Transpo, Banking, LC & TR

1. De Guzman v. CA, GR No. L-47822, December 22, 1988

2. Perena v. Zarate, G.R. No. 157917, August 29, 2012
3. Orix Metro Leasing & Finance Corp. v. Mangalinao, GR 174089, January 25, 2012
4. PS Bank v. Chowking, GR 177526, July 3, 2008
5. Rate of legal interest beginning July 1, 2013: Dario Nacar v. Gallery Frames and/or Felipe Bordey, Jr., GR
189871 (en banc), August 13, 2013
6. Macalinao v. BPI, G.R. No. 175490, September 17, 2009
7. Soriano v. People, GR 162336, February 1, 2010
8. BSB Group Inc. v. Sally Go a.k.a. Sally Go-Bangayan, GR 168644, February 6, 2010
9. Salvacion v. Central Bank, GR 94723, August 21, 1997
10. Transfield Phils. Inc v. Luzon Hydro Corporation, GR 146717, November 22, 2004
11. Ng v. People, GR 173905, April 23, 2010
12. Hur Tin Yang v. People of the Philippines, GR 194117, August 14, 2013

G.R. No. L-47822 December 22, 1988

PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.

FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan. Upon gathering
sufficient quantities of such scrap material, respondent would bring such material to Manila for resale. He utilized two (2) six-wheeler
trucks which he owned for hauling the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles with
cargo which various merchants wanted delivered to differing establishments in Pangasinan. For that service, respondent charged
freight rates which were commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of General Milk Company (Philippines),
Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of 750 cartons of Liberty filled milk from a warehouse of
General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December
1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a truck driven by respondent himself,
while 600 cartons were placed on board the other truck which was driven by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached petitioner, since the truck which
carried these boxes was hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed men who took with them the
truck, its driver, his helper and the cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance of Pangasinan, demanding
payment of P 22,150.00, the claimed value of the lost merchandise, plus damages and attorney's fees. Petitioner argued that private
respondent, being a common carrier, and having failed to exercise the extraordinary diligence required of him by the law, should be
held liable for the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not be held responsible for the value
of the lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common carrier and holding him

liable for the value of the undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages and P 2,000.00 as
attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him a common carrier; in finding
that he had habitually offered trucking services to the public; in not exempting him from liability on the ground of force majeure; and in
ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in transporting return loads
of freight "as a casual
occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this Court by way of a Petition for
Review assigning as errors the following conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendana may, under the facts earlier set forth, be properly
characterized as a common carrier.

The Civil Code defines "common carriers" in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the
public.
The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and
one who does such carrying only as an ancillary activity (in local Idiom as "a sideline"). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the
"general public," i.e., the general community or population, and one who offers services or solicits business only from a narrow segment
of the general population. We think that Article 1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of "public service,"
under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common
carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes:
... every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar
public services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even though he merely "back-hauled"
goods for other merchants from Manila to Pangasinan, although such back-hauling was done on a periodic or occasional rather than
regular or scheduled manner, and even though private respondent'sprincipal occupation was not the carriage of goods for others. There
is no dispute that private respondent charged his customers a fee for hauling their goods; that fee frequently fell below commercial
freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and concluded he was not a
common carrier. This is palpable error. A certificate of public convenience is not a requisite for the incurring of liability under the Civil
Code provisions governing common carriers. That liability arises the moment a person or firm acts as a common carrier, without regard
to whether or not such carrier has also complied with the requirements of the applicable regulatory statute and implementing
regulations and has been granted a certificate of public convenience or other franchise. To exempt private respondent from the
liabilities of a common carrier because he has not secured the necessary certificate of public convenience, would be offensive to sound
public policy; that would be to reward private respondent precisely for failing to comply with applicable statutory requirements. The
business of a common carrier impinges directly and intimately upon the safety and well being and property of those members of the
general community who happen to deal with such carrier. The law imposes duties and liabilities upon common carriers for the safety
and protection of those who utilize their services and the law cannot allow a common carrier to render such duties and liabilities merely
facultative by simply failing to obtain the necessary permits and authorizations.
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a very high degree of care and

diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The specific import of extraordinary
diligence in the care of goods transported by a common carrier is, according to Article 1733, "further expressed in Articles
1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or deterioration of the goods
which they carry, "unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character-of the goods or defects in the packing or-in the containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the common carrier for
responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they appear to constitute a species of force
majeure fall within the scope of Article 1735, which provides as follows:

In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the goods are lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence as required in Article 1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the instant case the hijacking of
the carrier's truck does not fall within any of the five (5) categories of exempting causes listed in Article 1734. It would follow,
therefore, that the hijacking of the carrier's vehicle must be dealt with under the provisions of Article 1735, in other words, that the
private respondent as common carrier is presumed to have been at fault or to have acted negligently. This presumption, however, may
be overthrown by proof of extraordinary diligence on the part of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of petitioner's goods. Petitioner argues
that in the circumstances of this case, private respondent should have hired a security guard presumably to ride with the truck carrying
the 600 cartons of Liberty filled milk. We do not believe, however, that in the instant case, the standard of extraordinary diligence
required private respondent to retain a security guard to ride with the truck and to engage brigands in a firelight at the risk of his own life
and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of extraordinary diligence in the vigilance over
the goods carried in the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given additional specification not
only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6, Article 1745 provides in relevant part:
Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or omissions of his or its
employees;
(6) that the common carrier's liability for acts committed by thieves, or of robbers who donot act
with grave or irresistible threat, violence or force, is dispensed with or diminished; and
(7) that the common carrier shall not responsible for the loss, destruction or deterioration of goods
on account of the defective condition of the car vehicle, ship, airplane or other equipment used in
the contract of carriage. (Emphasis supplied)
Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed to divest or to diminish such
responsibility even for acts of strangers like thieves or robbers, except where such thieves or robbers in fact acted "with grave or
irresistible threat, violence or force." We believe and so hold that the limits of the duty of extraordinary diligence in the vigilance over the
goods carried are reached where the goods are lost as a result of a robbery which is attended by "grave or irresistible threat, violence
or force."
In the instant case, armed men held up the second truck owned by private respondent which carried petitioner's cargo. The record
shows that an information for robbery in band was filed in the Court of First Instance of Tarlac, Branch 2, in Criminal Case No. 198
entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the
accused were charged with willfully and unlawfully taking and carrying away with them the second truck, driven by Manuel Estrada and
loaded with the 600 cartons of Liberty filled milk destined for delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the
trial court shows that the accused acted with grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-uppers

were armed with firearms. The robbers not only took away the truck and its cargo but also kidnapped the driver and his
helper, detaining them for several days and later releasing them in another province (in Zambales). The hijacked truck
was subsequently found by the police in Quezon City. The Court of First Instance convicted all the accused of robbery,
though not of robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite beyond the control of the
common carrier and properly regarded as a fortuitous event. It is necessary to recall that even common carriers are not made absolute
insurers against all risks of travel and of transport of goods, and are not held liable for acts or events which cannot be foreseen or are
inevitable, provided that they shall have complied with the rigorous standard of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendana is not liable for the value of the
undelivered merchandise which was lost because of an event entirely beyond private respondent's control.
ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the Court of Appeals dated 3 August 1977
is AFFIRMED. No pronouncement as to costs.

SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

epublic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 157917

August 29, 2012

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,

vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL RAILWAYS, and the COURT OF
APPEALS Respondents.
DECISION
BERSAMIN, J.:
The operator of a. school bus service is a common carrier in the eyes of the law. He is bound to observe extraordinary diligence in the
conduct of his business. He is presumed to be negligent when death occurs to a passenger. His liability may include indemnity for loss
of earning capacity even if the deceased passenger may only be an unemployed high school student at the time of the accident.
The Case
By petition for review on certiorari, Spouses Teodoro and Nanette Perefia (Perefias) appeal the adverse decision promulgated on
November 13, 2002, by which the Court of Appeals (CA) affirmed with modification the decision rendered on December 3, 1999 by the
Regional Trial Court (RTC), Branch 260, in Paraaque City that had decreed them jointly and severally liable with Philippine National
Railways (PNR), their co-defendant, to Spouses Nicolas and Teresita Zarate (Zarates) for the death of their 15-year old son, Aaron
John L. Zarate (Aaron), then a high school student of Don Bosco Technical Institute (Don Bosco).
Antecedents
The Pereas were engaged in the business of transporting students from their respective residences in Paraaque City to Don Bosco
in Pasong Tamo, Makati City, and back. In their business, the Pereas used a KIA Ceres Van (van) with Plate No. PYA 896, which had
the capacity to transport 14 students at a time, two of whom would be seated in the front beside the driver, and the others in the rear,
with six students on either side. They employed Clemente Alfaro (Alfaro) as driver of the van.
In June 1996, the Zarates contracted the Pereas to transport Aaron to and from Don Bosco. On August 22, 1996, as on previous
school days, the van picked Aaron up around 6:00 a.m. from the Zarates residence. Aaron took his place on the left side of the van
near the rear door. The van, with its air-conditioning unit turned on and the stereo playing loudly, ultimately carried all the 14 student
riders on their way to Don Bosco. Considering that the students were due at Don Bosco by 7:15 a.m., and that they were already
running late because of the heavy vehicular traffic on the South Superhighway, Alfaro took the van to an alternate route at about 6:45

a.m. by traversing the narrow path underneath the Magallanes Interchange that was then commonly used by Makati-bound vehicles as
a short cut into Makati. At the time, the narrow path was marked by piles of construction materials and parked passenger jeepneys, and
the railroad crossing in the narrow path had no railroad warning signs, or watchmen, or other responsible persons manning the
crossing. In fact, the bamboo barandilla was up, leaving the railroad crossing open to traversing motorists.
At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302 (train), operated by Jhonny Alano (Alano), was
in the vicinity of the Magallanes Interchange travelling northbound. As the train neared the railroad crossing, Alfaro drove the van
eastward across the railroad tracks, closely tailing a large passenger bus. His view of the oncoming train was blocked because he
overtook the passenger bus on its left side. The train blew its horn to warn motorists of its approach. When the train was about 50
meters away from the passenger bus and the van, Alano applied the ordinary brakes of the train. He applied the emergency brakes
only when he saw that a collision was imminent. The passenger bus successfully crossed the railroad tracks, but the van driven by
Alfaro did not. The train hit the rear end of the van, and the impact threw nine of the 12 students in the rear, including Aaron, out of the
van. Aaron landed in the path of the train, which dragged his body and severed his head, instantaneously killing him. Alano fled the
scene on board the train, and did not wait for the police investigator to arrive.
Devastated by the early and unexpected death of Aaron, the Zarates commenced this action for damages against Alfaro, the Pereas,
PNR and Alano. The Pereas and PNR filed their respective answers, with cross-claims against each other, but Alfaro could not be
served with summons.
At the pre-trial, the parties stipulated on the facts and issues, viz:
A. FACTS:
(1)) That spouses Zarate were the legitimate parents of Aaron John L. Zarate;
(2)) Spouses Zarate engaged the services of spouses Perea for the adequate and safe transportation carriage of the former
spouses' son from their residence in Paraaque to his school at the Don Bosco Technical Institute in Makati City;
(3)) During the effectivity of the contract of carriage and in the implementation thereof, Aaron, the minor son of spouses Zarate
died in connection with a vehicular/train collision which occurred while Aaron was riding the contracted carrier Kia Ceres van of
spouses Perea, then driven and operated by the latter's employee/authorized driver Clemente Alfaro, which van collided with
the train of PNR, at around 6:45 A.M. of August 22, 1996, within the vicinity of the Magallanes Interchange in Makati City,
Metro Manila, Philippines;
(4)) At the time of the vehicular/train collision, the subject site of the vehicular/train collision was a railroad crossing used by
motorists for crossing the railroad tracks;
(5)) During the said time of the vehicular/train collision, there were no appropriate and safety warning signs and railings at the
site commonly used for railroad crossing;
(6)) At the material time, countless number of Makati bound public utility and private vehicles used on a daily basis the site of
the collision as an alternative route and short-cut to Makati;
(7)) The train driver or operator left the scene of the incident on board the commuter train involved without waiting for the
police investigator;
(8)) The site commonly used for railroad crossing by motorists was not in fact intended by the railroad operator for railroad
crossing at the time of the vehicular collision;
(9)) PNR received the demand letter of the spouses Zarate;
(10)0) PNR refused to acknowledge any liability for the vehicular/train collision;
(11)) The eventual closure of the railroad crossing alleged by PNR was an internal arrangement between the former and its
project contractor; and
(12)) The site of the vehicular/train collision was within the vicinity or less than 100 meters from the Magallanes station of PNR.
B. ISSUES

(1) Whether or not defendant-driver of the van is, in the performance of his functions, liable for negligence constituting the
proximate cause of the vehicular collision, which resulted in the death of plaintiff spouses' son;
(2) Whether or not the defendant spouses Perea being the employer of defendant Alfaro are liable for any negligence which
may be attributed to defendant Alfaro;
(3) Whether or not defendant Philippine National Railways being the operator of the railroad system is liable for negligence in
failing to provide adequate safety warning signs and railings in the area commonly used by motorists for railroad crossings,
constituting the proximate cause of the vehicular collision which resulted in the death of the plaintiff spouses' son;
(4) Whether or not defendant spouses Perea are liable for breach of the contract of carriage with plaintiff-spouses in failing to
provide adequate and safe transportation for the latter's son;
(5) Whether or not defendants spouses are liable for actual, moral damages, exemplary damages, and attorney's fees;
(6) Whether or not defendants spouses Teodorico and Nanette Perea observed the diligence of employers and school bus
operators;
(7) Whether or not defendant-spouses are civilly liable for the accidental death of Aaron John Zarate;
(8) Whether or not defendant PNR was grossly negligent in operating the commuter train involved in the accident, in allowing
or tolerating the motoring public to cross, and its failure to install safety devices or equipment at the site of the accident for the
protection of the public;
(9) Whether or not defendant PNR should be made to reimburse defendant spouses for any and whatever amount the latter
may be held answerable or which they may be ordered to pay in favor of plaintiffs by reason of the action;
(10) Whether or not defendant PNR should pay plaintiffs directly and fully on the amounts claimed by the latter in their
Complaint by reason of its gross negligence;
(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral and exemplary damages and attorney's
fees.2
The Zarates claim against the Pereas was upon breach of the contract of carriage for the safe transport of Aaron; but that against
PNR was based on quasi-delict under Article 2176, Civil Code.
In their defense, the Pereas adduced evidence to show that they had exercised the diligence of a good father of the family in the
selection and supervision of Alfaro, by making sure that Alfaro had been issued a drivers license and had not been involved in any
vehicular accident prior to the collision; that their own son had taken the van daily; and that Teodoro Perea had sometimes
accompanied Alfaro in the vans trips transporting the students to school.
For its part, PNR tended to show that the proximate cause of the collision had been the reckless crossing of the van whose driver had
not first stopped, looked and listened; and that the narrow path traversed by the van had not been intended to be a railroad crossing for
motorists.
Ruling of the RTC
On December 3, 1999, the RTC rendered its decision,3 disposing:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants ordering them to
jointly and severally pay the plaintiffs as follows:
(1) (for) the death of Aaron- Php50,000.00;
(2) Actual damages in the amount of Php100,000.00;
(3) For the loss of earning capacity- Php2,109,071.00;
(4) Moral damages in the amount of Php4,000,000.00;
(5) Exemplary damages in the amount of Php1,000,000.00;

(6) Attorneys fees in the amount of Php200,000.00; and

(7) Cost of suit.
SO ORDERED.
On June 29, 2000, the RTC denied the Pereas motion for reconsideration,4 reiterating that the cooperative gross negligence of the
Pereas and PNR had caused the collision that led to the death of Aaron; and that the damages awarded to the Zarates were not
excessive, but based on the established circumstances.
The CAs Ruling
Both the Pereas and PNR appealed (C.A.-G.R. CV No. 68916).
PNR assigned the following errors, to wit:5
The Court a quo erred in:
1. In finding the defendant-appellant Philippine National Railways jointly and severally liable together with defendantappellants spouses Teodorico and Nanette Perea and defendant-appellant Clemente Alfaro to pay plaintiffs-appellees for the
death of Aaron Zarate and damages.
2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees witnesses despite overwhelming documentary
evidence on record, supporting the case of defendants-appellants Philippine National Railways.
The Pereas ascribed the following errors to the RTC, namely:
The trial court erred in finding defendants-appellants jointly and severally liable for actual, moral and exemplary damages and
attorneys fees with the other defendants.
The trial court erred in dismissing the cross-claim of the appellants Pereas against the Philippine National Railways and in not holding
the latter and its train driver primarily responsible for the incident.
The trial court erred in awarding excessive damages and attorneys fees.
The trial court erred in awarding damages in the form of deceaseds loss of earning capacity in the absence of sufficient basis for such
an award.
On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC, but limited the moral damages
to P 2,500,000.00; and deleted the attorneys fees because the RTC did not state the factual and legal bases, to wit: 6
WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court, Branch 260 of Paraaque City is AFFIRMED
with the modification that the award of Actual Damages is reduced to P59,502.76; Moral Damages is reduced to P 2,500,000.00; and
the award for Attorneys Fees is Deleted.
SO ORDERED.
The CA upheld the award for the loss of Aarons earning capacity, taking cognizance of the ruling in Cariaga v. Laguna Tayabas Bus
Company and Manila Railroad Company,7 wherein the Court gave the heirs of Cariaga a sum representing the loss of the deceaseds
earning capacity despite Cariaga being only a medical student at the time of the fatal incident. Applying the formula adopted in the
American Expectancy Table of Mortality:
2/3 x (80 - age at the time of death) = life expectancy
the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life expectancy from age of 21 (the age when he
would have graduated from college and started working for his own livelihood) instead of 15 years (his age when he died). Considering
that the nature of his work and his salary at the time of Aarons death were unknown, it used the prevailing minimum wage
of P 280.00/day to compute Aarons gross annual salary to beP 110,716.65, inclusive of the thirteenth month pay. Multiplying this
annual salary by Aarons life expectancy of 39.3 years, his gross income would aggregate to P 4,351,164.30, from which his estimated
expenses in the sum ofP 2,189,664.30 was deducted to finally arrive at P 2,161,500.00 as net income. Due to Aarons computed net
income turning out to be higher than the amount claimed by the Zarates, only P 2,109,071.00, the amount expressly prayed for by
them, was granted.

On April 4, 2003, the CA denied the Pereas motion for reconsideration.8

Issues
In this appeal, the Pereas list the following as the errors committed by the CA, to wit:
I. The lower court erred when it upheld the trial courts decision holding the petitioners jointly and severally liable to pay damages with
Philippine National Railways and dismissing their cross-claim against the latter.
II. The lower court erred in affirming the trial courts decision awarding damages for loss of earning capacity of a minor who was only a
high school student at the time of his death in the absence of sufficient basis for such an award.
III. The lower court erred in not reducing further the amount of damages awarded, assuming petitioners are liable at all.
Ruling
The petition has no merit.
1.
Were the Pereas and PNR jointly
and severally liable for damages?
The Zarates brought this action for recovery of damages against both the Pereas and the PNR, basing their claim against the Pereas
on breach of contract of carriage and against the PNR on quasi-delict.
The RTC found the Pereas and the PNR negligent. The CA affirmed the findings.
We concur with the CA.
To start with, the Pereas defense was that they exercised the diligence of a good father of the family in the selection and supervision
of Alfaro, the van driver, by seeing to it that Alfaro had a drivers license and that he had not been involved in any vehicular accident
prior to the fatal collision with the train; that they even had their own son travel to and from school on a daily basis; and that Teodoro
Perea himself sometimes accompanied Alfaro in transporting the passengers to and from school. The RTC gave scant consideration
to such defense by regarding such defense as inappropriate in an action for breach of contract of carriage.
We find no adequate cause to differ from the conclusions of the lower courts that the Pereas operated as a common carrier; and that
their standard of care was extraordinary diligence, not the ordinary diligence of a good father of a family.
Although in this jurisdiction the operator of a school bus service has been usually regarded as a private carrier,9primarily because he
only caters to some specific or privileged individuals, and his operation is neither open to the indefinite public nor for public use, the
exact nature of the operation of a school bus service has not been finally settled. This is the occasion to lay the matter to rest.
A carrier is a person or corporation who undertakes to transport or convey goods or persons from one place to another, gratuitously or
for hire. The carrier is classified either as a private/special carrier or as a common/public carrier.10 A private carrier is one who, without
making the activity a vocation, or without holding himself or itself out to the public as ready to act for all who may desire his or its
services, undertakes, by special agreement in a particular instance only, to transport goods or persons from one place to another either
gratuitously or for hire.11The provisions on ordinary contracts of the Civil Code govern the contract of private carriage.The diligence
required of a private carrier is only ordinary, that is, the diligence of a good father of the family. In contrast, a common carrier is a
person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering such services to the public.12Contracts of common carriage are governed by the provisions on
common carriers of the Civil Code, the Public Service Act,13 and other special laws relating to transportation. A common carrier is
required to observe extraordinary diligence, and is presumed to be at fault or to have acted negligently in case of the loss of the effects
of passengers, or the death or injuries to passengers.14
In relation to common carriers, the Court defined public use in the following terms in United States v. Tan Piaco,15viz:
"Public use" is the same as "use by the public". The essential feature of the public use is not confined to privileged individuals, but is
open to the indefinite public. It is this indefinite or unrestricted quality that gives it its public character. In determining whether a use is
public, we must look not only to the character of the business to be done, but also to the proposed mode of doing it. If the use is merely
optional with the owners, or the public benefit is merely incidental, it is not a public use, authorizing the exercise of the jurisdiction of the
public utility commission. There must be, in general, a right which the law compels the owner to give to the general public. It is not
enough that the general prosperity of the public is promoted. Public use is not synonymous with public interest. The true criterion by
which to judge the character of the use is whether the public may enjoy it by right or only by permission.

In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the Civil Code avoided any distinction between a person or an
enterprise offering transportation on a regular or an isolated basis; and has not distinguished a carrier offering his services to the
general public, that is, the general community or population, from one offering his services only to a narrow segment of the general
population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil Code coincides neatly with the notion of public
service under the Public Service Act, which supplements the law on common carriers found in the Civil Code. Public service, according
to Section 13, paragraph (b) of the Public Service Act, includes:
x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general
or limited clientle, whether permanent or occasional, and done for the general business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be
its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft,
engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, ice-refrigeration plant, canal, irrigation
system, gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications
systems, wire or wireless broadcasting stations and other similar public services. x x x.17
Given the breadth of the aforequoted characterization of a common carrier, the Court has considered as common carriers pipeline
operators,18 custom brokers and warehousemen,19 and barge operators20 even if they had limited clientle.
As all the foregoing indicate, the true test for a common carrier is not the quantity or extent of the business actually transacted, or the
number and character of the conveyances used in the activity, but whether the undertaking is a part of the activity engaged in by the
carrier that he has held out to the general public as his business or occupation. If the undertaking is a single transaction, not a part of
the general business or occupation engaged in, as advertised and held out to the general public, the individual or the entity rendering
such service is a private, not a common, carrier. The question must be determined by the character of the business actually carried on
by the carrier, not by any secret intention or mental reservation it may entertain or assert when charged with the duties and obligations
that the law imposes.21
Applying these considerations to the case before us, there is no question that the Pereas as the operators of a school bus service
were: (a) engaged in transporting passengers generally as a business, not just as a casual occupation; (b) undertaking to carry
passengers over established roads by the method by which the business was conducted; and (c) transporting students for a fee.
Despite catering to a limited clientle, the Pereas operated as a common carrier because they held themselves out as a ready
transportation indiscriminately to the students of a particular school living within or near where they operated the service and for a fee.
The common carriers standard of care and vigilance as to the safety of the passengers is defined by law. Given the nature of the
business and for reasons of public policy, the common carrier is bound "to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the circumstances of each case."22 Article 1755 of the
Civil Code specifies that the common carrier should "carry the passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with a due regard for all the circumstances." To successfully fend off liability in an action
upon the death or injury to a passenger, the common carrier must prove his or its observance of that extraordinary diligence; otherwise,
the legal presumption that he or it was at fault or acted negligently would stand.23 No device, whether by stipulation, posting of notices,
statements on tickets, or otherwise, may dispense with or lessen the responsibility of the common carrier as defined under Article 1755
of the Civil Code. 24
And, secondly, the Pereas have not presented any compelling defense or reason by which the Court might now reverse the CAs
findings on their liability. On the contrary, an examination of the records shows that the evidence fully supported the findings of the CA.
As earlier stated, the Pereas, acting as a common carrier, were already presumed to be negligent at the time of the accident because
death had occurred to their passenger.25 The presumption of negligence, being a presumption of law, laid the burden of evidence on
their shoulders to establish that they had not been negligent.26It was the law no less that required them to prove their observance of
extraordinary diligence in seeing to the safe and secure carriage of the passengers to their destination. Until they did so in a credible
manner, they stood to be held legally responsible for the death of Aaron and thus to be held liable for all the natural consequences of
such death.
There is no question that the Pereas did not overturn the presumption of their negligence by credible evidence. Their defense of
having observed the diligence of a good father of a family in the selection and supervision of their driver was not legally sufficient.
According to Article 1759 of the Civil Code, their liability as a common carrier did not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employee. This was the reason why the RTC treated this
defense of the Pereas as inappropriate in this action for breach of contract of carriage.
The Pereas were liable for the death of Aaron despite the fact that their driver might have acted beyond the scope of his authority or
even in violation of the orders of the common carrier.27 In this connection, the records showed their drivers actual negligence. There
was a showing, to begin with, that their driver traversed the railroad tracks at a point at which the PNR did not permit motorists going
into the Makati area to cross the railroad tracks. Although that point had been used by motorists as a shortcut into the Makati area, that
fact alone did not excuse their driver into taking that route. On the other hand, with his familiarity with that shortcut, their driver was fully
aware of the risks to his passengers but he still disregarded the risks. Compounding his lack of care was that loud music was playing

inside the air-conditioned van at the time of the accident. The loudness most probably reduced his ability to hear the warning horns of
the oncoming train to allow him to correctly appreciate the lurking dangers on the railroad tracks. Also, he sought to overtake a
passenger bus on the left side as both vehicles traversed the railroad tracks. In so doing, he lost his view of the train that was then
coming from the opposite side of the passenger bus, leading him to miscalculate his chances of beating the bus in their race, and of
getting clear of the train. As a result, the bus avoided a collision with the train but the van got slammed at its rear, causing the fatality.
Lastly, he did not slow down or go to a full stop before traversing the railroad tracks despite knowing that his slackening of speed and
going to a full stop were in observance of the right of way at railroad tracks as defined by the traffic laws and regulations.28 He thereby
violated a specific traffic regulation on right of way, by virtue of which he was immediately presumed to be negligent. 29
The omissions of care on the part of the van driver constituted negligence,30 which, according to Layugan v. Intermediate Appellate
Court,31 is "the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct
of human affairs, would do, or the doing of something which a prudent and reasonable man would not do,32 or as Judge Cooley defines
it, (t)he failure to observe for the protection of the interests of another person, that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers injury." 33
The test by which to determine the existence of negligence in a particular case has been aptly stated in the leading case of Picart v.
Smith,34 thuswise:
The test by which to determine the existence of negligence in a particular case may be stated as follows: Did the defendant in doing the
alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation?
If not, then he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of
the discreet paterfamilias of the Roman law. The existence of negligence in a given case is not determined by reference to the personal
judgment of the actor in the situation before him. The law considers what would be reckless, blameworthy, or negligent in the man of
ordinary intelligence and prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man in a given situation must of course be always determined in the
light of human experience and in view of the facts involved in the particular case. Abstract speculation cannot here be of much value
but this much can be profitably said: Reasonable men govern their conduct by the circumstances which are before them or known to
them. They are not, and are not supposed to be, omniscient of the future. Hence they can be expected to take care only when there is
something before them to suggest or warn of danger. Could a prudent man, in the case under consideration, foresee harm as a result
of the course actually pursued? If so, it was the duty of the actor to take precautions to guard against that harm. Reasonable foresight
of harm, followed by the ignoring of the suggestion born of this prevision, is always necessary before negligence can be held to exist.
Stated in these terms, the proper criterion for determining the existence of negligence in a given case is this: Conduct is said to be
negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect harmful to another was sufficiently
probable to warrant his foregoing the conduct or guarding against its consequences. (Emphasis supplied)
Pursuant to the Picart v. Smith test of negligence, the Pereas driver was entirely negligent when he traversed the railroad tracks at a
point not allowed for a motorists crossing despite being fully aware of the grave harm to be thereby caused to his passengers; and
when he disregarded the foresight of harm to his passengers by overtaking the bus on the left side as to leave himself blind to the
approach of the oncoming train that he knew was on the opposite side of the bus.
Unrelenting, the Pereas cite Phil. National Railways v. Intermediate Appellate Court,35 where the Court held the PNR solely liable for
the damages caused to a passenger bus and its passengers when its train hit the rear end of the bus that was then traversing the
railroad crossing. But the circumstances of that case and this one share no similarities. In Philippine National Railways v. Intermediate
Appellate Court, no evidence of contributory negligence was adduced against the owner of the bus. Instead, it was the owner of the bus
who proved the exercise of extraordinary diligence by preponderant evidence. Also, the records are replete with the showing of
negligence on the part of both the Pereas and the PNR. Another distinction is that the passenger bus in Philippine National Railways
v. Intermediate Appellate Court was traversing the dedicated railroad crossing when it was hit by the train, but the Pereas school van
traversed the railroad tracks at a point not intended for that purpose.
At any rate, the lower courts correctly held both the Pereas and the PNR "jointly and severally" liable for damages arising from the
death of Aaron. They had been impleaded in the same complaint as defendants against whom the Zarates had the right to relief,
whether jointly, severally, or in the alternative, in respect to or arising out of the accident, and questions of fact and of law were common
as to the Zarates.36 Although the basis of the right to relief of the Zarates (i.e., breach of contract of carriage) against the Pereas was
distinct from the basis of the Zarates right to relief against the PNR (i.e., quasi-delict under Article 2176, Civil Code), they nonetheless
could be held jointly and severally liable by virtue of their respective negligence combining to cause the death of Aaron. As to the PNR,
the RTC rightly found the PNR also guilty of negligence despite the school van of the Pereas traversing the railroad tracks at a point
not dedicated by the PNR as a railroad crossing for pedestrians and motorists, because the PNR did not ensure the safety of others
through the placing of crossbars, signal lights, warning signs, and other permanent safety barriers to prevent vehicles or pedestrians
from crossing there. The RTC observed that the fact that a crossing guard had been assigned to man that point from 7 a.m. to 5 p.m.
was a good indicium that the PNR was aware of the risks to others as well as the need to control the vehicular and other traffic there.
Verily, the Pereas and the PNR were joint tortfeasors.
2.
Was the indemnity for loss of
Aarons earning capacity proper?

The RTC awarded indemnity for loss of Aarons earning capacity. Although agreeing with the RTC on the liability, the CA modified the
amount. Both lower courts took into consideration that Aaron, while only a high school student, had been enrolled in one of the
reputable schools in the Philippines and that he had been a normal and able-bodied child prior to his death. The basis for the
computation of Aarons earning capacity was not what he would have become or what he would have wanted to be if not for his
untimely death, but the minimum wage in effect at the time of his death. Moreover, the RTCs computation of Aarons life expectancy
rate was not reckoned from his age of 15 years at the time of his death, but on 21 years, his age when he would have graduated from
college.
We find the considerations taken into account by the lower courts to be reasonable and fully warranted.
Yet, the Pereas submit that the indemnity for loss of earning capacity was speculative and unfounded. They cited People v.
Teehankee, Jr.,37 where the Court deleted the indemnity for victim Jussi Leinos loss of earning capacity as a pilot for being speculative
due to his having graduated from high school at the International School in Manila only two years before the shooting, and was at the
time of the shooting only enrolled in the first semester at the Manila Aero Club to pursue his ambition to become a professional pilot.
That meant, according to the Court, that he was for all intents and purposes only a high school graduate.
1wphi1

We reject the Pereas submission.

