Article 1271 of the Civil Code,13 his obligation had been discharged by
virtue of his possession of the post-dated check (stamped "CANCELLED") that evidenced his indebtedness. He
argued that it was Mrs. Bognot who subsequently assumed the obligation by renewing the loan, paying the fees and
charges, and issuing a check. Thus, there is an entirely new obligation whose payment is her sole responsibility.
11/21/2019 G.R. No. 180144
The petitioner also argued that as a result of the alteration of the promissory note without his consent (e.g., the
superimposition of the date "June 30, 1997" on the upper right portion of Promissory Note No. 97-035 to make it
appear that it would mature on this date), the respondent can no longer collect on the tampered note, let alone, hold
him solidarily liable with Rolando for the payment of the loan. He maintained that even without the proof of payment,
the material alteration of the promissory note is sufficient to extinguish his liability.
Lastly, he claimed that he had been released from his indebtedness by novation when Mrs. Bognot renewed the
loan and assumed the indebtedness.
The Case for the Respondents
The respondent submits that the issues the petitioner raised hinge on the appreciation of the adduced evidence and
of the factual lower courts’ findings that, as a rule, are notreviewable by this Court.
The Issues
The case presents to us the following issues:
1. Whether the CA committed a reversible error in holding the petitioner solidarily liable with Rolando;
2. Whether the petitioner is relieved from liability by reason of the material alteration in the promissory note;
and
3. Whether the parties’ obligation was extinguished by: (i) payment; and (ii) novation by substitution of
debtors.
Our Ruling
We find the petition partly meritorious.
As a rule, the Court’s jurisdiction in a Rule 45 petition is limited to the review of pure questions of law.14 Appreciation
of evidence and inquiry on the correctness of the appellate court's factual findings are not the functions of this Court;
we are not a trier of facts.15
A question of law exists when the doubt or dispute relates to the application of the law on given facts. On the other
hand, a question of fact exists when the doubt or dispute relates to the truth or falsity of the parties’ factual
allegations.16
As the respondent correctly pointedout, the petitioner’s allegations are factual issuesthat are not proper for the
petition he filed. In the absence of compelling reasons, the Court cannot re-examine, review or re-evaluate the
evidence and the lower courts’ factual conclusions. This is especially true when the CA affirmed the lower court’s
findings, as in this case. Since the CA’s findings of facts affirmed those of the trial court, they are binding on this
Court, rendering any further factual review unnecessary.
If only to lay the issues raised - both factual and legal – to rest, we shall proceed to discuss their merits and
demerits.
No Evidence Was Presented to Establish the Fact of Payment
Jurisprudence tells us that one who pleads payment has the burden of proving it;17 the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove non-payment.18 Indeed, once the existence of an
indebtedness is duly established by evidence, the burden of showing with legal certainty that the obligation has
been discharged by payment rests on the debtor.19
In the present case, the petitioner failed to satisfactorily prove that his obligation had already been extinguished by
payment. As the CA correctly noted, the petitioner failed to present any evidence that the respondent had in fact
encashed his check and applied the proceeds to the payment of the loan. Neither did he present official receipts
evidencing payment, nor any proof that the check had been dishonored.
We note that the petitioner merely relied on the respondent’s cancellation and return to him of the check dated April
1, 1997. The evidence shows that this check was issued to secure the indebtedness. The acts imputed on the
respondent, standing alone, do not constitute sufficient evidence of payment.
Article 1249, paragraph 2 of the Civil Code provides:
11/21/2019 G.R. No. 180144
xxxx
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce
the effect of payment only when they have been cashed, or when through the fault of the creditor they have been
impaired. (Emphasis supplied)
Also, we held in Bank of the Philippine Islands v. Spouses Royeca:20
Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot
constitute a valid tender of payment. Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the
payment by commercial document is actually realized.(Emphasis supplied)
Although Article 1271 of the Civil Code provides for a legal presumption of renunciation of action (in cases where a
private document evidencing a credit was voluntarily returned by the creditor to the debtor), this presumption is
merely prima facieand is not conclusive; the presumption loses efficacy when faced with evidence to the contrary.
Moreover, the cited provision merely raises a presumption, not of payment, but of the renunciation of the credit
where more convincing evidence would be required than what normally would be called for to prove payment.21
Thus, reliance by the petitioner on the legal presumption to prove payment is misplaced.
To reiterate, no cash payment was proven by the petitioner. The cancellation and return of the check dated April 1,
1997, simply established his renewal of the loan – not the fact of payment. Furthermore, it has been established
during trial, through repeated acts, that the respondent cancelled and surrendered the post-dated check previously
issued whenever the loan is renewed. We trace whatwould amount to a practice under the facts of this case, to the
following testimonial exchanges:
Civil Case No. 97-0572
TSN December 14, 1998, Page 13.
Atty. Almeda:
Q: In the case of the renewal of the loan you admitted that a renewal fee is charged to the debtor which he or she
must pay before a renewal is allowed. I show you Exhibit "3" official receipt of plaintiff dated July 3, 1997, would this
be your official receipt which you issued to your client which they make renewal of the loan?
A: Yes, sir.
xxx xxx xxx
Q: And naturally when a loan has been renewed, the old one which is replaced by the renewal has already been
cancelled, is that correct?
A: Yes, sir.
Q: It is also true to say that all promissory notes and all postdated checks covered by the old loan which have been
the subject of the renewal are deemed cancelled and replaced is that correct?
A: Yes, sir. xxx22
Civil Case No. 97-0572
TSN November 27, 1998, Page 27.
Q: What happened to the check that Mr. Bognot issued?
Court: There are two Bognots. Who in particular?
Q: Leonardo Bognot, Your Honor.
A: Every month, they were renewed, he issued a new check, sir.
Q: Do you have a copy of the checks?
11/21/2019 G.R. No. 180144
23
A: We returned the check upon renewing the loan.
In light of these exchanges, wefind that the petitioner failed to discharge his burden ofproving payment.
The Alteration of the Promissory Note
Did Not Relieve the Petitioner From Liability
We now come to the issue of material alteration. The petitioner raised as defense the alleged material alteration of
Promissory Note No. 97-035 as basis to claim release from his loan. He alleged that the respondent’s
superimposition of the due date "June 30, 1997" on the promissory note without his consent effectively relieved him
of liability.
We find this defense untenable.
Although the respondent did not dispute the fact of alteration, he nevertheless denied that the alteration was done
without the petitioner’s consent. The parties’ Pre-Trial Order dated November 3, 199824 states that:
xxx There being no possibility of a possible compromise agreement, stipulations, admissions, and denials were
made, to wit:
FOR DEFENDANT LEONARDO BOGNOT
13. That the promissory note subject of this case marked as Annex "A" of the complaint was originally dated April 1,
1997 with a superimposed rubber stamp mark "June 30, 1997" to which the plaintiff admitted the superimposition.
14. The superimposition was done without the knowledge, consent or prior consultation with Leonardo Bognot which
was denied by plaintiff."25 (Emphasis supplied)
Significantly, the respondent also admitted in the Pre-Trial Order that part of its company practice is to rubber stamp,
or make a superimposition through a rubber stamp, the old promissory note which has been renewed to make it
appear that there is a new loan obligation. The petitioner did not rebut this statement. To our mind, the failure to
rebut is tantamount to an admission of the respondent’s allegations:
"22. That it is the practice of plaintiff to just rubber stamp or make superimposition through a rubber stamp on old
promissory note which has been renewed to make it appear that there is a new loan obligation to which the plaintiff
admitted." (Emphasis Supplied).26
Even assuming that the note had indeed been tampered without the petitioner’s consent, the latter cannot totally
avoid payment of his obligation to the respondent based on the contract of loan.
Based on the records, the Bognot Siblings had applied for and were granted a loan of ₱500,000.00 by the
respondent. The loan was evidenced by a promissory note and secured by a post-dated check27 dated November
30, 1996. In fact, the petitioner himself admitted his loan application was evidenced by the Promissory Note dated
April 1, 1997.28 This loan was renewed several times by the petitioner, after paying the renewal fees, as shown by
the Official Receipt Nos. 79729 and 58730 dated May 5 and July 3, 1997, respectively. These official receipts were
issued in the name of the petitioner. Although the petitioner had insisted that the loan had been extinguished, no
other evidence was presented to prove payment other than the cancelled and returnedpost-dated check.
Under this evidentiary situation, the petitioner cannot validly deny his obligation and liability to the respondent solely
on the ground that the Promissory Note in question was tampered. Notably, the existence of the obligation, as well
as its subsequent renewals, have been duly established by: first, the petitioner’s application for the loan; second, his
admission that the loan had been obtained from the respondent; third, the post-dated checks issued by the
petitioner to secure the loan; fourth, the testimony of Mr. Bernardez on the grant, renewal and non-payment of the
loan; fifth, proof of non-payment of the loan; sixth, the loan renewals; and seventh, the approval and receipt of the
loan renewals.
In Guinsatao v. Court of Appeals,31 this Court pointed out that while a promissory note is evidence of an
indebtedness, it is not the only evidence, for the existence of the obligation can be proven by other documentary
evidence such as a written memorandum signed by the parties. In Pacheco v. Court of Appeals,32 this Court likewise
expressly recognized that a check constitutes anevidence of indebtedness and is a veritable proof of an obligation. It
canbe used in lieu of and for the same purpose as a promissory note and can therefore be presented to establish
the existence of indebtedness.33
11/21/2019 G.R. No. 180144
In the present petition, we find that the totality of the evidence on record sufficiently established the existence of the
petitioner’s indebtedness (and liability) based on the contract ofloan. Even with the tampered promissory note, we
hold that the petitioner can still be held liable for the unpaid loan.
The Petitioner’s BelatedClaim of Novation by Substitution May no Longer be Entertained
It has not escaped the Court’s attention that the petitioner raised the argument that the obligation had been
extinguished by novation. The petitioner never raised this issue before the lower courts.
It is a settled principle of law thatno issue may be raised on appeal unless it has been brought before the lower
tribunal for its consideration.34 Matters neither alleged in the pleadingsnor raised during the proceedings below
cannot be ventilated for the first time on appeal before the Supreme Court.35
In any event, we find no merit in the defense of novation as we discuss at length below. Novation cannot be
presumed and must be clearly and unequivocably proven.
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a
new debtor in place of the old one, or by subrogating a third person to the rights of the creditor.36
Article 1293 of the Civil Code defines novation as follows:
"Art. 1293. Novation which consists insubstituting a new debtor in the place of the originalone, may be made even
without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the
new debtor gives him rights mentioned in Articles 1236 and 1237."
To give novation legal effect, the original debtor must be expressly released from the obligation, and the new debtor
must assume the original debtor’s place in the contractual relationship. Depending on who took the initiative,
novation by substitution of debtor has two forms – substitution by expromision and substitution by delegacion. The
difference between these two was explained in Garcia v. Llamas:37
"In expromision, the initiative for the change does not come from -- and may even be made without the knowledge
of -- the debtor, since it consists of a third person’s assumption of the obligation. As such, it logically requires the
consent of the third person and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person
who consents to the substitution and assumes the obligation; thus, the consent of these three persons are
necessary."
In both cases, the original debtor must be released from the obligation; otherwise, there can be no valid novation.38
Furthermore, novation by substitution of debtor must alwaysbe made with the consent of the creditor.39
The petitioner contends thatnovation took place through a substitution of debtors when Mrs. Bognot renewed the
loan and assumed the debt. He alleged that Mrs. Bognot assumed the obligation by paying the renewal fees and
charges, and by executing a new promissory note. He further claimed that she issued her own check40 to cover the
renewal fees, which fact, according to the petitioner, was done with the respondent’s consent.
Contrary to the petitioner’s contention, Mrs. Bognot did not substitute the petitioner as debtor. She merely attempted
to renew the original loan by executing a new promissory note41 and check. The purported one month renewal of the
loan, however, did not push through, as Mrs. Bognot did not return the documents or issue a new post dated check.
Since the loan was not renewed for another month, the originaldue date, June 30,1997, continued to stand.
More importantly, the respondent never agreed to release the petitioner from his obligation. That the respondent
initially allowed Mrs. Bognot to bring home the promissory note, disclosure statement and the petitioner’s previous
check dated June 30, 1997, does not ipso factoresult in novation. Neither will this acquiescence constitute an
implied acceptance of the substitution of the debtor.
In order to give novation legal effect, the creditor should consent to the substitution of a new debtor. Novation must
be clearly and unequivocally shown, and cannot be presumed.
Since the petitioner failed to show thatthe respondent assented to the substitution, no valid novation took place with
the effect of releasing the petitioner from his obligation to the respondent.
Moreover, in the absence of showing that Mrs. Bognot and the respondent had agreed to release the petitioner, the
respondent can still enforce the payment of the obligation against the original debtor. Mere acquiescence to the
renewal of the loan, when there is clearly no agreement to release the petitioner from his responsibility, does not
constitute novation.
11/21/2019 G.R. No. 180144
The Nature of the Petitioner’s Liability
On the nature of the petitioner’s liability, we rule however, that the CA erred in holding the petitioner solidarily liable
with Rolando.
A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the creditors is
entitled to demand the satisfaction of the whole obligation from any or all of the debtors.42 There is solidary liability
when the obligation expressly so states, when the law so provides, or when the nature of the obligation so
requires.43 Thus, when the obligor undertakes to be "jointly and severally" liable, the obligation is solidary,
In this case, both the RTC and the CA found the petitioner solidarily liable with Rolando based on Promissory Note
No. 97-035 dated June 30, 1997. Under the promissory note, the Bognot Siblings defined the parameters of their
obligation as follows:
"FOR VALUE RECEIVED, I/WE, jointly and severally, promise to pay to READY RESOURCES INVESTORS RRI
LENDING CORPO. or Order, its office at Paranaque, M.M. the principal sum of Five Hundred Thousand PESOS
(₱500,000.00), PhilippineCurrency, with interest thereon at the rate of Five percent (5%) per month/annum, payable
in One Installment (01) equal daily/weekly/semi-monthly/monthly of PESOS Five Hundred Thousand Pesos
(₱500,000.00), first installment to become due on June 30, 1997. xxx"44 (Emphasis Ours).
Although the phrase "jointly and severally" in the promissory note clearly and unmistakably provided for the solidary
liability of the parties, we note and stress that the promissory note is merely a photocopyof the original, which was
never produced.
Under the best evidence rule, whenthe subject of inquiry is the contents of a document, no evidence isadmissible
other than the original document itself except in the instances mentioned in Section 3, Rule 130 of the Revised
Rules of Court.45
The records show that the respondenthad the custody of the original promissory note dated April 1, 1997, with a
superimposed rubber stamp mark "June 30, 1997", and that it had been given every opportunity to present it. The
respondent even admitted during pre-trial that it could not present the original promissory note because it is in the
custody of its cashier who is stranded in Bicol.46 Since the respondent never produced the original of the promissory
note, much less offered to produce it, the photocopy of the promissory note cannot be admitted as evidence. Other
than the promissory note in question, the respondent has not presented any other evidence to support a finding of
solidary liability. As we earlier noted, both lower courts completely relied on the note when they found the Bognot
siblingssolidarily liable.
The well-entrenched rule is that solidary obligation cannot be inferred lightly. It must be positively and clearly
expressed and cannot be presumed.47
In view of the inadmissibility of the promissory note, and in the absence of evidence showing that the petitioner had
bound himself solidarily with Rolando for the payment of the loan, we cannot but conclude that the obligation to pay
is only joint.48
The 5% Monthly Interest Stipulated in the Promissory Note is Unconscionable and Should be Equitably Reduced
Finally, on the issue of interest, while we agree with the CA that the petitioner is liable to the respondentfor the
unpaid loan, we find the imposition of the 5% monthly interest to be excessive, iniquitous, unconscionable and
exorbitant, and hence, contrary to morals and jurisprudence. Although parties to a loan agreement have wide
latitude to stipulate on the applicable interest rate under Central Bank Circular No. 905 s. 1982 (which suspended
the Usury Law ceiling on interest effective January 1, 1983), we stress that unconscionable interest rates may still
be declared illegal.49
In several cases, we haveruled that stipulations authorizing iniquitous or unconscionable interests are contrary to
morals and are illegal. In Medel v. Court of Appeals,50 we annulled a stipulated 5.5% per month or 66% per annum
interest on a ₱500,000.00 loan, and a 6% per month or 72% per annum interest on a ₱60,000.00 loan, respectively,
for being excessive, iniquitous, unconscionableand exorbitant. 1âwphi1
We reiterated this ruling in Chua v. Timan,51 where we held that the stipulated interest rates of 3% per month and
higher are excessive, iniquitous, unconscionable and exorbitant, and must therefore be reduced to 12% per annum.
Applying these cited rulings, we now accordingly hold that the stipulated interest rate of 5% per month, (or 60% per
annum) in the promissory note is excessive, unconscionable, contrary to morals and is thus illegal. It is void ab
initiofor violating Article 130652 of the Civil Code. We accordingly find it equitable to reduce the interest rate from 5%
1âwphi1
per month to 1% per month or 12% per annum in line with the prevailing jurisprudence.
11/21/2019 G.R. No. 180144
WHEREFORE, premises considered, the Decision dated March 28, 2007 of the Court of Appeals in CA-G.R. CV
No. 66915 is hereby AFFIRMED with MODIFICATION, as follows:
1. The petitioner Leonardo A. Bognotand his brother, Rolando A. Bognot are JOINTLY LIABLE to pay the sum
of ₱500,000.00 plus 12% interest per annum from December 3, 1997 until fully paid.
2. The rest of the Court of Appeals' dispositions are hereby AFFIRMED.
Costs against petitioner Leonardo A. Bognot.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
MARIANO C. DEL CASTILLO JOSE CATRAL MENDOZA

MARVIC M.V.F LEONEN

Associate Justice
ATTESTATION
ANTONIO T. CARPIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, I certify that the

Chief Justice
Footnotes
1
Under Rule 45 of the Rules of Court; rollo, pp. 8-61.
2
Rollo, pp. 270-283; penned by Associate Justice Ramon R. Garcia, and concurred in by Associate Justice
Josefina Guevara-Salonga and Associate Justice Vicente Q. Roxas.
3
Id.at312-313.
4
Id. at 271.
5
Id. at 97.
6
Id. at 67-68.
7
Id. at 97.
8
Id. at 272.
11/21/2019 G.R. No. 180144
9
Id. at 83.
10
Id. at 70-74.
11
Id. at 70.
12
Id. at 156-165.
13
Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the
debtor, implies the renunciation of the action which the former had against the latter.
14
Section 1, Rule 45 of the Rules of Court provides: Section 1. Filing of petition with Supreme Court. — A
party desiring to appeal by certiorari from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file with the
Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law which
must be distinctly set forth. [Italics supplied]
15
First Metro Investment Corporation v. EsteDel Sol Mountain Reserve, Inc., et. al, 420 Phil. 902, 914 (2001).
16
Land Bank of the Philippines v. Yatco Agricultural Enterprises, G.R. No.172551, January 15, 2014.
17
Vitarich Corporation v. Chona Losin, G.R. No. 181560, November 15, 2010, 634 SCRA 671, 680-681.
18
Bank of the Philippine Islands v. Spouses Royeca, G.R. No. 176664, 581 Phil. 188, 195 (2008).
19
Spouses Deo Agner and Maricon Agner v. BPI Family Savings Bank, Inc., G.R. No. 182963, June 3, 2013,
697 SCRA 89, 97.
20
581 Phil. 188, 196 (2008).
21
Trans-Pacific Industrial Supplies, Inc. v. Court of Appeals, G.R. No. 109172, August 19, 1994, 235 SCRA
494, 502.
22
Rollo, pp. 251.
23
Id. at 240
24
Id. at 86-91.
25
Id. at 86-91.
26
Id. at 89.
27
Id. at 97.
28
Id. at 86-91.
29
Id. at 83.
30
Id.
31
Guinsatao v. CA, G.R. No. 95083, February 9, 1993, 218 SCRA 708.
32
377 Phil. 627 (1999).
33
Rollo, p. 637.
34
Sesbreno v. Central Board of Assessment Appeals, G.R. No. 106588, 337 Phil. 89, 99 (1997).
35
People of the Philippines v. Echegaray, G.R. No. 117472, 335 Phil. 343, 349 (1997).
36
Garcia v. Llamas, 462 Phil. 779, 788 (2003); Agro Conglomerates, Inc. v. CA, 401 Phil. 644, 655 (2000).
37
Id.
11/21/2019 G.R. No. 180144
38
SC Megaworld Construction and Development Corporation v. Parada, G.R. No. 183804, September 11,
2013, 705 SCRA 584, 599-600.
39
Testate Estate of Mota v. Serra, 47 Phil. 464 (1925).
40
International Bank Exchange (IBE) Check No. 00012522 dated July 30, 1997.
41
Promissory Note No. 97-051.
42
PH Credit Corporation v. Court of Appeals, G.R. No. 109648, 421 Phil. 821, 832 (2001).
43
Querubin L. Alba and Rizalinda D. de Guzman v. Robert L. Yupangco, G.R. No. 188233, June 29, 2010,
622 SCRA 503, 507.
44
Rollo, pp. 67-68.
45
Section 3, Rule 130 of the Revised Rules of Court provides: 1. Best Evidence Rule, Section 3. Original
document must be produced; exceptions. — When the subject of inquiry is the contents of a document, no
evidence shall be admissible other than the original document itself,except in the following cases:
(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on
the part of the offeror;
(b) When the original is in the custody or under the control of the party against whom the evidence is
offered, and the latter fails to produce it after reasonable notice;
(c) When the original consists of numerous accounts or other documents which cannot be examined in
court without great loss of time and the fact sought to be established from them is only the general
result of the whole; and
(d) When the original is a public record in the custody of a public officer or is recorded in a public office.
46
Rollo, pp. 88.
47
Smith, Bell & Co., Inc. v. CA, 335 Phil. 194, 203 (1997).
48
Escaño v. Ortigas, Jr., G.R. No. 151953, June 29, 2007, 526 SCRA 26, 45.
49
Menchavez v. Bermudez, G.R. No. 185368, October 11, 2012, 684 SCRA 168, 178; Cuaton v. Salud, G.R.
No. 158382, January 27, 2004, 421 SCRA 278, 282.
50
G.R. No. 131622, 358 Phil. 820-830 (1998).
51
G.R. No. 170452, 584 Phil. 144-150 (2008).
52
Article 1306 of the Civil Code provides:
The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
11/21/2019 G.R. No. 227005
Custom Search
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SECOND DIVISION
June 19, 2017
G.R. No. 227005
BDO UNIBANK, INC., Petitioner

vs.
ENGR. SELWYN LAO, doing business under the name and style "SELWYN F. LAO CONSTRUCTION" AND
"WING AN CONSTRUCTION AND DEVELOPMENT CORPORATION" and INTERNATIONAL EXCHANGE BANK
(now UNION BANK OF THE PHILIPPINES),, Respondents
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set aside the October 14, 2015 Decision1 and the
September 5, 2016 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 100351, which affirmed, with
modification, the July 9, 2012 Decision3 of the Regional Trial Court, Branch 55, Manila (RTC) in Civil Case No. 99-
93068, a case for collection of sum of money.
The Antecedents
On March 9, 1999, respondent Engineer Selwyn S. Lao (Lao) filed before the RTC a complaint for collection of sum
of money against Equitable Banking Corporation, now petitioner Banco de Oro Unibank (BDO), Everlink Pacific
Ventures, Inc. (Ever/ink), and Wu Hsieh a.k.a.George Wu (Wu).
In his complaint, Lao alleged that he was doing business under the name and style of "Selwyn Lao Construction";
that he was a majority stockholder of Wing An Construction and Development Corporation (WingAn); that he
entered into a transaction with Ever link, through its authorizedrepresentative Wu, under which, Everlink would
supply him with "HCG sanitary wares"; and that for the down payment, he issued two (2) Equitable crossed checks
payable to Everlink: Check No. 0127-2422494 and Check No. 0127-242250,5 in the amounts of ₱273,300.00 and
₱336,500.00, respectively.
Lao further averred that when the checks were encashed, he contacted Everlink for the immediate delivery of the
sanitary wares, but the latter failed to perform its obligation. Later, Lao learned that the checks were deposited in
two different bank accounts at respondent International Exchange Bank, now respondent Union Bank of the
Philippines (UnionBank). He was later informed that the two bank accounts belonged to Wuand a company named
New Wave Plastic (New Wave), represented by a certain Willy Antiporda (Antiporda). Consequently, Lao was
prompted to file a complaint against Everlink and Wu for their failure to comply with their obligation and against BDO
for allowing the encashment of the two (2) checks. He later withdrew his complaint against Everlink as the
corporation had ceased existing.
In its answer, BDO asserted that it had no obligation to ascertain the owner of the account/s to which the checks
were deposited because the instruction to deposit the said checks to the payee's account only was directed to the
payee and the collecting bank, which in this case was Union Bank; that as the drawee bank, its obligations consist in
examining the genuineness of the signatures appearing on the checks, and paying the same if there were sufficient
11/21/2019 G.R. No. 227005
funds in the account under which the checks were drawn; and that the subject checks were properly negotiated and
paid in accordance with the instruction of Lao in crossing them as they were deposited to the account of the payee
Ever link with Union Bank, which then presented them for payment with BDO.
On August 24, 2001, Lao filed an Amended Complaint, wherein he impleaded Union Bank as additional defendant
for allowing the deposit of the crossed checks in two bank accounts other than the payee's, in violation of its
obligation to deposit the same only to the payee's account.
In its answer, Union Bank argued that Check No. 0127-242249 was deposited in the account of Everlink; that Check
No. 0127-242250 was validly negotiated by Everlink to New Wave; that Check No. 0127-242250 was presented for
payment to BDO, and the proceeds thereof were credited to New Wave's account; that it was under no obligation to
deposit the checks only in the account of Everlink because there was nothing on the checks which would indicate
such restriction; and that a crossed check continues to be negotiable, the only limitation being that it should be
presented for payment by a bank.
During trial, BDO presented as its witnesses Elizabeth P. Tinimbang (Tinimbang) and Atty. Carlos Buenaventura
(Atty. Buenaventura).
Tinimbang testified that Everlink was the payee of the two (2) crossed checks issued by their client, Wing An; that
the checks were deposited with Union Bank, which presented them to BDO for payment. She further narrated that
after the checks were cleared and that the drawer's signatures on the checks were determined to be genuine, that
there was sufficient fund to cover the amounts of the checks, and that there was no order to stop payment, the
checks were paid by BDO. Tinimbang continued that sometime in July 1998, BDO received a letter from Wing An
stating that the amounts of the checks were not credited to Everlink's account. This prompted BDO to write a letter
to Union Bank demanding the latter to refund the amounts of the checks. In a letter-reply, Union Bank claimed that
the checks were deposited in the account of Everlink.
Atty. Buenaventura claimed that BDO gave credence to Union Bank's representation that the checks were indeed
credited to the account of Everlink. He stated that BDO's only obligations under the circumstances were to ascertain
the genuineness of the checks, to determine if the account was sufficiently funded and to credit the proceeds to the
collecting bank. On cross-examination, Atty. Buenaventura clarified that Union Bank endorsed the crossed checks
as could be seen on the dorsal portion of the subject checks. According to him, such endorsement meant that the
lack of prior endorsement was guaranteed by Union Bank.
For its part, Union Bank presented as its witness Jojina Lourdes C. Vega (Vega), its Branch Business Manager.
Vega testified that the transaction history of Everlink's account with Union Bank and the notation at the back of the
check indicating Everlink's Account No. (005030000925) revealed that the proceeds of Check No. 0127-242249
were duly credited to Everlink's account on September 22, 1997. As regards Check No. 0127-242250, Vega clarified
that the proceeds of the same were credited to New Wave's account. She explained that New Wave was a valued
client of Union Bank. As a form of accommodation extended to valued clients, Union Bank would request the signing
of a second endorsement agreement because the payee was not the same as the account holder. In this case,
Antiporda executed a Deed of Undertaking (Second Endorsed Checks) wherein he assumed the responsibilities for
the correctness, genuineness, and validity of the subject checks.
The RTC Ruling
In its Decision, dated July 9, 2012, the RTC absolved BDO from any liability, but ordered Union Bank to pay Lao the
amount of ₱336,500.00, representing the value of Check No. 0127-242250; ₱50,000.00 as moral damages;
₱l00,000.00 as exemplary damages; and ₱50,000.00 as attorney's fees.
The RTC observed that there was nothing irregular with the transaction of Check No. 0127-242249 because the
same was deposited in Everlink's account with Union Bank. It, however, found that Check No. 0127-242250 was
irregularly deposited and encashed because it was not issued for the account of Everlink, the payee, but for the
account of New Wave. The trial court noted further that Check No. 0127-242250 was not even endorsed by Everlink
to New Wave. Thus, it opined that Union Bank was negligent in allowing the deposit and encashment of the said
check without proper endorsement. The R TC wrote that considering that the subject check was a crossed check,
Union Bank failed to take reasonable steps in order to determine the validity of the representations made by
Antiporda. In the end, it adjudged that BDO could not be held liable because of Union Bank's warranty when it
stamped on the check that "all prior endorsement and/or lack of endorsement guaranteed." The dispositive portion
of the decision reads:
WHEREFORE, premises considered, judgment is herebyrendered in FAVOR of the plaintiff Engr.

Selwyn F. Lao and AGAINST the defendant International Exchange Bank (now Union Bank) ordering
the latter to pay the former the following:
11/21/2019 G.R. No. 227005
1. The amount of Three Hundred Thirty Six Thousand Five Hundred Pesos (₱336,500.oo)
representing the Equitable Bank Check No. 0127-242250;
2. The amount of Fifty Thousand Pesos (₱50,ooo.oo) representing moral damages;
3. The amount of One Hundred Thousand Pesos (₱100,ooo.oo) representing exemplary

damages; and,
4. The amount of Fifty Thousand Pesos (₱50,ooo.oo) as attorney's fees.
The Complaints against defendants Equitable Banking Corporation (now Banco de Oro) and Wu Shu
Chien a.k.a. George Wu are hereby ordered DISMISSED.
Costs against the defendant International and Exchange Bank (now Union Bank).
SO ORDERED. 6
Aggrieved, Union Bank elevated an appeal to the CA. 7
The CA Ruling
In its assailed Decision, dated October 14, 2015, the CA affirmed, with modification, the ruling of the R TC. It
ordered BDO to pay Lao the amount of ₱336,500.00, with legal interest from the time of filing of the complaint until
its full satisfaction. The appellate court further directed Union Bank to reimburse BDO the aforementioned amount. It
concurred with the RTC that Union Bank was liable because of its negligence and its guarantee on the validity of all
prior endorsements or lack of it.
With regard to BDO's liability, the CA explained that it violated its duty to charge to the drawer's account only those
authorized by the latter when it paid the value of Check No. 0127-242250. Thus, it held that BDO was liable for the
amount charged to the drawer's account. The fallo reads:
FOR THESE REASONS, the appeal is PARTLY GRANTED. The July 9, 2012 Decision of the Regional
Trial Court of Manila, Branch 55 is AFFIRMED with MODIFICATIONS that Equitable Bank is ordered to
pay Selwyn Lao the amount corresponding to Check No. 0127-242250, i.e., ₱336,500.oo, with legal
interest from the time of filing of the complaint until the amount is fully paid. International Exchange
Bank (now Union Bank of the Philippines) is ordered to reimburse Equitable Bank the abovementioned
amount. The award of damages and attorney's fees is DELETED. The rest of the Decision stands.
SO ORDERED.8
On November 5, 2012, BDO filed its Motion for Partial Reconsideration. It argued that neither Lao nor Union Bank
appealed the dismissal of the complaint against it, thus, the RTC decision had already attained finality as far as it
was concerned. It also prayed that Lao should be allowed to recover directly from Union Bank.
In its assailed Resolution, dated September 6, 2016, the CA denied BDO's Motion for Partial Reconsideration. It
ratiocinated that in Bank ofAmerica, NT & SA v. Associated Citizens Bank, 9 (Bank of America) thedrawee bank was
adjudged liable for the amount charged to the drawer's account, while the collecting bank was ordered to reimburse
the drawee bank whatever amount the latter was made to pay.
Hence, this petition anchored on the following:
GROUNDS
I.
ISSUES NOT RAISED BY THE PARTIES ON APPEAL CANNOT BE REVIEWED NOR RULED UPON
BY THE APPELLATE COURT.
II.
A COLLECTING BANK ASSUMES RESPONSIBILITY FOR A CROSSED CHECK AS A GENERAL

ENDORSER IN ACCORDANCE WITH SECTION 66 OF THE NEGOTIABLE INSTRUMENTS LAW.
III.
THE PARTY WHICH DID NOT EXERCISE THE REQUIRED DILIGENCE IS THE CAUSE OF THE
LOSS AND BEARS THE DAMAGES. 10
11/21/2019 G.R. No. 227005
BDO argued that the CA's order for it to pay Lao was erroneous as the RTC had already adjudged with finality that it
was not liable. It posited that the appellate court could not resolve issues not raised on appeal by both parties
thereto. BDO pointed out that it was not a party in the appeal before the CA. It further stressed that neither Lao nor
Union Bank assailed the R TC decision with respect to the dismissal of the complaint against it during the appeal
before the CA, and even on motion for reconsideration before the R TC. Thus, for failure to appeal therefrom, the R
TC decision had already attained finality as to BDO.
BDO further averred that Union Bank, as the collecting bank and last endorser, must suffer the loss because it had
the duty to ascertain the genuineness of all prior endorsement. It asserted that as the drawee bank, it could not be
held liable because it merely relied on Union Bank's express guarantee. It added that the proximate cause of the
loss suffered by Lao was the negligence of Union Bank when it allowed the deposit of the crossed check intended
for Everlink to New Wave's account.
In his Comment, 11 dated January 26,2017, Lao asserted that the CA did not commit any error when it resolved the
issue on the liability of BDO even if it was not raised on appeal. He was of the view that the said issue was
inextricably intertwined with the principal issue. Lao stated that the CA correctly adjudged BDO liable, without
prejudice to its right to seek reimbursement from Union Bank, as it was the correct sequence in the enforcement of
payment in cases where the collecting bank allowed a crossed check to be deposited in the account of a person
other than the payee.
Union Bank did not file any comment on BDO's petition.
The Court's Ruling
The petition is meritorious.
Ordinarily, this Court would have concurred with the CA as regards the applicability of Bank of America. There is,
however, a peculiar circumstance which would prevent the application of Bank of America in the present case.
Sequence of Recovery in cases of unauthorized payment of checks
The Court agrees with the appellate court that in cases of unauthorized payment of checks to a person other than
the payee named therein, the drawee bank may be held liable to the drawer. The drawee bank, in turn, may seek
reimbursement from the collecting bank for the amount of the check. This rule on the sequence of recovery in case
of unauthorized check transactions had already been deeply embedded in jurisprudence. 12
The liability of the drawee bank is based on its contract with the drawer and its duty to charge to the latter's
accounts only those payables authorized by him. A drawee bank is under strict liability to pay the check only to the
payee or to the payee's order. When the drawee bank pays a person other than the payee named in the check, it
does not comply with the terms of the check and violates its duty to charge the drawer's account only for properly
payable items. 13
On the other hand, the liability of the collecting bank is anchored on its guarantees as the last endorser of the check.
Under Section 66 of the Negotiable Instruments Law, an endorser warrants "that the instrument is genuine and in all
respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the
instrument is at the time of his endorsement valid and subsisting."
It has been repeatedly held that in check transactions, the collecting bank generally suffers the loss because it has
the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the
genuineness of the endorsements. If any of the warranties made by the collecting bank turns out to be false, then
the drawee bank may recover from it up to the amount of the check. 14
In the present case, BDO paid the value of Check No. 0127-242250 to Union Bank, which, in turn, credited the
amount to New Wave's account. The payment by BDO was in violation of Lao's instruction because the same was
not issued in favor of Everlink, the payee named in the check. It must be pointed out that the subject check was not
even endorsed by Everlink to New Wave. Clearly, BDO violated its duty to charge to Lao's account only those
payables authorized by him.
Nevertheless, even with such clear violation by BDO of its duty, the loss would have ultimately pertained to Union
Bank. By stamping at the back of the subject check the phrase "all prior endorsements and/or lack of it guaranteed,"
Union Bank had, for all intents and purposes treated the check as a negotiable instrument and, accordingly,
assumed the warranty of an endorser. Without such warranty, BDO would not have paid the proceeds of the check.
Thus, Union Bank cannot now deny liability after the aforesaid warranty turned out to be false. 15
11/21/2019 G.R. No. 227005
Union Bank was clearly negligent when it allowed the check to be presented by, and deposited in the account of
New Wave, despite knowledge that it was not the payee named therein. Further, it could not have escaped its
attention that the subject checks were crossed checks.
A crossed check is one where two parallel lines are drawn across its face or across the comer thereof. A check may
be crossed generally or specially. A check is crossed especially when the name of a particular banker or company is
written between the parallel lines drawn. It is crossed generally when only the words "and company" are written at
all between the parallel lines. 16
Jurisprudence dictates that the effects of crossing a check are: (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 he must inquire if he has received the check pursuant to that purpose. 17 The effects of crossing a
check, thus, relate to the mode of payment, meaning that the drawer had intended the check for deposit only by the
rightful person, i.e., the payee named therein. 18
It is undisputed that Check No. 0127-242250 had been crossed generally as nothing was written between the
parallel lines appearing on the face of the instrument. This indicated that Lao, the drawer, had intended the same for
deposit only to the account of Everlink, the payee named therein. Despite this clear intention, however, Union Bank
negligently allowed the deposit of the proceeds of the said check in the account of New Wave.
Generally, BDO must be ordered to pay Lao the value of the subject check; whereas, Union Bank would be ordered
to reimburse BDO the amount of the check. The aforesaid sequence of recovery, however, is not applicable in the
present case due to the presence of certain factual peculiarities.
Simplification of the proceedings for Recovery
Although the rule on the sequence of recovery has been deeply engrained in jurisprudence, there may be
exceptional circumstances which would justify its simplification. Stated differently, the aggrieved party may be
1âwphi1
allowed to recover directly from the person which caused the loss when circumstances warrant. In Associated Bank
v. Court of Appeals (AssociatedBank), 19 the person who suffered the loss as a result of the
unauthorizedencashment of crossed checks was allowed to recover the loss directly from the negligent bank despite
the latter's contention of lack of privity of contract. The Court said:
There being no evidence that the crossed checks were actually received by the private respondent, she
would have a right of action against the drawer companies, which in turn could go against their
respective drawee banks, which in turn could sue the herein petitioner as collecting bank. In a similar
situation, it was held that, to simplify proceedings, the payee of the illegally encashed checks should be
allowed to recover directly from the bank responsible for such encashment regardless of whether or not
the checks were actually delivered to the payee. We approve such direct action in the case at bar.20
A peculiar circumstance in Associated Bank is the fact that the drawer companies, which should have been directly
liable to the aggrieved payee, were not impleaded as parties in the suit. In this regard, it is a fundamental principle in
this jurisdiction that a person cannot be prejudiced by a ruling rendered in an action or proceeding in which he has
not been made a party. This principle conforms to the constitutional guarantee of due process of law.21 To the mind
of the Court, this principle was a foremost underlying consideration for allowing the direct recovery by the payee
from the negligent collecting bank.
Finality of the RTC decisionwith respecttoBDOjustifiesthe simplification of the proceedings for recovery.
BDO argues that the appellate court erred in ordering it to pay the amount of the subject check to Lao because it
was no longer a party in the case, not being impleaded in the appeal, and that the issue as regards its had liability
already been settled with finality by the R TC.
The Court agrees.
It has been held that it is not the caption of the pleading, but the allegations therein that are controlling. The non-
inclusion of a party in the title of the pleading is not fatal to the case, provided there is a statement in the body
indicating that such non-included person is a party to the case.22
BDO was not impleaded as a party in Union Bank's appeal before the CA. This is evident from the title of the case
before the CA, and the respective briefs of Union Bank and Lao, which mentioned only Lao and Union Bank as
parties thereto. Moreover, in their respective briefs before the appellate court, neither Lao23 nor Union Bank24 made
any statement or raised any issue on BDO's liability and its inclusion as a party in the appeal.
11/21/2019 G.R. No. 227005
Consequently, because of Lao and Union Bank's failure to appeal the July 9, 2012 Decision of the RTC with respect
to BDO's lack of liability, said decision became final as to the latter.
The finality of the July 9, 2012 RTC Decision as to BDO, which absolved it from any liability, necessarily means that
it could not be prejudiced or adversely affected by the decision rendered in the appeal. It is elementary in this
jurisdiction that a person cannot be bound by a decision wherein it was not a party.25 A contrary finding would violate
BDO's constitutional right to due· process. Needless to state, the appellate court erred in ordering BDO to pay the
amount of the subject check because the latter was not made a party in the appeal, and the issue as to its liability or
lack thereof, was not raised on appeal.
From the foregoing, the Court is of the considered view that the pronouncements made in Associated Bank as
regards the simplification of the recovery proceedings are applicable in the present case. The factual milieu of this
case are substantially similar with that of Associated Bank, i.e., a crossed check was presented and deposited,
without authority, in the account of a person other than the payee named therein; the collecting bank endorsed the
crossed check and warrant the validity of all prior endorsements and/or lack of it; the warranty turned out to be false;
and, a party to the check transaction, which would otherwise be held liable to the party aggrieved, was not made a
party in the proceedings in court.
To summarize, Lao, the drawer of the subject check, has a right of action against BDO for its failure to comply with
its duty as the drawee bank. BDO, in turn, would have a right of action against Union Bank because of the falsity of
its warranties as the collecting bank. Considering, however, that BDO was not made a party in the appeal, it could
no longer be held liable to Lao. Thus, following Associated Bank, the proceedings for recovery must be simplified
and Lao should be allowed to recover directly from Union Bank.
WHEREFORE, the petition is GRANTED. The October 14, 2015 Decision and the September 5, 2016 Resolution of
the Court of Appeals in CA-G.R. CV No. 100351 are hereby REVERSED and SET ASIDE insofar as it ordered
petitioner BDO Unibank, Inc. to pay Selwyn Lao the amount of Check No. 0127-242250. The rest of the decision is
AFFIRMED.
The amount shall earn interest at the rate of twelve percent (12%) perannum from August 24, 2001, the date of
judicial demand, to June 30, 2013.From July 1, 2013, the rate shall be six percent (6%) per annum until full
satisfaction.
SO ORDERED.
JOSE CATRAL MENDOZA

Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
DIOSDADO M. PERALTA MARVIC M.V.F. LEONEN

SAMUEL R. MARTIRES
Associate Justice
ATTESTATION
DIOSDADO M. PERALTA
Associate Justice
Acting Chairperson, Second Division
CERTIFICATION
Pursuant to the Section 13, Article VIII of the Constitution and the Division Acting Chairperson’s Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.

Chief Justice
11/21/2019 G.R. No. 227005
Footnotes
*
On Official Leave.
**
Per Special Order No. 2445 dated June 16, 2017.
1
Penned by Associate Justice Zenaida T. Galapate-Laguilles, with Associate Justice Mariflor P. Punzalan
Castillo, and Associate Justice Leoncia R. Dimagiba, concurring; rollo, pp. 36-48.
2
Id. at 50-54.
3
Penned by Presiding Judge Josefina E. Siscar; id. at 61-76.
4
Records, p. 104.
5
Id.
6
Id. at 828.
7
Id. at 833.
8
Rollo, p. 47-48.
9
606 Phil. 35 (2009).
10
Rollo, p. 18.
11
Id. at 228-242.
12
Bank of America, NT & SA v. Associated Citizens Bank, supra, note 9; Traders Royal Bank v. Radio
Philippines Network, Inc., 439 Phil. 475 (2002).
13
Philippine National Bank v. Rodriguez, 588 Phil. 196, 214-215 (2008).
14
Areza v. Express Savings Bank, Inc., G.R. No. 176697, September 10, 2014, 734 SCRA 588, 605.
15
Bank of the Philippine Islands v. Court of Appeals, 290 Phil. 452 (1992).
16
Gov. Metropolitan Bank, 642 Phil. 2,64, 271-272 (2010).
17
State Investment House v. IAC, 256 Phil. 762, 768 (1989).
18
Yang v. Court of Appeals, 456 Phil. 378, 396 (2003).
19
284 Phil. 615 (1992).
20
Id. at 623-624.
21 22
Dare Adventure Farm Corporation v. Court of Appeals, 695 Phil. 681, 690 (2012). Spouses Genato v.
Viola, 625 Phil. 514, 525, (2010).
23
CA rollo, pp. 107-131.
24
Id. at 51-88.
25
Buazon v. Court of Appeals, G.R. No. 97749, March 19, 1993, 220 SCRA 182, 189.
11/21/2019 G.R. No. 185590
Custom Search

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 185590 December 3, 2014
METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

vs.
LEY CONSTRUCTION AND DEVELOPMENT CORPORATION and SPOUSES MANUEL LEY and JANET LEY,
Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks the reversal of the Court of Appeals'
Decision1 dated September 4, 2008 in CA-G.R. CV No. 75590 dismissing the appeal of petitioner Metropolitan Bank
and Trust Company assailing the dismissal of its complaint by the Regional Trial Court (RTC) of Makati City, Branch
56, and the Resolution2 dated December 5, 2008 denying the Bank's motion for reconsideration.
The Court of Appeals adopted the following recital of facts in the Decision3 dated July 3, 2001 of the RTC in Civil
Case No. 91-1878:
This is an action for recovery of a sum of money and damages with a prayer for the issuance of writ of preliminary
attachment filed by the plaintiff Philippine Banking Corporation4 against the defendants, namely: Ley Construction
and Development Corporation (hereafter "LCDC") and Spouses Manuel and Janet C. Ley (hereafter "[defendant]-
spouses").
The complaint alleges that: Defendant LCDC, a general contracting firm, through the oral representations of
defendant-spouses, applied with plaintiff, a commercial bank, for the opening of a Letter of Credit. Plaintiff issued,
on April 26, 1990, Letter of Credit DC 90[-]303-C in favor of the supplier-beneficiary Global Enterprises Limited, in
the amount of Eight Hundred Two Thousand Five Hundred U.S. Dollars (USD 802,500.00). The letter of credit
covered the importation by defendant LCDC of Fifteen Thousand (15,000) metric tons of Iraqi cement from Iraq.
Defendant applied for and filed with plaintiff two (2) Applications for Amendment of Letter of Credit on May 3, 1990
and May 11, 1990, respectively.
Thereafter, the supplier-beneficiary Global Enterprises, Inc. negotiated its Letter of Credit with the negotiating bank
Credit Suisse of Zurich, Switzerland. Credit Suisse then sent a reimbursement claim by telex to American Express
Bank Ltd., New York on July 25, 1990 for the amount of Seven Hundred Sixty[-]Six Thousand Seven Hundred Eight
U.S. Dollars (USD 766,708.00) with a certification that all terms and conditions of the credit were complied with.
Accordingly, on July 30, 1990, American Express Bank debited plaintiff’s account Seven Hundred Seventy
Thousand Six Hundred Ninety[-]One U.S. Dollars and Thirty Cents (USD 770,691.30) and credited Credit Suisse
Zurich Account with American Express Bank, Ltd., New Yorkfor the negotiation of Letter of Credit. On August 6,
1990, plaintiff received from Credit Suisse the necessary shipping documents pertaining to Letter of Credit DC 90-
303-C that were in turn delivered to the defendant. Upon receipt of the aforesaid documents, defendants executed a
trust receipt. However, the cement that was to be imported through the opening of the subject Letter of Credit never
arrived in the Philippines.
The prompt payment of the obligation of the defendant LCDC was guaranteed by [defendant]-spouses under the
Continuing Surety Agreement executed by the latter in favor of the defendant. The obligation covered by the subject
Letter of Credit in the amount of USD 802,500.00 has long been overdue and unpaid, notwithstanding repeated
demands for payment thereof. Plaintiff, therefore, instituted the instant complaint for recovery of the following
amounts: Twenty[-]Three [M]illion Two Hundred [F]ifty[-]Nine Thousand One Hundred Twenty[-]Four Pesos and
Fourteen Centavos (PH₱23,259,124.14) as of June 15, 1991, inclusive of interestand penalty, plus additional
11/21/2019 G.R. No. 185590
interest thereon of Thirty percent (30%) per annum; attorney’s fees equivalent to Twenty[-]Five percent [25%] of the
total obligation; and costs of suit.
In support of its cause of action against defendant, plaintiff presented the testimony of Mr. Fenelito Cabrera, Head of
the Foreign Department of plaintiff’s Head Office. (T.S.N. dated June 16, 1995, p. 4) There being no other witness to
be presented by the plaintiff (Order dated June 27, 1997), the plaintiff filed its formal offer of exhibits dated July 18,
1997 to which defendant filed its comments/objections to formal offer of evidence dated February 23, 1998. In an
order dated March 4, 1998, Exhibits "A" to "N" to "N-4" including [their] sub-markings were admitted for the purposes
they were respectively offered. However, on defendants’ motion for reconsideration dated [March 30,] 1998 that was
duly opposed by the plaintiff in itsopposition dated June 3, 1998, this Court partially granted defendants’ motion for
reconsideration. Consequently, Exhibits "D", "E", "H","I", "J", "K", "L", and "M" and their sub-markings were not
admitted for not being properly identified and authenticated by a competent witness. Only Exhibits "A", "B", "C", "C-
1", and "N", "N-1" to "N-4" remain admitted in evidence. (Order dated September 9, 1998) Defendant filed a motion
to dismiss by way of demurrer to evidence on the ground that plaintiff’s witness Mr. Fenelito Cabrera was
incompetent to testify with respect tothe transaction between the plaintiff and the defendant and that the plaintiff’s
documentary exhibits were not properly identified and authenticated.5
The trial court found that the Bank’s only witness, Fenelito Cabrera, was incompetent to testify on the documents
presented by the Bank during the trial. Cabrera was with the Bank’s Dasmariñas Branch and not with the Head
Office from March 1990 to June 1991, the period the transaction covered by the documents took place. Thus, he
could not have properly identified and authenticated the Bank’s documentary exhibits. His lack of competence was
even admitted by the Bank’s counsel who did not even ask Cabrera to identify the documents. Asthe documents
were not identified and duly authenticated, the Bank’s evidence was not preponderant enough to establish its right
to recover from LCDC and the spouses Ley.6
The trial court further ruled that only the following documents remained admitted in evidence:
Exhibit Document
"A" Continuing Surety Agreement dated July 25, 1989

"B" Application and Agreement for Commercial Letter of Credit
"C" and "C-1" Letter of Credit No. DC 90-303-C
"N" and "N-1" to "N-4" Statement of Outstanding Obligations
For the trial court, these were insufficient to show that LCDC and the spouses Ley were responsible for the improper
negotiation of the letter of credit. Thus, the trial court concluded in its Decision dated July 3, 2001 that the Bank
failed to establish its cause ofaction and to make a sufficient or preponderant case.7 The dispositive portion of the
decision reads:
WHEREFORE, the demurrer to evidence is granted. The case is dismissed.8 The Bank appealed to the Court of
Appeals. It claimed that the trial court erred in granting the demurrer toevidence of LCDC and the spouses Ley on
the ground that the Bank failed to establish its cause of action. The Bank insisted that, even without considering the
exhibits excluded in evidence by the trial court, the Bank was able to prove by preponderant evidence that it had a
right and that right was violated by LCDC and the spouses Ley. It explained that the trial court was wrong in
considering only Exhibits "A," "B," "C," "C-1," "N" and "N-1" to "N-4" as the following documents were also admitted
in evidence and should have been considered in the resolution of the demurrer to evidence.9
Exhibit Document
"F" Register Copy or Memorandum on the Letter of Credit
"G" Trust Receipt No. TRI432/90 dated August 16, 1990

"G-1" Bank Draft
"G-2" Bill of Exchange
The Bank asserted that the consideration of Exhibits "F," "G" and "G-1" to "G-2" would have established the
following:
(a) On August 16, 1990, LCDC and the spouses Ley received from the Bank the necessary shipping
documents relative to the Letter of Credit evidencing title to the goods subject matter of the importation which
the Bank had previously received from Credit Suisse;
11/21/2019 G.R. No. 185590
(b) Upon receipt of the shipping documents, LCDC and the spouses Ley executed a trust receipt, Trust
Receipt No. TRI432/90, in favor of the Bank covering the importation of cement under Letter of Credit No. DC
90-303-C;
(c) The issuance of the trust receipt was an acknowledgement by LCDC and the spouses Ley of their receipt
of the shipping documents and of their liability to the Bank;
(d) By signing the trust receipt, constituted an admission by LCDC and the spouses Ley that the Letter of
Credit was in order, including the Bank’s payment of the amountof US$766,708.00 under the Letter of
Credit.10
Thus, even with only the testimony ofCabrera and Exhibits "A," "B," "C," "C-1," "N" and "N-1" to "N-4" and "F," "G"
and "G-1" to "G-2," the demurrer should have been denied and LCDC and the spouses Ley held liable to the Bank.
Moreover, the Bank contended that its Exhibits "D," "E," "H," and "I" should have been also admitted in evidence
because LCDC and the spouses Ley effectively admitted the authenticity of the said documents when they stated in
the pre-trial brief which they submitted during the pretrial of the case atthe trial court:
III. DOCUMENTARY EXHIBITS
Defendants shall adopt the documents submitted by plaintiff and marked as Annexes "A", "B", "C", "D","E", "E-1",
"F", "G", "G-1", "H" and "H-1" in the plaintiff’s complaint.
Defendants reserve the right tomark or adopt such other documentary evidence as may be discovered or warranted
to support its claim in the course of the trial. x x x.11
The Court of Appeals found no merit in the Bank’s appeal. It observed that Cabrera, the Bank’s onlywitness,
prepared and properly identified Exhibits "F," "G," "N" and "N-1" to "N-4" only. The Bank’s counsel even admitted in
open court during Cabrera’s direct examination that Cabrera was incompetent to testify onthe rest of the Exhibits.
The trial court was therefore correct in not giving any evidentiary weight to those Exhibits not properly identified by
Cabrera.12
For the Court of Appeals, the statement in the pre-trial brief that LCDC and the spouses Ley "shall adopt" Annexes
"A," "B," "C," "D," "E," "E-1," "F," "G," "G-1," "H" and "H-1" of the Bank’s complaint did not constitute an admission of
the said documents by LCDC and the spouses Ley. However, the appellate court noted that LCDC and the spouses
Ley admitted the existence and authenticity of the Bank’s Exhibits "A," "B," "C," "C-1," and "G."13
Nevertheless, the Court of Appeals ruled that the following Exhibits of the Bank were admitted in evidence:
Exhibit Document
"A" Continuing Surety Agreement dated July 25, 1989
"B" Application and Agreement for Commercial Letter of Credit

"C" and "C-1" Letter of Credit No. DC 90-303-C
"F" Register Copy or Memorandum on the Letter of Credit
"G" Trust Receipt No. TRI432/90 dated August 16, 1990