First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there of Jussi Leino was not akin to that of Aaron here.
The CA and the RTC were not speculating that Aaron would be some highly-paid professional, like a pilot (or, for that matter, an
engineer, a physician, or a lawyer). Instead, the computation of Aarons earning capacity was premised on him being a lowly minimum
wage earner despite his being then enrolled at a prestigious high school like Don Bosco in Makati, a fact that would have likely ensured
his success in his later years in life and at work.
And, secondly, the fact that Aaron was then without a history of earnings should not be taken against his parents and in favor of the
defendants whose negligence not only cost Aaron his life and his right to work and earn money, but also deprived his parents of their
right to his presence and his services as well. Our law itself states that the loss of the earning capacity of the deceased shall be the
liability of the guilty party in favor of the heirs of the deceased, and shall in every case be assessed and awarded by the court "unless
the deceased on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his
death."38Accordingly, we emphatically hold in favor of the indemnification for Aarons loss of earning capacity despite him having been
unemployed, because compensation of this nature is awarded not for loss of time or earnings but for loss of the deceaseds power or
ability to earn money.39
This favorable treatment of the Zarates claim is not unprecedented. In Cariaga v. Laguna Tayabas Bus Company and Manila Railroad
Company,40 fourth-year medical student Edgardo Carriagas earning capacity, although he survived the accident but his injuries
rendered him permanently incapacitated, was computed to be that of the physician that he dreamed to become. The Court considered
his scholastic record sufficient to justify the assumption that he could have finished the medical course and would have passed the
medical board examinations in due time, and that he could have possibly earned a modest income as a medical practitioner. Also, in
People v. Sanchez,41 the Court opined that murder and rape victim Eileen Sarmienta and murder victim Allan Gomez could have easily
landed good-paying jobs had they graduated in due time, and that their jobs would probably pay them high monthly salaries
from P 10,000.00 to P 15,000.00 upon their graduation. Their earning capacities were computed at rates higher than the minimum
wage at the time of their deaths due to their being already senior agriculture students of the University of the Philippines in Los Baos,
the countrys leading educational institution in agriculture.
3.
Were the amounts of damages excessive?
The Pereas plead for the reduction of the moral and exemplary damages awarded to the Zarates in the respective amounts
of P 2,500,000.00 and P 1,000,000.00 on the ground that such amounts were excessive.
The plea is unwarranted.
The moral damages of P 2,500,000.00 were really just and reasonable under the established circumstances of this case because they
were intended by the law to assuage the Zarates deep mental anguish over their sons unexpected and violent death, and their moral
shock over the senseless accident. That amount would not be too much, considering that it would help the Zarates obtain the means,
diversions or amusements that would alleviate their suffering for the loss of their child. At any rate, reducing the amount as excessive
might prove to be an injustice, given the passage of a long time from when their mental anguish was inflicted on them on August 22,
1996.
Anent the P 1,000,000.00 allowed as exemplary damages, we should not reduce the amount if only to render effective the desired
example for the public good. As a common carrier, the Pereas needed to be vigorously reminded to observe their duty to exercise
extraordinary diligence to prevent a similarly senseless accident from happening again. Only by an award of exemplary damages in that
amount would suffice to instill in them and others similarly situated like them the ever-present need for greater and constant vigilance in
the conduct of a business imbued with public interest.

WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision promulgated on November 13, 2002;
and ORDER the petitioners to pay the costs of suit.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 174089

January 25, 2012

ORIX METRO LEASING AND FINANCE CORPORATION (Formerly CONSOLIDATED ORIX LEASING AND FINANCE
CORPORATION), Petitioner,
vs.
MINORS: DENNIS, MYLENE, MELANIE and MARIKRIS, all surnamed MANGALINAO y DIZON, MANUEL M. ONG, LORETO
LUCILO, SONNY LI, AND ANTONIO DE LOS SANTOS, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 174266
SONNY LI and ANTONIO DE LOS SANTOS, Petitioners,
vs.
MINORS: DENNIS, MYLENE, MELANIE and MARIKRIS, all surnamed MANGALINAO y DIZON, LORETO LUCILO,
CONSOLIDATED ORIX LEASING AND FINANCE CORPORATION and MANUEL M. ONG,Respondents.
DECISION
DEL CASTILLO, J.:
The ones at fault are to answer for the effects of vehicular accidents.
A multiple-vehicle collision in North Luzon Expressway (NLEX) resulting in the death of all the passengers in one vehicle, including the
parents and a sibling of the surviving orphaned minor heirs, compelled the latter to file an action for damages against the registered
owners and drivers of the two 10-wheeler trucks that collided with their parents Nissan Pathfinder (Pathfinder).
Assailed in these consolidated Petitions for Review on Certiorari1 filed by Orix Metro Leasing and Finance Corporation (Orix)2 and by
Sonny Li (Sonny) and Antonio delos Santos (Antonio)3 are the October 27, 2005 Decision4 and August 17, 2006 Resolution5 of the
Court of Appeals (CA) in CA-G.R. CV No. 70530.
Factual Antecedents
On June 27, 1990, at about 11:15 p.m., three vehicles were traversing the two-lane northbound NLEX in the vicinity of Barangay Tibag,
Pulilan, Bulacan. It was raining that night.
Anacleto Edurese, Jr. (Edurese) was driving a Pathfinder with plate number BBG-334. His Isabela-bound passengers were the owners
of said vehicle, spouses Roberto and Josephine Mangalinao (Mangalinao spouses), their daughter Marriane, housemaid Rufina Andres
and helper Armando Jebueza (Jebueza). Before them on the outer lane was a Pampanga-bound Fuso 10-wheeler truck (Fuso), with
plate number PAE-160, driven by Loreto Lucilo (Loreto), who was with truck helper Charlie Palomar (Charlie). The Fuso was then
already moving in an erratic and swerving motion.6 Following behind the Pathfinder was another 10-wheeler truck, an Isuzu Cargo
(Isuzu) with plate number PNS-768 driven by Antonio, who was then with helper Rodolfo Navia (Rodolfo).
Just when the Pathfinder was already cruising along the NLEXs fast lane and about to overtake the Fuso, the latter suddenly swerved
to the left and cut into the Pathfinders lane thereby blocking its way. As a result, the Pathfinder hit the Fusos left door and left

body.7 The impact caused both vehicles to stop in the middle of the expressway. Almost instantly, the inevitable pileup happened.
Although Antonio stepped on the brakes,8 the Isuzus front crashed9 into the rear of the Pathfinder leaving it a total wreck.10 Soon after,
the Philippine National Construction Corporation (PNCC) patrol arrived at the scene of the accident and informed the Pulilan police
about the vehicular mishap. Police Investigator SPO2 Emmanuel Banag responded at about 2:15-2:30 a.m. of June 28, 1990 and
investigated the incident as gathered from the information and sketch11 provided by the PNCC patrol as well as from the
statements12 provided by the truck helpers Charlie and Rodolfo.
In the meantime, the Mangalinao spouses, the driver Edurese, and the helper Jebueza were declared dead on the spot while 6-month
old Marriane and the housemaid were declared dead on arrival at a nearby hospital.13 The occupants of the trucks escaped serious
injuries and death.
As their letters14 to the registered owners of the trucks demanding compensation for the accident were ignored, the minor children of the
Mangalinao spouses, Dennis, Mylene, Melanie and Marikris, through their legal guardian,15 consequently filed on January 16, 1991 a
Complaint16 for damages based on quasi-delict, before the Regional Trial Court (RTC) of Makati which was docketed as Civil Case No.
91-123.17 They impleaded the drivers Loreto and Antonio, as well as the registered owners of the Fuso and the Isuzu trucks, namely
Orix and Sonny,18respectively. The children imputed recklessness, negligence, and imprudence on the truck drivers for the deaths of
their sister and parents; while they hold Sonny and Orix equally liable for failing to exercise the diligence of a good father of a family in
the selection and supervision of their respective drivers. The children demanded payment of more than P10.5 million representing
damages and attorneys fees.
Orix in its Motion to Dismiss19 interposed that it is not the actual owner of the Fuso truck. As the trial court denied the motion, 20 it then
filed its Answer with Compulsory Counterclaim and Cross-claim.21 Orix reiterated that the children had no cause of action against it
because on September 9, 1983, it already sold the Fuso truck to MMO Trucking owned by Manuel Ong (Manuel).22 The latter being the
alleged owner at the time of the collision, Orix filed a Third Party Complaint23 against Manuel, a.k.a. Manuel Tan.
In their Answer with Compulsory Counterclaim and Cross-Claim,24 Sonny and Antonio attributed fault for the accident solely on Loretos
reckless driving of his truck which suddenly stopped and slid across the highway. They claimed that Sonny had exercised the expected
diligence required of an employer; that Antonio had been all along driving with care; and, that with the abrupt and unexpected collision
of the vehicles before him and their precarious proximity, he had no way of preventing his truck from hitting the Pathfinder.
For failing to file any responsive pleading, both Manuel and Loreto were declared in default.25
Ruling of the Regional Trial Court
After trial, the court a quo issued a Decision26 on February 9, 2001 finding Sonny, Antonio, Loreto and Orix liable for damages. It
likewise ruled in favor of Orix anent its third party complaint, the latter having sufficiently proven that Manuel of MMO Trucking is the
real owner of the Fuso.
The dispositive portion of the RTC Decision states:
Wherefore, premises considered, judgment is hereby rendered in favor of plaintiffs and against the defendants, ordering the latter to
pay plaintiffs, jointly and severally, the following:
1.
2.

P3,077,000.00 as actual damages;

P2,000,000.00 as moral damages;

3.

P1,000,000.00 as exemplary damages; and

4.

P400,000.00 as and for reasonable attorneys fees

5.

legal interest at six percent (6%) per annum on the above-stated amounts from the filing of the complaint on January 16, 1991
until fully paid; and

6.

costs of suit and expenses of litigation.

Third party defendant Manuel M. Ong is ordered to indemnify third party plaintiff [Orix] for the amounts adjudged against the latter in
this case.
SO ORDERED. 27
Ratiocinating its finding of recklessness on both truck drivers, the RTC said:

The evidence leaves no doubt that both truck drivers were at fault and should be held liable. Lucilo, who was driving the Fuso truck,
was reckless when he caused the swerving of his vehicle directly on the lane of the Pathfinder to his left. The Pathfinder had no way to
avoid a collision because it was about to pass the truck when suddenly blocked. On the other hand, the Isuzu truck was practically
tailgating the Pathfinder on the dark slippery highway such that when the Pathfinder collided with the Fuso truck, it became inevitable
for the Isuzu truck to crash into the Pathfinder. So, de los Santos, the driver of the Isuzu truck was likewise reckless. 28
In an attempt to exonerate itself, Orix appealed to the CA29 followed by Sonny and Antonio.30 All of them challenged the factual findings
and conclusions of the court a quo with regard to their respective liabilities, each pinpointing to the negligence of the other and vice
versa. All of them likewise assailed the amounts the RTC awarded to the minors for lack of basis.
Ruling of the Court of Appeals
On October 27, 2005, the CA rendered its Decision31 affirming the factual findings of the trial court of reckless driving. It said:
It may be true that it was the Nissan Pathfinder which first hit and bumped and eventually crashed into the Fuso truck. However, this
would not have happened if the truck did not swerve into the lane of the Nissan Pathfinder. As afore-mentioned [sic], the latter had no
way then to avoid a collision because it was about to overtake the former.
As a motorist, Lucilo [Loreto] should have operated his truck with reasonable caution considering the width, traffic, grades, crossing,
curvatures, visibility and other conditions of the highway and the conditions of the atmosphere and weather. He should have carefully
and cautiously driven his vehicle so as not to have endangered the property or the safety or rights of other persons. By failing to drive
with reasonable caution, Lucilo is, hence, liable for the resultant vehicle collision.
Neither do [we] find credence in delos Santos claim that he is without liability for the vehicular collision. We cannot overemphasize the
primacy in probative value of physical evidence, that mute but eloquent manifestation of the truth. An examination of the destroyed front
part of the Isuzu truck, as shown by photographic evidence, clearly indicates strong bumping of the rear of the Pathfinder. The
photographs belie delos Santos claim that he was driving at a safe speed and even slowed down when he noticed the [erratic] traveling
of the Fuso truck. In fact, by his own admission, it was a matter of seconds before his Isuzu truck hit the Nissan Pathfinder - a clear
indication that he did not actually [slow] down considering the weather and road condition at that time. Had he been actually prudent in
driving, the impact on the Nissan Pathfinder would not have been that great or he might have even taken evasive action to avoid hitting
it. Sadly, that was not the case as shown by the evidence on record.32
The CA also ruled that Orix, as the registered owner of the Fuso, is considered in the eyes of the law and of third persons responsible
for the deaths of the passengers of the Pathfinder, regardless of the lack of an employer-employee relationship between it and the
driver Loreto.
The CA modified the award of damages as follows:
1.
2.

P150,000.00 as indemnity for the death of Spouses Roberto and Josephine Mangalinao and their daughter Marianne
Mangalinao;
P2,000,000.00 for loss of earning capacity;

3.

P64,200.00 for funeral expenses;

4.

P1,000,000.00 as moral damages;

5.

P1,000,000.00 as exemplary damages;

6.

P400,000.00 as attorneys fees.

If the amounts adjudged remain unpaid upon the finality of this decision, the interest rate shall be twelve percent (12%) per annum
computed from the time the judgment bec[a]me final and executory until fully satisfied.
The six percent (6%) interest per annum from the filing of the complaint indicated in the assailed decision is DELETED.
SO ORDERED.33
Orix and Sonny joined by Antonio, filed their separate Motions for Reconsideration34 but same were denied in a Resolution35 dated
August 17, 2006.
Hence, these consolidated petitions.

Petitioners Respective Arguments

Orixs contentions in its petition may be summarized as follows:
1.

2.

It is not the owner and operator of the Fuso at the time of the collision and should not be held responsible for compensating
the minor children of the Mangalinaos;
The Fusos swerving towards the inner lane where the Pathfinder is cruising is attributable not to the alleged negligence of
Loreto but to adverse driving conditions, i.e., the stormy weather and slippery road;

3.

The CA has no reliable evidentiary basis for computing loss of earning capacity as the Balance Sheet and Income Statement
of Roberto Mangalinao, as certified by accountant Wilfredo de Jesus for the year 1989, is hearsay evidence; and

4.

The award of attorneys fees sustained by the CA is not justified and is exorbitant.

On the other hand, Sonny and Antonio argue in their petition that:
1.
2.

3.

the CA erred in affirming the trial courts erroneous finding that the Isuzu was tailgating, which is contradicted by the material
evidence on record;
the proximate cause of the death of the victims is Loretos gross negligence. Antonio should have been accorded the benefit of
the emergency rule wherein he was immediately confronted with a sudden danger and had no time to think of how to avoid it;
the CA should not have awarded damages and attorneys fees because of the total absence of evidence to substantiate them.

In short, petitioners want us to review the finding of negligence by the CA of both truck drivers, the solidary liability of Orix as the
registered owner of the Fuso, and the propriety of the damages the CA awarded in favor of the Mangalinao children.
Our Ruling
The finding of negligence of petitioners as found by the lower courts is binding
Negligence and proximate cause are factual issues.36 Settled is the rule that this Court is not a trier of facts, and the concurrence of the
findings of fact of the courts below are conclusive. "A petition for review on certiorari under Rule 45 of the Rules of Court should include
only questions of law - questions of fact are not reviewable"37 save for several exceptions,38 two of which petitioners invoke, i.e., that the
finding is grounded on speculations, surmises, and conjectures, and that the judgment is based on a misapprehension of facts.
There is no compelling reason to disturb the lower courts factual conclusions.
With regard to the Fuso, we note the statement given by the helper Charlie before the Pulilan police immediately after the incident:
T: Pakisalaysay mo nga ang mga pangyayari?
S: Nuon nga pong oras at petsang nabanggit habang ako ay sakay ng isang truck patungo Pampanga at sa lugar ng pinangyarihan ay
namireno ang aking driver dahil sa madulas at nagawi kami sa gawing kaliwa (inner lane) na isang mabilis na pajero (Nissan 4x4) ang
bumangga sa gawing unahan hanggang sa tagiliran gawing kaliwa, na ang nasabing pajero ay papalusot (overtake) na pagkatapos
nuon ay may isa (1) pang truck na bumangga sa hulihan.39
Based on the helpers statement, the Fuso had lost control, skidded to the left and blocked the way of the Pathfinder, which was about
to overtake. The Pathfinder had absolutely no chance to avoid the truck. Instead of slowing down and moving towards the shoulder in
the highway if it really needed to stop, it was very negligent of Loreto to abruptly hit the brake in a major highway wherein vehicles are
highly likely to be at his rear. He opened himself up to a major danger and naturally, a collision was imminent.
On the other hand, the parties for the Isuzu contend that the CA erred in ruling that the truck was moving at a fast speed and was
tailgating. They assert that they be absolved because the fault lay entirely on the Fuso, which had been zigzagging along the highway.
They aver that when the Fuso and the Pathfinder collided in the middle of the highway with the Fuso blocking both lanes of the
northbound stretch, there was no room left for driver Antonio to maneuver to avoid them, and that the Pathfinder was hit as a natural
consequence.
The Isuzus driver, Antonio, claims that he and the two vehicles before him were travelling at the right lane of the highway, and on his
part, he was travelling at a speed of 50-60 kph and that he was three cars away from the Pathfinder. When the Pathfinder hit the left
side of the Fuso, he stepped on the brake but still struck the Pathfinder.40 He further narrated:
CROSS-EXAMINATION BY ATTY. DOMINGO:

Q And what was this if you noticed anything before the incident happened?
A The Fu[s]o Cargo Truck was swerving from left to right, Sir.
Q How long before this collision did you notice this kind of travelling on the part of the Fu[s]o Cargo Truck?
A About 15 to 20 minutes, Sir.
Q When you noticed this, what if anything, did you do?
A I slow[ed] down, Sir.
Q When you said you slow[ed] down, at what speed do you mean you were travelling?
A More or less 50 kph., Sir.
Q So prior to that, you were travelling faster than 50 to 60 kph. Is that correct?
A Yes, Sir.
Q And [in spite] of that, you testified that you hit the Nissan Pathfinder after it hit the Fu[s]o Cargo Truck?
A Despite the fact that it slow[ed] down, I also hit the Nissan Pathfinder when I skidded because of the slippery condition of the
road at that time.
Q And it was precisely this slippery condition of the road that you are talking about that caused you to hit the Nissan
Pathfinder?
A Yes, Sir.41
xxxx
Q I will just go back to the incident on the collision. At what particular point in the vehicle you were driving hit the Nissan
Pathfinder? At what portion of the Nissan Pathfinder was it hit by the vehicle that you were driving?
A At the rear portion of the Nissan Pathfinder, Sir.
Q What portion, the right o[r] the left portion of the rear?
A I hit the right side of the rear portion of the Nissan Pathfinder, Sir.
Q And what happened to the Nissan Pathfinder after you hit it on the right rear portion?
A The back portion of the Nissan Pathfinder was damaged, Sir.
Q And what was the extent of the [damage] on the back portion?
A The rear portion was extensively damaged, Sir.
Q After you hit the rear portion of the Nissan Pathfinder, did your vehicle hit any other portion of that Nissan Pathfinder?
A None, Sir.
Q After you hit the Nissan Pathfinder at the rear, in what manner did it move, if it moved?
A After I hit the rear portion of the Nissan Pathfinder, it did not move anymore, but I also hit the right side of the Fu[s]o Cargo
Truck, Sir.
COURT:

For a while, what part of the Fu[s]o Cargo Truck did you hit?
WITNESS:
A I hit the sidings of the Fu[s]o Cargo Truck, Your Honor.42
xxxx
CROSS-EXAMINATION BY ATTY. GUERRERO:
Q When the Pathfinder hit the Fu[s]o Truck, were you still behind the Pathfinder?
A Yes, Sir.
Q [Were you] still in the same lane that you were travelling 30 minutes before the impact?
A Yes, Sir.
Q You did not move from your lane [in spite] of the collision between the Pathfinder and the Fu[s]o Truck?
A No, Sir. I did not move. I stayed on my lane.43
xxxx
REDIRECT EXAMINATION BY ATTY. NATIVIDAD:
Q You stated a while ago, during the cross-examination by counsel that the moment you saw the Nissan Pathfinder [smash]
against the side of the Fu[s]o, you did not move your Truck anymore. Why did you not swerve to the left or to the right?
A Because there was an [oncoming] bus signalling [sic] to me, Sir.
Q How about to the right, why did you not abruptly maneuver your truck to the right to avoid hitting the Nissan Pathfinder?
A I cannot move my truck to the right side because my truck will not pass thorugh [sic] the lane because it is very narrow and if
I will do that, I might fall on the other side of the highway where houses were standing.
Q You said that you were unable to pass through the right side of the road. Why [were you] not able to pass [through] to the
right side[?] You said it was too narrow. Why is it too narrow?
A Because the Fu[s]o Truck cut across the highway and my truck cannot pass through that space. It is only in the fast lane
where I can pass through, Sir.
Q All the while this bumping or the impact between the Nissan Pathfinder and the Fu[s]o Truck and your bumping against the
Nissan Pathfinder happened in a few seconds only. Is that correct?
A Yes, Sir.44
The exact positions of the vehicles upon a perusal of the sketch45 (drawn only after the Fuso was moved to the shoulder to decongest
traffic) would show that both the Pathfinder and the Isuzu rested on the highway diagonally. The left part of the former occupied the
right portion of the inner lane while the rest of its body was already on the outer lane, indicating that it was about to change lane, i.e., to
the inner lane to overtake. Meanwhile, the point of collision between the Pathfinder and the Isuzu occurred on the right portion of the
outer lane, with the Isuzus front part ramming the Pathfinders rear, while the rest of the 10-wheelers body lay on the shoulder of the
road.
We are not convinced that the Isuzu is without fault. As correctly found by the CA, the smashed front of the Isuzu strongly indicates the
strong impact of the ramming of the rear of the Pathfinder that pinned its passengers. Furthermore, Antonio admitted that despite
stepping on the brakes, the Isuzu still suddenly smashed into the rear of the Pathfinder causing extensive damage to it, as well as
hitting the right side of the Fuso. These militate against Antonios claim that he was driving at a safe speed, that he had slowed down,
and that he was three cars away. Clearly, the Isuzu was not within the safe stopping distance to avoid the Pathfinder in case of
emergency. Thus, the Emergency Rule invoked by petitioners will not apply. Such principle states:

[O]ne who suddenly finds himself in a place of danger, and is required to act without time to consider the best means that may be
adopted to avoid the impending danger, is not guilty of negligence, if he fails to adopt what subsequently and upon reflection may
appear to have been a better method, unless the emergency in which he finds himself is brought about by his own negligence.46
Considering the wet and slippery condition of the road that night, Antonio should have been prudent to reduce his speed and increase
his distance from the Pathfinder. Had he done so, it would be improbable for him to have hit the vehicle in front of him or if he really
could not avoid hitting it, prevent such extensive wreck to the vehicle in front. With the glaring evidence, he obviously failed to exercise
proper care in his driving.
Orix as the operator on record of the
Fuso truck is liable to the heirs of the victims of the mishap
Orix cannot point fingers at the alleged real owner to exculpate itself from vicarious liability under Article 218047 of the Civil Code.
Regardless of whoever Orix claims to be the actual owner of the Fuso by reason of a contract of sale, it is nevertheless primarily liable
for the damages or injury the truck registered under it have caused. It has already been explained:
Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would be easy for him,
by collusion with others or otherwise, to escape said responsibility and transfer the same to an indefinite person, or to one who
possesses no property with which to respond financially for the damage or injury done. A victim of recklessness on the public highways
is usually without means to discover or identify the person actually causing the injury or damage. He has no means other than by a
recourse to the registration in the Motor Vehicles Office to determine who is the owner. The protection that the law aims to extend to
him would become illusory were the registered owner given the opportunity to escape liability by disproving his ownership. x x x48
Besides, the registered owners have a right to be indemnified by the real or actual owner of the amount that they may be required to
pay as damage for the injury caused to the plaintiff,49 which Orix rightfully acknowledged by filing a third-party complaint against the
owner of the Fuso, Manuel.
The heirs deserve to receive the damages awarded by the CA, with modifications as to their amounts
With regard to actual damages, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has
duly proved.50 Anent the funeral and burial expenses, the receipts issued by San Roque Funeral Homes51 in the amount of P57,000.00
and by St. Peter Memorial Homes52 in the amount of P50,000.00, as supported by the testimonies of the witnesses who secured these
documents, prove payment by the respondent heirs of the funeral costs not only of their deceased relatives but of the latters helpers as
well, and thus we find it proper to award the total amount of P107,000.00.
In addition to P150,000.00 indemnity for the death of the spouses Mangalinao and their daughter Marianne as a result of quasi-delict,
actual damages shall likewise include the loss of the earning capacity of the deceased.53 In this case, the CA awarded P2,000,000.00,
which it found reasonable after considering the income statement of Roberto Mangalinao as of the year 1989.54 Petitioners challenge
this for lack of basis, arguing that the CA failed to consider the formula provided by this Court, 55 and that the income statement was not
even testified to by the accountant who prepared such document.
In its Decision, the CA, while recognizing that there is a formula provided for computing the loss of the earning capacity of the victims,
itself acknowledged that such formula cannot be used to arrive at the net earning capacity using the 1989 income statement alone,
more so when such was not authenticated by the proper party. If the net income stated therein was used in the formula, the CA would
have awarded the Mangalinao heirs more thanP18,000,000.00. It did not, however, use the income statement as its sole gauge.
While the net income had not been sufficiently established, the Court recognizes the fact that the Mangalinao heirs had suffered loss
deserving of compensation. What the CA awarded is in actuality a form of temperate damages. Such form of damages under Article
222456 of the Civil Code is given in the absence of competent proof on the actual damages suffered.57 "In the past, we awarded
temperate damages in lieu of actual damages for loss of earning capacity where earning capacity is plainly established but no evidence
was presented to support the allegation of the injured partys actual income."58 In this case, Roberto Mangalinao, the breadwinner of the
family, was a businessman engaged in buying and selling palay and agricultural supplies that required high capital in its operations and
was only 37 at the time of his death. Moreover, the Pathfinder which the Mangalinaos own, became a total wreck. Under the
circumstances, we find the award of P500,000.00 as temperate damages as reasonable.59
lawphi1

Moral damages,60 it must be stressed, are not intended to enrich plaintiff at the expense of the defendant. They are awarded to enable
the injured party to obtain means, diversions, or amusements that will serve to alleviate the moral suffering he/she had undergone due
to the other partys culpable action and must, perforce, be proportional to the suffering inflicted.61 While the children did not testify before
the court, undoubtedly, they suffered the pain and ordeal of losing both their parents and sibling and hence, the award of moral
damages is justified. However, the amount must be reduced to P500,000.00.62
"In quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence."63 It is given by way of example or
correction for the public good.64 Before the court may consider such award, the plaintiff must show his entitlement first to moral,
temperate, or compensatory damages,65 which the respondents have. In the case at bench, the reckless driving of the two trucks
involved caused the death of the victims. However, we shall reduce the amount of exemplary damages to P200,000.00.66

Lastly, because exemplary damages are awarded and that we find it equitable that expenses of litigation should be recovered,67 we find
it sufficient and reasonable enough to grant attorneys fees of P50,000.00.68
Parenthetically, the Manifestation and Motion with notice of change of address by counsel for respondents; and the transmittal of
CAs rollo consisting of 256 pages with two attached Supreme Court petitions, one folder of original records and one folder of transcript
of stenographic notes, by the Judicial Records Division, CA, are noted.
WHEREFORE, the instant petitions are PARTIALLY GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 70530
is AFFIRMED with MODIFICATIONS. The award of actual damages is hereby INCREASED toP107,000.00. The award of moral
damages is REDUCED to P500,000.00, the award of temperate damages for loss of earning capacity is
likewise REDUCED to P500,000.00, and the award of exemplary damages and of attorneys fees are REDUCED to P200,000.00
and P50,000.00, respectively. All other awards of the Court of Appeals are AFFIRMED.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION
G.R. No. 177526

July 3, 2008

PHILIPPINE SAVINGS BANK, petitioner,

vs.
CHOWKING FOOD CORPORATION, respondent.
DECISION
REYES, R.T., J.:
IT is the peculiar quality of a fool to perceive the fault of others and to forget his own. Ang isang kakatuwang katangian ng isang
hangal ay punahin ang kamalian ng iba at kalimutan naman ang sa kanya.
This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) reinstating the Decision of the Regional Trial
Court (RTC), Manila, Branch 5. The RTC ordered petitioner Philippine Savings Bank (PSBank) and its Bustos Branch Head, Erlinda O.
Santos, to reimburse respondent Chowking Food Corporation (Chowking) the amount corresponding to five (5) illegally encashed
checks.
The Facts
Between March 15, 1989 and August 10, 1989, Joe Kuan Food Corporation issued in favor of Chowking five (5) PSBank checks with
the following numbers, dates and denominations:
Check No.

Amount

Date

017069

P 44,120.00 15 March 1989

053528

P135,052.87 09 May 1989

074602

P160,138.12 08 August 1989

074631

P159,634.13 08 August 1989

017096

P 60,036.74 10 August 19892

The total amount of the subject checks reached P556,981.86.

On the respective due dates of each check, Chowking's acting accounting manager, Rino T. Manzano, endorsed and encashed said
checks with the Bustos branch of respondent PSBank.3
All the five checks were honored by defendant Santos, even with only the endorsement of Manzano approving them. The signatures of
the other authorized officers of respondent corporation were absent in the five (5) checks, contrary to usual banking
practice.4 Unexpectedly, Manzano absconded with and misappropriated the check proceeds.5
When Chowking found out Manzano's scheme, it demanded reimbursement from PSBank.6 When PSBank refused to pay, Chowking
filed a complaint7 for a sum of money with damages before the RTC. Likewise impleaded were PSBank's president, Antonio S. Abacan,
and Bustos branch head, Santos.8
Both PSBank and Santos filed cross claims and third party complaints against Manzano.9 Despite all diligent efforts, summonses were
not served upon third party defendant Manzano. Santos did not take any further action and her third party complaint was archived.10
Meanwhile, petitioner caused the service of its summons on the cross-claim and third party complaints through publication. On its
subsequent motion, Manzano was declared in default for failure to file a responsive pleading.11
Respondent filed a motion for summary judgment. Petitioner opposed the motion. On February 1, 1995, the trial court denied the
motion via an order of even date.12
In its Answer, petitioner did not controvert the foregoing facts, but denied liability to respondent for the encashed checks.13 Petitioner
bank maintained it exercised due diligence in the supervision of all its employees. It even dismissed defendant Santos after she was
found guilty of negligence in the performance of her duties.14

Defendant Santos, on the other hand, denied that she had been negligent in her job. She averred that she merely followed the bank's
practice of honoring respondent's checks even if accompanied only by Manzano's endorsement.15
Defendant Abacan likewise denied any liability to respondent. He alleged that, as president and officer of petitioner bank, he played no
role in the transactions complained of.16 Thus, respondent has no cause of action against him.
Petitioner, Santos and Abacan were unanimous in asserting that respondent is estopped from claiming reimbursement and damages
since it was negligent in allowing Manzano to take hold, endorse, and encash its checks. Petitioner pointed out that the proximate
cause of respondent's loss was its own negligence.17
RTC Disposition
On August 24, 1998, the RTC rendered judgment in favor of respondent, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and as against defendant Philippine
Savings Bank and Erlinda O. Santos ordering the said defendants to pay plaintiff, jointly and severally:
1. The amount of P556,981.86 plus interest at the rate of 12% per annum from August 15, 1989 until said amount shall have
been paid;
2. 20% of the total amount due plaintiff as attorney's fees;
3. The sum of P100,000.00 as exemplary damages;
4. The sum of P1,000,000.00 for plaintiff's unrealized profits.
The complaint with respect to defendant Antonio Abacan, Jr. as well as his counterclaim and cross claim are hereby
DISMISSED.
With respect to the cross claim of defendant PSBank against Erlinda Santos and its third-party complaint against Rino T.
Manzano, both Santos and Manzano are hereby ordered to jointly and severally, reimburse defendant PSBank whatever
amount the latter shall be constrained to pay plaintiff in connection with this case.
SO ORDERED.18
Aggrieved, petitioner filed a motion for reconsideration. Through an Order dated January 11, 1999, the RTC reversed its earlier ruling
and held that it was respondent's own negligence that was the proximate cause of the loss. The fallo of the amended RTC decision now
reads:
In light of the foregoing grounds and observations, the Decision of August 24, 1998, by this Court is accordingly modified as
follows:
1. Ordering the dismissal of the complaint by the plaintiff Chowking Food Corporation against the defendants, Philippine
Savings Bank (PSBank) and Erlinda Santos for lack of basis in fact and law;
2. Ordering the third party defendant, Regino or Rino T. Manzano to pay the plaintiff Chowking Food Corporation, the
following:
a. To reimburse the plaintiff the amount of P556,981.86 plus interest at the rate of 12% per annum from August 15,
1989, until said amount has been fully satisfied;
b. To pay an attorney's fee equivalent to 20% of the total amount due the plaintiff;
c. To pay an amount of P100,000.00 the plaintiff for actual and compensatory damages, plus the costs of this suit.
SO ORDERED.19
Dissatisfied with the modified ruling of the RTC, respondent appealed to the CA.
CA Disposition

In its appeal, respondent Chowking contended, inter alia, that the RTC erred in ruling that the proximate cause of the loss was its own
negligence; and that its claim was barred by estoppel.
On January 31, 2007, the CA granted the appeal, disposing as follows:
WHEREFORE, the instant appeal is GRANTED. The order appealed from is hereby SET ASIDE and the 24 August 1998
decision is consequently REINSTATED with modification that the awards of attorney's fees, exemplary damages, and
alleged P1,000,000.00 unrealized profits of the appellant are DELETED.
IT IS SO ORDERED.20
The CA held that both petitioner PSBank and Santos should bear the loss. Said the appellate court:
It is admitted that PSB cashed, over the counter, the checks of the appellant indorsed by Manzano alone. Since there is no
more dispute on the negligent act of Santos in honoring the appellant's checks, over the counter, despite the proper
indorsements, the categorical finding of negligence against her, remaining unrebutted, is deemed established. This in effect
warrants a finding that Santos is liable for damages to the appellant. The lower court therefore erred in dismissing the
complaint against her.21
Further, the CA held that:
Contrary to PSB's contention that it should not be held liable because it neither consented to nor had knowledge of Santos'
(sic) violations, such liability of Santos is solidary with PSB pursuant to Article 2176 in relation to Article 2180 of the Civil Code
which states:
"Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay
for the damage done....
Art. 2180. The obligation imposed by Art. 2176 is demandable not only for one's own acts or omissions but also for
those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damage caused by their employees and household helpers acting within the scope
of their assigned tasks even though the former are not engaged in any business or activity.
xxxx
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed
all the diligence of a good father of a family to prevent damage."
x x x However, with banks like PSB, the degree of diligence required is more than that of a good father of a family considering
that the business of banking is imbued with public interest due to the nature of its functions. Highest degree of diligence is
needed which PSB, in this case, failed to observe.
x x x Its argument that it should no be held responsible for the negligent acts of Santos because those were independent acts
x x x perpetrated without its knowledge and consent is without basis in fact and in law. Assuming that PSB did not err in hiring
Santos for her position, its lack of supervision over her made it solidarily liable for the unauthorized encashment of the checks
involved. In the supervision of employees, the employer must formulate standard operating procedures, monitor their
implementation and impose disciplinary measures for the breach thereof. The appellee, in this case, presented no evidence
that it formulated rules/guidelines for the proper performance of functions of its employees and that it strictly implemented and
monitored compliance therewith. x x x22
The CA also disagreed with petitioner's contention that respondent's own negligence was the proximate cause of its loss. The CA
opined that even assuming that respondent was also negligent in allowing Manzano to encash its checks, petitioner had the last clear
chance to avert injury and loss to respondent. This could have been done if petitioner, through Santos, faithfully and carefully observed
its encashment rules and procedures.
The CA ratiocinated:
x x x Had Santos not been remiss in verifying the indorsements of the checks involved, she would not have cashed the same
because Manzano, whose only signature appears therein, is apparently not an authorized signatory of the appellant x x x had
every means to determine the validity of those indorsements but for one reason or another she was neglectful of her duty x x x

as admitted by PSB, such over the counter encashments are not even sanctioned by its policies but Santos simply ignored the
same. It appears clear that Santos let the opportunity slip by when an exercise of ordinary prudence expected of bank
employees would have sufficed to prevent the loss.23
Issues
Petitioner has resorted to the present recourse and assigns to the CA the following errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT RESPONDENT WAS ESTOPPEDFROM
ASSERTING ITS CLAIM AGAINST PETITIONER.
II
THE HONORABLE COURT OF APPEALS ERRED WHEN IT DID NOT RULE THAT RESPONDENT'S NEGLIGENCE WAS
THE PROXIMATE CAUSE OF ITS OWN LOSS. (Underscoring supplied)
Our Ruling
The doctrine of equitable estoppel or estoppel in pais finds no application in the present case. The equitable doctrine of
estoppel was explained by this Court in Caltex (Philippines), Inc. v. Court of Appeals:24
Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying thereon. A party may not go back on his own acts and representations to
the prejudice of the other party who relied upon them. In the law of evidence, whenever a party has, by his own declaration,
act, or omission, intentionally and deliberately led another to believe a particular thing true, to act upon such belief, he cannot,
in any litigation arising out of such declaration, act, or omission, be permitted to falsify it.25
The principle received further elaboration in Maneclang v. Baun:26
In estoppel by pais, as related to the party sought to be estopped, it is necessary that there be a concurrence of the following
requisites: (a) conduct amounting to false representation or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (b)
intent, or at least expectation that this conduct shall be acted upon, or at least influenced by the other party; and (c)
knowledge, actual or constructive of the actual facts.27
Estoppel may vary somewhat in definition, but all authorities agree that a party invoking the doctrine must have been misled to one's
prejudice. That is the final and, in reality, most important of the elements of equitable estoppel.28 It is this element that is lacking here.
We agree with the CA that Chowking did not make any false representation or concealment of material facts in relation to the
encashments of the previous checks. As adverted to earlier, respondent may have allowed Manzano to previously encash its checks,
but it has always been accompanied with the endorsements of the other authorized signatories. Respondent did not allow petitioner to
have its checks encashed without the signature of all of its authorized signatories.
The CA pointed out:
We find at the back of those checks, whereon indorsement usually appears, the signature of Manzanotogether with other
signature/signatures though mostly are illegible. It appears then that, assuming the appellant impliedly tolerated the act of
Manzano in indorsing the checks, it did not allow Manzano "alone" to indorse its checks as what actually happened in this
case because his previous indorsements werecoupled with other indorsements of the appellant's signatories. There is,
therefore, no sufficient evidence to sustain PSB's submission. On this score alone, the defense of estoppel must
fail.29(Underscoring and emphasis supplied)
Neither can estoppel be appreciated in relation to petitioner itself. In Kalalo v. Luz,30 the Court enumerated the elements of estoppel in
this wise:
x x x As related to the party claiming the estoppel, the essential elements are (1) lack of knowledge and of the means of
knowledge of the truth as the facts in question; (2) reliance, in good faith, upon the conduct and statements of the party to be
estopped; (3) action or inaction based thereon of such character as to change the position or status of the party claiming the
estoppel, to his injury, detriment or prejudice.31

Here, the first two elements are wanting. Petitioner has knowledge of the truth and the means to it as to the proper endorsements
necessary in encashing respondent's checks. Respondent has an account with petitioner bank and, as such, is privy to the proper
signatories to endorse respondent's checks.
Neither can petitioner claim good faith.
It is elementary that estoppel cannot be sustained in doubtful inference. Absent the conclusive proof that its essential elements are
present, estoppel must fail. Because estoppel, when misapplied, becomes a most effective weapon to accomplish an injustice,
inasmuch as it shuts a man's mouth from speaking the truth.32
Petitioner failed to prove that it has observed the due diligence required of banks under the law. Contrary to petitioner's view, its
negligence is the proximate cause of respondent's loss.
It cannot be over emphasized that the banking business is impressed with public interest. Of paramount importance is the trust and
confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a
Roman pater familias or a good father of a family.33 The highest degree of diligence is expected.34
1avvphi1

In its declaration of policy, the General Banking Law of 200035 requires of banks the highest standards of integrity and performance.
Needless to say, a bank is "under obligation to treat the accounts of its depositors with meticulous care."36 The fiduciary nature of the
relationship between the bank and the depositors must always be of paramount concern.37
Petitioner, through Santos, was clearly negligent when it honored respondent's checks with the lone endorsement of Manzano. In the
similar case of Philippine Bank of Commerce v. Court of Appeals,38 an employee of Rommel's Marketing Corporation (RMC) was able
to illegally deposit in a different account the checks of the corporation. This Court found that it was the bank teller's failure to exercise
extraordinary diligence to validate the deposit slips that caused the crime to be perpetrated.
The Court held thus:
Negligence here lies not only on the part of Ms. Mabayad but also on the part of the bank itself in its lackadaisical selection
and supervision of Ms. Mabayad. This was exemplified in the testimony of Mr. Romeo Bonifacio, then Manager of the Pasig
Branch of the petitioner bank and now its Vice-President, to the effect that, while he ordered the investigation of the incident,
he never came to know that blank deposit slips were validated in total disregard of the bank's validation procedures, viz.:
Q: Did he ever tell you that one of your cashiers affixed the stamp mark of the bank on the deposit slips and they
validated the same with the machine, the fact that those deposit slips were unfilled up, is there any report similar to
that?
A: No, it was not the cashier but the teller.
Q: The teller validated the blank deposit slip?
A: No it was not reported.
Q: You did not know that any one in the bank tellers or cashiers validated the blank deposit slip?
A: I am not aware of that.
Q: It is only now that you are aware of that?
A: Yes, Sir.
xxxx
It was this negligence x x x coupled by the negligence of the petitioner bank in the selection and supervision of its bank teller,
which was the proximate cause of the loss suffered by private respondent, and not the latter's act of entrusting cash to a
dishonest employee, as insisted by the petitioners.39
Proximate cause is determined by the facts of the case. It is that cause which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury, and without which the result would not have occurred.40

Measured by the foregoing yardstick, the proximate cause of the loss is not respondent's alleged negligence in allowing Manzano to
take hold and encash respondent's checks. The proximate cause is petitioner's own negligence in the supervision of its employees
when it overlooked the irregular practice of encashing checks even without the requisite endorsements.
In Bank of the Philippine Islands v. Casa Montessori Internationale,41 this Court similarly held:
For allowing payment on the checks to a wrongful and fictitious payee, BPI - the drawee bank - becomes liable to its depositordrawer. Since the encashing bank is one of its branches, BPI can easily go after it and hold it liable for reimbursement. x x x In
both law and equity, when one of two innocent persons "must suffer by the wrongful act of a third person, the loss must be
borne by the one whose negligence was the proximate cause of the loss or who put it into the power of the third person to
perpetrate the wrong."42
Further, the Court ruled:
Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-depositors on checks being
encashed, BPI is "expected to use reasonable business prudence." In the performance of that obligation, it is bound by its
internal banking rules and regulations that form part of the contract it enters into with its depositors.
Unfortunately, it failed in that regard. x x x Without exercising the required prudence on its part, BPI accepted and encashed
the eight checks presented to it. As a result, it proximately contributed to the fraud and should be held primarily liable
for the "negligence of its officers or agents when acting within the course and scope of their employment." It must
bear the loss.43
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 189871

August 13, 2013

DARIO NACAR, PETITIONER,

vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the Decision1 dated September 23, 2008 of the Court of Appeals (CA) in CA-G.R. SP
No. 98591, and the Resolution2 dated October 9, 2009 denying petitioners motion for reconsideration.
The factual antecedents are undisputed.
Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the National Labor Relations
Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC NCR Case No. 01-0051997.

On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found that he was dismissed from employment
without a valid or just cause. Thus, petitioner was awarded backwages and separation pay in lieu of reinstatement in the amount
of P158,919.92. The dispositive portion of the decision, reads:
With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that complainant was dismissed
from employment for a just or valid cause. All the more, it is clear from the records that complainant was never afforded due process
before he was terminated. As such, we are perforce constrained to grant complainants prayer for the payments of separation pay in
lieu of reinstatement to his former position, considering the strained relationship between the parties, and his apparent reluctance to be
reinstated, computed only up to promulgation of this decision as follows:
SEPARATION PAY
Date Hired

August 1990

Rate

P198/day

Date of Decision

Aug. 18, 1998

Length of Service

8 yrs. & 1 month

P198.00 x 26 days x 8 months = P41,184.00

BACKWAGES
Date Dismissed

January 24, 1997

Rate per day

P196.00

Date of Decisions

Aug. 18, 1998

a) 1/24/97 to 2/5/98 = 12.36 mos.

P196.00/day x 12.36 mos.

= P62,986.56

b) 2/6/98 to 8/18/98 = 6.4 months

Prevailing Rate per day

= P62,986.00

P198.00 x 26 days x 6.4 mos.

= P32,947.20

TOTAL

= P95.933.76
xxxx

WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive dismissal and are
therefore, ordered:
To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six pesos and 56/100 (P62,986.56)
Pesos representing his separation pay;
To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-three and 36/100 (P95,933.36)
representing his backwages; and
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution5 dated February 29, 2000. Accordingly, the
NLRC sustained the decision of the Labor Arbiter. Respondents filed a motion for reconsideration, but it was denied.6
Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the CA issued a Resolution
dismissing the petition. Respondents filed a Motion for Reconsideration, but it was likewise denied in a Resolution dated May 8, 2001.7
Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no reversible error on the part of the
CA, this Court denied the petition in the Resolution dated April 17, 2002.8

An Entry of Judgment was later issued certifying that the resolution became final and executory on May 27, 2002.9The case was,
thereafter, referred back to the Labor Arbiter. A pre-execution conference was consequently scheduled, but respondents failed to
appear.10
On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be computed from the date of his
dismissal on January 24, 1997 up to the finality of the Resolution of the Supreme Court on May 27, 2002.11 Upon recomputation, the
Computation and Examination Unit of the NLRC arrived at an updated amount in the sum of P471,320.31.12
On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff to collect from respondents the total
amount of P471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing, among other things, that since the Labor
Arbiter awarded separation pay of P62,986.56 and limited backwages ofP95,933.36, no more recomputation is required to be made of
the said awards. They claimed that after the decision becomes final and executory, the same cannot be altered or amended
anymore.14 On January 13, 2003, the Labor Arbiter issued an Order15 denying the motion. Thus, an Alias Writ of Execution16 was issued
on January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution17 granting the appeal in favor of the
respondents and ordered the recomputation of the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and executory. Consequently,
another pre-execution conference was held, but respondents failed to appear on time. Meanwhile, petitioner moved that an Alias Writ of
Execution be issued to enforce the earlier recomputed judgment award in the sum of P471,320.31.18
The records of the case were again forwarded to the Computation and Examination Unit for recomputation, where the judgment award
of petitioner was reassessed to be in the total amount of only P147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as determined by the
Labor Arbiter in his Decision dated October 15, 1998, pending the final computation of his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that was due to petitioner in the
amount of P147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to include the appropriate
interests.19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the amount ofP11,459.73. The Labor Arbiter
reasoned that it is the October 15, 1998 Decision that should be enforced considering that it was the one that became final and
executory. However, the Labor Arbiter reasoned that since the decision states that the separation pay and backwages are computed
only up to the promulgation of the said decision, it is the amount of P158,919.92 that should be executed. Thus, since petitioner already
receivedP147,560.19, he is only entitled to the balance of P11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its Resolution22 dated September 27, 2006.
Petitioner filed a Motion for Reconsideration, but it was likewise denied in the Resolution23dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision24 denying the petition. The CA opined that since petitioner no longer appealed the
October 15, 1998 Decision of the Labor Arbiter, which already became final and executory, a belated correction thereof is no longer
allowed. The CA stated that there is nothing left to be done except to enforce the said judgment. Consequently, it can no longer be
modified in any respect, except to correct clerical errors or mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution25 dated October 9, 2009.
Hence, the petition assigning the lone error:
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE ABUSE OF
DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN
TURN, SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE
OCTOBER 15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF
THE SAME DECISION.26

Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor Arbiters decision, the same is
not final until reinstatement is made or until finality of the decision, in case of an award of separation pay. Petitioner maintains that
considering that the October 15, 1998 decision of the Labor Arbiter did not become final and executory until the April 17, 2002
Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of Entries on May 27, 2002, the reckoning point for the
computation of the backwages and separation pay should be on May 27, 2002 and not when the decision of the Labor Arbiter was
rendered on October 15, 1998. Further, petitioner posits that he is also entitled to the payment of interest from the finality of the
decision until full payment by the respondents.
On their part, respondents assert that since only separation pay and limited backwages were awarded to petitioner by the October 15,
1998 decision of the Labor Arbiter, no more recomputation is required to be made of said awards. Respondents insist that since the
decision clearly stated that the separation pay and backwages are "computed only up to [the] promulgation of this decision," and
considering that petitioner no longer appealed the decision, petitioner is only entitled to the award as computed by the Labor Arbiter in
the total amount ofP158,919.92. Respondents added that it was only during the execution proceedings that the petitioner questioned
the award, long after the decision had become final and executory. Respondents contend that to allow the further recomputation of the
backwages to be awarded to petitioner at this point of the proceedings would substantially vary the decision of the Labor Arbiter as it
violates the rule on immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth Division),27 wherein the
issue submitted to the Court for resolution was the propriety of the computation of the awards made, and whether this violated the
principle of immutability of judgment. Like in the present case, it was a distinct feature of the judgment of the Labor Arbiter in the abovecited case that the decision already provided for the computation of the payable separation pay and backwages due and did not further
order the computation of the monetary awards up to the time of the finality of the judgment. Also in Session Delights, the dismissed
employee failed to appeal the decision of the labor arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course of execution of the labor arbiter's original computation of the
awards made, pegged as of the time the decision was rendered and confirmed with modification by a final CA decision, is legally
proper. The question is posed, given that the petitioner did not immediately pay the awards stated in the original labor arbiter's decision;
it delayed payment because it continued with the litigation until final judgment at the CA level.
A source of misunderstanding in implementing the final decision in this case proceeds from the way the original labor arbiter framed his
decision. The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been confirmed with finality. This is the finding of the
illegality of the dismissal and the awards of separation pay in lieu of reinstatement, backwages, attorney's fees, and legal interests.
The second part is the computation of the awards made. On its face, the computation the labor arbiter made shows that it was timebound as can be seen from the figures used in the computation. This part, being merely a computation of what the first part of the
decision established and declared, can, by its nature, be re-computed. This is the part, too, that the petitioner now posits should no
longer be re-computed because the computation is already in the labor arbiter's decision that the CA had affirmed. The public and
private respondents, on the other hand, posit that a re-computation is necessary because the relief in an illegal dismissal decision goes
all the way up to reinstatement if reinstatement is to be made, or up to the finality of the decision, if separation pay is to be given in lieu
reinstatement.
That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place, also made a computation of the
award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules of Procedure which requires that a computation be
made. This Section in part states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable, shall embody in any such
decision or order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the finality of the labor arbiter's decision. As we noted above, this
implication is apparent from the terms of the computation itself, and no question would have arisen had the parties terminated the case
and implemented the decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of illegality as well as on all the
consequent awards made. Hence, the petitioner appealed the case to the NLRC which, in turn, affirmed the labor arbiter's decision. By
law, the NLRC decision is final, reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely filed Rule 65 petition for
certiorari. The CA decision, finding that NLRC exceeded its authority in affirming the payment of 13th month pay and indemnity, lapsed
to finality and was subsequently returned to the labor arbiter of origin for execution.

It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original labor arbiter's decision, the
implementing labor arbiter ordered the award re-computed; he apparently read the figures originally ordered to be paid to be the
computation due had the case been terminated and implemented at the labor arbiter's level. Thus, the labor arbiter re-computed the
award to include the separation pay and the backwages due up to the finality of the CA decision that fully terminated the case on the
merits. Unfortunately, the labor arbiter's approved computation went beyond the finality of the CA decision (July 29, 2003) and included
as well the payment for awards the final CA decision had deleted - specifically, the proportionate 13th month pay and the indemnity
awards. Hence, the CA issued the decision now questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered the labor arbiter's original
decision in accordance with its basic component parts as we discussed above. To reiterate, the first part contains the finding of illegality
and its monetary consequences; the second part is the computation of the awards or monetary consequences of the illegal dismissal,
computed as of the time of the labor arbiter's original decision.28
Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed by the petitioner, no
essential change is made by a recomputation as this step is a necessary consequence that flows from the nature of the illegality of
dismissal declared by the Labor Arbiter in that decision.29 A recomputation (or an original computation, if no previous computation has
been made) is a part of the law specifically, Article 279 of the Labor Code and the established jurisprudence on this provision that is
read into the decision. By the nature of an illegal dismissal case, the reliefs continue to add up until full satisfaction, as expressed under
Article 279 of the Labor Code. The recomputation of the consequences of illegal dismissal upon execution of the decision does not
constitute an alteration or amendment of the final decision being implemented. The illegal dismissal ruling stands; only the computation
of monetary consequences of this dismissal is affected, and this is not a violation of the principle of immutability of final judgments.30
That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the risk that it ran when
it continued to seek recourses against the Labor Arbiter's decision. Article 279 provides for the consequences of illegal dismissal in no
uncertain terms, qualified only by jurisprudence in its interpretation of when separation pay in lieu of reinstatement is allowed. When
that happens, the finality of the illegal dismissal decision becomes the reckoning point instead of the reinstatement that the law
decrees. In allowing separation pay, the final decision effectively declares that the employment relationship ended so that separation
pay and backwages are to be computed up to that point.31
Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, 32 the Court laid
down the guidelines regarding the manner of computing legal interest, to wit:
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013,
approved the amendment of Section 234 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799,35 Series of 2013,
effective July 1, 2013, the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of interest in the
absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the
absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and Sections 4305Q.1,37 4305S.338 and
4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the parties, the rate of
legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be twelve
percent (12%) per annum - as reflected in the case of Eastern Shipping Lines40 and Subsection X305.1 of the Manual of Regulations for
Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its
amendment by BSP-MB Circular No. 799 - but will now be six percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per
annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the
prevailing rate of interest when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral Monetary Board,41 this
Court affirmed the authority of the BSP-MB to set interest rates and to issue and enforce Circulars when it ruled that "the BSP-MB may
prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any money, goods or credits,
including those for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance companies and
similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said judgments shall not be
disturbed and shall continue to be implemented applying the rate of interest fixed therein.
1awp++i1

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines42 are accordingly modified to
embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.
1wphi1

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as
well as the accrual thereof, is imposed, as follows:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time
it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may
be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages, except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally
adjudged.
When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-G.R. SP No. 98591, and
the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are Ordered to Pay petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May 27, 2002, when the
Resolution of this Court in G.R. No. 151332 became final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per year of service; and

(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002 to June 30, 2013
and six percent (6%) per annum from July 1, 2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded and due to petitioner in
accordance with this Decision.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 175490

September 17, 2009

ILEANA DR. MACALINAO, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
DECISION
VELASCO, JR., J.:
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to reverse and set aside the June 30, 2006
Decision1 of the Court of Appeals (CA) and its November 21, 2006 Resolution2 denying petitioners motion for reconsideration.
The Facts
Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard, one of the credit card facilities of respondent Bank of the
Philippine Islands (BPI).3 Petitioner Macalinao made some purchases through the use of the said credit card and defaulted in paying for
said purchases. She subsequently received a letter dated January 5, 2004 from respondent BPI, demanding payment of the amount of
one hundred forty-one thousand five hundred eighteen pesos and thirty-four centavos (PhP 141,518.34), as follows:
Statement
Date

Previous
Balance

Purchases
(Payments)

Penalty
Interest

Finance
Charges

Balance
Due

10/27/2002

94,843.70

559.72

3,061.99

98,456.41

11/27/2002

98,465.41

(15,000)

2,885.61

86,351.02

12/31/2002

86,351.02

30,308.80

259.05

2,806.41

119,752.28

1/27/2003

119,752.28

618.23

3,891.07

124,234.58

2/27/2003

124,234.58

990.93

4,037.62

129,263.13

3/27/2003

129,263.13

298.72

3,616.05

115,177.90

4/27/2003

115,177.90

644.26

3,743.28

119,565.44

5/27/2003

119,565.44

(10,000.00)

402.95

3,571.71

113,540.10

6/29/2003

113,540.10

8,362.50 (7,000.00)

323.57

3,607.32

118,833.49

7/27/2003

118,833.49

608.07

3,862.09

123,375.65

8/27/2003

123,375.65

1,050.20

4,009.71

128,435.56

9/28/2003

128,435.56

1,435.51

4,174.16

134,045.23

141,518.34

8,491.10

4,599.34

154,608.78

(18,000.00)

10/28/2003
11/28/2003
12/28/2003
1/27/2004

Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit and BPI Mastercard, the charges or balance
thereof remaining unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of
3% per month and an additional penalty fee equivalent to another 3% per month. Particularly:
8. PAYMENT OF CHARGES BCC shall furnish the Cardholder a monthly Statement of Account (SOA) and the Cardholder agrees
that all charges made through the use of the CARD shall be paid by the Cardholder as stated in the SOA on or before the last day for
payment, which is twenty (20) days from the date of the said SOA, and such payment due date may be changed to an earlier date if the
Cardholders account is considered overdue and/or with balances in excess of the approved credit limit, or to such other date as may
be deemed proper by the CARD issuer with notice to the Cardholder on the same monthly SOA. If the last day fall on a Saturday,
Sunday or a holiday, the last day for the payment automatically becomes the last working day prior to said payment date. However,
notwithstanding the absence or lack of proof of service of the SOA of the Cardholder, the latter shall pay any and all charges made
through the use of the CARD within thirty (30) days from date or dates thereof. Failure of the Cardholder to pay the charges made
through the CARD within the payment period as stated in the SOA or within thirty (30) days from actual date or dates of purchase
whichever occur earlier, shall render him in default without the necessity of demand from BCC, which the Cardholder expressly waives.
The charges or balance thereof remaining unpaid after the payment due date indicated on the monthly Statement of Accounts shall
bear interest at the rate of 3% per month for BPI Express Credit, BPI Gold Mastercard and an additional penalty fee equivalent to
another 3% of the amount due for every month or a fraction of a months delay. PROVIDED that if there occurs any change on the
prevailing market rates, BCC shall have the option to adjust the rate of interest and/or penalty fee due on the outstanding obligation
with prior notice to the cardholder. The Cardholder hereby authorizes BCC to correspondingly increase the rate of such interest [in] the
event of changes in the prevailing market rates, and to charge additional service fees as may be deemed necessary in order to
maintain its service to the Cardholder. A CARD with outstanding balance unpaid after thirty (30) days from original billing statement
date shall automatically be suspended, and those with accounts unpaid after ninety (90) days from said original billing/statement date
shall automatically be cancel (sic), without prejudice to BCCs right to suspend or cancel any card anytime and for whatever reason. In
case of default in his obligation as provided herein, Cardholder shall surrender his/her card to BCC and in addition to the interest and
penalty charges aforementioned , pay the following liquidated damages and/or fees (a) a collection fee of 25% of the amount due if the
account is referred to a collection agency or attorney; (b) service fee for every dishonored check issued by the cardholder in payment of
his account without prejudice, however, to BCCs right of considering Cardholders account, and (c) a final fee equivalent to 25% of the
unpaid balance, exclusive of litigation expenses and judicial cost, if the payment of the account is enforced though court action. Venue
of all civil suits to enforce this Agreement or any other suit directly or indirectly arising from the relationship between the parties as
established herein, whether arising from crimes, negligence or breach thereof, shall be in the process of courts of the City of Makati or
in other courts at the option of BCC.4 (Emphasis supplied.)
1avvphi1

For failure of petitioner Macalinao to settle her obligations, respondent BPI filed with the Metropolitan Trial Court (MeTC) of Makati City
a complaint for a sum of money against her and her husband, Danilo SJ. Macalinao. This was raffled to Branch 66 of the MeTC and
was docketed as Civil Case No. 84462 entitled Bank of the Philippine Islands vs. Spouses Ileana Dr. Macalinao and Danilo SJ.
Macalinao.5

In said complaint, respondent BPI prayed for the payment of the amount of one hundred fifty-four thousand six hundred eight pesos
and seventy-eight centavos (PhP 154,608.78) plus 3.25% finance charges and late payment charges equivalent to 6% of the amount
due from February 29, 2004 and an amount equivalent to 25% of the total amount due as attorneys fees, and of the cost of suit.6
After the summons and a copy of the complaint were served upon petitioner Macalinao and her husband, they failed to file their
Answer.7 Thus, respondent BPI moved that judgment be rendered in accordance with Section 6 of the Rule on Summary
Procedure.8 This was granted in an Order dated June 16, 2004.9 Thereafter, respondent BPI submitted its documentary evidence.10

1avvphi1

In its Decision dated August 2, 2004, the MeTC ruled in favor of respondent BPI and ordered petitioner Macalinao and her husband to
pay the amount of PhP 141,518.34 plus interest and penalty charges of 2% per month, to wit:
WHEREFORE, finding merit in the allegations of the complaint supported by documentary evidence, judgment is hereby rendered in
favor of the plaintiff, Bank of the Philippine Islands and against defendant-spouses Ileana DR Macalinao and Danilo SJ Macalinao by
ordering the latter to pay the former jointly and severally the following:
1. The amount of PESOS: ONE HUNDRED FORTY ONE THOUSAND FIVE HUNDRED EIGHTEEN AND 34/100
(P141,518.34) plus interest and penalty charges of 2% per month from January 05, 2004 until fully paid;
2. P10,000.00 as and by way of attorneys fees; and
3. Cost of suit.
SO ORDERED.11
Only petitioner Macalinao and her husband appealed to the Regional Trial Court (RTC) of Makati City, their recourse docketed as Civil
Case No. 04-1153. In its Decision dated October 14, 2004, the RTC affirmed in toto the decision of the MeTC and held:
In any event, the sum of P141,518.34 adjudged by the trial court appeared to be the result of a recomputation at the reduced rate of 2%
per month. Note that the total amount sought by the plaintiff-appellee was P154,608.75 exclusive of finance charge of 3.25% per month
and late payment charge of 6% per month.
WHEREFORE, the appealed decision is hereby affirmed in toto.
No pronouncement as to costs.
SO ORDERED.12
Unconvinced, petitioner Macalinao filed a petition for review with the CA, which was docketed as CA-G.R. SP No. 92031. The CA
affirmed with modification the Decision of the RTC:
WHEREFORE, the appealed decision is AFFIRMED but MODIFIED with respect to the total amount due and interest rate. Accordingly,
petitioners are jointly and severally ordered to pay respondent Bank of the Philippine Islands the following:
1. The amount of One Hundred Twenty Six Thousand Seven Hundred Six Pesos and Seventy Centavos plus interest and
penalty charges of 3% per month from January 5, 2004 until fully paid;
2. P10,000.00 as and by way of attorneys fees; and
3. Cost of Suit.
SO ORDERED.13
Although sued jointly with her husband, petitioner Macalinao was the only one who filed the petition before the CA since her husband
already passed away on October 18, 2005.14
In its assailed decision, the CA held that the amount of PhP 141,518.34 (the amount sought to be satisfied in the demand letter of
respondent BPI) is clearly not the result of the re-computation at the reduced interest rate as previous higher interest rates were already
incorporated in the said amount. Thus, the said amount should not be made as basis in computing the total obligation of petitioner
Macalinao. Further, the CA also emphasized that respondent BPI should not compound the interest in the instant case absent a
stipulation to that effect. The CA also held, however, that the MeTC erred in modifying the amount of interest rate from 3% monthly to
only 2% considering that petitioner Macalinao freely availed herself of the credit card facility offered by respondent BPI to the general
public. It explained that contracts of adhesion are not invalid per se and are not entirely prohibited.