"N" and "N-1" to "N-4" Statement of Outstanding Obligations
Even upon inclusion and consideration of the above-mentioned exhibits, the Court of Appeals held that the Bank still
failed to show that LCDC and the spouses Ley were directly responsible for the improper negotiation of the letter of
credit. Thus, the Court of Appeals, in its Decision dated September 4, 2008, dismissed the appeal and affirmed the
decision of the trial court.14 The dispositive portion of the Decision of the Court of Appeals reads:
WHEREFORE, premises considered, the instant appeal is hereby DISMISSED and the assailed decision of the
RTC, National Capital Judicial Region, Branch 56, Makati City in Civil Case No. 91-1878 is AFFIRMED.15
The Court of Appeals denied the Bank’s motion for reconsideration, prompting the Bank to file this petition.
The Bank insists that it has been ableto establish its cause of action not only through preponderance of evidence
but even by the admissions of LCDC and the spouses Ley. It maintains that its cause of action is not predicated on
the improper negotiation of the letter of credit but on the breach of the terms and conditions of the trust receipt.16
11/21/2019 G.R. No. 185590
The petition fails.
First, the Bank’s petition suffers from a fatal infirmity. In particular, it contravenes the elementary rule of appellate
procedure that an appeal to this Court by petition for review on certiorari under Rule 45 of the Rules of Court "shall
raise only questions of law."17 The rule is based on the nature of this Court’s appellate function – this Court is not a
trier of facts18 – and on the evidentiary weight given to the findings of fact of the trial court which have been affirmed
on appeal by the Court of Appeals – they are conclusive on this Court.19 While there are recognized exceptions to
the rule,20 this Court sees no reason to apply the exception and not the rule in this case.
The conceptual distinction between a question of law and a question of fact is well-settled in case law:
There is a "question of law" when the doubt or difference arises as to what the law is on a certain state of facts, and
which does not call for an examination of the probative value of the evidence presented by the parties-litigants. On
the other hand, there is a "question of fact" when the doubt or controversy arises as to the truth or falsity of the
alleged facts. x x x.21
The issue of whether or not the Bank was able to establish its cause of action by preponderant evidence is
essentially a question of fact. Stated in another way, the issue which the Bank raises in this petition is whether the
evidence it presented during the trial was preponderant enough to hold LCDC and the spouses Ley liable.
The required burden of proof, or that amount of evidence necessary and sufficient to establish one’s claim or
defense, in civil cases is preponderance of evidence.22 Preponderance of evidence is defined as follows:
Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and is usually
considered to be synonymous with the term "greater weight of evidence" or "greater weight of the credible
evidence." Preponderance of evidence is a phrase which, in the last analysis, means probability to truth. It is
evidence which is more convincing to the court as worthier of belief than that which is offered in opposition thereto.23
(Emphasis supplied, citation omitted.)
As preponderance of evidence refers to the probability to truth of the matters intended to be proven as facts, it
concerns a determination of the truth or falsity of the alleged facts based on the evidence presented. Thus, a review
of the respective findings of the trial and the appellate courts as to the preponderance of a party’s evidence requires
that the reviewing court address a question of fact.
Moreover, a demurrer to evidence is a motion to dismiss on the ground of insufficiency of evidence. Evidence is the
means, sanctioned by the Rules of Court, of ascertaining in a judicial proceeding the truth respecting a matter of
fact.24 As such, the question of sufficiency or insufficiency of evidence, the basic issue presented by the Bank,
pertains to the question of whether the factual matters alleged by the Bank are true. Plainly, it is a question of fact
and, as such, not proper subject of a petition for review on certiorari under Rule 45 of the Rules of Court. It was
incumbent upon the Bank to demonstrate that this case fell under any of the exceptions to this rule but it failed to do
so.
Second, the Bank attempts to avoid the "only questions of law" rule for appeals filed under Rule 45 by invoking the
misapprehension of facts exception.25 According to the Bank, the trial and the appellate courts misapprehended the
facts with respect tothe determination of the basis of the Bank’s cause of action.26 In particular, the Bank contends
that both the trial and the appellate courts erred in the consideration of the proper actionable document upon which
the Bank based its cause of action. The Bank asserts that its cause of action isnot grounded on the Letter of Credit
but on the Trust Receipt.
The Bank’s reference to the Trust Receipt as its "primary actionable document"27 is mistaken and misleading.
The nature of the cause of action isdetermined by the facts alleged in the complaint.28 A party’s cause of action is
not what the party says it is, nor is it what the designation of the complaint states, but what the allegations in the
body define and describe.29
In this case, the Bank’s allegations asto the basis of its cause of action against LCDC and the spouses Ley,
however, belie the Bank’s claim. In particular, the relevant portion of the Bank’s Complaint30 reads:
1.2 The defendants:
a. Ley Construction and Development Corporation (LCDC) is a general contracting firm engaged
in the construction of buildings, infrastructures, and other civil works with principal office at
Mapulang Lupa St., Malinta, Valenzuela, Metro Manila where it [may be] served with summons
and other processes of this Court.
11/21/2019 G.R. No. 185590
b. Sps. Manuel and Janet C. Ley, the major stockholders of defendant (LCDC)with business
address at 23rd Floor Pacific Star Bldg., Makati Avenue, Makati, Metro Manila where the
processes of this Honorable Court [may be] served upon them are impleaded herein in their
capacity as Surety for the obligation incurred by defendant LCDC with the herein plaintiff by
virtue of a Continuing Surety Agreement they executed in favor of the plaintiff, a copy of which is
hereto attached as Annex "A";
2. STATEMENT OF CAUSE OF ACTION AGAINST DEFENDANT LCDC AND SPOUSES MANUEL

AND JANET LEY
2.1 In conjunction with its business, defendant LCDC sought to import "Iraqi Cement" from Iraq
thru its supplier "Global Enterprises, Limited" with address at 15 A. Tuckeys Lane, Gibraltar.
2.2 To finance this importation, defendant LCDC applied with the plaintiff for the opening of Letter
of Credit as evidenced by the Application and Agreement for Commercial Letter of Credit, copy
of which is marked as Annex "B" and made integral part hereof.
2.3 Acting on defendant[’]s oral representation and those stated in its application (Annex "B"),
plaintiff issued on April 26, 1990 its Letter of Credit No. DC 90[-]303-C in favor of the supplier
Global Enterprises Limited, as beneficiary in the amount of U.S. Dollars: EIGHT HUNDRED
TWO THOUSAND FIVE HUNDRED (US $802,500) for the account of defendant, covering the
importation of 15,000 metric tons of Iraqi Cement from Iraq, copy of the Letter of Credit is
marked as Annex "C" and made integral part hereof;
2.4 On May 3, 1990, defendant applied for and filed with plaintiff an Application for Amendment
of Letter of Credit, copy of which is attached as Annex "D" hereof, and another application for
amendment was filed on May 11, 1990 copy of which is marked as Annexes "E" and "E-1"
hereof;
2.5 After these amendments were communicated to the negotiating bank, Credit Suisse of
Zurich, Switzerland, the beneficiary negotiated its Letter of Credit therewith. Thereafter, Credit
Suisse sent a reimbursement claim by telex to American Express Bank Ltd., New York on July
25, 1990 for the amount of US$766,708.00 with a Certification that all terms and conditions of
the credit were complied with;
2.6 Accordingly, on July 30, 1990, American Express Bank debited plaintiff’s account
US$770,691.30 and credited Credit Suisse Zurich Account with American Express Bank Ltd.,
New York for the negotiation of Letter of Credit;
2.7 On August 6, 1990, plaintiff received from Credit Suisse the necessary shipping documents
pertaining to Letter of Credit DC 90-303-C all of which were in turn delivered and received by the
defendant on August 16, 1990 as evidenced by their acknowledgment appearing on the plaintiff’s
register copy, a copy of which is hereto attached as Annex "F";
2.8 Upon defendant’s receipt of the shipping documents and other documents of title to the
imported goods, defendant signed a trust receipt manifesting its acceptance/conformity that the
negotiation of the LC is in order. A copy of the TR and the draft issued by the defendant as a
means of paying its LC obligation to the plaintiff are hereto attached and marked as Annexes "G"
and "G-1" hereof;
2.9 Sometime during the 3rd week of August, defendant LCDC informed the plaintiff that the
expected shipment of cement subject matter of the LC was allegedly held up in Iraq purportedly
on account of the trade embargo imposed against it by the United Nation[s] and sought
assistance from the plaintiff to secure no-dollar import permit from the Central Bank as defendant
was negotiating with its supplier Global Enterprises Limited, Inc. for an alternate shipment of
Syrian Cement.
2.10 Plaintiff acceded to the request of the defendant and conformably secured the requested
approval from Central Bank to allow the defendant to import cement on a no-dollar basis, a copy
of the defendant’s request as well as the Central Bank approval are hereto attached as Annexes
"H" and "H-1".
2.11 About two months after the plaintiff has obtained the requested Central Bank approval
(Annex "H-1")[,] plaintiff was again advised by the defendant that the alternate shipment of
Syrian Cement is no longer forthcoming and that defendant LCDC after a series of negotiation
11/21/2019 G.R. No. 185590
with its supplier has agreed with the latter for a reimbursement of the value of the negotiated
Letter of Credit.
2.12 While defendant was negotiating with its supplier for that replacement of Syrian cement,
defendant advised plaintiff not to initiate any move as it might jeopardize defendant’s negotiation
with its supplier.
2.13 In December 1990, four (4) months from defendant’s receipt of the shipping and export
documents from plaintiff, as it became perceptible that defendant’s negotiation with its supplier
for reimbursement or replacement would fail[,] defendant for the first time asked for copies of the
beneficiary’s draft, the Charter Party Agreement even as it contested the validity of defendant’s
obligation to plaintiff.
2.14 For the first time, defendant also began to assail the validity of the payment made by the
plaintiff to the supplier (Global Enterprises Ltd.) through Credit Suisse, with the intention of
avoiding the payment of its lawful obligation to reimburse the plaintiff the amount of US $802,500
which obligation is now long overdue and unpaid notwithstanding repeated demands.
2.15 The obligation covered by the aforesaid Letter of Credit bears interest and charges at the
rateof 30% per annum which rate [may be] increased or decreased within the limits allowed by
the law.
2.16 The prompt payment of the obligations contracted by defendant LCDC from the plaintiff
inclusive of the subject Letter of Creditis guaranteed by defendant Sps.Manuel and Janet Ley by
making themselves jointly and severally liable with the defendant LCDC in accordance with the
terms of a Continuing Surety Agreement which they executed in favor of the plaintiff (Annex
"A").31 (Emphases supplied.)
That the Bank’s cause of action was hinged on the Letter of Credit is unmistakable. Taken as a whole, the Bank’s
allegations make a cause of action based on the Letter of Credit. The Trust Receipt was mentioned incidentally and
appears only in paragraph 2.8 of the Complaint.32 In stark contrast, the Letter of Credit figures prominently in the
Complaint as it is mentioned in almost all of the paragraphs of Part 2 (Statement of Cause of Action Against
Defendant LCDC and Spouses Manuel and Janet Ley). More tellingly, in paragraph 2.15, the Bank speaks of "the
obligation covered by the aforesaid Letter of Credit."33
Moreover, under paragraphs1.2(b) and 2.16 of the Complaint, the spouses Ley have been impleaded as co-
defendants of LCDC on account of their execution of a Continuing Surety Agreement in the Bank’s favor to
guarantee the "prompt payment of the obligations contracted by defendant LCDC from the plaintiff inclusive of the
subject Letter of Credit."34 In short, the Bank seeks to hold liable (1) LCDC for its obligations under the Letter of
Credit, and (2) the spouses Ley for their obligations under the Continuing Surety Agreement which stands as
security for the Letter of Credit and not for the Trust Receipt.
Another significant factor that contradicts the Bank’s assertion that its "primary actionable document" is the Trust
Receipt is the manner it pleaded the Letter of Credit and the Trust Receipt, respectively.
The relevant rule on actionable documents is Section 7, Rule 8 of the Rules of Court which provides:
Section 7. Action or defense based on document. – Whenever an action or defense is based upon a written
instrument or document, the substance of such instrument or document shall be set forth in the pleading, and the
original or a copy thereof shall be attached to the pleading as an exhibit, which shall be deemed to be a part of the
pleading, or said copy may with like effect be set forth in the pleading.
An "actionable document" is a written instrument or document on which an action or defense is founded. It may be
pleaded in either of two ways:
(1) by setting forth the substance ofsuch document in the pleading and attaching the document thereto as an
annex, or
(2) by setting forth said document verbatim in the pleading.35
A look at the allegations in the Complaint quoted abovewill show that the Bank did not set forth the contents of the
Trust Receipt verbatim in the pleading. The Bank did not also set forth the substance of the Trust Receipt in the
Complaint but simply attached a copy thereof as an annex. Rather than setting forth the substance of the Trust
Receipt, paragraph 2.8 of the Complaint shows that the Bank simply described the Trust Receipt as LCDC’s
manifestation of "its acceptance/conformity that the negotiation of the [Letter of Credit] is in order."36
11/21/2019 G.R. No. 185590
In contrast, while the Bank did not set forth the contents of the Letter of Credit verbatim in the Complaint, the Bank
set forth the substance of the Letter of Credit in paragraph 2.3 of the Complaint and attached a copy thereof as
Annex "C" of the Complaint. The Bank stated that it "issued on April 26, 1990 its Letter of Credit No. DC 90[-]303-C
1awp++i1
in favor of the supplier Global Enterprises Limited, as beneficiary[,] in the amount of U.S. Dollars: EIGHT HUNDRED
TWO THOUSAND FIVE HUNDRED (US$802,500.00) for the account of defendant [LCDC], covering the importation
of 15,000 metric tonsof Iraqi Cement from Iraq."37
Thus, the Bank’s attempt to cling to the Trust Receipt as its so-called "primary actionable document" is negated by
the manner of its allegations in the Complaint. Thus, too, the trial and the appellate courts did not misapprehend the
facts when they considered the Letter of Credit as the basis of the Bank’s cause of action.
Third, a look at the Letter of Credit, the actionable document on which the Bank relied in its case against LCDC and
the spouses Ley, confirms the identical findings of the Regional Trial Court and the Court of Appeals.
In Keng Hua Paper Products Co., Inc. v. Court of Appeals, we held38:
In a letter of credit, there are three distinct and independent contracts: (1) the contract of sale between the buyer
and the seller, (2) the contract of the buyer with the issuing bank, and (3) the letter of credit proper in which the bank
promises to pay the seller pursuant to the terms and conditions stated therein. x x x.
Here, what is involved is the second contract – the contract of LCDC, as the buyer of Iraqi cement, with the Bank, as
the issuer of the Letter of Credit. The Bank refers to that contract in the Petition for Review on Certiorari and the
Memorandum filed by the Bank in this case when the Bank argues that, as LCDC and the spouses Ley have
admitted the issuance of the Letter of Credit in their favor, they are "deemed to have likewise admitted the terms and
conditions thereof, as evidenced by the stipulation therein appearing above the signature of respondent Janet
Ley,"39 viz:
"In consideration of your arranging, at my/o[u]r request[,] for the establishment of this commercial letter of credit
(thereinafter referred to as the ["]Credit["]) substantially in accordance with the foregoing, I/we hereby covenant and
agree to eachand all of [the] provisions and conditions stipulated on the reverse side hereof."40
The above stipulation actually appears on the Application and Agreement for Commercial Letter of Credit, the
Bank’s Exhibit "B." It is the contract which contains the provisions and conditions governing the legal relationship of
the Bank and LCDC, particularly their respective rights and obligations, in connection with the Bank’s issuance of
Letter of Credit No. DC 90-303-C. The importance of the provisions and conditions supposed to be stipulated on the
reverse side of the Application and Agreement for Commercial Letter of Credit is underscored by the following note
appearing below the space for the signature of Janet Ley:
IMPORTANT: PLEASE READ PROVISIONS AND CONDITIONS ON REVERSE SIDE HEREOF BEFORE SIGNING
ABOVE.41
However, the Bank’s Exhibit "B" has nothing on its reverse side. In other words, the reverse side of the Application
and Agreement for Commercial Letter of Credit is a blank page.42 Even the copy of the Application and Agreement
for Commercial Letter of Credit attached to the Bank’s Complaint also has nothing on its back page.43
A cause of action – the act or omission by which a party violates the right of another44 – has three essential
elements:
(1) the existence of a legal right in favor of the plaintiff;
(2) a correlative legal duty of the defendant to respect such right; and
(3) an act or omission by such defendant in violation of the right of the plaintiff with a resulting injury or
damage to the plaintiff for which the latter may maintain an action for the recovery of relief from the
defendant.45
Although the first two elements may exist, a cause of action arises only upon the occurrence of the last element,
giving the plaintiff the right to maintain an action in court for recovery of damages or other appropriate relief.46 In this
case, however, even the legal rights of the Bank and the correlative legal duty of LCDC have not been sufficiently
established by the Bank in view of the failure of the Bank's evidence to show the provisions and conditions that
govern its legal relationship with LCDC, particularly the absence of the provisions and conditions supposedly printed
at the back of the Application and Agreement for Commercial Letter of Credit. Even assuming arguendo that there
was no impropriety in the negotiation of the Letter of Credit and the Bank's cause of action was simply for the
collection of what it paid under said Letter of Credit, the Bank did not discharge its burden to prove every element of
its cause of action against LCDC.
11/21/2019 G.R. No. 185590
This failure of the Bank to present preponderant evidence that will establish the liability of LCDC under the Letter of
Credit necessarily benefits the spouses Ley whose liability is supposed to be based on a Continuing Surety
Agreement guaranteeing the liability of LCDC under the Letter of Credit.
The Court therefore finds no reason to disturb the rulings of the courts a quo as the petition put forward insufficient
basis to warrant their reversal.
WHEREFORE, the petition is hereby DENIED.
SO ORDERED.

Associate Justice
WE CONCUR:

Chief Justice
Chairperson
LUCAS P. BERSAMIN JOSE P. PEREZ

Associate Justice
CERTIFICATION
reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

Chief Justice
Footnotes
1
Rollo, pp. 27-42; penned by Associate Justice Marlene Gonzales-Sison with Associate Justices Juan Q.
Emiquez, Jr. and Isaias P. Dicdican, concurring.
2
Id. at 43-44.
3
Id. at 121-124.
4
Id. at 4. The Philippine Banking Corporation is now the Metropolitan Bank and Trust Corporation, petitioner
in this case.
5
Id. at 121-123.
6
Id. at 30-31.
7
Id. at 31.
8
Id. at 124.
9
Id. at 137-139.
10
Id. at 139.
11
Id. at 144.
12
Id. at 35-37.
13
Id. at 38-40.
14
Id. at 40.
11/21/2019 G.R. No. 185590
15
Id. at 41.
16
Id. at 241-255.
17
See RULES OF COURT, Rule 45, Section 1.
18
Eterton Multi-Resources Corporation v. Filipino Pipe and Foundry Corporation, G.R. No. 179812, July 6,
2010, 624 SCRA 148, 152.
In particular, the Court said:
An inquiry into the veracity of the CA’s factual findings and conclusions is not the function of the
Supreme Court, for this Court is not a trier of facts. Neither is it our function to reexamine and weigh
anew the respective evidence of the parties. (Citation omitted.)
19
Development Bank of the Philippines v. Traders Royal Bank, G.R. No. 171982, August 18, 2010, 628
SCRA 404, 413.
In particular, the Court stated:
Factual findings of the trial court which are adopted and confirmed by the Court of Appeals are final
and conclusive on the Court unless the findings are not supported by the evidence on record x x x.
(Citation omitted.)
20
The exceptions are: (1) when the findings are grounded entirely on speculation, surmises, or conjectures;
(2) when the inference made is manifestly mistaken, absurd, orimpossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings, the CA went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions without citation of specific evidence onwhich they are based;
(9) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed
by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the CA manifestly overlooked certain relevant facts not
disputed by the parties, which,if properly considered, will justify a different conclusion. (Development Bank of
the Philippines v. Licuanan, 545 Phil. 544, 553 [2007]).
21
Republic v. Medida, G.R. No. 195097, August 13, 2012, 678 SCRA 317, 324.
22
Section 1, Rule 131 of the Rules of Court defines "burden of proof" as follows:
Section 1. Burden of proof. – Burden of proof is the duty of a party to present evidence on the facts in
issue necessary to establish his claim or defense by the amount of evidence required by law.
On the other hand, Section 1, Rule 133 describes preponderance of evidence as follows: Section 1.
Preponderance of evidence, how determined. – In civil cases, the party having the burden of proof
must establish his case by a preponderance of evidence. In determining where the preponderance or
superior weight of evidence on the issues involved lies, the court may consider all the facts and
circumstances of the case, the witnesses’ manner of testifying, their intelligence, their means and
opportunity of knowing the facts to which they are testifying, the nature of the facts to which they testify,
the probability or improbability of their testimony, their interest or want of interest, and also their
personal credibility so far as the same may legitimately appear upon the trial. The court may also
consider the number of witnesses, though the preponderance is not necessarily with the greater
number.
23
Magdiwang Realty Corporation v. Manila Banking Corporation, G.R. No. 195592, September 5, 2012, 680
SCRA 251, 265.
24
RULES OF COURT, Rule 128, Section 1.
25
Development Bank of the Philippines v. Licuanan, supra note 20. Seeexception No. 4.
26
Rollo, pp. 20-21.
27
Id. at 245.
28
Heirs of Abadilla v. Galarosa, 527 Phil. 264, 277 (2006).
11/21/2019 G.R. No. 185590
29
De la Cruz v. Court of Appeals, 539 Phil. 158, 172 (2006).
30
Records, pp. 1-23.
31
Id. at 1-6.
32
Id. at 4.
33
Id. at 5.
34
Id. at 1 and 6.
35
Regalado, Florenz, REMEDIAL LAW COMPENDIUM (10th Edition), Vol. I, p. 177.
36
Records, p. 4.
37
Id. at 2.
38
349 Phil. 925, 939 (1998).
39
Rollo, pp. 14 and 243, respectively.
40
Id.
41
Records, p. 533.
42
Id.
43
Id. at 12.
44
RULES OF COURT, Rule 2, Section 2.
45
Turner v. Lorenzo Shipping Corporation, G.R. No. 157479, November 24, 2010, 636 SCRA 13, 30.
46
Id.
Custom Search
THIRD DIVISION
December 6, 2017
G.R. No. 197475
MARK MONTELIBANO, Petitioner,

vs.
LINDA YAP,, Respondent
DECISION
MARTIRES, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to reverse and set
aside the 17 February 20111 and 8 June 20112 Resolutions of the Court of Appeals (CA) in CA-G.R. CEB-CR No.
00571.
THE FACTS
Private complainant Linda Yap (private complainant) asserted that petitioner Mark Montelibano (petitioner) obtained
a loan from her as additional capital for his business. Thereafter, petitioner issued a Metrobank - Cebu Guadalupe
Branch check dated 31 May 2001 in the amount of ₱2,612,500.003 (the check) as partial payment. When the check
was presented for payment, it was dishonored for the reason that the account was closed.4
As petitioner failed to settle his obligation despite demands, he was charged with violation of Batas Pambansa
Bilang 22 (BP Blg. 22) in an Information5 which reads as follows:
That sometime in the month of May, 2001, and for sometime prior and subsequent thereto, in the City of Cebu,
Philippines, and within the jurisdiction of this Honorable Court, the said accused, knowing at the time of the issuance
of the check, he did not have sufficient funds in or credit with the drawee bank for the payment of such check in full
upon its presentment, with deliberate intent, with intent to gain and of causing damage, did then and there issue,
make or draw METROBANK - CEBU GUADALUPE BRANCH, Check No. 0127947 dated May 31, 2001, in the
amount of ₱2,612,500.00 payable to Linda Yap, which check was issued in payment of an obligation, but which
check when presented with the said bank, the same was dishonored for reason "ACCOUNT CLOSED", and despite
notice and demands made to redeem or make good said check, said accused failed and refused an still fails and
refuses to do so, to the damage and prejudice of said Linda Yap, in the amount aforestated.
CONTRARY TO LAW.
In an Order6 dated 2 December 2003, the Municipal Trial Court in Cities (MTCC), Branch 2, Cebu City, directed the
issuance of a bench warrant against the petitioner for failure to appear, despite due notice, when the case was
called for arraignment and pre-trial.
Subsequently, the case was called again for arraignment and pre-trial on 10 March 2004, where the petitioner
entered a plea of not guilty. On said date, the parties also moved for the termination of the pre-trial due to the
possibility of an amicable settlement, which the MTCC granted.
When the case proceeded to trial, the MTCC gave petitioner an opportunity to file counter-affidavits and other
controverting evidence within ten (10) days from receipt of any additional evidence which the prosecution may file.
However, none was filed by petitioner even after receipt of the prosecution's additional affidavits and evidence.
The initial presentation of evidence for the prosecution was postponed several times at the instance of the accused.
On 20 October 2004, said presentation of evidence finally proceeded despite the absence of petitioner, who was
notified of the scheduled hearing.
The prosecution presented the lone testimony of Nelson Arendain (Nelson), an employee of private complainant,
who affirmed the veracity of the contents of the affidavit he had filed relative to the case.
Said affidavit confirmed that the check was issued by the petitioner, who signed the same in Nelson's presence; and
that the check, when presented to the bank, was dishonored for the reason "account closed."
The prosecution also offered in evidence a demand letter dated 21 June 2001,7 addressed to and received by the
petitioner, notifying the petitioner of the check's dishonor and Linda's demand to be paid the amount therein.
The hearing for the cross-examination was scheduled on 7 December 2004; however, petitioner and counsel failed
to appear at the scheduled hearing despite notice. The MTCC deemed said failure as a waiver of petitioner's right to
cross-examine the prosecution's witness. The prosecution thereafter filed its formal offer of documentary exhibits,
which were admitted for failure of the petitioner to comment and /or object thereto.
Subsequently, the petitioner failed to present its evidence despite due notice when the case was called for reception
of evidence for the defense. As a consequence, the right of petitioner to present evidence was deemed waived but,
upon motion for reconsideration, the MTCC allowed the reception of evidence and scheduled a hearing therefor.
On the date set for the hearing, however, the defense counsel filed a motion to withdraw as counsel, with the
conformity of the petitioner, which was granted. Again, the hearing for the reception of evidence for the petitioner
was reset to 5 July 2005. On said date, petitioner again failed to appear; the MTCC granted the prosecution's
motion to consider petitioner's right to present evidence as waived.
On 11 July 2005, petitioner, through his new counsel, filed a motion for reconsideration of said order. This was
granted by the MTCC because the prosecution failed to appear during the hearing for said motion despite notice. A
hearing was again set for the reception of evidence for the defense.
However, instead of presenting evidence, the defense filed a memorandum,8 asserting that the prosecution failed to
establish petitioner's guilt beyond reasonable doubt because he was never identified as the one who signed and
issued the check. The defense alleged that the accused was not present in court when the sole witness for the
prosecution testified, such that the latter was not able to identify him.
After the prosecution filed its comment thereto, the case was submitted for decision.
The MTCC Ruling
The MTCC found petitioner guilty beyond reasonable doubt of the crime charged and sentenced him to
imprisonment of one (1) year.9 He was also ordered to pay the amount appearing on the subject check, with interest
at twelve percent (12%) per annum from the date of demand. The MTCC found petitioner's contention untenable,
because the prosecution's failure to personally identify the petitioner during hearing can be attributed to petitioner's
failure to appear despite due notice.
The RTC Ruling
Aggrieved, petitioner appealed to the Regional Trial Court (RTC). The RTC rendered judgment10 affirming in toto the
decision of the MTCC. It ruled that the positive identification of the accused must be established beyond reasonable
doubt when the defense pleads alibi. However, the defense of petitioner is not alibi. The RTC ruled, moreover, that
the petitioner's right to adduce evidence on his behalf was considered waived due to his failure to appear in court
and present its defense from the time the prosecution presented evidence up to the time the case was submitted for
decision. Further, it opined that no justice or equity is served if the accused can evade conviction by simply failing to
appear during trial despite due notice.
The CA Ruling
When petitioner elevated the case to the CA on a petition for review under Rule 42, the CA dismissed the petition for
failure of the petitioner to attach to the petition a certified true copy of the decision rendered by the MTCC, in
violation of Section 2, Rule 42, of the Rules of Court. The petitioner filed a motion for reconsideration which the CA
denied in a Resolution11 dated 8 June 2011.
Hence, the instant petition raising the following issues:
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS, THE SPECIAL EIGHTEENTH (18th)
DIVISION AND NINETEENTH (19th) DIVISION, HAVE DECIDED A QUESTION OF SUBSTANCE
PROBABLY NOT IN ACCORD WITH LAW OR WITH APPLICABLE DECISION OF THE SUPREME
COURT WHEN IT ERRONEOUSLY DISMISSED WITH PREJUDICE THE PETITION FOR REVIEW
REL YING ON SHEER TECHNICALITIES RATHER THAN ON THE MERITS WHICH CLEARLY
CAUSED GREAT INJUSTICE AND UNDUE PREJUDICE TO THE PETITIONER DESPITE HIS
HAVING COMPLIED WITH AND SUBMITTED THE REQUIREMENTS MANDATED BY THE RULES.
II.
WHETHER OR NOT THE HONORABLE APPELLATE COURT ERRED PALPABLY IN NOT

ALLOWING THE SUBSTANTIVE ARGUMENTS OF PETITIONER MERITING REVERSAL OF
PETITIONER'S CONVICTION PARTICULARLY ON FAILURE OF PRIVATE RESPONDENT TO
IDENTIFY THE PETITIONER AND LACK OF AUTHORITY OF HER SOLE WITNESS TO TESTIFY IN
COURT RESULTING IN PETITIONER'S CONVICTION THEREBY DEPRIVING HIM OF OTHER
ADEQUATE REMEDY THAN SEEKING RELIEF THROUGH THIS INST ANT PETITION FOR REVIEW
ON CERTIORARI.
In sum, petitioner contends that the CA rigidly applied the rules of procedure and should have allowed his petition in
the interest of substantial justice, especially since petitioner had subsequently complied with the required
attachments by submitting with his motion for reconsideration a certified true copy of the MTCC's decision. More
importantly, petitioner asserts that his substantive arguments merit a reversal of his conviction on the grounds that
he was never identified in open court, casting reasonable doubt that he is the accused charged with violation of BP
Big. 22, and that there was no evidence establishing that the lone prosecution witness was authorized by private
complainant to testify.
Moreover, petitioner posits that the prosecution failed to establish the elements of the offense because the date of
receipt of the notice of dishonor given to petitioner, while contained in the demand letter offered as documentary
evidence, was never separately and independently marked and offered in evidence. Thus, according to petitioner,
there is uncertainty as to when the five (5)-day period given to an accused to satisfy the amount of the check or
make arrangements for its payment would be reckoned, because the court cannot consider evidence not formally
offered. Consequently, petitioner asseverates that the presumption of knowledge by the issuer of the insufficiency of
his funds did not arise.
THE COURT'S RULING
This Court finds no reason to reverse the judgment of conviction rendered by the MTCC and affirmed by the RTC.
On the procedural aspect, the Court has held that the subsequent submission of the certified true copy of the
assailed decision with the motion for reconsideration is substantial compliance with the rules.12 Thus, this point may
be conceded to petitioner.
Nonetheless, petitioner's contentions on the merits of this case miserably fail to convince this Court.
Petitioner asks this Court to reverse his conviction on the following grounds: (1) that the lone prosecution witness
was not authorized by the private complainant to testify; (2) that the date of receipt of notice of dishonor was not
separately marked and identified in the prosecution's formal offer of evidence, preventing the presumption of
knowledge from arising; and (3) there is reasonable doubt as to his identity as the accused in the instant case
because he was never identified in open court.
Anent the first ground, petitioner must be reminded that in criminal cases, the offended party is the State, and "the
purpose of the criminal action is to determine the penal liability of the accused for having outraged the State with his
crime . . . . In this sense, the parties to the action are the People of the Philippines and the accused. The offended
party is regarded merely as a witness for the state."13 As such, the Rules dictate that criminal actions are to be
prosecuted under the direction and control of the public prosecutor.14 Clearly, the discretion on who to present as
witnesses is vested with the public prosecutor, and no authority from the private complainant is required.
On the second ground, the date of receipt embodied in the demand letter, which was formally offered in evidence, is
part and parcel of said demand letter, such that the date of receipt by petitioner therein may be considered by the
trial court along with the other contents of the letter. No separate identification and offer of the date of receipt is
necessary, because the Rules only dictate that "the court shall consider no evidence which has not been formally
offered. The purpose for which the evidence is offered must be specified."15 The demand letter was formally offered,
and the date of receipt is contained therein. A perusal of the prosecution's Formal Offer of Documentary Exhibits16
reveals that the purpose specified for the offer of the letter was "to show the fact that the accused was duly
notified of the dishonor of the subject checks and likewise demanded to settle the same, but he failed until the
present."17 The purpose of showing due notification necessarily includes the date of said notification, which is the
date of receipt as stated in the demand letter offered.
Moreover, what the Bouncing Checks Law requires is that the accused must be notified in writing of the fact of
dishonor.18 This notice gives the issuer an opportunity to pay the amount on the check or to make arrangements for
its payment within five (5) days from receipt thereof, in order to prevent the presumption of knowledge of the
insufficiency of funds from arising.
Petitioner admittedly received the 21 June 2001 demand letter of private complainant, expressing the dishonor of
the subject check. In the memorandum he filed before the CA, petitioner admits that he is "not unaware of the fact
that a date, June 11 [sic], 2001 appeared at the bottom of the NOTICE OF DISHONOR just below the signature of
PETITIONER-APPELLANT."19 He never disputed receipt of said letter, as in fact, he does not dispute that the
signature below said date of receipt is his. He merely harps on the alleged infirmity in the marking and offer of said
date.
Notably also, it appears on record that during the proceedings before the MTCC, both the prosecution and the
defense jointly moved for the termination of pre-trial due to the possibility that the case could be settled amicably as
to its civil aspect, which the trial court granted20 - indicating petitioner's awareness that the subject check was
dishonored and that he had an outstanding obligation to private complainant. It was never shown that petitioner paid
nor made arrangements to pay the amount on the check, as in fact the trial before the MTCC proceeded and the
court ordered petitioner to pay the amount. Clearly, the 5-day period within which to settle his obligation had long
expired and petitioner is presumed to have had knowledge of the insufficiency of his funds at the time he issued the
subject check.
Anent the third ground, this Court has already clarified that in-court identification is not essential where there is no
doubt that the person alleged to have committed the crime and the person charged in the information and subject of
the trial are one and the same, viz:
Indeed, during her testimony, complainant positively and categorically identified appellant, husband of her sister
Loida, as the offender. This categorical and positive identification leaves no doubt as to the identity of Appellant
1âwphi1
Quezada as the rapist.
We do not see the absolute need for complainant to point to appellant in open court as her attacker. While positive
identification by a witness is required by the law to convict an accused, it need not always be by means of a
physical courtroom identification. As the Court held in People v. Paglinawan:
" .... Although it is routine procedure for witnesses to point out the accused in open court by way of identification, the
fact that the witness . . . did not do so in this case was because the public prosecutor failed to ask her to point out
appellant, hence such omission does not in any way affect or diminish the truth or weight of her testimony."
In-court identification of the offender is essential only when there is a question or doubt on whether the one
alleged to have committed the crime is the same person who is charged in the information and subject of
the trial. This is especially true in cases wherein the identity of the accused, who is a stranger to the
prosecution witnesses, is dubitable. In the present case, however, there is no doubt at all that the rapist is the
same individual mentioned in the Informations and described by the victim during the trial.21 (emphasis supplied)
This Court does not find that such doubt exists in this case.
Notably, petitioner never denied that he is the person indicted in the information, much less offered proof that he is
not the same person being charged with the offense. He merely proffers that he was not identified in open court by
the prosecution's sole witness as the one who issued and signed the check. He does not dispute that he issued and
signed the check as, in fact, on the date set for his arraignment and after being arraigned, he and the prosecution
jointly moved to terminate the pre-trial in an attempt to settle the obligation arising from the issued check. This is a
patent acknowledgment that he is the person being charged with committing the offense and subject of the trial. It
strains credulity to believe that he would willingly attempt to settle an obligation created by a bouncing check if he
were not the same person charged with issuing it.
Moreover, it must be noted that the lack of identification by the witness in open court was due to petitioner's failure
to appear, despite due notice, on the date set for the prosecution's presentation of evidence, in which the testimony
of Nelson was offered. In its judgment, the MTCC noted that the initial presentation of evidence for the prosecution
was postponed at the instance of accused until it was finally heard on 20 October 2004, despite the petitioner's
absence, even though the latter was aware of the scheduled hearing. Again, when the cross-examination was set
for hearing, petitioner and counsel failed to appear, prompting the MTCC to deem his absence as a waiver of his
right to cross-examination and to direct the prosecution to formally offer its documentary exhibits.22
Clearly, the failure to identify petitioner in open court was directly attributable to his actions. To sustain petitioner's
assertion and absolve him of penal liability on this ground alone would open the floodgates for malefactors to evade
conviction by the simple expedient of refusing to appear on scheduled hearings where they expect to be identified in
court. This sets a dangerous precedent and is undoubtedly antithetical to the foundations of our justice system.
While petitioner's conviction is affirmed, this Court deems it proper to impose a fine instead of the penalty of
imprisonment meted by the MTCC and sustained by the RTC, in view of Supreme Court Administrative Circular No.
12-2000, as clarified by Administrative Circular No. 13-2001, establishing a rule of preference in the application of
the penalties provided for in BP Blg. 22.
The Court has held that the policy of redeeming valuable human material and preventing unnecessary deprivation of
personal liberty and economic usefulness should be considered in favor of an accused who is not shown to be a
habitual delinquent or a recidivist.23 Here, there is no indication that petitioner is a habitual delinquent or a recidivist.
Forbearing to impose imprisonment would also not depreciate the seriousness of the offense, or work violence on
the social order, or otherwise be contrary to the imperatives of justice.
WHEREFORE, the conviction of petitioner Mark Montelibano is AFFIRMED with the following MODIFICATIONS:
The penalty of imprisonment is deleted. Instead, petitioner is ordered to pay a fine of ₱200,000.00, subject to
subsidiary imprisonment in case of insolvency pursuant to Article 39 of the Revised Penal Code, as amended by
Republic Act No. 10159. Petitioner is also ordered to pay the private complainant the amount of ₱2,612,500.00, at
six percent (6%) legal interest per annum from the date of finality of herein judgment until fully paid.
SO ORDERED.
SAMUEL R. MARTIRES
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson
(On Official Leave)

MARVIC M.V.F. LEONEN
LUCAS P. BERSAMIN
Associate Justice
Associate Justice
(On Leave)
ALEXANDER G. GESMUNDO
Associate Justice
ATTESTATION
PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to the Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that
the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer
of the opinion of the Court’s Division.

Chief Justice
Footnotes
*
On Official Leave.
**
On Leave.
1
Rollo, pp. 37-39; penned by Associate Justice Socorro B. lnting, with Associate Justices Pampio A.
Abarintos and Edwin D. Sorongon, concurring.
2
Id. at 52-53; penned by Associate Justice Pampio A. Abarintos, with Associate Justices Eduardo B. Peralta
and Gabriel T. Ingles, concurring.
3
Id. at 99.
4
Id. at 143.
5
Id. at 96.
6
Id. at 76.
7
Id. at 100.
8
Id. at 81-84.
9
Id. at 47-50; penned by Presiding Judge Anatalio S. Necesario.
10
Id. at 74-75; penned by Presiding Judge Geraldine Faith A. Econg.
11
Id. at 52-53.
12
Quilo v. Bajao, G.R. No. 186199, 7 September 2016.
13
Bumatay v. Bumatay, G.R. No. 191320, 25 April 2017.
14
Section 5, Rule 110, Revised Rules of Criminal Procedure, as amended by A.M. No. 02-2-07-SC.
15
Section 34, Rule 132, Rules of Court.
16
Rollo, pp. 112-113.
17
Id. at 113.
18
Azarcon v. People, 636 Phil. 34 7, 355 (2010).
19
Rollo, p. 106.
20
Id. at 47.
21
People v. Quezada, 425 Phil. 877, 883 (2002).
22
Rollo, p. 48.
23
Saguiguit v. People, 526 Phil. 618, 629 (2006).

Custom Search
THIRD DIVISION
September 26, 2018
G.R. No. 224567
LYDIA CU, Petitioner

vs.
TRINIDAD VENTURA, Respondent
DECISION
PERALTA, J.:
This is to resolve the Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated July 1, 2016, of
petitioner Lydia Cu that seeks to reverse and set aside the Resolution 1 dated December 11, 2015 and Resolution2
dated May 13, 2016 of the Court of Appeals (CA) in CA-G.R. CR No. 37691 dismissing petitioner's appeal on the
ground that as a private complainant, she is not authorized to represent the State in an appeal from a criminal
action.
The facts follow.
Petitioner filed a Complaint-Affidavit for violation of Batas Pambansa Blg. 223 (BP 22) against respondent before the
Office of the City Prosecutor of Quezon City. Eventually, the Office of the City Prosecutor found probable cause and
an Information was filed with the Metropolitan Trial Court (MeTC) of Quezon City against respondent for violation of
BP 22.
After trial on the merits, the MeTC, Branch 37 of Quezon City found the respondent guilty beyond reasonable doubt
of violation of BP 22. The dispositive portion of the Decision dated January 10, 2014 reads as follows:
The foregoing manifests clearly that the accused has violated beyond reasonable doubt, Batas
Pambansa Bilang 22. In view thereof, he is hereby ordered to:
1. Pay the total amount of the check which is for P2,000,000.00 and pay an interest of 12% per annum
from the date of the check, up to the time that is fully paid;
2. Pay a fine of P200,000.00;
3. Suffer an imprisonment of sixty (60) days;
4. Pay the costs of suit, including Attorney's Fees and per appearance fee, should there be any.
The accused is to suffer, subsidiary imprisonment in case of insolvency.
SO ORDERED.
Respondent filed a Notice of Appeal and on December 3, 2014, the Regional Trial Court (RTC), Branch 87, Quezon
City reversed and set aside the decision of the MeTC. The dispositive portion of the Decision acquitting the
respondent reads as follows:
WHEREFORE, viewed in the light of the foregoing, the Decision dated January 10, 2014 of the Court a
quo is hereby reversed and set aside and a new one rendered ACQUITTING the accused TRINIDAD
VENTURA, of the crime of Violation of Batas Pambansa Bilang 22.
The civil aspect of the case is DISMISSED for failure of the private complainant to prove the requisite
quantum of evidence preponderance of evidence.
SO ORDERED.
Petitioner, through her counsel, filed a motion for reconsideration, but it was denied by the RTC in its Resolution
dated May 5, 2015. Thereafter, she filed a Motion for Extension of Time to File a Petition for Review under Rule 42
of the Rules of Court with the CA. On July 20, 2015, she filed her Petition for Review under Rule 42 with the CA.
The CA, in its Resolution dated December 11, 2015, dismissed the appeal. The CA disposed of the case as follows:
WHEREFORE, the instant appeal is hereby DISMISSED.
SO ORDERED.
According to the CA, in criminal actions brought before the Court of Appeals, or the Supreme Court, the authority to
represent the State is solely vested in the Office of the Solicitor General (OSG). Petitioner filed a motion for
reconsideration which was denied by the CA in its Resolution dated May 13, 2016.
Hence, the present petition with the following issues presented:
I. WHETHER OR NOT RESPONDENT TRINIDAD VENTURA IS GUILTY OF B.P. 22.
II. WHETHER OR NOT RESPONDENT IS LIABLE TO PETITIONER FOR THE CIVIL ASPECT.
Petitioner contends that respondent has been proven to have violated BP 22 beyond reasonable doubt as all the
elements of the offense were proven by the prosecution. She also insists that in the petition for review that she filed
with the CA, she questioned the civil aspect of the decision of the RTC and, thus, there is no need for the
representation of the OSG.
In her Comment dated August 30, 2016, respondent argues that petitioner was actually assailing both the criminal
and civil aspect of the appealed decision of the RTC when she filed an appeal with the CA. Respondent further
contends that petitioner has no legal standing to file the present petition because the subject check was actually
deposited not in her account but into the account of MC Nova Apparel Export Corporation which is a family-owned
corporation with separate and distinct personality, and petitioner has not presented any authority or board resolution
to prove that she was authorized to represent the said corporation.
The petition is without merit.
The Rules of Court requires that only questions of law should be raised in petitions filed under Rule 45.4 This Court
is not a trier of facts. It will not entertain questions of fact as the factual findings of the appellate courts are "final,
binding[,] or conclusive on the parties and upon this [ c ]ourt"5 when supported by substantial evidence. 6 Factual
findings of the appellate courts will not be reviewed nor disturbed on appeal to this court.7
However, these rules do admit exceptions. Over time, the exceptions to these rules have expanded. At present,
there are ten (10) recognized exceptions that were first listed in Medina v. Mayor Asistio, Jr.: 8
(1) When the conclusion is a finding grounded entirely on speculation, surmises or conjectures; (2) When the
inference made is manifestly mistaken, absurd or impossible; (3) Where there is a grave abuse of discretion; ( 4)
When the judgment is based on a misapprehension of facts; ( 5) When the findings of fact are conflicting; ( 6) When
the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) The findings of the Court of Appeals are contrary to those of the trial
court; (8) When the findings of fact are conclusions without citation of specific evidence on which they are based; (9)
When the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the
respondents; and (10) The finding of fact of the Court of Appeals is premised on the supposed absence of evidence
and is contradicted by the evidence on record.9
10 11 12
These exceptions similarly apply in petitions for review filed before this court involving civil, labor, tax, or
criminal cases. 13
A question of fact requires this court to review the truthfulness or falsity of the allegations of the parties. 14 This
review includes assessment of the "probative value of the evidence presented." 15 There is also a question of fact
when the issue presented before this court is the correctness of the lower courts' appreciation of the evidence
presented by the parties. 16
In this case, the first issue raised by petitioner obviously asks this Court to review the evidence presented during the
trial. She has laid down in the present petition the reasons as to why this Court should find respondent guilty of the
crime charged against her and reverse the latter's acquittal by the RTC. Clearly, this is not the role of this Court
because the issue she presented is factual in nature. Thus, the present petition must fail.
The CA dismissed petitioner's Petition for Review under Rule 42 of the Rules of Court because she is not the proper
party to appeal in a criminal case. It ruled that in criminal cases or proceedings, only the Solicitor General may bring
or defend actions on behalf of the Republic of the Philippines, or represent the People or State. This is in
compliance with the provisions of Section 35(1), Chapter 12, Title III, Book III of the Administrative Code of 1987, as
amended, thus:
Section 35. Power and Functions. - The Office of the Solicitor General shall represent the Government
of the. Philippines, its agencies and instrumentalities and its officials and agents in any litigation,
proceeding, investigation or matter requiring the services of a lawyer. When authorized by the
President or head of the office concerned, it shall also represent government-owned or controlled
corporations. The Office of the Solicitor General shall constitute the law office of the Government and,
as such, shall discharge duties requiring the service of a lawyer. It shall have the following specific
power and functions:
(1) Represent the Government in the Supreme Court and the Court of Appeals in all criminal
proceedings; represent the Government and its officers in the Supreme Court, the Court of appeals,
and all other courts or tribunals in all civil actions and special proceedings in which the Government or
any officer thereof in his official capacity is a party.
The above, however, is not without any exception. The two exceptions are: (1) when there is denial of due process
of law to the prosecution and the State or its agents refuse to act on the case to the prejudice of the State and the
private offended party, and (2) when the private offended party questions the civil aspect of a decision of a lower
court. 17
According to petitioner, she falls under the second because in the petition for review that she filed before the CA,
what she questioned was the civil aspect of the decision of the RTC.
In the second exception, it is assumed that a decision on the merits had already been rendered by the lower court
and it is the civil aspect of the case which the offended party is appealing. 18 The offended party, who is not satisfied
with the outcome of the case, may question the amount of the grant or denial of damages made by the court below
even without the participation of the Solicitor General. 19
In Mobilia Products, Inc. v. Umezawa, 20 the Court ruled that in criminal cases, the State is the offended party and
the private complainant's interest is limited to the civil liability arising therefrom, thus:
Hence, if a criminal case is dismissed by the trial court or if there is an acquittal, a reconsideration of
the order of dismissal or acquittal may be undertaken, whenever legally feasible, insofar as the criminal
aspect thereof is concerned and may be made only by the public prosecutor; or in the case of an
appeal, by the State only, through the OSG. The private complainant or offended party may not
undertake such motion for reconsideration or appeal on the criminal aspect of the case. However, the
offended party or private complainant may file a motion for reconsideration of such dismissal or
acquittal or appeal therefrom but only insofar as the civil aspect thereof is concerned.
In De la Rosa v. Court of Appeals,21 citing People v. Santiago,22 the Court held:
In a special civil action for certiorari filed under Section 1, Rule 65 of the Rules of Court wherein it is
alleged that the trial court committed a grave abuse of discretion amounting to lack of jurisdiction or on
other jurisdictional grounds, the rules state that the petition may be filed by the person aggrieved. In
such case, the aggrieved parties are the State and the private offended party or complainant. The
complainant has an interest in the civil aspect of the case so he may file such special civil action
questioning the decision or action of the respondent court on jurisdictional grounds. In so' doing,
complainant should not bring the action in the name of the People of the Philippines. The action may
be prosecuted in (the) name of said complainant.
The respondent, however, argues that what petitioner prayed for in her petition was for the CA to rule that
respondent be guilty of violatfon of BP 22 and be made liable for the amount of Two Million Four Hundred Thousand
Pesos (₱2,400,000.00), plus interests, thus:
WHEREFORE, the above premises considered, it is respectfully prayed that the assailed Decision
dated December 3, 2014 and the Order dated May 5, 2015 be set aside and a new one be rendered
finding respondent guilty of violation of BP 22 and be made liable for the amount of TWO MILLION
FOUR HUNDRED THOUSAND PESOS (P2,400,000.00) in favor of the petitioner, plus interests.
Nothing in the above prayer does it mention nor is categorical in its statement that petitioner only seeks the review
of the civil aspect of the case. The fact that petitioner filed a petition for review under Rule 42, or ordinary appeal
with the CA, is already an indication that what she was seeking was the reversal of the entire decision of the RTC, in
both its criminal and civil aspects. Petitioner could have filed a special civil action for certiorari had she intended to
merely preserve her interest in the civil aspect of the case.
Nevertheless, granting that what petitioner questioned was the civil aspect of the case, the petition must still fail. A 1âwphi1
close reading of the records would show that the prosecution was not able to prove and establish its case, not only
in its criminal aspect but also in its civil aspect where the required proof needed is only a preponderance of
evidence. "Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and
is usually considered to be synonymous with the term 'greater weight of the evidence' or 'greater weight of the
credible evidence.' Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth.
It is evidence which is more convincing to the court as worthier of belief than that which is offered in opposition
thereto." 23 As correctly ruled by the RTC:
The Court holds that the existence of accused-appellant's civil liability to plaintiff-appellee representing
the face value of the dishonored check has not been sufficiently established by [preponderance of]
evidence. Plaintiff-appellee mainly relied [on] her testimony before the court [a quo] to establish the
existence of this unpaid obligation. In gist, she testified that the accused-appellant obtained a loan from
her in the amount of $100,000.00 and as partial payment of her obligation, accused-appellant issued
the subject MetroBank Check No. 018049 dated June 15, 2007 in the amount of P2,400,000.00. When
the accused-appellant allegedly refused to pay her obligation, she deposited the check for payment but
the same bounced for the reason that it was drawn against insufficient funds. Unfortunately, plaintiff-
appellee's testimony alone does not constitute preponderant evidence to establish accused-appellant's
liability to her. Apart from the dishonored check, she failed to adduce any other documentary evidence
to prove that the accused has still an unpaid obligation to her. Unsubstantiated evidence are not
equivalent to proof under the Rules.
In contrast, accused-appellant's defense consisted in, among others, her allegation that she had
already paid the face value of the check through the private complainant Lydia Cu. Accused-appellant
presented documents consisting of an Agreement between her and Lydia Cu, the authorized
representative of Jun Yupitun showing that she obtained a loan from Mr. Yupitun through Lydia Cu in
the amount of$31,000.00 (Exhibit "2") and the acknowledgment receipt dated July 22, 2014 (Exhibit "2-
a") signed by Lydia Cu showing that the principal loan obligation of the accused-appellant was fully
paid and gave her instruction to her secretary to just tear the subject check or leave the same to her.
The existence and due execution of those documents were not rebutted by the prosecution. Thus,
considering the presentation of these documents which were not rebutted by the prosecution through
the presentation of a rebuttal witness, it is logical to conclude that absent any evidence to the contrary,
it formed part of accused-appellant's evidence of payment of her loan obligation, which includes the
face value of the dishonored check. 24
Again, jurisprudence holds that if there is a dismissal of a criminal case by the trial court, or if there is an acquittal of
the accused, it is only the OSG that may bring an appeal on the criminal aspect representing the People.25 The
rationale therefor is rooted in the principle that the party affected by the dismissal of the criminal action is the People
and not the petitioners who are mere complaining witnesses.26 For this reason, the People are deemed as the real
parties-in-interest in the criminal case and, therefore, only the OSG can represent them in criminal proceedings
pending in the CA or in this Court.27 In view of the corollary principle that every action must be prosecuted or
defended in the name of the real party-in-interest who stands to be benefited or injured by the judgment in the suit,
or by the party entitled to the avails of the suit,28 an appeal of the criminal case not filed by the People as
represented by the OSG is perforce dismissible. The private complainant or the offended party may, however, file an
appeal without the intervention of the OSG, but only insofar as the civil liability of the accused is concerned.29 He
may also file a special civil action for certiorari even without the intervention of the OSG, but only to the end of
preserving his interest in the civil aspect of the case.30
WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated July 1, 2016, of
petitioner Lydia Cu is DENIED and the Resolution dated December 11, 2015 and the Resolution dated May 13,
2016 of the Court of Appeals in CA-G.R. CR No. 37691 are AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
On wellness leave
Associate Justice
On official business
ALEXANDER G. GESMUNDO
ALFREDO BENJAMIN S. CAGUIOA
Associate Justice
Associate Justice
JOSE C. REYES, JR.

Associate Justice
ATTESTATION
DIOSDADO M. PERALTA
Associate Justice
CERTIFICATION
Pursuant to the Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that

Chief Justice
Footnotes
*
On wellness leave.
**
Additional member in lieu of Associate Justice Andres B. Reyes, Jr., per Special Order No. 2588-E dated
September 18, 2018; on official business.
1
Penned by Associate Justice Romeo F. Barza, with then Presiding Justice Andres B. Reyes, Jr. (now a
member of this Court) and Associate Justice Zenaida T. Galapate-Laguilles, concurring.
2
Id.
3
An Act Penalizing the Making or Drawing and Issuance of a Check Without Sufficient Funds or Cerdit and
For Other Purposes.
4
Rules of Court, Rule 45, Sec. I.
5
Commissioner of Internal Revenue v. Embroidery and Garments Industries (Phil.), Inc., 364 Phil. 541, 546
(1999) [Per J. Pardo, First Division].
6
Siasat v. Court of Appeals, 425 Phil. 139, 145 (2002) [Per J. Pardo, First Division]; Tabaco v. Court of
Appeals, 239 Phil. 485, 490 (1994) [Per J. Bellosillo, First Division]; and Padilla v. Court of Appeals, 241 Phil.
776, 781 (1988)"[Per J. Paras, Second Division].
7
Bank of the Philippine Islands v. Leobrera, 461 Phil. 461, 469 (2003) [Per J. Ynares-Santiago, Special First
Division].
8
269 Phil. 225 (1990) [Per J. Bidin, Third Division].
9
Id. at 232
10
Dichoso, Jr., et al. v. Marcos, 663 Phil. 48 (2011) [Per J. Nachura, Second Division] and Spouses Caoili v.
Court of Appeals, 373 Phil. 122, 132 (1999) [Per J. Gonzaga- Reyes, Third Division].
11
Go v. Court of Appeals, 474 Phil. 404, 411 (2004) [Per J. Ynares-Santiago, First Division] and Arriola v.
Filipino Star Ngayon, Inc., et al., 741 Phil. 171 (2014) [Per J. Leonen, Third Division].
12
Commissioner of Internal Revenue v. Embroidery and Garments Industries (Phil), Inc., 364 Phil. 541, 546-
547 (1999) [Per J. Pardo, First Division].
13
Macayan, Jr. v. People, 756 Phil. 202 (2015) [Per J. Leonen, Second Division]; Benito v. People, 753 Ph; I.
61 6 (2015) [Poe J. Leon en. Seoond Division].
14
Republic v. Ortigas and Company Limited Partnership, 728 Phil. 277, 287-288 (2014) [Per J. Leonen, Third
Division] and Cirtek Employees Labor Union-Federation of Free Workers v. Cirtek Electronics, Inc., 665 Phil.
784, 788 (2011) [Per J. Carpio Morales, Third Division].
15
Republic v. Ortigas and Company Limited Partnership, supra note 14, at 288 [Per J. Leonen, Third
Division].
16
Pascual v. Burgos, et al., 776 Phil. 167, 183 (2016).
17
Heirs of Delgado, et al. v. Gonzalez, et al., 612 Phil. 817, 844 (2009).
18
Id.
19
Id.
20
493 Phil. 85, 108 (2005).
21
323 Phil. 596, 605 ( 1996).
22
255 Phil. 851, 862 (1989).
23
Evangelista v. Spouses Andolong, et al., 800 Phil. 189, 195 (2016).
24
CA rollo, pp. 15-16.
25
See Soriano v. Judge Angeles, 393 Phil. 769, 776 (2000); and Bangayan, Jr. v. Bangayan, 675 Phil. 656,
664 (2011).
26
Malayan Insurance Company, Inc., et al. v. Philip Piccio, et al., 740 Phil. 616, 622 (2014).
27
Jimenez v. Judge Sorongon, et al.,, 700 Phil. 316, 325 (2012).
28
Id. at 324.
29
Villareal v. Aliga, 724 Phil. 47, 57 (2014).
30
See Ong v. Genia, 623 Phil. 835 (2009).