Petitioner Macalinaos motion for reconsideration was denied by the CA in its Resolution dated November 21, 2006. Hence, petitioner
Macalinao is now before this Court with the following assigned errors:
I.
THE REDUCTION OF INTEREST RATE, FROM 9.25% TO 2%, SHOULD BE UPHELD SINCE THE STIPULATED RATE OF
INTEREST WAS UNCONSCIONABLE AND INIQUITOUS, AND THUS ILLEGAL.
II.
THE COURT OF APPEALS ARBITRARILY MODIFIED THE REDUCED RATE OF INTEREST FROM 2% TO 3%, CONTRARY TO
THE TENOR OF ITS OWN DECISION.
III.
THE COURT A QUO, INSTEAD OF PROCEEDING WITH A RECOMPUTATION, SHOULD HAVE DISMISSED THE CASE FOR
FAILURE OF RESPONDENT BPI TO PROVE THE CORRECT AMOUNT OF PETITIONERS OBLIGATION, OR IN THE
ALTERNATIVE, REMANDED THE CASE TO THE LOWER COURT FOR RESPONDENT BPI TO PRESENT PROOF OF THE
CORRECT AMOUNT THEREOF.
Our Ruling
The petition is partly meritorious.
The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum Should Be Reduced to 2% Per Month or 24% Per
Annum
In its Complaint, respondent BPI originally imposed the interest and penalty charges at the rate of 9.25% per month or 111% per
annum. This was declared as unconscionable by the lower courts for being clearly excessive, and was thus reduced to 2% per month
or 24% per annum. On appeal, the CA modified the rate of interest and penalty charge and increased them to 3% per month or 36%
per annum based on the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, which governs the transaction
between petitioner Macalinao and respondent BPI.
In the instant petition, Macalinao claims that the interest rate and penalty charge of 3% per month imposed by the CA is iniquitous as
the same translates to 36% per annum or thrice the legal rate of interest.15 On the other hand, respondent BPI asserts that said interest
rate and penalty charge are reasonable as the same are based on the Terms and Conditions Governing the Issuance and Use of the
BPI Credit Card.16
We find for petitioner. We are of the opinion that the interest rate and penalty charge of 3% per month should be equitably reduced to
2% per month or 24% per annum.
Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation on the 3% interest
rate. Nevertheless, it should be noted that this is not the first time that this Court has considered the interest rate of 36% per annum as
excessive and unconscionable. We held in Chua vs. Timan:17
The stipulated interest rates of 7% and 5% per month imposed on respondents loans must be equitably reduced to 1% per month or
12% per annum. We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per
month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if
not against the law. While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest
rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte
blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of
their assets. (Emphasis supplied.)
Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts may reduce the interest
rate as reason and equity demand.18
The same is true with respect to the penalty charge. Notably, under the Terms and Conditions Governing the Issuance and Use of the
BPI Credit Card, it was also stated therein that respondent BPI shall impose an additional penalty charge of 3% per month. Pertinently,
Article 1229 of the Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case
since what may be iniquitous and unconscionable in one may be totally just and equitable in another.19
In the instant case, the records would reveal that petitioner Macalinao made partial payments to respondent BPI, as indicated in her
Billing Statements.20 Further, the stipulated penalty charge of 3% per month or 36% per annum, in addition to regular interests, is
indeed iniquitous and unconscionable.
Thus, under the circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA at 1.5% monthly to 1% monthly
and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or 24% per annum in line with the
prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.
There Is No Basis for the Dismissal of the Case,
Much Less a Remand of the Same for Further Reception of Evidence
Petitioner Macalinao claims that the basis of the re-computation of the CA, that is, the amount of PhP 94,843.70 stated on the October
27, 2002 Statement of Account, was not the amount of the principal obligation. Thus, this allegedly necessitates a re-examination of the
evidence presented by the parties. For this reason, petitioner Macalinao further contends that the dismissal of the case or its remand to
the lower court would be a more appropriate disposition of the case.
Such contention is untenable. Based on the records, the summons and a copy of the complaint were served upon petitioner Macalinao
and her husband on May 4, 2004. Nevertheless, they failed to file their Answer despite such service. Thus, respondent BPI moved that
judgment be rendered accordingly.21 Consequently, a decision was rendered by the MeTC on the basis of the evidence submitted by
respondent BPI. This is in consonance with Sec. 6 of the Revised Rule on Summary Procedure, which states:
Sec. 6. Effect of failure to answer. Should the defendant fail to answer the complaint within the period above provided, the court,
motu proprio, or on motion of the plaintiff, shall render judgment as may be warranted by the facts alleged in the complaint and limited
to what is prayed for therein: Provided, however, that the court may in its discretion reduce the amount of damages and attorneys fees
claimed for being excessive or otherwise unconscionable. This is without prejudice to the applicability of Section 3(c), Rule 10 of the
Rules of Court, if there are two or more defendants. (As amended by the 1997 Rules of Civil Procedure; emphasis supplied.)
Considering the foregoing rule, respondent BPI should not be made to suffer for petitioner Macalinaos failure to file an answer and
concomitantly, to allow the latter to submit additional evidence by dismissing or remanding the case for further reception of evidence.
Significantly, petitioner Macalinao herself admitted the existence of her obligation to respondent BPI, albeit with reservation as to the
principal amount. Thus, a dismissal of the case would cause great injustice to respondent BPI. Similarly, a remand of the case for
further reception of evidence would unduly prolong the proceedings of the instant case and render inutile the proceedings conducted
before the lower courts.
Significantly, the CA correctly used the beginning balance of PhP 94,843.70 as basis for the re-computation of the interest considering
that this was the first amount which appeared on the Statement of Account of petitioner Macalinao. There is no other amount on which
the re-computation could be based, as can be gathered from the evidence on record. Furthermore, barring a showing that the factual
findings complained of are totally devoid of support in the record or that they are so glaringly erroneous as to constitute serious abuse
of discretion, such findings must stand, for this Court is not expected or required to examine or contrast the evidence submitted by the
parties.22
In view of the ruling that only 1% monthly interest and 1% penalty charge can be applied to the beginning balance of PhP 94,843.70,
this Court finds the following computation more appropriate:

Statement
Date

Previous
Balance

10/27/2002

94,843.70

11/27/2002

94,843.70

12/31/2002

79,843.70

1/27/2003

Purchases
(Payments)

Balance

Interest
(1%)

Penalty
Charge
(1%)

Total Amount Due for

the Month

94,843.70

948.44

948.44

96,740.58

(15,000)

79,843.70

798.44

798.44

81,440.58

30,308.80

110,152.5
0

1,101.53

1,101.53

112,355.56

110,152.50

110,152.5
0

1,101.53

1,101.53

112,355.56

2/27/2003

110,152.50

110,152.5
0

1,101.53

1,101.53

112,355.56

3/27/2003

110,152.50

92,152.50

921.53

921.53

93,995.56

(18,000.00)

4/27/2003

92,152.50

92,152.50

921.53

921.53

93,995.56

5/27/2003

92,152.50

(10,000.00)

82,152.50

821.53

821.53

83,795.56

6/29/2003

82,152.50

8,362.50
(7,000.00)

83,515.00

835.15

835.15

85,185.30

7/27/2003

83,515.00

83,515.00

835.15

835.15

85,185.30

8/27/2003

83,515.00

83,515.00

835.15

835.15

85,185.30

9/28/2003

83,515.00

83,515.00

835.15

835.15

85,185.30

10/28/2003

83,515.00

83,515.00

835.15

835.15

85,185.30

11/28/2003

83,515.00

83,515.00

835.15

835.15

85,185.30

12/28/2003

83,515.00

83,515.00

835.15

835.15

85,185.30

1/27/2004

83,515.00

83,515.00

835.15

835.15

85,185.30

83,515.00

14,397.26

14,397.2
6

112,309.52

TOTAL

WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated June 30, 2006 in CA-G.R. SP No. 92031 is hereby
MODIFIED with respect to the total amount due, interest rate, and penalty charge. Accordingly, petitioner Macalinao is ordered to pay
respondent BPI the following:
(1) The amount of one hundred twelve thousand three hundred nine pesos and fifty-two centavos (PhP 112,309.52) plus
interest and penalty charges of 2% per month from January 5, 2004 until fully paid;
(2) PhP 10,000 as and by way of attorneys fees; and
(3) Cost of suit.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 162336

February 1, 2010

HILARIO P. SORIANO, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES, BANGKO SENTRAL NG PILIPINAS (BSP), PHILIPPINE DEPOSIT INSURANCE CORPORATION
(PDIC), PUBLIC PROSECUTOR ANTONIO C.BUAN, and STATE PROSECUTOR ALBERTO R. FONACIER, Respondents.
DECISION
DEL CASTILLO, J.:
A bank officer violates the DOSRI2 law when he acquires bank funds for his personal benefit, even if such acquisition was facilitated by
a fraudulent loan application. Directors, officers, stockholders, and their related interests cannot be allowed to interpose the fraudulent
nature of the loan as a defense to escape culpability for their circumvention of Section 83 of Republic Act (RA) No. 337. 3

Before us is a Petition for Review on Certiorari4 under Rule 45 of the Rules of Court, assailing the September 26, 2003 Decision5 and
the February 5, 2004 Resolution6 of the Court of Appeals (CA) in CA-G.R. SP No. 67657. The challenged Decision disposed as follows:
WHEREFORE, premises considered, the instant petition for certiorari is hereby DENIED.7
Factual Antecedents
Sometime in 2000, the Office of Special Investigation (OSI) of the Bangko Sentral ng Pilipinas (BSP), through its officers,8 transmitted a
letter9 dated March 27, 2000 to Jovencito Zuo, Chief State Prosecutor of the Department of Justice (DOJ). The letter attached as
annexes five affidavits,10 which would allegedly serve as bases for filing criminal charges for Estafa thru Falsification of Commercial
Documents, in relation to Presidential Decree (PD) No. 1689,11 and for Violation of Section 83 of RA 337, as amended by PD
1795,12 against, inter alia, petitioner herein Hilario P. Soriano. These five affidavits, along with other documents, stated that spouses
Enrico and Amalia Carlos appeared to have an outstanding loan of P8 million with the Rural Bank of San Miguel (Bulacan), Inc.
(RBSM), but had never applied for nor received such loan; that it was petitioner, who was then president of RBSM, who had ordered,
facilitated, and received the proceeds of the loan; and that the P8 million loan had never been authorized by RBSM's Board of Directors
and no report thereof had ever been submitted to the Department of Rural Banks, Supervision and Examination Sector of the BSP. The
letter of the OSI, which was not subscribed under oath, ended with a request that a preliminary investigation be conducted and the
corresponding criminal charges be filed against petitioner at his last known address.
Acting on the letter-request and its annexes, State Prosecutor Albert R. Fonacier proceeded with the preliminary investigation. He
issued a subpoena with the witnesses affidavits and supporting documents attached, and required petitioner to file his counter-affidavit.
In due course, the investigating officer issued a Resolution finding probable cause and correspondingly filed two separate informations
against petitioner before the Regional Trial Court (RTC) of Malolos, Bulacan.13
The first Information,14 dated November 14, 2000 and docketed as Criminal Case No. 237-M-2001, was for estafa through falsification
of commercial documents, under Article 315, paragraph 1(b), of the Revised Penal Code (RPC), in relation to Article 172 of the RPC
and PD 1689. It basically alleged that petitioner and his co-accused, in abuse of the confidence reposed in them as RBSM officers,
caused the falsification of a number of loan documents, making it appear that one Enrico Carlos filled up the same, and thereby
succeeded in securing a loan and converting the loan proceeds for their personal gain and benefit.15 The information reads:
That in or about the month of April, 1997, and thereafter, in San Miguel, Bulacan, and within the jurisdiction of this Honorable Court, the
said accused HILARIO P. SORIANO and ROSALINDA ILAGAN, as principals by direct participation, with unfaithfulness or abuse of
confidence and taking advantage of their position as President of the Rural Bank of San Miguel (Bulacan), Inc. and Branch Manager of
the Rural Bank of San Miguel San Miguel Branch [sic], a duly organized banking institution under Philippine Laws, conspiring,
confederating and mutually helping one another, did then and there, willfully and feloniously falsify loan documents consisting of
undated loan application/information sheet, credit proposal dated April 14, 1997, credit proposal dated April 22, 1997, credit
investigation report dated April 15, 1997, promissory note dated April 23, 1997, disclosure statement on loan/credit transaction dated
April 23, 1997, and other related documents, by making it appear that one Enrico Carlos filled up the application/information sheet and
filed the aforementioned loan documents when in truth and in fact Enrico Carlos did not participate in the execution of said loan
documents and that by virtue of said falsification and with deceit and intent to cause damage, the accused succeeded in securing a
loan in the amount of eight million pesos (PhP8,000,000.00) from the Rural Bank of San Miguel San Ildefonso branch in the name of
Enrico Carlos which amount of PhP8 million representing the loan proceeds the accused thereafter converted the same amount to their
own personal gain and benefit, to the damage and prejudice of the Rural Bank of San Miguel San Ildefonso branch, its creditors, the
Bangko Sentral ng Pilipinas, and the Philippine Deposit Insurance Corporation.
CONTRARY TO LAW.16
The other Information17 dated November 10, 2000 and docketed as Criminal Case No. 238-M-2001, was for violation of Section 83 of
RA 337, as amended by PD 1795. The said provision refers to the prohibition against the so-called DOSRI loans. The information
alleged that, in his capacity as President of RBSM, petitioner indirectly secured an P8 million loan with RBSM, for his personal use and
benefit, without the written consent and approval of the bank's Board of Directors, without entering the said transaction in the bank's
records, and without transmitting a copy of the transaction to the supervising department of the bank. His ruse was facilitated by placing
the loan in the name of an unsuspecting RBSM depositor, one Enrico Carlos.18 The information reads:
That in or about the month of April, 1997, and thereafter, and within the jurisdiction of this Honorable Court, the said accused, in his
capacity as President of the Rural Bank of San Miguel (Bulacan), Inc., did then and there, willfully and feloniously indirectly borrow or
secure a loan with the Rural Bank of San Miguel San Ildefonso branch, a domestic rural banking institution created, organized and
existing under Philippine laws, amounting to eight million pesos (PhP8,000,000.00), knowing fully well that the same has been done by
him without the written consent and approval of the majority of the board of directors of the said bank, and which consent and approval
the said accused deliberately failed to obtain and enter the same upon the records of said banking institution and to transmit a copy
thereof to the supervising department of the said bank, as required by the General Banking Act, by using the name of one depositor
Enrico Carlos of San Miguel, Bulacan, the latter having no knowledge of the said loan, and one in possession of the said amount of
eight million pesos (PhP8,000,000.00), accused converted the same to his own personal use and benefit, in flagrant violation of the
said law.
CONTRARY TO LAW.19

Both cases were raffled to Branch 79 of the RTC of Malolos, Bulacan.20

On June 8, 2001, petitioner moved to quash21 these informations on two grounds: that the court had no jurisdiction over the offense
charged, and that the facts charged do not constitute an offense.
On the first ground, petitioner argued that the letter transmitted by the BSP to the DOJ constituted the complaint and hence was
defective for failure to comply with the mandatory requirements of Section 3(a), Rule 112 of the Rules of Court, such as the statement
of address of petitioner and oath and subscription.22 Moreover, petitioner argued that the officers of OSI, who were the signatories to the
"letter-complaint," were not authorized by the BSP Governor, much less by the Monetary Board, to file the complaint. According to
petitioner, this alleged fatal oversight violated Section 18, pars. (c) and (d) of the New Central Bank Act (RA 7653).
On the second ground, petitioner contended that the commission of estafa under paragraph 1(b) of Article 315 of the RPC is inherently
incompatible with the violation of DOSRI law (as set out in Section 8323 of RA 337, as amended by PD 1795),24 hence a person cannot
be charged for both offenses. He argued that a violation of DOSRI law requires the offender to obtain a loan from his bank, without
complying with procedural, reportorial, or ceiling requirements. On the other hand, estafa under par. 1(b), Article 315 of the RPC
requires the offender to misappropriate or convert something that he holds in trust, or on commission, or for administration, or
under any other obligation involving the duty to return the same.25
Essentially, the petitioner theorized that the characterization of possession is different in the two offenses. If petitioner acquired the loan
as DOSRI, he owned the loaned money and therefore, cannot misappropriate or convert it as contemplated in the offense of estafa.
Conversely, if petitioner committed estafa, then he merely held the money in trust for someone else and therefore, did not acquire a
loan in violation of DOSRI rules.
Ruling of the Regional Trial Court
In an Order26 dated August 8, 2001, the trial court denied petitioner's Motion to Quash for lack of merit. The lower court agreed with the
prosecution that the assailed OSI letter was not the complaint-affidavit itself; thus, it need not comply with the requirements under the
Rules of Court. The trial court held that the affidavits, which were attached to the OSI letter, comprised the complaint-affidavit in the
case. Since these affidavits were duly subscribed and sworn to before a notary public, there was adequate compliance with the Rules.
The trial court further held that the two offenses were separate and distinct violations, hence the prosecution of one did not pose a bar
to the other.27
Petitioners Motion for Reconsideration was likewise denied in an Order dated September 5, 2001.28
Aggrieved, petitioner filed a Petition for Certiorari29 with the CA, reiterating his arguments before the trial court.
Ruling of the Court of Appeals
The CA denied the petition on both issues presented by petitioner.
On the first issue, the CA determined that the BSP letter, which petitioner characterized to be a fatally infirm complaint, was not actually
a complaint, but a transmittal or cover letter only. This transmittal letter merely contained a summary of the affidavits which were
attached to it. It did not contain any averment of personal knowledge of the events and transactions that constitute the elements of the
offenses charged. Being a mere transmittal letter, it need not comply with the requirements of Section 3(a) of Rule 112 of the Rules of
Court.30
The CA further determined that the five affidavits attached to the transmittal letter should be considered as the complaint-affidavits that
charged petitioner with violation of Section 83 of RA 337 and for Estafa thru Falsification of Commercial Documents. These complaintaffidavits complied with the mandatory requirements set out in the Rules of Court they were subscribed and sworn to before a notary
public and subsequently certified by State Prosecutor Fonacier, who personally examined the affiants and was convinced that the
affiants fully understood their sworn statements.31
Anent the second ground, the CA found no merit in petitioner's argument that the violation of the DOSRI law and the commission of
estafa thru falsification of commercial documents are inherently inconsistent with each other. It explained that the test in considering a
motion to quash on the ground that the facts charged do not constitute an offense, is whether the facts alleged, when hypothetically
admitted, constitute the elements of the offense charged. The appellate court held that this test was sufficiently met because the
allegations in the assailed informations, when hypothetically admitted, clearly constitute the elements of Estafa thru Falsification of
Commercial Documents and Violation of DOSRI law.32
Petitioners Motion for Reconsideration33 was likewise denied for lack of merit.
Hence, this petition.

Issues
Restated, petitioner raises the following issues34 for our consideration:
I
Whether the complaint complied with the mandatory requirements provided under Section 3(a), Rule 112 of the Rules of Court and
Section 18, paragraphs (c) and (d) of RA 7653.
II
Whether a loan transaction within the ambit of the DOSRI law (violation of Section 83 of RA 337, as amended) could also be the subject
of Estafa under Article 315 (1) (b) of the Revised Penal Code.
III
Is a petition for certiorari under Rule 65 the proper remedy against an Order denying a Motion to Quash?
IV
Whether petitioner is entitled to a writ of injunction.
Our Ruling
The petition lacks merit.
First Issue:
Whether the complaint complied with the mandatory requirements provided under Section 3(a), Rule 112 of the Rules of Court
and Section 18, paragraphs (c) and (d) of
Republic Act No. 7653
Petitioner moved to withdraw the first issue from the instant petition
On March 5, 2007, the Court noted35 petitioner's Manifestation and Motion for Partial Withdrawal of the Petition36dated February 7, 2007.
In the said motion, petitioner informed the Court of the promulgation of a Decision entitledSoriano v. Hon. Casanova,37 which also
involved petitioner and similar BSP letters to the DOJ. According to petitioner, the said Decision allegedly ruled squarely on the nature
of the BSP letters and the validity of the sworn affidavits attached thereto. For this reason, petitioner moved for the partial withdrawal of
the instant petition insofar as it involved the issue of "whether or not a court can legally acquire jurisdiction over a complaint which failed
to comply with the mandatory requirements provided under Section 3(a), Rule 112 of the Rules of Court and Section 18, paragraphs (c)
and (d) of RA 7653".38
Given that the case had already been submitted for resolution of the Court when petitioner filed his latest motion, and that all
respondents had presented their positions and arguments on the first issue, the Court deems it proper to rule on the same.
In Soriano v. Hon. Casanova, the Court held that the affidavits attached to the BSP transmittal letter complied with the mandatory
requirements under the Rules of Court.
To be sure, the BSP letters involved in Soriano v. Hon. Casanova39 are not the same as the BSP letter involved in the instant case.
However, the BSP letters in Soriano v. Hon. Casanova and the BSP letter subject of this case are similar in the sense that they are all
signed by the OSI officers of the BSP, they were not sworn to by the said officers, they all contained summaries of their attached
affidavits, and they all requested the conduct of a preliminary investigation and the filing of corresponding criminal charges against
petitioner Soriano. Thus, the principle of stare decisis dictates that the ruling in Soriano v. Hon. Casanova be applied in the instant case
once a question of law has been examined and decided, it should be deemed settled and closed to further argument.40
We held in Soriano v. Hon. Casanova, after a close scrutiny of the letters transmitted by the BSP to the DOJ, that these were not
intended to be the complaint, as envisioned under the Rules. They did not contain averments of personal knowledge of the events and
transactions constitutive of any offense. The letters merely transmitted for preliminary investigation the affidavits of people who had
personal knowledge of the acts of petitioner. We ruled that these affidavits, not the letters transmitting them, initiated the preliminary
investigation. Since these affidavits were subscribed under oath by the witnesses who executed them before a notary public, then there
was substantial compliance with Section 3(a), Rule 112 of the Rules of Court.

Anent the contention that there was no authority from the BSP Governor or the Monetary Board to file a criminal case against Soriano,
we held that the requirements of Section 18, paragraphs (c) and (d) of RA 7653 did not apply because the BSP did not institute the
complaint but merely transmitted the affidavits of the complainants to the DOJ.
We further held that since the offenses for which Soriano was charged were public crimes, authority holds that it can be initiated by
"any competent person" with personal knowledge of the acts committed by the offender. Thus, the witnesses who executed the
affidavits clearly fell within the purview of "any competent person" who may institute the complaint for a public crime.
The ruling in Soriano v. Hon. Casanova has been adopted and elaborated upon in the recent case of Santos-Concio v. Department of
Justice.41 Instead of a transmittal letter from the BSP, the Court in Santos-Concio was faced with an NBI-NCR Report, likewise with
affidavits of witnesses as attachments. Ruling on the validity of the witnesses sworn affidavits as bases for a preliminary investigation,
we held:
The Court is not unaware of the practice of incorporating all allegations in one document denominated as "complaint-affidavit." It does
not pronounce strict adherence to only one approach, however, for there are cases where the extent of ones personal knowledge may
not cover the entire gamut of details material to the alleged offense. The private offended party or relative of the deceased may not
even have witnessed the fatality, in which case the peace officer or law enforcer has to rely chiefly on affidavits of witnesses. The Rules
do not in fact preclude the attachment of a referral or transmittal letter similar to that of the NBI-NCR. Thus, in Soriano v. Casanova, the
Court held:
A close scrutiny of the letters transmitted by the BSP and PDIC to the DOJ shows that these were not intended to be the complaint
envisioned under the Rules. It may be clearly inferred from the tenor of the letters that the officers merely intended to transmit the
affidavits of the bank employees to the DOJ. Nowhere in the transmittal letters is there any averment on the part of the BSP and PDIC
officers of personal knowledge of the events and transactions constitutive of the criminal violations alleged to have been made by the
accused. In fact, the letters clearly stated that what the OSI of the BSP and the LIS of the PDIC did was to respectfully transmit to the
DOJ for preliminary investigation the affidavits and personal knowledge of the acts of the petitioner. These affidavits were subscribed
under oath by the witnesses who executed them before a notary public. Since the affidavits, not the letters transmitting them, were
intended to initiate the preliminary investigation, we hold that Section 3(a), Rule 112 of the Rules of Court was substantially complied
with.
Citing the ruling of this Court in Ebarle v. Sucaldito, the Court of Appeals correctly held that a complaint for purposes of preliminary
investigation by the fiscal need not be filed by the offended party. The rule has been that,unless the offense subject thereof is one
that cannot be prosecuted de oficio, the same may be filed, for preliminary investigation purposes, by any competent person. The
crime of estafa is a public crime which can be initiated by "any competent person." The witnesses who executed the affidavits based on
their personal knowledge of the acts committed by the petitioner fall within the purview of "any competent person" who may institute the
complaint for a public crime. x x x (Emphasis and italics supplied)
A preliminary investigation can thus validly proceed on the basis of an affidavit of any competent person, without the referral document,
like the NBI-NCR Report, having been sworn to by the law enforcer as the nominal complainant. To require otherwise is a needless
exercise. The cited case of Oporto, Jr. v. Judge Monserate does not appear to dent this proposition. After all, what is required is
to reduce the evidence into affidavits, for while reports and even raw information may justify the initiation of an investigation, the
preliminary investigation stage can be held only after sufficient evidence has been gathered and evaluated which may warrant the
eventual prosecution of the case in court.42
Following the foregoing rulings in Soriano v. Hon. Casanova and Santos-Concio v. Department of Justice, we hold that the BSP letter,
taken together with the affidavits attached thereto, comply with the requirements provided under Section 3(a), Rule 112 of the Rules of
Court and Section 18, paragraphs (c) and (d) of RA 7653.
Second Issue:
Whether a loan transaction within the ambit of the DOSRI law (violation of Section 83 of RA 337, as amended) could be the subject of
Estafa under Article 315 (1) (b) of the
Revised Penal Code
The second issue was raised by petitioner in the context of his Motion to Quash Information on the ground that the facts charged do not
constitute an offense.43 It is settled that in considering a motion to quash on such ground, the test is "whether the facts alleged, if
hypothetically admitted, would establish the essential elements of the offense charged as defined by law. The trial court may not
consider a situation contrary to that set forth in the criminal complaint or information. Facts that constitute the defense of the
petitioner[s] against the charge under the information must be proved by [him] during trial. Such facts or circumstances do not
constitute proper grounds for a motion to quash the information on the ground that the material averments do not constitute the
offense". 44
We have examined the two informations against petitioner and we find that they contain allegations which, if hypothetically admitted,
would establish the essential elements of the crime of DOSRI violation and estafa thru falsification of commercial documents.

In Criminal Case No. 238-M-2001 for violation of DOSRI rules, the information alleged that petitioner Soriano was the president of
RBSM; that he was able to indirectly obtain a loan from RBSM by putting the loan in the name of depositor Enrico Carlos; and that he
did this without complying with the requisite board approval, reportorial, and ceiling requirements.
In Criminal Case No. 237-M-2001 for estafa thru falsification of commercial documents, the information alleged that petitioner, by taking
advantage of his position as president of RBSM, falsified various loan documents to make it appear that an Enrico Carlos secured a
loan of P8 million from RBSM; that petitioner succeeded in obtaining the loan proceeds; that he later converted the loan proceeds to his
own personal gain and benefit; and that his action caused damage and prejudice to RBSM, its creditors, the BSP, and the PDIC.
Significantly, this is not the first occasion that we adjudge the sufficiency of similarly worded informations. In Soriano v.
People,45 involving the same petitioner in this case (but different transactions), we also reviewed the sufficiency of informations for
DOSRI violation and estafa thru falsification of commercial documents, which were almost identical, mutatis mutandis, with the subject
informations herein. We held in Soriano v. People that there is no basis for the quashal of the informations as "they contain material
allegations charging Soriano with violation of DOSRI rules and estafa thru falsification of commercial documents".
Petitioner raises the theory that he could not possibly be held liable for estafa in concurrence with the charge for DOSRI violation.
According to him, the DOSRI charge presupposes that he acquired a loan, which would make the loan proceeds his own money and
which he could neither possibly misappropriate nor convert to the prejudice of another, as required by the statutory definition of
estafa.46 On the other hand, if petitioner did not acquire any loan, there can be no DOSRI violation to speak of. Thus, petitioner posits
that the two offenses cannot co-exist. This theory does not persuade us.
Petitioners theory is based on the false premises that the loan was extended to him by the bank in his own name, and that he became
the owner of the loan proceeds. Both premises are wrong.
The bank money (amounting to P8 million) which came to the possession of petitioner was money held in trust or administration by him
for the bank, in his
fiduciary capacity as the President of said bank.47 It is not accurate to say that petitioner became the owner of theP8 million because it
was the proceeds of a loan. That would have been correct if the bank knowingly extended the loan to petitioner himself. But that is not
the case here. According to the information for estafa, the loan was supposed to be for another person, a certain "Enrico Carlos";
petitioner, through falsification, made it appear that said "Enrico Carlos" applied for the loan when in fact he ("Enrico Carlos") did not.
Through such fraudulent device, petitioner obtained the loan proceeds and converted the same. Under these circumstances, it cannot
be said that petitioner became the legal owner of the P8 million. Thus, petitioner remained the banks fiduciary with respect to that
money, which makes it capable of misappropriation or conversion in his hands.
The next question is whether there can also be, at the same time, a charge for DOSRI violation in such a situation wherein the accused
bank officer did not secure a loan in his own name, but was alleged to have used the name of another person in order to indirectly
secure a loan from the bank. We answer this in the affirmative. Section 83 of RA 337 reads:
Section 83. No director or officer of any banking institution shall, either directly or indirectly, for himself or as the representative or agent
of others, borrow any of the deposits of funds of such bank, nor shall he become a guarantor, indorser, or surety for loans from such
bank to others, or in any manner be an obligor for moneys borrowed from the bank or loaned by it, except with the written approval of
the majority of the directors of the bank, excluding the director concerned. Any such approval shall be entered upon the records of the
corporation and a copy of such entry shall be transmitted forthwith to the Superintendent of Banks. The office of any director or officer
of a bank who violates the provisions of this section shall immediately become vacant and the director or officer shall be punished by
imprisonment of not less than one year nor more than ten years and by a fine of not less than one thousand nor more than ten
thousand pesos. x x x
The prohibition in Section 83 is broad enough to cover various modes of borrowing.[48] It covers loans by a bank director or officer (like
herein petitioner) which are made either: (1) directly, (2) indirectly, (3) for himself, (4) or as the representative or agent of others. It
applies even if the director or officer is a mere guarantor, indorser or surety for someone else's loan or is in any manner an obligor for
money borrowed from the bank or loaned by it. The covered transactions are prohibited unless the approval, reportorial and ceiling
requirements under Section 83 are complied with. The prohibition is intended to protect the public, especially the depositors,[49] from
the overborrowing of bank funds by bank officers, directors, stockholders and related interests, as such overborrowing may lead to
bank failures.[50] It has been said that "banking institutions are not created for the benefit of the directors [or officers]. While directors
have great powers as directors, they have no special privileges as individuals. They cannot use the assets of the bank for their own
benefit except as permitted by law. Stringent restrictions are placed about them so that when acting both for the bank and for one of
themselves at the same time, they must keep within certain prescribed lines regarded by the legislature as essential to safety in the
banking business".51
A direct borrowing is obviously one that is made in the name of the DOSRI himself or where the DOSRI is a named party, while an
indirect borrowing includes one that is made by a third party, but the DOSRI has a stake in the transaction.52 The latter type indirect
borrowing applies here. The information in Criminal Case 238-M-2001 alleges that petitioner "in his capacity as President of Rural
Bank of San Miguel San Ildefonso branch x x x indirectly borrow[ed] or secure[d] a loan with [RBSM] x x x knowing fully well that the
same has been done by him without the written consent and approval of the majority of the board of directors x x x, and which consent
and approval the said accused deliberately failed to obtain and enter the same upon the records of said banking institution and to

transmit a copy thereof to the supervising department of the said bank x x x by using the name of one depositor Enrico Carlos x x x, the
latter having no knowledge of the said loan, and once in possession of the said amount of eight million pesos (P8 million), [petitioner]
converted the same to his own personal use and benefit".53
The foregoing information describes the manner of securing the loan as indirect; names petitioner as the benefactor of the indirect loan;
and states that the requirements of the law were not complied with. It contains all the required elements54 for a violation of Section 83,
even if petitioner did not secure the loan in his own name.
The broad interpretation of the prohibition in Section 83 is justified by the fact that it even expressly covers loans to third parties where
the third parties are aware of the transaction (such as principals represented by the DOSRI), and where the DOSRIs interest does not
appear to be beneficial but even burdensome (such as in cases when the DOSRI acts as a mere guarantor or surety). If the law finds it
necessary to protect the bank and the banking system in such situations, it will surely be illogical for it to exclude a case like this where
the DOSRI acted for his own benefit, using the name of an unsuspecting person. A contrary interpretation will effectively allow a DOSRI
to use dummies to circumvent the requirements of the law.
In sum, the informations filed against petitioner do not negate each other.
Third Issue:
Is a Rule 65 petition for certiorari the proper remedy against an Order denying a Motion to Quash?
This issue may be speedily resolved by adopting our ruling in Soriano v. People,55 where we held:
In fine, the Court has consistently held that a special civil action for certiorari is not the proper remedy to assail the denial of a motion to
quash an information. The proper procedure in such a case is for the accused to enter a plea, go to trial without prejudice on his part to
present the special defenses he had invoked in his motion to quash and if after trial on the merits, an adverse decision is rendered, to
appeal therefrom in the manner authorized by law. Thus, petitioners should not have forthwith filed a special civil action
for certiorari with the CA and instead, they should have gone to trial and reiterated the special defenses contained in their motion to
quash. There are no special or exceptional circumstances in the present case that would justify immediate resort to a filing of a petition
for certiorari. Clearly, the CA did not commit any reversible error, much less, grave abuse of discretion in dismissing the petition.56
Fourth Issue:
Whether petitioner is entitled to a writ of injunction
The requisites to justify an injunctive relief are: (1) the right of the complainant is clear and unmistakable; (2) the invasion of the right
sought to be protected is material and substantial; and (3) there is an urgent and paramount necessity for the writ to prevent serious
damage. A clear legal right means one clearly founded in or granted by law or is "enforceable as a matter of law." Absent any clear and
unquestioned legal right, the issuance of an injunctive writ would constitute grave abuse of discretion.57 Caution and prudence must, at
all times, attend the issuance of an injunctive writ because it effectively disposes of the main case without trial and/or due
process.58 InOlalia v. Hizon,59 the Court held as follows:
It has been consistently held that there is no power the exercise of which is more delicate, which requires greater caution, deliberation
and sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction. It is the strong arm of equity that should
never be extended unless to cases of great injury, where courts of law cannot afford an adequate or commensurate remedy in
damages.
Every court should remember that an injunction is a limitation upon the freedom of action of the [complainant] and should not be
granted lightly or precipitately. It should be granted only when the court is fully satisfied that the law permits it and the emergency
demands it.
Given this Court's findings in the earlier issues of the instant case, we find no compelling reason to grant the injunctive relief sought by
petitioner.
WHEREFORE, the petition is DENIED. The assailed September 26, 2003 Decision as well as the February 5, 2004 Resolution of the
Court of Appeals in CA-G.R. SP No. 67657 are AFFIRMED. Costs against petitioner.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
WE CONCUR:

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 168644

February 16, 2010

BSB GROUP, INC., represented by its President, Mr. RICARDO BANGAYAN, Petitioner,
vs.
SALLY GO a.k.a. SALLY GO-BANGAYAN, Respondent.
DECISION
PERALTA, J.:
This is a Petition for Review under Rule 45 of the Rules of Court assailing the Decision of the Court of Appeals in CA-G.R. SP No.
876001 dated April 20, 2005, which reversed and set aside the September 13, 20042 and November 5, 20043 Orders issued by the
Regional Trial Court of Manila, Branch 364 in Criminal Case No. 02-202158 for qualified theft. The said orders, in turn, respectively
denied the motion filed by herein respondent Sally Go for the suppression of the testimonial and documentary evidence relative to a
Security Bank account, and denied reconsideration.
The basic antecedents are no longer disputed.
Petitioner, the BSB Group, Inc., is a duly organized domestic corporation presided by its herein representative, Ricardo Bangayan
(Bangayan). Respondent Sally Go, alternatively referred to as Sally Sia Go and Sally Go-Bangayan, is Bangayans wife, who was
employed in the company as a cashier, and was engaged, among others, to receive and account for the payments made by the various
customers of the company.
In 2002, Bangayan filed with the Manila Prosecutors Office a complaint for estafa and/or qualified theft5 against respondent, alleging
that several checks6 representing the aggregate amount of P1,534,135.50 issued by the companys customers in payment of their
obligation were, instead of being turned over to the companys coffers, indorsed by respondent who deposited the same to her personal
banking account maintained at Security Bank and Trust Company (Security Bank) in Divisoria, Manila Branch.7 Upon a finding that the
evidence adduced was uncontroverted, the assistant city prosecutor recommended the filing of the Information for qualified theft
against respondent.8
Accordingly, respondent was charged before the Regional Trial Court of Manila, Branch 36, in an Information, the inculpatory portion of
which reads:
That in or about or sometime during the period comprised (sic) between January 1988 [and] October 1989, inclusive, in the City of
Manila, Philippines, the said accused did then and there willfully, unlawfully and feloniously with intent [to] gain and without the
knowledge and consent of the owner thereof, take, steal and carry away cash money in the total amount of P1,534,135.50 belonging to
BSB GROUP OF COMPANIES represented by RICARDO BANGAYAN, to the damage and prejudice of said owner in the aforesaid
amount of P1,534,135.50, Philippine currency.
That in the commission of the said offense, said accused acted with grave abuse of confidence, being then employed as cashier by
said complainant at the time of the commission of the said offense and as such she was entrusted with the said amount of money.

Contrary to law.9
Respondent entered a negative plea when arraigned.10 The trial ensued. On the premise that respondent had allegedly encashed the
subject checks and deposited the corresponding amounts thereof to her personal banking account, the prosecution moved for the
issuance of subpoena duces tecum /ad testificandum against the respective managers or records custodians of Security Banks
Divisoria Branch, as well as of the Asian Savings Bank (now Metropolitan Bank & Trust Co. [Metrobank]), in Jose Abad Santos, Tondo,
Manila Branch.11 The trial court granted the motion and issued the corresponding subpoena.12
Respondent filed a motion to quash the subpoena dated November 4, 2003, addressed to Metrobank, noting to the court that in the
complaint-affidavit filed with the prosecutor, there was no mention made of the said bank account, to which respondent, in addition to
the Security Bank account identified as Account No. 01-14-006, allegedly deposited the proceeds of the supposed checks.
Interestingly, while respondent characterized the Metrobank account as irrelevant to the case, she, in the same motion, nevertheless
waived her objection to the irrelevancy of the Security Bank account mentioned in the same complaint-affidavit, inasmuch as she was
admittedly willing to address the allegations with respect thereto.13
Petitioner, opposing respondents move, argued for the relevancy of the Metrobank account on the ground that the complaint-affidavit
showed that there were two checks which respondent allegedly deposited in an account with the said bank.14 To this, respondent filed a
supplemental motion to quash, invoking the absolutely confidential nature of the Metrobank account under the provisions of Republic
Act (R.A.) No. 1405.15 The trial court did not sustain respondent; hence, it denied the motion to quash for lack of merit.16
Meanwhile, the prosecution was able to present in court the testimony of Elenita Marasigan (Marasigan), the representative of Security
Bank. In a nutshell, Marasigans testimony sought to prove that between 1988 and 1989, respondent, while engaged as cashier at the
BSB Group, Inc., was able to run away with the checks issued to the company by its customers, endorse the same, and credit the
corresponding amounts to her personal deposit account with Security Bank. In the course of the testimony, the subject checks were
presented to Marasigan for identification and marking as the same checks received by respondent, endorsed, and then deposited in her
personal account with Security Bank.17 But before the testimony could be completed, respondent filed a Motion to Suppress,18 seeking
the exclusion of Marasigans testimony and accompanying documents thus far received, bearing on the subject Security Bank account.
This time respondent invokes, in addition to irrelevancy, the privilege of confidentiality under R.A. No. 1405.
The trial court, nevertheless, denied the motion in its September 13, 2004 Order.19 A motion for reconsideration was subsequently filed,
but it was also denied in the Order dated November 5, 2004.20 These two orders are the subject of the instant case.
Aggrieved, and believing that the trial court gravely abused its discretion in acting the way it did, respondent elevated the matter to the
Court of Appeals via a petition for certiorari under Rule 65. Finding merit in the petition, the Court of Appeals reversed and set aside the
assailed orders of the trial court in its April 20, 2005 Decision.21The decision reads:
WHEREFORE, the petition is hereby GRANTED. The assailed orders dated September 13, 2004 and November 5, 2004 are
REVERSED and SET ASIDE. The testimony of the SBTC representative is ordered stricken from the records.
SO ORDERED.22
With the denial of its motion for reconsideration,23 petitioner is now before the Court pleading the same issues as those raised before
the lower courts.
In this Petition24 under Rule 45, petitioner averred in the main that the Court of Appeals had seriously erred in reversing the assailed
orders of the trial court, and in effect striking out Marasigans testimony dealing with respondents deposit account with Security
Bank.25 It asserted that apart from the fact that the said evidence had a direct relation to the subject matter of the case for qualified theft
and, hence, brings the case under one of the exceptions to the coverage of confidentiality under R.A. 1405.26 Petitioner believed that
what constituted the subject matter in litigation was to be determined by the allegations in the information and, in this respect, it alluded
to the assailed November 5, 2004 Order of the trial court, which declared to be erroneous the limitation of the present inquiry merely to
what was contained in the information.27
For her part, respondent claimed that the money represented by the Security Bank account was neither relevant nor material to the
case, because nothing in the criminal information suggested that the money therein deposited was the subject matter of the case. She
invited particular attention to that portion of the criminal Information which averred that she has stolen and carried away cash money in
the total amount of P1,534,135.50. She advanced the notion that the term "cash money" stated in the Information was not synonymous
with the checks she was purported to have stolen from petitioner and deposited in her personal banking account. Thus, the checks
which the prosecution had Marasigan identify, as well as the testimony itself of Marasigan, should be suppressed by the trial court at
least for violating respondents right to due process.28 More in point, respondent opined that admitting the testimony of Marasigan, as
well as the evidence pertaining to the Security Bank account, would violate the secrecy rule under R.A. No. 1405.29
In its reply, petitioner asserted the sufficiency of the allegations in the criminal Information for qualified theft, as the same has
sufficiently alleged the elements of the offense charged. It posits that through Marasigans testimony, the Court would be able to
establish that the checks involved, copies of which were attached to the complaint-affidavit filed with the prosecutor, had indeed been
received by respondent as cashier, but were, thereafter, deposited by the latter to her personal account with Security Bank. Petitioner

held that the checks represented the cash money stolen by respondent and, hence, the subject matter in this case is not only the cash
amount represented by the checks supposedly stolen by respondent, but also the checks themselves.30
We derive from the conflicting advocacies of the parties that the issue for resolution is whether the testimony of Marasigan and the
accompanying documents are irrelevant to the case, and whether they are also violative of the absolutely confidential nature of bank
deposits and, hence, excluded by operation of R.A. No. 1405. The question of admissibility of the evidence thus comes to the fore. And
the Court, after deliberative estimation, finds the subject evidence to be indeed inadmissible.
Prefatorily, fundamental is the precept in all criminal prosecutions, that the constitutive acts of the offense must be established with
unwavering exactitude and moral certainty because this is the critical and only requisite to a finding of guilt. 31 Theft is present when a
person, with intent to gain but without violence against or intimidation of persons or force upon things, takes the personal property of
another without the latters consent. It is qualified when, among others, and as alleged in the instant case, it is committed with abuse of
confidence.32 The prosecution of this offense necessarily focuses on the existence of the following elements: (a) there was taking of
personal property belonging to another; (b) the taking was done with intent to gain; (c) the taking was done without the consent of the
owner; (d) the taking was done without violence against or intimidation of persons or force upon things; and (e) it was done with abuse
of confidence.33 In turn, whether these elements concur in a way that overcomes the presumption of guiltlessness, is a question that
must pass the test of relevancy and competency in accordance with Section 334 Rule 128 of the Rules of Court.
Thus, whether these pieces of evidence sought to be suppressed in this case the testimony of Marasigan, as well as the checks
purported to have been stolen and deposited in respondents Security Bank account are relevant, is to be addressed by considering
whether they have such direct relation to the fact in issue as to induce belief in its existence or non-existence; or whether they relate
collaterally to a fact from which, by process of logic, an inference may be made as to the existence or non-existence of the fact in
issue.35
The fact in issue appears to be that respondent has taken away cash in the amount of P1,534,135.50 from the coffers of petitioner. In
support of this allegation, petitioner seeks to establish the existence of the elemental act of taking by adducing evidence that
respondent, at several times between 1988 and 1989, deposited some of its checks to her personal account with Security Bank.
Petitioner addresses the incongruence between the allegation of theft of cash in the Information, on the one hand, and the evidence
that respondent had first stolen the checks and deposited the same in her banking account, on the other hand, by impressing upon the
Court that there obtains no difference between cash and check for purposes of prosecuting respondent for theft of cash. Petitioner is
mistaken.
In theft, the act of unlawful taking connotes deprivation of personal property of one by another with intent to gain, and it is immaterial
that the offender is able or unable to freely dispose of the property stolen because the deprivation relative to the offended party has
already ensued from such act of execution.36 The allegation of theft of money, hence, necessitates that evidence presented must have a
tendency to prove that the offender has unlawfully taken money belonging to another. Interestingly, petitioner has taken pains in
attempting to draw a connection between the evidence subject of the instant review, and the allegation of theft in the Information by
claiming that respondent had fraudulently deposited the checks in her own name. But this line of argument works more prejudice than
favor, because it in effect, seeks to establish the commission, not of theft, but rather of some other crime probably estafa.
Moreover, that there is no difference between cash and check is true in other instances. In estafa by conversion, for instance, whether
the thing converted is cash or check, is immaterial in relation to the formal allegation in an information for that offense; a check, after all,
while not regarded as legal tender, is normally accepted under commercial usage as a substitute for cash, and the credit it represents
in stated monetary value is properly capable of appropriation. And it is in this respect that what the offender does with the check
subsequent to the act of unlawfully taking it becomes material inasmuch as this offense is a continuing one.37 In other words, in
pursuing a case for this offense, the prosecution may establish its cause by the presentation of the checks involved. These checks
would then constitute the best evidence to establish their contents and to prove the elemental act of conversion in support of the
proposition that the offender has indeed indorsed the same in his own name.38
Theft, however, is not of such character. Thus, for our purposes, as the Information in this case accuses respondent of having stolen
cash, proof tending to establish that respondent has actualized her criminal intent by indorsing the checks and depositing the proceeds
thereof in her personal account, becomes not only irrelevant but also immaterial and, on that score, inadmissible in evidence.
We now address the issue of whether the admission of Marasigans testimony on the particulars of respondents account with Security
Bank, as well as of the corresponding evidence of the checks allegedly deposited in said account, constitutes an unallowable inquiry
under R.A. 1405.
It is conceded that while the fundamental law has not bothered with the triviality of specifically addressing privacy rights relative to
banking accounts, there, nevertheless, exists in our jurisdiction a legitimate expectation of privacy governing such accounts. The source
of this right of expectation is statutory, and it is found in R.A. No. 1405,39otherwise known as the Bank Secrecy Act of 1955. 40
R.A. No. 1405 has two allied purposes. It hopes to discourage private hoarding and at the same time encourage the people to deposit
their money in banking institutions, so that it may be utilized by way of authorized loans and thereby assist in economic
development.41 Owing to this piece of legislation, the confidentiality of bank deposits remains to be a basic state policy in the
Philippines.42 Section 2 of the law institutionalized this policy by characterizing as absolutely confidential in general all deposits of
whatever nature with banks and other financial institutions in the country. It declares:

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.
1avvphi1

Subsequent statutory enactments43 have expanded the list of exceptions to this policy yet the secrecy of bank deposits still lies as the
general rule, falling as it does within the legally recognized zones of privacy.44 There is, in fact, much disfavor to construing these
primary and supplemental exceptions in a manner that would authorize unbridled discretion, whether governmental or otherwise, in
utilizing these exceptions as authority for unwarranted inquiry into bank accounts. It is then perceivable that the present legal order is
obliged to conserve the absolutely confidential nature of bank deposits.45
The measure of protection afforded by the law has been explained in China Banking Corporation v. Ortega.46That case principally
addressed the issue of whether the prohibition against an examination of bank deposits precludes garnishment in satisfaction of a
judgment. Ruling on that issue in the negative, the Court found guidance in the relevant portions of the legislative deliberations on
Senate Bill No. 351 and House Bill No. 3977, which later became the Bank Secrecy Act, and it held that the absolute confidentiality rule
in R.A. No. 1405 actually aims at protection from unwarranted inquiry or investigation if the purpose of such inquiry or investigation is
merely to determine the existence and nature, as well as the amount of the deposit in any given bank account. Thus,
x x x The lower court did not order an examination of or inquiry into the deposit of B&B Forest Development Corporation, as
contemplated in the law. It merely required Tan Kim Liong to inform the court whether or not the defendant B&B Forest Development
Corporation had a deposit in the China Banking Corporation only for purposes of the garnishment issued by it, so that the bank would
hold the same intact and not allow any withdrawal until further order. It will be noted from the discussion of the conference committee
report on Senate Bill No. 351 and House Bill No. 3977which later became Republic Act No. 1405, that it was not the intention of the
lawmakers to place banks deposits beyond the reach of execution to satisfy a final judgmentThus:
x x x Mr. Marcos: Now, for purposes of the record, I should like the Chairman of the Committee on Ways and Means to clarify this
further. Suppose an individual has a tax case. He is being held liable by the Bureau of Internal Revenue [(BIR)] or, say, P1,000.00
worth of tax liability, and because of this the deposit of this individual [has been] attached by the [BIR].
Mr. Ramos: The attachment will only apply after the court has pronounced sentence declaring the liability of such person. But where the
primary aim is to determine whether he has a bank deposit in order to bring about a proper assessment by the [BIR], such inquiry is not
allowed by this proposed law.
Mr. Marcos: But under our rules of procedure and under the Civil Code, the attachment or garnishment of money deposited is allowed.
Let us assume for instance that there is a preliminary attachment which is for garnishment or for holding liable all moneys deposited
belonging to a certain individual, but such attachment or garnishment will bring out into the open the value of such deposit. Is that
prohibited by... the law?
Mr. Ramos: It is only prohibited to the extent that the inquiry... is made only for the purpose of satisfying a tax liability already declared
for the protection of the right in favor of the government; but when the object is merely to inquire whether he has a deposit or not for
purposes of taxation, then this is fully covered by the law. x x x
Mr. Marcos: The law prohibits a mere investigation into the existence and the amount of the deposit.
Mr. Ramos: Into the very nature of such deposit. x x x47
In taking exclusion from the coverage of the confidentiality rule, petitioner in the instant case posits that the account maintained by
respondent with Security Bank contains the proceeds of the checks that she has fraudulently appropriated to herself and, thus, falls
under one of the exceptions in Section 2 of R.A. No. 1405 that the money kept in said account is the subject matter in litigation. To
highlight this thesis, petitioner avers, citing Mathay v. Consolidated Bank and Trust Co.,48 that the subject matter of the action refers to
the physical facts; the things real or personal; the money, lands, chattels and the like, in relation to which the suit is prosecuted, which
in the instant case should refer to the money deposited in the Security Bank account.49 On the surface, however, it seems that
petitioners theory is valid to a point, yet a deeper treatment tends to show that it has argued quite off-tangentially. This, because, while
Mathay did explain what the subject matter of an action is, it nevertheless did so only to determine whether the class suit in that case
was properly brought to the court.
What indeed constitutes the subject matter in litigation in relation to Section 2 of R.A. No. 1405 has been pointedly and amply
addressed in Union Bank of the Philippines v. Court of Appeals,50 in which the Court noted that the inquiry into bank deposits allowable
under R.A. No. 1405 must be premised on the fact that the money deposited in the account is itself the subject of the action.51 Given
this perspective, we deduce that the subject matter of the action in the case at bar is to be determined from the indictment that charges
respondent with the offense, and not from the evidence sought by the prosecution to be admitted into the records. In the criminal
Information filed with the trial court, respondent, unqualifiedly and in plain language, is charged with qualified theft by abusing
petitioners trust and confidence and stealing cash in the amount of P1,534,135.50. The said Information makes no factual allegation
that in some material way involves the checks subject of the testimonial and documentary evidence sought to be suppressed. Neither

do the allegations in said Information make mention of the supposed bank account in which the funds represented by the checks have
allegedly been kept.
In other words, it can hardly be inferred from the indictment itself that the Security Bank account is the ostensible subject of the
prosecutions inquiry. Without needlessly expanding the scope of what is plainly alleged in the Information, the subject matter of the
action in this case is the money amounting to P1,534,135.50 alleged to have been stolen by respondent, and not the money equivalent
of the checks which are sought to be admitted in evidence. Thus, it is that, which the prosecution is bound to prove with its evidence,
and no other.
It comes clear that the admission of testimonial and documentary evidence relative to respondents Security Bank account serves no
other purpose than to establish the existence of such account, its nature and the amount kept in it. It constitutes an attempt by the
prosecution at an impermissible inquiry into a bank deposit account the privacy and confidentiality of which is protected by law. On this
score alone, the objection posed by respondent in her motion to suppress should have indeed put an end to the controversy at the very
first instance it was raised before the trial court.
In sum, we hold that the testimony of Marasigan on the particulars of respondents supposed bank account with Security Bank and the
documentary evidence represented by the checks adduced in support thereof, are not only incompetent for being excluded by
operation of R.A. No. 1405. They are likewise irrelevant to the case, inasmuch as they do not appear to have any logical and
reasonable connection to the prosecution of respondent for qualified theft. We find full merit in and affirm respondents objection to the
evidence of the prosecution. The Court of Appeals was, therefore, correct in reversing the assailed orders of the trial court.
A final note. In any given jurisdiction where the right of privacy extends its scope to include an individuals financial privacy rights and
personal financial matters, there is an intermediate or heightened scrutiny given by courts and legislators to laws infringing such
rights.52 Should there be doubts in upholding the absolutely confidential nature of bank deposits against affirming the authority to inquire
into such accounts, then such doubts must be resolved in favor of the former. This attitude persists unless congress lifts its finger to
reverse the general state policy respecting the absolutely confidential nature of bank deposits.53
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 87600 dated April 20, 2005, reversing
the September 13, 2004 and November 5, 2004 Orders of the Regional Trial Court of Manila, Branch 36 in Criminal Case No. 02202158, is AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 94723 August 21, 1997

KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and Natural Guardian, and Spouses FEDERICO N.
SALVACION, JR., and EVELINA E. SALVACION, petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, CHINA BANKING CORPORATION and GREG BARTELLI y NORTHCOTT, respondents.

TORRES, JR., J.:

In our predisposition to discover the "original intent" of a statute, courts become the unfeeling pillars of the status quo. Ligle do we
realize that statutes or even constitutions are bundles of compromises thrown our way by their framers. Unless we exercise vigilance,
the statute may already be out of tune and irrelevant to our day.
The petition is for declaratory relief. It prays for the following reliefs:
a.) Immediately upon the filing of this petition, an Order be issued restraining the respondents from applying and
enforcing Section 113 of Central Bank Circular No. 960;
b.) After hearing, judgment be rendered:
1.) Declaring the respective rights and duties of petitioners and respondents;
2.) Adjudging Section 113 of Central Bank Circular No. 960 as contrary to the provisions of the Constitution, hence
void; because its provision that "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
i.) has taken away the right of petitioners to have the bank deposit of defendant Greg Bartelli y
Northcott garnished to satisfy the judgment rendered in petitioners' favor in violation of substantive
due process guaranteed by the Constitution;
ii.) has given foreign currency depositors an undue favor or a class privilege in violation of the equal
protection clause of the Constitution;
iii.) has provided a safe haven for criminals like the herein respondent Greg Bartelli y Northcott
since criminals could escape civil liability for their wrongful acts by merely converting their money to
a foreign currency and depositing it in a foreign currency deposit account with an authorized bank.
The antecedent facts:
On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed and lured petitioner Karen Salvacion, then 12 years old to
go with him to his apartment. Therein, Greg Bartelli detained Karen Salvacion for four days, or up to February 7, 1989 and was able to
rape the child once on February 4, and three times each day on February 5, 6, and 7, 1989. On February 7, 1989, after policemen and
people living nearby, rescued Karen, Greg Bartelli was arrested and detained at the Makati Municipal Jail. The policemen recovered
from Bartelli the following items: 1.) Dollar Check No. 368, Control No. 021000678-1166111303, US 3,903.20; 2.) COCOBANK Bank
Book No. 104-108758-8 (Peso Acct.); 3.) Dollar Account China Banking Corp., US$/A#54105028-2; 4.) ID-122-30-8877; 5.)
Philippine Money (P234.00) cash; 6.) Door Keys 6 pieces; 7.) Stuffed Doll (Teddy Bear) used in seducing the complainant.
On February 16, 1989, Makati Investigating Fiscal Edwin G. Condaya filed against Greg Bartelli, Criminal Case No. 801 for Serious
Illegal Detention and Criminal Cases Nos. 802, 803, 804, and 805 for four (4) counts of Rape. On the same day, petitioners filed with
the Regional Trial Court of Makati Civil Case No. 89-3214 for damages with preliminary attachment against Greg Bartelli. On February
24, 1989, the day there was a scheduled hearing for Bartelli's petition for bail the latter escaped from jail.
On February 28, 1989, the court granted the fiscal's Urgent Ex-Parte Motion for the Issuance of Warrant of Arrest and Hold Departure
Order. Pending the arrest of the accused Greg Bartelli y Northcott, the criminal cases were archived in an Order dated February 28,
1989.
Meanwhile, in Civil Case No. 89-3214, the Judge issued an Order dated February 22, 1989 granting the application of herein
petitioners, for the issuance of the writ of preliminary attachment. After petitioners gave Bond No. JCL (4) 1981 by FGU Insurance
Corporation in the amount of P100,000.00, a Writ of Preliminary Attachment was issued by the trial court on February 28, 1989.
On March 1, 1989, the Deputy Sheriff of Makati served a Notice of Garnishment on China Banking Corporation. In a letter dated March
13, 1989 to the Deputy Sheriff of Makati, China Banking Corporation invoked Republic Act No. 1405 as its answer to the notice of
garnishment served on it. On March 15, 1989, Deputy Sheriff of Makati Armando de Guzman sent his reply to China Banking
Corporation saying that the garnishment did not violate the secrecy of bank deposits since the disclosure is merely incidental to a
garnishment properly and legally made by virtue of a court order which has placed the subject deposits in custodia legis. In answer to
this letter of the Deputy Sheriff of Makati, China Banking Corporation, in a letter dated March 20, 1989, invoked Section 113 of Central
Bank Circular No. 960 to the effect that the dollar deposits or defendant Greg Bartelli are exempt from attachment, garnishment, or any
other order or process of any court, legislative body, government agency or any administrative body, whatsoever.