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SUPREME COURT
Baguio City
THIRD DIVISION
G.R. No. 149193 April 4, 2011
RICARDO B. BANGAYAN, Petitioner,

vs.
RIZAL COMMERCIAL BANKING CORPORATION AND PHILIP SARIA, Respondents,
DECISION
SERENO, J.:
Before this Court is a Rule 45 Petition1 questioning the Court of Appeals’ affirmance of a trial court’s dismissal of a
complaint for damages filed by a depositor against a bank for the dishonor of seven checks and for the wrongful
disclosure of information regarding the depositor’s account contrary to the Bank Secrecy Act (Republic Act No.
1405).2
The Facts
Petitioner Ricardo Bangayan had a savings account and a current account with one of the branches of respondent
Rizal Commercial Banking Corporation (RCBC).3 These two accounts had an "automatic transfer" condition wherein
checks issued by the depositor may be funded by any of the two accounts.4
On 26 June 1992, petitioner Bangayan purportedly signed a Comprehensive Surety Agreement (the Surety
Agreement)5 with respondent RCBC in favor of nine corporations.6 Under the Surety Agreement, the funds in
petitioner Bangayan’s accounts with respondent RCBC would be used as security to guarantee any existing and
future loan obligations, advances, credits/increases and other obligations, including any and all expenses that these
corporations may incur with respondent bank.
Petitioner Bangayan contests the veracity and due authenticity of the Surety Agreement on the ground that his
signature thereon was not genuine, and that the agreement was not notarized.7 Respondent RCBC refutes this
claim, although it admitted that it was exceptional for a perfected Surety Agreement of the bank to be without a
signature of the witness and to remain unnotarized. Mr. Eli Lao, respondent bank’s Group Head of Account
Management, however, explained that the bank was still in the process of "completing" the Surety Agreement at that
time.8
The following are the transactions of respondent RCBC in relation to the Surety Agreement vis-à-vis the petitioner
Bangayan.
On 26 June 1992 (the same day that the Surety Agreement was allegedly signed), two of the corporations whose
performance were guaranteed therein – LBZ Commercial and Peaks Marketing – were issued separate commercial
letters of credit9 by respondent RCBC for the importation of PVC resin from Korea. Three days later or on 29 June
1992, respondent RCBC issued a third letter of credit10 in favor of another corporation, Final Sales Enterprise,
whose obligations to respondent bank were likewise secured by petitioner Bangayan under the Surety Agreement.
Mr. Lao claimed that respondent bank would not have extended the letters of credit in favor of the three corporations
without petitioner Bangayan acting as surety.11
On 26 August 1992, a fourth letter of credit12 was issued by respondent RCBC for the importation of materials from
Korea, this time by Lotec Marketing, another corporation enumerated in the Surety Agreement. The Korea
Exchange Bank was designated as the advising bank for Lotec Marketing’s letter of credit.13
On 15 September 1992, after the arrival of the shipments of the first three corporations from Korea, the Bureau of
Customs (BOC) demanded – via letter of the same date – from respondent RCBC, which facilitated the three letters
of credit, the remittance of import duties in the amount of thirteen million two hundred sixty-five thousand two
hundred twenty-five pesos (PhP13,265,225).14
Mr. Lao of respondent RCBC allegedly called petitioner Bangayan and informed him of the BOC’s demand for
payment of import duties.15 According to Mr. Lao, petitioner allegedly replied that he understood the situation and
assured Mr. Lao that he was doing everything he could to solve the problem.16
Considering the BOC’s demand, respondent RCBC decided to put on hold the funds in petitioner Bangayan’s
accounts by virtue of the authority given to it by petitioner under the Surety Agreement.17 Respondent RCBC
reasoned that as the collecting agent, it had to earmark sufficient funds in the account of petitioner Bangayan (the
surety) to satisfy the tax obligations of the three corporations, in the event that they would fail to pay the same.18
Thus, respondent bank refused payments drawn from petitioner Bangayan’s deposits, unless there was an order
from the BOC.19 Petitioner Bangayan, however, contests this action since respondent bank did not present any writ
of garnishment that would authorize the freezing of his funds.20
On 18 September 1992, two of the seven checks that were drawn against petitioner Bangayan’s Current Account
No. 0109-8232-5 were presented for payment to respondent RCBC, namely:
RCBC Check No. Date of Presentment Paid To Amount
9879921 18 Sept 1992 United Pacific Enterprises PhP3,650,000
93800022 18 Sept 1992 United Pacific Enterprises PhP4,500,000
TOTAL PhP8,150,000
On the same day, the amounts of three million six hundred fifty thousand pesos (PhP3,650,000) and four million five
hundred thousand pesos (PhP4,500,000)23 were successively debited from the said current account, as shown in
petitioner Bangayan’s passbook for the current account.24 Alongside these two debit entries in the passbook was
the transaction reference code "DFT," which apparently stands for "debit fund transfer."25
On 21 September 1992, the same amounts in the two checks were credited to petitioner Bangayan’s current
account, under the transaction reference code "CM," that stands for "credit memo."26 Moreover, petitioner
Bangayan’s Checks Nos. 93799 and 93800 issued in favor of United Pacific Enterprises were also returned by
respondent RCBC with the notation "REFER TO DRAWER."27
On the same day that the checks were referred to petitioner Bangayan by respondent RCBC, United Pacific
Enterprises, through Mr. Manuel Dente, demanded from petitioner Bangayan the payment of eight million one
hundred fifty thousand pesos (PhP8,150,000), which corresponded to the amounts of the two dishonored checks
that were issued to it.28 Nothing more has been alleged by petitioner on this particular matter.
On 24 September 1992, the Korea Exchange Bank (the advising bank) informed respondent RCBC through a telex
that it had already negotiated the fourth letter of credit for Lotec Marketing’s shipment, which amounted to seven
hundred twelve thousand eight hundred U.S. dollars (US$712,800) and, thereafter, claimed reimbursement from
respondent RCBC.29
This particular shipment by Lotec Marketing became the subject matter of an investigation conducted by the
Customs Intelligence & Investigation Service of the BOC, according to respondent bank.30 Both parties agreed that
the BOC likewise conducted an investigation covering the importation of the three corporations – LBZ Commercial,
Peaks Marketing and Final Sales Enterprise - that were opened through the letters of credit issued by respondent
RCBC.31
On 09 October 1992, respondent Philip Saria, who was an Account Officer of respondent bank’s Binondo Branch,
signed and executed a Statement before the BOC, with the assistance of Atty. Arnel Z. Dolendo of respondent
RCBC, on the bank’s letters of credit issued in favor of the three corporations.32 Petitioner Bangayan cited this
incident as the basis for the allegation in the Complaint he subsequently filed that respondent RCBC had disclosed
to a third party (the BOC) information concerning the identity, nature, transaction and deposits including details of
transaction related to and pertaining to his deposits with the said bank, in violation of the Bank Secrecy Act.33 It
must be pointed out that the trial court found that "no evidence was introduced by (petitioner Bangayan) to
substantiate his claim that (respondent RCBC) gave any classified information" in violation of the Bank Secrecy
Law.34 Thus, the trial court considered the alleged disclosure of confidential bank information by respondent RCBC
as a non-issue.35
On the same date, when Lotec Marketing’s loan obligation under the fourth letter of credit became due and
demandable,36 respondent RCBC issued an advice that it would debit the amount of twelve million seven hundred
sixty-two thousand six hundred pesos (PhP12,762,600) from petitioner Bangayan’s current account to partially
satisfy the guaranteed corporation’s loan.37 At that time, petitioner Bangayan’s passbook for his current account
showed that it had funds of twelve million seven hundred sixty-two thousand six hundred forty-five and 64/100 pesos
(PhP12,762,645.64).38
On 12 October 1992, the amount of twelve million seven hundred sixty-two thousand and six hundred pesos
(PhP12,762,600) was debited from petitioner Bangayan’s current account, consequently reducing the funds to forty-
five and 64/100 pesos (PhP45.64).39 Respondent RCBC claimed that the former amount was debited from
petitioner’s account to partially pay Lotec Marketing’s outstanding obligation which stood at eighteen million forty-
seven thousand thirty-three and 60/100 pesos (PhP18,047,033.60).40 Lotec Marketing, thereafter, paid the balance
of its obligation to respondent RCBC in the amount of five million three hundred thirty-eight thousand eight hundred
nineteen and 20/100 pesos (PhP5,338,819.20)41 under the fourth letter of credit.
On 13 October 2010, the three corporations earlier adverted to paid the corresponding customs duties demanded by
the BOC.42 Receipts were subsequently issued by the BOC for the corporations’ payments, copies of which were
received by Atty. Nelson Loyola, counsel of petitioner Bangayan in this case.43 The trial court considered this as
payment by petitioner of the three corporations’ obligations for custom duties.44 Thereafter, respondent RCBC
released to the corporations the necessary papers for their PVC resin shipments which were imported through the
bank’s letters of credit.45
On 15 October 2010, five other checks of petitioner Bangayan were presented for payment to respondent RCBC,
namely:
RCBC Check No. Date of Presentment Paid To Amount
93801146 15 Oct 1992 Simplex Merchandising PhP1,200,000
93801449 15 Oct 1992 Hinomoto Trading Company PhP1,052,000
93801550 15 Oct 1992 Hinomoto Trading Company PhP982,000
TOTAL AMOUNT PhP5,674,000
On 16 October 1992, these five checks were also dishonored by respondent RCBC on the ground that they had
been drawn against insufficient funds ("DAIF") and were subsequently returned.51
On 20 October 1992, Hinomoto Trading Company, one of the payees for two of the dishonored checks,52 demanded
that petitioner Bangayan make good on his payments.53 On 21 October 1992, the other payee of the three other
dishonored checks,54 Simplex Merchandising, likewise made a final demand on petitioner to replace the dishonored
instruments.55
On 23 October 1992, petitioner Bangayan, through counsel, demanded that respondent bank restore all the funds to
his account and indemnify him for damages.56
On 30 October 1992, nineteen thousand four hundred twenty-seven and 15/100 pesos (PhP19,427.15) was credited
in petitioner Bangayan’s current account, with the transaction reference code "INT" referring to interest.57 Petitioner
explains that even if the outstanding balance at that time was reduced, this interest was earned based on the
average daily balance of the account for the quarter and not just on the balance at that time, which was forty-five
and 64/100 pesos (PhP45.64).58
The Case in the Trial Court

On 09 November 1992, petitioner Bangayan filed a complaint for damages against respondent RCBC.59
Subsequently, respondent RCBC filed an Answer dated 02 December 1992 with compulsory counter-claims.60 On
12 January 1993, respondent RCBC filed a Motion for Leave to File Attached Amended Answer and Amended
Answer.61
Petitioner Bangayan argues that at the time the dishonored checks were issued, there were sufficient funds in his
accounts to cover them;62 that he was informed by personnel of respondent RCBC that his accounts were
garnished, but no notice or writ of garnishment was ever shown to him;63 and that his name and reputation were
tarnished because of the dishonor of checks that were issued in relation to his automotive business.64
In its defense, respondent RCBC claims that petitioner Bangayan signed a Surety Agreement in favor of several
companies that defaulted in their payment of customs duties that resulted in the imposition of a lien over the
accounts, particularly for the payment of customs duties assessed by the Bureau of Customs.65 Respondent bank
further claimed that it had funded the letter of credit66 availed of by Lotec Marketing to finance the latter’s
importation with the account of petitioner Bangayan, who agreed to guarantee Lotec Marketing’s obligations under
the Surety Agreement; and, that respondent bank applied petitioner Bangayan’s deposits to satisfy part of Lotec
Marketing’s obligation in the amount of twelve million seven hundred sixty-two thousand and six hundred pesos
(PhP12,762,600), which resulted in the depletion of the bank accounts.67
Petitioner Bangayan also alleged that respondent RCBC disclosed to a third party (the BOC) classified information
about the identity and nature of the transactions and deposits, in violation of the Bank Secrecy Act. Respondent
RCBC counters that no confidential information on petitioner’s bank accounts was disclosed.
Availing himself of discovery proceedings in the lower court, petitioner Bangayan filed a Request for Admission68
and Request for Answer to Written Interrogatories,69 to which respondent RCBC filed the corresponding Answers
and Objections to Interrogatories70 and Response to Request for Admission.71
During the presentation of complainant’s evidence, petitioner Bangayan, Atty. Randy Rutaquio, respondent Saria
and Manuel Dantes testified in open court. Petitioner Bangayan thereafter filed a Formal Offer of Evidence.72
On the other hand, respondent RCBC presented Mr. Lao as its lone defense witness. Before the termination of Mr.
Lao’s direct examination, respondent RCBC filed a Motion to Inhibit Presiding Judge Pedro Santiago,73 who
subsequently denied the motion.74 The Order denying the Motion to Inhibit was the subject matter of petitions filed
by respondent RCBC in the Court of Appeals75 and subsequently in this Court, which were all dismissed.
In the meantime, when respondent RCBC’s witness (Mr. Lao) failed to appear at the hearing, Judge Santiago
ordered that Mr. Lao’s testimony be stricken off the record despite respondent bank’s motion to have the case
reset.76 After the appellate proceedings for respondent RCBC’s Petition as regards the Motion to Inhibit, however,
Judge Santiago set aside his earlier Order and reinstated the testimony of Mr. Lao, subject to cross-examination.77
Petitioner Bangayan took exception to the Order reinstating Mr. Lao’s testimony, but continued to conduct his cross
examination with a reservation to raise the Order in the appellate courts.78
Respondent RCBC thereafter filed its Formal Offer of Exhibits.79
On 17 October 1994, the trial court rendered a Decision, the dispositive portion of which reads:
"WHEREFORE, premises above considered, plaintiff not having proved that defendant RCBC acted wrongly,
maliciously and negligently in dishonoring his 7 checks, nor has the bank given any confidential informations against
the plaintiff in violation of R.A. 1405 and the defendant bank having established on the contrary that plaintiff has no
sufficient funds for his said checks, the instant complaint is hereby DISMISSED."80 (Emphasis supplied)
When his omnibus motion81 to have the Decision reconsidered was denied,82 petitioner Bangayan filed a notice of
appeal.83
The Ruling of the Court of Appeals
After petitioner Bangayan84 and respondent RCBC85 filed their respective appeal briefs, the Court of Appeals
affirmed the trial court’s decision in toto.86 The appellate court found that the dishonor of the checks by respondent
RCBC was not without good reason, considering that petitioner Bangayan’s account had been debited owing to his
obligations as a surety in favor of several corporations. Thus, the Court Appeals found "there was no ‘dishonest
purpose,’ or ‘some moral obliquity,’ or ‘conscious doing of wrong,’ or ‘breach of a known duty,’ or ‘some motive or
interest,’ or ‘ill will’ that ‘partakes (sic) nature of fraud’ that can be attributed" to respondent RCBC.87 It likewise ruled
that petitioner Bangayan cannot raise the question as to the genuineness, authenticity and due execution of the
Surety Agreement for the first time on appeal.88
This Decision of the appellate court is the subject of the instant Petition for Review on Certiorari filed by petitioner
Bangayan under Rule 45 of the Rules of Court.89
Assignment of Errors
Petitioner Bangayan makes the following assignment of errors:
A. THE COURT OF APPEALS ACTED WITH GROSS ARBITRARINESS AND IN BLATANT

VIOLATION OF
THE CONSTITUTIONAL RIGHTS OF THE PETITITONER TO DUE PROCESS, AND A FAIR TRIAL:
(1) WHEN IT REINSTATED THE TESTIMONY OF ELI LAO ALREADY STRICKEN OFF THE
RECORDS UPON PRIOR ORDER OF THE RTC AFFIRMED BY THE COURT OFAPPEALS
AND CONFIRMED BY THE SUPREME COURT;
(2) WHEN IT SANCTIONED THE CAVALIER ACT OF RESPONDENTS IN DEMEANING THE

RULES ON DISCOVERY PROCEDURE;
(3) WHEN IT RENDERED A DECISION WHICH IS CONTRARY TO THE FACTS AND THE
EVIDENCE PRESENTED AT THE TRIAL; and
(4) WHEN IT REFUSED TO APPLY THE LAWS SQUARELY IN POINT ON THE MATTER IN
CONTROVERSY.
B. THE HONORABLE COURT OF APPEALS DECIDED THIS CASE IN A WAY NOT IN ACCORD
WITH THE APPLICABLE DECISIONS OF THE HONORABLE SUPREME COURT;
C. THERE ARE SPECIAL AND IMPORTANT REASONS THAT REQUIRE A REVIEW OF THE CA
DECISION;
D. THE DECISION OF THE COURT OF APPEALS … IS NEITHER JUST NOR IN ACCORD WITH
THE RULES OF LAW AND JURISPRUDENCE NOR IS IT EQUITABLE AND IT IGNORES THE
PREVIOUS RULINGS OF THE SUPREME COURT IN EARLIER PRECEDENT CASES.90
The Issues
A. Whether respondent RCBC was justified in dishonoring the checks, and, consequently, whether petitioner
Bangayan is entitled to damages arising from the dishonor.
B. Whether there was reversible error on the part of the lower court in allowing the testimony of Mr. Lao,
despite its earlier Order to strike off the testimony.
C. Whether respondent RCBC violated the Bank Secrecy Act.
The Ruling of the Court
Preliminarily, petitioner Bangayan raises questions of fact91 regarding the authenticity of the Surety Agreement and
the events leading up to the dishonor of the seven checks. However, petitions for review on certiorari under Rule 45
are limited only to pure questions of law92 and, generally, questions of fact are not reviewable93 since this Court is
not a trier of facts.94 Although respondent RCBC briefly treated this procedural matter,95 the Court finds that the
instant Petition is indeed subject to dismissal because the determination of questions of fact is improper in a Rule 45
proceeding.96 In any case, even if procedural rules were to be relaxed at this instance, the substantial merits of
petitioner Bangayan’s cause is nonetheless insufficient to reverse the decisions of the trial and appellate courts, as
will be discussed in detail below.
A. There was no malice or bad faith on the part of respondent RCBC in the dishonor of the checks, since its actions
were justified by petitioner Bangayan’s obligations under the Surety Agreement.
The Court is unconvinced by petitioner Bangayan’s arguments that respondent RCBC acted with malice or bad faith
in dishonoring the seven checks, which would entitle him to an award of damages.
At the heart of the controversy is the Surety Agreement that secured the obligations of the nine corporations in favor
of respondent RCBC.
Petitioner Bangayan denies the genuineness, authenticity and due execution of the alleged agreement on the
following grounds: (a) his signature on the document is not genuine; (b) the Surety Agreement was never notarized;
and (c) the alleged accounts, being guaranteed, appear in a separate piece of paper that does not bear his
signature or conformity.97
Both the trial and the appellate courts gave credence to the Surety Agreement, which categorically guaranteed the
four corporations’ obligations to respondent RCBC under the letters of credit. Petitioner Bangayan did not provide
sufficient reason for the Court to reverse these findings. The evidence on record supports the conclusion arrived at
by the lower court and the Court of Appeals.
First, aside from his bare allegations, petitioner Bangayan failed to establish how his signature in the Surety
Agreement was forged and therefore, not genuine.
Before a private document is offered as authentic, its due execution and authenticity must be proved: (a) either by
anyone who has seen the document executed or written; or (b) by evidence of the genuineness of the signature or
handwriting of the maker.98 As a rule, forgery cannot be presumed and must be proved by clear, positive and
convincing evidence.99 The burden of proof rests on the party alleging forgery.100 Mere allegation of forgery is not
evidence.101
Mr. Lao, witness for respondent RCBC, identified the Surety Agreement102 as well as the genuineness of petitioner
Bangayan’s signature therein using petitioner’s signature cards in his bank accounts.103 The trial and the appellate
courts gave due credence to the identification and authentication of the Surety Agreement made by Mr. Lao.104
In Deheza-Inamarga v. Alano,105 the Court ruled that:
The question of forgery is one of fact. It is well-settled that when supported by substantial evidence or borne out by
the records, the findings of fact of the Court of Appeals are conclusive and binding on the parties and are not
reviewable by this Court.
It is a hornbook doctrine that the findings of fact of trial courts are entitled to great weight on appeal and should not
be disturbed except for strong and valid reasons. It is not a function of this Court to analyze and weigh evidence by
the parties all over again. Our jurisdiction is limited to reviewing errors of law that might have been committed by the
Court of Appeals. Where the factual findings of the trial court are affirmed in toto by the Court of Appeals as in this
case, there is great reason for not disturbing such findings and for regarding them as not reviewable by this Court.
(Emphasis supplied)
Furthermore, petitioner Bangayan did not adduce any evidence to support his claim of forgery, despite the
opportunity to do so. Considering that there was evidence on record of his genuine signature and handwriting (the
signature card and the dishonored checks themselves), nothing should have prevented petitioner Bangayan from
submitting the Surety Agreement for examination or comparison by a handwriting expert.
Even respondent RCBC did not interpose any objection when the possibility of forwarding the signature card and
Surety Agreement forwarded to the National Bureau of Investigation for examination was raised during the
testimony of Mr. Lao:
ATTY. LOYOLA
Considering the delicate nature or the significance of the signatures in the signature cards and the risk of my
admitting the authenticity of a mere xerox copies [sic] and considering further that it is our position that the surety
agreement as well as specimen signatures on the signature cards must be submitted to the Court and later
forwarded to the NBI, Question Document Section, for examination, I am in no position to admit now that the
machine copies in the signature cards are faithful reproduction. Accordingly, I am hoping at this stage that the surety
agreement and the signature cards be forwarded to the NBI later on for examination and in the mean time, the
questioned documents be entrusted to the custody of the Honorable Court.
ATTY. POBLADOR
With respect to the manifestation of counsel that the documents with the signatures should be submitted to the NBI,
we have no objection, but at this juncture, we are only asking, Your Honor, if the xerox copies are faithful
reproduction of the original.106 (Emphasis supplied)
Despite his intention to have the signatures in the Surety Agreement compared with those in the signature cards,
petitioner Bangayan did not have the questioned document examined by a handwriting expert in rebuttal and simply
relied on his bare allegations. There is no clear, positive and convincing evidence to show that his signature in the
Surety Agreement was indeed forged. As petitioner failed to discharge his burden of demonstrating that his
signature was forged, there is no reason to overturn the factual findings of the lower courts with respect to the
genuineness and due execution of the Surety Agreement.
Second, the mere absence of notarization does not necessarily render the Surety Agreement invalid.
Notarization of a private document converts the document into a public one, renders it admissible in court without
further proof of its authenticity, and is entitled to full faith and credit upon its face.107 However, the irregular
notarization — or, for that matter, the lack of notarization — does not necessarily affect the validity of the contract
reflected in the document.108
On its face, the Surety Agreement is not notarized, even if respondent RCBC’s standard form for that agreement
makes provisions for it. The non-completion of the notarization form, however, does not detract from the validity of
the agreement, especially in this case where the genuineness and due authenticity of petitioner Bangayan’s
signature in the contract was not successfully assailed.
The failure to notarize the Surety Agreement does not invalidate petitioner Bangayan’s consent to act as surety for
the nine corporations’ obligations to respondent RCBC. Contracts are obligatory in whatever form they may have
been entered into, provided all essential requisites are present109 and the notarization is not an essential requisite
for the validity of a Surety Agreement.110
Third, that the annex of the Surety Agreement does not bear petitioner Bangayan’s signature is not a sufficient
ground to invalidate the main agreement altogether. As the records will bear out, the Surety Agreement enumerated
the names of the corporation whose obligations petitioner Bangayan are securing. The annex to the Surety
Agreement enumerated not only the names of the corporations but their respective addresses as well.111 The
corporations enumerated in the annex correspond to the nine corporations enumerated in the main body of the
Surety Agreement. Ordinarily, the name and address of the principal borrower whose obligation is sought to be
assured by the surety is placed in the body of the agreement, but in this case the addresses could not all fit in the
body of the document, thus, requiring that the address be written in an annex. The Surety Agreement itself noted
that the principal places of business and postal addresses of the nine corporations were to be found in an "attached"
document.
Fourth, petitioner Bangayan never contested the existence of the Surety Agreement prior to the filing of the
Complaint. When Mr. Lao informed him of the letter from the BOC regarding the failure of the three corporations to
pay the customs duties under the letters of credit, the petitioner assured respondent bank that "he is doing
everything he can to solve the problem."112 If petitioner Bangayan purportedly never signed the Surety Agreement,
he would have been surprised or at least perplexed that respondent RCBC would contact him regarding the three
corporations’ letters of credit, when, as he claims, he never agreed to act as their surety. Instead, he acknowledged
the situation and even offered to solve the predicament of these borrower corporations. In fact, Atty. Loyola,
petitioner’s counsel in this case, even obtained copies of the BOC receipts after the three corporations paid the
customs duties for their importation under the letters of credit giving a possible interpretation that petitioner was
himself answering the obligations of the three corporations for the unpaid customs duties.
It must be emphasized that petitioner Bangayan did not complain against the four corporations which had benefitted
from his bank account. He claims to have no reasonable connection to these borrower corporations and denies
having signed the Surety Agreement. If true, nothing should have stopped him from taking these corporations to
court and demanding compensation as well as damages for their unauthorized use of his bank account. Yet, these
bank accounts were put on hold and/or depleted by the letters of credit issued to the four entities. That petitioner did
not include them in the present suit strengthens the finding that he had indeed consented to act as surety for those
entities, and that there seems to be no arm’s length relationship between petitioner and the three entities.
Whatever damage to petitioner Bangayan’s interest or reputation from the dishonor of the seven checks was a
consequence of his agreement to act as surety for the corporations and their failure to pay their loan obligations,
advances and other expenses.
With respect to the first two dishonored checks, respondent RCBC had already put on hold petitioner Bangayan’s
account to answer for the customs duties being demanded from the bank by the BOC. In fact, the trial court
considered the referral of these checks to petitioner Bangayan as an effort by respondent RCBC to allow its
depositor an opportunity to "arrange his accounts and provide funds for his checks."113 It likewise appeared to the
appellate court that the funds in petitioner’s account served as the lien of the custom duties assessed; thus, the
funds cannot be considered as sufficient to cover future transactions.114
On the other hand, the five other checks were subsequently dishonored because petitioner Bangayan’s account was
by that time already depleted due to the partial payment of Lotec Marketing’s loan obligation.115 Although the lien
earlier imposed on petitioner’s account was lifted when the three corporations paid the customs duties,116 the
account was almost completely depleted when the funds were subsequently used to partially pay Lotec Marketing’s
outstanding obligation under the fourth letter of credit.117 Respondent RCBC was compelled to fully debit the funds
to satisfy the main loan obligation of Lotec Marketing, which petitioner had guaranteed in joint and several capacity.
What must be underscored in respondent RCBC’s immediate action of applying petitioner Bangayan’s account to
the Lotec Marketing is the nature of the loan instrument used in this case – a letter of credit. In a letter of credit, the
engagement of the issuing bank (respondent RCBC in this instance) is to pay the seller or beneficiary of the credit
(or the advising bank, Korean Exchange Bank, in this instance) once the draft and the required documents are
presented to it.118 This "independence principle" in letters of credit assures the seller or the beneficiary of prompt
payment independent of any breach of the main contract and precludes the issuing bank from determining whether
the main contract is actually accomplished or not.119
In this case, respondent RCBC, as the issuing bank for Lotec Marketing’s letter of credit had to make prompt
payment to Korea Exchange Bank (the advising bank) when the obligation became due and demandable. Precisely
because of the independence principle in letters of credit and the need for prompt payment,120 respondent RCBC
required a Surety Agreement from petitioner Bangayan before issuing the letters of credit in favor of the four
corporations, including Lotec Marketing.
Under Articles 2199121 and 2200122 of the Civil Code, actual or compensatory damages are those awarded in
satisfaction of or in recompense for loss or injury sustained.123 They proceed from a sense of natural justice and are
designed to repair the wrong that has been done.124
In all seven dishonored checks, respondent RCBC properly exercised its right as a creditor under the Surety
Agreement to apply the petitioner Bangayan’s funds in his accounts as security for the obligations of the four
corporations under the letters of credit. Thus, petitioner Bangayan cannot attribute any wrong or misconduct to
respondent RCBC since there was no malice or bad faith on the part of respondent in dishonoring the checks. Any
damage to petitioner arising from the dishonor of those checks was brought about, not by the bank’s actions, but by
the corporations that defaulted on their obligations that petitioner had guaranteed to pay. The trial and the appellate
courts, therefore, committed no reversible error in disallowing the award of damages to petitioner.
B. The trial court did not commit reversible error when it reinstated the testimony of Mr. Lao and allowed petitioner
Bangayan to cross-examine him.
Petitioner Bangayan also assails the lower court’s order that reinstated the direct testimony of Mr. Lao, respondent
RCBC’s lone witness. Petitioner claims that Judge Santiago acted with partiality by reinstating Mr. Lao’s testimony,
because this Court in another case had already sustained the lower court’s earlier Order striking out the testimony.
Hence, petitioner says that the judge’s reinstatement of Mr. Lao’s testimony was in violation of petitioner’s right to
due process.
Petitioner Bangayan’s arguments are unmeritorious.
Discretionary power is generally exercised by trial judges in furtherance of the convenience of the courts and the
litigants, the expedition of business, and in the decision of interlocutory matters on conflicting facts where one
tribunal could not easily prescribe to another the appropriate rule of procedure.125 Thus, the Court ruled:
In its very nature, the discretionary control conferred upon the trial judge over the proceedings had before him
implies the absence of any hard-and-fast rule by which it is to be exercised, and in accordance with which it may be
reviewed. But the discretion conferred upon the courts is not a willful, arbitrary, capricious and uncontrolled
discretion. It is a sound, judicial discretion which should always be exercised with due regard to the rights of the
parties and the demands of equity and justice. As was said in the case of The Styria vs. Morgan (186 U.S., 1, 9):
"The establishment of a clearly defined rule of action would be the end of discretion, and yet discretion should not
be a word for arbitrary will or inconsiderate action." So in the case of Goodwin vs. Prime (92 Me., 355), it was said
that "discretion implies that in the absence of positive law or fixed rule the judge is to decide by his view of
expediency or by the demands of equity and justice."
There being no "positive law or fixed rule" to guide the judge in the court below in such cases, there is no "positive
law or fixed rule" to guide a court of appeals in reviewing his action in the premises, and such courts will not
therefore attempt to control the exercise of discretion by the court below unless it plainly appears that there was
"inconsiderate action" or the exercise of mere "arbitrary will", or in other words that his action in the premises
amounted to "an abuse of discretion." But the right of an appellate court to review judicial acts which lie in the
discretion of inferior courts may properly be invoked upon a showing of a strong and clear case of abuse of power to
the prejudice of the appellant, or that the ruling objected to rested on an erroneous principle of law not vested in
discretion.126 (Emphasis supplied)
Prior to a final judgment, trial courts have plenary control over the proceedings including the judgment, and in the
exercise of a sound judicial discretion, may take such proper action in this regard as truth and justice may
require.127
In the instant case, the trial court was within the exercise of its discretionary and plenary control of the proceedings
when it reconsidered motu propio its earlier order striking out the testimony of Mr. Lao128 and ordered it
reinstated.129 The order of the judge cannot be considered as "willful, arbitrary, capricious and uncontrolled
discretion," since his action allowed respondent bank to present its case fully, especially considering that Mr. Lao
was the sole witness for the defense.
Petitioner Bangayan’s reliance130 on the Decisions of the Court of Appeals (CA-G.R. SP No. 31865) and this Court
(G.R. No. 115922) with respect to respondent RCBC’s Petition is misplaced. Contrary to his claim, what respondent
RCBC questioned in those cases was the denial by Judge Santiago of its Motion for Inhibition.131 As respondent
pointed out, its Petitions to the Court of Appeals and the Court simply prayed for the reversal of the denial of the
Motion for Inhibition and did not include the Order striking out the testimony of Mr. Lao. Even the appellate court
(CA-G.R. CV No. 48479) noted that "what was resolved by the High Court was the issue of Inhibition of the Judge
and not the striking out of the testimony of Mr. Eli Lao."132
Neither can petitioner Bangayan claim any deprivation of due process when the trial court ordered the reinstatement
of Mr. Lao’s testimony without any motion or prayer from respondent RCBC. The right of a party to confront and
cross-examine opposing witnesses in a judicial litigation, be it criminal or civil in nature, or in proceedings before
administrative tribunals with quasi-judicial powers, is a fundamental right which is part of due process.133 This right,
however, has always been understood as requiring not necessarily an actual cross-examination but merely an
opportunity to exercise the right to cross-examine if desired.134 What is proscribed by statutory norm and
jurisprudential precept is the absence of the opportunity to cross-examine.135
In this case, petitioner Bangayan’s right to due process was not violated, as he was given the freedom and
opportunity to cross-examine and confront Mr. Lao on the latter’s testimony. Even if respondent RCBC had not filed
any motion, it was well within the court’s discretion to have Mr. Lao’s testimony reinstated in the "interest of
substantial justice." The proceedings in the trial court in this civil case were adversarial in nature insofar as the
parties, in the process of attaining justice, were made to advocate their respective positions in order to ascertain the
truth.136 The truth-seeking function of the judicial system is best served by giving an opportunity to all parties to fully
present their case, subject to procedural and evidentiary rules. Absent any blatant neglect or willful delay, both
parties should be afforded equal latitude in presenting the evidence and the testimonies of their witnesses in favor of
their respective positions, as well as in testing the credibility and the veracity of the opposing party’s claims through
cross-examination.
The Court finds no reversible error on the part of the trial court in allowing the full presentation of the reinstated
testimony of respondent RCBC’s lone witness, especially since the other party was afforded the occasion to cross-
examine the witness and in fact availed himself of the opportunity. Although he expressly reserved his right to
question the court’s reinstatement of the testimony of the witness, petitioner Bangayan did not satisfactorily offer
convincing arguments to overturn the trial court’s order. That the court gave petitioner the opportunity to cross-
examine Mr. Lao – a remedy that petitioner even fully availed himself of – negates the allegation of bias against the
Judge.
The timing of petitioner Bangayan’s allegations of prejudice on the part of Judge Santiago is suspect, since the latter
had already rendered a Decision unfavorable to petitioner’s cause.
A motion to inhibit shall be denied if filed after a member of the court has already given an opinion on the merits of
the case, the rationale being that "a litigant cannot be permitted to speculate on the action of the court . . . (only to)
raise an objection of this sort after the decision has been rendered."137
When respondent RCBC moved for Judge Santiago’s inhibition, petitioner even interposed an objection and
characterized as unfounded respondent bank’s charge of partiality.138 It is now too late in the day to suddenly
accuse Judge Santiago of prejudice in the proceedings below, after he has already rendered an unfavorable
judgment against petitioner. If at all, the latter’s claim that Judge Santiago was biased in favoring respondent RCBC
is a mere afterthought that fails to support a reversal by the Court.
C. Respondent RCBC did not violate the Bank Secrecy Act.

The Court affirms the trial court’s findings which were likewise concurred with by the Court of Appeals that the
alleged violation of the Bank Secrecy Act was not substantiated:
The Customs’s investigation with a subpoena/duces tecum sent to witness Mr. Lao on the three companies, Final
Sales Enterprises, Peak Marketing and LBZ Commercial, guaranteed by plaintiff naturally raised an alarm. Mr. Lao
was asked to bring documents on the questioned importations. The witness denied having given any statement in
connection therewith. No evidence was introduced by plaintiff to substantiate his claim that defendant bank gave
any classified information in violation of Republic Act No. 1405. On this score, plaintiff has no cause of action for
damages against said defendant RCBC.139
In his Memorandum, petitioner Bangayan argues that there was a wrongful disclosure by respondents RCBC and
Philip Saria of confidential information regarding his bank accounts in violation of the Bank Secrecy Act.140
However, petitioner failed to identify which confidential information respondents divulged before the BOC that would
make them liable under the said law.
Section 2 of the Bank Secrecy Act provides:
All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds
issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment,
or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the
money deposited or invested is the subject matter of the litigation.
Petitioner Bangayan claims that respondent Saria divulged confidential information through the Affidavit he
submitted to the BOC.141 However, nothing in respondent Saria’s Affidavit before the BOC showed that details of
petitioner Bangayan’s bank accounts with respondent bank was disclosed. If at all, respondent Saria merely
discussed his functions as an account officer in respondent bank and identified petitioner as the one who had
guaranteed the payment or obligations of the importers under the Surety Agreement.
According to petitioner Bangayan, the responses of respondent RCBC’s officers in relation to the BOC’s actions led
to unsavory news reports that "disparaged petitioner’s good character and reputation" and exposed him to "public
ridicule and contempt."142 However, as the appellate court correctly found, the humiliation and embarrassment that
petitioner Bangayan suffered in the business community was not brought about by the alleged violation of the Bank
Secrecy Act; it was due to the smuggling charges filed by the Bureau of Customs which found their way in the
headlines of newspapers.143
Both the trial and appellate courts correctly found that petitioner Bangayan did not satisfactorily introduce evidence
"to substantiate his claim that defendant bank gave any classified information" in violation of the Bank Secrecy Act.
Failing to adduce further evidence in the instant Petition with respect to the bank’s purported disclosure of
confidential information as regards his accounts, petitioner cannot be awarded any damages arising from an
unsubstantiated and unproved violation of the Bank Secrecy Act.
Rules of Discovery
The Court finds that petitioner Bangayan’s argument as regards the bank’s purported failure to comply with the rules
of discovery is not substantive enough to warrant further discussion by this Court. Petitioner has not alleged any
different outcome that would be generated if we were to agree with him on this point. If petitioner is unsatisfied with
respondent RCBC’s responses, then his remedy is to expose the falsity (if any) of the bank’s responses in the
various modes of discovery during the trial proper. He could have confronted respondent with contradictory
statements, testimonies or other countervailing evidence. The Court affirms the findings of the appellate court that
the rules of discovery were not treated lightly by respondent RCBC.144 1avvphi1
In summary, petitioner Bangayan failed to establish that the dishonor of the seven checks by respondent RCBC
entitled him to damages, since the dishonor arose from his own voluntary agreement to act as surety for the four
corporations’ letters of credit. There was no bad faith or malice on the part of respondent bank, as it merely acted
within its rights as a creditor under the Surety Agreement.
IN VIEW OF THE FOREGOING, the instant Petition for Review on Certiorari filed by Ricardo B. Bangayan is
DENIED. The Decisions of the trial court and appellate court dismissing the Complaint for damages filed by
Bangayan against respondents Rizal Commercial Banking Corporation and Philip Saria are hereby AFFIRMED.
SO ORDERED.

Associate Justice
WE CONCUR:
ANTONIO T. CARPIO*
Associate Justice
CONCHITA CARPIO MORALES

LUCAS P. BERSAMIN
Associate Justice
Associate Justice
Chairperson
MARTIN S. VILLARAMA, JR.

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the
CONCHITA CARPIO MORALES

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the
the opinion of the Court’s Division.
RENATO C. CORONA
Chief Justice
Footnotes
*
As per Division Raffle dated 13 September 2010.
1 Rollo at 8-60.
2 RTC Decision dated 17 October 1994 (rollo at 77-87) and CA Decision dated 06 August 2001 (rollo at 62-
76).
3 Savings Account No. 1109-81805-0 and Current Account No. 0109-8232-5 at the RCBC Binondo Branch,
500 Quintin Paredes, St., Binondo, Manila. (See Amended Answer dated 12 January 1993; RTC records, Vol.
1, at 127)
4 RTC Decision dated 17 October 1994, at 9 (rollo at 85); CA Decision dated 06 August 2001, at 2 (rollo at
63).
5 Exhibit "1"; RTC records, Vol. 2, at 705-707.
6 The nine corporations were: (1) LBZ Commercial; (2) Peaks Manufacturing; (3) Final Sales Enterprises; (4)
Lotec Marketing; (5) Lucky M Motor Service; (6) 9M Trading; (7) WN Albos Trading Center; (8) KMT Import
Trader; and (9) Silver Machine Trading. (Exhibit "1-B," id. at 707)
7 Petition for Review on Certiorari, para. 25-27, at 44-45; rollo at 50-51.
8 TSN, 16 September 1994, at 22-23.
9 Exhibits "4" and "5," RTC records, Vol. 2, at 713-716.
10 Exhibit "3," id. at 711-712.
11 TSN, 16 September 1994, at 28.
12 Exhibit "10," RTC records, Vol. 2, at 724-725.

13 Id.
14 Exhibit "6"; id. at 766.
15 TSN, 04 June 1993, at 28-29.
16 Id. at 29.
17 Id. at 30-32. See Surety Agreement (Exhibit "1"); RTC records, Vol. 2 at 705.
18 TSN, 16 September 1994, at 32.
19 CA Decision; rollo at 65.
20 Petitioner Bangayan’s Memorandum dated 22 October 2002, at 19 (rollo at 255). See also TSN, 31 March
1993, at 30-31.
21 Exhibit "F," RTC records, Vol. 1, at 184.
22 Exhibit "E," id.
23 These amounts correspond to the first two checks (Check Nos. 937999 and 93800) that were presented on
18 September 1992.
24 Exhibit "A-1," RTC records, Vol. 1, at 182.
25 Id.
26 Id.
27 Exhibits "H" and "I," id. at 186.
28 Exhibit "Q," id. at 203.
29 Exhibit "11," id. Vol. 2, at 726.
30 Respondent RCBC Pre-Trial Brief dated 03 February 1993, at 2; id. Vol. 1, at 208.
31 Exhibit "P," RTC records, Vol.1, at 198-202.
32 Id.
33 Second Cause of Action, Complaint dated 05 November 1992, at 7-8 (RTC records, Vol. 1, at 7-8); CA
Decision dated 06 August 2001, at 3 (rollo at 64).
34 RTC Decision dated 17 October 1994, at 8; rollo, at 84.
35 "On this score, plaintiff (petitioner Bangayan) has no cause of action for damages against defendant
RCBC." (RTC Decision dated 17 October 1994, at 8; id.).
36 Import Bill dated 09 October 1992 (Exhibit "18,"; RTC records, Vol. 2, at 735).
37 Debit Advice dated 09 October 1992 (Exhibit "19"; id. at 736).
38 Exhibit "A-1"; id. ,Vol. 1, at 182.
39 Id.
40 Respondent RCBC Pre-Trial Brief dated 03 February 1993, at 2-3; id. at 208-209.
41 RCBC Official Receipt dated 28 October 1992 (Exhibit "20"; id. Vol. 2, at 737).
42 Exhibits "7-a," "8-a," and "9-a," id. at 718-723.

43 Id.
44 "It appears that these taxes were eventually funded by plaintiff sometime on October 13, 1992." (RTC
Decision dated 17 October 1994, at 10; rollo at 86.
45 Exhibits "7," "8," and "9," id.
46 Exhibit "D"; id., Vol. 1, at 183.
47 Exhibit "C," id.
48 Exhibit "B," id.
49 Exhibit "I," id. at 187.
50 Exhibit "J," id.
51 Exhibits "G" and "K," id. at 185 and 187.
52 Check Nos. 938014 and 938015 for PhP1,052,000 and PhP982,000, respectively.
53 Exhibit "N"; RTC records, Vol. 1, at 196.
54 Check Nos. 938011, 938012 and 938013 for PhP1,200,000, PhP1,260,000 and PhP1,180,000,
respectively.
55 Exhibit "O"; RTC records, Vol. 1, at 197.
56 Petitioner Bangayan’s letter dated 23 October 1992 (Exhibit "L") id. at 24.
57 Exhibit "A-1," id. at 182.
58 TSN, 15 March 1993, at 16.
59 Complaint dated 05 November 1992; RTC Records, Vol. 1, at 1-30.
60 Id. at 79-86.
61 Id. at 125-134.
62 Complaint dated 05 November 1992; id. at 3-6.
63 Id. at 6.
64 Id. at 8-10.
65 Bureau of Customs Letter dated 19 September 1992 (Exhibit "6"); id., Vol. 2, at 717.
66 Commercial Letter of Credit Application and Agreement issued on 26 August 1992 (Exhibit "10"); id at 724-
725.
67 Amended Answer dated 12 January 1993; id., Vol. 1, at 131-132.
68 Request for Admission dated 01 December 1992; RTC records, Vol. 1, at 87-88.
69 Request for Answer to Written Interrogatories dated 01 December 1992, id. at 96-100.
70 Answers and Objections to Interrogatories dated 18 December 1992, id. at 104-108.
71 Response to Request for Admission dated 16 December 1992, id. at 109-111.
72 Formal Offer of Exhibits dated 01 April 1993; id. at 235-240.

73 Respondent RCBC’s Motion to Inhibit dated 02 July 1993, id. at 273-281.
74 RTC Order dated 30 July 1993, id. at 300.
75 Court of Appeals Decision dated 28 March 1994, id. at 489-496.
76 RTC Order dated 06 August 1993, id. at 304.
77 RTC Order dated 23 August 1994, id., Vol. 2, at 663-664.
78 Petitioner Bangayan’s Comment dated 07 September 1994, id. at 694-695.
79 Formal Offer of Exhibits dated 28 September 1994, id. at 746-754.
80 RTC Decision dated 17 October 1994, at 11; rollo, at 37.
81 Petitioner Bangayan’s Omnibus Motion dated 04 November 1994; RTC records, Vol. 2, at 905-946.
82 Order dated 14 December 1994, id. at 1040.
83 Petitioner Bangayan’s Notice of Appeal dated 28 December 1994, id. at 1041.
84 Petitioner Bangayan’s Brief for the Plaintiff-Appellant dated 28 November 1995, CA rollo at 22-70.
85 Respondent RCBC’s Motion to Admit Appellee’s Brief and Brief for the Appellees both dated 23 February
1996, CA rollo at 162-200.
86 "WHEREFORE, premises considered, there being no reversible error, the Decision dated October 17,
1994 (Records pp. 887-897) in Civil Case No. Q-92-13949, is hereby AFFIRMED in toto. No Cost against
Appellant." (CA Decision dated 06 August 2001; rollo at 62-76)
87 CA Decision dated 06 August 2001, at 10; rollo at 71.
88 Id. at 13; rollo at 74.
89 Petitioner Bangayan’s Petition for Review on Certiorari dated 12 September 2001, rollo at 8-59.
90 Id. at 7-8; rollo at 14-15.
91 "The petitioner unto this Honorable Supreme Court respectfully appeals by way of petition for review on
certiorari under Rule 45 of the Revised Rules of Court on questions of law, fact and errors of judgment of the
Honorable Court of Appeals that sustained the decision of the RTC of Quezon City, Br. 101, in CC Q-92-
13949, dismissing the case." (Petition at 7, id. at 14)
92 "The petition shall raise only questions of law which must be distinctly set forth." (Rule 45, Sec. 1)
93 "As a general rule, questions of fact are not proper in a petition filed under Rule 45." (Adriano v. Tanco,
G.R. No. 168164, 05 July 2010)
94 "The Court has held in a long line of cases that in a petition for review on certiorari under Rule 45 of the
Rules of Court, only questions of law may be raised as the Supreme Court is not a trier of facts." (Republic v.
Mangotara, G.R. Nos. 170375, 170505, 173355-56, 173401, 173563-64, 178779 & 178894, 07 July 2010)
95 Respondent RCBC’s Memorandum dated 07 November 2002, at 1-2; rollo at 297-298.
96 Hacienda Bigaa v. Chavez, G. R. No. 174160, 20 April 2010.
97 Petition dated 12 September 2001, para. 25, at 44; rollo at 50.
98 Rules of Court, Rule 132, Sec. 20; Spouses Dela Rama v. Spouses Papa, G.R. No. 142309, 30 January
2009, 577 SCRA 233.
99 Libres v. Spouses Delos Santos, G.R. No. 176358, 17 June 2008, 554 SCRA 642.
100 Id.
101 St. Mary’s Farm, Inc., v. Prima Real Properties, Inc., G.R. No. 158144, 31 July 2008, 560 SCRA 704.
102 TSN, 04 June 1993, at 6-19.
103 Exhibit "2," RTC records, Vol. 2, at 708-710.
104 RTC Decision dated 17 October 1994, at p. 9 (rollo at 85); CA Decision dated 06 August 2001, at p. 12
(rollo at 73).
105 G.R. No. 171321, 18 December 2008, 574 SCRA 651.
106 TSN, 04 June 1993 at 13-14.
107 Herbon v. Palad, G.R. No. 149542, 20 July 2006, 495 SCRA 544.
108 Camcam v. Court of Appeals, G.R. No. 142977, 30 September 2008, 567 SCRA 151; Gelos v. Court of
Appeals, G.R. No. 86186, 08 May 1992, 208 SCRA 608.
109 Civil Code, Art. 1356; Mallari v. Alsol, G.R. No. 150866, 06 March 2006, 484 SCRA 148.
110 "[T]he lack of proper notarization does not necessarily nullify nor render the parties' transaction void ab
initio." (Fernandez v. House of Representatives Electoral Tribunal, G. R. No. 187478, 21 December 2009, 608
SCRA 733)
111 Exhibit "1-b," RTC records, Vol. 2, at 707.
112 TSN, 04 June 1993, at 29.
113 RTC Decision dated 17 October 1994, at 10-11; rollo at 86-87.
115 Respondent RCBC debited the amount of PhP12,762,600 from petitioner Bangayan’s account to partially
answer for the outstanding debt of Lotec Marketing, which totaled US$712,800 or PhP18,047,033.60.
116 Official Receipt Entry Nos. 27076357, 2706332 and 27076341, all dated 13 October 1992 (Exhibit Nos.
"7-a," "8-a," and "9-A"; RTC records, Vol. 2, at 768,770 and 772).
117 When the five checks were presented on 15 October 1992, only PhP45.64 was left in petitioner
Bangayan’s account, which was insufficient to finance the checks.
118 Transfield Philippines, Inc., v. Luzon Hydro Corporation, G.R. No. 146717, 22 November 2004, 443 SCRA
307.
119 Landbank of the Philippines, v. Monet’s Export and Manufacturing Corporation, G.R. No. 161865, 10
March 2005.
120 "[I]f the letter of credit is drawable only after the settlement of any dispute on the main contract entered
into by the applicant of the said letter of credit and the beneficiary, then there would be no practical and
beneficial use for letters of credit in commercial transactions." (Landbank of the Philippines, v. Monet’s Export
and Manufacturing Corporation, Id.)
121 "Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved." (Civil Code, Art. 2199)
122 "Indemnification for damages shall comprehend not only the value of the loss suffered but also that of the
profits which the obligee failed to obtain." (Civil Code, Art. 2200)
123 Casiño v. Court of Appeals, G.R. No. 133803, 16 September 2005, 470 SCRA 57.
124 Id.
125 Negros Oriental Planters Association, Inc., v. Presiding Judge of RTC-Negros Occidental, G.R. No.
179878, 24 December 2008, 575 SCRA 575, citing Luna v. Arcenas, 34 Phil. 80 (1916).
126 Negros Oriental Planters Association, Inc., v. Presiding Judge of RTC-Negros Occidental, id.
127 Clorox Company v. Director of Patents, G.R. No. L-19531, 10 August 1967, 20 SCRA 965, citing Arnedo
v. Llorente, 18 Phil. 257 (1911).
128 RTC Order dated 06 August 1993; RTC records, Vol.1 at 304.
129 "Moreover, in the interests of substantial justice, this Court hereby orders the reinstatement of Mr. Eli
Lao’s testimony which was previously stricken off the record in view of repeated absences of said witness for
cross examination. THE DEFENDANTS ARE ENJOINED TO ENSURE THE PRESENCE OF THEIR
WITNESS FOR CROSS EXAMINATION ON THE SCHEDULEED HEARING. THE ABSENCE OF SAID
WITNESS WHICH WILL FURTHER DELAY THE PROCEEDINGS OF THIS CASE WILL BE DEALT WITH
ACCORDINGLY." (RTC Order dated 23 August 1994; RTC records, Vol. 2, at 663-664)
130 Petition for Review on Certiorari dated 12 September 2001, at para. 22-23, p. 6; rollo at 13.
131 RTC Order dated 30 July 1993; RTC records, Vol. 1, at 300.
133 Vertudes v. Buenaflor, G.R. No. 153166, 16 December 2005, 478 SCRA 210.
134 People v. Escote, Jr., G.R. No. 140756, 04 April 2003, 400 SCRA 603.
135 People v. Escote, Jr., id.
136 "While our litigation is adversarial in nature, its purpose is always to ascertain the truth for justice is not
justice unless predicated on truth." (People v. Hernandez, G.R. No. 117624, 04 December 1997, 282 SCRA
387)
137 Pasricha v. Don Luis Dison Realty, Inc., G.R. No. 136409, 14 March 2008, 548 SCRA 273.
138 Opposition to the Motion for Inhibition dated 13 July 1993; RTC records, Vol. 1, at 287-292.
139 RTC Decision dated 17 October 1994, at 8 (rollo at 84); see also CA Decision dated 06 August 2001, at
14 (rollo at 75).
140 Petitioner Bangayan’s Memorandum dated 22 October 2002 at para. 9-13, 45-46; rollo at 281-282.
141 Exhibit "P," RTC records, Vol. 1, at 198-202.
142 Petitioner Bangayan’s Memorandum dated 22 October 2002, at 47; rollo at 283.
144 "The filing of the two pleadings by Defendants-Appellants surely belies any accusations [sic] that they
took lightly the Request for Admission and Request for Answer to Interrogatories. Absent any showing that
Defendants-Appellees did not file any pleadings, we see no reason why we should entertain said assigned
error." (CA Decision dated 06 August 2001, at 14; rollo at 75)

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SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 189206 June 8, 2011
GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioner,

vs.
THE HONORABLE 15th DIVISION OF THE COURT OF APPEALS and INDUSTRIAL BANK OF KOREA, TONG
YANG MERCHANT BANK, HANAREUM BANKING CORP., LAND BANK OF THE PHILIPPINES, WESTMONT
BANK and DOMSAT HOLDINGS, INC., Respondents.
DECISION
PEREZ, J.:
The subject of this petition for certiorari is the Decision1 of the Court of Appeals in CA-G.R. SP No. 82647 allowing
the quashal by the Regional Trial Court (RTC) of Makati of a subpoena for the production of bank ledger. This case
is incident to Civil Case No. 99-1853, which is the main case for collection of sum of money with damages filed by
Industrial Bank of Korea, Tong Yang Merchant Bank, First Merchant Banking Corporation, Land Bank of the
Philippines, and Westmont Bank (now United Overseas Bank), collectively known as "the Banks" against Domsat
Holdings, Inc. (Domsat) and the Government Service Insurance System (GSIS). Said case stemmed from a Loan
Agreement,2 whereby the Banks agreed to lend United States (U.S.) $11 Million to Domsat for the purpose of
financing the lease and/or purchase of a Gorizon Satellite from the International Organization of Space
Communications (Intersputnik).3
The controversy originated from a surety agreement by which Domsat obtained a surety bond from GSIS to secure
the payment of the loan from the Banks. We quote the terms of the Surety Bond in its entirety.4

GOVERNMENT SERVICE INSURANCE SYSTEM
GENERAL INSURANCE FUND
GSIS Headquarters, Financial Center
Roxas Boulevard, Pasay City
G(16) GIF Bond 027461
SURETYBOND
KNOW ALL MEN BY THESE PRESENTS:
That we, DOMSAT HOLDINGS, INC., represented by its President as PRINCIPAL, and the
GOVERNMENT SERVICE INSURANCE SYSTEM, as Administrator of the GENERAL INSURANCE
FUND, a corporation duly organized and existing under and by virtue of the laws of the Philippines, with
principal office in the City of Pasay, Metro Manila, Philippines as SURETY, are held and firmly bound
unto the OBLIGEES: LAND BANK OF THE PHILIPPINES, 7th Floor, Land Bank Bldg. IV. 313 Sen. Gil
J. Puyat Avenue, Makati City; WESTMONT BANK, 411 Quintin Paredes St., Binondo, Manila: TONG
YANG MERCHANT BANK, 185, 2-Ka, Ulchi-ro, Chungk-ku, Seoul, Korea; INDUSTRIAL BANK OF
KOREA, 50, 2-Ga, Ulchi-ro, Chung-gu, Seoul, Korea; and FIRST MERCHANT BANKING
CORPORATION, 199-40, 2-Ga, Euliji-ro, Jung-gu, Seoul, Korea, in the sum, of US $ ELEVEN
MILLION DOLLARS ($11,000,000.00) for the payment of which sum, well and truly to be made, we
bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally,
firmly by these presents.
THE CONDITIONS OF THE OBLIGATION ARE AS FOLLOWS:
WHEREAS, the above bounden PRINCIPAL, on the 12th day of December, 1996 entered into a
contract agreement with the aforementioned OBLIGEES to fully and faithfully
Guarantee the repayment of the principal and interest on the loan granted the PRINCIPAL to be used
for the financing of the two (2) year lease of a Russian Satellite from INTERSPUTNIK, in accordance
with the terms and conditions of the credit package entered into by the parties.
This bond shall remain valid and effective until the loan including interest has been fully paid and
liquidated,
a copy of which contract/agreement is hereto attached and made part hereof;
WHEREAS, the aforementioned OBLIGEES require said PRINCIPAL to give a good and sufficient
bond in the above stated sum to secure the full and faithful performance on his part of said
contract/agreement.
NOW, THEREFORE, if the PRINCIPAL shall well and truly perform and fulfill all the undertakings,
covenants, terms, conditions, and agreements stipulated in said contract/agreements, then this
obligation shall be null and void; otherwise, it shall remain in full force and effect.
WITNESS OUR HANDS AND SEALS this 13th day of December 1996 at Pasay City, Philippines.
DOMSAT HOLDINGS, INC. GOVERNMENT SERVICE INSURANCE SYSTEM

Principal General Insurance Fund
By: By:
CAPT. RODRIGO A. SILVERIO AMALIO A. MALLARI