This prompted the counsel for petitioners to make an inquiry with the Central Bank in a letter dated April 25, 1989 on whether Section
113 of CB Circular No. 960 has any exception or whether said section has been repealed or amended since said section has rendered
nugatory the substantive right of the plaintiff to have the claim sought to be enforced by the civil action secured by way of the writ of
preliminary attachment as granted to the plaintiff under Rule 57 of the Revised Rules of Court. The Central Bank responded as follows:
May 26, 1989
Ms. Erlinda S. Carolino
12 Pres. Osmena Avenue
South Admiral Village
Paranaque, Metro Manila
Dear Ms. Carolino:
This is in reply to your letter dated April 25, 1989 regarding your inquiry on Section 113, CB Circular No. 960 (1983).
The cited provision is absolute in application. It does not admit of any exception, nor has the same been repealed nor
amended.
The purpose of the law is to encourage dollar accounts within the country's banking system which would help in the
development of the economy. There is no intention to render futile the basic rights of a person as was suggested in
your subject letter. The law may be harsh as some perceive it, but it is still the law. Compliance is, therefore,
enjoined.
Very truly yours,
(SGD) AGAPITO S. FAJARDO
Director 1
Meanwhile, on April 10, 1989, the trial court granted petitioners' motion for leave to serve summons by publication in the Civil Case No.
89-3214 entitled "Karen Salvacion, et al. vs. Greg Bartelli y Northcott." Summons with the complaint was a published in the Manila
Times once a week for three consecutive weeks. Greg Bartelli failed to file his answer to the complaint and was declared in default on
August 7, 1989. After hearing the case ex-parte, the court rendered judgment in favor of petitioners on March 29, 1990, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering the latter:
1. To pay plaintiff Karen E. Salvacion the amount of P500,000.00 as moral damages;
2. To pay her parents, plaintiffs spouses Federico N. Salvacion, Jr., and Evelina E. Salvacion the amount of
P150,000.00 each or a total of P300,000.00 for both of them;
3. To pay plaintiffs exemplary damages of P100,000.00; and
4. To pay attorney's fees in an amount equivalent to 25% of the total amount of damages herein awarded;
5. To pay litigation expenses of P10,000.00; plus
6. Costs of the suit.
SO ORDERED.
The heinous acts of respondent Greg Bartelli which gave rise to the award were related in graphic detail by the trial court in its decision
as follows:
The defendant in this case was originally detained in the municipal jail of Makati but was able to escape therefrom on
February 24, 1989 as per report of the Jail Warden of Makati to the Presiding Judge, Honorable Manuel M. Cosico of
the Regional Trial Court of Makati, Branch 136, where he was charged with four counts of Rape and Serious Illegal
Detention (Crim. Cases Nos. 802 to 805). Accordingly, upon motion of plaintiffs, through counsel, summons was
served upon defendant by publication in the Manila Times, a newspaper of general circulation as attested by the
Advertising Manager of the Metro Media Times, Inc., the publisher of the said newspaper. Defendant, however, failed
to file his answer to the complaint despite the lapse of the period of sixty (60) days from the last publication; hence,

upon motion of the plaintiffs, through counsel, defendant was declared in default and plaintiffs were authorized to
present their evidence ex parte.
In support of the complaint, plaintiffs presented as witnesses the minor Karen E. Salvacion, her father, Federico N.
Salvacion, Jr., a certain Joseph Aguilar and a certain Liberato Madulio, who gave the following testimony:
Karen took her first year high school in St. Mary's Academy in Pasay City but has recently transferred to Arellano
University for her second year.
In the afternoon of February 4, 1989, Karen was at the Plaza Fair Makati Cinema Square, with her friend Edna
Tangile whiling away her free time. At about 3:30 p.m. while she was finishing her snack on a concrete bench in front
of Plaza Fair, an American approached her. She was then alone because Edna Tangile had already left, and she was
about to go home. (TSN, Aug. 15, 1989, pp. 2 to 5)
The American asked her name and introduced himself as Greg Bartelli. He sat beside her when he talked to her. He
said he was a Math teacher and told her that he has a sister who is a nurse in New York. His sister allegedly has a
daughter who is about Karen's age and who was with him in his house along Kalayaan Avenue. (TSN, Aug. 15, 1989,
pp. 4-5)
The American asked Karen what was her favorite subject and she told him it's Pilipino. He then invited her to go with
him to his house where she could teach Pilipino to his niece. He even gave her a stuffed toy to persuade her to teach
his niece. (Id., pp. 5-6)
They walked from Plaza Fair along Pasong Tamo, turning right to reach the defendant's house along Kalayaan
Avenue. (Id., p. 6)
When they reached the apartment house, Karen noticed that defendant's alleged niece was not outside the house but
defendant told her maybe his niece was inside. When Karen did not see the alleged niece inside the house,
defendant told her maybe his niece was upstairs, and invited Karen to go upstairs. (Id., p. 7)
Upon entering the bedroom defendant suddenly locked the door. Karen became nervous because his niece was not
there. Defendant got a piece of cotton cord and tied Karen's hands with it, and then he undressed her. Karen cried for
help but defendant strangled her. He took a packing tape and he covered her mouth with it and he circled it around
her head. (Id., p. 7)
Then, defendant suddenly pushed Karen towards the bed which was just near the door. He tied her feet and hands
spread apart to the bed posts. He knelt in front of her and inserted his finger in her sex organ. She felt severe pain.
She tried to shout but no sound could come out because there were tapes on her mouth. When defendant withdrew
his finger it was full of blood and Karen felt more pain after the withdrawal of the finger. (Id., p. 8)
He then got a Johnson's Baby Oil and he applied it to his sex organ as well as to her sex organ. After that he forced
his sex organ into her but he was not able to do so. While he was doing it, Karen found it difficult to breathe and she
perspired a lot while feeling severe pain. She merely presumed that he was able to insert his sex organ a little,
because she could not see. Karen could not recall how long the defendant was in that position. (Id. pp. 8-9)
After that, he stood up and went to the bathroom to wash. He also told Karen to take a shower and he untied her
hands. Karen could only hear the sound of the water while the defendant, she presumed, was in the bathroom
washing his sex organ. When she took a shower more blood came out from her. In the meantime, defendant changed
the mattress because it was full of blood. After the shower, Karen was allowed by defendant to sleep. She fell asleep
because she got tired crying. The incident happened at about 4:00 p.m. Karen had no way of determining the exact
time because defendant removed her watch. Defendant did not care to give her food before she went to sleep. Karen
woke up at about 8:00 o'clock the following morning. (Id., pp. 9-10)
The following day, February 5, 1989, a Sunday, after a breakfast of biscuit and coke at about 8:30 to 9:00 a.m.
defendant raped Karen while she was still bleeding. For lunch, they also took biscuit and coke. She was raped for the
second time at about 12:00 to 2:00 p.m. In the evening, they had rice for dinner which defendant had stored
downstairs; it was he who cooked the rice that is why it looks like "lugaw". For the third time, Karen was raped again
during the night. During those three times defendant succeeded in inserting his sex organ but she could not say
whether the organ was inserted wholly.
Karen did not see any firearm or any bladed weapon. The defendant did not tie her hands and feet nor put a tape on
her mouth anymore but she did not cry for help for fear that she might be killed; besides, all the windows and doors
were closed. And even if she shouted for help, nobody would hear her. She was so afraid that if somebody would
hear her and would be able to call the police, it was still possible that as she was still inside the house, defendant

might kill her. Besides, the defendant did not leave that Sunday, ruling out her chance to call for help. At nighttime he
slept with her again. (TSN, Aug. 15, 1989, pp. 12-14)
On February 6, 1989, Monday, Karen was raped three times, once in the morning for thirty minutes after a breakfast
of biscuits; again in the afternoon; and again in the evening. At first, Karen did not know that there was a window
because everything was covered by a carpet, until defendant opened the window for around fifteen minutes or less to
let some air in, and she found that the window was covered by styrofoam and plywood. After that, he again closed the
window with a hammer and he put the styrofoam, plywood, and carpet back. (Id., pp. 14-15)
That Monday evening, Karen had a chance to call for help, although defendant left but kept the door closed. She
went to the bathroom and saw a small window covered by styrofoam and she also spotted a small hole. She stepped
on the bowl and she cried for help through the hole. She cried: "Maawa no po kayo so akin. Tulungan n'yo akong
makalabas dito. Kinidnap ako!" Somebody heard her. It was a woman, probably a neighbor, but she got angry and
said she was "istorbo". Karen pleaded for help and the woman told her to sleep and she will call the police. She finally
fell asleep but no policeman came. (TSN, Aug. 15, 1989, pp. 15-16)
She woke up at 6:00 o'clock the following morning, and she saw defendant in bed, this time sleeping. She waited for
him to wake up. When he woke up, he again got some food but he always kept the door locked. As usual, she was
merely fed with biscuit and coke. On that day, February 7, 1989, she was again raped three times. The first at about
6:30 to 7:00 a.m., the second at about 8:30 9:00, and the third was after lunch at 12:00 noon. After he had raped
her for the second time he left but only for a short while. Upon his return, he caught her shouting for help but he did
not understand what she was shouting about. After she was raped the third time, he left the house. (TSN, Aug. 15,
1989, pp. 16-17) She again went to the bathroom and shouted for help. After shouting for about five minutes, she
heard many voices. The voices were asking for her name and she gave her name as Karen Salvacion. After a while,
she heard a voice of a woman saying they will just call the police. They were also telling her to change her clothes.
She went from the bathroom to the room but she did not change her clothes being afraid that should the neighbors
call for the police and the defendant see her in different clothes, he might kill her. At that time she was wearing a Tshirt of the American because the latter washed her dress. (Id., p. 16)
Afterwards, defendant arrived and he opened the door. He asked her if she had asked for help because there were
many policemen outside and she denied it. He told her to change her clothes, and she did change to the one she was
wearing on Saturday. He instructed her to tell the police that she left home and willingly; then he went downstairs but
he locked the door. She could hear people conversing but she could not understand what they were saying. (Id., p.
19)
When she heard the voices of many people who were conversing downstairs, she knocked repeatedly at the door as
hard as she could. She heard somebody going upstairs and when the door was opened, she saw a policeman. The
policeman asked her name and the reason why she was there. She told him she was kidnapped. Downstairs, he saw
about five policemen in uniform and the defendant was talking to them. "Nakikipag-areglo po sa mga pulis," Karen
added. "The policeman told him to just explain at the precinct. (Id., p. 20)
They went out of the house and she saw some of her neighbors in front of the house. They rode the car of a certain
person she called Kuya Boy together with defendant, the policeman, and two of her neighbors whom she called Kuya
Bong Lacson and one Ate Nita. They were brought to Sub-Station I and there she was investigated by a policeman.
At about 2:00 a.m., her father arrived, followed by her mother together with some of their neighbors. Then they were
brought to the second floor of the police headquarters. (Id., p. 21)
At the headquarters, she was asked several questions by the investigator. The written statement she gave to the
police was marked as Exhibit A. Then they proceeded to the National Bureau of Investigation together with the
investigator and her parents. At the NBI, a doctor, a medico-legal officer, examined her private parts. It was already
3:00 in the early morning of the following day when they reached the NBI. (TSN, Aug. 15, 1989, p. 22) The findings of
the medico-legal officer has been marked as Exhibit B.
She was studying at the St. Mary's Academy in Pasay City at the time of the incident but she subsequently
transferred to Apolinario Mabini, Arellano University, situated along Taft Avenue, because she was ashamed to be
the subject of conversation in the school. She first applied for transfer to Jose Abad Santos, Arellano University along
Taft Avenue near the Light Rail Transit Station but she was denied admission after she told the school the true
reason for her transfer. The reason for their denial was that they might be implicated in the case. (TSN, Aug. 15,
1989, p. 46)
xxx xxx xxx
After the incident, Karen has changed a lot. She does not play with her brother and sister anymore, and she is always
in a state of shock; she has been absent-minded and is ashamed even to go out of the house. (TSN, Sept. 12, 1989,
p. 10) She appears to be restless or sad, (Id., p. 11) The father prays for P500,000.00 moral damages for Karen for

this shocking experience which probably, she would always recall until she reaches old age, and he is not sure if she
could ever recover from this experience. (TSN, Sept. 24, 1989, pp. 10-11)
Pursuant to an Order granting leave to publish notice of decision, said notice was published in the Manila Bulletin once a week for three
consecutive weeks. After the lapse of fifteen (15) days from the date of the last publication of the notice of judgment and the decision of
the trial court had become final, petitioners tried to execute on Bartelli's dollar deposit with China Banking Corporation. Likewise, the
bank invoked Section 113 of Central Bank Circular No. 960.
Thus, petitioners decided to seek relief from this Court.
The issues raised and the arguments articulated by the parties boil down to two:
May this Court entertain the instant petition despite the fact that original jurisdiction in petitions for declaratory relief rests with the lower
court? Should Section 113 of Central Bank Circular No. 960 and Section 8 of R.A. 6426, as amended by P.D. 1246, otherwise known
as the Foreign Currency Deposit Act be made applicable to a foreign transient?
Petitioners aver as heretofore stated that Section 113 of Central Bank Circular No. 960 providing that "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." should be adjudged as unconstitutional on the grounds that: 1.) it has taken away the right of
petitioners to have the bank deposit of defendant Greg Bartelli y Northcott garnished to satisfy the judgment rendered in petitioners'
favor in violation of substantive due process guaranteed by the Constitution; 2.) it has given foreign currency depositors an undue favor
or a class privilege in violation of the equal protection clause of the Constitution; 3.) it has provided a safe haven for criminals like the
herein respondent Greg Bartelli y Northcott since criminals could escape civil liability for their wrongful acts by merely converting their
money to a foreign currency and depositing it in a foreign currency deposit account with an authorized bank; and 4.) The Monetary
Board, in issuing Section 113 of Central Bank Circular No. 960 has exceeded its delegated quasi-legislative power when it took away:
a.) the plaintiffs substantive right to have the claim sought to be enforced by the civil action secured by way of the writ of preliminary
attachment as granted by Rule 57 of the Revised Rules of Court; b.) the plaintiffs substantive right to have the judgment credit satisfied
by way of the writ of execution out of the bank deposit of the judgment debtor as granted to the judgment creditor by Rule 39 of the
Revised Rules of Court, which is beyond its power to do so.
On the other hand, respondent Central Bank, in its Comment alleges that the Monetary Board in issuing Section 113 of CB Circular No.
960 did not exceed its power or authority because the subject Section is copied verbatim from a portion of R.A. No. 6426 as amended
by P.D. 1246. Hence, it was not the Monetary Board that grants exemption from attachment or garnishment to foreign currency
deposits, but the law (R.A. 6426 as amended) itself; that it does not violate the substantive due process guaranteed by the Constitution
because a.) it was based on a law; b.) the law seems to be reasonable; c.) it is enforced according to regular methods of procedure;
and d.) it applies to all members of a class.
Expanding, the Central Bank said; that one reason for exempting the foreign currency deposits from attachment, garnishment or any
other order or process of any court, is to assure the development and speedy growth of the Foreign Currency Deposit System and the
Offshore Banking System in the Philippines; that another reason is to encourage the inflow of foreign currency deposits into the banking
institutions thereby placing such institutions more in a position to properly channel the same to loans and investments in the
Philippines, thus directly contributing to the economic development of the country; that the subject section is being enforced according
to the regular methods of procedure; and that it applies to all foreign currency deposits made by any person and therefore does not
violate the equal protection clause of the Constitution.
Respondent Central Bank further avers that the questioned provision is needed to promote the public interest and the general welfare;
that the State cannot just stand idly by while a considerable segment of the society suffers from economic distress; that the State had to
take some measures to encourage economic development; and that in so doing persons and property may be subjected to some kinds
of restraints or burdens to secure the general welfare or public interest. Respondent Central Bank also alleges that Rule 39 and Rule
57 of the Revised Rules of Court provide that some properties are exempted from execution/attachment especially provided by law and
R.A. No. 6426 as amended is such a law, in that it specifically provides, among others, that foreign currency deposits shall be
exempted from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any
administrative body whatsoever.
For its part, respondent China Banking Corporation, aside from giving reasons similar to that of respondent Central Bank, also stated
that respondent China Bank is not unmindful of the inhuman sufferings experienced by the minor Karen E. Salvacion from the beastly
hands of Greg Bartelli; that it is only too willing to release the dollar deposit of Bartelli which may perhaps partly mitigate the sufferings
petitioner has undergone; but it is restrained from doing so in view of R.A. No. 6426 and Section 113 of Central Bank Circular No. 960;
and that despite the harsh effect of these laws on petitioners, CBC has no other alternative but to follow the same.
This Court finds the petition to be partly meritorious.
Petitioner deserves to receive the damages awarded to her by the court. But this petition for declaratory relief can only be entertained
and treated as a petition for mandamus to require respondents to honor and comply with the writ of execution in Civil Case No. 893214.

This Court has no original and exclusive jurisdiction over a petition for declaratory relief. 2 However, exceptions to this rule have

been recognized. Thus, where the petition has far-reaching implications and raises questions that should be resolved, it
may be treated as one for mandamus. 3
Here is a child, a 12-year old girl, who in her belief that all Americans are good and in her gesture of kindness by teaching his alleged
niece the Filipino language as requested by the American, trustingly went with said stranger to his apartment, and there she was raped
by said American tourist Greg Bartelli. Not once, but ten times. She was detained therein for four (4) days. This American tourist was
able to escape from the jail and avoid punishment. On the other hand, the child, having received a favorable judgment in the Civil Case
for damages in the amount of more than P1,000,000.00, which amount could alleviate the humiliation, anxiety, and besmirched
reputation she had suffered and may continue to suffer for a long, long time; and knowing that this person who had wronged her has
the money, could not, however get the award of damages because of this unreasonable law. This questioned law, therefore makes
futile the favorable judgment and award of damages that she and her parents fully deserve. As stated by the trial court in its decision,
Indeed, after hearing the testimony of Karen, the Court believes that it was undoubtedly a shocking and traumatic
experience she had undergone which could haunt her mind for a long, long time, the mere recall of which could make
her feel so humiliated, as in fact she had been actually humiliated once when she was refused admission at the Abad
Santos High School, Arellano University, where she sought to transfer from another school, simply because the
school authorities of the said High School learned about what happened to her and allegedly feared that they might
be implicated in the case.
xxx xxx xxx
The reason for imposing exemplary or corrective damages is due to the wanton and bestial manner defendant had
committed the acts of rape during a period of serious illegal detention of his hapless victim, the minor Karen
Salvacion whose only fault was in her being so naive and credulous to believe easily that defendant, an American
national, could not have such a bestial desire on her nor capable of committing such a heinous crime. Being only 12
years old when that unfortunate incident happened, she has never heard of an old Filipino adage that in every forest
there is a
snake, . . . . 4
If Karen's sad fate had happened to anybody's own kin, it would be difficult for him to fathom how the incentive for foreign currency
deposit could be more important than his child's rights to said award of damages; in this case, the victim's claim for damages from this
alien who had the gall to wrong a child of tender years of a country where he is a mere visitor. This further illustrates the flaw in the
questioned provisions.
It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time when the country's economy was in a shambles; when
foreign investments were minimal and presumably, this was the reason why said statute was enacted. But the realities of the present
times show that the country has recovered economically; and even if not, the questioned law still denies those entitled to due process
of law for being unreasonable and oppressive. The intention of the questioned law may be good when enacted. The law failed to
anticipate the iniquitous effects producing outright injustice and inequality such as the case before us.
It has thus been said that
But I also know, 5 that laws and institutions must go hand in hand with the progress of the human mind. As

that becomes more developed, more enlightened, as new discoveries are made, new truths are disclosed
and manners and opinions change with the change of circumstances, institutions must advance also, and
keep pace with the times. . . We might as well require a man to wear still the coat which fitted him when a
boy, as civilized society to remain ever under the regimen of their barbarous ancestors.
In his Comment, the Solicitor General correctly opined, thus:
The present petition has far-reaching implications on the right of a national to obtain redress for a wrong committed
by an alien who takes refuge under a law and regulation promulgated for a purpose which does not contemplate the
application thereof envisaged by the alien. More specifically, the petition raises the question whether the protection
against attachment, garnishment or other court process accorded to foreign currency deposits by PD No. 1246 and
CB Circular No. 960 applies when the deposit does not come from a lender or investor but from a mere transient or
tourist who is not expected to maintain the deposit in the bank for long.
The resolution of this question is important for the protection of nationals who are victimized in the forum by
foreigners who are merely passing through.
xxx xxx xxx

. . . Respondents China Banking Corporation and Central Bank of the Philippines refused to honor the writ of
execution issued in Civil Case No. 89-3214 on the strength of the following provision of Central Bank Circular No.
960:
Sec. 113. Exemption from attachment. 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.
Central Bank Circular No. 960 was issued pursuant to Section 7 of Republic Act No. 6426:
Sec. 7. Rules and Regulations. The Monetary Board of the Central Bank shall promulgate such
rules and regulations as may be necessary to carry out the provisions of this Act which shall take
effect after the publication of such rules and regulations in the Official Gazette and in a newspaper
of national circulation for at least once a week for three consecutive weeks. In case the Central
Bank promulgates new rules and regulations decreasing the rights of depositors, the rules and
regulations at the time the deposit was made shall govern.
The aforecited Section 113 was copied from Section 8 of Republic Act NO. 6426, as amended by P.D. 1246, thus:
Sec. 8. Secrecy of Foreign Currency Deposits. All foreign currency deposits authorized under
this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits
authorized under Presidential Decree No. 1034, are hereby declared as and considered of an
absolutely confidential nature and, except upon the written permission of the depositor, in no
instance shall such foreign currency deposits be examined, inquired or looked into by any person,
government official, bureau or office whether judicial or administrative or legislative or any other
entity whether public or private: Provided, however, that said foreign currency deposits shall be
exempt from attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.
The purpose of PD 1246 in according protection against attachment, garnishment and other court process to foreign
currency deposits is stated in its whereases, viz.:
WHEREAS, under Republic Act No. 6426, as amended by Presidential Decree No. 1035, certain
Philippine banking institutions and branches of foreign banks are authorized to accept deposits in
foreign currency;
WHEREAS, under the provisions of Presidential Decree No. 1034 authorizing the establishment of
an offshore banking system in the Philippines, offshore banking units are also authorized to receive
foreign currency deposits in certain cases;
WHEREAS, in order to assure the development and speedy growth of the Foreign Currency
Deposit System and the Offshore Banking System in the Philippines, certain incentives were
provided for under the two Systems such as confidentiality of deposits subject to certain exceptions
and tax exemptions on the interest income of depositors who are nonresidents and are not
engaged in trade or business in the Philippines;
WHEREAS, making absolute the protective cloak of confidentiality over such foreign currency
deposits, exempting such deposits from tax, and guaranteeing the vested rights of depositors
would better encourage the inflow of foreign currency deposits into the banking institutions
authorized to accept such deposits in the Philippines thereby placing such institutions more in a
position to properly channel the same to loans and investments in the Philippines, thus directly
contributing to the economic development of the country;
Thus, one of the principal purposes of the protection accorded to foreign currency deposits is "to assure the
development and speedy growth of the Foreign Currency Deposit system and the Offshore Banking in the
Philippines" (3rd Whereas).
The Offshore Banking System was established by PD No. 1034. In turn, the purposes of PD No. 1034 are as follows:
WHEREAS, conditions conducive to the establishment of an offshore banking system, such as
political stability, a growing economy and adequate communication facilities, among others, exist in
the Philippines;

WHEREAS, it is in the interest of developing countries to have as wide access as possible to the
sources of capital funds for economic development;
WHEREAS, an offshore banking system based in the Philippines will be advantageous and
beneficial to the country by increasing our links with foreign lenders, facilitating the flow of desired
investments into the Philippines, creating employment opportunities and expertise in international
finance, and contributing to the national development effort.
WHEREAS, the geographical location, physical and human resources, and other positive factors
provide the Philippines with the clear potential to develop as another financial center in Asia;
On the other hand, the Foreign Currency Deposit system was created by PD. No. 1035. Its purposes are as follows:
WHEREAS, the establishment of an offshore banking system in the Philippines has been
authorized under a separate decree;
WHEREAS, a number of local commercial banks, as depository bank under the Foreign Currency
Deposit Act (RA No. 6426), have the resources and managerial competence to more actively
engage in foreign exchange transactions and participate in the grant of foreign currency loans to
resident corporations and firms;
WHEREAS, it is timely to expand the foreign currency lending authority of the said depository
banks under RA 6426 and apply to their transactions the same taxes as would be applicable to
transaction of the proposed offshore banking units;
It is evident from the above [Whereas clauses] that the Offshore Banking System and the Foreign Currency Deposit
System were designed to draw deposits from foreign lenders and investors (Vide second Whereas of PD No. 1034;
third Whereas of PD No. 1035). It is these deposits that are induced by the two laws and given protection and
incentives by them.
Obviously, the foreign currency deposit made by a transient or a tourist is not the kind of deposit encouraged by PD
Nos. 1034 and 1035 and given incentives and protection by said laws because such depositor stays only for a few
days in the country and, therefore, will maintain his deposit in the bank only for a short time.
Respondent Greg Bartelli, as stated, is just a tourist or a transient. He deposited his dollars with respondent China
Banking Corporation only for safekeeping during his temporary stay in the Philippines.
For the reasons stated above, the Solicitor General thus submits that the dollar deposit of respondent Greg Bartelli is
not entitled to the protection of Section 113 of Central Bank Circular No. 960 and PD No. 1246 against attachment,
garnishment or other court processes. 6
In fine, the application of the law depends on the extent of its justice. Eventually, if we rule that the questioned Section 113 of Central
Bank Circular No. 960 which exempts from attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever, is applicable to a foreign transient, injustice would result especially to a
citizen aggrieved by a foreign guest like accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides that
"in case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right and justice to prevail.
"Ninguno non deue enriquecerse tortizeramente con dano de otro." Simply stated, when the statute is silent or ambiguous, this is one of
those fundamental solutions that would respond to the vehement urge of conscience. (Padilla vs. Padilla, 74 Phil. 377).
It would be unthinkable, that the questioned Section 113 of Central Bank No. 960 would be used as a device by accused Greg Bartelli
for wrongdoing, and in so doing, acquitting the guilty at the expense of the innocent.
Call it what it may but is there no conflict of legal policy here? Dollar against Peso? Upholding the final and executory judgment of
the lower court against the Central Bank Circular protecting the foreign depositor? Shielding or protecting the dollar deposit of a
transient alien depositor against injustice to a national and victim of a crime? This situation calls for fairness against legal tyranny.
We definitely cannot have both ways and rest in the belief that we have served the ends of justice.
IN VIEW WHEREOF, the provisions of Section 113 of CB Circular No. 960 and PD No. 1246, insofar as it amends Section 8 of R.A. No.
6426 are hereby held to be INAPPLICABLE to this case because of its peculiar circumstances. Respondents are hereby REQUIRED to
COMPLY with the writ of execution issued in Civil Case No. 89-3214, "Karen Salvacion, et al. vs. Greg Bartelli y Northcott, by Branch
CXLIV, RTC Makati and to RELEASE to petitioners the dollar deposit of respondent Greg Bartelli y Northcott in such amount as would
satisfy the judgment.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 146717

November 22, 2004

TRANSFIELD PHILIPPINES, INC., petitioner,

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

DECISION

TINGA, J.:
Subject of this case is the letter of credit which has evolved as the ubiquitous and most important device in international trade. A
creation of commerce and businessmen, the letter of credit is also unique in the number of parties involved and its supranational
character.
Petitioner has appealed from the Decision1 of the Court of Appeals in CA-G.R. SP No. 61901 entitled "Transfield Philippines, Inc. v.
Hon. Oscar Pimentel, et al.," promulgated on 31 January 2001.2
On 26 March 1997, petitioner and respondent Luzon Hydro Corporation (hereinafter, LHC) entered into a Turnkey Contract3 whereby
petitioner, as Turnkey Contractor, undertook to construct, on a turnkey basis, a seventy (70)-Megawatt hydro-electric power station at
the Bakun River in the provinces of Benguet and Ilocos Sur (hereinafter, the Project). Petitioner was given the sole responsibility for the
design, construction, commissioning, testing and completion of the Project.4
The Turnkey Contract provides that: (1) the target completion date of the Project shall be on 1 June 2000, or such later date as may be
agreed upon between petitioner and respondent LHC or otherwise determined in accordance with the Turnkey Contract; and (2)
petitioner is entitled to claim extensions of time (EOT) for reasons enumerated in the Turnkey Contract, among which are variations,
force majeure, and delays caused by LHC itself.5 Further, in case of dispute, the parties are bound to settle their differences through
mediation, conciliation and such other means enumerated under Clause 20.3 of the Turnkey Contract.6
To secure performance of petitioner's obligation on or before the target completion date, or such time for completion as may be
determined by the parties' agreement, petitioner opened in favor of LHC two (2) standby letters of credit both dated 20 March 2000
(hereinafter referred to as "the Securities"), to wit: Standby Letter of Credit No. E001126/8400 with the local branch of respondent
Australia and New Zealand Banking Group Limited (ANZ Bank)7 and Standby Letter of Credit No. IBDIDSB-00/4 with respondent
Security Bank Corporation (SBC)8each in the amount of US$8,988,907.00.9
In the course of the construction of the project, petitioner sought various EOT to complete the Project. The extensions were requested
allegedly due to several factors which prevented the completion of the Project on target date, such as force majeure occasioned by
typhoon Zeb, barricades and demonstrations. LHC denied the requests, however. This gave rise to a series of legal actions between
the parties which culminated in the instant petition.

The first of the actions was a Request for Arbitration which LHC filed before the Construction Industry Arbitration Commission (CIAC)
on 1 June 1999.10 This was followed by another Request for Arbitration, this time filed by petitioner before the International Chamber of
Commerce (ICC)11 on 3 November 2000. In both arbitration proceedings, the common issues presented were: [1) whether typhoon Zeb
and any of its associated events constituted force majeure to justify the extension of time sought by petitioner; and [2) whether LHC had
the right to terminate the Turnkey Contract for failure of petitioner to complete the Project on target date.
Meanwhile, foreseeing that LHC would call on the Securities pursuant to the pertinent provisions of the Turnkey Contract,12 petitioner
in two separate letters13 both dated 10 August 2000advised respondent banks of the arbitration proceedings already pending before
the CIAC and ICC in connection with its alleged default in the performance of its obligations. Asserting that LHC had no right to call on
the Securities until the resolution of disputes before the arbitral tribunals, petitioner warned respondent banks that any transfer, release,
or disposition of the Securities in favor of LHC or any person claiming under LHC would constrain it to hold respondent banks liable for
liquidated damages.
As petitioner had anticipated, on 27 June 2000, LHC sent notice to petitioner that pursuant to Clause 8.214 of the Turnkey Contract, it
failed to comply with its obligation to complete the Project. Despite the letters of petitioner, however, both banks informed petitioner that
they would pay on the Securities if and when LHC calls on them.15
LHC asserted that additional extension of time would not be warranted; accordingly it declared petitioner in default/delay in the
performance of its obligations under the Turnkey Contract and demanded from petitioner the payment of US$75,000.00 for each day of
delay beginning 28 June 2000 until actual completion of the Project pursuant to Clause 8.7.1 of the Turnkey Contract. At the same time,
LHC served notice that it would call on the securities for the payment of liquidated damages for the delay.16
On 5 November 2000, petitioner as plaintiff filed a Complaint for Injunction, with prayer for temporary restraining order and writ of
preliminary injunction, against herein respondents as defendants before the Regional Trial Court (RTC) of Makati.17 Petitioner sought to
restrain respondent LHC from calling on the Securities and respondent banks from transferring, paying on, or in any manner disposing
of the Securities or any renewals or substitutes thereof. The RTC issued a seventy-two (72)-hour temporary restraining order on the
same day. The case was docketed as Civil Case No. 00-1312 and raffled to Branch 148 of the RTC of Makati.
After appropriate proceedings, the trial court issued an Order on 9 November 2000, extending the temporary restraining order for a
period of seventeen (17) days or until 26 November 2000.18
The RTC, in its Order19 dated 24 November 2000, denied petitioner's application for a writ of preliminary injunction. It ruled that
petitioner had no legal right and suffered no irreparable injury to justify the issuance of the writ. Employing the principle of "independent
contract" in letters of credit, the trial court ruled that LHC should be allowed to draw on the Securities for liquidated damages. It
debunked petitioner's contention that the principle of "independent contract" could be invoked only by respondent banks since
according to it respondent LHC is the ultimate beneficiary of the Securities. The trial court further ruled that the banks were mere
custodians of the funds and as such they were obligated to transfer the same to the beneficiary for as long as the latter could submit
the required certification of its claims.
Dissatisfied with the trial court's denial of its application for a writ of preliminary injunction, petitioner elevated the case to the Court of
Appeals via a Petition for Certiorari under Rule 65, with prayer for the issuance of a temporary restraining order and writ of preliminary
injunction.20 Petitioner submitted to the appellate court that LHC's call on the Securities was premature considering that the issue of its
default had not yet been resolved with finality by the CIAC and/or the ICC. It asserted that until the fact of delay could be established,
LHC had no right to draw on the Securities for liquidated damages.
Refuting petitioner's contentions, LHC claimed that petitioner had no right to restrain its call on and use of the Securities as payment for
liquidated damages. It averred that the Securities are independent of the main contract between them as shown on the face of the two
Standby Letters of Credit which both provide that the banks have no responsibility to investigate the authenticity or accuracy of the
certificates or the declarant's capacity or entitlement to so certify.
In its Resolution dated 28 November 2000, the Court of Appeals issued a temporary restraining order, enjoining LHC from calling on
the Securities or any renewals or substitutes thereof and ordering respondent banks to cease and desist from transferring, paying or in
any manner disposing of the Securities.
However, the appellate court failed to act on the application for preliminary injunction until the temporary restraining order expired on 27
January 2001. Immediately thereafter, representatives of LHC trooped to ANZ Bank and withdrew the total amount of
US$4,950,000.00, thereby reducing the balance in ANZ Bank to US$1,852,814.00.
On 2 February 2001, the appellate court dismissed the petition for certiorari. The appellate court expressed conformity with the trial
court's decision that LHC could call on the Securities pursuant to the first principle in credit law that the credit itself is independent of the
underlying transaction and that as long as the beneficiary complied with the credit, it was of no moment that he had not complied with
the underlying contract. Further, the appellate court held that even assuming that the trial court's denial of petitioner's application for a
writ of preliminary injunction was erroneous, it constituted only an error of judgment which is not correctible by certiorari, unlike error of
jurisdiction.

Undaunted, petitioner filed the instant Petition for Review raising the following issues for resolution:
WHETHER THE "INDEPENDENCE PRINCIPLE" ON LETTERS OF CREDIT MAY BE INVOKED BY A BENEFICIARY
THEREOF WHERE THE BENEFICIARY'S CALL THEREON IS WRONGFUL OR FRAUDULENT.
WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THE SECURITIES BEFORE THE RESOLUTION OF
PETITIONER'S AND LHC'S DISPUTES BY THE APPROPRIATE TRIBUNAL.
WHETHER ANZ BANK AND SECURITY BANK ARE JUSTIFIED IN RELEASING THE AMOUNTS DUE UNDER THE
SECURITIES DESPITE BEING NOTIFIED THAT LHC'S CALL THEREON IS WRONGFUL.
WHETHER OR NOT PETITIONER WILL SUFFER GRAVE AND IRREPARABLE DAMAGE IN THE EVENT THAT:
A. LHC IS ALLOWED TO CALL AND DRAW ON, AND ANZ BANK AND SECURITY BANK ARE ALLOWED TO
RELEASE, THE REMAINING BALANCE OF THE SECURITIES PRIOR TO THE RESOLUTION OF THE DISPUTES
BETWEEN PETITIONER AND LHC.
B. LHC DOES NOT RETURN THE AMOUNTS IT HAD WRONGFULLY DRAWN FROM THE SECURITIES. 21
Petitioner contends that the courts below improperly relied on the "independence principle" on letters of credit when this case falls
squarely within the "fraud exception rule." Respondent LHC deliberately misrepresented the supposed existence of delay despite its
knowledge that the issue was still pending arbitration, petitioner continues.
Petitioner asserts that LHC should be ordered to return the proceeds of the Securities pursuant to the principle against unjust
enrichment and that, under the premises, injunction was the appropriate remedy obtainable from the competent local courts.
On 25 August 2003, petitioner filed a Supplement to the Petition22 and Supplemental Memorandum,23 alleging that in the course of the
proceedings in the ICC Arbitration, a number of documentary and testimonial evidence came out through the use of different modes of
discovery available in the ICC Arbitration. It contends that after the filing of the petition facts and admissions were discovered which
demonstrate that LHC knowingly misrepresented that petitioner had incurred delays notwithstanding its knowledge and admission
that delays were excused under the Turnkey Contractto be able to draw against the Securities. Reiterating that fraud constitutes an
exception to the independence principle, petitioner urges that this warrants a ruling from this Court that the call on the Securities was
wrongful, as well as contrary to law and basic principles of equity. It avers that it would suffer grave irreparable damage if LHC would be
allowed to use the proceeds of the Securities and not ordered to return the amounts it had wrongfully drawn thereon.
In its Manifestation dated 8 September 2003,24 LHC contends that the supplemental pleadings filed by petitioner present erroneous and
misleading information which would change petitioner's theory on appeal.
In yet another Manifestation dated 12 April 2004,25 petitioner alleges that on 18 February 2004, the ICC handed down its Third Partial
Award, declaring that LHC wrongfully drew upon the Securities and that petitioner was entitled to the return of the sums wrongfully
taken by LHC for liquidated damages.
LHC filed a Counter-Manifestation dated 29 June 2004,26 stating that petitioner's Manifestation dated 12 April 2004 enlarges the scope
of its Petition for Review of the 31 January 2001 Decision of the Court of Appeals. LHC notes that the Petition for Review essentially
dealt only with the issue of whether injunction could issue to restrain the beneficiary of an irrevocable letter of credit from drawing
thereon. It adds that petitioner has filed two other proceedings, to wit: (1) ICC Case No. 11264/TE/MW, entitled "Transfield Philippines
Inc. v. Luzon Hydro Corporation," in which the parties made claims and counterclaims arising from petitioner's
performance/misperformance of its obligations as contractor for LHC; and (2) Civil Case No. 04-332, entitled "Transfield Philippines,
Inc. v. Luzon Hydro Corporation" before Branch 56 of the RTC of Makati, which is an action to enforce and obtain execution of the
ICC's partial award mentioned in petitioner's Manifestation of 12 April 2004.
In its Comment to petitioner's Motion for Leave to File Addendum to Petitioner's Memorandum, LHC stresses that the question of
whether the funds it drew on the subject letters of credit should be returned is outside the issue in this appeal. At any rate, LHC adds
that the action to enforce the ICC's partial award is now fully within the Makati RTC's jurisdiction in Civil Case No. 04-332. LHC asserts
that petitioner is engaged in forum-shopping by keeping this appeal and at the same time seeking the suit for enforcement of the
arbitral award before the Makati court.
Respondent SBC in its Memorandum, dated 10 March 200327 contends that the Court of Appeals correctly dismissed the petition for
certiorari. Invoking the independence principle, SBC argues that it was under no obligation to look into the validity or accuracy of the
certification submitted by respondent LHC or into the latter's capacity or entitlement to so certify. It adds that the act sought to be
enjoined by petitioner was already fait accompli and the present petition would no longer serve any remedial purpose.
In a similar fashion, respondent ANZ Bank in its Memorandum dated 13 March 200328 posits that its actions could not be regarded as
unjustified in view of the prevailing independence principle under which it had no obligation to ascertain the truth of LHC's allegations

that petitioner defaulted in its obligations. Moreover, it points out that since the Standby Letter of Credit No. E001126/8400 had been
fully drawn, petitioner's prayer for preliminary injunction had been rendered moot and academic.
At the core of the present controversy is the applicability of the "independence principle" and "fraud exception rule" in letters of credit.
Thus, a discussion of the nature and use of letters of credit, also referred to simply as "credits," would provide a better perspective of
the case.
The letter of credit evolved as a mercantile specialty, and the only way to understand all its facets is to recognize that it is an entity unto
itself. The relationship between the beneficiary and the issuer of a letter of credit is not strictly contractual, because both privity and a
meeting of the minds are lacking, yet strict compliance with its terms is an enforceable right. Nor is it a third-party beneficiary contract,
because the issuer must honor drafts drawn against a letter regardless of problems subsequently arising in the underlying contract.
Since the bank's customer cannot draw on the letter, it does not function as an assignment by the customer to the beneficiary. Nor, if
properly used, is it a contract of suretyship or guarantee, because it entails a primary liability following a default. Finally, it is not in itself
a negotiable instrument, because it is not payable to order or bearer and is generally conditional, yet the draft presented under it is
often negotiable.29
In commercial transactions, a letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of
dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is
paid, and a buyer, who wants to have control of the goods before paying.30 The use of credits in commercial transactions serves to
reduce the risk of nonpayment of the purchase price under the contract for the sale of goods. However, credits are also used in nonsale settings where they serve to reduce the risk of nonperformance. Generally, credits in the non-sale settings have come to be known
as standby credits.31
There are three significant differences between commercial and standby credits. First, commercial credits involve the payment of
money under a contract of sale. Such credits become payable upon the presentation by the seller-beneficiary of documents that show
he has taken affirmative steps to comply with the sales agreement. In the standby type, the credit is payable upon certification of a
party's nonperformance of the agreement. The documents that accompany the beneficiary's draft tend to show that the applicant has
not performed. The beneficiary of a commercial credit must demonstrate by documents that he has performed his contract. The
beneficiary of the standby credit must certify that his obligor has not performed the contract.32
By definition, a letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver
goods to a third person and assumes responsibility for payment of debt therefor to the addressee.33 A letter of credit, however, changes
its nature as different transactions occur and if carried through to completion ends up as a binding contract between the issuing and
honoring banks without any regard or relation to the underlying contract or disputes between the parties thereto.34
Since letters of credit have gained general acceptability in international trade transactions, the ICC has published from time to time
updates on the Uniform Customs and Practice (UCP) for Documentary Credits to standardize practices in the letter of credit area. The
vast majority of letters of credit incorporate the UCP.35 First published in 1933, the UCP for Documentary Credits has undergone several
revisions, the latest of which was in 1993.36
In Bank of the Philippine Islands v. De Reny Fabric Industries, Inc.,37 this Court ruled that the observance of the UCP is justified by
Article 2 of the Code of Commerce which provides that in the absence of any particular provision in the Code of Commerce,
commercial transactions shall be governed by usages and customs generally observed. More recently, in Bank of America, NT & SA v.
Court of Appeals,38 this Court ruled that there being no specific provisions which govern the legal complexities arising from transactions
involving letters of credit, not only between or among banks themselves but also between banks and the seller or the buyer, as the
case may be, the applicability of the UCP is undeniable.
Article 3 of the UCP provides that credits, by their nature, are separate transactions from the sales or other contract(s) on which they
may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such
contract(s) is included in the credit. Consequently, the undertaking of a bank to pay, accept and pay draft(s) or negotiate and/or fulfill
any other obligation under the credit is not subject to claims or defenses by the applicant resulting from his relationships with the
issuing bank or the beneficiary. A beneficiary can in no case avail himself of the contractual relationships existing between the banks or
between the applicant and the issuing bank.
Thus, the engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required documents are
presented to it. The so-called "independence principle" assures the seller or the beneficiary of prompt payment independent of any
breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not.
Under this principle, banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal
effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed thereon, nor do
they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of
the goods represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the
consignor, the carriers, or the insurers of the goods, or any other person whomsoever.39
The independent nature of the letter of credit may be: (a) independence in toto where the credit is independent from the justification
aspect and is a separate obligation from the underlying agreement like for instance a typical standby; or (b) independence may be only
as to the justification aspect like in a commercial letter of credit or repayment standby, which is identical with the same obligations

under the underlying agreement. In both cases the payment may be enjoined if in the light of the purpose of the credit the payment of
the credit would constitute fraudulent abuse of the credit.40
Can the beneficiary invoke the independence principle?
Petitioner insists that the independence principle does not apply to the instant case and assuming it is so, it is a defense available only
to respondent banks. LHC, on the other hand, contends that it would be contrary to common sense to deny the benefit of an
independent contract to the very party for whom the benefit is intended. As beneficiary of the letter of credit, LHC asserts it is entitled to
invoke the principle.
As discussed above, in a letter of credit transaction, such as in this case, where the credit is stipulated as irrevocable, there is a definite
undertaking by the issuing bank to pay the beneficiary provided that the stipulated documents are presented and the conditions of the
credit are complied with.41 Precisely, the independence principle liberates the issuing bank from the duty of ascertaining compliance by
the parties in the main contract. As the principle's nomenclature clearly suggests, the obligation under the letter of credit is independent
of the related and originating contract. In brief, the letter of credit is separate and distinct from the underlying transaction.
Given the nature of letters of credit, petitioner's argumentthat it is only the issuing bank that may invoke the independence principle
on letters of creditdoes not impress this Court. To say that the independence principle may only be invoked by the issuing banks
would render nugatory the purpose for which the letters of credit are used in commercial transactions. As it is, the independence
doctrine works to the benefit of both the issuing bank and the beneficiary.
Letters of credit are employed by the parties desiring to enter into commercial transactions, not for the benefit of the issuing bank but
mainly for the benefit of the parties to the original transactions. With the letter of credit from the issuing bank, the party who applied for
and obtained it may confidently present the letter of credit to the beneficiary as a security to convince the beneficiary to enter into the
business transaction. On the other hand, the other party to the business transaction, i.e., the beneficiary of the letter of credit, can be
rest assured of being empowered to call on the letter of credit as a security in case the commercial transaction does not push through,
or the applicant fails to perform his part of the transaction. It is for this reason that the party who is entitled to the proceeds of the letter
of credit is appropriately called "beneficiary."
Petitioner's argument that any dispute must first be resolved by the parties, whether through negotiations or arbitration, before the
beneficiary is entitled to call on the letter of credit in essence would convert the letter of credit into a mere guarantee. Jurisprudence has
laid down a clear distinction between a letter of credit and a guarantee in that the settlement of a dispute between the parties is not a
pre-requisite for the release of funds under a letter of credit. In other words, the argument is incompatible with the very nature of the
letter of credit. If a letter of credit is drawable only after settlement of the dispute on the contract entered into by the applicant and the
beneficiary, there would be no practical and beneficial use for letters of credit in commercial transactions.
Professor John F. Dolan, the noted authority on letters of credit, sheds more light on the issue:
The standby credit is an attractive commercial device for many of the same reasons that commercial credits are attractive.
Essentially, these credits are inexpensive and efficient. Often they replace surety contracts, which tend to generate higher
costs than credits do and are usually triggered by a factual determination rather than by the examination of documents.
Because parties and courts should not confuse the different functions of the surety contract on the one hand and the standby
credit on the other, the distinction between surety contracts and credits merits some reflection. The two commercial devices
share a common purpose. Both ensure against the obligor's nonperformance. They function, however, in distinctly different
ways.
Traditionally, upon the obligor's default, the surety undertakes to complete the obligor's performance, usually by hiring
someone to complete that performance. Surety contracts, then, often involve costs of determining whether the obligor
defaulted (a matter over which the surety and the beneficiary often litigate) plus the cost of performance. The benefit of the
surety contract to the beneficiary is obvious. He knows that the surety, often an insurance company, is a strong financial
institution that will perform if the obligor does not. The beneficiary also should understand that such performance must await
the sometimes lengthy and costly determination that the obligor has defaulted. In addition, the surety's performance takes
time.
The standby credit has different expectations. He reasonably expects that he will receive cash in the event of nonperformance,
that he will receive it promptly, and that he will receive it before any litigation with the obligor (the applicant) over the nature of
the applicant's performance takes place. The standby credit has this opposite effect of the surety contract: it reverses the
financial burden of parties during litigation.
In the surety contract setting, there is no duty to indemnify the beneficiary until the beneficiary establishes the fact of the
obligor's performance. The beneficiary may have to establish that fact in litigation. During the litigation, the surety holds the
money and the beneficiary bears most of the cost of delay in performance.

In the standby credit case, however, the beneficiary avoids that litigation burden and receives his money promptly upon
presentation of the required documents. It may be that the applicant has, in fact, performed and that the beneficiary's
presentation of those documents is not rightful. In that case, the applicant may sue the beneficiary in tort, in contract, or in
breach of warranty; but, during the litigation to determine whether the applicant has in fact breached the obligation to perform,
the beneficiary, not the applicant, holds the money. Parties that use a standby credit and courts construing such a credit
should understand this allocation of burdens. There is a tendency in some quarters to overlook this distinction between surety
contracts and standby credits and to reallocate burdens by permitting the obligor or the issuer to litigate the performance
question before payment to the beneficiary.42
While it is the bank which is bound to honor the credit, it is the beneficiary who has the right to ask the bank to honor the credit by
allowing him to draw thereon. The situation itself emasculates petitioner's posture that LHC cannot invoke the independence principle
and highlights its puerility, more so in this case where the banks concerned were impleaded as parties by petitioner itself.
Respondent banks had squarely raised the independence principle to justify their releases of the amounts due under the Securities.
Owing to the nature and purpose of the standby letters of credit, this Court rules that the respondent banks were left with little or no
alternative but to honor the credit and both of them in fact submitted that it was "ministerial" for them to honor the call for payment. 43
Furthermore, LHC has a right rooted in the Contract to call on the Securities. The relevant provisions of the Contract read, thus:
4.2.1. In order to secure the performance of its obligations under this Contract, the Contractor at its cost shall on the
Commencement Date provide security to the Employer in the form of two irrevocable and confirmed standby letters of credit
(the "Securities"), each in the amount of US$8,988,907, issued and confirmed by banks or financial institutions acceptable to
the Employer. Each of the Securities must be in form and substance acceptable to the Employer and may be provided on an
annually renewable basis.44
8.7.1 If the Contractor fails to comply with Clause 8.2, the Contractor shall pay to the Employer by way of liquidated damages
("Liquidated Damages for Delay") the amount of US$75,000 for each and every day or part of a day that shall elapse between
the Target Completion Date and the Completion Date, provided that Liquidated Damages for Delay payable by the Contractor
shall in the aggregate not exceed 20% of the Contract Price. The Contractor shall pay Liquidated Damages for Delay for each
day of the delay on the following day without need of demand from the Employer.
8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from any
monies due, or to become due to the Contractor and/or by drawing on the Security." 45
A contract once perfected, binds the parties not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which according to their nature, may be in keeping with good faith, usage, and law.46A careful perusal of the Turnkey
Contract reveals the intention of the parties to make the Securities answerable for the liquidated damages occasioned by any delay on
the part of petitioner. The call upon the Securities, while not an exclusive remedy on the part of LHC, is certainly an alternative recourse
available to it upon the happening of the contingency for which the Securities have been proffered. Thus, even without the use of the
"independence principle," the Turnkey Contract itself bestows upon LHC the right to call on the Securities in the event of default.
Next, petitioner invokes the "fraud exception" principle. It avers that LHC's call on the Securities is wrongful because it fraudulently
misrepresented to ANZ Bank and SBC that there is already a breach in the Turnkey Contract knowing fully well that this is yet to be
determined by the arbitral tribunals. It asserts that the "fraud exception" exists when the beneficiary, for the purpose of drawing on the
credit, fraudulently presents to the confirming bank, documents that contain, expressly or by implication, material representations of fact
that to his knowledge are untrue. In such a situation, petitioner insists, injunction is recognized as a remedy available to it.
Citing Dolan's treatise on letters of credit, petitioner argues that the independence principle is not without limits and it is important to
fashion those limits in light of the principle's purpose, which is to serve the commercial function of the credit. If it does not serve those
functions, application of the principle is not warranted, and the commonlaw principles of contract should apply.
It is worthy of note that the propriety of LHC's call on the Securities is largely intertwined with the fact of default which is the self-same
issue pending resolution before the arbitral tribunals. To be able to declare the call on the Securities wrongful or fraudulent, it is
imperative to resolve, among others, whether petitioner was in fact guilty of delay in the performance of its obligation. Unfortunately for
petitioner, this Court is not called upon to rule upon the issue of defaultsuch issue having been submitted by the parties to the
jurisdiction of the arbitral tribunals pursuant to the terms embodied in their agreement.47
Would injunction then be the proper remedy to restrain the alleged wrongful draws on the Securities?
Most writers agree that fraud is an exception to the independence principle. Professor Dolan opines that the untruthfulness of a
certificate accompanying a demand for payment under a standby credit may qualify as fraud sufficient to support an injunction against
payment.48 The remedy for fraudulent abuse is an injunction. However, injunction should not be granted unless: (a) there is clear proof
of fraud; (b) the fraud constitutes fraudulent abuse of the independent purpose of the letter of credit and not only fraud under the main
agreement; and (c) irreparable injury might follow if injunction is not granted or the recovery of damages would be seriously damaged.49

In its complaint for injunction before the trial court, petitioner alleged that it is entitled to a total extension of two hundred fifty-three (253)
days which would move the target completion date. It argued that if its claims for extension would be found meritorious by the ICC, then
LHC would not be entitled to any liquidated damages.50
Generally, injunction is a preservative remedy for the protection of one's substantive right or interest; it is not a cause of action in itself
but merely a provisional remedy, an adjunct to a main suit. The issuance of the writ of preliminary injunction as an ancillary or
preventive remedy to secure the rights of a party in a pending case is entirely within the discretion of the court taking cognizance of the
case, the only limitation being that this discretion should be exercised based upon the grounds and in the manner provided by law. 51
Before a writ of preliminary injunction may be issued, there must be a clear showing by the complaint that there exists a right to be
protected and that the acts against which the writ is to be directed are violative of the said right.52 It must be shown that the invasion of
the right sought to be protected is material and substantial, that the right of complainant is clear and unmistakable and that there is an
urgent and paramount necessity for the writ to prevent serious damage.53 Moreover, an injunctive remedy may only be resorted to when
there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation.54
In the instant case, petitioner failed to show that it has a clear and unmistakable right to restrain LHC's call on the Securities which
would justify the issuance of preliminary injunction. By petitioner's own admission, the right of LHC to call on the Securities was
contractually rooted and subject to the express stipulations in the Turnkey Contract.55Indeed, the Turnkey Contract is plain and
unequivocal in that it conferred upon LHC the right to draw upon the Securities in case of default, as provided in Clause 4.2.5, in
relation to Clause 8.7.2, thus:
4.2.5 The Employer shall give the Contractor seven days' notice of calling upon any of the Securities, stating the nature of the
default for which the claim on any of the Securities is to be made, provided that no notice will be required if the Employer calls
upon any of the Securities for the payment of Liquidated Damages for Delay or for failure by the Contractor to renew or extend
the Securities within 14 days of their expiration in accordance with Clause 4.2.2.56
8.7.2 The Employer may, without prejudice to any other method of recovery, deduct the amount of such damages from any
monies due, or to become due, to the Contractor and/or by drawing on the Security. 57
The pendency of the arbitration proceedings would not per se make LHC's draws on the Securities wrongful or fraudulent for there was
nothing in the Contract which would indicate that the parties intended that all disputes regarding delay should first be settled through
arbitration before LHC would be allowed to call upon the Securities. It is therefore premature and absurd to conclude that the draws on
the Securities were outright fraudulent given the fact that the ICC and CIAC have not ruled with finality on the existence of default.
Nowhere in its complaint before the trial court or in its pleadings filed before the appellate court, did petitioner invoke the fraud
exception rule as a ground to justify the issuance of an injunction.58 What petitioner did assert before the courts below was the fact that
LHC's draws on the Securities would be premature and without basis in view of the pending disputes between them. Petitioner should
not be allowed in this instance to bring into play the fraud exception rule to sustain its claim for the issuance of an injunctive relief.
Matters, theories or arguments not brought out in the proceedings below will ordinarily not be considered by a reviewing court as they
cannot be raised for the first time on appeal.59 The lower courts could thus not be faulted for not applying the fraud exception rule not
only because the existence of fraud was fundamentally interwoven with the issue of default still pending before the arbitral tribunals, but
more so, because petitioner never raised it as an issue in its pleadings filed in the courts below. At any rate, petitioner utterly failed to
show that it had a clear and unmistakable right to prevent LHC's call upon the Securities.
Of course, prudence should have impelled LHC to await resolution of the pending issues before the arbitral tribunals prior to taking
action to enforce the Securities. But, as earlier stated, the Turnkey Contract did not require LHC to do so and, therefore, it was merely
enforcing its rights in accordance with the tenor thereof. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.60 More importantly, pursuant to the principle of autonomy of contracts
embodied in Article 1306 of the Civil Code,61 petitioner could have incorporated in its Contract with LHC, a proviso that only the final
determination by the arbitral tribunals that default had occurred would justify the enforcement of the Securities. However, the fact is
petitioner did not do so; hence, it would have to live with its inaction.
With respect to the issue of whether the respondent banks were justified in releasing the amounts due under the Securities, this Court
reiterates that pursuant to the independence principle the banks were under no obligation to determine the veracity of LHC's
certification that default has occurred. Neither were they bound by petitioner's declaration that LHC's call thereon was wrongful. To
repeat, respondent banks' undertaking was simply to pay once the required documents are presented by the beneficiary.
At any rate, should petitioner finally prove in the pending arbitration proceedings that LHC's draws upon the Securities were wrongful
due to the non-existence of the fact of default, its right to seek indemnification for damages it suffered would not normally be foreclosed
pursuant to general principles of law.
Moreover, in a Manifestation,62 dated 30 March 2001, LHC informed this Court that the subject letters of credit had been fully drawn.
This fact alone would have been sufficient reason to dismiss the instant petition.

Settled is the rule that injunction would not lie where the acts sought to be enjoined have already become fait accompli or an
accomplished or consummated act.63 In Ticzon v. Video Post Manila, Inc.64 this Court ruled that where the period within which the former
employees were prohibited from engaging in or working for an enterprise that competed with their former employerthe very purpose
of the preliminary injunction has expired, any declaration upholding the propriety of the writ would be entirely useless as there would
be no actual case or controversy between the parties insofar as the preliminary injunction is concerned.
In the instant case, the consummation of the act sought to be restrained had rendered the instant petition mootfor any declaration by
this Court as to propriety or impropriety of the non-issuance of injunctive relief could have no practical effect on the existing
controversy.65 The other issues raised by petitioner particularly with respect to its right to recover the amounts wrongfully drawn on the
Securities, according to it, could properly be threshed out in a separate proceeding.
One final point. LHC has charged petitioner of forum-shopping. It raised the charge on two occasions. First, in its Counter-Manifestation
dated 29 June 200466 LHC alleges that petitioner presented before this Court the same claim for money which it has filed in two other
proceedings, to wit: ICC Case No. 11264/TE/MW and Civil Case No. 04-332 before the RTC of Makati. LHC argues that petitioner's
acts constitutes forum-shopping which should be punished by the dismissal of the claim in both forums. Second, in its Comment to
Petitioner's Motion for Leave to File Addendum to Petitioner's Memorandum dated 8 October 2004, LHC alleges that by maintaining the
present appeal and at the same time pursuing Civil Case No. 04-332wherein petitioner pressed for judgment on the issue of whether
the funds LHC drew on the Securities should be returnedpetitioner resorted to forum-shopping. In both instances, however, petitioner
has apparently opted not to respond to the charge.
Forum-shopping is a very serious charge. It exists when a party repetitively avails of several judicial remedies in different courts,
simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances,
and all raising substantially the same issues either pending in, or already resolved adversely, by some other court.67 It may also consist
in the act of a party against whom an adverse judgment has been rendered in one forum, of seeking another and possibly favorable
opinion in another forum other than by appeal or special civil action of certiorari, or the institution of two or more actions or proceedings
grounded on the same cause on the supposition that one or the other court might look with favor upon the other party.68 To determine
whether a party violated the rule against forum-shopping, the test applied is whether the elements of litis pendentia are present or
whether a final judgment in one case will amount to res judicata in another.69 Forum-shopping constitutes improper conduct and may be
punished with summary dismissal of the multiple petitions and direct contempt of court.70
Considering the seriousness of the charge of forum-shopping and the severity of the sanctions for its violation, the Court will refrain
from making any definitive ruling on this issue until after petitioner has been given ample opportunity to respond to the charge.
WHEREFORE, the instant petition is DENIED, with costs against petitioner.

Republic of the Philippines

SUPREME COURT
Baguio City
THIRD DIVISION
G.R. No. 173905

April 23, 2010

ANTHONY L. NG, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
VELASCO, JR.
The Case
This is a Petition for Review on Certiorari under Rule 45 seeking to reverse and set aside the August 29, 2003 Decision1 and July 25,
2006 Resolution of the Court of Appeals (CA) in CA-G.R. CR No. 25525, which affirmed the Decision2 of the Regional Trial Court
(RTC), Branch 95 in Quezon City, in Criminal Case No. Q-99-85133 forEstafa under Article 315, paragraph 1(b) of the Revised Penal
Code (RPC) in relation to Section 3 of Presidential Decree No. (PD) 115 or the Trust Receipts Law.
The Facts

Sometime in the early part of 1997, petitioner Anthony Ng, then engaged in the business of building and fabricating telecommunication
towers under the trade name "Capitol Blacksmith and Builders," applied for a credit line of PhP 3,000,000 with Asiatrust Development
Bank, Inc. (Asiatrust). In support of Asiatrusts credit investigation, petitioner voluntarily submitted the following documents: (1) the
contracts he had with Islacom, Smart, and Infocom; (2) the list of projects wherein he was commissioned by the said telecommunication
companies to build several steel towers; and (3) the collectible amounts he has with the said companies.3
On May 30, 1997, Asiatrust approved petitioners loan application. Petitioner was then required to sign several documents, among
which are the Credit Line Agreement, Application and Agreement for Irrevocable L/C, Trust Receipt Agreements,4 and Promissory
Notes. Though the Promissory Notes matured on September 18, 1997, the two (2) aforementioned Trust Receipt Agreements did not
bear any maturity dates as they were left unfilled or in blank by Asiatrust.5
After petitioner received the goods, consisting of chemicals and metal plates from his suppliers, he utilized them to fabricate the
communication towers ordered from him by his clients which were installed in three project sites, namely: Isabel, Leyte; Panabo,
Davao; and Tongonan.
As petitioner realized difficulty in collecting from his client Islacom, he failed to pay his loan to Asiatrust. Asiatrust then conducted a
surprise ocular inspection of petitioners business through Villarva S. Linga, Asiatrusts representative appraiser. Linga thereafter
reported to Asiatrust that he found that approximately 97% of the subject goods of the Trust Receipts were "sold-out and that only 3 %
of the goods pertaining to PN No. 1963 remained." Asiatrust then endorsed petitioners account to its Account Management Division for
the possible restructuring of his loan. The parties thereafter held a series of conferences to work out the problem and to determine a
way for petitioner to pay his debts. However, efforts towards a settlement failed to be reached.
On March 16, 1999, Remedial Account Officer Ma. Girlie C. Bernardez filed a Complaint-Affidavit before the Office of the City
Prosecutor of Quezon City. Consequently, on September 12, 1999, an Information for Estafa, as defined and penalized under Art. 315,
par. 1(b) of the RPC in relation to Sec. 3, PD 115 or the Trust Receipts Law, was filed with the RTC. The said Information reads:
That on or about the 30th day of May 1997, in Quezon City, Philippines, the above-named petitioner, did then and there willfully,
unlawfully, and feloniously defraud Ma. Girlie C. Bernardez by entering into a Trust Receipt Agreement with said complainant whereby
said petitioner as entrustee received in trust from the said complainant various chemicals in the total sum of P4.5 million with the
obligation to hold the said chemicals in trust as property of the entruster with the right to sell the same for cash and to remit the
proceeds thereof to the entruster, or to return the said chemicals if unsold; but said petitioner once in possession of the same, contrary
to his aforesaid obligation under the trust receipt agreement with intent to defraud did then and there misappropriated, misapplied and
converted the said amount to his own personal use and benefit and despite repeated demands made upon him, said petitioner refused
and failed and still refuses and fails to make good of his obligation, to the damage and prejudice of the said Ma. Girlie C. Bernardez in
the amount of P2,971,650.00, Philippine Currency.
CONTRARY TO LAW.
Upon arraignment, petitioner pleaded not guilty to the charges. Thereafter, a full-blown trial ensued.
During the pendency of the abovementioned case, conferences between petitioner and Asiatrusts Remedial Account Officer, Daniel
Yap, were held. Afterward, a Compromise Agreement was drafted by Asiatrust. One of the requirements of the Compromise Agreement
was for petitioner to issue six (6) postdated checks. Petitioner, in good faith, tried to comply by issuing two or three checks, which were
deposited and made good. The remaining checks, however, were not deposited as the Compromise Agreement did not push through.
For his defense, petitioner argued that: (1) the loan was granted as his working capital and that the Trust Receipt Agreements he
signed with Asiatrust were merely preconditions for the grant and approval of his loan; (2) the Trust Receipt Agreement corresponding
to Letter of Credit No. 1963 and the Trust Receipt Agreement corresponding to Letter of Credit No. 1964 were both contracts of
adhesion, since the stipulations found in the documents were prepared by Asiatrust in fine print; (3) unfortunately for petitioner, his
contract worth PhP 18,000,000 with Islacom was not yet paid since there was a squabble as to the real ownership of the latters
company, but Asiatrust was aware of petitioners receivables which were more than sufficient to cover the obligation as shown in the
various Project Listings with Islacom, Smart Communications, and Infocom; (4) prior to the Islacom problem, he had been faithfully
paying his obligation to Asiatrust as shown in Official Receipt Nos. 549001, 549002, 565558, 577198, 577199, and 594986,6 thus
debunking Asiatrusts claim of fraud and bad faith against him; (5) during the pendency of this case, petitioner even attempted to settle
his obligations as evidenced by the two United Coconut Planters Bank Checks7 he issued in favor of Asiatrust; and (6) he had already
paid PhP 1.8 million out of the PhP 2.971 million he owed as per Statement of Account dated January 26, 2000.
Ruling of the Trial Court
After trial on the merits, the RTC, on May 29, 2001, rendered a Decision, finding petitioner guilty of the crime of Estafa. The fallo of the
Decision reads as follows:
WHEREFORE, judgment is hereby rendered finding the petitioner, Anthony L. Ng GUILTY beyond reasonable doubt for the crime of
Estafa defined in and penalized by Article 315, paragraph 1(b) of the Revised Penal Code in relation to Section 3 of Presidential Decree
115, otherwise known as the Trust Receipts Law, and is hereby sentenced to suffer the indeterminate penalty of from six (6) years,

eight (8) months, and twenty one (21) days ofprision mayor, minimum, as the minimum penalty, to twenty (20) years of reclusion
temporal maximum, as the maximum penalty.
The petitioner is further ordered to return to the Asiatrust Development Bank Inc. the amount of Two Million, Nine Hundred Seventy
One and Six Hundred Fifty Pesos (P2,971,650.00) with legal rate of interest computed from the filing of the information on September
21,1999 until the amount is fully paid.
IT IS SO ORDERED.
In rendering its Decision, the trial court held that petitioner could not simply argue that the contracts he had entered into with Asiatrust
were void as they were contracts of adhesion. It reasoned that petitioner is presumed to have read and understood and is, therefore,
bound by the provisions of the Letters of Credit and Trust Receipts. It said that it was clear that Asiatrust had furnished petitioner with a
Statement of Account enumerating therein the precise figures of the outstanding balance, which he failed to pay along with the
computation of other fees and charges; thus, Asiatrust did not violate Republic Act No. 3765 (Truth in Lending Act). Finally, the trial
court declared that petitioner, being the entrustee stated in the Trust Receipts issued by Asiatrust, is thus obliged to hold the goods in
trust for the entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust receipts; otherwise, he
is obliged to return the goods in the event of non-sale or upon demand of the entruster, failing thus, he evidently violated the Trust
Receipts Law.
Ruling of the Appellate Court
Petitioner then elevated the case to the CA by filing a Notice of Appeal on August 6, 2001. In his Appellants Brief dated March 25,
2002, petitioner argued that the court a quo erred: (1) in changing the name of the offended party without the benefit of an amendment
of the Information which violates his right to be informed of the nature and cause of accusation against him; (2) in making a finding of
facts not in accord with that actually proved in the trial and/or by the evidence provided; (3) in not considering the material facts which if
taken into account would have resulted in his acquittal; (4) in being biased, hostile, and prejudiced against him; and (5) in considering
the prosecutions evidence which did not prove the guilt of petitioner beyond reasonable doubt.
1avvphi1

On August 29, 2003, the CA rendered a Decision affirming that of the RTC, the fallo of which reads:
WHEREFORE, the foregoing considered, the instant appeal is DENIED. The decision of the Regional Trial Court of Quezon City,
Branch 95 dated May 29, 2001 is AFFIRMED.
SO ORDERED.
The CA held that during the course of the trial, petitioner knew that the complainant Bernardez and the other co-witnesses are all
employees of Asiatrust and that she is suing in behalf of the bank. Since petitioner transacted with the same employees for the
issuance of the subject Trust Receipts, he cannot feign ignorance that Asiatrust is not the offended party in the instant case. The CA
further stated that the change in the name of the complainant will not prejudice and alter the fact that petitioner was being charged with
the crime of Estafa in relation to the Trust Receipts Law, since the information clearly set forth the essential elements of the crime
charged, and the constitutional right of petitioner to be informed of the nature and cause of his accusations is not violated.8
As to the alleged error in the appreciation of facts by the trial court, the CA stated that it was undisputed that petitioner entered into a
trust receipt agreement with Asiatrust and he failed to pay the bank his obligation when it became due. According to the CA, the fact
that petitioner acted without malice or fraud in entering into the transactions has no bearing, since the offense is punished as malum
prohibitum regardless of the existence of intent or malice; the mere failure to deliver the proceeds of the sale or the goods if not sold
constitutes the criminal offense.
With regard to the failure of the RTC to consider the fact that petitioners outstanding receivables are sufficient to cover his
indebtedness and that no written demand was made upon him hence his obligation has not yet become due and demandable, the CA
stated that the mere query as to the whereabouts of the goods and/or money is tantamount to a demand.9
Concerning the alleged bias, hostility, and prejudice of the RTC against petitioner, the CA said that petitioner failed to present any
substantial proof to support the aforementioned allegations against the RTC.
After the receipt of the CA Decision, petitioner moved for its reconsideration, which was denied by the CA in its Resolution dated July
25, 2006. Thereafter, petitioner filed this Petition for Review on Certiorari. In his Memorandum, he raised the following issues:
Issues:
1. The prosecution failed to adduce evidence beyond a reasonable doubt to satisfy the 2nd essential element that there was
misappropriation or conversion of subject money or property by petitioner.