President Senior Vice-President
General Insurance Group
When Domsat failed to pay the loan, GSIS refused to comply with its obligation reasoning that Domsat did not use
the loan proceeds for the payment of rental for the satellite. GSIS alleged that Domsat, with Westmont Bank as the
conduit, transferred the U.S. $11 Million loan proceeds from the Industrial Bank of Korea to Citibank New York
account of Westmont Bank and from there to the Binondo Branch of Westmont Bank.5 The Banks filed a complaint
before the RTC of Makati against Domsat and GSIS.
In the course of the hearing, GSIS requested for the issuance of a subpoena duces tecum to the custodian of
records of Westmont Bank to produce the following documents:
1. Ledger covering the account of DOMSAT Holdings, Inc. with Westmont Bank (now United Overseas Bank),
any and all documents, records, files, books, deeds, papers, notes and other data and materials relating to
the account or transactions of DOMSAT Holdings, Inc. with or through the Westmont Bank (now United
Overseas Bank) for the period January 1997 to December 2002, in his/her direct or indirect possession,
custody or control (whether actual or constructive), whether in his/her capacity as Custodian of Records or
otherwise;
2. All applications for cashier’s/ manager’s checks and bank transfers funded by the account of DOMSAT
Holdings, Inc. with or through the Westmont Bank (now United Overseas Bank) for the period January 1997
to December 2002, and all other data and materials covering said applications, in his/her direct or indirect
possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of
Records or otherwise;
3. Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont Bank (now United Overseas
Bank), any and all documents, records, files, books, deeds, papers, notes and other data and materials
relating to the account or transactions of Philippine Agila Satellite, Inc. with or through the Westmont bank
(now United Overseas Bank) for the period January 1997 to December 2002, in his/her direct or indirect
possession, custody or control (whether actual or constructive), whether in his/her capacity as Custodian of
Records or otherwise;
4. All applications for cashier’s/manager’s checks funded by the account of Philippine Agila Satellite, Inc. with
or through the Westmont Bank (now United Overseas Bank) for the period January 1997 to December 2002,
and all other data and materials covering said applications, in his/her direct or indirect possession, custody or
control (whether actual or constructive), whether in his/her capacity as Custodian of Records or otherwise.6
The RTC issued a subpoena decus tecum on 21 November 2002.7 A motion to quash was filed by the banks on
three grounds: 1) the subpoena is unreasonable, oppressive and does not establish the relevance of the documents
sought; 2) request for the documents will violate the Law on Secrecy of Bank Deposits; and 3) GSIS failed to
advance the reasonable cost of production of the documents.8 Domsat also joined the banks’ motion to quash
through its Manifestation/Comment.9 On 9 April 2003, the RTC issued an Order denying the motion to quash for
lack of merit. We quote the pertinent portion of the Order, thus:
After a careful consideration of the arguments of the parties, the Court did not find merit in the motion.
The serious objection appears to be that the subpoena is violative of the Law on Secrecy of Bank Deposit, as
amended. The law declares bank deposits to be "absolutely confidential" except: x x x (6) In cases where the money
deposited or invested is the subject matter of the litigation.
The case at bench is for the collection of a sum of money from defendants that obtained a loan from the plaintiff.
The loan was secured by defendant GSIS which was the surety. It is the contention of defendant GSIS that the
proceeds of the loan was deviated to purposes other than to what the loan was extended. The quashal of the
subpoena would deny defendant GSIS its right to prove its defenses.
WHEREFORE, for lack of merit the motion is DENIED.10
On 26 June 2003, another Order was issued by the RTC denying the motion for reconsideration filed by the
banks.11 On 1 September 2003 however, the trial court granted the second motion for reconsideration filed by the
banks. The previous subpoenas issued were consequently quashed.12 The trial court invoked the ruling in Intengan
v. Court of Appeals,13 where it was ruled that foreign currency deposits are absolutely confidential and may be
examined only when there is a written permission from the depositor. The motion for reconsideration filed by GSIS
was denied on 30 December 2003.
Hence, these assailed orders are the subject of the petition for certiorari before the Court of Appeals. GSIS raised
the following arguments in support of its petition:
I.
Respondent Judge acted with grave abuse of discretion when it favorably considered respondent
banks’ (second) Motion for Reconsideration dated July 9, 2003 despite the fact that it did not contain a
notice of hearing and was therefore a mere scrap of paper.
II.
Respondent judge capriciously and arbitrarily ignored Section 2 of the Foreign Currency Deposit Act
(RA 6426) in ruling in his Orders dated September 1 and December 30, 2003 that the
US$11,000,000.00 deposit in the account of respondent Domsat in Westmont Bank is covered by the
secrecy of bank deposit.
III.
Since both respondent banks and respondent Domsat have disclosed during the trial the
US$11,000,000.00 deposit, it is no longer secret and confidential, and petitioner GSIS’ right to inquire
into what happened to such deposit can not be suppressed.14
The Court of Appeals addressed these issues in seriatim.
The Court of Appeals resorted to a liberal interpretation of the rules to avoid miscarriage of justice when it allowed
the filing and acceptance of the second motion for reconsideration. The appellate court also underscored the fact
that GSIS did not raise the defect of lack of notice in its opposition to the second motion for reconsideration. The
appellate court held that failure to timely object to the admission of a defective motion is considered a waiver of its
right to do so.
The Court of Appeals declared that Domsat’s deposit in Westmont Bank is covered by Republic Act No. 6426 or the
Bank Secrecy Law. We quote the pertinent portion of the Decision:
It is our considered opinion that Domsat’s deposit of $11,000,000.00 in Westmont Bank is covered by the Bank
Secrecy Law, as such it cannot be examined, inquired or looked into without the written consent of its owner. The
ruling in Van Twest vs. Court of Appeals was rendered during the effectivity of CB Circular No. 960, Series of 1983,
under Sec. 102 thereof, transfer to foreign currency deposit account or receipt from another foreign currency deposit
account, whether for payment of legitimate obligation or otherwise, are not eligible for deposit under the System.
CB Circular No. 960 has since been superseded by CB Circular 1318 and later by CB Circular 1389. Section 102 of
Circular 960 has not been re-enacted in the later Circulars. What is applicable now is the decision in Intengan vs.
Court of Appeals where the Supreme Court has ruled that the under R.A. 6426 there is only a single exception to
the secrecy of foreign currency deposits, that is, disclosure is allowed only upon the written permission of the
depositor. Petitioner, therefore, had inappropriately invoked the provisions of Central Bank (CB) Circular Nos. 343
which has already been superseded by more recently issued CB Circulars. CB Circular 343 requires the surrender
to the banking system of foreign exchange, including proceeds of foreign borrowings. This requirement, however,
can no longer be found in later circulars.
In its Reply to respondent banks’ comment, petitioner appears to have conceded that what is applicable in this case
is CB Circular 1389. Obviously, under CB 1389, proceeds of foreign borrowings are no longer required to be
surrendered to the banking system.
Undaunted, petitioner now argues that paragraph 2, Section 27 of CB Circular 1389 is applicable because Domsat’s
$11,000,000.00 loan from respondent banks was intended to be paid to a foreign supplier Intersputnik and,
therefore, should have been paid directly to Intersputnik and not deposited into Westmont Bank. The fact that it was
deposited to the local bank Westmont Bank, petitioner claims violates the circular and makes the deposit lose its
confidentiality status under R.A. 6426. However, a reading of the entire Section 27 of CB Circular 1389 reveals that
the portion quoted by the petitioner refers only to the procedure/conditions of drawdown for service of debts using
foreign exchange. The above-said provision relied upon by the petitioner does not in any manner prescribe the
conditions before any foreign currency deposit can be entitled to the confidentiality provisions of R.A. 6426.15
Anent the third issue, the Court of Appeals ruled that the testimony of the incumbent president of Westmont Bank is
not the written consent contemplated by Republic Act No. 6426.
The Court of Appeals however upheld the issuance of subpoena praying for the production of applications for
cashier’s or manager’s checks by Domsat through Westmont Bank, as well as a copy of an Agreement and/or
Contract and/or Memorandum between Domsat and/or Philippine Agila Satellite and Intersputnik for the acquisition
and/or lease of a Gorizon Satellite. The appellate court believed that the production of these documents does not
involve the examination of Domsat’s account since it will never be known how much money was deposited into it or
withdrawn therefrom and how much remains therein.
On 29 February 2008, the Court of Appeals rendered the assailed Decision, the decretal portion of which reads:
WHEREFORE, the petition is partially GRANTED. Accordingly, the assailed Order dated December 30, 2003 is
hereby modified in that the quashal of the subpoena for the production of Domsat’s bank ledger in Westmont Bank
is upheld while respondent court is hereby ordered to issue subpoena duces tecum ad testificandum directing the
records custodian of Westmont Bank to bring to court the following documents:
a) applications for cashier’s or manager’s checks by respondent Domsat through Westmont Bank from
January 1997 to December 2002;
b) bank transfers by respondent Domsat through Westmont Bank from January 1997 to December 2002; and
c) copy of an agreement and/or contract and/or memorandum between respondent Domsat and/or Philippine
Agila Satellite and Intersputnik for the acquisition and/or lease of a Gorizon satellite.
No pronouncement as to costs.16
GSIS filed a motion for reconsideration which the Court of Appeals denied on 19 June 2009. Thus, the instant
petition ascribing grave abuse of discretion on the part of the Court of Appeals in ruling that Domsat’s deposit with
Westmont Bank cannot be examined and in finding that the banks’ second motion for reconsideration in Civil Case
No. 99-1853 is procedurally acceptable.17
This Court notes that GSIS filed a petition for certiorari under Rule 65 of the Rules of Court to assail the Decision
and Resolution of the Court of Appeals. Petitioner availed of the improper remedy as the appeal from a final
disposition of the Court of Appeals is a petition for review under Rule 45 and not a special civil action under Rule
65.18 Certiorari under Rule 65 lies only when there is no appeal, nor plain, speedy and adequate remedy in the
ordinary course of law. That action is not a substitute for a lost appeal in general; it is not allowed when a party to a
case fails to appeal a judgment to the proper forum.19 Where an appeal is available, certiorari will not prosper even
if the ground therefor is grave abuse of discretion. Accordingly, when a party adopts an improper remedy, his
petition may be dismissed outright.20 lauuphil
Yet, even if this procedural infirmity is discarded for the broader interest of justice, the petition sorely lacks merit.
GSIS insists that Domsat’s deposit with Westmont Bank can be examined and inquired into. It anchored its
argument on Republic Act No. 1405 or the "Law on Secrecy of Bank Deposits," which allows the disclosure of bank
deposits in cases where the money deposited is the subject matter of the litigation. GSIS asserts that the subject
matter of the litigation is the U.S. $11 Million obtained by Domsat from the Banks to supposedly finance the lease of
a Russian satellite from Intersputnik. Whether or not it should be held liable as a surety for the principal amount of
U.S. $11 Million, GSIS contends, is contingent upon whether Domsat indeed utilized the amount to lease a Russian
satellite as agreed in the Surety Bond Agreement. Hence, GSIS argues that the whereabouts of the U.S. $11 Million
is the subject matter of the case and the disclosure of bank deposits relating to the U.S. $11 Million should be
allowed.
GSIS also contends that the concerted refusal of Domsat and the banks to divulge the whereabouts of the U.S. $11
Million will greatly prejudice and burden the GSIS pension fund considering that a substantial portion of this fund is
earmarked every year to cover the surety bond issued.
Lastly, GSIS defends the acceptance by the trial court of the second motion for reconsideration filed by the banks on
the grounds that it is pro forma and did not conform to the notice requirements of Section 4, Rule 15 of the Rules of
Civil Procedure.21
Domsat denies the allegations of GSIS and reiterates that it did not give a categorical or affirmative written consent
or permission to GSIS to examine its bank statements with Westmont Bank.
The Banks maintain that Republic Act No. 1405 is not the applicable law in the instant case because the Domsat
deposit is a foreign currency deposit, thus covered by Republic Act No. 6426. Under said law, only the consent of
the depositor shall serve as the exception for the disclosure of his/her deposit.
The Banks counter the arguments of GSIS as a mere rehash of its previous arguments before the Court of Appeals.
They justify the issuance of the subpoena as an interlocutory matter which may be reconsidered anytime and that
the pro forma rule has no application to interlocutory orders.
It appears that only GSIS appealed the ruling of the Court of Appeals pertaining to the quashal of the subpoena for
the production of Domsat’s bank ledger with Westmont Bank. Since neither Domsat nor the Banks interposed an
appeal from the other portions of the decision, particularly for the production of applications for cashier’s or
manager’s checks by Domsat through Westmont Bank, as well as a copy of an agreement and/or contract and/or
memorandum between Domsat and/or Philippine Agila Satellite and Intersputnik for the acquisition and/or lease of a
Gorizon satellite, the latter became final and executory.
GSIS invokes Republic Act No. 1405 to justify the issuance of the subpoena while the banks cite Republic Act No.
6426 to oppose it. The core issue is which of the two laws should apply in the instant case.
Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by Presidential Decree No. 1792
in 1981 and further amended by Republic Act No. 7653 in 1993. It now reads:
Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments
in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment,
or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the
money deposited or invested is the subject matter of the litigation.
Section 8 of Republic Act No. 6426, which was enacted in 1974, and amended by Presidential Decree No. 1035 and
later by Presidential Decree No. 1246, provides:
Section 8. Secrecy of Foreign Currency Deposits. – All foreign currency deposits authorized under this Act, as
amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential
Decree No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the
written permission of the depositor, in no instance shall foreign currency deposits be examined, inquired or looked
into by any person, government official, bureau or office whether judicial or administrative or legislative or any other
entity whether public or private; Provided, however, That said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body, government agency or any
administrative body whatsoever. (As amended by PD No. 1035, and further amended by PD No. 1246, prom. Nov.
21, 1977.)
On the one hand, Republic Act No. 1405 provides for four (4) exceptions when records of deposits may be
disclosed. These are under any of the following instances: a) upon written permission of the depositor, (b) in cases
of impeachment, (c) upon order of a competent court in the case of bribery or dereliction of duty of public officials or,
(d) when the money deposited or invested is the subject matter of the litigation, and e) in cases of violation of the
Anti-Money Laundering Act (AMLA), the Anti-Money Laundering Council (AMLC) may inquire into a bank account
upon order of any competent court.22 On the other hand, the lone exception to the non-disclosure of foreign
currency deposits, under Republic Act No. 6426, is disclosure upon the written permission of the depositor.
These two laws both support the confidentiality of bank deposits. There is no conflict between them. Republic Act
No. 1405 was enacted for the purpose of giving encouragement to the people to deposit their money in banking
institutions and to discourage private hoarding so that the same may be properly utilized by banks in authorized
loans to assist in the economic development of the country.23 It covers all bank deposits in the Philippines and no
distinction was made between domestic and foreign deposits. Thus, Republic Act No. 1405 is considered a law of
general application. On the other hand, Republic Act No. 6426 was intended to encourage deposits from foreign
lenders and investors.24 It is a special law designed especially for foreign currency deposits in the Philippines. A
general law does not nullify a specific or special law. Generalia specialibus non derogant.25 Therefore, it is beyond
cavil that Republic Act No. 6426 applies in this case.
Intengan v. Court of Appeals affirmed the above-cited principle and categorically declared that for foreign currency
deposits, such as U.S. dollar deposits, the applicable law is Republic Act No. 6426.
In said case, Citibank filed an action against its officers for persuading their clients to transfer their dollar deposits to
competitor banks. Bank records, including dollar deposits of petitioners, purporting to establish the deception
practiced by the officers, were annexed to the complaint. Petitioners now complained that Citibank violated Republic
Act No. 1405. This Court ruled that since the accounts in question are U.S. dollar deposits, the applicable law
therefore is not Republic Act No. 1405 but Republic Act No. 6426.
The above pronouncement was reiterated in China Banking Corporation v. Court of Appeals,26 where respondent
accused his daughter of stealing his dollar deposits with Citibank. The latter allegedly received the checks from
Citibank and deposited them to her account in China Bank. The subject checks were presented in evidence. A
subpoena was issued to employees of China Bank to testify on these checks. China Bank argued that the Citibank
dollar checks with both respondent and/or her daughter as payees, deposited with China Bank, may not be looked
into under the law on secrecy of foreign currency deposits. This Court highlighted the exception to the non-
disclosure of foreign currency deposits, i.e., in the case of a written permission of the depositor, and ruled that
respondent, as owner of the funds unlawfully taken and which are undisputably now deposited with China Bank, he
has the right to inquire into the said deposits.
Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat, Westmont Bank cannot
be legally compelled to disclose the bank deposits of Domsat, otherwise, it might expose itself to criminal liability
under the same act.27
The basis for the application of subpoena is to prove that the loan intended for Domsat by the Banks and
guaranteed by GSIS, was diverted to a purpose other than that stated in the surety bond. The Banks, however,
argue that GSIS is in fact liable to them for the proper applications of the loan proceeds and not vice-versa. We are
however not prepared to rule on the merits of this case lest we pre-empt the findings of the lower courts on the
matter.
The third issue raised by GSIS was properly addressed by the appellate court. The appellate court maintained that
the judge may, in the exercise of his sound discretion, grant the second motion for reconsideration despite its being
pro forma. The appellate court correctly relied on precedents where this Court set aside technicality in favor of
substantive justice. Furthermore, the appellate court accurately pointed out that petitioner did not assail the defect of
lack of notice in its opposition to the second motion of reconsideration, thus it can be considered a waiver of the
defect.
WHEREFORE, the petition for certiorari is DISMISSED. The Decision dated 29 February 2008 and 19 June 2009
Resolution of the Court of Appeals are hereby AFFIRMED.
SO ORDERED.
JOSE PORTUGAL PEREZ

Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
PRESBITERO J. VELASCO, JR. TERESITA J. LEONARDO-DE CASTRO

MARIANO C. DEL CASTILLO

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.
RENATO C. CORONA
Chief Justice
Footnotes
1 Penned by Associate Justice Agustin S. Dizon with Associate Justices Amelita G. Tolentino and Lucenito N.
Tagle, concurring. Rollo, pp. 32-44.
2 Id. at 48-91.
3 Id. at 55.
4 Id. at 92-93.
5 Id. at 9.
6 CA rollo, pp. 178-179.
7 Id. at 201-203.
8 Id. at 181.
9 Id. at 201-205.
10 Id. at 225.
11 Id. at 265.
12 Id. at 317.
13 427 Phil. 293 (2002).
14 CA rollo, pp. 16, 20 and 25.
15 Rollo, pp. 39-40.

16 Id. at 43-44.
17 Petition. Id. at 13.
18 Bicol Agro-Industrial Producers Cooperative, Inc. v. Obias, G.R. No. 172077, 9 October 2009, 603 SCRA
173, 184-185 citing National Irrigation Administration v. Court of Appeals, 376 Phil. 362, 371 (1999).
19 National Power Corporation v. Laohoo, G.R. No. 151973, 23 July 2009, 593 SCRA 564, 588 citing Leca
Realty Corporation v. Republic, G.R. No. 155605, 27 September 2006, 503 SCRA 563, 571.
20 Sable v. People, G.R. No. 177961, 7 April 2009, 584 SCRA 619, 629-630 citing Mercado v. Court of
Appeals, 484 Phil. 438, 444 (2004); VMC Rural Electric Service Cooperative, Inc. v. Court of Appeals, G.R.
No. 153144, 16 October 2006, 504 SCRA 336, 352.
21 Section 4. Hearing of motion. — Except for motions which the court may act upon without prejudicing the
rights of the adverse party, every written motion shall be set for hearing by the applicant.
Every written motion required to be heard and the notice of the hearing thereof shall be served in such a
manner as to ensure its receipt by the other party at least three (3) days before the date of hearing, unless
the court for good cause sets the hearing on shorter notice.
22 Republic v. Eugenio, Jr., G.R. No. 174629, 14 February 2008, 545 SCRA 384, 415-416.
23 Sec. 1, Republic Act No. 1405.
24 See China Banking Corporation v. Court of Appeals, G.R. No. 140687, 18 December 2006, 511 SCRA 110,
117.
25 Tomawis v. Balindong, G.R. No. 182434, 5 March 2010, 614 SCRA 354, 367-368 citing Agpalo, Statutory
Construction, p. 415 (2003).
26 Supra note 24.
27 Section 10. Penal provisions. – Any willful violation of this Act or any regulation duly promulgated by the
Monetary Board pursuant hereto shall subject the offender upon conviction to an imprisonment of not less
than one year nor more than five years or a fine of not less than five thousand pesos nor more than twenty-
five thousand pesos, or both such fine and imprisonment at the discretion of the court.

Custom Search

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 192413 June 13, 2012
Rizal Commercial Banking Corporation, Petitioner,

vs.
Hi-Tri Development Corporation and Luz R. Bakunawa, Respondents.
DECISION
SERENO, J.:
Before the Court is a Rule 45 Petition for Review on Certiorari filed by petitioner Rizal Commercial Banking
Corporation (RCBC) against respondents Hi-Tri Development Corporation (Hi-Tri) and Luz R. Bakunawa
(Bakunawa). Petitioner seeks to appeal from the 26 November 2009 Decision and 27 May 2010 Resolution of the
Court of Appeals (CA),1 which reversed and set aside the 19 May 2008 Decision and 3 November 2008 Order of the
Makati City Regional Trial Court (RTC) in Civil Case No. 06-244.2 The case before the RTC involved the Complaint
for Escheat filed by the Republic of the Philippines (Republic) pursuant to Act No. 3936, as amended by Presidential
Decree No. 679 (P.D. 679), against certain deposits, credits, and unclaimed balances held by the branches of
various banks in the Philippines. The trial court declared the amounts, subject of the special proceedings, escheated
to the Republic and ordered them deposited with the Treasurer of the Philippines (Treasurer) and credited in favor of
the Republic.3 The assailed RTC judgments included an unclaimed balance in the amount of ₱ 1,019,514.29,
maintained by RCBC in its Ermita Business Center branch.
We quote the narration of facts of the CA4 as follows:
x x x Luz [R.] Bakunawa and her husband Manuel, now deceased ("Spouses Bakunawa") are registered owners of
six (6) parcels of land covered by TCT Nos. 324985 and 324986 of the Quezon City Register of Deeds, and TCT
Nos. 103724, 98827, 98828 and 98829 of the Marikina Register of Deeds. These lots were sequestered by the
Presidential Commission on Good Government [(PCGG)].
Sometime in 1990, a certain Teresita Millan ("Millan"), through her representative, Jerry Montemayor, offered to buy
said lots for "₱ 6,724,085.71", with the promise that she will take care of clearing whatever preliminary obstacles
there may[]be to effect a "completion of the sale". The Spouses Bakunawa gave to Millan the Owner’s Copies of
said TCTs and in turn, Millan made a down[]payment of "₱ 1,019,514.29" for the intended purchase. However, for
one reason or another, Millan was not able to clear said obstacles. As a result, the Spouses Bakunawa rescinded
the sale and offered to return to Millan her down[]payment of ₱ 1,019,514.29. However, Millan refused to accept
back the ₱ 1,019,514.29 down[]payment. Consequently, the Spouses Bakunawa, through their company, the Hi-Tri
Development Corporation ("Hi-Tri") took out on October 28, 1991, a Manager’s Check from RCBC-Ermita in the
amount of ₱ 1,019,514.29, payable to Millan’s company Rosmil Realty and Development Corporation ("Rosmil") c/o
Teresita Millan and used this as one of their basis for a complaint against Millan and Montemayor which they filed
with the Regional Trial Court of Quezon City, Branch 99, docketed as Civil Case No. Q-91-10719 [in 1991], praying
that:
1. That the defendants Teresita Mil[l]an and Jerry Montemayor may be ordered to return to plaintiffs spouses
the Owners’ Copies of Transfer Certificates of Title Nos. 324985, 324986, 103724, 98827, 98828 and 98829;
2. That the defendant Teresita Mil[l]an be correspondingly ordered to receive the amount of One Million
Nineteen Thousand Five Hundred Fourteen Pesos and Twenty Nine Centavos (₱ 1,019,514.29);
3. That the defendants be ordered to pay to plaintiffs spouses moral damages in the amount of ₱
2,000,000.00; and
4. That the defendants be ordered to pay plaintiffs attorney’s fees in the amount of ₱ 50,000.00.
Being part and parcel of said complaint, and consistent with their prayer in Civil Case No. Q-91-10719 that "Teresita
Mil[l]an be correspondingly ordered to receive the amount of One Million Nineteen Thousand Five Hundred
Fourteen Pesos and Twenty Nine [Centavos] ("₱ 1,019,514.29")["], the Spouses Bakunawa, upon advice of their
counsel, retained custody of RCBC Manager’s Check No. ER 034469 and refrained from canceling or negotiating it.
All throughout the proceedings in Civil Case No. Q-91-10719, especially during negotiations for a possible
settlement of the case, Millan was informed that the Manager’s Check was available for her withdrawal, she being
the payee.
On January 31, 2003, during the pendency of the abovementioned case and without the knowledge of [Hi-Tri and
Spouses Bakunawa], x x x RCBC reported the "₱ 1,019,514.29-credit existing in favor of Rosmil" to the Bureau of
Treasury as among its "unclaimed balances" as of January 31, 2003. Allegedly, a copy of the Sworn Statement
executed by Florentino N. Mendoza, Manager and Head of RCBC’s Asset Management, Disbursement & Sundry
Department ("AMDSD") was posted within the premises of RCBC-Ermita.
On December 14, 2006, x x x Republic, through the [Office of the Solicitor General (OSG)], filed with the RTC the
action below for Escheat [(Civil Case No. 06-244)].
On April 30, 2008, [Spouses Bakunawa] settled amicably their dispute with Rosmil and Millan. Instead of only the
amount of "₱ 1,019,514.29", [Spouses Bakunawa] agreed to pay Rosmil and Millan the amount of "₱ 3,000,000.00",
[which is] inclusive [of] the amount of ["]₱ 1,019,514.29". But during negotiations and evidently prior to said
settlement, [Manuel Bakunawa, through Hi-Tri] inquired from RCBC-Ermita the availability of the ₱ 1,019,514.29
under RCBC Manager’s Check No. ER 034469. [Hi-Tri and Spouses Bakunawa] were however dismayed when they
were informed that the amount was already subject of the escheat proceedings before the RTC.
On April 17, 2008, [Manuel Bakunawa, through Hi-Tri] wrote x x x RCBC, viz:
"We understand that the deposit corresponding to the amount of Php 1,019,514.29 stated in the Manager’s Check is
currently the subject of escheat proceedings pending before Branch 150 of the Makati Regional Trial Court.
Please note that it was our impression that the deposit would be taken from [Hi-Tri’s] RCBC bank account once an
order to debit is issued upon the payee’s presentation of the Manager’s Check. Since the payee rejected the
negotiated Manager’s Check, presentation of the Manager’s Check was never made.
Consequently, the deposit that was supposed to be allocated for the payment of the Manager’s Check was
supposed to remain part of the Corporation[’s] RCBC bank account, which, thereafter, continued to be actively
maintained and operated. For this reason, We hereby demand your confirmation that the amount of Php
1,019,514.29 continues to form part of the funds in the Corporation’s RCBC bank account, since pay-out of said
amount was never ordered. We wish to point out that if there was any attempt on the part of RCBC to consider the
amount indicated in the Manager’s Check separate from the Corporation’s bank account, RCBC would have issued
a statement to that effect, and repeatedly reminded the Corporation that the deposit would be considered dormant
absent any fund movement. Since the Corporation never received any statements of account from RCBC to that
effect, and more importantly, never received any single letter from RCBC noting the absence of fund movement and
advising the Corporation that the deposit would be treated as dormant."
On April 28, 2008, [Manuel Bakunawa] sent another letter to x x x RCBC reiterating their position as above-quoted.
In a letter dated May 19, 2008, x x x RCBC replied and informed [Hi-Tri and Spouses Bakunawa] that:
"The Bank’s Ermita BC informed Hi-Tri and/or its principals regarding the inclusion of Manager’s Check No.
ER034469 in the escheat proceedings docketed as Civil Case No. 06-244, as well as the status thereof, between 28
January 2008 and 1 February 2008.
xxx xxx xxx
Contrary to what Hi-Tri hopes for, the funds covered by the Manager’s Check No. ER034469 does not form part of
the Bank’s own account. By simple operation of law, the funds covered by the manager’s check in issue became a
deposit/credit susceptible for inclusion in the escheat case initiated by the OSG and/or Bureau of Treasury.
xxx xxx xxx

Granting arguendo that the Bank was duty-bound to make good the check, the Bank’s obligation to do so prescribed
as early as October 2001."
(Emphases, citations, and annotations were omitted.)
The RTC Ruling
The escheat proceedings before the Makati City RTC continued. On 19 May 2008, the trial court rendered its
assailed Decision declaring the deposits, credits, and unclaimed balances subject of Civil Case No. 06-244
escheated to the Republic. Among those included in the order of forfeiture was the amount of ₱ 1,019,514.29 held
by RCBC as allocated funds intended for the payment of the Manager’s Check issued in favor of Rosmil. The trial
court ordered the deposit of the escheated balances with the Treasurer and credited in favor of the Republic.
Respondents claim that they were not able to participate in the trial, as they were not informed of the ongoing
escheat proceedings.
Consequently, respondents filed an Omnibus Motion dated 11 June 2008, seeking the partial reconsideration of the
RTC Decision insofar as it escheated the fund allocated for the payment of the Manager’s Check. They asked that
they be included as party-defendants or, in the alternative, allowed to intervene in the case and their motion
considered as an answer-in-intervention. Respondents argued that they had meritorious grounds to ask
reconsideration of the Decision or, alternatively, to seek intervention in the case. They alleged that the deposit was
subject of an ongoing dispute (Civil Case No. Q-91-10719) between them and Rosmil since 1991, and that they
were interested parties to that case.5
On 3 November 2008, the RTC issued an Order denying the motion of respondents. The trial court explained that
the Republic had proven compliance with the requirements of publication and notice, which served as notice to all
those who may be affected and prejudiced by the Complaint for Escheat. The RTC also found that the motion failed
to point out the findings and conclusions that were not supported by the law or the evidence presented, as required
by Rule 37 of the Rules of Court. Finally, it ruled that the alternative prayer to intervene was filed out of time.
The CA Ruling
On 26 November 2009, the CA issued its assailed Decision reversing the 19 May 2008 Decision and 3 November
2008 Order of the RTC. According to the appellate court,6 RCBC failed to prove that the latter had communicated
with the purchaser of the Manager’s Check (Hi-Tri and/or Spouses Bakunawa) or the designated payee (Rosmil)
immediately before the bank filed its Sworn Statement on the dormant accounts held therein. The CA ruled that the
bank’s failure to notify respondents deprived them of an opportunity to intervene in the escheat proceedings and to
present evidence to substantiate their claim, in violation of their right to due process. Furthermore, the CA
pronounced that the Makati City RTC Clerk of Court failed to issue individual notices directed to all persons claiming
interest in the unclaimed balances, as well as to require them to appear after publication and show cause why the
unclaimed balances should not be deposited with the Treasurer of the Philippines. It explained that the jurisdictional
requirement of individual notice by personal service was distinct from the requirement of notice by publication.
Consequently, the CA held that the Decision and Order of the RTC were void for want of jurisdiction.
Issue
After a perusal of the arguments presented by the parties, we cull the main issues as follows:
I. Whether the Decision and Order of the RTC were void for failure to send separate notices to respondents
by personal service
II. Whether petitioner had the obligation to notify respondents immediately before it filed its Sworn Statement
with the Treasurer
III. Whether or not the allocated funds may be escheated in favor of the Republic
Discussion
Petitioner bank assails7 the CA judgments insofar as they ruled that notice by personal service upon respondents is
a jurisdictional requirement in escheat proceedings. Petitioner contends that respondents were not the owners of the
unclaimed balances and were thus not entitled to notice from the RTC Clerk of Court. It hinges its claim on the
theory that the funds represented by the Manager’s Check were deemed transferred to the credit of the payee or
holder upon its issuance.
We quote the pertinent provision of Act No. 3936, as amended, on the rule on service of processes, to wit:
Sec. 3. Whenever the Solicitor General shall be informed of such unclaimed balances, he shall commence an action
or actions in the name of the People of the Republic of the Philippines in the Court of First Instance of the province
or city where the bank, building and loan association or trust corporation is located, in which shall be joined as
parties the bank, building and loan association or trust corporation and all such creditors or depositors. All or any of
such creditors or depositors or banks, building and loan association or trust corporations may be included in one
action. Service of process in such action or actions shall be made by delivery of a copy of the complaint and
summons to the president, cashier, or managing officer of each defendant bank, building and loan association or
trust corporation and by publication of a copy of such summons in a newspaper of general circulation, either in
English, in Filipino, or in a local dialect, published in the locality where the bank, building and loan association or
trust corporation is situated, if there be any, and in case there is none, in the City of Manila, at such time as the court
may order. Upon the trial, the court must hear all parties who have appeared therein, and if it be determined that
such unclaimed balances in any defendant bank, building and loan association or trust corporation are unclaimed as
hereinbefore stated, then the court shall render judgment in favor of the Government of the Republic of the
Philippines, declaring that said unclaimed balances have escheated to the Government of the Republic of the
Philippines and commanding said bank, building and loan association or trust corporation to forthwith deposit the
same with the Treasurer of the Philippines to credit of the Government of the Republic of the Philippines to be used
as the National Assembly may direct.
At the time of issuing summons in the action above provided for, the clerk of court shall also issue a notice signed by
him, giving the title and number of said action, and referring to the complaint therein, and directed to all persons,
other than those named as defendants therein, claiming any interest in any unclaimed balance mentioned in said
complaint, and requiring them to appear within sixty days after the publication or first publication, if there are several,
of such summons, and show cause, if they have any, why the unclaimed balances involved in said action should not
be deposited with the Treasurer of the Philippines as in this Act provided and notifying them that if they do not
appear and show cause, the Government of the Republic of the Philippines will apply to the court for the relief
demanded in the complaint. A copy of said notice shall be attached to, and published with the copy of, said
summons required to be published as above, and at the end of the copy of such notice so published, there shall be
a statement of the date of publication, or first publication, if there are several, of said summons and notice. Any
person interested may appear in said action and become a party thereto. Upon the publication or the completion of
the publication, if there are several, of the summons and notice, and the service of the summons on the defendant
banks, building and loan associations or trust corporations, the court shall have full and complete jurisdiction in the
Republic of the Philippines over the said unclaimed balances and over the persons having or claiming any interest in
the said unclaimed balances, or any of them, and shall have full and complete jurisdiction to hear and determine the
issues herein, and render the appropriate judgment thereon. (Emphasis supplied.)
Hence, insofar as banks are concerned, service of processes is made by delivery of a copy of the complaint and
summons upon the president, cashier, or managing officer of the defendant bank.8 On the other hand, as to
depositors or other claimants of the unclaimed balances, service is made by publication of a copy of the summons in
a newspaper of general circulation in the locality where the institution is situated.9 A notice about the forthcoming
escheat proceedings must also be issued and published, directing and requiring all persons who may claim any
interest in the unclaimed balances to appear before the court and show cause why the dormant accounts should not
be deposited with the Treasurer.
Accordingly, the CA committed reversible error when it ruled that the issuance of individual notices upon
respondents was a jurisdictional requirement, and that failure to effect personal service on them rendered the
Decision and the Order of the RTC void for want of jurisdiction. Escheat proceedings are actions in rem,10 whereby
an action is brought against the thing itself instead of the person.11 Thus, an action may be instituted and carried to
judgment without personal service upon the depositors or other claimants.12 Jurisdiction is secured by the power of
the court over the res.13 Consequently, a judgment of escheat is conclusive upon persons notified by advertisement,
as publication is considered a general and constructive notice to all persons interested.14
Nevertheless, we find sufficient grounds to affirm the CA on the exclusion of the funds allocated for the payment of
the Manager’s Check in the escheat proceedings.
Escheat proceedings refer to the judicial process in which the state, by virtue of its sovereignty, steps in and claims
abandoned, left vacant, or unclaimed property, without there being an interested person having a legal claim
thereto.15 In the case of dormant accounts, the state inquires into the status, custody, and ownership of the
unclaimed balance to determine whether the inactivity was brought about by the fact of death or absence of or
abandonment by the depositor.16 If after the proceedings the property remains without a lawful owner interested to
claim it, the property shall be reverted to the state "to forestall an open invitation to self-service by the first
comers."17 However, if interested parties have come forward and lain claim to the property, the courts shall
determine whether the credit or deposit should pass to the claimants or be forfeited in favor of the state.18 We
emphasize that escheat is not a proceeding to penalize depositors for failing to deposit to or withdraw from their
accounts. It is a proceeding whereby the state compels the surrender to it of unclaimed deposit balances when there
is substantial ground for a belief that they have been abandoned, forgotten, or without an owner.19
Act No. 3936, as amended, outlines the proper procedure to be followed by banks and other similar institutions in
filing a sworn statement with the Treasurer concerning dormant accounts:
Sec. 2. Immediately after the taking effect of this Act and within the month of January of every odd year, all banks,
building and loan associations, and trust corporations shall forward to the Treasurer of the Philippines a statement,
under oath, of their respective managing officers, of all credits and deposits held by them in favor of persons known
to be dead, or who have not made further deposits or withdrawals during the preceding ten years or more, arranged
in alphabetical order according to the names of creditors and depositors, and showing:
(a) The names and last known place of residence or post office addresses of the persons in whose favor such
unclaimed balances stand;
(b) The amount and the date of the outstanding unclaimed balance and whether the same is in money or in
security, and if the latter, the nature of the same;
(c) The date when the person in whose favor the unclaimed balance stands died, if known, or the date when
he made his last deposit or withdrawal; and
(d) The interest due on such unclaimed balance, if any, and the amount thereof.
A copy of the above sworn statement shall be posted in a conspicuous place in the premises of the bank, building
and loan association, or trust corporation concerned for at least sixty days from the date of filing thereof: Provided,
That immediately before filing the above sworn statement, the bank, building and loan association, and trust
corporation shall communicate with the person in whose favor the unclaimed balance stands at his last known place
of residence or post office address.
It shall be the duty of the Treasurer of the Philippines to inform the Solicitor General from time to time the existence
of unclaimed balances held by banks, building and loan associations, and trust corporations. (Emphasis supplied.)
As seen in the afore-quoted provision, the law sets a detailed system for notifying depositors of unclaimed balances.
This notification is meant to inform them that their deposit could be escheated if left unclaimed. Accordingly, before
filing a sworn statement, banks and other similar institutions are under obligation to communicate with owners of
dormant accounts. The purpose of this initial notice is for a bank to determine whether an inactive account has
indeed been unclaimed, abandoned, forgotten, or left without an owner. If the depositor simply does not wish to
touch the funds in the meantime, but still asserts ownership and dominion over the dormant account, then the bank
is no longer obligated to include the account in its sworn statement.20 It is not the intent of the law to force depositors
into unnecessary litigation and defense of their rights, as the state is only interested in escheating balances that
have been abandoned and left without an owner.
In case the bank complies with the provisions of the law and the unclaimed balances are eventually escheated to
the Republic, the bank "shall not thereafter be liable to any person for the same and any action which may be
brought by any person against in any bank xxx for unclaimed balances so deposited xxx shall be defended by the
Solicitor General without cost to such bank."21 Otherwise, should it fail to comply with the legally outlined procedure
to the prejudice of the depositor, the bank may not raise the defense provided under Section 5 of Act No. 3936, as
amended.
Petitioner asserts22 that the CA committed a reversible error when it required RCBC to send prior notices to
respondents about the forthcoming escheat proceedings involving the funds allocated for the payment of the
Manager’s Check. It explains that, pursuant to the law, only those "whose favor such unclaimed balances stand" are
entitled to receive notices. Petitioner argues that, since the funds represented by the Manager’s Check were
deemed transferred to the credit of the payee upon issuance of the check, the proper party entitled to the notices
was the payee – Rosmil – and not respondents. Petitioner then contends that, in any event, it is not liable for failing
to send a separate notice to the payee, because it did not have the address of Rosmil. Petitioner avers that it was
not under any obligation to record the address of the payee of a Manager’s Check.
In contrast, respondents Hi-Tri and Bakunawa allege23 that they have a legal interest in the fund allocated for the
payment of the Manager’s Check. They reason that, since the funds were part of the Compromise Agreement
between respondents and Rosmil in a separate civil case, the approval and eventual execution of the agreement
effectively reverted the fund to the credit of respondents. Respondents further posit that their ownership of the funds
was evidenced by their continued custody of the Manager’s Check.
An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank (drawee),24 requesting the
latter to pay a person named therein (payee) or to the order of the payee or to the bearer, a named sum of money.25
The issuance of the check does not of itself operate as an assignment of any part of the funds in the bank to the
credit of the drawer.26 Here, the bank becomes liable only after it accepts or certifies the check.27 After the check is
accepted for payment, the bank would then debit the amount to be paid to the holder of the check from the account
of the depositor-drawer.
There are checks of a special type called manager’s or cashier’s checks. These are bills of exchange drawn by the
bank’s manager or cashier, in the name of the bank, against the bank itself.28 Typically, a manager’s or a cashier’s
check is procured from the bank by allocating a particular amount of funds to be debited from the depositor’s
account or by directly paying or depositing to the bank the value of the check to be drawn. Since the bank issues the
check in its name, with itself as the drawee, the check is deemed accepted in advance.29 Ordinarily, the check
becomes the primary obligation of the issuing bank and constitutes its written promise to pay upon demand.30
Nevertheless, the mere issuance of a manager’s check does not ipso facto work as an automatic transfer of funds to
the account of the payee. In case the procurer of the manager’s or cashier’s check retains custody of the
instrument, does not tender it to the intended payee, or fails to make an effective delivery, we find the following
provision on undelivered instruments under the Negotiable Instruments Law applicable:31
Sec. 16. Delivery; when effectual; when presumed. – Every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and
as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made
either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and, in
such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the
purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder in due
course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed.
And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the contrary is proved. (Emphasis supplied.)
Petitioner acknowledges that the Manager’s Check was procured by respondents, and that the amount to be paid
for the check would be sourced from the deposit account of Hi-Tri.32 When Rosmil did not accept the Manager’s
Check offered by respondents, the latter retained custody of the instrument instead of cancelling it. As the
Manager’s Check neither went to the hands of Rosmil nor was it further negotiated to other persons, the instrument
remained undelivered. Petitioner does not dispute the fact that respondents retained custody of the instrument.33
Since there was no delivery, presentment of the check to the bank for payment did not occur. An order to debit the
account of respondents was never made. In fact, petitioner confirms that the Manager’s Check was never
negotiated or presented for payment to its Ermita Branch, and that the allocated fund is still held by the bank.34 As a
result, the assigned fund is deemed to remain part of the account of Hi-Tri, which procured the Manager’s Check.
The doctrine that the deposit represented by a manager’s check automatically passes to the payee is inapplicable,
because the instrument – although accepted in advance – remains undelivered. Hence, respondents should have
been informed that the deposit had been left inactive for more than 10 years, and that it may be subjected to
escheat proceedings if left unclaimed. 1âwphi1
After a careful review of the RTC records, we find that it is no longer necessary to remand the case for hearing to
determine whether the claim of respondents was valid. There was no contention that they were the procurers of the
Manager’s Check. It is undisputed that there was no effective delivery of the check, rendering the instrument
incomplete. In addition, we have already settled that respondents retained ownership of the funds. As it is obvious
from their foregoing actions that they have not abandoned their claim over the fund, we rule that the allocated
deposit, subject of the Manager’s Check, should be excluded from the escheat proceedings. We reiterate our
pronouncement that the objective of escheat proceedings is state forfeiture of unclaimed balances. We further note
that there is nothing in the records that would show that the OSG appealed the assailed CA judgments. We take this
failure to appeal as an indication of disinterest in pursuing the escheat proceedings in favor of the Republic.
WHEREFORE the Petition is DENIED. The 26 November 2009 Decision and 27 May 2010 Resolution of the Court
of Appeals in CA-G.R. SP No. 107261 are hereby AFFIRMED.
SO ORDERED.

Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Senior Associate Justice
Chairperson
ARTURO D. BRION JOSE PORTUGAL PEREZ

BIENVENIDO L. REYES
Associate Justice
CERTIFICATION
I certify that the conclusions in the above had been reached in consultation before the case was assigned to the
ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. No. 296, The Judiciary Act of 1948, as amended)
Footnotes
1
The Decision and Resolution in CA-G.R. SP No. 107261 were penned by CA Associate Justice Vicente S.E.
Veloso and concurred in by Associate Justices Andres B. Reyes, Jr. and Marlene Gonzales-Sison.
2
The Decision and Order in Civil Case No. 06-244 (for Escheat) was penned by Judge Elmo M. Alameda.
3
CA Decision at 1-2 (Hi-Tri Development Corporation v. Republic of the Philippines, CA-G.R. SP No. 107261,
26 November 2009), rollo, pp. 61-62; RTC Decision at the 18th to the 19th pp. (unpaged) (Republic of the
Philippines v. Allied Banking Corporation, Civil Case No. 06-244, 19 May 2008), rollo, pp. 210-211.
4
CA Decision at 2-7, supra, rollo, pp. 62-67.
5
Omnibus Motion at 3-7 (Republic of the Philippines v. Allied Banking Corporation, Civil Case No. 06-244,
decided on 19 May 2008), rollo, pp. 217-221. See also RTC Judgment (Bakunawa v. Milan, Civil Case No. Q-
91-10719, 17 June 2008), rollo, pp. 287-289.
6
CA Decision at 14-16, supra note 3, rollo, pp. 74-76.
7
Petition for Review on Certiorari of RCBC at 41-49, rollo, pp. 43-51.
8
Act No. 3936, as amended by P.D. 679, Sec. 3; see also Security Savings Bank v. State of California, 263
U.S. 282 (1923).
9
Id.
10
Republic v. Court of First Instance, 247-A Phil. 85 (1988).
11
See Ramos v. Ramos, G.R. No. 144294, 11 March 2003, 399 SCRA 43.
12
See Grey v. De la Cruz, 17 Phil. 49 (1910).
13
Id.
14
Id. (citing Hamilton v. Brown, 161 U.S. 256 (1896)).
15
Black’s Law Dictionary 545 (6th ed. 1990); Act No. 3936, as amended by P.D. 679, Secs. 1 and 3. See
generally Republic v. Court of Appeals, 426 Phil. 177 (2002) and Roth v. Delano, 338 U.S. 226 (1949).
16
See Act No. 3936, as amended by P.D. 679, Sec. 1 and Security Savings Bank v. State of California, supra
note 8. See generally Roth v. Delano, supra.
17
Republic v. Court of Appeals, supra note 15, at 183-184.
18
See generally Roth v. Delano, supra note 15.
19
See also Anderson National Bank v. Luckett, 321 U.S. 233 (1944), cited in American Express Travel
Related Services Co., Inc. v. Kentucky, 641 F.3d 685 (6th Circ. 2011) (U.S.).
20
See generally Security Savings Bank v. State of California, supra note 8.
21
Act No. 3936, as amended by P.D. 679 (1975), Sec. 5.
22
23
Comment of Respondents at 7-8, rollo, pp. 651-652.
24
Act No. 2031 (1911), otherwise known as the Negotiable Instruments Law, Sec. 185.
25
Moran v. Court of Appeals, G.R. No. 105836, 7 March 1994, 230 SCRA 799.
26
Act No. 2031 (1911), otherwise known as the Negotiable Instruments Law, Sec. 189.
27
Id. at Sec. 127.
28
Bank of the Philippine Islands v. Roxas, G.R. No. 157833, 15 October 2007, 536 SCRA 168; International
Corporate Bank v. Gueco, 404 Phil. 353 (2001).
29
International Corporate Bank v. Gueco, supra.
30
Id.; Republic v. Philippine National Bank, 113 Phil. 828 (1961). A manager’s or a cashier’s check may be
treated as a promissory note and is the substantial equivalent of a certified check (Id.; Equitable PCI Bank v.
Ong, 533 Phil. 415 (2006); New Pacific Timber & Supply Co., Inc. v. Seneris, 189 Phil. 517 (1980)).
Certification signifies that the instrument was drawn upon sufficient funds; that funds have been set apart or
assigned for the satisfaction of the check in favor of the payee; and that the funds shall be so applied when
the check is presented for payment (Id.). Here, the deposit represented by the check is transferred from the
credit of the maker to that of the payee or holder (Id.). Thus, to all intents and purposes, the payee or holder
becomes the depositor of the drawee bank, with rights and duties of one in that situation (Id.).
31
Act No. 2031 (1911). See also Malloy v. Smith, 265 Md. 460, 290 A.2d 486, 57 A.L.R.3d 1076 (Md. Ct. App.
1972)(U.S.) (citing Pikeville Nat. Bank & Trust Co. v. Shirley, 281 Ky. 150, 135 S.W.2d 426 (Ky Ct. App. 1939)
(U.S.))
32
33
Id. at 53, rollo, p. 55.
34
Letter of RCBC to Hi-Tri at 2, Petition for Review on Certiorari of RCBC, Annex "N," rollo, p. 180.

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SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 172983 July 22, 2015
FAR EAST BANK AND TRUST COMPANY, Petitioner,

vs.
PHILIPPINE DEPOSIT INSURANCE CORPORATION, Respondent.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari1 filed by the petitioner Far East Bank and Trust Company
(FEBTC), assailing the May 31, 2006 decision2 of the Court of Appeals (CA) in CA-G.R. C.V. No. 56624.
The CA decision reversed and set aside the orders dated February 26, 1997, and May 21, 1997, of the Regional
Trial Court (RTC), Branch 31, Manila, in Special Proceeding No. 86-35313.
The Factual Antecedents
On July 5, 1985, the Central Bank of the Philippines (Central Bank) issued Monetary Board (MB) Resolution No.
699, placing Pacific Banking Corporation (PBC) under receivership.3
On October 28, 1985, the Central Bank formally invited banks to submit their proposals for the purchase of the
assets and franchise of the various offices of the PBC and the assumption of an equivalent amount of the PBC' s
liabilities.4
In answer to the formal invitation, the FEBTC submitted its bid5 on November 14, 1985.
The FEBTC's bid covered the purchase of the PBC's non-fixed and fixed assets and the assumption of the PBC's
recorded liabilities.6 According to the bid, the fixed assets are those described in the Asian Appraisal Report of
August 1, 1984, and August 9, 1984 (Asian Appraisal Report), which the FEBTC offered to purchase at a price
equivalent to the sound values indicated in the report, subject to the discounts proposed in the bid.7
Specifically, the assets and their corresponding valuation that were enumerated in the Asian Appraisal Report8 are
as follows:
Cost of Reproduction Sound Value
Cubao, Quezon City, Metropolitan Manila ₱19,604,000 ₱16,844,000

Paco, Manila 3,836,000 3,288,000
Sta. Cruz, Manila (Soler)9 3,126,750 2,455,750
Sta. Mesa, Manila 12,500,400 10,213,000
Bacolod City 12,522,900 9,728,000
Melencio Street, Cabanatuan City 3,878,600 3,157,500
A.V. Fernandez Avenue, Dagupan City 9,873,000 8,325,000
E. Tañedo Street, Tarlac, Tarlac 5,622,000 5,227,000

A. Flores Street, San Pablo City 3,434,800 3151,800
Cebu City 3,921,700 3,112,200
Davao City 6,844,200 5,938,800
Iloilo City 5,383,000 3,803,000
Quezon Avenue, San Fernando, La Union 3,587,800 2,729,400
Laoag City 1,781,000 1,293,000
Bo. Centro, Legaspi City 3,132,300 2,400,000

Poblacion, Naga City 6,280,900 5,569,600
Grand Total ₱105,329,350 ₱87,226,050
Rounded To ₱105,329,000 ₱87,226,000
On November 22, 1985, the Monetary Board issued MB Resolution No. 1234, accepting the FEBTC's bid after
finding it as the most advantageous.10
On April 16, 1986, the FEBTC as the buyer, the PBC as the seller, and the Central Bank entered into a
Memorandum of Agreement (MOA). The PBC was represented by its Liquidator Renan V. Santos (Liquidator
Santos)11 who was then the Special Assistant to the Central Bank Governor.
Section 112 of the MOA stated that the parties shall execute an absolute purchase agreement covering all the assets
of the PBC.13 Specifically, these assets covered the non-fixed assets, as provided under Section 3(a)14 of the MOA
and the fixed assets. defined under Section 3(c).15 Reflecting the FEBTC's bid, Section 3(c)16 of the MOA stated that
the fixed assets are those enumerated in the Asian Appraisal Report dated August 1984.17
The parties agreed, however, in Section l(a)(vii) of the MOA that the PBC assets submitted to the Central Bank as
collaterals shall be excluded from the purchase.18
In accordance with Section 1(a)19 of the MOA, the PBC as the seller, the FEBTC as the buyer, and the Central Bank,
executed a purchase agreement (PA) for the FEBTC's purchase of the PBC assets and the assumption of its
liabilities.20 The PBC was again represented by Liquidator Santos.
The PA merely covered the non-fixed assets of the PBC and did not include the fixed assets agreed upon under
Section 3(c)21 of the MOA.22
The parties acknowledged, however, that there were other assets not yet covered by the PA and that the parties
may agree, within a period of ninety (90) days from the effectivity date of the PA, to purchase the additional assets.23
The parties agreed that the effectivity date of the PA shall be the date of its approval by the Liquidation Court.24
The PA was approved25 by the Monetary Board on October 24, 1986, and by the RTC, as the liquidating court, on
December 18, 1986.26
According to the FEBTC, it complied with its obligation under the MOA, including the payment of ₱260,000,000.00
as additional consideration for the purchase. The FEBTC also took possession and custody of the fixed assets of
1avvphi1
the PBC, including those mentioned in the Asian Appraisal Report, and opened its branches thereon including the
servicing of the PBC's deposit liability.27
In January 1987, the FEBTC wrote a letter to Liquidator Santos, following up the execution of the deeds of sale over
the fixed assets of the PBC.28
Initially, Liquidator Santos positively responded to the FEBTC request by furnishing it with copies of the transfer
certificates of title of the fixed assets.29 However, he failed to execute the purchase agreement covering the disputed
fixed assets.30
The respondent Philippine Deposit Insurance Commission (PDIC), thereafter, took over as the new PBC Liquidator.
The PDIC President Mr. Vitaliano Nañagas II (Liquidator Nañagas) replaced Liquidator Santos.
Liquidator Nañagas informed the FEBTC that all the fixed assets of the PBC can be purchased only at their present
appraisal value which is much higher than their sound value.31 He also proceeded to start the bidding or negotiated
sale to third persons of the PBC's fixed assets, including those enumerated in the Asian Appraisal's Report.32
This move prompted the FEBTC to file before the RTC (the Liquidating Court) a motion to compel the Liquidator to
execute the implementing deeds of sale over the disputed PBC fixed assets,33 with application for the issuance of
preliminary injunction and/or temporary restraining order (TRO).34
The disputed fixed assets are the PBC branches located at the following sites:
1. Soler (Arranque)
2. Bacolod City
3. Cabanatuan City
4. San Pablo City
5. Cebu-Manalili
6. Davao-Sta. Ana
7. San Fernando, La Union
8. Legaspi City
9. Iloilo City-Central Market
10. PBC Condominium Bldg.-Paseo de Roxas
The PBC Condominium Bldg.-Paseo de Roxas was sold to Security Bank and Trust Company in the RTC-approved
compromise agreement with PDIC and FEBTC; thus, this PBC asset is no longer in dispute.35
The RTC issued a TRO, directing the PDIC to desist from proceeding with the bidding or negotiated sale of the PBC
fixed assets.36
However, on November 16, 1993, the RTC denied the FEBTC's prayer for the issuance of a writ of preliminary
injunction and declared the TRO automatically dissolved.37 The RTC likewise ruled that the disputed assets had
been submitted as collaterals with the Central Bank and are therefore excluded from the purchase pursuant to
Section l(a)(vii)38 of the MOA.39
The CA and the Court affirmed the R TC' s order denying the preliminary injunction.40
The Motion-for-Intervention of Central

Bank Board of Liquidators before the
Court
On December 4, 2013, the Central Bank Board of Liquidators (CBBOL) filed before the Court a motion for leave to
intervene with motion for extension to file its memorandum-in-intervention.41 In its memorandum-in-intervention,42
the CB-BOL alleged that the PBC had assigned to it the disputed fixed assets by virtue of a deed of assignment.43
The FEBTC filed its opposition44 to the motion for leave to intervene.
The Court granted the motion for leave to intervene in its Resolution dated August 13, 2014.45 The Court ruled that
the CB-BOL is a necessary party in the case since it is the transferee of the properties in litigation. Additionally,
since the case arose from the liquidation proceedings before the RTC, it is only proper that the Court decide who -
between FEBTC (as the alleged purchaser) and the Central Bank (the creditor and the PBC's former liquidator) -
has the superior right over the disputed properties.46
The RTC Ruling
After the trial on the merits, the RTC issued the assailed order dated February 26, 1997: (1) directing the PDIC to
execute the implementing deeds of absolute sale in favor of the FEBTC; and (2) ordering the FEBTC to pay the
price for the fixed assets in the amount equivalent to their sound values as stated in the Asian Appraisal Report.47
The RTC concluded that, first, there was a perfected contract of sale or direct purchase of the disputed fixed assets
under both the MOA and the PA; these fixed assets were identified and valuated in the Asian Appraisal Report.48
Furthermore, the amount of ₱260,000,000.00 that the FEBTC previously paid pursuant to the MOA was part of the
consideration and did not merely serve as authority to operate and reopen the PBC branches.49
Second, the RTC ruled that the fixed assets were not actually submitted as collaterals with the Central Bank, as
admitted by Ms. Teresa Salcor who was an Account Officer of the Central Bank Board of Liquidators.50 Therefore,
the disputed assets should not be excluded from the assets that the FEBTC purchased under the MOA.
According to the RTC, Ms. Salcor also admitted that the FEBTC was not notified that the disputed assets were
mortgaged to the Central Bank.51
Third, the authenticity of the deeds of real estate mortgage submitted to the court was suspicious. The deeds and
annexes were not signed and did not bear any notarial seal, contrary to the statement in the acknowledgment
portion of the deeds.
The alleged mortgages were also not annotated on the respective titles of the mortgaged properties, and hence,
were not binding on third parties such as the FEBTC.
Lastly, after the execution of the MOA and the PA in 1986, the FEBTC immediately took possession of the fixed
assets and introduced improvements thereon with the knowledge of the PDIC. It was only in June 1993 that the
PDIC assessed rentals for the use and occupation of the disputed assets.52
On May 21, 1997, the RTC denied the PDIC's motion for reconsideration, prompting the PDIC to file an appeal with
the CA.53
The CA Ruling
The CA granted the petition and reversed the RTC's decision.54
First, the CA relied on the RTC's initial findings during the preliminary injunction proceedings that the disputed fixed
assets had been submitted as collaterals with the Central Bank and are thus excluded from the purchase.55 The CA
emphasized that this RTC ruling was upheld by the CA and by the Court.56
Second, the CA concluded that the parties intended the PA to be the final and absolute repository of the terms of
their transactions. Although the RTC subsequently found that the fixed assets were not submitted as collaterals to
the Central Bank, the fact remains that these were not included in the PA and, therefore were not purchased by the
FEBTC.57
Third, since the PA was the final repository of the parties' agreement, Section 10 of the MOA (which provides that
the ₱260 million shall be paid by the FEBTC as further consideration) should yield to Section 9 of the PA which
provides that the ₱260 million was paid as a premium concomitant with the transfer of authority to the FEBTC to
open and operate the 43 banking offices/branches of PBC.58
Based on the above reasons, the CA ruled that the RTC erred in directing the Liquidator to execute the deeds of
sale over these properties.59
The Parties' Arguments
The FEBTC Arguments
The FEBTC argues that, first, the CA failed to address the real issue and had decided the case on the bases of a
non-issue, by ruling that the disputed fixed assets of the PBC were not part of the assets that the FEBTC purchased
under the PA.60 The real issue is whether or not there had been a perfected contract of sale under the MOA among
the FEBTC, the PBC, and the Central Bank, which imposed upon the Liquidator the obligation to execute the deeds
of sale over the disputed fixed assets.61
Second, the FEBTC further argues that the MOA adopted the FEBTC's bid to purchase all the PBC's fixed assets as
described in the Asian Appraisal Report on the basis of its sound value less any assigned depreciation accruing
thereon from August 1984 up to the valuation date. The MOA further clarified that the ₱260 million bid price
proposed by the FEBTC was a premium to be paid as further consideration for the sale of the assets and the
assumption of the liabilities of PBC.62
Lastly, the CA erred in relying on the initial findings of the R TC that the disputed fixed assets had been submitted to
the Central Bank as collateral and were thus excluded from the purchase under the MOA.63
The PDIC Arguments
The PDIC countered that first, the CA was correct when it addressed the issue of whether or not the FEBTC
acquired ownership over the disputed PBC fixed assets.64
Second, the CA was correct in ruling that the PA was the final and absolute repository of the terms of the sale
transaction between the parties and not the MOA.65
The PDIC also adopted the CA's findings that even if the disputed assets had not been mortgaged, still FEBTC did
not directly purchase these assets either under the MOA or the PA.66
The Court's Ruling
The issue in this case is whether or not the PDIC, as the Liquidator of the PBC, may be compelled to execute the
deeds of sale over the nine (9)67 disputed PBC fixed assets.
We rule in the affirmative, as there was a perfected contract of sale over the disputed fixed assets.
It is well-established that a contract undergoes various stages that include its negotiation or preparation, its
perfection, and finally, its consummation.68
Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the
time the contract is concluded (perfected). The perfection of the contract takes place upon the concurrence of its
essential elements. A contract which is consensual as to perfection is so established upon a mere meeting of minds,
i.e., the concurrence of offer and acceptance, on the object and on the cause or consideration. The consummation
stage begins when the parties perform their respective undertakings under the contract, culminating in its
extinguishment.69
Specifically, contracts of sale are perfected by mutual consent, when the seller obligates himself, for a price certain,
to deliver and transfer ownership of a specified thing or right to the buyer over which the latter agrees.70
Mutual consent, as a state of mind, may only be inferred from the confluence of two acts of the parties: an offer
certain as to the object of the contract and its consideration, and an absolute acceptance of the offer, i.e., with
respect to the exact object and consideration embodied in the offer. While it may not be possible to expect the
acceptance to echo every nuance of the offer, it is imperative that it assents to those points in the offer that, under
the operative facts of each contract, are not only material but motivating as well.71
Simply put, a contract of sale is perfected upon the meeting of the minds of the parties on the essential elements of
the contract, i.e., consent, object certain, and the consideration of the contract.
Based on the above well-established principles, the Court rules that the essential elements of a contract of sale are
present in the MOA as confirmed by the FEBTC's bid and the provisions of the MOA and the PA. This conclusion
becomes more apparent upon a closer review of the developments in the various stages of the parties' contract of
sale, as discussed below.
The negotiation stage of the contract of sale
As mentioned above, the FEBTC submitted its bid72 to the Central Bank in response to the latter's invitation to
submit a formal proposal for the purchase of the assets of the PBC.
The FEBTC's bid or offer included the purchase of selected assets of the PBC consisting of the fixed and non-fixed
assets, as follows:
"Our Bid is as follows:
I. The Purchase
We will purchase all assets of PaBC less the following items
(a) Past Due Loans
(b) Items under Litigation
(c) DOSRI Loans
(d) Acquired Assets
(e) Loans/ Assets which correspond to the foreign currency deposits/liabilities excluded in
accordance with No. 1, below
(f) Other assets with unrealizable values as shall be agreed upon by us.
The value of the assets purchased will be matched with the PaBC liabilities which we will assume, to
wit:
xxxx
In addition to the above,
a) As further consideration of our bid, we shall be authorized to operate forty-two (42)

branches of PaBC in the manner and under the terms mentioned in our Bid Prices (See No. II
below).
xxxx
c) The determination of the assets and liabilities will be done by an acceptable independent
auditor whose opinion shall be considered final and shall mutually bind us.
d) Fixed assets shall be valued based on the sound values per Asian Appraisal Report of
August, 1984, subject to the discounts stated in our Bid Prices.
xxxx
i) It is understood that our bid concerns merely the purchase of certain assets and liabilities of
PaBC including the authority to operate its branches. xxx
II. The Bid Price
1. We are willing to pay CB, inclusive of the amount which will be paid to the existing
shareholders, the following individual bid prices subject to the following conditions:
a. The sum of PESOS: THREE HUNDRED SIXTY MILLION (₱360,000,000.00), provided

that:
i. within two (2) years from the date of our takeover, we shall be authorized to
relocate any of the PaBC branches to other service areas irregardless (sic) of
category without the need of investment in government securities. Branches which
will not be relocated will be opened within a period of one (1) year, and
ii. there will be a discount of ten percent (10%) on the sound value of the fixed
asset as determined in letter d., above;
OR
b. The sum of PESOS: THREE HUNDRED TEN MILLION (₱310,000,000.00), provided

that,
i. within two (2) years from the date of our takeover, we shall be authorized to
relocate any of the PaBC branches to other service areas in the same category
and/or lower category areas, without the need of investment in government
securities. Branches which will not be relocated will be opened within a period of
one (1) year, and
ii. there will be a discount of eight percent (8%) of the sound value of the fixed
assets determined in letter d., above;
OR
c. The sum of PESOS: TWO HUNDRED SIXTY MILLION (₱260,000,000.00), provided

that:
i. within a period of one (1) year from the date of takeover we shall be authorized to
relocate any of the PaBC branches to other service areas of the same category
and/or lower category areas, without the need of investment in government
securities. Branches which will not be relocated will be opened within a period of
one year, and
ii. there will be a discount of five per cent (5%) of the sound value of the fixed
assets per letter d., above;
OR
d. The sum of PESOS: TWO HUNDRED FIFTEEN MILLION (₱215,000,000.00), provided

that: i. within a period of one (1) year from the date of takeover, we shall be authorized to
relocate any of the PaBC branches to other service areas of a lower category; and
ii. there will be no discount on the sound value of the fixed assets as determined by
Asian Appraisal Report of August, 1984.
2. The terms of payment of our bid price is as follows:
a. A downpayment of thirty percent (30%) of the bid price upon the completion and execution of
all documents necessary for us to take over the purchase of all the assets and liabilities
mentioned in No. 1 above; and
b. The balance equivalent to seventy percent (70%) of the bid price to be paid in equal semi-
annual installments for five (5) years at fourteen percent (14%) per annum.
3. We are agreeable to deposit with the CB the sum of PESOS: FIVE MILLION (₱5,000,000.00) upon
the acceptance of our proposal, applicable against the premium payable to CB, and further
conditioned, that in the event we fail to implement our proposal within sixty (60) days from the date that
all the legal requirements and conditions of our takeover of the assets of the PBC have been complied
with and delivered to us, the ₱5 million will be forfeited in favor of CB. xxx" [emphasis supplied]
In all the alternative bids above, the FEBTC consistently stated its intent: (1) to include the purchase of the fixed
assets enumerated in the Asian Appraisal's Report of August 1984; and (2) that these fixed assets are to be valued
based on their sound values pursuant to the Asian Appraisal Report of August 1984, subject to discount.
The perfection stage of the contract of sale
Subsequently, the FEBTC, the PBC, and the Central Bank entered into a MOA that essentially adopted the FEBTC's
bid.
Specifically, Section 1(a)73 of the MOA· adopted the FEBTC's bid to purchase all the PBC' assets, subject to
proposed exclusions from the fixed assets to be purchased. Section l(a) added a category of assets that were
excluded from the purchase - assets that had been submitted to the Central Bank as collaterals.
Section 1(b)74 of the MOA likewise adopted the FEBTC's offer to match the value of the assets purchased with the
PBC's liabilities.
Among the alternative bids of the FEBTC in its bid offer, the parties chose bid Il(1)(d)75 above, as
incorporated in Sections 10(a)76 and (b)77 of the MOA. Furthermore, on the terms of payment, the FEBTC's
offer in 11(2) was substantially incorporated in Sections 10(c)(i),78 10(c)(ii),79 and 10(d)80 of the MOA.
The MOA covered, therefore, the purchase of the non-fixed assets and the disputed fixed assets, their valuation and
the manner of payment, including discounts. The MOA contained the PBC's acceptance, as represented by the
Liquidator and by the Central Bank, of the relevant provisions of the FEBTC bid; and the FEBTC's acceptance of
any changes or counter-offer made by the Liquidator and by the Central Bank.
We thus find it clear that the essential elements for the perfection of a contract of sale, i.e., object, consideration,
and consent were present in the MOA. These elements are discussed in detail below.
a) Object of the contract
The object of the contract covered the purchase of the PBC's assets as defined under Sections 1(a),81 3(a)82 and
3(c)83 of the MOA, specifically the following:
First, the non-fixed assets;84
Second, the fixed assets as contained in the Asian Appraisal's Report, which include the disputed fixed assets;85
and
Third, the authority to re-open/relocate any of the PBC's branches to other service areas within eighteen (18)
months from the date of the execution of the Absolute Purchase Agreement.86 b) Consideration and Manner of
Payment
i. for the non-f fixed assets
For the non-fixed assets, Section 1(b)87 of the MOA provides that it shall be compensated and matched by the
FEBTC's simultaneous assumption of the liabilities of the PBC in an amount that should be at least equivalent to the
value of the assets purchased as determined and valuated by the SGV & Co., whose opinion shall be considered
final and mutually binding on the parties. The reckoning period of the valuation was provided under Section 3(b)88 of
the MOA. ii. for the fixed assets
The consideration for the fixed assets shall be their sound value less any assigned depreciation accruing thereon
from August 1984, up to the valuation date as described in the Asian Appraisal's Report of August 1984, which was
incorporated in the MOA by way of reference.89
There shall also be a discount of five percent (5%) of the value of the fixed assets pursuant to the valuation of the
Asian Appraisal of August 1984, less their assigned depreciation from the date of the Appraisal's report to the date
of the execution of the Absolute Purchase Agreement.90
iii. additional consideration for the purchase o/the PBC's assets
In addition to the consideration for the fixed and non-fixed assets, the parties likewise agreed that the
FEBTC shall pay an additional or further consideration of ₱260,000,000.00 for the sale of assets and the
assumption of the liabilities of the PBC.91
The MOA also set the manner of payment for the additional consideration above,92 with an agreement that upon the
execution of the MOA, the FEBTC shall pay ₱5,000,000.00, which shall be applied against the downpayment for the
₱260,000,000.00 additional consideration.93
Thus viewed, the parties clearly had a meeting of minds on the essential elements of the contract,
perfecting therefore their contract of sale. This meeting was embodied in their MOA which contained the
absolute acceptance of the offer and the essential elements of the contract of sale.
Consummation stage, which includes

the execution of an absolute
purchase agreement over the non-
fixed assets
That the contract was already perfected could be confirmed by supervening events enumerated below which prove
that the parties consummated the perfected contract of sale: First, the FEBTC's down payment of ₱5,000,000.00
upon the execution of the MOA was intended to be part of the purchase price as it was part of the additional
consideration of ₱260,000,000.00 referred to in Section 10(c)(i)94 of the MOA. The ₱5 million downpaymen:t
therefore is earnest money and is proof of the perfection of contract pursuant to Article 148295 of the New Civil
Code.
Second, as correctly found by the RTC,96 the FEBTC took possession of the subject fixed assets immediately after
the execution of the MOA and the PA. In fact, the FEBTC introduced improvements thereon with the knowledge of
the Liquidator, without the latter demanding any payment of rent from the FEBTC. It was only in 1993 that the
Liquidator demanded the payment of rentals.
Third, the parties executed the PA over the non-fixed assets as contemplated under Section 1(a)97 of the MOA.
Although the PA did not cover the purchase of the fixed assets, the parties ensured in Section 498 of the PA that they
may still execute another purchase agreement for the assets that, due to time constraints, were not included in the
PA. That the parties contemplated a purchase agreement for the fixed assets is evident since these are the only
remaining assets purchased under the MOA that have not been covered by a purchase agreement.
Fourth, upon the request of FEBTC preparatory to the execution of the purchase agreement for the fixed assets,
Liquidator Santos (who signed both the MOA and the PA) delivered to FEBTC the corresponding transfer certificates
of titles over the disputed assets.
In these lights, the CA clearly erred when it ruled that there was no perfected contract of sale over the disputed fixed
assets simply because the PA did not include these fixed assets.
A contract of sale is perfected by the meeting of the minds of the parties regardless of whether it was reduced to
writing.
In Limketkai Sons Milling, Inc. v. CA,99 we ruled that the fact that the deed of sale still had to be signed and
notarized did not mean that no contract had been perfected. A binding contract may exist between the parties
whose minds have met, although they did not affix their signatures to any written document, as acceptance may be
expressed or implied.
Furthermore, a sale of land, once consummated, is valid regardless of the form it may have been entered into. The
law or jurisprudence does not mandate that the contract of sale be put in writing before such contract can validly
cede or transmit rights over a certain real property between the parties themselves.100
In view of the perfection of the contract of sale, the execution of the PA over the fixed assets, like the
executed PA over the non-fixed assets, falls under the consummation stage and not the perfection stage.
We emphasize that a contract is the law between the parties. Absent any allegation and proof that the contract is
contrary to law, morals, good customs, public order or public policy, it should be complied with in good faith.101
Pursuant to the obligatory nature of the contract under Article 1356102 of the New Civil Code, the terms of the
perfected contract of sale over the disputed fixed assets are reciprocally demandable from both parties. Therefore,
the Liquidator and the CB-BOL as the intervenor, must execute the corresponding deeds of sale in favor of the
FEBTC and the FEBTC must pay the agreed purchase price of these assets.
The PA did not modify but confirmed

the contract of sale that was
perfected under the MOA
We now address the CA's ruling that the PA was the final repository of the transactions of the parties or, in other
words, that the sale was perfected only with the execution of the PA.
We disagree with the CA on this point.
The perfected contract of sale of the disputed assets under the MOA remained unaltered by the PA. To emphasize,
the execution of the PA falls under the consummation stage of the contract. The PA also did not modify the MOA. In
fact, the PA even strengthened the perfection of the contract of sale with respect to the fixed assets, as shown by
the provisions of the PA. Consider that:
First, in Section 4103 of the PA, the parties acknowledged that there were other assets covered by the MOA but were
not covered by the PA. The only logical interpretation of Section 4 is that the parties contemplated the purchase
agreement for the fixed assets as these are the only remaining assets purchased under the MOA that have yet to be
covered by a purchase agreement.
Second, the same Section 4 of the PA provided a period within which the parties should enter into a purchase
agreement for the sale of the additional assets, i.e., within ninety (90) days from the effectivity of the PA.
According to Section 12(a)104 of the PA, the effective date of the PA is the date of its approval by the Liquidating
Court.
The RTC, as the liquidating court, approved the PA on December 18, 1986.
Notably, on January 15, 1987, which is well within the 90-day period provided under Section 4 of the PA, the FEBTC
wrote then Liquidator Santos for the purchase of the fixed assets as agreed upon in Section 3( c) of the MOA. The
letter states that:
"Gentlemen:
Under the conditions under which we were requested by the Central Bank to bid for the assets of the PaBC and
pursuant to Section 3(c) of our Memorandum of Agreement dated 16 April 1986, we would like to proceed with the
2nd tranche on the purchase of the fixed assets of PaBC on the sale to us of the following branch sites:
1) Soler, Quiapo; 2) Bacolod City; 3) Cabanatuan City; 4) Dagupan City; 5) San Pablo City; 6) Cebu City; 7) Davao
City; 8) San Fernando, La Union; 9) Laoag; 10) Legaspi City; 11) Iloilo City. The above purchase price is net of
depreciation as of September 30, 1986, and the 5% discount as agreed upon in the aforementioned Memorandum
Agreement. xxx"105
This letter was admitted as evidence by the Liquidating Court in its order dated September 7, 1993.106
Therefore, the FEBTC timely demanded the implementation of the perfected contract of sale over the fixed assets of
the PBC, consistent with Section 3(c)107 of the MOA and within the conditions set under Sections 4108 and 12(a)109 of
the PA.
The disputed fixed assets were not

submitted as collaterals with the
Central Bank and are thus not
excluded from the purchase
The CA also erred in relying on the initial R TC findings that the disputed fixed assets were excluded from the sale
because they were submitted as collaterals to the CB. This RTC ruling was issued when it denied the FEBTC's
prayer for preliminary injunction. The CA gave weight to the fact that this R TC ruling was affirmed both by the CA
and the Court.
Again, we disagree with the CA's conclusions.
The affirmation by the CA and by this Court of the RTC's order denying a preliminary injunction on the ground that
the disputed assets were submitted as collaterals does not preclude the RTC from issuing a different ruling after trial
on the merits.
In Olalia, et al. v. Hizon, et al.,110 the Court ruled that the determination of the issuance of a writ of preliminary
injunction is based on evidence tending to show that the action complained of must be stayed so that the movant
will not suffer irreparable injury or that the final judgment granting him relief will not become ineffectual. Necessarily,
the evidence needs only be a "sampling," and is submitted merely to give the court an idea of the justification for the
preliminary injunction pending the decision of the case on the merits. The evidence submitted at the hearing on the
motion for the preliminary injunction is not conclusive of the principal action, which has yet to be decided.
The appellate court's review of the trial court's issuance of a preliminary injunction does not include a final
determination of the merits of the case; it is only a determination of whether the preliminary injunction has been
properly issued.111
In the present case, the Court finds that the R TC' s findings after trial on the merits are more credible as opposed to
the CA's misguided reliance on the ruling of the RTC in the preliminary injunction.
After trial on the merits, the RTC ruled that the disputed fixed assets had not been submitted as collaterals to the
Central Bank. The findings of the RTC were based on: (1) the testimonies and admissions of Ms. Teresa Salcor,
who was then an Account Officer of the Central Bank Board of Liquidators; and (2) the RTC's examination of the
purported deeds of real estate mortgage over the disputed fixed assets.
First, the RTC found that the FEBTC was not informed that the disputed assets were one of those submitted as
collaterals to the Central Bank, as testified to by Ms. Teresa Salcor.112 She also admitted during her testimony that
there was no annotation of the real estate mortgage on the titles of the disputed assets;113 hence, the RTC correctly
ruled that these purported mortgages cannot bind the FEBTC.
Second, the RTC found that there were doubts on the authenticity of the deeds of real estate mortgage involving the
disputed fixed assets. The acknowledgment portion of the deeds indicated that this document and its annexes were
signed by the parties.
However, the RTC found that the annexes were not so signed and did not bear any notarial seal. It was therefore
easy to insert an entirely different page as an annex of the deeds. Moreover, the integrity of the real estate
1âwphi1
mortgage was put in question.
Third, the RTC ruled that the deeds of real estate mortgage were not registered with the Register of Deeds, making
it binding only between the Central Bank and the PBC. It cannot bind the FEBTC who was not notified of the alleged
mortgage.114
In these lights, we find that the disputed fixed assets were not submitted as collaterals to the Central Bank and are
thus not excluded from the assets purchased by the FEBTC.
Legal consequences
As discussed, the contract of sale was perfected upon the execution of the MOA. Hence, the terms and conditions
of the contract of sale under the MOA, as confirmed by the PA, are reciprocally demandable from both parties.
Therefore, the Liquidator and the CB-BOL as the intervenor, must execute the corresponding deeds of sale in favor
of the FEBTC; and the FEBTC must pay the purchase price of the disputed fixed assets. Specifically, these fixed
assets are the PBC branches located at:
1. Soler (Arranque)
2. Bacolod City
3. Cabanatuan City
4. San Pablo City
5. Cebu-Manalili
6. Davao-Sta. Ana
7. San Fernando, La Union
8. Legaspi City
9. Iloilo City-Central Market
With respect to the purchase price of these fixed assets, we note that the purchase price and manner of payment
were provided under Sections 3(c) and 10(b) of the MOA, to wit:
i. Section 3(c)
Section 3 - Valuation of Assets and Liabilities
c. It is further understood that the BUYER shall purchase on the basis of its sound value less any
assigned depreciation accruing thereon from August 1984, up to the valuation date, all the fixed
assets of the SELLER as described in the Asian Appraisal's Report of August 1984, which is
herein incorporated by way of reference, but shall not purchase fixed assets not yet appraised,
equipment, furniture and other fixtures provided that the BUYER within a period of ninety (90)
days from the date hereof shall have the first option to buy any of the said assets of the SELLER
which shall form part of the assets bought under this Memorandum Agreement. (emphasis and
underscoring supplied)
ii. Section 10(b)
Section 10 -Additional Consideration
b) Furthermore, the BUYER shall be entitled to a discount equivalent to five percent (5%) of the
value of the fixed assets, referred to in Section 3 above, per valuation of the Asian Appraisal of
August, 1984, less their assigned depreciation from the date of the Appraisal's Report to the date of the
execution of the Absolute Purchase Agreement. (emphasis and underscoring supplied)
1âwphi1
Since the Court does not have sufficient records for the computation of the assigned depreciation from the date of
the Asian Appraisal's Report until the execution of the Absolute Purchase Agreement, we deem it proper to remand
the case to the RTC for the computation of the purchase price strictly according to the provisions of Sections 3(c)
and 10(b) of the MOA.
The FEBTC is ordered to pay the purchase price computed by the RTC, and the Liquidator is ordered to deliver the
deeds of sale covering the disputed properties upon payment by the FEB TC of the purchase price.
The RTC is directed to conduct the proceedings in this case with dispatch.
WHEREFORE, premises considered, we hereby GRANT the FEBTC's petition for review on certiorari, and
REVERSE the May 31, 2006 Decision of the Court of Appeals in CA-G.R. C.V. No. 56624.
The case is REMANDED to the Regional Trial Court (RTC), Branch 31, Manila, for purposes of computing the
purchase price of the disputed fixed assets in accordance with the provisions of Sections 3(c) and 10(b) of the MOA.
Specifically, these assets are the PBC branches located in: (1) Soler (Arranque); (2) Bacolod City; (3) Cabanatuan
City; (4) San Pablo City; (5) Cebu-Manalili; (6) Davao-Sta. Ana; (7) San Fernando, La Union; (8) Legaspi City; and
(9) Iloilo City-Central Market.
The RTC is directed to proceed with the computation with DISPATCH.

SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
MARIANO C. DEL CASTILLO JOSE CATRAL MENDOZA


Associate Justice
CERTIFICATION
ANTONIO T. CARPIO
Acting Chief Justice
Footnotes
1
Rollo, pp. 9-37.
2
Id. at 39-47, penned by Associate Justice Elvi John S. Asuncion and concurred in by Associate Justices
Noel G. Tijam and Mariflor P. Punzalan Castillo.
3
Id. at 40.
4
Id. at 40, 48.
5
Exhibits Band 5 (common exhibit).
6
Rollo, pp. 40 and 48.
7
Id. at 48.
8
Id. at 501.
9
See Record on Appeal, at p. 315 identifying Soler Branch as the branch located at Soler, Sta. Cruz Manila.
10
Id. at 40 and 49.
11
Id. at 78.
12
Section 1 -Purchase Agreement
a. Within ninety (90) calendar days from the date of the execution of this Memorandum of Agreement,
subject to such extension of time as shall be mutually agreed upon by the parties, the BUYER shall
purchase all the assets of the SELLER as shall be defined and specifically described in the
corresponding Purchase Agreement to be executed by the parties, inclusive of the SELLER's authority
to operate its forty-three (43) banking offices/branches but exclusive of the following items:
13
Supra note 6.
14
Section 3-Valuation of Assets and Liabilities
a. It is hereby agreed that the determination and valuation of the assets and liabilities of the SELLER,
excluding the fixed assets, shall be made by the auditing firm of SGV and Co., whose opinion shall be
considered final and mutually binding on the parties. The audit expense shall be for the account of the
BUYER. The auditor must submit its opinion within a period of ninety (90) days from the date of this
1âwphi1
Memorandum of Agreement, provided that all the schedules requested shall have been submitted to
SGV & Co. and unless otherwise extended by the parties for causes beyond the control of the auditing
firm.
15
Rollo, pp. 80-81.
16
assigned depreciation accruing thereon from August, 1984 up to the valuation date, all the fixed assets
of the SELLER as described in the Asian Appraisal's Report of August, 1984 which is herein
incorporated by way of reference, but shall not purchase fixed assets not yet appraised, equipment,
furniture and other fixtures provided that the BUYER within a period of ninety (90) days from the date
hereof shall have the first option to buy any of the said assets of the SELLER which shall form part of
the assets bought under this Memorandum Agreement.
17
Rollo, p. 48.
18
xxxx
vii. Assets submitted as collaterals with the Central Bank;
xxxx
19
to operate its forty-three (43) banking offices/branches but exclusive of the following items: xxx
20
21
22
Section 1 (Assets Purchased) of the PA at p. 93, provides that:
The BUYER hereby purchases and the SELLER hereby sells, transfers, and conveys unto the BUYER,
its successors, and assigns, for a total sum of PESOS: SIX HUNDRED FIFTY-FIVE MILLION, NINE
HUNDRED TWENTY-NINE THOUSAND, FOUR HUNDRED NINETYTHREE (₱655,929,493.00), the
assets of the SELLER as described in Annex "A" hereto attached and made a part hereof. Aforesaid
assets are more particularly described in the SGV report on the assets and liabilities of the SELLER,
conducted pursuant to the aforementioned Memorandum of Agreement, which report is incorporated
herein by way of reference.
23
See Section 4 of the PA at p. 94 provides that:
Section 4-Additional Assets for Purchase -In view of the time constraint within which the parties can
agree on the purchase of assets other than those referred to in the other provisions of this Purchase
Agreement, the parties may agree, for a period of ninety (90) days from the effectivity date hereof, on
the purchase by the BUYER of such additional assets, subject to the terms and conditions agreed upon
by the parties.
24
See Section 12(a) of the PA, at p. 97 which provides that:
Section 12- Effectivity and Construction-(a) This Purchase Agreement shall become valid, enforceable
and effective only upon its approval by the Liquidation Court. The term "effectivity date" as used
therein, shall refer to the date on which such approval is given by the Liquidation Court.
25
Resolution No. 596.
26
27
Id. at 40.
28
Id. at 50.
29
Id. at. 50.
30
Id.
31
Id. at 50-51.
32
Id. at 40.
33
Id. at 41 and 51.
34
Id. at 103.
35
Id.
36
Id. at 41.
37
Id.
38
Supra note 19.
39
Id. at 43.
40
Id.
41
Id. at 895-920.
42
Id. at 996-1014.
43
Id. at 895-896.
44
Id. at 937-947.
45
Id. at 951-953 ·
46
Id. at 952.
47
Id. at 41 and 65.
48
Id. at 41 and 56.
49
Id. at 63-64.
50
Id. at 59.
51
Id. at 60.
52
Id. at 40.
53
Id. at 41, 65.
54
Id. at 41.
55
RTC Order dated November 16, 1993.
56
Rollo, p. 43.
57
Id.
58
Id. at 46.
59
Id.
60
Id. at 23.
61
Id. at 25, 26, 477.
62
Id. at 30-31.
63
Id. at 32-33.
64
Id. at 394.
65
Id. at 391.
66
Id. at 698.
67
In view of the sale of the PBC Condominium Bldg-Paseo de Roxas to Security Bank, this property is no
longer in dispute; see page 4.
68
Limketkai Sons Milling, Inc. v. CA et al., G.R. No. 118509, 250 SCRA 523, 535-536, December 1, 1995.
69
Id.
70
Villanueva v. Philippine National Bank, 539 Phil. 334, 340-341 (2006).
71
Id.
72
Rollo, pp. 494-498.
73
74
b) The value of the assets so purchased shall be compensated and matched by the simultaneous
assumption by the BUYER of the liabilities in an amount which should be at least equivalent to the
value of the assets purchased in accordance with the priorities stated, as follows xxx
75
Rollo, p. 497.
76
Section 10-Additional Consideration
a. As further consideration for the sale of the assets and the assumption of the liabilities of the
SELLER, the BUYER shall pay the SELLER a premium in the maximum amount of PESOS:
TWO HUNDRED SIXTY MILLION (₱260,000,000.00), provided that all other claims and expenses
which will be incurred except those agreed upon by the parties under this Memorandum of Agreement
or from time to time, shall be charged against the said premium.
77
b. Furthermore, the BUYER shall be entitled to a discount equivalent to five percent (5%) of the value
of the fixed assets, referred to in Section 3 above, per valuation of the Asian Appraisal of August, 1984,
less their assigned depreciation from the date of the Appraisal's Report to the date of the execution of
the Absolute Purchase Agreement.
78
c. The amount of ₱260 million shall be paid by the BUYER to the SELLER in the following manner:
i. Thirty percent (30%) of this amount shall be paid to the SELLER, as down payment, upon the
execution of the Absolute Purchase Agreement and other documents which will empower the BUYER
to acquire and have custody and ownership of the assets and assume the liabilities mentioned in
Section 1 above.
79
ii. The balance of seventy percent (70%) shall be paid to the SELLER in equal and semi-annual
installments, with fourteen percent (14%) interest per annum, for five (5) years commencing from the
date the thirty percent (30%) downpayment was paid with a right of prepayment at anytime in whole or
in part without penalty.
80
d. Upon the execution of this Memorandum of Agreement, the BUYER shall deliver and pay to the
SELLER the amount of PESOS: FIVE MILLION (₱5,000,000.00) which shall be applied against the
downpayment. Except for causes beyond its control, in the event the BUYER shall fail within ninety (90)
days from the date hereof to execute the Absolute Purchase Agreement, the said amount of ₱5 million
shall automatically be forfeited in favor of the SELLER.
81
Section 1 - Purchase Agreement
82
a. It is hereby agreed that the determination and valuation of the assets and liabilities of the SELLER,
excluding the fixed assets, shall be made by the auditing firm of SGV and Co., whose opinion shall be
considered final and mutually binding on the parties. The audit expense shall be for the account of the
BUYER. The auditor must submit its opinion within a period of ninety (90) days from the date of this
Memorandum of Agreement, provided that all the schedules requested shall have been submitted to
SGV & Co. and unless otherwise extended by the parties for causes beyond the control of the auditing
firm.
83
Supra note 21.
84
Rollo, p. 80.
85
Id. at 80-81.
86
Id. at 83.
87
Supra note 74.
88
b. The valuation of the assets and liabilities shall be made as of January 31, 1986.
89
Section 3(c) of the MOA provides that:

90
Section 10(b) of the MOA provides that:
b. Furthermore, the BUYER shall be entitled to a discount equivalent to five percent (5%) of the value
of the fixed assets, referred to in Section 3 above, per valuation of the Asian Appraisal of August, 1984,
less their assigned depreciation from the date of the Appraisal's Report to the date of the execution of
the Absolute Purchase Agreement.
91
Section 10(a) of the MOA provides that:
Section 10-Additional Consideration a. As further consideration for the sale of the assets and the
assumption of the liabilities of the SELLER, the BUYER shall pay the SELLER a premium in the
maximum amount of PESOS: TWO HUNDRED SIXTY MILLION (₱260,000,000.00), provided that all
other claims and expenses which will be incurred except those agreed upon by the parties under this
Memorandum of Agreement or from time to time, shall be charged against the said premium.
92
Section 10(c) of the MOA provides that:
i. Thirty percent (30%) of this amount shall be paid to the SELLER, as down payment, upon the
execution of the Absolute Purchase Agreement and other documents which will empower the
BUYER to acquire and have custody and ownership of the assets and assume the liabilities
mentioned in Section 1 above.
ii. The balance of seventy percent (70%) shall be paid to the SELLER in equal and semi-annual
installments, with fourteen percent (14%) interest per annum, for five (5) years commencing from
the date the thirty percent (30%) downpayment was paid with a right of prepayment at anytime in
whole or in part without penalty.
93
Section 10(d) of the MOA provides that:
d. Upon the execution of this Memorandum of Agreement, the BUYER shall deliver and pay to
the SELLER the amount of PESOS: FIVE MILLION (₱5,000,000.00) which shall be applied
against the downpayment. Except for causes beyond its control, in the event the BUYER shall
fail within ninety (90) the date hereof to execute the Absolute Purchase Agreement, the said
amount of ₱5 million shall be forfeited in favor of the SELLER.
94
Supra note 93.
95
Article 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract.
96
Rollo, p. 64.
97
98
Section 4-Additional Assets for Purchase In view of the time constraint within which the parties can agree
on the purchase of assets other than those referred to in the other provisions of this Purchase Agreement, the
parties may agree, for a period of ninety (90) days from the effectivity date hereof, on the purchase by the
BUYER of such additional assets, subject to the terms and conditions agreed upon by the parties.
99
Supra note 69.
100
Heirs of Cecilio Claude! et al. v. CA, 276 Phil 114, 121, (1991).
101
Calilap-Asmeron v. Development Bank of the Philippines et al., 677 Phil. 56, 76 (2011).
102
Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all
the essential requisites for their validity are present. However, when the law requires that a contract be in
some form in order that it may be valid or enforceable, or that a contract be proved in a ce1tain way, that
requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article
cannot be exercised.
103
Section 4-Additional Assets for Purchase
In view of the time constraint within which the parties can agree on the purchase of assets other than
those referred to in the other provisions of this Purchase Agreement, the parties may agree, for a
period of ninety (90) days from the effectivity date hereof, on the purchase by the BUYER of such
additional assets, subject to the terms and conditions agreed upon by the parties.
104
Section 12- Effectivity and Construction-(a) This Purchase Agreement shall become valid, enforceable and
effective only upon its approval by the Liquidation Court. The term "effectivity date" as used therein, shall refer
to the date on which such approval is given by the Liquidation Court.
105
RTC Records, Record on appeal, p. 310.
106
Id. at 539.
107
108
Supra note 103.
109
Supra note 104.
110
274 Phil. 66, 72 (1991).
111
Id at. 73-74.
112
Rollo, p. 61
113
Id.
114
Id. at 62.

Custom Search
Constitution Statutes Executive Issuances Judicial Issuances Other Issuances Jurisprud
SECOND DIVISION
OCTOBER 2, 2017
G.R. No. 214866
APEX BANCRIGHTS HOLDINGS, INC., LEAD BANCFUND HOLDINGS, INC., ASIA WIDE REFRESHMENTS
CORPORATION, MEDCO ASIA INVESTMENT CORPORATION, ZEST-O CORPORATION, HARMONY
BANCSHARES HOLDINGS, INC., EXCALIBUR HOLDINGS, INC., and ALFREDO M. YAO, Petitioners
vs.
BANGKO SENTRAL NG PILIPINAS DEPOSIT CORPORATION, and PHILIPPINE INSURANCE, Respondents
DECISION
PERLAS-BERNABE, J.:
Before the Court is a petition for review on certiorari 1 filed by petitioners Apex Bancrights Holdings, Inc., Lead
Bancfund Holdings, Inc, Asia Wide Refreshments Corporation, Medco Asia Investment Corporation, Zest-O
Corporation, Harmony Bancshares Holdings, Inc., Excalibur Holdings, Inc., and Alfredo M. Yao (petitioners)
assailing the Decision2 dated January 21, 2014 and the Resolution3 dated October 10, 2014 of the Court of Appeals
in CA-G.R. SP No. 129674, which affirmed Resolution No. 571 dated April 4, 2013 of the Monetary Board of
respondent Bangko Sentral ng Pilipinas (BSP) ordering the liquidation of the Export and Industry Bank (EIB).
The Facts
Sometime in July 2001, EIB entered into a three-way merger with Urban Bank, Inc. (UBI) and Urbancorp
Investments, Inc. (UII) in an attempt to rehabilitate UBI which was then under receivership.4 In September 2001,
following the said merger, EIB itself encountered financial difficulties which prompted respondent the Philippine
Deposit Insurance Corporation (PDIC) to extend financial assistance to it. However, EIB still failed to overcome its
financial problems, thereby causing PDIC to release in May 2005 additional financial assistance to it, conditioned
upon the infusion by EIB stockholders of additional capital whenever EIB' s adjusted Risk Based Capital Adequacy
Ratio falls below 12.5%. Despite this, EIB failed to comply with the BSP's capital requirements, causing EIB's
stockholders to commence the process of selling the bank.5
Initially, Banco de Oro (BDO) expressed interest in acquiring EIB. However, certain issues derailed the acquisition,
including BDO's unwillingness to assume certain liabilities of EIB, particularly the claim of the Pacific Rehouse
Group against it. In the end, BDO's acquisition of EIB did not proceed and the latter's financial condition worsened.
Thus, in a letter6 dated April 26, 2012, EIB 's president and chairman voluntarily turned-over the full control of EIB to
BSP, and informed the latter that the former will declare a bank holiday on April 27, 2012.7
On April 26, 2012, the BSP, through the Monetary Board, issued Resolution No. 6868 prohibiting EIB from doing
business in the Philippines and placing it under the receivership of PDIC, in accordance with Section 30 of Republic
Act No. (RA) 7653, otherwise known as "The New Central Bank Act."9 Accordingly, PDIC took over EIB.10
In due course, PDIC submitted its initial receivership report to the Monetary Board which contained its finding that
EIB can be rehabilitated or permitted to resume business; provided, that a bidding for its rehabilitation would be
conducted, and that the following conditions would be met: (a) there are qualified interested banks that will comply
with the parameters for rehabilitation of a closed bank, capital strengthening, liquidity, sustainability and viability of
operations, and strengthening of bank governance; and (b) all parties (including creditors and stockholders) agree to
the rehabilitation and the revised payment terms and conditions of outstanding liabilities.11 Accordingly, the Monetary
Board issued Resolution No. 1317 on August 9, 2012 noting PDIC's initial report, and its request to extend the
period within which to submit the final determination of whether or not EIB can be rehabilitated. Pursuant to the
rehabilitation efforts, a public bidding was scheduled by PDIC on October 18, 2012, but the same failed as no bid
was submitted. A re-bidding was then set on March 20, 2013 which also did not materialize as no bids were
submitted.12
On April 1, 2013, PDIC informed BSP that EIB can hardly be rehabilitated.13 Based on PDIC's report that EIB was
insolvent, the Monetary Board passed Resolution No. 571 on April 4, 2013 directing PDIC to proceed with the
liquidation of EIB.14
On April 29, 2013, petitioners, who are stockholders representing the majority stock of EIB,15 filed a petition for
certiorari 16 before the CA challenging Resolution No. 571. In essence, petitioners blame PDIC for the failure to
rehabilitate EIB, contending that PDIC: (a) imposed unreasonable and oppressive conditions which delayed or
frustrated the transaction between BDO and EIB; (b) frustrated EIB's efforts to increase its liquidity when PDIC
disapproved EIB's proposal to sell its MRT bonds to a private third party and, instead, required EIB to sell the same
to government entities; (c) imposed impossible and unnecessary bidding requirements; and (d) delayed the public
bidding which dampened investors' interest.17
In defense, PDIC countered18 that petitioners were already estopped from assailing the placement of EIB under
receivership and its eventual liquidation since they had already surrendered full control of the bank to the BSP as
early as April 26, 2012.19 For its part, BSP maintained20 that it had ample factual and legal bases to order EIB's
liquidation.21
The CA Ruling
In a Decision22 dated January 21, 2014, the CA dismissed the petition for lack of merit. It ruled that the Monetary
Board did not gravely abuse its discretion in ordering the liquidation of EIB pursuant to the PDIC's findings that the
rehabilitation of the bank is no longer feasible. In this regard, the CA held that there is nothing in Section 30 of RA
7653 that requires the Monetary Board to make its own independent factual determination on the bank's viability
before ordering its liquidation. According to the CA, the law only provides that 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,"23
which it did in this case.
Undaunted, petitioners moved for reconsideration24 which was, however, denied by the CA in its Resolution25 dated
October 10, 2014; hence, this petition.
The Issue Before the Court
The sole issue before the Court is whether or not the CA correctly ruled that the Monetary Board did not gravely
abuse its discretion in issuing Resolution No. 571 which directed the PDIC to proceed with the liquidation of EIB.
The Court's Ruling
The petition is without merit. Section 30 of RA 7653 provides for the proceedings in the receivership and liquidation
of banks and quasi-banks, the pertinent portions of which read:
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 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 x x x[.]
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:
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
1âwphi1
conservator is not a precondition to the designation of a receiver. (Emphases and underscoring

supplied)
It is settled that "[t]he 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."26 Otherwise stated and as culled from the above provision, the actions of the Monetary Board
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. "There is grave abuse of discretion when there is an evasion of a positive duty or a
virtual refusal to perform a duty enjoined by law or to act in contemplation of law as when the judgment rendered is
not based on law and evidence but on caprice, whim and despotism."27
In line with the foregoing considerations, the Court agrees with the CA that the Monetary Board did not gravely
abuse its discretion in ordering the liquidation of EIB through its Resolution No. 571.
To recount, after the Monetary Board issued Resolution No. 686 which placed EIB under the receivership of PDIC,
the latter submitted its initial findings to the Monetary Board, stating that EIB can be rehabilitated or permitted to
resume business; provided, that a bidding for its rehabilitation would be conducted, and that the following
conditions would be met: (a) there are qualified interested banks that will comply with the parameters for
rehabilitation of a closed bank, capital strengthening, liquidity, sustainability and viability of operations, and
strengthening of bank governance; and (b) all parties (including creditors and stockholders) agree to the
rehabilitation and the revised payment terms and conditions of outstanding liabilities.28 However, the foregoing
conditions for EIB 's rehabilitation "were not met because the bidding and re-bidding for the bank's rehabilitation
were aborted since none of the pre-qualified Strategic Third Party Investors (STPI) submitted a letter of interest to
participate in the bidding,"29 thereby resulting in the PDIC's finding that EIB is already insolvent and must already be
liquidated - a finding which eventually resulted in the Monetary Board's issuance of Resolution No. 571.
In an attempt to forestall EIB's liquidation, petitioners insist that the Monetary Board must first make its own
independent finding that the bank could no longer be rehabilitated - instead of merely relying on the findings of the
PDIC - before ordering the liquidation of a bank.30
Such position is untenable.
As correctly held by the CA, nothing in Section 30 of RA 7653 requires the BSP, through the Monetary Board, to
make an· independent determination of whether a bank may still be rehabilitated or not. As expressly stated in the
afore-cited provision, once the receiver determines that rehabilitation is no longer feasible, the Monetary Board is
simply obligated to: (a) notify in writing the bank's board of directors of the same; and (b) direct the PDIC to proceed
with liquidation, viz.:
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. x x x.
x x x x31
Suffice it to say that if the law had indeed intended that the Monetary Board make a separate and distinct factual
determination before it can order the liquidation of a bank or quasi-bank, then there should have been a provision to
that effect. There being none, it can safely be concluded that the Monetary Board is not so required when the PDIC
has already made such determination. It must be stressed that the BSP (the umbrella agency of the Monetary
Board), in its capacity as government regulator of banks, and the PDIC, as statutory receiver of banks under RA
7653, are the principal agencies mandated by law to determine the financial viability of banks and quasi-banks, and
facilitate the receivership and liquidation of closed financial institutions, upon a factual determination of the latter's
insolvency.32 Thus, following the maxim verba legis non est recedendum - which means "from the words of a statute
there should be no departure" - a statute that is clear, plain, and free from ambiguity must be given its literal
meaning and applied without any attempted interpretation,33 as in this case.
In sum, the Monetary Board's issuance of Resolution No. 571 ordering the liquidation of EIB cannot be considered
to be tainted with grave abuse of discretion as it was amply supported by the factual circumstances at hand and
made in accordance with prevailing law and jurisprudence. To note, 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,"[['34]] which is absent in this case.
WHEREFORE, the petition is hereby DENIED. The Decision dated January 21, 2014 and the Resolution dated
October 10, 2014 of the Court of Appeals in CA-G.R. SP No. 129674 are hereby AFFIRMED.
SO ORDERED.
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
DIOSDADO M. PERALTA ALFREDO BENJAMIN S. CAGUIOA

ANDRES B. REYES, JR.

Associate Justice
ATTESTATION
ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to the Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that

Chief Justice
Footnotes
1
Rollo, pp. 49-90.
2
Id. at 9-29. Penned by Associate Justice Eduardo B. Peralta, Jr. with Associate Justices Magdangal M. De
Leon and Stephen C. Cruz, concurring.
3
Id. at 43-47.
4
See id. at 54 and 215.
5
Id. at 11.
6
Id. at 302.
7
Id. at 11.
8
See BSP Memorandum No. M-2012-022 dated April 26, 2012 issued by Deputy Governor Nestor A.
Espenilla, Jr.
9
Approved on June 14, 1993.
10
Rollo, p. 12.
11
See id.
12
See id. at 12-13.
13
Id. at 13.
14
Id.
15
See id. at 157-159.
16
Dated April 26, 2013. Id. at 156-183.
17
See id. at 171-174. See also id. at 13-14.
18
See comment dated June 3, 2013; id. at 475-509.
19
See id. at 493.
20
See Comment/Opposition dated June 10, 2013; id. at 561-575.
21
Id. at 562. See also id. at 24.
22
Id. at 9-29.
23
Id. at 28.
24
See motion for reconsideration dated February 11, 2014; id. at 30-41.
25
Id. at 43-47.
26
Miranda v. PDIC, 532 Phil. 723, 730 (2006), citing Banco Filipino Savings and Mortgage Bank v. Monetary
Board, G.R. Nos. 70054, 68878, 77255-58, 78766, 78767, 78894, 81303, 81304, 90473, December 11, 1991,
204 SCRA 767, 798.
27
City of General Santos v. Commission on Audit, 733 Phil. 687, 697(2014).
28
Rollo, p. 12.
29
Id. at 27.
30
See id. at 24. See also id. at 79-88.
31
See Section 30, RA 7653.
32
See Miranda v. PDIC, supra note 24 at 731.
33
See Bolos v. Bolos, 648 Phil. 630, 637 (2010), citing Padua v. People, 581 Phil. 489, 500-501 (2008).
34
Miranda v. PDIC, supra note 24, at 731, citing Central Bank of the Philippines v. De la Cruz, 269 Phil. 365,
374 (1990).

Custom Search
FIRST DIVISION
April 17, 2017
G.R. No. 186717
REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEY LAUNDERING COUNCIL, Petitioners

vs.
JOCELYN I. BOLANTE, OWEN VINCENT D. BOLANTE, MA. CAROL D. BOLANTE, ALEJO LAMERA, CARMEN
LAMERA, EDNA CONSTANTINO, ARIEL C. PANGANIBAN, KATHERINE G. BOMBEO, SAMUEL S. BOMBEO,
MOLUGAN FOUNDATION, SAMUEL G. BOMBEO, JR., and NATIONAL LIVELIHOOD DEVELOPMENT
CORPORATION (Formerly Livelihood Corporation), Respondents
x-----------------------x
G.R. No. 190357
REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEY LAUNDERING COUNCIL, Petitioner,

vs.
HON. WINLOVE M. DUMAYAS, Presiding Judge of Branch 59, Regional Trial Court in Makati City, JOCELYN I.
BOLANTE, ARIEL C. PANGANIBAN, DONNIE RAY G. PANGANIBAN, EARL WALTER G. PANGANIBAN,
DARRYL G. PANGANIBAN, GAVINA G. PANGANIBAN, JAYPEE G. PANGANIBAN, SAMUEL S. BOMBEO, KA
THERINE G. BOMBEO, SAMUEL G. BOMBEO, JR., NATIONAL LIVELIHOOD DEVELOPMENT CORPORATION
(FORMERLY LIVELIHOOD CORPORATION), MOLUGAN FOUNDATION, ASSEMBLY OF GRACIOUS
SAMARITANS FOUNDATION, INC., ONE ACCORD CHRISTIAN COMMUNITY ENDEAVOR FOR SALVATION &
SUCCESS THROUGH POVERTY ALLEVIATION, INC., SOCIETY'S MULTI-PURPOSE FOUNDATION, INC.,
ALLIANCE FOR THE CONSERVATION OF ENVIRONMENT OF PANGASINAN, INC., AND STA. LUCIA
EDUCATIONAL ASSOCIATION OF BULACAN, INC., Respondents.
DECISION
SERENO, J.:
G.R. No. 186717 is a petition for review on certiorari under Rule 45 of the Rules of Court, with an urgent prayer for
the issuance of a temporary restraining order and/or writ of preliminary injunction. The petition seeks to nullify the
1âwphi1
Court of Appeals (CA) Resolution 1 in CA-G.R. AMLC No. 00024. The CA Resolution denied petitioner's application
to extend the freeze order issued on 4 Fehruary 20092 over the bank deposits and investments of respondents.
G.R. No. 190357 is a petition for certiorari under Rule 65 of the Rules of Court challenging the Resolution 3 and the
Order4 issued by the Regional Trial Court of Makati, Branch 59 (RTC), in AMLC Case No. 07-001. The RTC
Resolution denied petitioner's application for an order allowing an inquiry into the bank deposits and investments of
respondents. The R TC Order denied petitioner's motion for reconsideration.
FACTS
In April 2005, the Philippine National Bank (PNB) submitted to the Anti-Money Laundering Council (AMLC) a series
of suspicious transaction reports involving the accounts of Livelihood Corporation (LIVECOR), Molugan Foundation
(Molugan), and Assembly of Gracious Samaritans, Inc.
(AGS).5 According to the reports, LIVECOR transferred to Molugan a total amount of' ₱172.6 million in a span of 15
months from 2004 to 2005.6 On 30 April 2004, LIVECOR transferred ₱40 million to AGS, which received another
P38 million from Molugan on the same day. 7 Curiously, AGS returned the P38 million to Molugan also on the same
day.8
The transactions were reported '"suspicious" because they had no underlying legal or trade obligation, purpose or
economic justification; nor were they commensurate to the business or financial capacity of Molugan and AGS,
which were both lowly capitalized at P50,000 each.9 In the case of Molugan, Samuel S. Bombeo, who holds the
position of president, secretary and treasurer, is the lone signatory to the account. 10 In the case of AGS, Samuel S.
Bombeo shares this responsibility with Ariel Panganiban. 11
On 7 March 2006, the Senate furnished the AMLC a copy of its Committee Report No. 54 12 prepared by the
Committee on Agriculture and Food and the Committee on Accountability of Public Officers and Investigations. 13
Committee Report No. 54 14 narrated that former Undersecretary of Agriculture Jocelyn I. Bolante (Bolante)
requested the Department of Budget and Management to release to the Department of Agriculture the amount of
₱728 million for the purchase of farm inputs under the Ginintuang Masaganang Ani Program. This amount was used
to purchase liquid fertilizers from Freshan Philippines, Inc., which were then distributed to local government units
and congressional districts beginning January 2004. Based on the Audit Report prepared by the Commission on
Audit (COA), 15 the use of the funds was characterized by massive irregularities, overpricing, violations of the
procurement law and wanton wastage of scarce government resources.
Committee Report No. 54 also stated that at the time that he served as Undersecretary of Agriculture, Bolante was
also appointed by President Gloria Macapagal Arroyo as acting Chairman of LIVECOR.
The AMLC issued Resolution No. 75 16 finding probable cause to believe that the accounts of LIVECOR, Molugan
and AGS - the subjects of the suspicious transaction reports submitted by PNB - were related to what became
known as the "fertilizer fund scam." The pertinent portion of Resolution No. 75 provides:
Under the foregoing circumstances, there is probable cause to believe that the accounts of the
foundations and its officers are related to the fertilizer fund scam. The release of the amount of ₱728
million for the purchase of farm inputs to the Department of Agriculture was made by Undersecretary
Bolante. Undersecretary Bolante was the Acting Chairman of LIVECOR. LIVECOR transferred huge
amounts of money to Molugan and AGS, while the latter foundations transferred money to each other.
Mr. [Samuel S.] Bombeo was the President, Secretary, and Treasurer of Molugan. He, therefore,
played a key role in these transactions. On the other hand, Mr. [Ariel] Panganiban was the signatory to
the account or AGS. Without his participation, these transactions could not have been possible.
The acts involved in the "fertilizer scam" may constitute violation of Section 3(e) of Republic Act No.
3019, x x x as well as violation or Republic Act No. 7080 (Plunder). 17
Thus, the AMLC authorized the filing of a petition for the issuance of an order allowing an inquiry into the six
accounts 18 of LIVECOR, Molugan, AGS, Samuel S. Bombeo and Ariel Panganiban. The AMLC also required all
covered institutions to submit reports of covered transactions and/or suspicious transactions of these entities and
individuals, including all the related web of accounts.
The petition was filed ex parte before the R TC and docketed as AMLC SP Case No. 06-003. On 17 November
2006, the trial court found probable cause and issued the Order prayed for. 19 It allowed the AMLC to inquire into
and examine the six bank deposits or investments and the related web of accounts.
Meanwhile, based on the investigation of the Compliance and Investigation Group of the AMLC Secretariat, a total
of 70 bank accounts or investments were found to be part of the related web of accounts involved in the fertilizer
fund scam.20
Accordingly, the AMLC issued Resolution No. 9021 finding probable cause to believe that these 70 accounts were
related to the fertilizer fund scam. It said that the scam may constitute violations of Section 3(e)22 of Republic Act
No. (R.A.) 3019 (Anti-Graft and Corrupt Practices Act) and R.A. 7080 (An Act Defining and Penalizing the Crime of
Plunder). The AMLC therefore authorized the filing of a petition for the issuance of an order allowing an inquiry into
these 70 accounts.23
On 14 February 2008, this Court promulgated Republic v. Eugenio.24 We ruled that when the legislature crafted
Section 11 25 of R.A. 9160 (Anti Money Laundering Act of 2001), as amended, it did not intend to authorize ex parte
proceedings for the issuance of a bank inquiry order by the CA. Thus, a bank inquiry order cannot be issued unless
notice is given to the account holders.26 That notice would allow them the opportunity to contest the issuance of the
order.
In view of this development, the AMLC issued Resolution No. 40.27 It authorized the filing of a petition for the
issuance of a freeze order against the 70 accounts found to be related to the fertilizer fund scam.
Hence, the Republic filed an Ex Parte Petition28 docketed as CA-G.R. AMLC No. 00014 before the CA, seeking the
issuance of a freeze order against the 70 accounts.
The CA issued a freeze order effective for 20 days.29 The freeze order required the covered institutions of the 70
accounts to desist from and not allow any transaction involving the identified monetary instruments. It also asked the
covered institutions to submit a detailed written return to the CA within 24 hours from receipt of the freeze order.
The CA conducted a summary hearing of the application, 30 after which the parties were ordered to submit their
memoranda, manifestations and comments/oppositions. 31 The freeze order was later extended for a period of 30
days until 19 August 2008. 32
Finding that there existed probable cause that the funds transferred to and juggled by LIVECOR, Molugan, and AGS
formed pati of the ₱728 million fertilizer fund, the CA extended the effectivity of the freeze order for another four
months, or until 20 December 2008. 33 The extension covered only 31 accounts, 34 which showed an existing
balance based on the returns of the covered institutions.
In the meantime, the Republic filed an Ex Parte Application 35 docketed as AMLC Case No. 07-001 before the RTC.
Drawing on the authority provided by the AMLC through Resolution No. 90, the ex parte application sought the
issuance of an order allowing an inquiry into the 70 accounts.
The RTC found probable cause and issued the Order prayed for. 36 It allowed the AMLC to inquire into and examine
the 70 bank deposits or investments and the related web of accounts.
On 20 October 2008, this Court denied with finality the motion for reconsideration filed by the Republic in Eugenio. 37
The Court reiterated that Section 11 38 of R.A. 9160, as then worded, did not allow a bank inquiry order to be issued
ex parte; and that the concerns of the Republic about the consequences of this ruling could be more properly lodged
in the legislature.
Thus, in order to comply with the ruling in Eugenio, the Republic filed an Amended and Supplemental Application 39
in AMLC Case No. 07- 001 before the RTC. The Republic sought, after notice to the account holders, the issuance
of an order allowing an inquiry into the original 70 accounts plus the six bank accounts that were the subject of
AMLC SP Case No. 06-003. A summary hearing thereon ensued.
On the belief that the finality of Eugenio constituted a supervening event that might justify the filing of another
petition for a freeze order, the AMLC issued Resolution No. 5.40 The resolution authorized the filing of a new petition
for the issuance of a freeze order against 24 41 of the 31 accounts previously frozen by the CA.
Hence, the Republic filed an Urgent Ex Parte Petition42 docketed as CA-G.R. AMLC No. 00024 before the CA
seeking the issuance of a freeze order against the 24 accounts.
In the Resolution dated 4 February 2009,43 the CA issued a freeze order effective for 20 days. The freeze order
required the covered institutions of the 24 accounts to desist from and not allow any transaction involving the
identified monetary instruments. It also asked the covered institutions to submit a detailed written return to the CA
within 24 hours from receipt of the freeze order.
A summary hearing was conducted by the CA for the purpose of determining whether to modify, lift or extend the
freeze order. 44 Thereafter, the parties were required to submit memoranda.
THE CHALLENGED RESOLUTIONS
The assailed CA Resolution dated 27 February 200945 denied the application to extend the freeze order issued on 4
February 2009.
The CA found that the Republic had committed forum shopping.46 Specifically, the appellate court found that the
parties in CA-G.R. AMLC No. 00024 were the same as those in CA-G.R. AMLC No. 00014. The petition in CA-G.R.
AMLC No. 00024 sought the issuance of a freeze order against the same accounts covered by CA-G.R. AMLC No.
00014. Finally, the rights asserted and reliefs prayed for in both petitions were substantially founded on the same
facts, thereby raising identical causes of action and issues.
The CA found no merit in the assertion of the Republic that the ruling in Eugenio was a supervening event that
prevented the latter from concluding its financial investigation into the accounts covered by the freeze order in CA-
G.R. AMLC No. 00014.47 The CA noted that Eugenio was promulgated on 14 February 2008, or almost five months
before the Republic filed CA-G.R. AMLC No. 00014 before the CA and AMLC Case No. 07-001 before the RTC.
According to the appellate court, since the Republic was faced with the imminent finality of Eugenio, it should have
taken steps to expedite the conduct of the inquiry and the examination of the bank deposits or investments and the
related web of accounts.
At any rate, the CA found that the petition in CA-G.R. AMLC No. 00024 was effectively a prayer for the further
extension of the 5-month, 20- day freeze order already issued in CA-G.R. AMLC No. 00014.48 The extension sought
is proscribed under Section 53 of Administrative Circular No. 05-11-04-SC.49 According to this provision, the
effectivity of a freeze order may be extended for good cause shown for a period not exceeding six months.
Aggrieved, the Republic filed the instant petition for review on certiorari with an urgent prayer for the issuance of a
temporary restraining order and/or writ of preliminary injunction docketed as G.R. No. 186717.
On 25 March 2009, this Court issued a Status Quo Ante Order50 enjoining the implementation of the assailed CA
Resolution.
At the time of the submission of respondents' Comment 51 and petitioner's Consolidated Reply52 in G.R. No. 186717,
the RTC issued the challenged Resolution dated 3 July 200953 in AMLC Case No. 07-001. The trial court denied the
Republic's application for an order allowing an inquiry into the total of 76 bank deposits and investments of
respondents.
The RTC found no probable cause to believe that the deposits and investments of respondents were related to an
unlawful activity. 54 It pointed out that the Republic, in support of the latter's application, relied merely on two pieces
of evidence: Senate Committee Report No. 54 and the court testimony of witness Thelma Espina of the AMLC
Secretariat. According to the RTC, Senate Committee Report No. 54 cannot be taken "hook, line and sinker, "55
because the Senate only conducts inquiries in aid of legislation.
Citing Neri v. Senate Committee on Accountability of Public Officers and Investigations, 56 the trial court pronounced
that the Senate cannot assume the power reposed in prosecutorial bodies and the courts - the power to determine
who are liable for a crime or an illegal activity. 57 On the other hand, the trial court noted that the testimony of the
witness merely relied on Senate Committee Report No. 54. The latter "admitted that the AMLC did not bother to
confirm the veracity of the statements contained therein." 58
The RTC instead gave credence to the Audit Report prepared by COA. While outlining the irregularities that
attended the use of the fertilizer fund, COA also showed that none of the funds were channeled or released to
LIVECOR, Molugan or AGS.59 The trial court also took note of the evidence presented by Bolante that he had
ceased to be a member of the board of trustees of LIVECOR on 1 February 2003, or more than 14 months before
the transfers were made by LIVECOR to Molugan as indicated in the suspicious transaction reports submitted by
PNB.60 Furthermore, the RTC found that the transfers made by LIVECOR to Molugan and AGS came from the P60
million Priority Development Assistance Fund of Senator Joker Arroyo.61
The Republic moved for reconsideration, but the motion was denied by the RTC in the challenged Order dated 13
November 2009. 62
Hence, the Republic filed the instant petition for certiorari docketed as G.R. No. 190357.
The Court resolved to consolidate G.R. No. 190357 with G.R. No. 186717, considering that the issues raised in the
petitions were closely intertwined and related.63 On 6 December 2010, these petitions were given due course, and
all parties were required to submit memoranda.64
Amid reports that the Office of the Ombudsman (Ombudsman) had filed plunder cases against those involved in the
fertilizer fund scam, the Court issued the Resolution dated 16 November 2011.65 We required the AMLC and the
Ombudsman to move in the premises and jointly manifest whether the accounts, subject of the instant petitions,
were in any way related to the plunder cases already filed.
In their compliance dated 14 March 2012,66 the AMLC and the Ombudsman manifested that the plunder case filed in
connection with the fertilizer fund scam included Bolante, but not the other persons and entities whose bank
accounts are now the subject of the instant petitions. That plunder case was docketed as SB-l 1-CRM-0260 before
the Second Division of the Sandiganbayan.
ISSUES
The following are the issues for our resolution:

1. Whether the Republic committed forum shopping in filing CA-G.R. AMLC No. 00024 before the CA
2. Whether the RTC committed grave abuse of discretion in ruling that there exists no probable cause to ailow
an inquiry into the total of 76 deposits and investments of respondents
OUR RULING
I.
The Republic committed forum shopping.
As we ruled in Chua v. Metropolitan Bank and Trust Co., 67 forum shopping is committed in three ways: (1) filing
multiple cases based on the same cause of action and with the same prayer, where the previous case has not yet
been resolved (the ground for dismissal is litis pendentia); (2) filing multiple cases based on the same cause of
action and with the same prayer, where the previous case has finally been resolved (the ground for dismissal is res
judicata); and (3) filing multiple cases based on the same cause of action, but with different prayers (splitting of
causes of action, where the ground for dismissal is also either litis pendentia or res judicata).
In the instant petitions, the Republic focused its energies on discussing why it did not commit forum shopping on the
ground of litis pendentia. In its Memorandum, it argued:
While it is true that a previous freeze order was issued in CA-G.R. AMLC No. 00014 covering some of the accounts
subject of CA-G.R. AMLC No. 00024, CA-G.R. AAILC No. 00014 had already attained finality when the second
petition was filed, neither petitioner nor any of the respondents interposed an appeal therefrom, pursuant to Section
57 of the Rule of Procedure in Cases of Civil F01feiture, etc .. The principle of lit is pendentia presupposes the
pendency of at least one case when a second case is filed. Such situation does not exist in the present controversy
since CA-G.R. AMLC No. 00014 was no longer pending but has attained finality when the second petition was filed.
68
In a clear illustration of the phrase, out of the frying pan and into the fire, the Republic vigorously resisted the
application of forum shopping on the ground of litis pendentia, only to unwittingly admit that it had possibly
committed forum shopping on the ground of res judicata.
We are not even sure where the Republic got the notion that the CA found "that the filing of the second petition for
freeze order constitutes forum shopping on the ground of litis pendentia."69 In its assailed Resolution, the appellate
court aptly cited Quinsay v. CA,70 stating that "forum shopping concurs not only when a final judgment in one case
will amount to res judicata in another, but also where the elements of litis pendentia are present."71 It then went on to
enumerate the aforecited elements of litis pendentia, namely: (I) identity of parties, or those that represent the same
interests in both actions; (2) identity of rights asserted and relief sought, with the relief founded on the same facts;
and (3) identity of the two preceding particulars, such that any judgment rendered in one proceeding will, regardless
of which party is successful, amount to res judicata in the other. The CA only discussed how these elements were
present in CA-G.R. AMLC No. 00024 and CA-G.R. AMLC No. 00014 in relation to each other. Nowhere did the CA
make any categorical pronouncement that the Republic had committed forum shopping on the ground of litis
pendentia.
With this clarification, we discuss how all the elements of litis pendentia are present in the two petitions for the
issuance of a freeze order.
First, there is identity of parties. In both petitions, the Republic is the petitioner seeking the issuance of a freeze
order against the bank deposits and investments. The 24 accounts sought to be frozen in CA-G.R. AMLC No. 00024
were part of the 31 accounts previously frozen in CA-G.R. AMLC No. 00014,72 and the holders of these accounts
were once again named as respondents.
Second, there is an identity of rights asserted and relief sought based on the same facts. The AMLC filed both
petitions in pursuance of its function to investigate suspicious transactions, money laundering activities, and other
violations of R.A. 9160 as amended. 73 The law also granted the AMLC the authority to make an ex parte application
before the CA for the freezing of any monetary instrument or property alleged to be the proceeds of any unlawful
activity, as defined in Section 3(i) thereof.74
Both petitions sought the issuance of a freeze order against bank deposits and investments believed to be related to
the fertilizer fund scam. Notably, while the petition in CA-G.R. AMLC No. 00014 narrated the facts smTounding the
issuance of AMLC Resolution Nos. 75 and 40,75 the petition in CA-G.R. AMLC No. 00024 used as its foundation the
previous grant of the freeze order in CA-G.R. AMLC No. 00014 and the extensions of its effectivity.76 Nevertheless,
both petitions highlighted the role of Senate Committee Report No. 54 in providing AMLC with the alleged link
between the fertilizer fund scam and the bank deposits and investments sought to be frozen. 77
Third, the judgment in CA-G.R. AMLC No. 00014 barred the proceedings in CA-G.R. AMLC No. 00024 by
resjudicata.
Res judicata is defined as a matter adjudged, a thing judicially acted upon or decided, or a thing or matter settled by
judgment. 78 It operates as a bar to subsequent proceedings by prior judgment when the following requisites concur:
(1) the former judgment is final; (2) it is rendered by a court having jurisdiction over the subject matter and the
parties; (3) it is a judgment or an order on the merits; and (4) there is - between the first and the second actions -
identity of parties, subject matter, and causes of action. 79
Clearly, the resolution in CA-G.R. AMLC No. 00014 extending the effectivity of the freeze order until 20 December
2008 attained finality upon the failure of the parties to assail it within 15 days from notice. The
Resolution was rendered by the CA, which had jurisdiction over applications for the issuance of a freeze order under
Section 1080 of R.A. 9160 as amended. It was a judgment on the merits by the appellate court, which made a
determination of the rights and obligations of the parties with respect to the causes of action and the subject matter.
81
The determination was based on the pleadings and evidence presented by the parties during the summary
hearing and their respective memoranda. Finally, there was - between CAG. R. AMLC No. 00014 and CA-G.R.
AMLC No. 00024 - identity of parties, subject matter and causes of action.
The Republic's commission of forum shopping is further illustrated by its awareness that the effectivity of the freeze
order in CA-G.R. AMLC No. 00014 had already been extended to 5 months and 20 days. Under
Section 5382 of A.M. No. 05-11-04-SC,83 the original 20-day effectivity period of a freeze order may only be extended
by the CA for good cause for a period not exceeding six months. Because of this predicament, the Republic sought
to avoid seeking a further extension that is clearly prohibited by the rules by allowing the extended freeze order in
CA-G.R. AMLC No. 00014 to lapse on 20 December 2008. Instead, it filed the petition in CA-G.R. AMLC No. 00024
alluding to the exact same facts and arguments but citing a special factual circumstance that allegedly distinguished
it from CA-G.R. AMLC No. 00014.
The Republic argued that CA-G.R. AMLC No. 00024 was filed at the advent of Eugenio. The ruling was a
supervening event that prevented the Republic from concluding its exhaustive financial investigation within the
auspices of the bank inquiry order granted by the RTC in AMLC Case No. 07-001 and the freeze order granted by
the CA in CA-G.R. AMLC No. 00014.84
We find no merit in this argument. The promulgation of Eugenio was not a supervening event under the
circumstances. "Supervening events refer to facts which transpire after judgment has become final and executory or
to new circumstances which developed after the judgment has acquired finality, including matters which the parties
were not aware of prior to or during the trial as they were not yet in existence at that time."85
As aptly pointed out by the appellate court, Eugenio was promulgated five months before the filing of the petition in
CA-G .R. AMLC No. 00014.
Indeed the Decision therein only attained finality upon the denial of the motion for reconsideration on 20 October
2008, or before the filing of the petition in CA-G.R. AMLC No. 0002. The ruling, however, cannot be regarded as a
matter that the parties were not aware of prior to or during the trial of CA-G.R. AMLC No. 00014.
In fact, it was because of Eugenio that CA-G.R. AMLC No. 00014 was filed in the first place.
We have not painstakingly narrated all the relevant facts of these cases for nothing. It should be noted that before
the ruling in Eugenio, the AMLC commenced its investigations into the fertilizer fund scam by filing petitions for bank
inquiry orders. Thus, it issued Resolutions No. 75 and 90, both authorizing the filing of petitions for the issuance of
orders allowing an inquiry into the pertinent bank deposits and investments.
According to the Court in Eugenio, "a requirement that the application for a bank inquiry order be done with notice to
the account holder will alert the latter that there is a plan to inspect his bank account on the belief that the funds
therein are involved in an unlawful activity or money laundering offense."86 Alarmed by the implications of this ruling,
the AMLC changed tack and decided to pursue the only other remedy within its power to obtain ex parte at the time.
Hence, it issued Resolution No. 40 authorizing the filing of CA-G.R. AMLC No. 00014 for the issuance of a freeze
order to preserve the 70 bank deposits and investments and prevent the account holders from withdrawing them.
The pertinent portion of AMLC Resolution No. 40 provides:
In the Resolution No. 90, dated October 26, 2007, the Council found probable cause that the accounts of the subject
individuals and entities are related to the fertilizer fund scam and resolved to authorize the tiling of a petition for the
issuance of a freeze order allowing inquiry into the following accounts:
xxxx
However, in Republic vs. Eugenio (G.R. No. 174629, February 14, 2008), the Supreme Court ruled that proceedings
in applications for issuance of an order allowing inquiry should be conducted after due notice to the
respondents/account holders.
In the light of the aforesaid ruling of the Supreme Court, the Council resolved to:
1. Authorize the AMLC Secretariat to file with the Court of Appeals, through the Office of the Solicitor General, a
petition for freeze order against the following bank accounts and all related web of accounts wherever these may be
found: 87
Notably, it was only after the freeze order had been issued that AMLC Case No. 07-001 was filed before the RTC to
obtain a bank inquiry order covering the same 70 accounts.
Presently, while Eugenio still provides much needed guidance in the resolution of issues relating to the freeze and
bank inquiry orders, the Decision in that case no longer applies insofar as it requires that notice be given to the
account holders before a bank inquiry order may be issued. Upon the enactment of R.A. 10167 on 18 June 2012,
Section 11 of R.A. 9160 was further amended to allow the AMLC to file an ex parte application for an order allowing
an inquiry into bank deposits and investments. Section 11 of R.A. 9160 now reads:
Section 11. Authority to Inquire into Bank Deposits. - Notwithstanding the provisions of Republic Act
No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other laws,
the AMLC may inquire into or examine any particular deposit or investment, including related accounts,
with any banking institution or non-bank financial institution upon order of any competent court based
on an ex parte application in cases of violations of this Act, when it has been established that there is
probable cause that the deposits or investments, including related accounts involved, are related to an
unlawful activity as defined in Section 3(i) hereof or a money laundering offense under Section 4
hereof; except that no court order shall be required in cases involving activities defined in Section 3(i)(1
), (2 ), and (12) hereof and felonies or offenses of a nature similar to those mentioned in Section 3(i)(l ),
(2), and (12), which are Punishable under the penal laws of other countries, and terrorism and
conspiracy to commit terrorism as defined and penalized under Republic Act No. 9372.
The Court of Appeals shall act on the application to inquire in lo or examine any depositor or
investment with any banking institution or nonbank financial institution within twenty-four (24) hours
from filing of the application.
To ensure compliance with this Act, the Bangko Sentral ng Pilipinas may, in the course of a periodic or
special examination, check the compliance of a Covered institution with the requirements of the AMLA
and its implementing rules and regulations.
For purposes of this section, related accounts' shall refer to accounts, the funds and sources of which
originated from and/or are materially linked to the monetary instrument(s) or property(ies) subject of the
freeze order(s).
A court order ex parte must first be obtained before the AMLC can inquire into these related Accounts:
Provided, That the procedure for the ex parte application of the ex parte court order for the principal
account shall be the same with that of the related accounts.
The authority to inquire into or examine the main account and the related accounts shall comply with
the requirements of Article III, Sections 2 and 3 of the 1987 Constitution, which are hereby incorporated
by reference. (Emphasis supplied)
The constitutionality of Section 11 of R.A. 9160, as presently worded, was upheld by the Court En Banc in the
recently promulgated Subido Pagente Certeza Mendoza and Binay Law Offices v. CA. 88 The Court therein ruled
that the AMLC's ex parte application for a bank inquiry, which is allowed under Section 11 of R.A. 9160, does not
violate substantive due process. There is no such violation, because the physical seizure of the targeted corporeal
property is not contemplated in any form by the law.89 The AMLC may indeed be authorized to apply ex parte for an
inquiry into bank accounts, but only in pursuance of its investigative functions akin to those of the National Bureau of
Investigation.90 As the AMLC does not exercise quasi-judicial functions, its inquiry by court order into bank deposits
or investments cannot be said to violate any person's constitutional right to procedural due process.91
As regards the purported violation of the right to privacy, the Court recalled the pronouncement in Eugenio that the
source of the right to privacy governing bank deposits is statutory, not constitutional.92 The legislature may validly
carve out exceptions to the rule on the secrecy of bank deposits, and one such legislation is Section 11 of R.A.
9160.93
The Comi in Subido emphasized that the holder of a bank account that is the subject of a bank inquiry order issued
ex parte has the opportunity to question the issuance of such an order after a freeze order has been issued against
the account. 94 The account holder can then question not only the finding of probable cause for the issuance of the
freeze order, but also the finding of probable cause for the issuance of the bank inquiry order. 95
II.
The RTC's finding that there was no

probable cause for the issuance of a
bank inquiry order was not tainted
with grave abuse of discretion.
Rule 10.2 of the Revised Rules and Regulations Implementing Republic Act No. 9160, as Amended by Republic Act
No. 9194, defined probable cause as "such facts and circumstances which would lead a reasonably discreet,
prudent or cautious man to believe that an unlawful activity and/or a money laundering offense is about to be, is
being or has been committed and that the account or any monetary instrument or property subject thereof sought to
be frozen is in any way related to said unlawful activity and/or money laundering offense." As we observed in
Subido,96 this definition refers to probable cause for the issuance of a freeze order against an account or any
monetary instrument or property subject thereof. Nevertheless, we shall likewise be guided by the pronouncement in
Ligot v. Republic97 that "probable cause refers to the sufficiency of the relation between an unlawful activity and the
property or monetary instrument."
In the issuance of a bank inquiry order, the power to determine the existence of probable cause is lodged in the trial
court. As we ruled in Eugenio:
Section 11 itself requires that it be established that "there is probable cause that the deposits or investments are
related to unlawful activities," and it obviously is the court which stands as arbiter whether there is indeed such
probable cause. The process of inquiring into the existence of probable cause would involve the function of
determination reposed on the trial court. Determination clearly implies a function of adjudication on the part of the
trial court, and not a mechanical application of a standard predetermination by some other body. The word
"determination'' implies deliberation and is, in normal legal contemplation, equivalent to ''the decision of a court of
justice."
The court receiving the application for inquiry order cannot simply take the AMLC's word that probable cause exists
that the deposits or investments are related to an unlawful activity. It will have to exercise its own determinative
function in order to be convinced of such fact.98
For the trial court to issue a bank inquiry order, it is necessary for the AMLC to be able to show specific facts and
circumstances that provide a link between an unlawful activity or a money laundering offense, on the one hand, and
the account or monetary instrument or property sought to be examined on the other hand. In this case, the R TC
found the evidence presented by the AMLC wanting. For its part, the latter insists that the RTC's determination was
tainted with grave abuse of discretion for ignoring the glaring existence of probable cause that the subject bank
deposits and investments were related to an unlawful activity.
Grave abuse of discretion is present where power is exercised in an arbitrary or despotic manner by reason of
passion, prejudice or personal hostility, that is so patent and gross as to amount to an evasion of a positive duty or
to a virtual refusal to perform a duty enjoined or to act at all in contemplation of law.99 For certiorari to lie, it must be
shown that there was a capricious, arbitrary and whimsical exercise of power - the very antithesis of the judicial
prerogative. 100
We find no reason to conclude that the R TC determined the existence of probable cause, or lack thereof, in an
arbitrary and whimsical manner. 1âwphi1
To repeat, the application for the issuance of a bank inquiry order was supported by only two pieces of evidence:
Senate Committee Report No. 54 and the testimony of witness Thelma Espina.
We have had occasion to rule that reports of the Senate stand on the same level as other pieces of evidence
submitted by the parties, and that the facts and arguments presented therein should undergo the same level of
judicial scrutiny and analysis. 101 As courts have the discretion to accept or reject them, 102 no grave error can be
ascribed to the RTC for rejecting and refusing to give probative value to Senate Committee Report No. 54.
At any rate, Senate Committee Report No. 54 only provided the AMLC with a description of the alleged unlawful
activity, which is the fertilizer fund scam. It also named the alleged mastermind of the scam, who was respondent
Bolante. The entire case of the AMLC, however, hinged on the following excerpt of Senate Committee Report No.
54:
But Undersecretary Bolante's power over the agriculture department was widely known. And it encompasses more
than what the Administrative Code provided.
In fact, at the time that he was Undersecretary, Jocelyn Bolante was concurrently appointed by the President in
other powerful positions: as Acting Chairman of the National Irrigation Administration, as Acting Chairman of the
Livelihood Corporation x x x. 103 (Emphasis supplied)
It was this excerpt that led the AMLC to connect the fertilizer fund scam to the suspicious transaction reports earlier
submitted to it by PNB.
However, the R TC found during trial that respondent Bolante had ceased to be a member of the board of trustees
of LIVECOR for 14 months before the latter even made the initial transaction, which was the subject of the
suspicious transaction reports. Furthermore, the RTC took note that according to the Audit Report submitted by the
Commission on Audit, no part of the P728 million fertilizer fund was ever released to LIVECOR.
We note that in the RTC Order dated 17 November 2006 in AMLC SP Case No. 06-003, the AMLC was already
allowed ex parte to inquire into and examine the six bank deposits or investments and the related web of accounts
of LIVECOR, Molugan, AGS, Samuel S. Bombeo and Ariel Panganiban. With the resources available to the AMLC,
coupled with a bank inquiry order granted 15 months before Eugenio was even pro mu I gated, the AMLC should
have been able to obtain more evidence establishing a more substantive link tying Bolante and the fertilizer fund
scam to LIVECOR. It did not help that the AMLC failed to include in its application for a bank inquiry order in AMLC
SP Case No. 06-003 LIVECOR's PNB account as indicated in the suspicious transaction reports. This PNB account
was included only in the application for a bank inquiry order in AMLC Case No. 07-001.
As it stands, the evidence relied upon by the AMLC in 2006 was still the same evidence it used to apply for a bank
inquiry order in 2008. Regrettably, this evidence proved to be insufficient when weighed against that presented by
the respondents, who were given notice and the opportunity to contest the issuance of the bank inquiry order
pursuant to Eugenio. In fine, the RTC did not commit grave abuse of discretion in denying the application.
WHEREFORE, the petition in G.R. No. 186717 is DENIED. The Court of Appeals Resolution dated 27 February
2009 in CA-G.R. AMLC No. 00024 is AFFIRMED.
The petition in G.R. No. 190357 is DISMISSED. The Resolution dated 3 July 2009 and Order dated 13 November
2009 issued by the Regional Trial Court of Makati, Branch 59, in AMLC Case No. 07-001 are AFFIRMED.
The Status Quo Ante Order issued by this Court on 25 March 2009 is hereby LIFTED.
SO ORDERED.

Chief Justice, Chairperson
WE CONCUR:

Associate Justice
Chairperson
MARIANO C. DEL CASTILLO ESTELA M. PERLAS-BERNABE

ALFREDO BENJAMIN S. CAGUIOA

Associate Justice
CERTIFICATION

Chief Justice
Footnotes
1
Rollo (G.R. No. 186717), pp. 58-6g. The Resolt11ion dated 27 February 2009 issued by the CA First
Division was penned by Associate Justice Sesinando E. Villon, with Presiding Justice Conrado M. Vasquez,
Jr. and Associate Justice Noel G. Tijam concurring.
2
Id. at472-483.
3
Rollo (G.R. No. 190357), pp. 42-49. The Resolution Dated July 2009 was penned by Presiding Judge
Winlove M. Dumayas.
4
Id. at 50; dated 13 November 2009.
5
Rollo (G.R. No. 186717), p. 97.
6
Id.
7
Id. at 98.
8
Id.
9
Id. at 97.
10
Id.
11
Id.
12
Entitled "TO CONDUCT AN INQUIRY ON THE ALLEGED MISMANAGEMENT AND USE OF THE
FERTILIZER FUND OF THE DEPARTMENT OF AGRICULTURE'S GININTUANG MASAGANANG ANI
PROGRAM TO THE DETRIMENT OF FILIPINO FARMERS WITH THE END IN VIEW OF CHARTING
EFFECTIVE POLICIES AND PROGRAM FOR THE AGRICULTURE SECTOR."
11
Rollo (G.R. No. 186717), p. 98.
14
Id. at 104-147.
15
Id. at 760-791; entitled Report on the Audit of the - P728 million GMA Farm Input Fund.
16
Id. at 97-102 dated 18 September 2006.
17
Id. at 100.
18
Id. at 101. The accounts are as follows:
Covered Institution Account Name Account Number

LBP LIVECORE 0672102014
PNB Molugan 2738301148

PNB Molugan 2738102331
PNB AGS 2738301164

PNB Samuel S. Bombeo 2737006738
BPI Ariel Panganiban 601614338
19
Id. at 103.
20
Id. at 151-156.
21
Id at 151-159; dated 26 October 2007.
22
Section 3. Corrupt practices of public officers. -- In addition to acts or omissions of public officers already
penalized by existing law, the following shall constitute corrupt practices of any public officer and are hereby
declared to be unlawful:
xxxx
(e) Causing any undue injury to any party, including the Government, or giving any private party
any unwarranted benefits, advantage or preference in the discharge of his official administrative
or judicial functions through manifest partiality, evident bad faith or gross inexcusable
negligence. This provision shall apply to officers and employees of offices or government
corporations charged with the grant or licenses or permits or other concessions.
23
Id at 156-159. The accounts are as follows·
24
569 Phil. 98 (2008).
25
Section 11. Authority to Inquire into Bank Deposits. - Notwithstanding the provisions of Republic Act No.
1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other laws, the AMLC
may inquire into or examine any particular deposit or investment with any banking institution or non-bank
financial institution upon order of any competent court in cases of violation of this Act, when it has been
established that there is probable cause that the deposits or investments are related to an unlawful activity as
defined in Section 3(i) hereof or a money laundering offense under Section 4 hereof; except that no cou1i
order shall be required in cases involving unlawful activities defined in Sections 3(i)(I), (2) and (12).
To ensure compliance with this Act, the Bangko Sentral ng Pilipinas (BSP) may inquire into or
examine any deposit or investment with any banking institution or non-bank financial institution
when the examination is made in the course of a periodic or special examination, in accordance
with the rules of examination of the BSP.
26
Republic v. Eugenio, supra.
27
Rollo (G.R. No. 186717), pp. 160-164; dated 2 i May 2008.
28
Id. at 74-96; filed on 30 June 2008.
29
Id. at 165-184. The Resolution dated l July 2008 issued by the CA First Division was penned by Associate
Justice Pampio A. Abarintos, with Presiding Justice Conrado M. Vasquez, Jr. and Associate Justice Lucas P.
Bersamin (now a Member of this Court) concurring.
30
Id. at 184, 185; conducted on 8 July 2008.
31
Id. at 186-187.
32
Id. at 185-188; Resolution dated 16 July 2008.
33
Id. at 268-296; Resolution dated 19 August 2008.
34
Id at 273-283. The remaining accounts that show an existing balance are as follows:
Banco de Oro Samuel S. Bombeo 12160008687

Banco de Oro Ariel C. Panganiban 10160465761
Ariel C. Panganiban or
Banco de Oro 0160444063
Gavina Panganiban
Citibank Katherine Bombeo 8243051259
East West Bank Molugan 04-02-04043-2
East West Bank Molugan 4302005295

East West Bank Samuel S. Bombeo 04-02-01842-9
Ace-Alliance for the

Conservation of the
East West Bank 1502053661
Environment or Pangasinan,
Inc.
Sta. Lucia Educational

East West Bank 1502053562
Association of Bulacan, Inc.
Maybank Phils., Inc. Ace-Alliance for the 0016-500155-3
Conservation of the
Environment or Pangasinan,
Inc.
Maybank Phils., Inc. Samuel S. Bombeo 1016-003434-3
Maybank Phils., Inc. Samuel S. Bombeo 1716-000 118-9
Metropolitan Bank & Trust Co. Ariel C. Panganiban 3-00364 790-1

PNB Samuel S. Bombeo 247-812382-8
PNB LIVECOR 273-850001-9

Union Bank Samuel S. Bombeo 00894582704-2
Insular Life Assurance Co. Ariel C. Panganiban Policy No. 2315613

Manufacturers Life Insurance Co. Samuel S. Bombeo Policy No. 8711700.
BPI/MS Insurance Corp. Ariel C. Panganiban Policy No. F0005978
Performance Foreign Exchange Corp. Samuel S. Bombeo, Jr. 2649

BPI Jocelyn I. Bolante 1163-0073-51
BPI Jocelyn I. Bolante 0200 11160000000 1163007351
BPI Jocelyn I. Bolante 020011160000000 1166009033

BPI Jocelyn I. Bolante 020011600000001167001978
Union Bank Jocelyn I. Bolante 009550000582
Rizal Commercial Banking Corp. Jocelyn I. Bolante 1249800445

Standard Chartered Bank Jocelyn I. Bolante BPY 280851100002150
35
Id. at 189-206.
36
Id. at 264-267; Order dated 25 July 2008.
37
Rollo (G.R. No. 190357), pp. 212-216.
38
Section 11. Authority to Inquire into Bank Deposits. --- Notwithstanding the provisions of Republic Act No.
1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other laws, the AMLC
may inquire into or examine any particular deposit or investment with any banking institution or non-bank
financial institution upon order of any competent court in cases of violation of this Act, when it has been
established that there is probable cause that the deposits or investments are related to an unlawful activity as
defined in Section 3(i) hereof or a money laundering offense under Section 4 hereof; except that no court
order shall be required in cases involving unlawful activities defined in Sections 3(i)(1 ), (2) and (12). To
ensure compliance with this Act, the Bangko Sentral ng Pilipinas (BSP) may inquire into or examine any
deposit or investment with any banking institution or non-bank financial institution when the examination is
made in the course of a periodic or special examination, in accordance with the rules of examination of the
BSP.
39
Rollo (G.R. No. 186717), pp. 333-362; dated 22 December 2008.
40
Id. at 363-365; dated 26 January 2009.
41
Id at 364-365. The 24 accounts are the following:
Banco de Oro Samuel S. Bombeo 12160008687
Banco de Oro Ariel C. Panganiban 10160465761

Ariel C. Panganiban or
Banco de Oro 0160444063
Gavina Panganiban
Citibank Katherine Bombeo 8243051259
East West Bank Molugan 04-02-04043-2
East West Bank Molugan 4302005295

East West Bank Samuel S. Bombeo 04-02-01842-9


Union Bank Samuel S. Bombeo 00894582704-2
Insular Life Assurance Co. Ariel C. Panganiban 04-02-04043-2
Manufacturers Life Insurance Co. Samuel S. Bombeo 04-02-04043-2
BPI/MS Insurance Corp. Ariel C. Panganiban 04-02-04043-2

Performance Foreign Exchange Corp. Samuel S. Bombeo, Jr. 2649

BPI Jocelyn I. Bolante 0200 11160000000 1163007351
BPI Jocelyn I. Bolante 020011160000000 1166009033
Union Bank Jocelyn I. Bolante 020011600000001167001978

Rizal Commercial Banking Corp. Jocelyn I. Bolante 009550000582
42
Id. at 366-404; filed on 2 February 2009.
43
Id. at 472-483. The Resolution issued by the CA First Division was penned by Associate Justice Sesinando
E. Villon, with Presiding Justice Conrado M. Vasquez, Jr. and Associate Justice Noel G. Tijam concurring.
44
Id. at 64; conducted on 12 February 200C).
45
Id. at 58-68.
46
Id. at 66-67.
47
Id. at 67-68.
48
Id. at 68.
49
Entitled "Rules of Procedure in Cases of Civil Forfeiture, Asset Preservation, and Freezing of Monetary
Instrument, Property, or Proceeds Representing, Involving, or Relating to an Unlawful Activity or Money
Laundering Offense under Republic Act No. 9160, as Amended," dated 15 December 2005.
50
Rollo (G.R. No. 186717), pp. 520-522.
51
Id. at 537-569 (Respondents Jocelyn I. Bolante. et al.), 609-629 (Respondent National Livelihood
Development Corporation. formerly LIVECOR), 637-656 (Respondents Ariel C. Panganiban, et al.).
52
Id. at 689-700.
53
Rollo (G.R. No. 190357), pp. 42-49.
54
Id. at 45.
55
Id.
56
586 Phil. 135 (2008).
57
Rollo (G.R. No. 190357), pp. 45-46.
58
Id. at 46.
59
Id.
60
Id. at 46-47.
6
1 Id. at 47-48.
62
Id. at 50.
63
Id. at 513-514; Resolution dated 10 March 201 0.
64
Id. at 693-694.
65
Id. at 829-830.
66
Rollo (G.R. No. 186717), pp. 1282-1290.
67
613 Phil. 143 (2009).
68
Rollo (G.R. No. 185717), p. 1202.
69
Id. at 29.
70
393 Phil. 838 (2000).
71
Rollo (G.R. No. 186717), p. 66.
72
Sec notes 34 and 41.
73
R.A. 9160, Section 7(5).
74
Id. at Section 7(6).
75
Rollo (G.R. No. 186717), pp. 80-85.
76
Id. at 376-384.
77
Id. at 83-85, 391-394.
78
Riviera Golf Club, inc. v. CCA Holdings, B. V, G.R. No. 173783, 17 June 2015, 758 SCRA 691.
79
Mallion v. Alcantara, 536 Phil. 1049 (2006).
80
Section 10. Freezing of Monetary instrument or property. - - The Court of Appeals, upon application ex
parte by the AMLC and after determination that probable cause exists that any monetary instrument or
property is in any way related to an unlawful activity as defined in Section 3(i) hereof may issue a freeze order
which shall be effective immediately. The freeze order shall be for a period of twenty (20) days unless
extended by the court.
81
De Leon v. De Liana, G.R. No. 212277, I J February 2015, 750 SCRA 53.
82
Section 53. Freeze Order. - (a) Effeclivity; post-issuance hearing. -- The freeze order shall be effective
immediately for a period of twenty days. Within the twenty-day period the court shall conduct a summary
hearing, with notice to the parties, to determine whether or not to modify or lift the freeze order, or extend its
effectivity as hereinafter provided.
(b) Extension. - On motion of the petitioner filed before the expiration of twenty days from
issuance of a freeze order, the court may for good cause extend its eftectivity for a period not
exceeding six months.
83
Entitled "Rules of Procedure in Cases of Civil Forfeiture, Asset Preservation, and Freezing of Monetary
Instrument, Property, or Proceeds Representing, Involving or Relating to an Unlawful Activity or Money
Laundering Offense under Republic Act No. 9160 as amended," dated 15 December 2005.
84
Rollo (G.R. No. 186717), pp. 40-41, 1203-1204.
85
Natalia Realty, Inc. v. CA, 440 Phil. l (2002).
86
Republic v. Eugenio, supra at 125.
87
Rollo (G.R. No. 186717), pp. 69-71. 88 G.R. No. 216914, 6 December 2016.
89
Id. at 11.
90
Id. at 11-19.
91
Id.
92
Id. at 20-23.
93
Id. at 23.
94
Id. at 27-39.
95
Id.
96
Id. at 32.
97
705 Phil. 477 (2013). 501-502.
98
Republic v. Eugenio, supra at 126.
99
Imutan v. CA, 190 Phil. 233 (1981 ).
100
Id.
101
Manotok Realty, inc. v. CLT Realty Development Corp., 565 Phil. 59 (2007).
102
Id.
103
Rollo (G.R. No. 190357), p. 72.

Custom Search

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 176944 March 6, 2013
RET. LT. GEN. JACINTO C. LIGOT, ERLINDA Y. LIGOT, PAULO Y. LIGOT, RIZA Y. LIGOT, and MIGUEL Y.
LIGOT, Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEY LAUNDERING COUNCIL, Respondent.
DECISION
BRION, J.:
In this petition for certiorari,1 retired Lieutenant General (Lt. Gen.) Jacinto C. Ligot, Erlinda Y. Ligot (Mrs. Ligot),
Paulo Y. Ligot, Riza Y. Ligot, and Miguel Y. Ligot (petitioners) claim that the Court of Appeals (CA) acted with grave
abuse of discretion amounting to lack or excess of jurisdiction when it issued its January 12, 2007 resolution2 in CA
G.R. SP No. 90238. This assailed resolution affirmed in toto the CA’s earlier January 4, 2006 resolution3 extending
the freeze order issued against the Ligot’s properties for an indefinite period of time.
BACKGROUND FACTS
On June 27, 2005, the Republic of the Philippines (Republic), represented by the Anti-Money Laundering Council
(AMLC), filed an Urgent Ex-Parte Application for the issuance of a freeze order with the CA against certain monetary
instruments and properties of the petitioners, pursuant to Section 104 of Republic Act (RA) No. 9160, as amended
(otherwise known as the Anti-Money Laundering Act of 2001). This application was based on the February 1, 2005
letter of the Office of the Ombudsman to the AMLC, recommending that the latter conduct an investigation on Lt.
Gen. Ligot and his family for possible violation of RA No. 9160.5
In support of this recommendation, the Ombudsman attached the Complaint6 it filed against the Ligots for perjury
under Article 183 of the Revised Penal Code, and for violations of Section 87 of RA No. 67138 and RA No. 3019
(Anti-Graft and Corrupt Practices Act).
The Ombudsman’s Complaint
a. Lt. Gen. Ligot and immediate family
The Ombudsman’s complaint alleges that Lt. Gen. Ligot served in the Armed Forces of the Philippines (AFP) for 33
years and 2 months, from April 1, 1966 as a cadet until his retirement on August 17, 2004.9 He and Mrs. Ligot have
four children, namely: Paulo Y. Ligot, Riza Y. Ligot,
George Y. Ligot and Miguel Y. Ligot, who have all reached the age of majority at the time of the filing of the
complaint.10
Lt. Gen. Ligot declared in his Statement of Assets, Liabilities, and Net Worth (SALN) that as of December 31, 2003,
he had assets in the total amount of Three Million Eight Hundred Forty-Eight Thousand and Three Pesos
(₱3,848,003.00).11 In contrast, his declared assets in his 1982 SALN amounted to only One Hundred Five
Thousand Pesos (₱105,000.00).12
Aside from these declared assets, the Ombudsman’s investigation revealed that Lt. Gen. Ligot and his family had
other properties and bank accounts, not declared in his SALN, amounting to at least Fifty Four Million One
Thousand Two Hundred Seventeen Pesos (₱54,001,217.00). These undeclared assets consisted of the following:
Undeclared Assets Amount
Jacinto Ligot’s undeclared assets P 41,185,583.5313
Jacinto Ligot’s children’s assets 1,744,035.6014

Tuition fees and travel expenses P 2,308,047.8715
Edgardo Yambao’s assets relative to the real properties P 8,763,550.0016
Total P 54,001,217.00
Bearing in mind that Lt. Gen. Ligot’s main source of income was his salary as an officer of the AFP,17 and given his
wife and children’s lack of any other substantial sources of income,18 the Ombudsman declared the assets
registered in Lt. Gen. Ligot’s name, as well as those in his wife’s and children’s names, to be illegally obtained and
unexplained wealth, pursuant to the provisions of RA No. 1379 (An Act Declaring Forfeiture in Favor of the State
Any Property Found to Have Been Unlawfully Acquired by Any Public Officer or Employee and Providing for the
Proceedings Therefor).
b. Edgardo Tecson Yambao
The Ombudsman’s investigation also looked into Mrs. Ligot’s younger brother, Edgardo Tecson Yambao. The
records of the Social Security System (SSS) revealed that Yambao had been employed in the private sector from
1977 to 1994. Based on his contributions to the SSS, Yambao did not have a substantial salary during his
employment. While Yambao had an investment with Mabelline Foods, Inc., the Ombudsman noted that this
company only had a net income of ₱5,062.96 in 2002 and ₱693.67 in 2003.19 Moreover, the certification from the
Bureau of Internal Revenue stated that Yambao had no record of any annual Individual Income
Tax Return filed for the calendar year 1999 up to the date of the investigation.
Despite Yambao’s lack of substantial income, the records show that he has real properties and vehicles registered
in his name, amounting to Eight Million Seven Hundred Sixty Three Thousand Five Hundred Fifty Pesos
(₱8,763,550.00), which he acquired from 1993 onwards. The Office of the Ombudsman further observed that in the
documents it examined, Yambao declared three of the Ligots’ addresses as his own.
From these circumstances, the Ombudsman concluded that Yambao acted as a dummy and/or nominee of the Ligot
spouses, and all the properties registered in Yambao’s name actually belong to the Ligot family.
Urgent Ex-Parte Freeze Order Application
As a result of the Ombudsman’s complaint, the Compliance and Investigation staff (CIS) of the AMLC conducted a
financial investigation, which revealed the existence of the Ligots’ various bank accounts with several financial
institutions.20 On April 5, 2005, the Ombudsman for the Military and Other Law Enforcement Officers issued a
resolution holding that probable cause exists that Lt. Gen. Ligot violated Section 8, in relation to Section 11, of RA
No. 6713, as well as Article 18321 of the Revised Penal Code.
On May 25, 2005, the AMLC issued Resolution No. 52, Series of 2005, directing the Executive Director of the AMLC
Secretariat to file an application for a freeze order against the properties of Lt. Gen. Ligot and the members of his
family with the CA.22 Subsequently, on June 27, 2005, the Republic filed an Urgent Ex-Parte Application with the
appellate court for the issuance of a Freeze Order against the properties of the Ligots and Yambao.
The appellate court granted the application in its July 5, 2005 resolution, ruling that probable cause existed that an
unlawful activity and/or money laundering offense had been committed by Lt. Gen. Ligot and his family, including
Yambao, and that the properties sought to be frozen are related to the unlawful activity or money laundering offense.
Accordingly, the CA issued a freeze order against the Ligots’ and Yambao’s various bank accounts, web accounts
and vehicles, valid for a period of 20 days from the date of issuance.
On July 26, 2005, the Republic filed an Urgent Motion for Extension of Effectivity of Freeze Order, arguing that if the
bank accounts, web accounts and vehicles were not continuously frozen, they could be placed beyond the reach of
law enforcement authorities and the government’s efforts to recover the proceeds of the Ligots’ unlawful activities
would be frustrated. In support of its motion, it informed the CA that the Ombudsman was presently investigating the
following cases involving the Ligots:
Case Number Complainant(s) Nature

OMB-P-C-05- 0523 Wilfredo Garrido Plunder
OMB-P-C-05- 0003 AGIO Gina Villamor, et al. Perjury

OMB-P-C-05- 0184 Field Investigation Office Violation of RA No. 3019, Section
3(b); Perjury under Article 183,
Revised Penal Code in relation to
Section 11 of RA No. 6713;
Forfeiture Proceedings in Relation
to RA No. 1379
OMB-P-C-05-0352 David Odilao Malicious Mischief; Violation of

Section 20, RA No. 7856
Finding merit in the Republic’s arguments, the CA granted the motion in its September 20, 2005 resolution,
extending the freeze order until after all the appropriate proceedings and/or investigations have been terminated.
On September 28, 2005, the Ligots filed a motion to lift the extended freeze order, principally arguing that there was
no evidence to support the extension of the freeze order. They further argued that the extension not only deprived
them of their property without due process; it also punished them before their guilt could be proven. The appellate
court subsequently denied this motion in its January 4, 2006 resolution.
Meanwhile, on November 15, 2005, the "Rule of Procedure in Cases of Civil Forfeiture, Asset Preservation, and
Freezing of Monetary Instrument, Property, or Proceeds Representing, Involving, or Relating to an Unlawful Activity
or Money Laundering Offense under Republic Act No. 9160, as Amended"23 (Rule in Civil Forfeiture Cases) took
effect. Under this rule, a freeze order could be extended for a maximum period of six months.
On January 31, 2006, the Ligots filed a motion for reconsideration of the CA’s January 4, 2006 resolution, insisting
that the freeze order should be lifted considering: (a) no predicate crime has been proven to support the freeze
order’s issuance; (b) the freeze order expired six months after it was issued on July 5, 2005; and (c) the freeze order
is provisional in character and not intended to supplant a case for money laundering. When the CA denied this
motion in its resolution dated January 12, 2007, the Ligots filed the present petition.
THE PETITIONERS’ ARGUMENTS
Lt. Gen. Ligot argues that the appellate court committed grave abuse of discretion amounting to lack or excess of
jurisdiction when it extended the freeze order issued against him and his family even though no predicate crime had
been duly proven or established to support the allegation of money laundering. He also maintains that the freeze
order issued against them ceased to be effective in view of the 6-month extension limit of freeze orders provided
under the Rule in Civil Forfeiture Cases. The CA, in extending the freeze order, not only unduly deprived him and his
family of their property, in violation of due process, but also penalized them before they had been convicted of the
crimes they stand accused of.
THE REPUBLIC’S ARGUMENTS
In opposition, the Republic claims that the CA can issue a freeze order upon a determination that probable cause
exists, showing that the monetary instruments or properties subject of the freeze order are related to the unlawful
activity enumerated in RA No. 9160. Contrary to the petitioners’ claims, it is not necessary that a formal criminal
charge must have been previously filed against them before the freeze order can be issued.
The Republic further claims that the CA’s September 20, 2005 resolution, granting the Republic’s motion to extend
the effectivity of the freeze order, had already become final and executory, and could no longer be challenged. The
Republic notes that the Ligots erred when they filed what is effectively a second motion for reconsideration in
response to the CA’s January 4, 2006 resolution, instead of filing a petition for review on certiorari via Rule 45 with
this Court. Under these circumstances, the assailed January 4, 2006 resolution granting the freeze order had
already attained finality when the Ligots filed the present petition before this Court.
THE COURT’S RULING
We find merit in the petition.
I. Procedural aspect
a. Certiorari not proper remedy to assail freeze order; exception

Section 57 of the Rule in Civil Forfeiture Cases explicitly provides the remedy available in cases involving freeze
orders issued by the CA:
Section 57. Appeal. - Any party aggrieved by the decision or ruling of the court may appeal to the Supreme Court by
petition for review on certiorari under Rule 45 of the Rules of Court. The appeal shall not stay the enforcement of the
subject decision or final order unless the Supreme Court directs otherwise. [italics supplied]
From this provision, it is apparent that the petitioners should have filed a petition for review on certiorari, and not a
petition for certiorari, to assail the CA resolution which extended the effectivity period of the freeze order over their
properties.
Even assuming that a petition for certiorari is available to the petitioners, a review of their petition shows that the
issues they raise (i.e., existence of probable cause to support the freeze order; the applicability of the 6-month limit
to the extension of freeze orders embodied in the Rule of Procedure in Cases of Civil Forfeiture) pertain to errors of
judgment allegedly committed by the CA, which fall outside the Court’s limited jurisdiction when resolving certiorari
petitions. As held in People v. Court of Appeals:24
In a petition for certiorari, the jurisdiction of the court is narrow in scope. It is limited to resolving only errors of
jurisdiction. It is not to stray at will and resolve questions or issues beyond its competence such as errors of
judgment. Errors of judgment of the trial court are to be resolved by the appellate court in the appeal by and of error
or via a petition for review on certiorari in this Court under Rule 45 of the Rules of Court. Certiorari will issue only to
correct errors of jurisdiction. It is not a remedy to correct errors of judgment. An error of judgment is one in which the
court may commit in the exercise of its jurisdiction, and which error is reversible only by an appeal. Error of
jurisdiction is one where the act complained of was issued by the court without or in excess of jurisdiction and which
error is correctible only by the extraordinary writ of certiorari. Certiorari will not be issued to cure errors by the trial
court in its appreciation of the evidence of the parties, and its conclusions anchored on the said findings and its
conclusions of law. As long as the court acts within its jurisdiction, any alleged errors committed in the exercise of its
discretion will amount to nothing more than mere errors of judgment, correctible by an appeal or a petition for review
under Rule 45 of the Rules of Court.25 (citations omitted; italics supplied)
Clearly, the Ligots should have filed a petition for review on certiorari, and not what is effectively a second motion for
reconsideration (nor an original action of certiorari after this second motion was denied), within fifteen days from
receipt of the CA’s January 4, 2006 resolution. To recall, this resolution denied the petitioners’ motion to lift the
extended freeze order which is effectively a motion for reconsideration of the CA ruling extending the freeze order
indefinitely.26
However, considering the issue of due process squarely brought before us in the face of an apparent conflict
between Section 10 of RA No. 9160, as amended, and Section 53(b) of the Rule in Civil Forfeiture Cases, this Court
finds it imperative to relax the application of the rules of procedure and resolve this case on the merits in the interest
of justice.27
b. Applicability of 6-month extension period under the Rule in Civil Forfeiture Cases
Without challenging the validity of the fixed 6-month extension period, the Republic nonetheless asserts that the
Rule in Civil Forfeiture Cases does not apply to the present case because the CA had already resolved the issues
regarding the extension of the freeze order before the
Rule in Civil Forfeiture Cases came into effect.
This reasoning fails to convince us.
Notably, the Rule in Civil Forfeiture Cases came into effect on December 15, 2005. Section 59 provides that it shall
"apply to all pending civil forfeiture cases or petitions for freeze order" at the time of its effectivity.
A review of the record reveals that after the CA issued its September 20, 2005 resolution extending the freeze order,
the Ligots filed a motion to lift the extended freeze order on September 28, 2005. Significantly, the CA only acted
upon this motion on January 4, 2006, when it issued a resolution denying it.
While denominated as a Motion to Lift Extended Freeze Order, this motion was actually a motion for
reconsideration, as it sought the reversal of the assailed CA resolution. Since the Ligots’ motion for reconsideration
was still pending resolution at the time the Rule in Civil Forfeiture Cases came into effect on December 15, 2005,
the Rule unquestionably applies to the present case.
c. Subsequent events
During the pendency of this case, the Republic manifested that on September 26, 2011, it filed a Petition for Civil
Forfeiture with the Regional Trial Court (RTC) of Manila. On September 28, 2011, the RTC, Branch 22, Manila,
issued a Provisional Asset Preservation Order and on October 5, 2011, after due hearing, it issued an Asset
Preservation Order.
On the other hand, the petitioners manifested that as of October 29, 2012, the only case filed in connection with the
frozen bank accounts is Civil Case No. 0197, for forfeiture of unlawfully acquired properties under RA No. 1379
(entitled "Republic of the Philippines v. Lt. Gen. Jacinto Ligot, et. al."), pending before the Sandiganbayan.
These subsequent developments and their dates are significant in our consideration of the present case, particularly
the procedural aspect. Under Section 56 of the Rule in Civil Forfeiture Cases which provides that after the post-
issuance hearing on whether to modify, lift or extend the freeze order, the CA shall remand the case and transmit
the records to the RTC for consolidation with the pending civil forfeiture proceeding. This provision gives the
impression that the filing of the appropriate cases in courts in 2011 and 2012 rendered this case moot and
academic.
A case is considered moot and academic when it "ceases to present a justiciable controversy by virtue of
supervening events, so that a declaration thereon would be of no practical use or value. Generally, courts decline
jurisdiction over such case or dismiss it on ground of mootness."28 However, the moot and academic principle is not
an iron-clad rule and is subject to four settled exceptions,29 two of which are present in this case, namely: when the
constitutional issue raised requires the formulation of controlling principles to guide the bench, the bar, and the
public, and when the case is capable of repetition, yet evading review.
The apparent conflict presented by the limiting provision of the Rule in Civil Forfeiture Cases, on one hand, and the
very broad judicial discretion under RA No. 9160, as amended, on the other hand, and the uncertainty it casts on an
individual’s guaranteed right to due process indubitably call for the Court’s exercise of its discretion to decide the
case, otherwise moot and academic, under those two exceptions, for the future guidance of those affected and
involved in the implementation of RA No. 9160, as amended.
Additionally, we would be giving premium to the government’s failure to file an appropriate case until only after six
years (despite the clear provision of the Rule in Civil Forfeiture Cases) were we to dismiss the petition because of
the filing of the forfeiture case during the pendency of the case before the Court. The sheer length of time and the
constitutional violation involved, as will be discussed below, strongly dissuade us from dismissing the petition on the
basis of the "moot and academic" principle. The Court should not allow the seeds of future violations to sprout by
hiding under this principle even when directly confronted with the glaring issue of the respondent’s violation of the
petitioners’ due process right30 - an issue that the respondent itself chooses to ignore.
We shall discuss the substantive relevance of the subsequent developments and their dates at length below.
II. Substantive aspect
a. Probable cause exists to support the issuance of a freeze order
The legal basis for the issuance of a freeze order is Section 10 of RA No. 9160, as amended by RA No. 9194, which
states:
Section 10. Freezing of Monetary Instrument or Property. – The Court of Appeals, upon application ex parte by the
AMLC and after determination that probable cause exists that any monetary instrument or property is in any way
related to an unlawful activity as defined in Section
3(i) hereof, may issue a freeze order which shall be effective immediately. The freeze order shall be for a period of
twenty (20) days unless extended by the court. [italics supplied]
The Ligots claim that the CA erred in extending the effectivity period of the freeze order against them, given that
they have not yet been convicted of committing any of the offenses enumerated under RA No. 9160 that would
support the AMLC’s accusation of money-laundering activity.
We do not see any merit in this claim. The Ligots’ argument is founded on a flawed understanding of probable cause
in the context of a civil forfeiture proceeding31 or freeze order application.32
Based on Section 10 quoted above, there are only two requisites for the issuance of a freeze order: (1) the
application ex parte by the AMLC and (2) the determination of probable cause by the CA.33 The probable cause
required for the issuance of a freeze order differs from the probable cause required for the institution of a criminal
action, and the latter was not an issue before the CA nor is it an issue before us in this case.
As defined in the law, the probable cause required for the issuance of a freeze order refers to "such facts and
circumstances which would lead a reasonably discreet, prudent or cautious man to believe that an unlawful activity
and/or a money laundering offense is about to be, is being or has been committed and that the account or any
monetary instrument or property subject thereof sought to be frozen is in any way related to said unlawful activity
and/or money laundering offense."34
In other words, in resolving the issue of whether probable cause exists, the CA’s statutorily-guided determination’s
focus is not on the probable commission of an unlawful activity (or money laundering) that the Office of the
Ombudsman has already determined to exist, but on whether the bank accounts, assets, or other monetary
instruments sought to be frozen are in any way related to any of the illegal activities enumerated under RA No.
9160, as amended.35 Otherwise stated, probable cause refers to the sufficiency of the relation between an unlawful
activity and the property or monetary instrument which is the focal point of Section 10 of RA No. 9160, as amended.
To differentiate this from any criminal case that may thereafter be instituted against the same respondent, the Rule
in Civil Forfeiture Cases expressly provides –
SEC. 28. Precedence of proceedings. - Any criminal case relating to an unlawful activity shall be given precedence
over the prosecution of any offense or violation under Republic Act No. 9160, as amended, without prejudice to the
filing of a separate petition for civil forfeiture or the issuance of an asset preservation order or a freeze order. Such
civil action shall proceed independently of the criminal prosecution. [italics supplied; emphases ours]
Section 10 of RA No. 9160 (allowing the extension of the freeze order) and Section 28 (allowing a separate petition
for the issuance of a freeze order to proceed independently) of the Rule in Civil Forfeiture Cases are only consistent
with the very purpose of the freeze order, which specifically is to give the government the necessary time to prepare
its case and to file the appropriate charges without having to worry about the possible dissipation of the assets that
are in any way related to the suspected illegal activity. Thus, contrary to the Ligots’ claim, a freeze order is not
dependent on a separate criminal charge, much less does it depend on a conviction.
That a freeze order can be issued upon the AMLC’s ex parte application further emphasizes the law’s consideration
of how critical time is in these proceedings. As we previously noted in Republic v. Eugenio, Jr.,36 "to make such
freeze order anteceded by a judicial proceeding with notice to the account holder would allow for or lead to the
dissipation of such funds even before the order could be issued."
It should be noted that the existence of an unlawful activity that would justify the issuance and the extension of the
freeze order has likewise been established in this case.
From the ex parte application and the Ombudsman’s complaint, we glean that Lt. Gen. Ligot himself admitted that
his income came from his salary as an officer of the AFP. Yet, the Ombudsman’s investigation revealed that the
bank accounts, investments and properties in the name of Lt. Gen. Ligot and his family amount to more than Fifty-
Four Million Pesos (₱54,000,000.00). Since these assets are grossly disproportionate to Lt. Gen. Ligot’s income, as
well as the lack of any evidence that the Ligots have other sources of income, the CA properly found that probable
cause exists that these funds have been illegally acquired. On the other hand, the AMLC’s verified allegations in its
ex parte application, based on the complaint filed by the Ombudsman against Ligot and his family for violations of
the Anti-Graft and Corrupt Practices Act, clearly sustain the CA’s finding that probable cause exists that the
monetary instruments subject of the freeze order are related to, or are the product of, an unlawful activity.
b. A freeze order, however, cannot be issued for an indefinite period
Assuming that the freeze order is substantively in legal order, the Ligots now assert that its effectiveness ceased
after January 25, 2006 (or six months after July 25, 2005 when the original freeze order first expired), pursuant to
Section 53(b) of the Rule in Civil Forfeiture Cases (A.M. No. 05-11-04-SC). This section states:
Section 53. Freeze order. –
xxxx
(b) Extension. – On motion of the petitioner filed before the expiration of twenty days from issuance of a freeze
order, the court may for good cause extend its effectivity for a period not exceeding six months. [italics supplied;
emphasis ours]
We find merit in this claim.
A freeze order is an extraordinary and interim relief37 issued by the CA to prevent the dissipation, removal, or
disposal of properties that are suspected to be the proceeds of, or related to, unlawful activities as defined in
Section 3(i) of RA No. 9160, as amended.38 The primary objective of a freeze order is to temporarily preserve
monetary instruments or property that are in any way related to an unlawful activity or money laundering, by
preventing the owner from utilizing them during the duration of the freeze order.39 The relief is pre-emptive in
character, meant to prevent the owner from disposing his property and thwarting the State’s effort in building its case
and eventually filing civil forfeiture proceedings and/or prosecuting the owner.
Our examination of the Anti-Money Laundering Act of 2001, as amended, from the point of view of the freeze order
that it authorizes, shows that the law is silent on the maximum period of time that the freeze order can be extended
by the CA. The final sentence of Section 10 of the Anti-Money Laundering Act of 2001 provides, "the freeze order
shall be for a period of twenty (20) days unless extended by the court." In contrast, Section 55 of the Rule in Civil
Forfeiture Cases qualifies the grant of extension "for a period not exceeding six months" "for good cause" shown.
We observe on this point that nothing in the law grants the owner of the "frozen" property any substantive right to
demand that the freeze order be lifted, except by implication, i.e., if he can show that no probable cause exists or if
the 20-day period has already lapsed without any extension being requested from and granted by the CA. Notably,
the Senate deliberations on RA No. 9160 even suggest the intent on the part of our legislators to make the freeze
order effective until the termination of the case, when necessary.40
The silence of the law, however, does not in any way affect the Court’s own power under the Constitution to
"promulgate rules concerning the protection and enforcement of constitutional rights xxx and procedure in all
courts."41 Pursuant to this power, the Court issued A.M. No. 05-11-04-SC, limiting the effectivity of an extended
freeze order to six months – to otherwise leave the grant of the extension to the sole discretion of the CA, which
may extend a freeze order indefinitely or to an unreasonable amount of time – carries serious implications on an
individual’s substantive right to due process.42 This right demands that no person be denied his right to property or
be subjected to any governmental action that amounts to a denial.43 The right to due process, under these terms,
requires a limitation or at least an inquiry on whether sufficient justification for the governmental action.44
In this case, the law has left to the CA the authority to resolve the issue of extending the freeze order it issued.
Without doubt, the CA followed the law to the letter, but it did so by avoiding the fundamental law’s command under
its Section 1, Article III. This command, the Court – under its constitutional rule-making power – sought to implement
through Section 53(b) of the Rule in Civil Forfeiture Cases which the CA erroneously assumed does not apply.
The Ligots’ case perfectly illustrates the inequity that would result from giving the CA the power to extend freeze
orders without limitations. As narrated above, the CA, via its September 20, 2005 resolution, extended the freeze
order over the Ligots’ various bank accounts and personal properties "until after all the appropriate proceedings
and/or investigations being conducted are terminated."45 By its very terms, the CA resolution effectively bars the
Ligots from using any of the property covered by the freeze order until after an eventual civil forfeiture proceeding is
concluded in their favor and after they shall have been adjudged not guilty of the crimes they are suspected of
committing. These periods of extension are way beyond the intent and purposes of a freeze order which is intended
solely as an interim relief; the civil and criminal trial courts can very well handle the disposition of properties related
to a forfeiture case or to a crime charged and need not rely on the interim relief that the appellate court issued as a
guarantee against loss of property while the government is preparing its full case. The term of the CA’s extension,
too, borders on inflicting a punishment to the Ligots, in violation of their constitutionally protected right to be
presumed innocent, because the unreasonable denial of their property comes before final conviction.
In more concrete terms, the freeze order over the Ligots’ properties has been in effect since 2005, while the civil
forfeiture case – per the Republic’s manifestation – was filed only in 2011 and the forfeiture case under RA No. 1379
– per the petitioners’ manifestation – was filed only in 2012. This means that the Ligots have not been able to
access the properties subject of the freeze order for six years or so simply on the basis of the existence of probable
cause to issue a freeze order, which was intended mainly as an interim preemptive remedy.
As correctly noted by the petitioners, a freeze order is meant to have a temporary effect; it was never intended to
supplant or replace the actual forfeiture cases where the provisional remedy - which means, the remedy is an
adjunct of or an incident to the main action – of asking for the issuance of an asset preservation order from the court
where the petition is filed is precisely available. For emphasis, a freeze order is both a preservatory and preemptive
remedy.
To stress, the evils caused by the law’s silence on the freeze order’s period of effectivity46 compelled this Court to
issue the Rule in Civil Forfeiture Cases. Specifically, the Court fixed the maximum allowable extension on the freeze
order’s effectivity at six months. In doing so, the Court sought to balance the State’s interest in going after suspected
money launderers with an individual’s constitutionally-protected right not to be deprived of his property without due
process of law, as well as to be presumed innocent until proven guilty.
To our mind, the six-month extension period is ordinarily sufficient for the government to act against the suspected
money launderer and to file the appropriate forfeiture case against him, and is a reasonable period as well that
recognizes the property owner’s right to due process. In this case, the period of inaction of six years, under the
circumstances, already far exceeded what is reasonable.
We are not unmindful that the State itself is entitled to due process. As a due process concern, we do not say that
1âwphi1
the six-month period is an inflexible rule that would result in the automatic lifting of the freeze order upon its
expiration in all instances. An inflexible rule may lend itself to abuse - to the prejudice of the State’s legitimate
interests - where the property owner would simply file numerous suits, questioning the freeze order during the six-
month extension period, to prevent the timely filing of a money laundering or civil forfeiture case within this period.
With the limited resources that our government prosecutors and investigators have at their disposal, the end-result
of an inflexible rule is not difficult to see.
We observe, too, that the factual complexities and intricacies of the case and other matters that may be beyond the
government’s prosecutory agencies’ control may contribute to their inability to file the corresponding civil forfeiture
case before the lapse of six months. Given these considerations, it is only proper to strike a balance between the
individual’s right to due process and the government’s interest in curbing criminality, particularly money laundering
and the predicate crimes underlying it.
Thus, as a rule, the effectivity of a freeze order may be extended by the CA for a period not exceeding six months.
Before or upon the lapse of this period, ideally, the Republic should have already filed a case for civil forfeiture
against the property owner with the proper courts and accordingly secure an asset preservation order or it should
have filed the necessary information.47 Otherwise, the property owner should already be able to fully enjoy his
property without any legal process affecting it. However, should it become completely necessary for the Republic to
further extend the duration of the freeze order, it should file the necessary motion before the expiration of the six-
month period and explain the reason or reasons for its failure to file an appropriate case and justify the period of
extension sought. The freeze order should remain effective prior to the resolution by the CA, which is hereby
directed to resolve this kind of motion for extension with reasonable dispatch.
In the present case, we note that the Republic has not offered any explanation why it took six years (from the time it
secured a freeze order) before a civil forfeiture case was filed in court, despite the clear tenor of the Rule in Civil
Forfeiture Cases allowing the extension of a freeze order for only a period of six months. All the Republic could
proffer is its temporal argument on the inapplicability of the Rule in Civil Forfeiture Cases; in effect, it glossed over
the squarely-raised issue of due process. Under these circumstances, we cannot but conclude that the continued
extension of the freeze order beyond the six-month period violated the Ligot’s right to due process; thus, the CA
decision should be reversed.
We clarify that our conclusion applies only to the CA ruling and does not affect the proceedings and whatever order
or resolution the RTC may have issued in the presently pending civil cases for forfeiture. We make this clarification
to ensure that we can now fully conclude and terminate this CA aspect of the case.
As our last point, we commend the fervor of the CA in assisting the State’s efforts to prosecute corrupt public
officials. We remind the appellate court though that the government’s anti-corruption drive cannot be done at the
expense of cherished fundamental rights enshrined in our Constitution. So long as we continue to be guided by the
Constitution and the rule of law, the Court cannot allow the justification of governmental action on the basis of the
noblest objectives alone. As so oft-repeated, the end does not justify the means. Of primordial importance is that the
means employed must be in keeping with the Constitution. Mere expediency will certainly not excuse constitutional
shortcuts.48
WHEREFORE, premises considered, we GRANT the petition and LIFT the freeze order issued by the Court of
Appeals in CA G.R. SP No. 90238. This lifting is without prejudice to, and shall not affect, the preservation orders
that the lower courts have ordered on the same properties in the cases pending before them. Pursuant to Section 56
of A.M. No. 05-11-04-SC, the Court of Appeals is hereby ordered to remand the case and to transmit the records to
the Regional Trial Court of Manila, Branch 22, where the civil forfeiture proceeding is pending, for consolidation
therewith as may be appropriate.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
MARIANO C. DEL CASTILLO JOSE PORTUGAL PEREZ

Associate Justice
ATTESTATION
ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, it is hereby
certified that the conclusions in the above Decision had been reached in consultation before the case was assigned

Chief Justice
Footnotes
1 Under Rule 65 of the Rules of Court, rollo, pp. 3-22.
2 Penned by Associate Justice Aurora Santiago-Lagman, with the concurrence of Associate Justices Conrado
M. Vasquez, Jr., and Rebecca de Guia-Salvador. Id. at 28-30.
3 Id. at 32-41.
4 Section 10. Freezing of Monetary Instrument or Property. - The Court of Appeals, upon application exparte
by the AMLC and after determination that probable cause exists that any monetary instrumentor property is in
any way related to an unlawful activity as defined in Section 3(i) hereof, may issue afreeze order which shall
be effective immediately. The freeze order shall be for a period of twenty(20) days unless extended by the
court. [italics supplied]
5 Rollo, p. 70.
6 Id. at 71-86.
7 Section 8. Statements and Disclosure. — Public officials and employees have an obligation toaccomplish
and submit declarations under oath of, and the public has the right to know, their assets,liabilities, net worth
and financial and business interests including those of their spouses and ofunmarried children under eighteen
(18) years of age living in their households. [italics supplied]
8 Code of Conduct and Ethical Standards for Public Officials and Employees.
9 Based on the Ombudsman’s complaint, Lt. Gen. Ligot held various positions/designations as perrecords of
the last five years of his stay with the AFP, to wit:
● Commander of the Central Command, AFP from April 13, 2002 – date of retirement;
● Officer-in-Charge of the Southern Luzon Command, AFP from December 5-20, 2001 and October 2-
16, 2001;
● Commanding General of the 2nd Infantry Division, PA from March 28, 2001 to April 13, 2002;
● Deputy Chief of Staff for Comptrollership, J6, of OJ6, GHQ, AFP from November 6, 1999 to
March 28, 2001;

● Brigade Commander of the 403rd Infantry Brigade, 41D, PA from June 10, 1966 to October 1, 1999.
(Rollo, pp. 71-72).

10 Id. at 72.
11 Lt. Gen. Ligot’s assets as of December 31, 2003 consist of the following:
Assets Year of Acquisition Amount in Pesos

Cash-on-hand P 550,000.00
Investments/Bus and Stocks 700,000.00

Appliances 251,003.00
Jewelries and Books 430,000.00
House and lot (TARLAC) 1980 10,000.00

House and lot (MUNTINLUPA) 1983 337,000.00
Lot (MARIKINA) 1986 110,000.00

Agri lands (NUEVA ECIJA) 1995 60,000.00
Agri lands (SAN JOSE BATS.) 1999 200,000.00

Motor vehicle 1994 600,000.00
2000 600,000.00
TOTAL P 3,848,003.00
(Id. at 75).
12 Id.
13 Based on the Ombudsman’s estimation, the Ligot spouses have the following undeclared assets:
Assets Year of Acquisition Acquisition Cost Registered Owner

Raw land in Masalat, 2002 P 2,000,000.00 Jacinto Ligot
Sampaloc, Tanay, (June 28, 2002)
Rizal (72,738 sqm.)
Proceeds of sale of 2003 P 25,000,000.00 Erlinda Ligot
19A, Essensa East (August 19, 2003)
Forbes Condominium,
Lawton Tower, Taguig
Poultry building 2002 P 6,715,783.02 Jacinto Ligot
AFPSLAI (highest 2002 P 7,469,800.51 Spouses Jacinto and

accumulated balance Erlinda Ligot
of the four accounts
of the spouses)
TOTAL P 41,185,583.53
(Ombudsman’s complaint, id. at 80.)
14 The following properties are registered in the names of the Ligot children:
Year of Acquisition Registered Description Acquisition Cost

owner/Age at time of
acquisition
2001 Paulo (22) Agricultural land in P 195,000.00
Bgy. Imbayao,
Malaybalay City
2001 Paulo (22) Toyota Hi-lux ₱1,078,000.00
2002 Riza (22) Isuzu Mini-dump ₱305,000.00

2003 Riza (23) Bgy. Kalatugonan, Market value ₱72,000.00
Patpat, Malaybalay
City, Bukidnon (4
hectares)
2003 Miguel (18) Bgy. Kalasungay, Market Value ₱94,035.60
Malaybalay City
(5,2242 has.)
Total ₱1,744,035.60
(Ombudsman’s complaint, id. at 81.)

15 Based on the Ombudsman’s complaint, the Ligot family had, from 1986 to 2004, substantial funds used to
cover the tuition fees of the children and their travel expenses. While Lt. Gen. Ligot declared in his SALN
family expenses, the amounts declared were considered to only cover necessary and basic expenses, being
considered too small to cover the expensive tuition fees of the children and their frequent travels abroad.
Estimated Total
Declared Family
Nature of Travel and
Year Amount Expenses
Expenses Tuition Fee
(SALN)
Expenses
1986 Travel Tuition fee No data ₱8,480.70 P 8,480.70 P 60,000.00


1991 No SALN No SALN No SALN No SALN

1993 Travel Tuition fee ₱56,700.00 Data P 56,700.00 P 140,000.00
unavailable
1994 Travel Tuition fee P 36,400.00 P 59,408.00 P 95,808.00 P 150,000.00




2004 Travel Tuition fee P 304,750.00 P 27,697.00 P 332,447.00 No SALN

Total Expenses from 1986 to 2004 P 2,308,047.87 P 2,641,056.50
Total Expenses (Declared Family Expenses plus P 4,949,104.37

estimated travel and tuition fee expenses)
(Id. at 82.)
16 According to the Ombudsman’s complaint, Yambao acted as the Ligot spouses’ dummy. Mrs.
Ligottransferred her condominium unit in Essensa in favor of her brother, allegedly for the amount
of₱25,000,000.00. This amount, however, was never declared in Lt. Gen. Ligot’s SALN, nor was anyincrease
in his cash asset registered. Moreover, Yambao has not filed any Individual Tax Returns since1999, thereby
discounting his probable financial capacity to acquire the Essensa property and any ofhis other assets. The
Ombudsman also took into account the fact that Yambao used three addressesused by the Ligots as his
address. From these circumstances, the Ombudsman concluded that the assetsregistered in Yambao’s name
are actually assets belonging to the Ligots. These assets include:
Year of Description Acquisition Cost

Acquisition
1993 Residential lot/Susana Heights Subdivision Village VI, ₱1,050,000.00

Muntinlupa City (904 sqm.)
1994 Mabelline Foods, Inc. P 156,250.00

Amount paid as
incorporator
1996 1996 Honda Accord 4 Drive Sedan (brand new) P 878,000.00

1999 Condominium Unit/ Burgundy Plaza, Katipunan Avenue, Loyola ₱1,405,300.00
Heights, Diliman Quezon City (54.05 sqm.)
2001 2001 Toyota Hilander P 2,800,000.00
2002 Subaru Forester P 1,174,000.00
2003 Subaru Forester P 1,300,000.00

Total P 8,763,550.00
(Id. at 83-84.)
17 Id. at 76.
18 Id. at 72.
19 Based on the corporation’s income statements with the SEC.
20 The CIS discovered that the Ligots had the following bank accounts in their names:
Lank Bank of the Philippines
Account Name Type of Account Account Number

Col. Jacinto C. Ligot Peso SA-ATM 0962-0055-35
Jacinto C. Ligot Peso Demand Deposit 0057-0575-72
Equitable PCIBank (EPCIB)
Jacinto C. Ligot Peso Demand Deposit 0057-575-02
Erlinda Y. Ligot US Dollar Account 4466000391

Erlinda Y. Ligot US Dollar Account 4466000405
Erlinda Y. Ligot US Dollar Account 04008E00043CTF-K
Erlinda Y. Ligot US Dollar Account 03009B00069CTF-K

Erlinda Y. Ligot Peso Account 3763-00267-4
Equitable Savings Bank
Emelda T. Yambao Savings Deposit – Private 3763-00318-2

(Special),
90-day ESB Speedsaver

Peso
(Special),

Peso

(Special),

Peso

(Special),

Peso
Citibank
Jacinto C. Ligot US Dollar Account 8143020917
Jacinto C. Ligot Peso Account 8132063827
Armed Forces and Police Savings and Loan Association, Inc. (AFPSLAI)
Jacinto C. Ligot 013093075

Jacinto C. Ligot 8132063827
Erlinda Y. Ligot 013624151
Erlinda Y. Ligot CCA 630-001-0524885-7

Erlinda Y. Ligot SA 630-002-0009922-2
Erlinda Y. Ligot CCA 630-001-0524885-7
Riza Y. Ligot 014606319
Paulo Yambao Ligot 01460327

Rizal Commercial Banking Corporation
Erlinda Y. Ligot Peso Account 1215319969

Erlinda Y. Ligot USD Common Trust Fund 2150000014*
contribution/placement/investment
Erlinda Y. Ligot USD Common Trust Fund 2150000016*
Philippine Savings Bank

Erlinda Y. Ligot Peso Account 01000762
Bank of the Philippine Islands

Parmil Farms, Inc. Peso Account 0200120600002061013388
Parmil Farms, Inc. Current Account
Elpidio V. Yambao Peso Account 00583037225
Metropolitan Bank and Trust Co. (Metrobank)
Edgardo T. Yambao US Dollar Common Trust/Fund 00012407

Peso account
United Overseas Bank Phils.
Edgardo T. Yambao ITF 021072002773

Frances Isabelle Yambao
Edgardo T. Yambao 002072001829
Keppel Bank Phils.
Edgardo T. Yambao 3035000914
Citicorp Financial Services & Insurance Brokerage Phils., Inc.
Erlinda Ligot USD Account 002369932
Erlinda Ligot/ Riza Ligot USD Account 007906196

Paulo Ligot/Riza Ligot USD Account 007906165
Emelda Yambao USD Account 007064904
Edgardo T. Yambao USD Account 000117966

Edgardo T. Yambao USD Account 006911804
Philippine Axa Life Insurance Corporation
Insured Policy Owner Kind of Insurance Policy Number

Miguel Y. Ligot Erlinda Y. Ligot Sure Dollar in the 501-1093597
amount of
USD25,000.00 with
maturity of ten (10)
years
This Policy was cancelled upon the request of Erlinda Y. Ligot on December 8, 2004. On January 7,
2005, a certain Janah G. Evangelista received the check in the amount of ₱1,004,016.87
(USD17,876.52 @ ₱56.164) in behalf of Erlinda Ligot upon her authority. (Rollo, p. 59.)
21 Article 183. False testimony in other cases and perjury in solemn affirmation. — The penalty of arresto
mayor in its maximum period to prision correccional in its minimum period shall be imposed upon any person,
who knowingly makes untruthful statements and not being included in the provisions of the next preceding
articles, shall testify under oath, or make an affidavit, upon any material matter before a competent person
authorized to administer an oath in cases in which the law so requires.
Any person who, in case of a solemn affirmation made in lieu of an oath, shall commit any of the
falsehoods mentioned in this and the three preceding articles of this section, shall suffer the respective
penalties provided therein. [italics supplied]
22 Rollo, pp. 88-95.
23 A.M. No. 05-11-04-SC.
24 G.R. No. 144332, June 10, 2004, 431 SCRA 610.
25 Id. at 617.
26 Section 2, Rule 45 of the Rules of Court.
27 See De Guzman v. Sandiganbayan, 326 Phil. 182, 188-189 (1996); Neypes v. Court of Appeals, G.R. No.
141524, September 14, 2005, 469 SCRA 633, 643; and Cuevas v. Bais Steel Corporation, 439 Phil. 793, 805-
806 (2002).
28 Deutsche Bank AG v. Court of Appeals, G.R. No. 193065, February 27, 2012, 667 SCRA 82, 91.
29 Prof. David v. Pres. Macapagal- Arroyo, 522 Phil. 705, 754 (2006).
30 See SANLAKAS v. Executive Secretary Reyes, 466 Phil. 482, 505-506 (2004).
31 Section 11 of A.M. No. 05-11-04-SC.
32 Section 51, paragraph 2 of A.M. No. 05-11-04-SC.
33 Major General Carlos Garcia v. Court of Appeals, G.R. No. 165800, November 27, 2007.
34 Rule 10.2 of the Revised Implementing Rules and Regulations, RA No. 9160, as amended by RA No.
9194.
35 Revised Implementing Rules and Regulations, RA No. 9160, as amended by RA No. 9194.
Rule 10.1. When the AMLC may apply for the freezing of any monetary instrument or property. –
(a) After an investigation conducted by the AMLC and upon determination that probable cause exists
that a monetary instrument or property is in any way related to any unlawful activity as defined under
Section 3(i), the AMLC may file an ex-parte application before the Court of Appeals for the issuance of
a freeze order on any monetary instrument or property subject thereof prior to the institution or in the
course of, the criminal proceedings involving the unlawful activity to which said monetary instrument or
property is any way related.
36 G.R. No. 174629, February 14, 2008, 545 SCRA 384.
37 Ibid.
38 Section 3(i) provides:
(i) "Unlawful activity" refers to any act or omission or series or combination thereof involving or having
relation to the following:
(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised
Penal Code, as amended;
(2) Sections 3, 4, 5, 7, 8 and 9 of Article Two of Republic Act No. 6425, as amended, otherwise
known as the Dangerous Drugs Act of 1972;
(3) Section 3, paragraphs B, C, E, G, H and I of Republic Act No. 3019, as amended, otherwise
known as the Anti-Graft and Corrupt Practices Act;
(4) Plunder under Republic Act No. 7080, as amended;
(5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised
Penal Code, as amended;
(6) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602;
(7) Piracy on the high seas under the Revised Penal Code, as amended, and Presidential
Decree No. 532;
(8) Qualified theft under Article 310 of the Revised Penal Code, as amended;
(9) Swindling under Article 315 of the Revised Penal Code, as amended;
(10) Smuggling under Republic Act Nos. 455 and 1937;
(11) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act
of 2000;
(12) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder,
as defined under the Revised Penal Code, as amended, including those perpetrated by terrorists
against non-combatant persons and similar targets;
(13) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as
the Securities Regulation Code of 2000;
(14) Felonies or offenses of a similar nature that are punishable under the penal laws of other
countries.
39 Republic v. Eugenio, Jr., supra note 33.
40 See Transcripts of Session Proceedings, 12th Congress, September 27, 2001, pp18-19.
Senator Osmeña (S). Why would it be necessary to remove Provisional Remedies Pending Criminal
Proceedings? We have a 20-day freeze. One may go to court for an ex parte motion to investigate the
account, inquire into the account. What happens after that if we remove this provision, Mr. President?
Senator Cayetano. Mr. President, the moment the court orders the freezing of the account that will
remain until the case is terminated. That is the reason. And when an order to freeze exists, the
defendant cannot move any property already frozen. The availment of provisional remedy is to ensure
that the property being sought will not be removed. But since it is already frozen, there is no way by
which the property can be removed or concealed. That is the reason why I proposed the deletion of
this. (Emphasis ours.)
41 CONSTITUTION, Article VIII, Section 5(5).
42 This implication was made express by Section 53 of A.M. No. 05-11-04-SC. The failure of the petitioners to
move for the modification or the lifting of the freeze order within the twenty-day period, as provided in Section
53(a), cannot prejudice them. To begin with, A.M. No. 05-11-04-SC itself only took effect on November 15,
2005 while the freeze order was issued a few months earlier, or on July 5, 2005; neither can we reasonably
expect the petitioners to comply with the provisions of R.A. No. 10167 (granting the property owner the
remedy of filing a motion to lift the freeze order within the original 20-day period) since this law only took effect
sometime in 2012. In short, even from this simple temporal point of view, coupled with their lone procedural
error in resorting to certiorari, and the due process consideration involved, the Court is justified in proceeding
with the petition’s merits.
43 Hon. Corona v. United Harbor Pilots Asso. of the Phil., 347 Phil. 333, 340, 342 (1997).
44 City of Manila v. Hon. Laguio, Jr., 495 Phil. 289, 311 (2005).
45 Rollo, p. 154.
46 Vitug, Pardo & Herrera, A Summary of Notes and Views on the Rule of Procedure in Cases of Civil
Forfeiture, Asset Preservation and Freezing of Monetary Instrument, Property, or Proceeds Representing,
Involving, or Relating to an Unlawful Activity or Money Laundering Offense Under Republic Act No. 9160, as
Amended, 2006, p. 90.
47 Note that for instance, if the unlawful activity involved is plunder, Section 2 of RA No. 7080 requires that
upon conviction, the court shall declare any and all ill gotten wealth and their interests and other incomes and
assets including the properties and shares of stock derived from the deposit or investment thereof forfeited in
favor of the state; likewise if the unlawful activity involved is violation of RA 3019, the law orders the
confiscation or forfeiture in favor of the government of any prohibited interest and unexplained wealth
manifestly out of proportion to the convicted accused’ salary and other lawful income. In these cases, the
state may avail of the provisional remedy under Rule 127 of the Revised Rules of Criminal Procedure to
secure the preservation of these unexplained wealth and income should no petition for civil forfeiture or freeze
order be filed.
48 256 Phil. 777, 809 (1989).

Custom Search

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 192302 June 4, 2014
REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEY LAUNDERING COUNCIL, Petitioner,

vs.
RAFAEL A. MANALO, GRACE M. OLIVA, and FREIDA Z. RIVERA-YAP, Respondents.
RESOLUTION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated May 21, 2009 and the Resolution3 dated
May 17, 2010.ofthe Court of Appeals (CA) in CA-G.R. SP No. 102724 which nullified and set aside the Joint Order4
dated August 8, 2007 and the Order5 dated January 1 o; 2008 of the Regional Trial Court (RTC) of Manila, Branch
24 (Manila RTC) in Civil Case Nos. 03-107325 and 03-107308, denying the separate Motions for Leave to Intervene
and Admit Attached Answer-in-Intervention filed by respondents Rafael A. Manalo, Grace M. Oliva, and Freida Z.
Rivera-Yap (respondents).
The Facts
On July 18, 2003, petitioner Republic of the Philippines (Republic), represented in this case by the Anti-Money
Laundering Council (AMLC), filed a complaint for civil forfeiture, entitled "Republic v. R.A.B. Realty, Inc., et al.,"6
docketed as Civil Case No. 03-107308, before the Manila RTC.
Subsequently, or on July 21, 2003, it filed a second complaint for civil forfeiture, entitled "Republic v. Ariola, Jr., et
al.,"7 docketed as Civil Case No. 03-107325 (collectively, civil forfeiture cases), also before the same RTC.8 In the
said civil forfeiture cases, the Republic sought the forfeiture in its favor of certain deposits and government securities
maintained in several bank accounts by the defendants therein, which were related to the unlawful activity of
fraudulently accepting investments from the public,9 in violation of the Securities Regulation Code10 as well as the
Anti-Money Laundering Act of 2001.11
On September 25 and 27, 2006, herein respondents filed separate Motions for Leave to Intervene and Admit
Attached Answer-in Intervention12 (separate motions for intervention), in the civil forfeiture cases, respectively,
alleging, inter alia, that they have a valid interest in the bank accounts subject thereof. In this relation, they asserted
that in a separate petition for involuntary insolvency proceedings, i.e., Spec. Proc. Case No. 03-026 filed before the
RTC of Makati City, Branch 204 (insolvency case), they were appointed as assignees of the properties of Spouses
Saturnino and Rosario Baladjay (Sps. Baladjay) (as well as their conduit companies) who were impleaded as
defendants in the aforementioned civil forfeiture cases.13
The Manila RTC Ruling
On August 8, 2007, the Manila RTC rendered a Joint Order14 denying respondents’ separate motions for
intervention, citing Section 35 of the Rule of Procedure in Cases of Civil Forfeiture15 (Civil Forfeiture Rules) which
states:
Sec. 35.Notice to file claims.- Where the court has issued an order of forfeiture of the monetary instrument or
property in a civil forfeiture petition for any money laundering offense defined under Section 4 of Republic Act No.
9160, as amended, any person who has not been impleaded nor intervened claiming an interest therein may apply,
by verified petition, for a declaration that the same legitimately belongs to him and for segregation or exclusion of
the monetary instrument or property corresponding thereto. The verified petition shall be filed with the court which
rendered the order of forfeiture within fifteen days from the date of finality of the order of forfeiture, in default of
which the said order shall be executory and bar all other claims. (Emphasis supplied)
In view of the remedy stated in the foregoing provision, the Manila RTC thus ratiocinated that respondents "need not
unduly worry as they are amply protected in the event the funds subject of the instant case are ordered forfeited in
favor of the [Republic]."16
Dissatisfied, respondents moved for reconsideration, which was likewise denied by the Manila RTC in an Order17
dated January 10, 2008, prompting them to elevate the case to the CA on certiorari.18
The CA Ruling
In a Decision19 dated May 21, 2009, the CA granted respondents’ petition, ruling that the Manila RTC gravely
abused its discretion in denying respondents’ separate motions for intervention. It found that respondents were able
to establish their rights as assignees in the insolvency case filed by Sps. Baladjay. As such, they have a valid
interest in the bank accounts subject of the civil forfeiture cases.20 Moreover, a reading of Section 35 of the Civil
Forfeiture Rules as above-cited revealed that there is nothing therein that prohibits an interested party from
intervening in the case before an order of forfeiture is issued.21
Feeling aggrieved, the Republic moved for reconsideration which was, however, denied by the CA in a Resolution22
dated May 17, 2010, hence, this petition.
The Issue Before the Court
The essential issue for the Court’s resolution is whether or not the CA erred in holding that the Manila RTC
committed grave abuse of discretion in issuing the Joint Order dated August 8, 2007 and the Order dated January
10, 2008 which denied respondents’ separate motions for intervention in the civil forfeiture cases.
At this point, the Court duly notes that during the pendency of the instant petition, the Manila RTC rendered a
Decision on September 23, 2010 in Civil Case No. 03-107325, and, thereafter, a Decision dated February 11, 2011
and Amended Decision dated May 9, 2011 in Civil Case No. 03-107308, all of which ordered the assets subject of
the said cases forfeited in favor of the government.23In view thereof, the Republic prayed that it be excused from
filing the required reply,24 which the Court granted in a Resolution25 dated June 3, 2013.1âwphi1
The Court’s Ruling
The petition must be dismissed for having become moot and academic.
A case or issue is considered moot and academic when it ceases to present a justiciable controversy by virtue of
supervening events, so that an adjudication of the case or a declaration on the issue would be of no practical value
or use. In such instance, there is no actual substantial relief which a petitioner would be entitled to, and which would
be negated by the dismissal of the petition. Courts generally decline jurisdiction over such case or dismiss it on the
ground of mootness,26 as a judgment in a case which presents a moot question can no longer be enforced.27
In this case, the Manila RTC's rendition of the Decision dated September 23, 2010 in Civil Case No. 03-107325, as
well as the Decision dated February 11, 2011 and the Amended Decision dated May 9, 2011 in Civil Case No. 03-
107308, by virtue of which the assets subject of the said cases were all forfeited in favor of the government, are
supervening events which have effectively rendered the essential issue in this case moot and academic, that is,
whether or not respondents should have been allowed by the Manila RTC to intervene on the ground that they have
a legal interest in the forfeited assets. As the proceedings in the civil forfeiture cases from which the issue of
intervention is merely an incident have already been duly concluded, no substantial relief can be granted to the
Republic by resolving the instant petition. WHEREFORE, the petition is DISMISSED for being moot and academic.
SO ORDERED.
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ARTURO D. BRION MARIANO C. DEL CASTILLO

JOSE PORTUGAL PEREZ

Associate Justice
ATTESTATION
I attest that the conclusions in the above Resolution had been reached in consultation before the case was assigned
ANTONIO T. CARPIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII· of the Constitution, and the Division Chairperson's Attestation, I certify that the
conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of

Chief Justice
Footnotes
1
Rollo, pp. 146-167.
2
Id. at 169-176. Penned by Associate Justice Rosmari D. Carandang, with Associate Justices Mariflor
Punzalan-Castillo and Ricardo R. Rosario, concurring.
3
Id. at 177-179.
4
Id. at 224-226. Penned by Judge Antonio M. Eugenio, Jr.
5
Id. at 228.
6
Id. at 180-199. The defendants were R.A.B. Realty, Inc., Rosario A. Baladjay, Saturnino M. Baladjay,
Chinatrust (Phils.) Commercial Bank Corporation, and Rizal Commercial Banking Corporation.
7
Id. at 200-214. The defendants were Conrado G. Ariola, Jr., Joseph Valiant Ariola, Patrocinia J. Ariola,
Rosario A. Baladjay, Security Bank, and Bank of the Philippine Islands.
8
Id. at 23-24.
9
Section 3 (i) (13) of the Anti-Money Laundering Act of 2001 provides:
Sec. 3. Definitions. – For purposes of this Act, the following terms are hereby define as follows:
x x x x (i) "Unlawful activity" refers to any act or omission or series or combination thereof involving or
having relation to the following:
x x x x (13) Fraudulent practices and other violations under Republic Act No. 8799, otherwise
known as the Securities Regulation Code of 2000. (Emphasis supplied)

10
Republic Act No. 8799 (2000).
11
Republic Act No. 9160, entitled "AN ACT DEFINING THE CRIME OF MONEY LAUNDERING, PROVIDING
PENALTIES THEREFOR AND FOR OTHER PURPOSES," (2001).
12
Rollo, pp. 220-223 (in Civil Case No. 03-107308) and pp. 215-219 (in Civil Case No. 03-107325) and,
respectively. The separate motions for intervention filed by respondents were identical.
13
Entitled "In The Matter of Petition for Involuntary Insolvency: Spouses Rosario A. Baladjay, Saturnino
Baladjay, et al."; id. at 230-231.
14
Rollo, pp. 224-226.
15
A.M. No. 05-11-04-SC entitled "RULE OF PROCEDURE IN CASES OF CIVIL FORFEITURE, ASSET
PRESERVATION,AND FREEZING OF MONETARY INSTRUMENT, PROPERTY,OR PROCEEDS
REPRESENTING,INVOLVING,OR RELATING TO AN UNLAWFUL ACTIVITY OR MONEY LAUNDERING
OFFENSE UNDER REPUBLIC ACT NO. 9160, AS AMENDED," (2005).
16
Rollo, p. 225.
17
Id. at 228.
18
Id. at 229-250.
19
Id. at 169-176.
20
Id. at 174.
21
Id. at 175.
22
Id. at 177-179.
23
See Manifestation and Motion (In Lieu of Reply) dated May 14, 2013; id. at 682.
24
Id. at 683. In the Resolution dated January 21, 2013, the Court required the Republic to file a reply to
respondents’ comment on the petition (id. at 667).
25
Id. at 686-687.
26
Carpio v. CA, G.R. No. 183102, February 27, 2013, 692 SCRA 162, 174.
27
Sales v. Commission on Elections, 559 Phil. 593, 597 (2007).

THIRD DIVISION some reason, not covered by any official
receipt from Jardine or Premiere. The
G.R. No. 235511, June 20, 2018 subject checks, which are all crossed checks
and amounting to P1,481,292.00 in total,
METROPOLITAN BANK AND TRUST are as follows:
COMPANY, Petitioner, v. JUNNEL'S
MARKETING CORPORATION, Checks Payable to the Order of Jardine:
PURIFICACION DELIZO, AND BANK OF
COMMERCE, Respondents. 1. Check No. 3010048953 - issued on 11
October 1998 in the amount of
G.R. No. 235565, June 20, 2018 P181,440.00
BANK OF 2. Check No. 3010048955 - issued on 24

COMMERCE, Petitioner, v. JUNNEL'S October 1998 in the amount of
MARKETING CORPORATION, P195,840.00
PURIFICACION DELIZO, AND
METROPOLITAN BANK AND TRUST 3. Check No. 3010069098 - issued on 18
COMPANY, Respondents. May 1999 in the amount of
P58,164.56
DECISION
4. Check No. 3010069099 - issued on 18
May 1999 in the amount of
VELASCO JR., J.:
P44,651.52
At bench are two appeals1 assailing the
Decision2 dated 22 March 2017 and
3 May 1999 in the amount of
Resolution dated 19 October 2017 of the
P103,680.00
Court of Appeals (CA) in CA-G.R. CV No.
102462. The first appeal was filed by the 6. Check No. 3010049550 - issued on 30
Metropolitan Bank and Trust Company May 1999 in the amount of
(Metrobank), while the second by the Bank P103,680.00
of Commerce (Bankcom).
The facts are as follows: December 1998 in the amount of
P195,840.00
Respondent Junnel's Marketing Corporation
(JMC) is a domestic corporation engaged in Checks Payable to the Order of Premiere:
the business of selling wines and liquors. It
has a current account with Metrobank4 from 1. Check No. 3010049149 - issued on 9
which it draws checks to pay its different December 1998 in the amount of
suppliers. Among JMC's suppliers are Jardine P136,220.00
Wines and Spirits (Jardine) and Premiere
Wines (Premiere). 2. Check No. 3010049148 - issued on 16
December 1998 in the amount of
In 2000, during an audit of its financial P136,220.00
records,5 JMC discovered an anomaly
involving eleven (11) checks (subject 3. Check No. 3010049410 - issued on 18
checks) it had issued to the orders of Jardine April 1999 in the amount of
and Premiere on various dates between P189,336.00.
October 1998 to May 1999. As it was, the
subject checks had already been charged
against JMC's current account but were, for
4. Check No. 3010049150 - issued on 27 these checks, as confirmed by JMC's
November 1998 in the amount of audit, are the subject checks.
P136,220.00
2. After stealing the subject checks,
Examination of the dorsal portion of the Delizo and her accomplices, Bituin and
subject checks revealed that all had been an unknown bank manager, caused
deposited with Bankcom, Dau branch, under the subject checks to be deposited in
Account No. 0015-32987-7.6 Upon inquiring Bankcom, Dau branch, under Account
with Jardine and Premiere, however, JMC No. 0015-32987-7. Bankcom, on the
was able to confirm that neither of the said other hand, negligently accepted the
suppliers owns Bankcom Account No. 0015- subject checks for deposit under the
32987-7. said account despite the fact that they
are crossed checks payable to the
Meanwhile, on 30 April 2000, respondent orders of Jardine and Premiere and
Purificacion Delizo (Delizo), a former neither of them owns the concerned
accountant of JMC, executed a handwritten account.
letter7 addressed to one Nelvia Yusi,
President of JMC. In the said letter, Delizo 3. Thereafter, Bankcom presented the
confessed that, during her time as an subject checks for payment to
accountant for JMC, she stole several Metrobank which, also in negligence,
company checks drawn against JMC's decided to honor the said checks even
current account. She professed that the said though Bankcom Account No. 0015-
checks were never given to the named 32987-7 belongs to neither Jardine nor
payees but were forwarded by her to one Premiere.
Lita Bituin (Bituin). Delizo further admitted
that she, Bituin and an unknown bank On the basis of the foregoing averments,
manager colluded to cause the deposit and JMC prayed that Delizo, Bankcom and
encashing of the stolen checks and shared in Metrobank be held solidarily liable in its
the proceeds thereof. favor for the amount of the subject checks.
JMC surmised that the subject checks are Delizo, Bankcom and Metrobank filed their
among the checks purportedly stolen by individual answers denying
10
Delizo. liability. Incorporated in Metrobank's
answer, moreover, is a cross-claim against
On 28 January 2002, JMC filed before the Bankcom and Delizo wherein Metrobank
Regional Trial Court (RTC) of Pasay City a asks for the right to be reimbursed in the
complaint for sum of money8 against Delizo, event it is ordered liable in favor of JMC.11
Bankcom and Metrobank. The complaint was
raffled to Branch 115 and was docketed as On 28 May 2013, the RTC rendered a
Civil Case No. 02-0193. decision12 holding both Bankcom and
Metrobank liable to JMC-on a 2/3 to 1/3
In its complaint, JMC alleged that the ratio, respectively-for the amount of subject
wrongful conversion of the subject checks checks plus interest as well as attorney's
was caused by a combination of the "tortious fees, but absolving Delizo from any
and felonious" scheme of Delizo and the liability.13 The trial court, in the same
"negligent and unlawful acts" of Bankcom decision, also dismissed Metrobank's cross-
and Metrobank, to wit:9 claim against Bankcom. The dispositive
portion of the decision reads:14
1. Delizo, by her own admission, stole WHEREFORE, judgment is rendered against
the company checks of JMC. Among defendants [Bankcom] and [Metrobank] for
the total value of the 11 checks. [Bankcom]
and Metrobank are adjudged solidarily liable a. Bankcom accepted the subject
to pay [JMC] at the ratios of 2/3 and 1/3, checks for deposit under Account
respectively: No. 0015-32987-7, endorsed
them and sent them for
1. The actual loss of P 1,481,292 including clearance with the Philippine
6% legal interest from the filing of the Clearing House Corporation
complaint; (PCHC). Bankcom did all these
despite the fact that the subject
2. Plus 12% interest on the principal of P checks were ll crossed checks
1,481,292 including 6% interest on the and that Account No. 0015-
principal, from the date this Decision 32987-7 neither belongs to
becomes final and executory; Jardine nor Premiere-the payees
named in the subject checks. In
3. The attorney's fees of 15% of the total of this regard, Bankcom was clearly
number one and two above; negligent.
4. Costs against [Bankcom] and Metrobank. b. Metrobank, on the other hand, is

also negligent for its failure to
Metrobank's cross-claim against [Bankcom] scrutinize the subject checks
is DISMISSED, both being negligent. before clearing and honoring
them. Had Metrobank done so, it
SO ORDERED. would have noticed that
The RTC's decision was hinged on the Bankcom's ID band stamped at
following findings:15 the back of the subject checks
did not contain any initials and
1. The subject checks were complete and are, therefore, defective. In this
not forged. They were, however, regard, Metrobank was remiss in
stolen by unknown malefactors and its duty to ensure that the
were wrongfully encashed due to the subject checks are paid only to
negligence of Bankcom and the named payees.
Metrobank.
2. Delizo's complicity in the acquisition In view of the comparative

and negotiation of the subject checks negligence of Bankcom and
was not proven. No direct evidence Metrobank, they should be held liable
linking Delizo to the deeds was to JMC, on a 2/3 to 1/3 ratio,
presented. Moreover, Delizo's respectively, for the amount of subject
supposed handwritten confession must checks plus interest.
be discredited for being made under
duress, intimidation and threat. It was Bankcom and Metrobank filed their
established during trial that Delizo was respective appeals with the CA.
only forced by Yusi to confess about
the missing checks and to execute the On 22 March 2017, the CA rendered its
handwritten confession. Hence, Delizo decision16 affirming, albeit with modification,
must be absolved from any liability. the decision of the RTC. The disposition of
the decision reads:17
3. The involvement of Bankcom and WHEREFORE, the Decision dated 28 May
Metrobank on the wrongful 2013 of the [RTC] in Civil Case NO. 02-0193
encashment of the subject checks, is AFFIRMED with MODIFICATION in that:
however, were clearly established: (a) the award of attorney's fees is DELETED;
and (b) [Bankcom] and [Metrobank] are
ordered to pay interest at the rate of 12% in holding it negligent on its failure to
per annum on the principal of P 1,481,292 ascertain that only four (4) out of the
including 6% interest on the principal, from 11 subject checks were stamped with
the date of the Decision (28 May 2013) until Bankcom's express guarantees.
June 2013 and 6% per annum from 1 July Metrobank claims that while Section
2013 until full satisfaction. The Decision is 17 of the PCHC Rules and Regulations
affirmed in all other respects. does require all checks cleared
through the PCHC to contain the
SO ORDERED. collecting bank's express guarantees,
The CA agreed with the RTC that Bankcom the same provision precludes it, as a
and Metrobank should be held liable to JMC, drawee bank, to return any checks
on a 2/3 to 1/3 ratio, respectively, for the presented to it for payment just
amount of subject checks. The appellate because the same does not contain
court, however, differed with the trial court such express guarantees "for as long
with respect to the basis of Metrobank's as there is evidence appearing on the
liability. According to the CA, Metrobank's cheque itself that the same had been
negligence consisted, not in its inability to deposited with the [collecting] [b]ank
notice that Bankcom's ID band does not e.g., PCHC machine sprayed tracer/ID
contain any initials, but in its failure to band." In this regard, Metrobank
ascertain that only four (4) out of the 11 points out that all the subject checks
subject checks were stamped by Bankcom had been stamped in their dorsal
with the express guarantees "ALL PRIOR portion with PCHC's tracer ID for
ENDORSEMENTS AND/OR LACK OF Bankcom.
ENDORSEMENT GUARANTEED" and "NON-
NEGOTIABLE" as required by Section 17 of Metrobank submits that, under the
the PCHC Rules and Regulations.18 circumstances, it should be Bankcom-
as the last indorser of the subject
The CA also sustained the ruling of the RTC checks-that should bear the loss and
anent the absolution of Delizo and the be held solely liable to JMC.
dismissal of Metrobank's cross-claim.
2. Bankcom, on the other hand, argues
Finally, the CA modified the rate of interest that it should be absolved because it
due on the amount of the subject checks was never a party to the wrongful
that was fixed by the RTC and also deleted encashment of the subject checks. It
the RTC's award of attorney's fees in favor claims that Account No. 0015-32987-7
of JMC.19 does not exist in its system and,
therefore, denies that the subject
Bankcom and Metrobank filed their motions checks were ever deposited with it.
for reconsideration, but the CA remained
steadfast. Hence the present consolidated Bankcom proffers the view that it is
appeals. JMC that should bear the loss of the
subject checks. Bankcom argues that
Both Metrobank and Bankcom pray for it was JMC's faulty accounting
absolution but they differ in the arguments procedures which led to the subject
they raise in support of their prayer:20 checks being stolen and
misappropriated.
1. Metrobank posits that it should be
absolved because it had exercised Our Ruling
absolute diligence in verifying the
genuineness of the subject checks. The consolidated appeals must be denied as
Metrobank argues that the RTC erred neither Metrobank nor Bankcom are entitled
to absolution. and made payable to the order of a
Miller Offset Press, Inc. (the
Be that as it may, there is a need to modify designated payee). These checks were
the decision of the CA and the RTC with then deposited to the Associated
respect to the manner by which Metrobank Citizens Bank (the collecting bank)
and Bankcom are held liable under the under a joint bank account of one
circumstances. Instead of holding both Ching Uy Seng and a certain Uy Chung
Metrobank and Bankcom liable to JMC in Guan Seng (an account that does not
accordance with a fixed ratio, we find that belong to the payee or its indorsee).
the two banks should have been The checks were then presented to the
ordered sequentially liable for the entire Bank of America, which honored it,
amount of the subject checks pursuant to resulting to loss on the part of BA
the seminal case of Bank of America v. Finance Corporation (the drawer.)
Associated Citizens Bank.21
2. The instant case involves eleven (11)
Accordingly, we rule: (1) Metrobank liable to crossed checks that were drawn
return to JMC the entire amount of the against Metrobank (the drawee bank)
subject checks plus interest and (2) and made payable to the orders of
Bankcom liable to reimburse Metrobank the Jardine and Premiere (the designated
same amount plus interest. payees). These checks were deposited
with Bankcom (the collecting bank)
The Rule on Sequence of Recovery in under Account No. 0015-32987-7 (an
Cases of Unauthorized Payment of account that does not belong to either
Checks; The Case of Bank of America payee or their indorsees). The checks
were then presented to Metrobank,
The instant case involves the unauthorized which honored it, resulting to loss on
payment of valid checks, i.e., the payment the part of JMC (the drawer.)
of checks to persons other than the payee
named therein or his order. The subject Bank of America held that, in cases involving
checks herein are considered valid because the unauthorized payment of valid
they are complete and bear genuine checks, the drawee bank becomes liable
signatures. to the drawer for the amount of the
checks but the drawee bank, in turn,
Bank of America is the leading jurisprudence can seek reimbursement from the
that illustrates the respective liabilities of a collecting bank. The rationale of this rule
collecting bank and a drawee bank in cases on sequence of recovery lies in the very
of unauthorized payment of valid checks. basis and nature of the liability of a drawee
Notably, the facts of Bank Americaare bank and a collecting bank in said cases. As
parallel to the facts of the present case. the recent case of BDO Unibank v.
Both Bank of America and the present case Lao22 explains:
involved crossed checks payable to the The liability of the drawee bank is based on
order of a specified payee that its contract with the drawer and its duty to
were deposited in a collecting bank charge to the latter's accounts only those
under an account not belonging to the payables authorized by him. A drawee bank
payee or his indorsee but which, upon is under strict liability to pay the check only
presentment, were subsequently honored to the payee or to the payee's order. When
by the drawee bank, thus: the drawee bank pays a person other than
the payee named in the check, it does not
1. Bank of America involved four (4) comply with the terms of the check and
crossed checks drawn against the violates its duty to charge the drawer's
Bank of America (the drawee bank) account only for properly payable items.
On the other hand, the liability of the The liability of the drawee bank to the
collecting bank is anchored on its guarantees drawer in cases of unauthorized payment of
as the last endorser of the check. Under checks has been regarded in jurispn1dence
Section 66 of the Negotiable Instruments to be strict by nature.27 This means that
Law, an endorser warrants "that the once an unauthorized payment on a check
instrument is genuine and in all respects has been made, the resulting liability of the
what it purports to be; that he has good title drawee bank to the drawer for such
to it; that all prior parties had capacity to payment attaches even if the former had
contract; and that the instrument is at the acted merely upon the guarantees of a
time of his endorsement valid and collecting bank.28 Indeed, it is only when
subsisting." the unauthorized payment of a check had
been caused or was attended by the fault or
It has been repeatedly held that in check negligence of the drawer himself can the
transactions, the collecting bank generally drawee bank be excused, whether wholly or
suffers the loss because it has the duty to partially, from being held liable to the
ascertain the genuineness of all prior drawer for the said payment.29
endorsements considering that the act of
presenting the check for payment to the In the present case, it is apparent that
drawee is an assertion that the party making Metrobank had breached JMC's instructions
the presentment has done its duty to when it paid the value of the subject checks
ascertain the genuineness of the to Bankcom for the benefit of a certain
endorsements. If any of the warranties Account No. 0015-32987-7. The payment to
made by the collecting bank turns out to be Account No. 0015-32987-7 was
false, then the drawee bank may recover unauthorized as it was established that the
from it up to the amount of the check. said account does not belong to Jardine or
(Citations omitted). Premiere, the payees of the subject checks,
This rule should have been applied to the or to their indorsees. In addition, causal or
case at bench. concurring negligence on the part of JMC
had not been proven. Under such
Metrobank is Liable to JMC circumstances, Metrobank is clearly liable to
return to JMC the amount of the subject
Metrobank, as drawee bank, is liable to checks.
return to JMC the amount of the subject
checks. Metrobank's insistence that it should be
absolved for it merely complied with Section
A drawee bank is contractually obligated to 17 of the PCHC Rules and Regulations and
follow the explicit instructions of its drawer- thereby only relied upon the concomitant
clients when paying checks issued by guarantees of Bankcom when it paid the
them.23 The drawer's instructions-including subject checks, cannot stand insofar as JMC
the designation of the payee or to whom the is concerned. In Bank of America, we
check should be paid-are reflected on the rejected a similar argument interposed by a
face and by the terms thereof.24 When a drawee bank (Bank of America) precisely on
drawee bank pays a person other than the the ground of the latter's strict liability to its
payee named on the check, it essentially drawer (BA-Finance) viz:30
commits a breach of its obligation and Bank of America denies liability for paying
renders the payment it made the amount of the four checks issued by BA-
25
unauthorized. In such cases and under Finance to Miller, alleging that it (Bank of
normal circumstances, the drawee bank may America) relied on the stamps made by
be held liable to the drawer for the amount Associated Bank stating that all prior
charged against the latter's account.26 endorsement and/or lack of
endorsement guaranteed, through While Metrobank's reliance upon the
which Associated Bank assumed the guarantees of Bankcom does not excuse it
liability of a general endorser under Section from being liable to JMC, such reliance does
66 of the Negotiable Instruments Law. enable Metrobank to seek reimbursement
Moreover, Bank of America contends that from Bankcom-the collecting bank.
the proximate cause of BA-Finances
injury, if any, is the gross negligence of A collecting or presenting bank-i.e., the
Associated Bank which allowed Ching Uy bank that receives a check for deposit and
Seng (Robert Ching) to deposit the four that presents the same to the drawee bank
checks issued to Miller in the personal joint for payment-is an indorser of such
bank account of Ching Uy Seng and Uy check.31 When a collecting bank presents a
Chung Guan Seng. check to the drawee bank for payment, the
former thereby assumes the same
We are not convinced. warranties assumed by an indorser of a
negotiable instrument pursuant to Section
The bank on which a check is drawn, 66 of the Negotiable Instruments Law. These
known as the drawee bank, is under warranties are: (1) that the instrument is
strict liability, based on the contract genuine and in all respects what it purports
between the bank and its customer to be; (2) that the indorser has good title to
(drawer), to pay the check only to the it; (3) that all prior parties had capacity to
payee or the payee's order. x x x. contract; and (4) that the instrument is, at
the time of the indorsement, valid and
x x x x subsisting.32 If any of the foregoing
warranties turns out to be false, a collecting
In this case, the four checks were drawn by hank becomes liable to the drawee bank for
BA-Finance and made payable to the Order payments made under such false warranty.
of Miller Offset Press, Inc. The checks were
also crossed and issued For Payee's Account Here, it is clear that Bankcom had assumed
Only. Clearly, the drawer intended the check the warranties of an indorser when it
for deposit only by Miller Offset Press, Inc. in forwarded the subject checks to PCHC for
the latter's bank account. Thus, when a presentment to Metrobank. By such
person other than Miller, i.e., Ching Uy presentment, Bankcom effectively
Seng, a.k.a. Robert Ching, presented guaranteed to Metrobank that the subject
and deposited the checks in his own checks had been deposited with it to an
personal account (Ching Uy Sengs joint account that has good title to the same. This
account with Uy Chung Guan Seng), and guaranty, however, is a complete falsity
the drawee bank, Bank of America, paid because the subject checks were, in truth,
the value of the checks and charged BA- deposited to an account that neither belongs
Finances account therefor, the drawee to the payees of the subject checks nor to
Bank of America is deemed to have their indorsees. Hence, as the subject
violated the instructions of the drawer, checks were paid under Bankcom's false
and therefore, is liable for the amount guaranty, the latter-as collecting bank-
charged to the drawer's stands liable to return the value of such
account (Citations omitted. Emphasis checks to Metrobank.
supplied).
Accordingly, we find Metrobank liable to Bankcom's assertion that it should be
return to JMC the amount of the subject absolved as the subject checks were
checks. allegedly never deposited with it must fail.
Such allegation is readily disproved by the
Bankcom is Liable to Metrobank fact that the subject checks all contained, at
their dorsal side, a stamp bearing Bankcom's
tracer/ID band.33 Under the PCHC Rules and case of PNB v. National City Bank. (Citations
Regulations, the stamped tracer/ID band of omitted. Emphasis supplied).
Bankcom signifies that the checks had been More than such pronouncement, however,
deposited with it and that Bankcom indorsed Section 17 of the PCHC Rules and
the said checks and sent them to PCHC.34 As Regulations expressly provides that checks
observed by the RTC:35 "cleared through the PCHC" that do not bear
Record shows that the pieces of evidence the mentioned guarantees shall nonetheless
presented by [JMC], particularly the 11 "be deemed guaranteed by the [collecting
subject checks were endorsed and were bank] as to all prior endorsements and/or
allowed to be encashed by [Bankcom], as lack of endorsement" such that "no drawee
indicated in the dorsal portion of the checks bank shall return any [check] received by it
where [PCHC] machine's tracer, or the ID through clearing by reason only of the
band of [Bankcom] was stamped. And this absence or lack of such guarantee ... as long
stamped tracer ID band of [Bankcom] as there is evidence appearing on the
signifies that [Bankcom] certified that the [check] itself that the same had been
checks were deposited to [Bankcom] and deposited with the [collecting bank] x x x."
[Bankcom] endorsed these checks and sent The full provision reads:
them to PCHC. Sec. 17. Bank Guarantee. All checks cleared
Neither do we find the liability of Bankcom through the PCHC shall bear the guarantee
to be affected by the fact that only four (4) affixed thereto by the Presenting
out of the eleven (11) subject checks were Bank/Branch which shall read as follows:
actually stamped with the guarantees "ALL
PRIOR ENDORSEMENTS AND/OR LACK OF Cleared thru the Philippine Clearing House
ENDORSEMENT GUARANTEED" and "NON- Corporation all prior endorsements and/or
NEGOTIABLE" as required under Section 17 lack of endorsement guaranteed NAME OF
of the PCHC Rules and Regulations. The BANK/BRANCH BRSTN (Date of
stamping of such guarantees is not Clearing). Checks to which said
necessary to fix the liability of Bankcom as guarantee has not been affixed shall,
an indorser for all the subject checks. nevertheless, be deemed guaranteed by
the Presenting Bank as to all prior
To begin with, jurisprudence has it that a endorsement and/or lack of
collecting bank's mere act of presenting a endorsement.
check for payment to the drawee bank is
itself an assertion, on the part of the former, No drawee bank shall return any
that it had done its duty to ascertain the cheque received by it through clearing
validity of prior indorsements. Hence, by reason only of the absence or lack of
in Banco De Oro v. Equitable Banking such guarantee stamped at the back of
Corporation,36 we stated: said cheque, for as long as there is
Apropos the matter of forgery in evidence appearing on the cheque itself
endorsements, this Court has presently that the same had been deposited with
succinctly emphasized that the collecting the Presenting Bank, e.g. PCHC machine
bank or last endorser generally suffers the sprayed tracer/ID band. (Emphasis
loss because it has the duty to ascertain the supplied)
genuineness of all prior In the present case, all the subject checks
endorsements considering that the act of have been transmitted by Bankcom to the
presenting the check for payment to the PCHC for clearing and presentment to
drawee is an assertion that the party Metrobank. As earlier adverted to, all of the
making the presentment has done its said checks also bear the PCHC machine
duty to ascertain the genuineness of the sprayed tracer/ID band of Bankcom. Such
endorsements. This is laid down in the circumstances, pursuant to prevailing
banking practices as laid out under the PCHC
Rules and Regulations, are enough to fix the and the CA held both Metrobank and
liability of Bankcom as an indorser of the Bankcom liable to JMC in accordance with a
subject checks even sans the stamp "ALL fixed ratio. In so doing, the RTC and the CA
PRIOR ENDORSEMENTS AND/OR LACK OF seemingly relied on the doctrine of
ENDORSEMENT GUARANTEED" and "NON-- comparative negligence38 as applied in the
NEGOTIABLE." As the stamping of such cases of Bank of the Philippine Islands v.
guarantees are not required before the Court of Appeals39 and Allied Banking
40
warranties of an indorser could attach Corporation v. Lio Sim Wan. In both cases,
against Bankcom, we find the latter liable to the Court held the drawee bank and
reimburse Metrobank the value of all the collecting bank liable for the wrongful
subject checks. encashment of checks under a 60% and
40% ratio.
Recourse of Bankcom
It must be emphasized, however, that the
The sequence of recovery in cases of factual contexts of Bank of the Philippine
unauthorized payment of checks, however, Islands and Allied Banking Corporation are
does not ordinarily stop with the collecting starkly different from the instant case:
bank. In the event that it is made to 1. Bank of the Philippine
reimburse the drawee bank, the collecting Islands involved two (2) cashier's
bank can seek similar reimbursement from checks issued by the Bank of the Philippine
the very persons who caused the checks to Islands (BPI) in favor of a certain Eligia
be deposited and received the unauthorized Fernando (Eligia). The checks are supposed
payments.37 Such persons are the to represent the proceeds of a pre-
ones ultimately liable for the unauthorized terminated money market placement of
payments and their liability rests on their Eligia with BPI. BPI issued the checks upon
absolute lack of valid title to the checks that the mere phone request of a person who
they were able to encash. introduced herself as Eligia. The checks were
subsequently deposited with the China
Verily, Bankcom ought to have a right of Banking Corporation (CBC) under an account
recourse against the persons that caused the that was opened by a person who identified
anomalous deposit of the subject checks and herself as Eligia. This person thereafter
received payments therefor. Unfortunately- encashed the checks.
as none of such persons were impleaded in
the case before us-no pronouncement as to It was later established, however, that Eligia
this matter can be made in favor of never requested the pre-termination of her
Bankcom. money market placement nor opened an
account with the CBC. It was an impostor
At this juncture, we express our concurrence who did so.
to the absolution of Delizo. The RTC and the
CA were uniform in their finding that the 2. Allied Banking Corporation, on the other
participation of Delizo-as the supposed thief hand, involved a manager's check issued
of the subject checks-had not been by the Allied Banking Corporation (ABC) in
established in this case. We reviewed the favor of a certain Lim Sio Wan (Lim). The
evidence on hand and saw no cogent reason check is supposed to represent the proceeds
to deviate from this factual finding. of a pre-terminated money market
placement of Lim with ABC. ABC issued the
Doctrine of Comparative Negligence checks upon the mere phone request of a
Does Not Apply to the Instant Case person who introduced herself as Lim. The
checks, now bearing an indorsement of Lim,
Instead of applying the rule on the sequence were then deposited with the Metrobank
of recovery to the case at bench, the RTC under the account of a certain Filipinas
Cement Corporation. The checks were Islands and Allied Banking Corporation on
eventually encashed. the other, we find that the doctrine of
comparative negligence cannot be applied so
It was later established, however, that Lim as to apportion the respective liabilities of
never requested the pre-termination of his Metrobank and Bankcom. The liabilities of
money market placement and that his Metrobank and Bankcom, as already
indorsement in the check was forged. discussed in length, must be governed by
A glaring peculiarity in the cases of Bank of the rule on sequential recovery pursuant
the Philippine Islands and Allied Banking to Bank of America.
Corporation is that the drawee bank-
which is essentially also the drawer in Interests
the scenario-is not only guilty of
wrongfully paying a check but also of As a final matter, we also saw it fit to
negligence in issuing such check. impose legal interest upon the respective
Indeed, this is the very reason why the principal liabilities of Metrobank and
drawee bank in the two cases were Bankcom.
adjudged co-liable with the collecting bank
under a fixed ratio and the former was not In Nacar v. Gallery Frames,42 wlaid out the
allowed to claim reimbursement from the following guidelines for the imposition and
latter.41 The drawee bank cannot claim that computation of legal interests:
its participation in the wrongful payment of a To recapitulate and for future guidance, the
check was merely limited to its reliance on guidelines laid down in the case of Eastern
the guarantees of the collecting bank. In Shipping Lines are accordingly modified to
other words, the drawee bank was held embody BSP MB Circular No. 799, as
liable in its own right because it was the one follows:
that negligently issued the checks in the first
place. I. When an obligation, regardless of its
source, i.e., law, contracts, quasicontracts,
That, however, is clearly not the situation in delicts or quasi-delicts is breached, the
the case at bench. Here, no negligence contravener can be held liable for damages.
similar to that committed by the drawee The provisions under Title XVIII on
banks in Bank of the Philippine "Damages" of the Civil Code govern in
Islands and Allied Banking Corporation- determining the measure of recoverable
whether in type or in magnitude-can be damages.
attributed to Metrobank. Metrobank, though
guilty of the unauthorized check payments, II. With regard particularly to an award of
only acted upon the guarantees deemed interest in the concept of actual and
made by Bankcom under prevailing banking compensatory damages, the rate of interest,
practices. While Metrobank's reliance upon as well as the accrual thereof, is imposed, as
the guarantees of Bankcom did not excuse it follows:
from being answerable to JMC, such reliance
does enable Metrobank to seek 1. When the obligation is breached,
reimbursement from Bankcom on the and it consists in the payment of a
ground of the breach in the latter's sum of money, i.e., a loan or
warranties as a collecting bank. Under such forbearance of money, the interest
circumstances, we cannot deny Metrobank's due should be that which may
right to seek reimbursement from Bankcom. have been stipulated in writing.
Furthermore, the interest due
Hence, given the differences in the factual shall itself earn legal interest from
milieu between this case on one hand arid the time it is judicially
the cases of Bank of the Philippine demanded.In the absence of
stipulation, the rate of interest shall be not be disturbed and shall continue to
6% per annum to be computed from be implemented applying the rate of
default, i.e., from judicial or interest fixed therein. (Citations
extrajudicial demand under and omitted. Emphasis supplied).
subject to the provisions of Article
1169 of the Civil Code. Applying the foregoing guidelines to the case
at bench, we fix the legal interests due
2. When an obligation, not against Metrobank and Bankcom thusly:
constituting a loan or forbearance
of money, is breached, an interest 1. The liability of Metrobank to JMC
on the amount of damages consists in returning the amount it
awarded may be imposed at the charged against JMC's current account.
discretion of the court at the rate Current accounts, like all bank
of 6% per annum. No interest, deposits, are considered under the law
however, shall be adjudged on as loans.43Normally, current accounts
unliquidated claims or damages, are interest-bearing by express
except when or until the demand can contract. However, the actual interest
be established with reasonable rate, if any, for the current account
certainty. Accordingly, where the opened by JMC with Metrobank was
demand is established with not given in evidence.44
reasonable certainty, the interest
shall begin to run from the time Under these circumstances, we find it
the claim is made judicially or proper to subject Metrobank's principal
extrajudicially (Art. 1169, Civil liability to JMC to a legal interest of
Code), but when such certainty 6% per annum from 28 January 2002
cannot be so reasonably established at until full satisfaction.45 The date 28
the time the demand is made, the January 2002 is the date when JMC
interest shall begin to run only from filed its complaint with the RTC.
the date the judgment of the court is
made (at which time the quantification 2. The liability of Bankcom to Metrobank,
of damages may be deemed to have on the other hand, consists in
been reasonably ascertained). The returning the amount it was paid by
actual base for the computation of Metrobank. This stems from a breach
legal interest shall, in any case, be on by Bankcom of its warranties as a
the amount finally adjudged. collecting bank.
3. When the judgment of the court Accordingly, we find it proper to

awarding a sum of money subject Bankcom's principal liability to
becomes final and executory, the Metrobank to a legal interest of 6%
rate of legal interest, whether the per annum from 5 March 2003 until
case falls under paragraph 1 or full satisfaction.46 The date 5 March
paragraph 2, above, shall be 6% 2003 is the date when Metrobank filed
per annum from such finality until its answer with cross-claim against
its satisfaction, this interim period Bankcom.
being deemed to be by then an
equivalent to a forbearance of WHEREFORE, the consolidated appeals
credit. are DENIED. The Decision dated 22 March
2017 and Resolution dated 19 October 2017
And, in addition to the above, of the Court of Appeals (CA) in CA-G.R. CV
judgments that have become final and No. 102462 are herein MODIFIEDwith
executory prior to July 1, 2013, shall respect to the individual liabilities of the
Metropolitan Bank and Trust Company and
the Bank of Commerce, as follows: Please take notice that on June 20, 2018 a
Decision, copy attached hereto, was
1. The Metropolitan Bank and Trust rendered by the Supreme Court in the
Company is adjudged liable to pay above-entitled cases, the original of which
respondent Junnel's Marketing was received by this Office on July 2, 2018
Corporation the following: at 1:38 p.m.
a. The principal amount of P
1,481,292.00, and Very truly yours,
b. Interest on the said principal at
the rate of 6% per annum from (SGD)
28 January 2002 until full
satisfaction. WILFREDO V. LAPITAN
Division Clerk of Court
2. The Bank of Commerce is adjudged

liable to pay the Metropolitan Bank
and Trust Company the following:
a. The principal amount of P
1,481,292.00, and
b. Interest on the said principal at

the rate of 6% per annum from
5 March 2003 until full
satisfaction.
Other findings and pronouncements of the

Court of Appeals in its Decision dated 22
March 2017 and Resolution dated 19
October 2017 in CA-G.R. CV No. 102462
that are not contrary to this Decision
are AFFIRMED.
Costs against the Metropolitan Bank and

Trust Company and the Bank of Commerce.
SO ORDERED.
Leonen, Martires, and Gesmundo, JJ.,

concur.
Bersamin, J., on leave.
July 2, 2018
NOTICE OF JUDGMENT
Sirs / Mesdames:
THIRD DIVISION lading pending the payment of the goods by
Ambiente.10
G.R. No. 184513, March 09, 2016
On January 23, 1996, Ambiente and ASTI
DESIGNER BASKETS, entered into an Indemnity Agreement
INC., Petitioner, v. AIR SEA TRANSPORT, (Agreement).11 Under the Agreement,
INC. AND ASIA CARGO CONTAINER Ambiente obligated ASTI to deliver the
LINES, INC., Respondents. shipment to it or to its order "without the
surrender of the relevant bill(s) of lading due
DECISION to the non-arrival or loss thereof."12 In
exchange, Ambiente undertook to indemnify
JARDELEZA, J.: and hold ASTI and its agent free from any
liability as a result of the release of the
This is a Petition for Review on Certiorari1 of shipment.13 Thereafter, ASTI released the
the August 16, 2007 Decision2 and shipment to Ambiente without the
September 2, 2008 Resolution3 of the Court knowledge of DBI, and without it receiving
of Appeals (CA) in CA-G.R. CV No. 79790, payment for the total cost of the shipment.14
absolving respondents Air Sea Transport,
Inc. (ASTI) and Asia Cargo Container Lines, DBI then made several demands to
Inc. (ACCLI) from liability in the complaint Ambiente for the payment of the shipment,
for sum of money and damages filed by but to no avail. Thus, on October 7, 1996,
petitioner Designer Baskets, Inc. (DBI). DBI filed the Original Complaint against
ASTI, ACCLI and ACCLFs incorporators-
The Facts stockholders15 for the payment of the value
of the shipment in the amount of
DBI is a domestic corporation engaged in US$12,590.87 or Three Hundred Thirty-
the production of housewares and handicraft Three and Six Flundred Fifty-Eight Pesos
items for export.4Sometime in October (P333,658.00), plus interest at the legal rate
1995, Ambiente, a foreign-based company, from January 22, 1996, exemplary damages,
ordered from DBI5 223 cartons of assorted attorney's fees and cost of suit.16
wooden items (the shipment).6 The
shipment was worth Twelve Thousand Five In its Original Complaint, DBI claimed that
Hundred Ninety and Eighty-Seven Dollars under Bill of Lading Number
(US$12,590.87) and payable through AC/MLLA601317, ASTI and/or ACCLI is "to
7
telegraphic transfer. Ambiente designated release and deliver the cargo/shipment to
ACCLI as the forwarding agent that will ship the consignee, x x x, only after the original
out its order from the Philippines to the copy or copies of [the] Bill of Lading is or are
United States (US). ACCLI is a domestic surrendered to them; otherwise, they
corporation acting as agent of ASTI, a US become liable to the shipper for the value of
based corporation engaged in carrier the shipment."17 DBI also averred that
transport business, in the Philippines.8 ACCLI should be jointly and severally liable
with its co-defendants because ACCLI failed
On January 7, 1996, DBI delivered the to register ASTI as a foreign corporation
shipment to ACCLI for sea transport from doing business in the Philippines. In
Manila and delivery to Ambiente at 8306 addition, ACCLI failed to secure a license to
Wilshire Blvd., Suite 1239, Beverly Hills, act as agent of ASTI.18
California. To acknowledge receipt and to
serve as the contract of sea carriage, ACCLI On February 20, 1997, ASTI, ACCLI, and
issued to DBI triplicate copies of ASTI Bill of ACCLI's incorporators-stockholders filed a
Lading No. AC/MLLA601317.9 DBI retained Motion to Dismiss.19They argued that: (a)
possession of the originals of the bills of they are not the real parties-in-interest in
the action because the cargo was delivered seller against a buyer. DBI did not allege
and accepted by Ambiente. The case, any act of the incorporators-stockholders
therefore, was a simple case of nonpayment which would constitute as a ground for
of the buyer; (b) relative to the piercing the veil of corporate fiction.27ACCLI
incorporators-stockholders of ACCLI, also reiterated that there is no stipulation in
piercing the corporate veil is misplaced; (c) the bill of lading restrictively subjecting the
contrary to the allegation of DBI, the bill of release of the cargo only upon the
lading covering the shipment does not presentation of the original bill of lading.28 It
contain a proviso exposing ASTI to liability in regarded the issue of ASTI's lack of license
case the shipment is released without the to do business in the Philippines as "entirely
surrender of the bill of lading; and (d) the foreign and irrelevant to the issue of liability
Original Complaint did not attach a for breach of contract" between DBI and
certificate of non-forum shopping.20 Ambiente. It stated that the purpose of
requiring a license (to do business in the
DBI filed an Opposition to the Motion to Philippines) is to subject the foreign
Dismiss,21 asserting that ASTI and ACCLI corporation to the jurisdiction of Philippine
failed to exercise the required extraordinary courts.29
diligence when they allowed the cargoes to
be withdrawn by the consignee without the On July 22, 1997, the trial court directed the
surrender of the original bill of lading. ASTI, service of summons to Ambiente through
ACCLI, and ACCLI's incorporators- the Department of Trade and Industry.30 The
stockholders countered that it is DBI who summons was served on October 6,
failed to exercise extraordinary diligence in 199731 and December 18, 1997.32Ambiente
protecting its own interest. They averred failed to file an Answer. Hence, DBI moved
that whether or not the buyer-consignee to declare Ambiente in default, which the
pays the seller is already outside of their trial court granted in its Order dated
concern.22 September 15, 1998.33
Before the trial court could resolve the The Ruling of the Trial Court
motion to dismiss, DBI filed an Amended
Complaint23 impleading Ambiente as a new In a Decision34 dated July 25, 2003, the trial
defendant and praying that it be held court found ASTI, ACCLI, and Ambiente
solidarity liable with ASTI, ACCLI, and solidarity liable to DBI for the value of the
ACCLFs incorporators-stockholders for the shipment. It awarded DBI the following:
payment of the value of the shipment. DBI
alleged that it received reliable information
that the shipment was released merely on 1. US$12,590.87, or the equivalent of
the basis of a company guaranty of [P]333,658.00 at the time of the
Ambiente.24 Further, DBI asserted that shipment, plus 12% interest per
ACCLI's incorporators-stockholders have not annum from 07 January 1996 until the
yet fully paid their stock subscriptions; thus, same is fully paid;
"under the circumstance of [the] case," they
should be held liable to the extent of the 2. [P]50,000.00 in exemplary damages;
balance of their subscriptions.25cralawred
3. [P]47,000.00 as and for attorney's
fees; and,
In their Answer,26 ASTI, ACCLI, and ACCLI's
incorporators-stockholders countered that 4. [P]10,000.00 as cost of suit.35
DBI has no cause of action against ACCLI
and its incorporators-stockholders because The trial court declared that the liability of
the Amended Complaint, on its face, is for Ambiente is "very clear." As the buyer, it has
collection of sum of money by an unpaid
an obligation to pay for the value of the not as direct as that of ACCLI.43
shipment. The trial court noted that "[the
case] is a simple sale transaction which had DBI, ASTI and ACCLI appealed to the CA. On
been perfected especially since delivery had one hand, DBI took issue with the order of
already been effected and with only the the trial court awarding the value of the
payment for the shipment remaining left to shipment in Philippine Pesos instead of US
be done."36 Dollars. It also alleged that even assuming
that the shipment may be paid in Philippine
With respect to ASTI, the trial court held Pesos, the trial court erred in pegging its
that as a common carrier, ASTI is bound to value at the exchange rate prevailing at the
observe extraordinary diligence in the time of the shipment, rather than at the
vigilance over the goods. However, ASTI exchange rate prevailing at the time of
was remiss in its duty when it allowed the payment.44
unwarranted release of the shipment to
Ambiente.37 The trial court found that the On the other hand, ASTI and ACCLI
damages suffered by DBI was due to ASTI's questioned the trial court's decision finding
release of the merchandise despite the non- them solidarily liable with DBI for the value
presentation of the bill of lading. That ASTI of the shipment. They also assailed the trial
entered into an Agreement with Ambiente to court's award of interest, exemplary
release the shipment without the surrender damages, attorney's fees and cost of suit in
of the bill of lading is of no moment.38 The DBFs favor.45
Agreement cannot save ASTI from liability
because in entering into such, it violated the The Ruling of the Court of Appeals
law, the terms of the bill of lading and the
right of DBI over the goods.39 The CA affirmed the trial court's finding that
Ambiente is liable to DBI, but absolved ASTI
The trial court also added that the and ACCLI from liability. The CA found that
Agreement only involved Ambiente and the pivotal issue is whether the law requires
ASTI. Since DBI is not privy to the that the bill of lading be surrendered by the
Agreement, it is not bound by its buyer/consignee before the carrier can
terms.40cralawred release the goods to the former. It then
answered the question in the negative, thus:
The trial court found that ACCLI "has not
done enough to prevent the defendants There is nothing in the applicable laws
Ambiente and [ASTI] from agreeing among that require the surrender of bills of
themselves the release of the goods in total lading before the goods may be
disregard of [DBFs] rights and in released to the buyer/consignee. In fact,
contravention of the country's civil and Article 353 of the Code of Commerce
commercial laws."41 As the forwarding suggests a contrary conclusion, viz —
agent, ACCLI was "well aware that the goods "Art. 353. After the contract has been
cannot be delivered to the defendant complied with, the bill of lading which the
Ambiente since [DBI] retained possession of carrier has issued shall be returned to him,
the originals of the bill of and by virtue of the exchange of this title
lading."42 Consequently, the trial court held with the thing transported, the respective
ACCLI solidarily liable with ASTI. obligations shall be considered canceled xxx
In case the consignee, upon receiving the
As regards ACCLFs incorporators- goods, cannot return the bill of lading
stockholders, the trial court absolved them subscribed by the carrier because of its loss
from liability. The trial court ruled that the or of any other cause, he must give the
participation of ACCLFs incorporators- latter a receipt for the goods delivered, this
stockholders in the release of the cargo is
receipt producing the same effects as the 2. The actual damages to be paid by
return of the bill of lading." defendant Ambiente shall be in the
The clear import of the above article is that amount of US$12,590.87. Defendant
the surrender of the bill of lading is not an Ambiente's liability may be paid in
absolute and mandatory requirement for the Philippine currency, computed at the
release of the goods to the consignee. The exchange rate prevailing at the time of
fact that the carrier is given the payment;51 and
alternative option to simply require a
receipt for the goods delivered suggests 3. The rate of interest to be imposed on
that the surrender of the bill of lading the total amount of US$12,590.87
may be dispensed with when it cannot shall be 6% per annum computed
be produced by the consignee for from the filing of the complaint on
whatever cause.46 (Emphasis supplied.) October 7, 1996 until the finality of
The CA stressed that DBI failed to present this decision. After this decision
evidence to prove its assertion that the becomes final and executory, the
surrender of the bill of lading upon delivery applicable rate shall be 12% per
of the goods is a common mercantile annum until its full satisfaction.
practice.47 Further, even assuming that such
practice exists, it cannot prevail over law SO ORDERED.52ChanRoblesVirtualawlibrary
and jurisprudence.48 Hence, this petition for review, which raises
the sole issue of whether ASTI and ACCLI
As for ASTI, the CA explained that its only may be held solidarily liable to DBI for the
obligation as a common carrier was to value of the shipment.
deliver the shipment in good condition. It did
not include looking beyond the details of the Our Ruling
transaction between the seller and the
consignee, or more particularly, ascertaining We deny the petition.
the payment of the goods by the buyer
Ambiente.49 A common carrier may release the
goods to the consignee even without
Since the agency between ASTI and ACCLI the surrender of the hill of lading.
was established and not disputed by any of
the parties, neither can ACCLI, as a mere This case presents an instance where an
agent of ASTI, be held liable. This must be unpaid seller sues not only the buyer, but
so in the absence of evidence that the agent the carrier and the carrier's agent as well,
exceeded its authority.50 for the payment of the value of the goods
sold. The basis for ASTI and ACCLI's liability,
The CA, thus, ruled: as pleaded by DBI, is the bill of lading
covering the shipment.
WHEREFORE, in view of the foregoing, the
Decision dated July 25, 2003 of Branch 255 A bill of lading is defined as "a written
of the Regional Trial court of Las [Piñas] City acknowledgment of the receipt of goods and
in Civil Case No. LP-96-0235 is an agreement to transport and to deliver
hereby AFFIRMED with the them at a specified place to a person named
following MODIFICATIONS: or on his order."53 It may also be defined as
an instrument in writing, signed by a carrier
1. Defendants-appellants Air Sea or his agent, describing the freight so as to
Transport, Inc. and Asia Cargo identify it, stating the name of the
Container Lines, Inc. are consignor, the terms of the contract of
hereby ABSOLVED from all liabilities; carriage, and agreeing or directing that the
freight be delivered to bearer, to order or to
a specified person at a specified place.54 lading.
Under Article 350 of the Code of Commerce, Further, a carrier is allowed by law to
"the shipper as well as the carrier of the release the goods to the consignee even
merchandise or goods may mutually demand without the latter's surrender of the bill of
that a bill of lading be made." A bill of lading. The third paragraph of Article 353 of
lading, when issued by the carrier to the the Code of Commerce is enlightening:
shipper, is the legal evidence of the contract
of carriage between the former and the Article 353. The legal evidence of the
latter. It defines the rights and liabilities of contract between the shipper and the carrier
the parties in reference to the contract of shall be the bills of lading, by the contents of
carriage. The stipulations in the bill of lading which the disputes which may arise
are valid and binding unless they are regarding their execution and performance
contrary to law, morals, customs, public shall be decided, no exceptions being
order or public policy.55 admissible other than those of falsity and
material error in the drafting.
Here, ACCLI, as agent of ASTI, issued Bill of
Lading No. AC/MLLA601317 to DBI. This bill After the contract has been complied with,
of lading governs the rights, obligations and the bill of lading which the carrier has issued
liabilities of DBI and ASTI. DBI claims that shall be returned to him, and by virtue of
Bill of Lading No. AC/MLLA601317 contains a the exchange of this title with the thing
provision stating that ASTI and ACCLI are transported, the respective obligations and
"to release and deliver the cargo/shipment actions shall be considered cancelled, unless
to the consignee, x x x, only after the in the same act the claim which the parties
original copy or copies of the said Bill of may wish to reserve be reduced to writing,
Lading is or are surrendered to them; with the exception of that provided for in
otherwise they become liable to [DBI] for Article 366.
the value of the shipment."56Quite tellingly,
however, DBI does not point or refer to any In case the consignee, upon receiving
specific clause or provision on the bill of the goods, cannot return the bill of
lading supporting this claim. The language of lading subscribed by the carrier,
the bill of lading shows no such requirement. because of its loss or any other cause,
What the bill of lading provides on its face he must give the latter a receipt for the
is: goods delivered, this receipt producing
the same effects as the return of the bill
Received by the Carrier in apparent good of lading. (Emphasis supplied.)
order and condition unless otherwise The general rule is that upon receipt of the
indicated hereon, the Container(s) and/or goods, the consignee surrenders the bill of
goods hereinafter mentioned to be lading to the carrier and their respective
transported and/or otherwise forwarded obligations are considered canceled. The
from the Place of Receipt to the intended law, however, provides two exceptions
Place of Delivery upon and [subject] to all where the goods may be released without
the terms and conditions appearing on the the surrender of the bill of lading because
face and back of this Bill of Lading. If the consignee can no longer return it. These
required by the Carrier this Bill of exceptions are when the bill of lading gets
Lading duly endorsed must be lost or for other cause. In either case, the
surrendered in exchange for the Goods consignee must issue a receipt to the carrier
of delivery order.57 (Emphasis supplied.) upon the release of the goods. Such receipt
There is no obligation, therefore, on the part shall produce the same effect as the
of ASTI and ACCLI to release the goods only surrender of the bill of lading.
upon the surrender of the original bill of
We have already ruled that the non- circumstance in this case, the Undertaking
surrender of the original bill of lading does in Eastern Shipping Lines guaranteed to hold
not violate the carrier's duty of extraordinary the carrier "harmless from all demands,
diligence over the goods.58 In Republic v. claiming liabilities, actions and
Lorenzo Shipping Corporation,59 we found 64
expenses." Though the central issue in that
that the carrier exercised extraordinary case was who the consignee was in the bill
diligence when it released the shipment to of lading, it is noteworthy how we gave
the consignee, not upon the surrender of the weight to the Undertaking in ruling in favor
original bill of lading, but upon signing the of the carrier:
delivery receipts and surrender of the
certified true copies of the bills of lading. But assuming that CMI may not be
Thus, we held that the surrender of the considered consignee, the petitioner cannot
original bill of lading is not a condition be faulted for releasing the goods to CMI
precedent for a common carrier to be under the circumstances, due to its lack of
discharged of its contractual obligation. knowledge as to who was the real consignee
in view of CMI's strong representations and
Under special circumstances, we did not letter of undertaking wherein it stated that
even require presentation of any form of the bill of lading would be presented later.
receipt by the consignee, in lieu of the This is precisely the situation covered by the
original bill of lading, for the release of the last paragraph of Art. 353 of the [Code of
goods. In Macam v. Court of Appeals,60 we Commerce] to wit:
absolved the carrier from liability for
releasing the goods to the consignee without "If in case of loss or for any other reason
the bills of lading despite this provision on whatsoever, the consignee cannot return
the bills of lading: upon receiving the merchandise the bill of
lading subscribed by the carrier, he shall
"One of the Bills of Lading must be give said carrier a receipt of the goods
surrendered duly endorsed in exchange for delivered this receipt producing the same
the goods or delivery order."61 (Citations effects as the return of the bill of
omitted.) lading."65ChanRoblesVirtualawlibrary
In clearing the carrier from liability, we took Clearly, law and jurisprudence is settled that
into consideration that the shipper sent a the surrender of the original bill of lading is
telex to the carrier after the goods were not absolute; that in case of loss or any
shipped. The telex instructed the carrier to other cause, a common carrier may release
deliver the goods without need of presenting the goods to the consignee even without it.
the bill of lading and bank guarantee per the
shipper's request since "for prepaid shipt ofrt Here, Ambiente could not produce the bill of
charges already fully paid our end x x lading covering the shipment not because it
x."62 We also noted the usual practice of the was lost, but for another cause: the bill of
shipper to request the shipping lines to lading was retained by DBI pending
immediately release perishable cargoes Ambiente's full payment of the shipment.
through telephone calls. Ambiente and ASTI then entered into an
Indemnity Agreement, wherein the former
Also, in Eastern Shipping Lines v. Court of asked the latter to release the shipment
Appeals,63 we absolved the carrier from even without the surrender of the bill of
liability for releasing the goods to the lading. The execution of this Agreement, and
supposed consignee, Consolidated Mines, the undisputed fact that the shipment was
Inc. (CMI), on the basis of an Undertaking released to Ambiente pursuant to it, to our
for Delivery of Cargo but without the mind, operates as a receipt in substantial
surrender of the original bill of lading compliance with the last paragraph of Article
presented by CMI. Similar to the factual 353 of the Code of Commerce.
the packing or in the containers;
Articles 1733, 1734, and 1735 of the
Civil Code are not applicable. (5) Order or act of competent public
authority.
DBI, however, challenges the Agreement, Article 1735. In all cases other than those
arguing that the carrier released the goods mentioned in Nos. 1, 2, 3, 4, and 5 of the
pursuant to it, notwithstanding the carrier's preceding article, if the goods are lost,
knowledge that the bill of lading should first destroyed or deteriorated, common carriers
be surrendered. As such, DBI claims that are presumed to have been at fault or to
ASTI and ACCLI are liable for damages have acted negligently, unless they prove
because they failed to exercise extraordinary that they observed extraordinary diligence
diligence in the vigilance over the goods as required in Article 1733.
pursuant to Articles 1733, 1734, and 1735 Articles 1733, 1734, and 1735 speak of the
of the Civil Code.66 common carrier's responsibility over
the goods. They refer to the general liability
DBI is mistaken. of common carriers in case of loss,
destruction or deterioration of goods and
Articles 1733, 1734, and 1735 of the Civil the presumption of negligence against them.
Code are not applicable in this case. The This responsibility or duty of the common
Articles state: carrier lasts from the time the goods are
unconditionally placed in the possession of,
Article 1733. Common carriers, from the and received by the carrier for
nature of their business and for reasons of transportation, until the same are delivered,
public policy, are bound to observe actually or constructively, by the carrier to
extraordinary diligence in the vigilance over the consignee, or to the person who has a
the goods and for the safety of the right to receive them.67 It is, in fact,
passengers transported by them, according undisputed that the goods were timely
to all the circumstances of each case. delivered to the proper consignee or to the
one who was authorized to receive them.
Such extraordinary diligence in vigilance DBFs only cause of action against ASTI and
over the goods is further expressed in ACCLI is the release of the goods to
Articles 1734, 1735, and 1745, Nos. 5, 6, Ambiente without the surrender of the bill of
and 7, while the extraordinary diligence for lading, purportedly in violation of the terms
the safety of the passengers is further set of the bill of lading. We have already found
forth in Articles 1755 and 1756. that Bill of Lading No. AC/MLLA601317 does
not contain such express prohibition.
Article 1734. Common carriers are Without any prohibition, therefore, the
responsible for the loss, destruction, or carrier had no obligation to withhold release
deterioration of the goods, unless the same of the goods. Articles 1733, 1734, and 1735
is due to any of the following causes only: do not give ASTI any such obligation.
(1) Flood, storm, earthquake, lightning, or The applicable provision instead is Article
other natural disaster or calamity; 353 of the Code of Commerce, which we
have previously discussed. To reiterate, the
(2) Act of the public enemy in war, whether Article allows the release of the goods to the
international or civil; consignee even without his surrender of the
original bill of lading. In such case, the duty
(3) Act or omission of the shipper or owner of the carrier to exercise extraordinary
of the goods; diligence is not violated. Nothing, therefore,
prevented the consignee and the carrier to
(4) The character of the goods or defects in enter into an indemnity agreement of the
same nature as the one they entered here. damages.
No law or public policy is contravened upon
its execution. Unless otherwise agreed, where goods are
sent by the seller to the buyer under
Article 1503 of the Civil Code does not circumstances in which the seller knows or
apply to contracts for carriage of goods. ought to know that it is usual to insure, the
seller must give such notice to the buyer as
In its petition, DBI continues to assert the may enable him to insure them during their
wrong application of Article 353 of the Code transit, and, if the seller fails to do so, the
of Commerce to its Amended Complaint. It goods shall be deemed to be at his risk
alleges that the third paragraph of Article during such transit. (Emphasis supplied.)
1503 of the Civil Code is the applicable Article 1503, on the other hand, provides:
provision because: (a) Article 1503 is a
special provision that deals particularly with Article 1503. When there is a contract
the situation of the seller retaining the bill of of sale of specific goods, the seller may,
lading; and (b) Article 1503 is a law which is by the terms of the contract, reserve the
later in point of time to Article 353 of the right of possession or ownership in the
Code of Commerce.68 DBI posits that being a goods until certain conditions have been
special provision, Article 1503 of the Civil fulfilled. The right of possession or
Code should prevail over Article 353 of the ownership may be thus reserved
Code of Commerce, a general provision that notwithstanding the delivery of the goods to
makes no reference to the seller retaining the buyer or to a carrier or other bailee for
the bill of lading.69 the purpose of transmission to the buyer.
DBFs assertion is untenable. Article 1503 is Where goods are shipped, and by the bill of
an exception to the general presumption lading the goods are deliverable to the seller
provided in the first paragraph of Article or his agent, or to the order of the seller or
1523, which reads: of his agent, the seller thereby reserves the
ownership in the goods. But, if except for
Article 1523. Where, in pursuance of a the form of the bill of lading, the ownership
contract of sale, the seller is authorized would have passed to the buyer on shipment
or required to send the goods to the of the goods, the seller's property in the
buyer, delivery of the goods to a carrier, goods shall be deemed to be only for the
whether named by the buyer or not, for purpose of securing performance by the
the purpose of transmission to the buyer of his obligations under the contract.
buyer is deemed to be a delivery of the
goods to the buyer, except in the cases Where goods are shipped, and by the
provided for in Articles 1503, first, bill of lading the goods are deliverable
second and third paragraphs, or unless to order of the buyer or of his agent,
a contrary intent appears. but possession of the bill of lading is
retained by the seller or his agent, the
Unless otherwise authorized by the buyer, seller thereby reserves a right to the
the seller must make such contract with the possession of the goods as against the
carrier on behalf of the buyer as may be buyer.
reasonable, having regard to the nature of
the goods and the other circumstances of Where the seller of goods draws on the
the case. If the seller omit so to do, and the buyer for the price and transmits the bill of
goods are lost or damaged in the course of exchange and bill of lading together to the
transit, the buyer may decline to treat the buyer to secure acceptance or payment of
delivery to the carrier as a delivery to the bill of exchange, the buyer is bound to
himself, or may hold the seller responsible in return the bill of lading if he does not honor
the bill of exchange, and if he wrongfully the nature of their obligation with
retains the bill of lading he acquires no plaintiff [DBI] is separate and distinct
added right thereby. If, however, the bill of from the transaction of the latter with
lading provides that the goods are defendant Ambiente. As carrier of the
deliverable to the buyer or to the order of goods transported by plaintiff, its
the buyer, or is indorsed in blank, or to the obligation is simply to ensure that such
buyer by the consignee named therein, one goods are delivered on time and in good
who purchases in good faith, for value, the condition. In the case [Macam v. Court of
bill of lading, or goods from the buyer will Appeals], the Supreme Court emphasized
obtain the ownership in the goods, although that "the extraordinary responsibility of the
the bill of exchange has not been honored, common carriers lasts until actual or
provided that such purchaser has received constructive delivery of the cargoes to the
delivery of the bill of lading indorsed by the consignee or to the person who has the right
consignee named therein, or of the goods, to receive them." x x x
without notice of the facts making the
transfer wrongful. (Emphasis supplied.) It is therefore clear that the moment
Articles 1523 and 1503, therefore, refer to a the carrier has delivered the subject
contract of sale between a seller and a goods, its responsibility ceases to exist
buyer. In particular, they refer to who and it is thereby freed from all the
between the seller and the buyer has the liabilities arising from the transaction.
right of possession or ownership over the Any question regarding the payment of
goods subject of the sale. Articles 1523 and the buyer to the seller is no longer the
1503 do not apply to a contract of carriage concern of the carrier. This easily debunks
between the shipper and the common plaintiffs theory of joint liability.70 x x x
carrier. The third paragraph of Article 1503, (Emphasis supplied; citations omitted.)
upon which DBI relies, does not oblige the The contract between DBI and ASTI is a
common carrier to withhold delivery of the contract of carriage of goods; hence, ASTI's
goods in the event that the bill of lading is liability should be pursuant to that contract
retained by the seller. Rather, it only gives and the law on transportation of goods. Not
the seller a better right to the possession of being a party to the contract of sale between
the goods as against the mere inchoate right DBI and Ambiente, ASTI cannot be held
of the buyer. Thus, Articles 1523 and 1503 liable for the payment of the value of the
find no application here. The case before us goods sold. In this regard, we cite Loadstar
does not involve an action where the seller Shipping Company, Incorporated v. Malayan
asserts ownership over the goods as against Insurance Company, Incorporated,71 thus:
the buyer. Instead, we are confronted with a
complaint for sum of money and damages Malayan opposed the petitioners' invocation
filed by the seller against the buyer and the of the Philex-PASAR purchase agreement,
common carrier due to the non-payment of stating that the contract involved in this
the goods by the buyer, and the release of case is a contract of affreightment between
the goods by the carrier despite non- the petitioners and PASAR, not the
surrender of the bill of lading. A contract of agreement between Philex and PASAR,
sale is separate and distinct from a contract which was a contract for the sale of copper
of carriage. They involve different parties, concentrates.
different rights, different obligations and
liabilities. Thus, we quote with approval the On this score, the Court agrees with Malayan
ruling of the CA, to wit: that contrary to the trial court's disquisition,
the petitioners cannot validly invoke the
On the third assigned error, [w]e rule for the penalty clause under the Philex-PASAR
defendants-appellants [ASTI and purchase agreement, where penalties are to
ACCLI]. They are correct in arguing that be imposed by the buyer PASAR against the
seller Philex if some elements exceeding the
agreed limitations are found on the copper
concentrates upon delivery. The
petitioners are not privy to the contract
of sale of the copper concentrates. The
contract between PASAR and the
petitioners is a contract of carriage of
goods and not a contract of sale.
Therefore, the petitioners and PASAR
are bound by the laws on transportation
of goods and their contract of
affreightment. Since the Contract of
Affreightment between the petitioners and
PASAR is silent as regards the computation
of damages, whereas the bill of lading
presented before the trial court is
undecipherable, the New Civil Code and the
Code of Commerce shall govern the contract
between the parties.72 (Emphasis supplied;
citations omitted.)
In view of the foregoing, we hold that under
Bill of Lading No. AC/MLLA601317 and the
pertinent law and jurisprudence, ASTI and
ACCLI are not liable to DBI. We sustain the
finding of the CA that only Ambiente, as the
buyer of the goods, has the obligation to pay
for the value of the shipment. However, in
view of our ruling in Nacar v. Gallery
Frames,73 we modify the legal rate of
interest imposed by the CA. Instead of 12%
per annum from the finality of this judgment
until its full satisfaction, the rate of interest
shall only be 6% per annum.chanrobleslaw
WHEREFORE, the petition is DENIED for

lack of merit. The August 16, 2007 Decision
and the September 2, 2008 Resolution of
the Court of Appeals in CA-G.R. CV No.
79790 are hereby AFFIRMEDwith
the MODIFICATION that from the finality
of this decision until its full satisfaction, the
applicable rate of interest shall be 6% per
annum.
SO ORDERED.cralawlawlibrary
Velasco, Jr., (Chairperson), Peralta, Perez,

and Reyes, JJ., concur.
SECOND DIVISION discovered that petitioner is not a qualified
relative3 of Cornelio Linsangan and Ligaya
G.R. No. 228807, February 11, 2019 Linsangan (Cornelio and Ligaya).
CARLITO B. LINSANGAN, PETITIONER, Consequently, pursuant to the provisions of

v. PHILIPPINE DEPOSIT INSURANCE PDIC Regulatory Issuance No. 2009-03, par.
CORPORATION, RESPONDENT. V, petitioner's account was consolidated with
the other legitimate deposits of Cornelio and
DECISION Ligaya for purposes of computing the
insurable deposit. PDIC considered the
J. REYES, JR., J.: source account holders Cornelio and Ligaya
as the real owners of the four resulting
Assailed in this petition for review accounts. Thus, they were only entitled to
on certiorari are the March 31, 2016 the maximum deposit insurance of
Decision1 and the December 19, 2016 P500,000.00.
Resolution2 of the Court of Appeals (CA) in
CA-G.R. SP No. 137172 which affirmed the On July 12, 2013, PDIC denied petitioner's
Philippine Deposit Insurance Corporation's claim. Then, on August 6, 2014, it also
(PDIC's) denial of petitioner Carlito B. denied petitioner's request for
Linsangan's (petitioner's) deposit insurance reconsideration. The PDIC ruled that under
claim on July 12, 2013. PDIC Regulatory Issuance No. 2009-03, the
transferee is considered the beneficial owner
The Antecedents of the deposit provided that (a) the transfer
is for valid consideration as shown by the
In a Resolution dated May 23, 2013, the documents supporting the transfer which
Monetary Board (MB) of the Bangko Sentral should be in the custody of the bank upon
ng Pilipinas (BSP) ordered the closure of the takeover by PDIC; or (b) he/she is a
Cooperative Rural Bank of Bulacan, Inc. qualified relative of the transferor. It held
(CRBBI) and placed it under PDIC's that CRBBI was not furnished a copy of any
receivership. PDIC took over CRBBI's assets document which could prove the transfer of
and affairs and examined its records in order the deposit from the transferors to
to determine the insured deposits. petitioner. The PDIC added that the
documents which petitioner submitted did
Petitioner filed a claim for payment of not show that he is a relative of documents
deposit insurance for his Special Incentive which petitioner submitted did not show that
Savings Account (SISA) No. 00-44-10750-9, he is a relative of Cornelio and Ligaya within
which had a balance of P400,000.00 at the the second degree of consanguinity or
time of CRBBI's closure. affinity. It concluded that the transferors
should be considered the beneficial owners
Upon investigation, PDIC found that of the transferred deposit.
petitioner's account originated from the
account of "Cornelio Linsangan or Ligaya Aggrieved, petitioner filed a petition
Linsangan" (source account) with an opening for certiorari before the CA.
balance of P1,531,993.42. On December 13,
2012, the source account was closed and its The CA Ruling
balance of P1,544,081.48 was transferred
and distributed to four accounts. In a Decision dated March 31, 2016, the CA
ruled that the PDIC did not act with grave
PDIC then conducted a tracing of abuse of discretion because it merely
relationship for the purpose of determining followed the applicable law in determining
beneficial ownership of accounts and it whether petitioner's account was insurable
or not. It noted that both petitioner and the the records of the bank at the time of its
transferor failed to provide CRBBI of the closure.5
details regarding the splitting of deposit and
the circumstances behind such transfer. The In its Comment,6 respondent counters that
appellate court declared that PDIC had the joint account of Cornelio and Ligaya was
sufficient reason to doubt the validity of the split and transferred to different persons,
splitting of accounts and subject them to thus, the provisions of PDIC Regulatory
scrutiny as there were indicators that the Issuance No. 2009-03, which was published
source account was divided and distributed in the Philippine Star on October 10, 2009,
to newly-opened and existing accounts to find application in determining the beneficial
make them covered under the PDIC ownership of the resulting deposit accounts;
insurance. It held that PDIC's denial of that the alleged donation was not supported
insurance deposit does not invalidate the by documents evidencing transfer of account
alleged donation, nor will it result in the total in the records of the bank; and that there is
non-payment of said deposit because the no premium if the splitting of deposit was
latter may still be paid from the assets of done within 120 days preceding a bank
CRBBI. Thus, it disposed: closure, because if an account was split prior
to the 120-day period, PDIC Regulatory
WHEREFORE, the Petition for Certiorari [is] Issuance No. 2009-03 steps in and
hereby DENIED for lack of merit. determines the beneficial ownership of the
Accordingly, the denial of Carlito B. resulting accounts, whereas, if the splitting
Linsangan's claim for Deposit Insurance of deposit was made within 120 days
from the Philippine Deposit Insurance preceding the bank closure, the act is a
[Corporation] is hereby AFFIRMED. criminal offense and the director, officer,
employee, or agent of the bank who
SO ORDERED.4 facilitated the splitting would be held liable.
Petitioner moved for reconsideration, but the In his Reply,7 petitioner contends that the
same was denied by the CA in a Resolution bank failed to inform him of PDIC Regulatory
dated December 19, 2016. Hence, this Issuance No. 2009-03, thus, the provisions
petition for review on certiorari wherein thereof are not binding upon him; that
petitioner assails the denial of his deposit requiring the submission of transfer
insurance claim. documents prior to the takeover by PDIC of
the bank violates his constitutional right
Petitioner argues that the transfer of funds against deprivation of property without due
to his account is not deposit splitting process; and that demanding the transfer
because the transfer took place more than documents to be kept in a particular location
120 days prior to the closure of the bank; adds another requisite for the validity of
that as stated in PDIC Regulatory Issuance donation.
No. 2009-03, splitting of deposits occurs
whenever an account is broken down and The Court's Ruling
transferred into two or more accounts in the
name/s of natural or juridical person/s or The petition lacks merit.
entity/entities who have no beneficial
ownership on transferred deposits in their The PDIC was created by Republic Act (R.A.)
names within 120 days immediately No. 35918 on June 22, 1963 as an insurer of
preceding or during bank-declared bank deposits in all banks entitled to the benefits
holiday, or immediately preceding a closure of insurance under the PDIC Charter to
order issued by the MB of the BSP; and that promote and safeguard the interests of the
he was not informed of the requirement that depositing public by way of providing
the documents proving transfer must be in
permanent and continuing insurance broken up and transferred to
coverage of all insured deposits.9 one or more account/s, PDIC
shall recognize the transferor as
Based on its charter, the PDIC has the duty the beneficial owner of the
to grant or deny claims for deposit resulting deposit accounts
insurance. "The term 'insured deposit' entitled to deposit insurance,
means the amount due to any bona unless the transferee/s can
fide depositor for legitimate deposits in an prove that:
insured bank net of any obligation of the a. The break-up and transfer of Legitimate
depositor to the insured bank as of the date Deposit was made under all of the
of closure, but not to exceed Five Hundred following conditions:
Thousand Pesos (P500,000.00). x x x In i. The break-up and transfer of
determining such amount due to any Legitimate Deposit to the transferee
depositor, there shall be added together all is for a Valid Consideration;
deposits in the bank maintained in the same ii. The details or information for the
right and capacity for his benefit either in his transfer, which establish the
own name or in the names of others."10 To validity of the transfer from the
determine beneficial ownership of legitimate transferor to the transferee, are
deposits which are entitled to deposit contained in any of the Deposit
insurance, the provisions of PDIC Regulatory Account Records of the bank; and
Issuance No. 2009-03 provides: iii. Copies of documents, which show
the details or information for the
III. Determination of Beneficial Ownership of transfer, such as[,] but not limited
Legitimate Deposits to[,] contracts, agreements, board
resolutions, orders of the courts or
1. In determining the depositor of competent government
entitled to insured deposit body/agency, are in the custody or
payable by the PDIC, the possession of the bank upon
registered owner/holder of a takeover by PDIC.
Legitimate Deposit in the books b. He/she is a Qualified Relative of the
of the issuing bank shall be transferor, in which case PDIC shall
recognized as the depositor recognize the transferee as the beneficial
entitled to deposit insurance, owner of the resulting deposit accounts.
except as otherwise provided by Relationship shall be proven by relevant
this Issuance. documents such as, but not limited to,
birth certificates and marriage
2. Where the records of the bank certificates.
show that one or several deposit
accounts in the name of one or II. Definition of Terms
several other persons or entities
are maintained in the same right xxxx
and capacity for the benefit of a
depositor, PDIC shall recognize f. Qualified Relative - means a relative within
said depositor as the beneficial the second degree of consanguinity or
owner of the account/s entitled affinity.
to deposit insurance.
Petitioner, however, argues that the
3. Where a deposit account/s with foregoing provisions are not applicable to
an outstanding balance of more him because the transfer did not occur
than the maximum deposit within 120 days immediately preceding bank
insurance coverage is/are
closure as stated in PDIC Regulatory transaction resulting to Deposit
Issuance No. 2009-03, viz.: Splitting shall be prima
facie evidence of participation in
IV. Deposit Splitting Deposit Splitting activities.
xxxx Petitioner's argument is erroneous. In

deposit splitting, there is a presumption that
3. Elements. The elements of the transferees have no beneficial ownership
Deposit Splitting are as follows: considering that the source account, which
exceeded the maximum deposit insurance
a. Existence of source coverage, was split into two or more
account/s in a bank with a accounts within 120 days immediately
balance or aggregate preceding bank closure. On the other hand,
balance of more than the in cases wherein the transfer into two or
MDIC; more accounts occurred before the 120-day
period, the PDIC does not discount the
b. There is a break up and
possibility that there may have been a
transfer of said account/s
transfer for valid consideration, but in the
into two or more existing
absence of transfer documents found in the
or new accounts in the
records of the bank at the time of closure,
name of another person/s
the presumption arises that the source
or entity/entities;
account remained with the transferor.
c. The transferee/s have no Consequently, even if the transfer into
Beneficial Ownership over different accounts was not made within 120
the transferred funds; and days immediately preceding bank closure,
the grant of deposit insurance to an account
d. Transfer occurred within found to have originated from another
120 days immediately deposit is not automatic because the
preceding or during a transferee still has to prove that the transfer
bank-declared bank was for a valid consideration through
holiday, or immediately documents kept in the custody of the bank.
preceding bank closure.
In this case, even assuming that Cornelio
4. The PDIC shall deem that there donated the amount contained in the subject
exists Deposit Splitting for the savings account to petitioner, not one
purpose of availing of the document evidencing the alleged donation is
maximum deposit insurance in the custody or possession of the bank
coverage when all of these upon takeover by PDIC. Thus, the PDIC
elements are present. properly relied on the records of the bank
which showed that Cornelio's accounts
5. The bank, its directors, officers, remained in his name and for his account.
employees, or agents are Moreover, even if the Court disregards the
prohibited from and shall not in submission of transfer documents, petitioner
any way participate or aid in, or could not be considered the beneficial owner
otherwise abet Deposit Splitting of the resulting deposit account because he
activities as herein defined, nor is not a qualified relative of the transferor.
shall they promote or encourage Being the son of Cornelio's cousin, petitioner
the commission of Deposit is already a fifth degree relative of the
Splitting among the bank's transferor,11 far from the requirement that
depositors. The approval by a the transferee must be a relative within the
bank officer or employee of a second degree of consanguinity or affinity.
As regards petitioner's contention that the
provisions of PDIC Regulatory Issuance No.
2009-03 do not apply to him because he
was not personally notified of the contents
thereof by CRBBI, the same deserves scant
consideration. Ignorantia legis non
excusat remains a valid dictum. Here, it is
settled that PDIC Regulatory Issuance No.
2009-03 was published in a newspaper of
general circulation. Hence, the publication
operated as constructive notice to all owners
of bank deposits. Personal notice to all
citizens of promulgated laws and regulations
is not required.
Considering the above disquisitions, it is

sufficiently established that the PDIC did not
commit any grave abuse of discretion in
denying petitioner's claim for deposit
insurance.
WHEREFORE, the petition is DENIED. The

March 31, 2016 Decision and the December
19, 2016 Resolution of the Court of Appeals
in CA-G.R. SP No. 137172 are AFFIRMED.
SO ORDERED.
Carpio, Senior Associate Justice

(Chairperson), Perlas-Bernabe, Caguioa,
and Hernando,*JJ., concur.

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11/21/2019 G.R. No.

Today is Thursday, November 21, 2019

Constitution Statutes Executive Issuances Judicial Issuances Other Issuances Jurisprudence In

Republic of the Philippines

G.R. No. 184458 January 14, 2015

RODRIGO RIVERA, Petitioner,

G.R. No. 184472

SPS. SALVADOR CHUA and VIOLETA S. CHUA, Petitioners,

We proceed to the facts.

On 24 February 1995, Rivera obtained a loan from the Spouses Chua:

Manila, February 24, 1995[.]

(SGD.) RODRIGO RIVERA4

The MeTC summarized the testimonies of both parties’ respective witnesses:

After trial, the MeTC ruled in favor of the Spouses Chua:

A. In G.R. No. 184458

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING

2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN AWARDING

B. In G.R. No. 184472

[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED GROSS LEGAL

On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.

Hence, the MeTC ruled that:

(a) It must be in writing and signed by the maker or drawer;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

Article 1169 of the Civil Code explicitly provides:

(1) When the obligation or the law expressly so declare; or

Article 1226 of the Civil Code provides:

We cite our recent ruling in Nacar v. Gallery Frames:33

₱120,000.00 A. 12 % per annumon A. 12% per annumon ₱50,000.00 Total amount

(1) the principal amount of ₱120,000.00;

(6) Attorney’s fees in the amount of ₱50,000.00; and

Costs against petitioner Rodrigo Rivera.

JOSE PORTUGAL PEREZ

TERESITA J. LEONARDO-DE CASTRO LUCAS P. BERSAMIN

MARIA LOURDES P.A. SERENO

<http://www.bsp.gov.ph/downloads/regulations/attachments/2013/c799.pdf> visited 11 May 2014.

The Lawphil Project - Arellano Law Foundation

Today is Thursday, November 21, 2019

Constitution Statutes Executive Issuances Judicial Issuances Other Issuances Jurispruden

Republic of the Philippines

G.R. No. 187769 June 4, 2014

ALVIN PATRIMONIO, Petitioner,

The Factual Background

The Ruling of the RTC

The Ruling of the CA

Reduced to its basics, the case presents to us the following issues:

4. Whether Marasigan is a holder in due course.

The Court’s Ruling

The petition is impressed with merit.

I. Liability Under the Contract of Loan

ALVIN PATRIMONIO (witness)

Marasigan’s submission fails to persuade us.

1. consent of the contracting parties;

2. object certain which is the subject matter of the contract; and

3. cause of the obligation which is established.

II. Liability Under the Instrument

Marasigan is Not a Holder in Due Course

(a) That it is complete and regular upon its face;

(c) That he took it in good faith and for value;

As held in De Ocampo v. Gatchalian:20

WITNESS: AMBET NABUS

Q: What was your reply, if any?

A: I actually asked him. Kanino ba ang tseke na sinasabi mo?