2. The state was unable to prove the 3rd essential element of the crime that the alleged misappropriation or conversion is to
the prejudice of the real offended property.
3. The absence of a demand (4th essential element) on petitioner necessarily results to the dismissal of the criminal case.
The Courts Ruling
We find the petition to be meritorious.
Essentially, the issues raised by petitioner can be summed up into onewhether or not petitioner is liable for Estafa under Art. 315,
par. 1(b) of the RPC in relation to PD 115.
It is a well-recognized principle that factual findings of the trial court are entitled to great weight and respect by this Court, more so when
they are affirmed by the appellate court. However, the rule is not without exceptions, such as: (1) when the conclusion is a finding
grounded entirely on speculations, surmises, and conjectures; (2) the inferences made are manifestly mistaken; (3) there is grave
abuse of discretion; and (4) the judgment is based on misapprehension of facts or premised on the absence of evidence on
record.10 Especially in criminal cases where the accused stands to lose his liberty by virtue of his conviction, the Court must be satisfied
that the factual findings and conclusions of the lower courts leading to his conviction must satisfy the standard of proof beyond
reasonable doubt.
In the case at bar, petitioner was charged with Estafa under Art. 315, par. 1(b) of the RPC in relation to PD 115. The RPC defines
Estafa as:
ART. 315. Swindling (estafa).Any person who shall defraud another by any of the means mentioned hereinbelow x x x
1. With unfaithfulness or abuse of confidence, namely:
a. x x x
b. By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by
the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery
of or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having
received such money, goods, or other property x x x.11
Based on the definition above, the essential elements of Estafa are: (1) that money, goods or other personal property is received by the
offender in trust or on commission, or for administration, or under any obligation involving the duty to make delivery of or to return it; (2)
that there be misappropriation or conversion of such money or property by the offender, or denial on his part of such receipt; (3) that
such misappropriation or conversion or denial is to the prejudice of another; and (4) there is demand by the offended party to the
offender.12
Likewise, Estafa can also be committed in what is called a "trust receipt transaction" under PD 115, which is defined as:
Section 4. What constitutes a trust receipts transaction.A trust receipt transaction, within the meaning of this Decree, is any
transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as
entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or
instruments, releases the same to the possession of the entrustee upon the latters execution and delivery to the entruster of a signed
document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust
for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster
the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or
instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the
trust receipt, or for other purposes substantially equivalent to any of the following:
1. In the case of goods or documents: (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods
with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of
manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or
processed form until the entrustee has complied full with his obligation under the trust receipt; or (c) to load, unload, ship or
transship or otherwise deal with them in a manner preliminary or necessary to their sale; or
2. In the case of instruments: (a) to sell or procure their sale or exchange; or (b) to deliver them to a principal; or (c) to effect
the consummation of some transactions involving delivery to a depository or register; or (d) to effect their presentation,
collection or renewal.

The sale of good, documents or instruments by a person in the business of selling goods, documents or instruments for profit who, at
the outset of transaction, has, as against the buyer, general property rights in such goods, documents or instruments, or who sells the
same to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust
receipt transaction and is outside the purview and coverage of this Decree.
In other words, a trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the price of the sale,
or if the merchandise is not sold, to return the merchandise to the entruster. There are, therefore, two obligations in a trust receipt
transaction: the first refers to money received under the obligation involving the duty to turn it over (entregarla) to the owner of the
merchandise sold, while the second refers to the merchandise received under the obligation to "return" it (devolvera) to the owner.13 A
violation of any of these undertakings constitutes Estafa defined under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115,
viz:
Section 13. Penalty Clause.The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments
covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime
of estafa, punishable under the provisions of Article Three hundred fifteen, paragraph one (b) of Act Numbered Three thousand eight
hundred and fifteen, as amended, otherwise known as the Revised Penal Code. x x x (Emphasis supplied.)
A thorough examination of the facts obtaining in the instant case, however, reveals that the transaction between petitioner and Asiatrust
is not a trust receipt transaction but one of simple loan.
PD 115 Does Not Apply
It must be remembered that petitioner was transparent to Asiatrust from the very beginning that the subject goods were not being held
for sale but were to be used for the fabrication of steel communication towers in accordance with his contracts with Islacom, Smart, and
Infocom. In these contracts, he was commissioned to build, out of the materials received, steel communication towers, not to sell them.
The true nature of a trust receipt transaction can be found in the "whereas" clause of PD 115 which states that a trust receipt is to be
utilized "as a convenient business device to assist importers and merchants solve their financing problems." Obviously, the State, in
enacting the law, sought to find a way to assist importers and merchants in their financing in order to encourage commerce in the
Philippines.
As stressed in Samo v. People,14 a trust receipt is considered a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able
to acquire credit except through utilization, as collateral, of the merchandise imported or purchased. Similarly, American Jurisprudence
demonstrates that trust receipt transactions always refer to a method of "financing importations or financing sales."15 The principle is of
course not limited in its application to financing importations, since the principle is equally applicable to domestic
transactions.16 Regardless of whether the transaction is foreign or domestic, it is important to note that the transactions discussed in
relation to trust receipts mainly involved sales.
Following the precept of the law, such transactions affect situations wherein the entruster, who owns or holds absolute title or security
interests over specified goods, documents or instruments, releases the subject goods to the possession of the entrustee. The release
of such goods to the entrustee is conditioned upon his execution and delivery to the entruster of a trust receipt wherein the former binds
himself to hold the specific goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods,
documents or instruments with the obligation to turn over to the entruster the proceeds to the extent of the amount owing to the
entruster or the goods, documents or instruments themselves if they are unsold. Similarly, we held in State Investment House v. CA, et
al. that the entruster is entitled "only to the proceeds derived from the sale of goods released under a trust receipt to the entrustee."17
Considering that the goods in this case were never intended for sale but for use in the fabrication of steel communication towers, the
trial court erred in ruling that the agreement is a trust receipt transaction.
In applying the provisions of PD 115, the trial court relied on the Memorandum of Asiatrusts appraiser, Linga, who stated that the
goods have been sold by petitioner and that only 3% of the goods remained in the warehouse where it was previously stored. But for
reasons known only to the trial court, the latter did not give weight to the testimony of Linga when he testified that he merely presumed
that the goods were sold, viz:
COURT (to the witness)
Q So, in other words, when the goods were not there anymore. You presumed that, that is already sold?
A Yes, your Honor.
Undoubtedly, in his testimony, Linga showed that he had no real personal knowledge or proof of the fact that the goods were indeed
sold. He did not notify petitioner about the inspection nor did he talk to or inquire with petitioner regarding the whereabouts of the

subject goods. Neither did he confirm with petitioner if the subject goods were in fact sold. Therefore, the Memorandum of Linga, which
was based only on his presumption and not any actual personal knowledge, should not have been used by the trial court to prove that
the goods have in fact been sold. At the very least, it could only show that the goods were not in the warehouse.
Having established the inapplicability of PD 115, this Court finds that petitioners liability is only limited to the satisfaction of his
obligation from the loan. The real intent of the parties was simply to enter into a simple loan agreement.
To emphasize, the Trust Receipts Law was created to "to aid in financing importers and retail dealers who do not have sufficient funds
or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased." Since Asiatrust knew that petitioner was neither an importer nor
retail dealer, it should have known that the said agreement could not possibly apply to petitioner.
Moreover, this Court finds that petitioner is not liable for Estafa both under the RPC and PD 115.

Goods Were Not Received in Trust

The first element of Estafa under Art. 315, par. 1(b) of the RPC requires that the money, goods or other personal property must be
received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make
delivery of, or to return it. But as we already discussed, the goods received by petitioner were not held in trust. They were also not
intended for sale and neither did petitioner have the duty to return them. They were only intended for use in the fabrication of steel
communication towers.
No Misappropriation of Goods or Proceeds
The second element of Estafa requires that there be misappropriation or conversion of such money or property by the offender, or
denial on his part of such receipt.
This is the very essence of Estafa under Art. 315, par. 1(b). The words "convert" and "misappropriated" connote an act of using or
disposing of anothers property as if it were ones own, or of devoting it to a purpose or use different from that agreed upon. To
misappropriate for ones own use includes not only conversion to ones personal advantage, but also every attempt to dispose of the
property of another without a right.18
Petitioner argues that there was no misappropriation or conversion on his part, because his liability for the amount of the goods subject
of the trust receipts arises and becomes due only upon receipt of the proceeds of the sale and not prior to the receipt of the full price of
the goods.
Petitioner is correct. Thus, assuming arguendo that the provisions of PD 115 apply, petitioner is not liable for Estafa because Sec. 13 of
PD 115 provides that an entrustee is only liable for Estafa when he fails "to turn over the proceeds of the sale of the goods x x x
covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt x x x in accordance with
the terms of the trust receipt."
The trust receipt entered into between Asiatrust and petitioner states:
In case of sale I/we agree to hand the proceeds as soon as received to the BANK to apply against the relative acceptance (as
described above) and for the payment of any other indebtedness of mine/ours to ASIATRUST DEVELOPMENT BANK.19 (Emphasis
supplied.)
Clearly, petitioner was only obligated to turn over the proceeds as soon as he received payment. However, the evidence reveals that
petitioner experienced difficulties in collecting payments from his clients for the communication towers. Despite this fact, petitioner
endeavored to pay his indebtedness to Asiatrust, which payments during the period from September 1997 to July 1998 total
approximately PhP 1,500,000. Thus, absent proof that the proceeds have been actually and fully received by petitioner, his obligation to
turn over the same to Asiatrust never arose.
What is more, under the Trust Receipt Agreement itself, no date of maturity was stipulated. The provision left blank by Asiatrust is as
follows:
x x x and in consideration thereof, I/we hereby agree to hold said goods in Trust for the said Bank and as its property with liberty to sell
the same for its account within ________ days from the date of execution of the Trust Receipt x x x20
In fact, Asiatrust purposely left the space designated for the date blank, an action which in ordinary banking transactions would be
noted as highly irregular. Hence, the only way for the obligation to mature was for Asiatrust to demand from petitioner to pay the
obligation, which it never did.

Again, it also makes the Court wonder as to why Asiatrust decided to leave the provisions for the maturity dates in the Trust Receipt
agreements in blank, since those dates are elemental part of the loan. But then, as can be gleaned from the records of this case,
Asiatrust also knew that the capacity of petitioner to pay for his loan also hinges upon the latters receivables from Islacom, Smart, and
Infocom where he had ongoing and future projects for fabrication and installation of steel communication towers and not from the sale
of said goods. Being a bank, Asiatrust acted inappropriately when it left such a sensitive bank instrument with a void circumstance on
an elementary but vital feature of each and every loan transaction, that is, the maturity dates. Without stating the maturity dates, it was
impossible for petitioner to determine when the loan will be due.
Moreover, Asiatrust was aware that petitioner was not engaged in selling the subject goods and that petitioner will use them for the
fabrication and installation of communication towers. Before granting petitioner the credit line, as aforementioned, Asiatrust conducted
an investigation, which showed that petitioner fabricated and installed communication towers for well-known communication companies
to be installed at designated project sites. In fine, there was no abuse of confidence to speak of nor was there any intention to convert
the subject goods for another purpose, since petitioner did not withhold the fact that they were to be used to fabricate steel
communication towers to Asiatrust. Hence, no malice or abuse of confidence and misappropriation occurred in this instance due to
Asiatrusts knowledge of the facts.
Furthermore, Asiatrust was informed at the time of petitioners application for the loan that the payment for the loan would be derived
from the collectibles of his clients. Petitioner informed Asiatrust that he was having extreme difficulties in collecting from Islacom the full
contracted price of the towers. Thus, the duty of petitioner to remit the proceeds of the goods has not yet arisen since he has yet to
receive proceeds of the goods. Again, petitioner could not be said to have misappropriated or converted the proceeds of the transaction
since he has not yet received the proceeds from his client, Islacom.
This Court also takes judicial notice of the fact that petitioner has fully paid his obligation to Asiatrust, making the claim for damage and
prejudice of Asiatrust baseless and unfounded. Given that the acceptance of payment by Asiatrust necessarily extinguished petitioners
obligation, then there is no longer any obligation on petitioners part to speak of, thus precluding Asiatrust from claiming any damage.
This is evidenced by Asiatrusts Affidavit of Desistance21 acknowledging full payment of the loan.
Reasonable Doubt Exists
In the final analysis, the prosecution failed to prove beyond reasonable doubt that petitioner was guilty of Estafa under Art. 315, par.
1(b) of the RPC in relation to the pertinent provision of PD 115 or the Trust Receipts Law; thus, his liability should only be civil in nature.
While petitioner admits to his civil liability to Asiatrust, he nevertheless does not have criminal liability. It is a well-established principle
that person is presumed innocent until proved guilty. To overcome the presumption, his guilt must be shown by proof beyond
reasonable doubt. Thus, we held in People v. Mariano22 that while the principle does not connote absolute certainty, it means the
degree of proof which produces moral certainty in an unprejudiced mind of the culpability of the accused. Such proof should convince
and satisfy the reason and conscience of those who are to act upon it that the accused is in fact guilty. The prosecution, in this instant
case, failed to rebut the constitutional innocence of petitioner and thus the latter should be acquitted.
At this point, the ruling of this Court in Colinares v. Court of Appeals is very apt, thus:
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the threats of
criminal prosecution should they be unable to pay it may be unjust and inequitable, if not reprehensible. Such agreements are contracts
of adhesion which borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme leaves poor and
hapless borrowers at the mercy of banks, and is prone to misinterpretation x x x.23
Such is the situation in this case.
Asiatrusts intention became more evident when, on March 30, 2009, it, along with petitioner, filed their Joint Motion for Leave to File
and Admit Attached Affidavit of Desistance to qualify the Affidavit of Desistance executed by Felino H. Esquivas, Jr., attorney-in-fact of
the Board of Asiatrust, which acknowledged the full payment of the obligation of the petitioner and the successful mediation between
the parties.
From the foregoing considerations, we deem it unnecessary to discuss and rule upon the other issues raised in the appeal.
WHEREFORE, the CA Decision dated August 29, 2003 affirming the RTC Decision dated May 29, 2001 is SET ASIDE. Petitioner
ANTHONY L. NG is hereby ACQUITTED of the charge of violation of Art. 315, par. 1(b) of the RPC in relation to the pertinent provision
of PD 115.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 195117

August 14, 2013

HUR TIN YANG, PETITIONER

vs.
PEOPLE OF THE PHILIPPINES, RESPONDENT.
RESOLUTION
VELASCO JR., J.:
This is a motion for reconsideration of our February 1, 2012 Minute Resolution 1 sustaining the July 28, 2010
Decision2 and December 20, 2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. CR No. 30426, finding
petitioner Hur Tin Yang guilty beyond reasonable doubt of the crime of Estafa under A11icle 315, paragraph 1 (b) of
the Revised Penal Code (RPC) in relation to Presidential Decree No. 115 (PD 115) or the Trust Receipts Law.
In twenty-four (24) consolidated Informations, all dated March 15, 2002, petitioner Hur Tin Yang was charged at the
instance of the same complainant with the crime of Estafa under Article 315, par. 1(b) of the RPC, 4 in relation to PD
115,5 docketed as Criminal Case Nos. 04-223911 to 34 and raffled to the Regional Trial Court of Manila, Branch 20.
The 24 Informationsdiffering only as regards the alleged date of commission of the crime, date of the trust
receipts, the number of the letter of credit, the subject goods and the amountuniformly recite:
That on or about May 28, 1998, in the City of Manila, Philippines, the said accused being then the authorized officer
of SUPERMAX PHILIPPINES, INC., with office address at No. 11/F, Global Tower, Gen Mascardo corner M. Reyes
St., Bangkal, Makati City, did then and there willfully, unlawfully and feloniously defraud the METROPOLITAN BANK
AND TRUST COMPANY (METROBANK), a corporation duly organized and existing under and by virtue of the laws
of the Republic of the Philippines, represented by its Officer in Charge, WINNIE M. VILLANUEVA, in the following
manner, to wit: the said accused received in trust from the said Metropolitan Bank and Trust Company reinforcing
bars valued at P1,062,918.84 specified in the undated Trust Receipt Agreement covered by Letter of Credit No.
MG-LOC 216/98 for the purpose of holding said merchandise/goods in trust, with obligation on the part of the
accused to turn over the proceeds of the sale thereof or if unsold, to return the goods to the said bank within the
specified period agreed upon, but herein accused once in possession of the said merchandise/goods, far from
complying with his aforesaid obligation, failed and refused and still fails and refuses to do so despite repeated
demands made upon him to that effect and with intent to defraud and with grave abuse of confidence and trust,
misappropriated, misapplied and converted the said merchandise/goods or the value thereof to his own personal
use and benefit, to the damage and prejudice of said METROPOLITAN BANK AND TRUST COMPANY in the
aforesaid amount of P1,062,918.84, Philippine Currency.
Contrary to law.6
Upon arraignment, petitioner pleaded "not guilty." Thereafter, trial on the merits then ensued.

The facts of these consolidated cases are undisputed:

Supermax Philippines, Inc. (Supermax) is a domestic corporation engaged in the construction business. On various
occasions in the month of April, May, July, August, September, October and November 1998, Metropolitan Bank
and Trust Company (Metrobank), Magdalena Branch, Manila, extended several commercial letters of credit (LCs) to
Supermax. These commercial LCs were used by Supermax to pay for the delivery of several construction materials
which will be used in their construction business. Thereafter, Metrobank required petitioner, as representative and
Vice-President for Internal Affairs of Supermax, to sign twenty-four (24) trust receipts as security for the construction
materials and to hold those materials or the proceeds of the sales in trust for Metrobank to the extent of the amount
stated in the trust receipts.
When the 24 trust receipts fell due and despite the receipt of a demand letter dated August 15, 2000, Supermax
failed to pay or deliver the goods or proceeds to Metrobank. Instead, Supermax, through petitioner, requested the
restructuring of the loan. When the intended restructuring of the loan did not materialize, Metrobank sent another
demand letter dated October 11, 2001. As the demands fell on deaf ears, Metrobank, through its representative,
Winnie M. Villanueva, filed the instant criminal complaints against petitioner.
For his defense, while admitting signing the trust receipts, petitioner argued that said trust receipts were demanded
by Metrobank as additional security for the loans extended to Supermax for the purchase of construction equipment
and materials. In support of this argument, petitioner presented as witness, Priscila Alfonso, who testified that the
construction materials covered by the trust receipts were delivered way before petitioner signed the corresponding
trust receipts.7 Further, petitioner argued that Metrobank knew all along that the construction materials subject of the
trust receipts were not intended for resale but for personal use of Supermax relating to its construction business. 8
The trial court a quo, by Judgment dated October 6, 2006, found petitioner guilty as charged and sentenced him as
follows:
His guilt having been proven and established beyond reasonable doubt, the Court hereby renders judgment
CONVICTING accused HUR TIN YANG of the crime of estafa under Article 315 paragraph 1 (a) of the Revised
Penal Code and hereby imposes upon him the indeterminate penalty of 4 years, 2 months and 1 day of prision
correccional to 20 years of reclusion temporal and to pay Metropolitan Bank and Trust Company, Inc. the amount of
Php13,156,256.51 as civil liability and to pay cost.
SO ORDERED.9
Petitioner appealed to the CA. On July 28, 2010, the appellate court rendered a Decision, upholding the findings of
the RTC that the prosecution has satisfactorily established the guilt of petitioner beyond reasonable doubt, including
the following critical facts, to wit: (1) petitioner signing the trust receipts agreement; (2) Supermax failing to pay the
loan; and (3) Supermax failing to turn over the proceeds of the sale or the goods to Metrobank upon demand.
Curiously, but significantly, the CA also found that even before the execution of the trust receipts, Metrobank knew
or should have known that the subject construction materials were never intended for resale or for the manufacture
of items to be sold.10
The CA ruled that since the offense punished under PD 115 is in the nature of malum prohibitum, a mere failure to
deliver the proceeds of the sale or goods, if not sold, is sufficient to justify a conviction under PD 115. The fallo of
the CA Decision reads:
WHEREFORE, in view of the foregoing premises, the appeal filed in this case is hereby DENIED and, consequently,
DISMISSED. The assailed Decision dated October 6, 2006 of the Rregional Trial Court, Branch 20, in the City of
Manila in Criminal Cases Nos. 04223911 to 223934 is hereby AFFIRMED.
SO ORDERED.
Petitioner filed a Motion for Reconsideration, but it was denied in a Resolution dated December 20, 2010. Not
satisfied, petitioner filed a petition for review under Rule 45 of the Rules of Court. The Office of the Solicitor General
(OSG) filed its Comment dated November 28, 2011, stressing that the pieces of evidence adduced from the
testimony and documents submitted before the trial court are sufficient to establish the guilt of petitioner. 11

On February 1, 2012, this Court dismissed the Petition via a Minute Resolution on the ground that the CA committed
no reversible error in the assailed July 28, 2010 Decision. Hence, petitioner filed the present Motion for
Reconsideration contending that the transactions between the parties do not constitute trust receipt agreements but
rather of simple loans.
On October 3, 2012, the OSG filed its Comment on the Motion for Reconsideration, praying for the denial of said
motion and arguing that petitioner merely reiterated his arguments in the petition and his Motion for Reconsideration
is nothing more than a mere rehash of the matters already thoroughly passed upon by the RTC, the CA and this
Court.12
The sole issue for the consideration of the Court is whether or not petitioner is liable for Estafa under Art. 315, par.
1(b) of the RPC in relation to PD 115, even if it was sufficiently proved that the entruster (Metrobank) knew
beforehand that the goods (construction materials) subject of the trust receipts were never intended to be sold but
only for use in the entrustees construction business.
The motion for reconsideration has merit.
In determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive
factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used
in the contract but by their conduct, words, actions and deeds prior to, during and immediately after executing the
agreement. As such, therefore, documentary and parol evidence may be submitted and admitted to prove such
intention.13
In the instant case, the factual findings of the trial and appellate courts reveal that the dealing between petitioner
and Metrobank was not a trust receipt transaction but one of simple loan. Petitioners admissionthat he signed the
trust receipts on behalf of Supermax, which failed to pay the loan or turn over the proceeds of the sale or the goods
to Metrobank upon demanddoes not conclusively prove that the transaction was, indeed, a trust receipts
transaction. In contrast to the nomenclature of the transaction, the parties really intended a contract of loan. This
Courtin Ng v. People14 and Land Bank of the Philippines v. Perez,15 cases which are in all four corners the same
as the instant caseruled that the fact that the entruster bank knew even before the execution of the trust receipt
agreements that the construction materials covered were never intended by the entrustee for resale or for the
manufacture of items to be sold is sufficient to prove that the transaction was a simple loan and not a trust receipts
transaction.
The petitioner was charged with Estafa committed in what is called, under PD 115, a "trust receipt transaction,"
which is defined as:
Section 4. What constitutes a trust receipts transaction.A trust receipt transaction, within the meaning of this
Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person
referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests
over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon
the latters execution and delivery to the entruster of a signed document called a "trust receipt" wherein the
entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell
or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the
proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods,
documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms
and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following:
1. In the case of goods or documents: (a) to sell the goods or procure their sale; or (b) to manufacture or
process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under
trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain
its title over the goods whether in its original or processed form until the entrustee has complied full with his
obligation under the trust receipt; or (c) to load, unload, ship or transship or otherwise deal with them in a
manner preliminary or necessary to their sale; or
2. In the case of instruments: (a) to sell or procure their sale or exchange; or (b) to deliver them to a
principal; or (c) to effect the consummation of some transactions involving delivery to a depository or
register; or (d) to effect their presentation, collection or renewal.

Simply stated, a trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the
price of the sale, or if the merchandise is not sold, to return the merchandise to the entruster. There are, therefore,
two obligations in a trust receipt transaction: the first refers to money received under the obligation involving the duty
to turn it over (entregarla) to the owner of the merchandise sold, while the second refers to the merchandise
received under the obligation to "return" it (devolvera) to the owner. 16 A violation of any of these undertakings
constitutes Estafa defined under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115, viz:
Section 13. Penalty Clause.The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three hundred fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code. x x x (Emphasis supplied.)
Nonetheless, when both parties enter into an agreement knowing fully well that the return of the goods subject of
the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction
penalized under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the RPC, as the only obligation actually
agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a
mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the goods. 17
In Ng v. People, Anthony Ng, then engaged in the business of building and fabricating telecommunication towers,
applied for a credit line of PhP 3,000,000 with Asiatrust Development Bank, Inc. Prior to the approval of the loan,
Anthony Ng informed Asiatrust that the proceeds would be used for purchasing construction materials necessary for
the completion of several steel towers he was commissioned to build by several telecommunication companies.
Asiatrust approved the loan but required Anthony Ng to sign a trust receipt agreement. When Anthony Ng failed to
pay the loan, Asiatrust filed a criminal case for Estafa in relation to PD 115 or the Trust Receipts Law. This Court
acquitted Anthony Ng and ruled that the Trust Receipts Law was created to "to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and
who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or
purchased." Since Asiatrust knew that Anthony Ng was neither an importer nor retail dealer, it should have known
that the said agreement could not possibly apply to petitioner, viz:
The true nature of a trust receipt transaction can be found in the "whereas" clause of PD 115 which states that a
trust receipt is to be utilized "as a convenient business device to assist importers and merchants solve their
financing problems." Obviously, the State, in enacting the law, sought to find a way to assist importers and
merchants in their financing in order to encourage commerce in the Philippines.
[A] trust receipt is considered a security transaction intended to aid in financing importers and retail dealers who do
not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be
able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased. Similarly,
American Jurisprudence demonstrates that trust receipt transactions always refer to a method of "financing
importations or financing sales." The principle is of course not limited in its application to financing importations,
since the principle is equally applicable to domestic transactions. Regardless of whether the transaction is foreign or
domestic, it is important to note that the transactions discussed in relation to trust receipts mainly involved sales.
Following the precept of the law, such transactions affect situations wherein the entruster, who owns or holds
absolute title or security interests over specified goods, documents or instruments, releases the subject goods to the
possession of the entrustee. The release of such goods to the entrustee is conditioned upon his execution and
delivery to the entruster of a trust receipt wherein the former binds himself to hold the specific goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with
the obligation to turn over to the entruster the proceeds to the extent of the amount owing to the entruster or the
goods, documents or instruments themselves if they are unsold. x x x [T]he entruster is entitled "only to the
proceeds derived from the sale of goods released under a trust receipt to the entrustee."
Considering that the goods in this case were never intended for sale but for use in the fabrication of steel
communication towers, the trial court erred in ruling that the agreement is a trust receipt transaction.
xxxx

To emphasize, the Trust Receipts Law was created to "to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able
to acquire credit except through utilization, as collateral, of the merchandise imported or purchased." Since Asiatrust
knew that petitioner was neither an importer nor retail dealer, it should have known that the said agreement could
not possibly apply to petitioner.18
Further, in Land Bank of the Philippines v. Perez, the respondents were officers of Asian Construction and
Development Corporation (ACDC), a corporation engaged in the construction business. On several occasions,
respondents executed in favor of Land Bank of the Philippines (LBP) trust receipts to secure the purchase of
construction materials that they will need in their construction projects. When the trust receipts matured, ACDC
failed to return to LBP the proceeds of the construction projects or the construction materials subject of the trust
receipts. After several demands went unheeded, LBP filed a complaint for Estafa or violation of Art. 315, par. 1(b) of
the RPC, in relation to PD 115, against the respondent officers of ACDC. This Court, like in Ng, acquitted all the
respondents on the postulate that the parties really intended a simple contract of loan and not a trust receipts
transaction, viz:
When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not
possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Section
13 of P.D. 115; the only obligation actually agreed upon by the parties would be the return of the proceeds of the
sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the
amount spent for the purchase of the goods.
xxxx
Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in Colinares that the industry or
line of work that the borrowers were engaged in was construction. We pointed out that the borrowers were not
importers acquiring goods for resale. Indeed, goods sold in retail are often within the custody or control of the
trustee until they are purchased. In the case of materials used in the manufacture of finished products, these
finished products if not the raw materials or their components similarly remain in the possession of the trustee
until they are sold. But the goods and the materials that are used for a construction project are often placed under
the control and custody of the clients employing the contractor, who can only be compelled to return the materials if
they fail to pay the contractor and often only after the requisite legal proceedings. The contractors difficulty and
uncertainty in claiming these materials (or the buildings and structures which they become part of), as soon as the
bank demands them, disqualify them from being covered by trust receipt agreements. 19
Since the factual milieu of Ng and Land Bank of the Philippines are in all four corners similar to the instant case, it
behooves this Court, following the principle of stare decisis,20 to rule that the transactions in the instant case are not
trust receipts transactions but contracts of simple loan. The fact that the entruster bank, Metrobank in this case,
knew even before the execution of the alleged trust receipt agreements that the covered construction materials were
never intended by the entrustee (petitioner) for resale or for the manufacture of items to be sold would take the
transaction between petitioner and Metrobank outside the ambit of the Trust Receipts Law.
For reasons discussed above, the subject transactions in the instant case are not trust receipts transactions. Thus,
the consolidated complaints for Estafa in relation to PD 115 have really no leg to stand on.
1wphi1

The Courts ruling in Colinares v. Court of Appeals 21 is very apt, thus:

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under
the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable. if not
reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign lest their
loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks and is
prone to misinterpretation x x x.
Unfortunately, what happened in Colinares is exactly the situation in the instant case. This reprehensible bank
practice described in Colinares should be stopped and discouraged. For this Court to give life to the constitutional
provision of non-imprisonment for nonpayment of debts, 22 it is imperative that petitioner be acquitted of the crime of
Estafa under Art. 315, par. 1 (b) ofthe RPC, in relation to PD 115.

WHEREFORE, the Resolution dated February 1, 2012, upholding theCA's Decision dated July 28, 2010 and
Resolution dated December 20, 2010 in CA-G.R. CR No. 30426, is hereby RECONSIDERED. Petitioner Hur Tin
Yang is ACQUITTED of the charge of violating Art. 315, par. 1 (b) of the RPC, in relation to the pertinent provision of
PD 115 in Criminal Case Nos. 04-223911 to 34.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice
WE CONCUR: