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[G.R. No. 156580. June 14, 2004] LUZ DU, petitioner, vs. STRONGHOLD INSURANCE CO., INC., respondent.

DECISION PANGANIBAN, J.: Preference is given to a duly registered attachment over a subsequent notice of lis pendens, even if the beneficiary of the notice acquired the subject property before the registration of the attachment. Under the torrens system, the auction sale of an attached realty retroacts to the date the levy was registered. The Case [1] [2] Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to nullify the March 19, 2002 Decision and the December 5, [3] 2002 Resolution of the Court of Appeals (CA) in CA-GR CV No. 50884. The CA disposed as follows: Parenthetically, when the decision in Civil Case No. 90-1848 became final and executory, levy on execution issued and the attached property sold at public auction, the latter retroacts to the date of the levy. Said the High Court: In line with the same principle, it was held that where a preliminary attachment in favor of A was recorded on November 11 , 1932, and the private sale of the attached property in favor of B was executed on May 29, 1933, the attachment lien has priority over the private sale, which means that the purchaser took the property subject to such attachment lien and to all of its consequences, one of which is the subsequent sale on execution (Tambao v. Suy, 52 Phil. 237). The auction sale being a necessary sequel to the levy, it enjoys the same preference as the attachment lien enjoys over the private sale. In other words, the auction sale retroacts to the date of the levy. [Were] the rule be otherwise, the preference enjoyed by the levy of execution would be meaningless and illusory (Capistrano v. Phil. Nat. Bank, 101 Phil. 1117). (Underscoring supplied) By and large, We find no reversible error in the appealed decision. [4] IN VIEW OF ALL THE FOREGOING, the instant appeal is ordered DISMISSED. No pronouncement as to cost. The questioned Resolution, on the other hand, denied petitioners Motion for Reconsideration. The Facts The CA narrated the facts as follows: x x x Aurora Olarte de Leon was the registered owner of Lot No. 10-A (LRC Psd 336366) per Transfer Certificate of Title No. 582/T-3. Sometime in January 1989, De Leon sold the property to Luz Du under a Conditional Deed of Sale wherein said vendee paid a down payment of P75,000.00 leaving a balance of P95,000.00. Then again, on April 28, 1989, Aurora de Leon sold [the] same property to spouses Enrique and Rosita Caliwag without prior notice to Luz Du. As a result, Transfer Certificate of Title No. 582/T-3 was cancelled and Transfer Certificate of Title No. 2200 was issued in favor of the Caliwag spouses. Meanwhile, Stronghold Insurance Corp., Inc. x x x commenced Civil Case No. 90-1848 against spouses Rosita and Enrique Caliwag et al., for allegedly defrauding Stronghold and misappropriating the companys fund by falsifying and simulating purchases of documentary stamps. The action was accompanied by a prayer for a writ of preliminary attachment duly annotated at the back of Transfer Certificate of Title No. 2200 on August 7, 1990. On her part, on December 21, 1990, Luz Du initiated Civil Case No. 60319 against Aurora de Leon and the spouses Caliwag for the annulment of the sale by De Leon in favor of the Caliwags, anchored on the earlier mentioned Deed of Conditional Sale. On January 3, 1991, Luz Du caused the annotation of a Notice Of Lis Pendens at the back of Transfer Certificate of Title No. 2200. On February 11, 1991, the decision was handed down in Civil Case No. 90-1848 in favor of Stronghold, ordering the spouses Caliwag jointly and severally to pay the plaintiff P8,691,681.60, among others. When the decision became final and executory, on March 12, 1991, a notice of levy on execution was annotated on Transfer Certificate of Title No. 2200 and the attached property was sold in a public auction. On [August] 5, [5] 1991, the certificate of sale and the final Deed of Sale in favor of Stronghold were inscribed and annotated leading to the cancellation of Transfer Certificate of Title No. 2200 and in lieu thereof, Transfer Certificate of Title No. 6444 was issued in the name of Stronghold. It came to pass that on August 5, 1992, Luz Du too was able to secure a favorable judgment in Civil Case No. 60319 and which became final and executory sometime in 1993, as well. Under the above historical backdrop, Luz Du commenced the present case (docketed as Civil Case No. 64645) to cancel Transfer Certificate of Title No. 6444 in the name of Stronghold with damages claiming priority rights over the property by virtue of her Notice Of Lis Pendens under Entry No. 13305 and inscribed on January 3, 1991, and the final and executory decision in Civil Case No. 60319 she filed against spouses Enrique and Rosita Caliwag. According to Luz Du, despite her said notice of lis pendens annotated, Stronghold still proceeded with the execution of the decision in [6] Civil Case No. 90-1848 against the subject lot and ultimately the issuance of Transfer Certificate of Title No. 6444 in its ( Strongholds) name. The trial court ruled that Stronghold had superior rights over the property because of the prior registration of the latters notice of levy on attachment on Transfer Certificate of Title (TCT) No. 2200. For this reason, it found no basis to nullify TCT No. 6444, which was issued in the name of respondent after the latter had purchased the property in a public auction. Ruling of the Court of Appeals Sustaining the trial court in toto, the CA held that Strongholds notice of levy on attachment had been registered almost five (5) months before petitioners notice of lis pendens. Hence, respondent enjoyed priority in time. Such registration, the appellate court added, constituted constructive notice to petitioner and all third persons from the time of S trongholds entry, as provided under the Land Registration Act -- now the Property Registration Decree. The CA also held that respondent was a purchaser in good faith. The necessary sequels of execution and sale retroacted to the time when Stronghold registered its notice of levy on attachment, at a time when there was nothing on TCT No. 2200 that would show any defect in the title or any adverse claim over the property. [7] Hence, this Petition. Issues Petitioner submits the following issues for our consideration: I. Whether a Notice of Levy on Attachment on the property is a superior lien over that of the unregistered right of a buyer of a property in possession pursuant to a Deed of Conditional Sale. II.

Whether the acquisition of the subject property by Respondent Stronghold was tainted with bad faith. The Courts Ruling The Petition has no merit. Main Issue: Superiority of Rights Petitioner submits that her unregistered right over the property by way of a prior conditional sale in 1989 enjoys preference over the lien of Stronghold -- a lien that was created by the registration of respondents levy on attachment in 1990. Maintaining that the ruling in Capistrano v. PNB was improperly applied by the Court of Appeals, petitioner avers that unlike the circumstances in that case, the property herein had been sold to her before the levy. We do not agree. The preference given to a duly registered levy on attachment or execution over a prior unregistered sale is well-settled in our jurisdiction. As [9] early as Gomez v. Levy Hermanos, this Court has held that an attachment that is duly annotated on a certificate of title is superior to the right of a prior but unregistered buyer. In that case, the Court explained as follows: x x x. It is true that she bought the lots with pacto de retro but the fact of her purchase was not noted on the certificates of title until long after the attachment and its inscription on the certificates. In the registry, therefore, the attachment appeared in the nature of a real lien when Apolonia Gomez had her purchase recorded. The legal effect of the notation of said lien was to subject and subordinate the right of Apolonia Gomez, as purchaser, to the lien. She acquired the ownership of the said parcels only from the date of the recording of her title in the register, which took place on November 21, 1932 (sec. 51 of Act No. 496; Liong-Wong-Shih vs. Sunico and Peterson, 8 Phil. 91; Tabigue vs. Green, 11 Phil. 102; Buzon vs. Lucauco, 13 Phil. 354; and Worcester vs. Ocampo and Ocampo, 34 Phil. 646), and the right of ownership which she inscribed was not an absolute but a limited right, subject to a prior registered lien, by virtue of which Levy Hermanos, Inc. was entitled to the execution of the judgment credit [10] over the lands in question, a right which is preferred and superior to that of the plaintiff (sec, 51, Act No. 496 and decisions cited above). x x x Indeed, the subsequent sale of the property to the attaching creditor must, of necessity, retroact to the date of the levy. Otherwise, the [11] preference created by the levy would be meaningless and illusory, as reiterated in Defensor v. Brillo: x x x. The doctrine is well-settled that a levy on execution duly registered takes preference over a prior unregistered sale; and that even if the prior sale is subsequently registered before the sale in execution but after the levy was duly made, the validity of the execution sale should be maintained, because it retroacts to the date of the levy; otherwise, the preference created by the levy would be meaningless and illusory. Even assuming, therefore, that the entry of appellants sales in the books of the Register of Deeds on November 5, 1949 oper ated to convey the lands to them even without the corresponding entry in the owners duplicate titles, the levy on execution on the same lots in Civil Case No. 1182 on August 3, 1949, and their subsequent sale to appellee Brillo (which retroacts to the date of the levy) still takes precedence over and must be preferred to appellants deeds of sale which were registered only on November 5, 1949. This result is a necessary consequence of the fact that the properties herein involved were duly registered under Act No. 49 6, and of the fundamental principle that registration is the operative act that conveys and binds lands covered by Torrens titles (sections 50, 51, Act 496). Hence, if appellants became owners of the properties in question by virtue of the recording of the conveyances in their favor, their title arose [12] already subject to the levy in favor of the appellee, which had been noted ahead in the records of the Register of Deeds. (Citations omitted, italics supplied) [13] The Court has steadfastly adhered to the governing principle set forth in Sections 51 and 52 of Presidential Decree No. 1529: SEC. 51. Conveyance and other dealings by registered owner. - An owner of registered land may convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient in law. But no deed, mortgage, lease, or other voluntary instrument, except a will purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the Registry of Deeds to make registration. The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of Deeds for the province or the city where the land lies. SEC. 52. Constructive notice upon registration. - Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filin g or entering.(Italics supplied) [14] As the property in this case was covered by the torrens system, the registration of Strongholds attachment was the operative act that [15] gave validity to the transfer and created a lien upon the land in favor of respondent. Capistrano Ruling Correctly Applied [16] The preference created by the levy on attachment is not diminished even by the subsequent registration of the prior sale. That was the [17] import of Capistrano v. PNB, which held that precedence should be given to a levy on attachment or execution, whose registration was before that of the prior sale. In Capistrano, the sale of the land in question -- though made as far back as 1946 -- was registered only in 1953, after the property had already been subjected to a levy on execution by the Philippine National Bank. The present case is not much different. The stipulation of facts shows that Stronghold had already registered its levy on attachment before petitioner annotated her notice of lis pendens. As in Capistrano, she invokes the alleged superior right of a prior unregistered buyer to overcome respondents li en. If either the third-party claim or the subsequent registration of the prior sale was insufficient to defeat the previously registered attachment lien, as ruled by the Court in Capistrano, it follows that a notice of lis pendens is likewise insufficient for the same purpose. Such notice does not [18] establish a lien or an encumbrance on the property affected. As the name suggests, a notice oflis pendens with respect to a disputed property is intended merely to inform third persons that any of their transactions in connection therewith -- if entered into subsequent to the notation -would be subject to the result of the suit. In view of the foregoing, the CA correctly applied Capistrano, as follows: x x x the rule now followed is that if the attachment or levy of execution, though posterior to the sale, is registered befo re the sale is registered, it takes precedence over the latter.

[8]

The rule is not altered by the fact that at the time of the execution sale the Philippine National Bank had information that the land levied upon had already been deeded by the judgment debtor and his wife to Capistrano. The auction sale being a necessary sequel to the levy, for this was effected precisely to carry out the sale, the purchase made by the bank at said auction should enjoy the same legal priority that the levy had over the sale in favor of plaintiff. In other words, the auction sale retroacts to the date of the levy. Were the rule otherwise, the preference [19] enjoyed by the levy of execution in a case like the present would be meaningless and illusory. (Citations omitted, italics supplied) Second Issue: Taking in Bad Faith We now tackle the next question of petitioner: whether Stronghold was a purchaser in good faith. Suffice it to say that when Stronghold registered its notice of attachment, it did not know that the land being attached had been sold to petitioner. It had no such knowledge precisely because the sale, unlike the attachment, had not been registered. It is settled that a person dealing with registered property may rely on the title [20] and be charged with notice of only such burdens and claims as are annotated thereon. This principle applies with more force to this case, absent any allegation or proof that Stronghold had actual knowledge of the sale to petitioner before the registration of its attachment. [21] Thus, the annotation of respondents notice of attachment was a registration in good faith, the kind that made its prior righ t enforceable. Moreover, it is only after the notice of lis pendens is inscribed in the Office of the Register of Deeds that purchasers of the property become bound by the judgment in the case. As Stronghold is deemed to have acquired the property -- not at the time of actual purchase but at the time of the attachment -- it was an innocent purchaser for value and in good faith. WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against petitioner. G.R. No. 172138, September 8, 2010 NELSON JENOSA and his son NIO CARLO JENOSA, SOCORRO CANTO and her son PATRICK CANTO, CYNTHIA APALISOK and her daughter CYNDY APALISOK, EDUARDO VARGAS and his son CLINT EDUARD VARGAS, and NELIA DURO and her son NONELL GREGORY DURO, Petitioners, vs. REV. FR. JOSE RENE C. DELARIARTE, O.S.A., in his capacity as the incumbent Principal of the High School Department of the University of San Agustin, and theUNIVERSITY OF SAN AGUSTIN, herein represented by its incumbent President REV. FR. MANUEL G. VERGARA, O.S.A., Respondents. D E C I S I O N, CARPIO, J.: The Case This is a petition for review of the 16 June 2005 Decision and 22 March 2006 Resolution of the Court of Appeals in CA-G.R. SP No. 78894. In its 16 June 2005 Decision, the Court of Appeals granted the petition of respondents University of San Augustin (University), represented by its incumbent President Rev. Fr. Manuel G. Vergara, O.S.A. (University President), and Rev. Fr. Jose Rene C. Delariarte, O.S.A. (Principal), in his capacity as the incumbent Principal of the High School Department of the University (respondents) and ordered the dismissal of Civil Case Nos. 03-27460 and 0327646 for lack of jurisdiction over the subject matter. In its 22 March 2006 Resolution, the Court of Appeals denied the motion for reconsideration of petitioners Nelson Jenosa and his son Nio Carlo Jenosa, Socorro Canto and her son Patrick Canto, Cynthia Apalisok and her daughter Cyndy Apalisok, Eduardo Vargas and his son Clint Eduard Vargas, and Nelia Duro and her son Nonell Gregory Duro (petitioners). The Facts On 22 November 2002, some students of the University, among them petitioners Nio Carlo Jenosa, Patrick Canto, Cyndy Apalisok, Clint Eduard Vargas, and Nonell Gregory Duro (petitioner students), were caught engaging in hazing outside the school premises. The hazing incident was entered into the blotter of the Iloilo City Police. Thereafter, dialogues and consultations were conducted among the school authorities, the apprehended students and their parents. During the 28 November 2002 meeting, the parties agreed that, instead of the possibility of being charged and found guilty of hazing, the students who participated in the hazing incident as initiators, including petitioner students, would just transfer to another school, while those who participated as neophytes would be suspended for one month. The parents of the apprehended students, including petitioners, affixed their signatures to the minutes of the meeting to signify their conformity. In view of the agreement, the University did not anymore convene the Committee on Student Discipline (COSD) to investigate the hazing incident. On 5 December 2002, the parents of petitioner students (petitioner parents) sent a letter to the University President urging him not to implement the 28 November 2002 agreement. According to petitioner parents, the Principal, without convening the COSD, decided to order the immediate transfer of petitioner students. On 10 December 2002, petitioner parents also wrote a letter to Mrs. Ida B. Endonila, School Division Superintendent, Department of Education (DepEd), Iloilo City, seeking her intervention and prayed that petitioner students be allowed to take the home study program instead of transferring to another school. The DepEd asked the University to comment on the letter. The University replied and attached the minutes of the 28 November 2002 meeting. On 3 January 2003, petitioners filed a complaint for injunction and damages with the Regional Trial Court, Branch 29, Iloilo City (trial court) docketed as Civil Case No. 03-27460. Petitioners assailed the Principals decision to order the immediate transfer of petitioner students as a violation of their right to due process because the COSD was not convened. On 5 February 2003, the trial court issued a writ of preliminary injunction and directed respondents to admit petitioner students during the pendency of the case. The 5 February 2003 Order reads: WHEREFORE, let [a] Writ of Preliminary Mandatory Injunction issue. The defendants are hereby directed to allow the plaintiffs minor children to attend their classes during the pendency of this case, without prejudice to any disciplinary proceeding to which any or all of them may be liable. SO ORDERED. Respondents filed a motion for reconsideration and asked for the dissolution of the writ. The trial court denied respondents motion. Respondents complied but with reservations. On 25 March 2003, respondents filed a motion to dismiss. Respondents alleged that the trial court had no jurisdiction over the subject matter of the case and that petitioners were guilty of forum shopping. On 19 May 2003, the trial court denied respondents motion. Respondents filed a motion for reconsideration. On 21 April 2003, petitioners wrote the DepEd and asked that it direct the University to release the report cards and other credentials of petitioner students. On 8 May 2003, the DepEd sent a letter to the University advising it to release petitioner students report cards and other c redentials if there was no valid reason to withhold the same. On 14 May 2003, the DepEd sent another letter to the University to follow-up petitioners

request. On 20 May 2003, the University replied that it could not release petitioner students report cards due to their pending disciplinary case with the COSD. On 28 May 2003, petitioners filed another complaint for mandatory injunction praying for the release of petitioner students report cards and other credentials docketed as Civil Case No. 03-27646. The trial court consolidated the two cases. On 17 June 2003, the trial court issued a writ of preliminary injunction and directed the University to release petitioner students report cards and other credentials. Respondents filed a motion for reconsideration. Respondents alleged that they could not comply with the writ because of the on-going disciplinary case against petitioner students. On 26 June 2003, the COSD met with petitioners for a preliminary conference on the hazing incident. On 7 July 2003, the University, through the COSD, issued its report finding petitioner students guilty of hazing. The COSD also recommended the exclusion of petitioner students from its rolls effective 28 November 2002. On 14 July 2003, the trial court issued an Order denying both motions for reconsideration. On 1 September 2003, respondents filed a special civil action for certiorari with the Court of Appeals. Respondents insisted that the trial court had no jurisdiction over the subject matter of Civil Case Nos. 03-27460 and 03-27646. Respondents also alleged that petitioners were guilty of forum shopping. The Ruling of the Court of Appeals In its 16 June 2005 Decision, the Court of Appeals granted respondents petition and ordered the trial court to dismiss Civil Case Nos. 03-27460 and 03-27646 for lack of jurisdiction over the subject matter because of petitioners failure to exhaust administrative remedies or for being premature. According to the Court of Appeals, petitioners should have waited for the action of the DepEd or of the University President before resorting to judicial action. The Court of Appeals held: From the foregoing, it is clear that the court a quo committed grave [abuse] of discretion amounting to LACK OF JURISDICTION in INTERFERING, prematurely, with the exclusive and inherent authority of educational institutions to discipline. In directing herein petitioners [respondents in this case] to re-admit herein private respondents [petitioners in this case] and eventually, to release the report cards and other school credentials, prior to the action of the President of USA and of the recommendation of the COSD, the court a quo is guilty of improper judicial intrusion by encroaching into the exclusive prerogative of educational institutions. Petitioners filed a motion for reconsideration. In its 22 March 2006 Resolution, the Court of Appeals denied petitioners motion for lack of merit. The Issues Petitioners raise the following issues: 1. Was the Court of Appeals correct in holding that Branch 29 of the Regional Trial Court of Iloilo City in Civil Case Nos. 03-27460 and 03-27646 did not acquire jurisdiction over the subject matter of this case for failure of petitioners to exhaust administrative remedies? 2. Was the recommendation/report/order of the Committee on Student Discipline dated 7 July 2003 valid, and did it justify the order of exclusion of petitioner students retroactive to 28 November 2002? The Ruling of the Court The petition has no merit. Discipline in education is specifically mandated by the 1987 Constitution which provides that all educational institutions shall teach the rights and duties of citizenship, strengthen ethical and spiritual values, develop moral character and personal discipline. Schools and school administrators have the authority to maintain school disciplineand the right to impose appropriate and reasonable disciplinary measures. On the other hand, students have the duty and the responsibility to promote and maintain the peace and tranquility of the school by observing the rules of discipline. In this case, we rule that the Principal had the authority to order the immediate transfer of petitioner students because of the 28 November 2002 agreement. Petitioner parents affixed their signatures to the minutes of the 28 November 2002 meeting and signified their conformity to transfer their children to another school. Petitioners Socorro Canto and Nelia Duro even wrote a letter to inform the University that they would transfer their children to another school and requested for the pertinent papers needed for the transfer.In turn, the University did not anymore convene the COSD. The University agreed that it would no longer conduct disciplinary proceedings and instead issue the transfer credentials of petitioner students. Then petitioners reneged on their agreement without any justifiable reason. Since petitioners present complaint is one for injunction, and injunction is the strong arm of equity, petitioners must come to court with clean hands. In University of the Philippines v. Hon. Catungal, Jr.,a case involving student misconduct, this Court ruled: Since injunction is the strong arm of equity, he who must apply for it must come with equity or with clean hands. This is so because among the maxims of equity are (1) he who seeks equity must do equity, and (2) he who comes into equity must come with clean hands. The latter is a frequently stated maxim which is also expressed in the principle that he who has done inequity shall not have equity. It signifies that a litigant may be denied relief by a court of equity on the ground that his conduct has been inequitable, unfair and dishonest, or fraudulent, or deceitful as to the controversy in issue. Here, petitioners, having reneged on their agreement without any justifiable reason, come to court with unclean hands. This Court may deny a litigant relief if his conduct has been inequitable, unfair and dishonest as to the controversy in issue. Since petitioners have come to court with inequitable and unfair conduct, we deny them relief. We uphold the validity of the 28 November 2002 agreement and rule that the Principal had the authority to order the immediate transfer of petitioner students based on the 28 November 2002 agreement. WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2005 Decision and the 22 March 2006 Resolution of the Court of Appeals. SO ORDERED. G.R. No. 179665, April 3, 2013 SOLID BUILDERS,INC. and MEDINA FOODS INDUSTRIES, INC., Petitioners, vs. CHINA BANKING CORPORATION, Respondent. D E C I S I O N, LEONARDO-DE CASTRO, J.: This petition for review on certiorari1 assails the Decision dated April 16, 2007 and the Resolution dated September 18, 2007 of the Court of Appeals in CA-G.R. SP No. 81968.

During the period from September 4, 1992 to March 27, 1996, China Banking Corporation (CBC) granted several loans to Solid Builders, Inc. (SBI), which amounted to P139,999,234.34, exclusive of interests and other charges. To secure the loans, Medina Foods Industries, Inc. (MFII) executed in CBCs favor several surety agreements and contracts of real estate mortgage over parcels of land in the Loyola Grand Villas i n Quezon City and New Cubao Central in Cainta, Rizal. Subsequently, SBI proposed to CBC a scheme through which SBI would sell the mortgaged properties and share the proceeds with CBC on a 50-50 basis until such time that the whole obligation would be fully paid. SBI also proposed that there be partial releases of the certificates of title of the mortgaged properties without the burden of updating interests on all loans. In a letter dated March 20, 2000 addressed to CBC, SBI requested the restructuring of its loans, a reduction of interests and penalties and the implementation of a dacion en pago of the New Cubao Central property. The letter reads: March 20, 2000 CHINA BANKING CORPORATION Dasmarinas cor. Juan Luna Sts. Binondo, Manila Attn: Mr. George Yap Account Officer Dear Mr. Yap, This is to refer to our meeting held at your office last March 10, 2000. In this regard, please allow us to call your attention on the following important matters we have discussed: 1. With respect to the penalties, we are requesting for a reduction in the rates as we find it onerous considering the big amount of our loan (P218,540,648.00). The interest together with the penalties that you are imposing is similar to the ones being charged by private lending institutions, i.e., 4.5%/month total. 2. As I had discussed with you regarding Dacion en Pago, which you categorically stated that it could be a possibility, we are considering putting our New Cubao Central (NCC) on Dacion and restructuring our loan with regards to our Loyola Grand Villas. Considering that you had stated that our restructuring had not been finalized, we find it timely to raise these urgent matters and possibly agree on a realistic and workable scheme that we can incorporate on our final agreement. Thank you and we strongly hope for your prompt consideration on our request. Very truly yours, V. BENITO R. SOLIVEN (Sgd.) President In response, CBC sent SBI a letter dated April 17, 2000 stating that the loans had been completely restructured effective March 1, 1999 in the amount of P218,540,646.00. On the aspect of interests and charges, CBC suggested the updating of the obligation to avoid paying interests and charges.8 The relevant portion of the letter dated April 17, 2000 reads: First of all, to clarify, the loans restructuring has been finalized and completed on 3/01/99 with the booking of the Restru ctured loan of P218,540,646. Only two Amendments of Real Estate Mortgages remain to be registered to date. Certain documents that we requested from your company since last year, that could facilitate this amendment have not yet been forwarded to us until now. Nevertheless, this does not change the fact that the restructuring of the loan has been done with and finalized. This in turn is with regards to statement[s] no. 1 & 2 of your letter, referring to the interest rates and penalties. As per our records, the rates are actually the prevailing bank interest rates. In addition, penalty charges are imposed in the event of non-payment. To avoid experiencing having to pay more due to the penalty charges, updating of obligations is necessary. Thus, we advise updating of your obligations to avoid penalty charges. However, should you be able to update both interest and penalty through a "one-time" payment, we shall present your request to Senior Management for possible reduction in penalty charges. Concerning statement no. 3 containing your request for the possible Dacion en Pago of your NCC properties, as was discussed already in the meeting, it is a concern that has to be discussed with Senior Management and approved by the Executive Committee before we can commit to you on the matter. We suggest that your company, Solid Builders, exhaust all possibilities to sell the NCC properties yourselves because, being a real estate company, Solid has better ways and means of selling the properties. This was followed by another communication from CBC to SBI reiterating, among others, that the loan has been restructured effective March 1, 1999 upon issuance by SBI of promissory notes in favor of CBC. The relevant portion of that letter dated May 19, 2000 reads: Again, in response to your query with regards the issue of the loans restructuring, to reiterate, the loan restructuring has been finalized and completed on 3/01/99 with the booking of the Restructured loan of P231,716,646. The Restructured Loan was effective ever since the new Promissory Note was signed on the said date. The interest rates for the loans are actually rates booked since the new Promissory Notes were effective. Any move of changing it or "re-pricing" the interest is only possible every 90 days from the booking date, which represents the interest amortization payment dates. No change or "re-pricing" in interest rates is possible since interest payment/obligations have not yet been paid. With regards to the possible Dacion en Pago of your NCC properties, as was discussed already in the meeting, it is a concern that has to be discussed with Senior Management and approved by the Executive Committee before we can commit to you on the matter. We suggest that your company, Solid Builders, exhaust all possibilities to sell the NCC properties yourselves because, being a real estate company, Solid has better ways and means of selling the properties. Subsequently, in a letter dated September 18, 2000, CBC demanded SBI to settle its outstanding account within ten days from receipt thereof. The letter dated September 18, 2000 reads: September 18, 2000 SOLID BUILDERS, INC. V.V. Soliven Bldg., I EDSA, San Juan, Metro Manila PN NUMBER O/S BALANCE DUE DATE INTEREST

PN-MK-TS-342924 PN-MK-TS-342931 PN-MK-TS-342948 PN-MK-TS-342955 PN-MK-TS-342962 PN-MK-TS-342979 PN-MK-TS-342986 PN-MK-TS-342993 PN-MK-TS-343002 PN-MK-TS-343026

PHP 89,700,000.00 19,350,000.00 35,888,000.00 6,870,000.00 5,533,646.00 21,950,000.00 3,505,000.00 19,455,000.00 4,168,000.00 12,121,000.00 PHP218,540,646.00

03/01/2004 03/01/2004 03/01/2004 03/01/2004 03/01/2004 03/01/2004 03/01/2004 03/01/2004 03/01/2004 03/01/2004

04/13/1999 08/05/1999 ----------------------------07/26/1999 --------------08/09/1999 -------------------------------------------

Greetings! We refer again to the balances of the abovementioned Promissory Notes amounting to PHP218,540,646.00 excluding interest, penalties and other charges signed by you jointly and severally in our favor, which remains unpaid up to this date despite repeated demands for payment. In view of the strict regulations of Bangko Sentral ng Pilipinas on past due accounts, we regret that we cannot hold these accounts further in abeyance. Accordingly, we are reiterating our request that arrangements to have these accounts settled within ten (10) days from receipt hereof, otherwise, we shall be constrained to refer the matter to our lawyers for collection. We enclose a Statement of Account as of September 30, 2000 for your reference and guidance. Very truly yours, MERCEDES E. GERMAN (Sgd.) Manager Loans & Discounts Department H.O.11 On October 5, 2000, claiming that the interests, penalties and charges imposed by CBC were iniquitous and unconscionable and to enjoin CBC from initiating foreclosure proceedings, SBI and MFII filed a Complaint "To Compel Execution of Contract and for Performance and Damages, With Prayer for Writ of Preliminary Injunction and Ex-Parte Temporary Restraining Order" in the Regional Trial Court (RTC) of Pasig City. The case was docketed as Civil Case No. 68105 and assigned to Branch 264.12 In support of their application for the issuance of writ of preliminary injunction, SBI and MFII alleged: IV. APPLICATION FOR PRELIMINARY INJUNCTION WITH EX- PARTE TEMPORARY RESTRAINING ORDER A. GROUNDS FOR PRELIMINARY INJUNCTION 1. That SBI and MFII are entitled to the reliefs demanded, among which is enjoining/restraining the commission of the acts complained of, the continuance of which will work injustice to the plaintiffs; that such acts are in violation of the rights of plaintiffs and, if not enjoined/restrained, will render the judgment sought herein ineffectual. 2. That under the circumstances, it is necessary to require, through preliminary injunction, CBC to refrain from immediately enforcing its letters dated April 17, 2000 and May 19, 2000 and September 18, 2000 during the pendency of this complaint, and 3. That SBI and MFII submit that they are exempt from filing of a bond considering that the letters dated April 17, 2000, May 19, 2000 and September 18, 2000 are a patent nullity, and in the event they are not, they are willing to post such bond this Honorable Court may determine and under the conditions required by Section 4, Rule 58.13 In its Answer and Opposition to the issuance of the writ of preliminary injunction, CBC alleged that to implement the agreed restructuring of the loan, SBI executed ten promissory notes stipulating that the interest rate shall be at 18.5% per annum. For its part, MFII executed third party real estate mortgage over its properties in favor of CBC to secure the payment of SBIs restructured loan. As SBI was delinquent i n the payment of the principal as well as the interest thereon, CBC demanded settlement of SBIs account.14 After hearing the parties, the trial court issued an Order dated December 14, 2000 granting the application of SBI and MFII for the issuance of a writ of preliminary injunction. The trial court held that SBI and MFII were able to sufficiently comply with the requisites for the issuance of an injunctive writ: It is well-settled that to be entitled to an injunctive writ, a party must show that: (1) the invasion of right sought to be protected is material and substantial; (2) the right of complainant is clear and unmistakable; and, (3) there is an urgent and paramount necessity for the writ to prevent serious damage. The Court opines that the above-mentioned requisites have been sufficiently shown by plaintiffs in this case, accordingly, a writ of preliminary injunction is in order. The three subject letters, particularly the letter dated September 18, 2000, indicate that the promissory notes executed by Benito Soliven as President of plaintiff SBI amounted to P218,540,646.00, excluding interest, penalties and other charges remained unpaid, and demand that the account be settled within ten days, else defendant bank shall refer the latter to its lawyers for collection. The message in the letter is clear: If the account is not settled within the grace period, defendant bank will resort to foreclosure of mortgage on the subject properties. The actual or imminent damage to plaintiffs is likewise clear. Considering the number of parcels of land and area involved, if these are foreclosed by defendant bank, plaintiffs properties and source of income will be effectively diminished, possibly to the point of closure. The only issue remaining is whether or not plaintiffs have the right to ask for an injunctive writ in order to prevent defendant bank from taking over their properties. Plaintiffs argued that the interest and penalties charged them in the subject letters and attached statements of account increased during a sevenmonth period to an amount they described as "onerous", "usurious" ad "greedy". They likewise asserted that there were on-going talks between officers of the corporations involved to treat or restructure the contracts to a dacion en pago, as there was a proposed plan of action by representatives of plaintiffs during the meetings. Defendant, on the other hand, sought to explain the increase in the interest as contained in the promissory notes which were voluntarily and willingly signed by Soliven, therefore, binding on plaintiffs and that the proposed plan of action is merely an oral contract still in the negotiation

stage and not binding. The condition on the interest payments as contained in the promissory notes are as follows: "Interest for the first quarter shall be @ 18.5% P.A. Thereafter, it shall be payable quarterly in arrears based on three months average rate." In its Memorandum, defendant bank tried to show that the questioned increase in the interests was merely in compliance with the above condition. To this Court, the explanation is insufficient. A more detailed rationalization is required to convince the court of the fairness of the increase in interests and penalties. However, the coming explanation may probably be heard only during trial on the merits, and by then this pending incident or the entire case, may already be moot and academic if the injunctive writ is not issued. The dispositive portion of the trial courts Order dated December 14, 2000 reads: WHEREFORE, premises considered, the application for issuance of writ of preliminary injunction is GRANTED. Defendant CHINA BANKING CORPORATION, its representatives, agents and all persons working in its behalf are hereby enjoined from enforcing the contents of its letters to plaintiffs dated April 17, 2000, May 19, 2000 and September 18, 2000, particularly the banks legal department or other counsel commencing collection proceedings against plaintiffs in the amount stated in the letters and statements of account. The Writ of Preliminary Injunction shall be issued upon plaintiffs posting of a bond executed to defendant in the amount of Two Milli on Pesos (P2,000,000.00) to the effect [that] the plaintiffs will pay defendant all damages which the latter may sustain by reason of the injunction if it be ultimately decided that the injunction is unwarranted. CBC sought reconsideration but the trial court denied it in an Order dated December 10, 2001. Subsequently, CBC filed a "Motion to Dissolve Injunction Order" but this was denied in an Order dated November 10, 2003. The trial court ruled that the motion was in the nature of a mere belated second motion for reconsideration of the Order dated December 14, 2000. It also declared that CBC failed to substantiate its prayer for the dissolution of the injunctive writ. Aggrieved, CBC filed a Petition for Certiorari docketed as CA-G.R. SP No. 81968 in the Court of Appeals where it claimed that the Orders dated December 14, 2000 (granting the application of petitioners SBI and MFII for the issuance of writ of preliminary injunction), December 10, 2001 (denying reconsideration of the order dated December 14, 2000), and November 10, 2003 (denying the CBCs motion to dissolve i njunction order) were all issued with grave abuse of discretion amounting to lack of jurisdiction. In a Decision dated April 16, 2007, the Court of Appeals found that, on its face, the trial courts Order dated December 14, 2000 granting the application of SBI and MFII for the issuance of a writ of preliminary injunction had no basis as there were no findings of fact or law which would indicate the existence of any of the requisites for the grant of an injunctive writ. It appeared to the Court of Appeals that, in ordering the issuance of a writ of injunction, the trial court simply relied on the imposition by CBC of the interest rates to the loans obtained by SBI and MFII. According to the Court of Appeals, however, the records do not reveal a clear and unmistakable right on the part of SBI and MFII that would entitle them to the protection of a writ of preliminary injunction. Thus, the Court of Appeals granted the petition of CBC, set aside the Orders dated December 14, 2000, December 10, 2001, and November 10, 2003 and dissolved the injunctive writ issued by the RTC of Pasig City. SBI and MFII filed a motion for reconsideration but it was denied by the Court of Appeals in a Resolution dated September 18, 2007. Hence, this petition. SBI and MFII assert that the Decision dated April 16, 2007 of the Court of Appeals is legally infirm as its conclusions are contrary to the judicial admissions of CBC. They allege that, in its Answer, CBC admitted paragraphs 25 and 26 of the Complaint regarding the interests and charges amounting to P35,093,980.14 andP80,614,525.15, respectively, which constituted more than 50% of the total obligation of P334,249,151.29 as of February 15, 2000. For SBI and MFII, CBCs admission of paragraphs 25 and 26 of the Complaint is an admission that the intere st rate imposed by CBC is usurious, exorbitant and confiscatory. Thus, when the Court of Appeals granted the petition of CBC and ordered the lifting of the writ of preliminary injunction it effectively disposed of the main case, Civil Case No. 68105, without trial on the merits and rendered moot and academic as it enabled CBC to foreclose on the mortgages despite the usurious, exorbitant and confiscatory interest rates. SBI and MFII also claim that the Court of Appeals either overlooked or disregarded undisputed and admitted facts which, if properly considered, would have called for the maintenance and preservation of the preliminary injunction issued by the trial court. They argue that the Court of Appeals did not even consider Article 1229 of the Civil Code which provides: 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. For SBI and MFII, the failure of the Court of Appeals to take into account Article 1229 of the Civil Code and its act of lifting the preliminary injunction "would definitely pave the way for CBCs unbridled imposition of illegal rates of interest and immediate foreclos ure" of the properties of SBI and MFII "without the benefit of a full blown trial." For its part, CBC assails the petition contending that it is not allowed under Rule 45 of the Rules of Court because it simply raises issues of fact and not issues of law. CBC further asserts that the Decision of the Court of Appeals is an exercise of sound judicial discretion as it is in accord with the law and the applicable provisions of this Court. The petition fails. This Court has recently reiterated the general principles in issuing a writ of preliminary injunction in Palm Tree Estates, Inc. v. Philippine National Bank: A preliminary injunction is an order granted at any stage of an action prior to judgment of final order, requiring a party, court, agency, or person to refrain from a particular act or acts. It is a preservative remedy to ensure the protection of a partys substantive rights o r interests pending the final judgment in the principal action. A plea for an injunctive writ lies upon the existence of a claimed emergency or extraordinary situation which should be avoided for otherwise, the outcome of a litigation would be useless as far as the party applying for the writ is concerned. At times referred to as the "Strong Arm of Equity," we have consistently ruled that there is no power the exercise of which is more delicate and which calls for greater circumspection than the issuance of an injunction. It should only be extended in cases of great injury where courts of law cannot afford an adequate or commensurate remedy in damages; "in cases of extreme urgency; where the right is very clear; where considerations of relative inconvenience bear strongly in complainants favor; where there is a willful and unlawful invasion of plaintiffs right against his protest and remonstrance, the injury being a continuing one, and where the effect of the mandatory injunction is rather to reestablish and maintain a preexisting continuing relation between the parties, recently and arbitrarily interrupted by the defendant, than to establish a new relation." A writ of preliminary injunction is an extraordinary event which must be granted only in the face of actual and existing substantial rights. The duty

of the court taking cognizance of a prayer for a writ of preliminary injunction is to determine whether the requisites necessary for the grant of an injunction are present in the case before it.25 In this connection, a writ of preliminary injunction is issued to preserve the status quo ante, upon the applicants showing of two important requisite conditions, namely: (1) the right to be protected exists prima facie, and (2) the acts sought to be enjoined are violative of that right. It must be proven that the violation sought to be prevented would cause an irreparable injury. Here, SBI and MFII basically claim a right to have their mortgaged properties shielded from foreclosure by CBC on the ground that the interest rate and penalty charges imposed by CBC on the loans availed of by SBI are iniquitous and unconscionable. In particular, SBI and MFII assert: There is therefore an urgent necessity for the issuance of a writ of preliminary injunction or at least a status quo [order], otherwise, respondent bank will definitely foreclose petitioners properties without awaiting the trial of the main case on the merits, with said u surious and confiscatory rates of interest as basis.and There is therefore no legal justification for the Honorable Court of Appeals to lift/dissolve the injunction issued by the trial court, otherwise, respondent bank on the basis of this illegal imposition of interest can already foreclose the properties of petitioners and render the whole case (sans trial on the merits) moot and academic.28 On this matter, the Order dated December 14, 2000 of the trial court enumerates as the first argument raised by SBI and MFII in support of their application for the issuance of a writ of preliminary injunction: 1. Their rights basically are for the protection of their properties put up as collateral for the loans extended by defendant bank to them. As debtor-mortgagors, however, SBI and MFII do not have a right to prevent the creditor-mortgagee CBC from foreclosing on the mortgaged properties simply on the basis of alleged "usurious, exorbitant and confiscatory rate of interest." First, assuming that the interest rate agreed upon by the parties is usurious, the nullity of the stipulation of usurious interest does not affect the lenders right to recover th e principal loan, nor affect the other terms thereof. Thus, in a usurious loan with mortgage, the right to foreclose the mortgage subsists, and this right can be exercised by the creditor upon failure by the debtor to pay the debt due. Second, even the Order dated December 14, 2000 of the trial court, which granted the application for the issuance of a writ of preliminary injunction, recognizes that the parties still have to be heard on the alleged lack of "fairness of the increase in interests and penalties" during the trial on the merits.33 Thus, the basis of the right claimed by SBI and MFII remains to be controversial or disputable as there is still a need to determine whether or not, upon consideration of the various circumstances surrounding the agreement of the parties, the interest rates and penalty charges are unconscionable. Therefore, such claimed right cannot be considered clear, actual and subsisting. In the absence of a clear legal right, the issuance of the injunctive writ constitutes grave abuse of discretion. The Order dated December 10, 2001 also shows the reasoning of the trial court which betrays that its grant of the application of SBI and MFII for the issuance of a writ of preliminary injunction was not based on a clear legal right. Said the trial court: It was likewise shown that plaintiffs SBI and MFII had the clear right and urgency to ask for injunction because of the issue of validity of the increase in the amount of the loan obligation. (Emphasis supplied.) At most, the above finding of the trial court that the validity of the increase in the amount of the loan obligation is in issue simply amounted to a finding that the rights of SBI and MFII vis--vis that of CBC are disputed and debatable. In such a case where the complainant-movants right is doubtful or disputed, the issuance of an injunctive writ is not proper. Even assuming that SBI and MFII are correct in claiming their supposed right, it nonetheless disintegrates in the face of the ten promissory notes in the total amount of P218,540,648.00, exclusive of interest and penalties, issued by SBI in favor of CBC on March 1, 1999 which until now remain unpaid despite the maturity of the said notes on March 1, 2004 and CBCs repeated demands for payment. Foreclosure is but a necessary consequence of nonpayment of mortgage indebtedness. As this Court held in Equitable PCI Bank, Inc. v. OJ-Mark Trading, Inc.: Where the parties stipulated in their credit agreements, mortgage contracts and promissory notes that the mortgagee is authorized to foreclose the mortgaged properties in case of default by the mortgagors, the mortgagee has a clear right to foreclosure in case of default, making the issuance of a Writ of Preliminary Injunction improper. x x x. (Citation omitted.) In addition, the default of SBI and MFII to pay the mortgage indebtedness disqualifies them from availing of the equitable relief that is the injunctive writ. In particular, SBI and MFII have stated in their Complaint that they have made various requests to CBC for restructuring of the loan. The trial courts Order dated December 14, 2000 also found that SBI wrote several letters to CBC "requesting, among others, for a reduction of interests and penalties and restructuring of the loan." A debtors various and constant requests for deferment of payment and restructuring of loan, without actually paying the amount due, are clear indications that said debtor was unable to settle his obligation. SBIs default or failure to settle its obligation is a breach of contractual obligation which tainted its hands and disqualified it from availing of the equitable remedy of preliminary injunction. As SBI is not entitled to the issuance of a writ of preliminary injunction, so is MFII. The accessory follows the principal. The accessory obligation of MFII as accommodation mortgagor and surety is tied to SBIs principal obligation to CBC and arises only in the event of SBIs default. Thus, MFIIs interest in the issuance of the writ of preliminary injunction is necessarily prejudiced by SBIs wrongful condu ct and breach of contract. Even Article 1229 of the Civil Code, which SBI and MFII invoke, works against them. Under that provision, the equitable reduction of the penalty stipulated by the parties in their contract will be based on a finding by the court that such penalty is iniquitous or unconscionable. Here, the trial court has not yet made a ruling as to whether the penalty agreed upon by CBC with SBI and MFII is unconscionable. Such finding will be made by the trial court only after it has heard both parties and weighed their respective evidence in light of all relevant circumstances. Hence, for SBI and MFII to claim any right or benefit under that provision at this point is premature. As no clear right that warrants the extraordinary protection of an injunctive writ has been shown by SBI and MFII to exist in their favor, the first requirement for the grant of a preliminary injunction has not been satisfied. In the absence of any requisite, and where facts are shown to be wanting in bringing the matter within the conditions for its issuance, the ancillary writ of injunction must be struck down for having been rendered in grave abuse of discretion. Thus, the Court of Appeals did not err when it granted the petition for certiorari of CBC and ordered the dissolution of the writ of preliminary injunction issued by the trial court. Neither has there been a showing of irreparable injury. An injury is considered irreparable if it is of such constant and frequent recurrence that no fair or reasonable redress can be had therefor in a court of law, or where there is no standard by which their amount can be measured with reasonable accuracy, that is, it is not susceptible of mathematical computation. The provisional remedy of preliminary injunction may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard of compensation. In the first place, any injury that SBI and MFII may suffer in case of foreclosure of the mortgaged properties will be purely monetary and

compensable by an appropriate judgment in a proper case against CBC. Moreover, where there is a valid cause to foreclose on the mortgages, it cannot be correctly claimed that the irreparable damage sought to be prevented by the application for preliminary injunction is the loss of the mortgaged properties to auction sale. The alleged entitlement of SBI and MFII to the "protection of their properties put up as collateral for the loans" they procured from CBC is not the kind of irreparable injury contemplated by law. Foreclosure of mortgaged property is not an irreparable damage that will merit for the debtor-mortgagor the extraordinary provisional remedy of preliminary injunction. As this Court stated in Philippine National Bank v. Castalloy Technology Corporation: All is not lost for defaulting mortgagors whose properties were foreclosed by creditors-mortgagees. The respondents will not be deprived outrightly of their property, given the right of redemption granted to them under the law. Moreover, in extrajudicial foreclosures, mortgagors have the right to receive any surplus in the selling price. Thus, if the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will not affect the validity of the sale but will give the mortgagor a cause of action to recover such surplus. (Citation omitted.) The En Banc Resolution in A.M. No. 99-10-05-0, Re: Procedure in Extrajudicial or Judicial Foreclosure of Real Estate Mortgages, further stacks the odds against SBI and MFII. Issued on February 20, 2007, or some two months before the Court of Appeals promulgated its decision in this case, the resolution embodies the additional guidelines intended to aid courts in foreclosure proceedings, specifically limiting the instances, and citing the conditions, when a writ against foreclosure of a mortgage may be issued, to wit: (1) No temporary restraining order or writ of preliminary injunction against the extrajudicial foreclosure of real estate mortgage shall be issued on the allegation that the loan secured by the mortgage has been paid or is not delinquent unless the application is verified and supported by evidence of payment. (2) No temporary restraining order or writ of preliminary injunction against the extrajudicial foreclosure of real estate mortgage shall be issued on the allegation that the interest on the loan is unconscionable, unless the debtor pays the mortgagee at least twelve percent per annum interest on the principal obligation as stated in the application for foreclosure sale, which shall be updated monthly while the case is pending. (3) Where a writ of preliminary injunction has been issued against a foreclosure of mortgage, the disposition of the case shall be speedily resolved. To this end, the court concerned shall submit to the Supreme Court, through the Office of the Court Administrator, quarterly reports on the progress of the cases involving ten million pesos and above. (4) All requirements and restrictions prescribed for the issuance of a temporary restraining order/writ of preliminary injunction, such as the posting of a bond, which shall be equal to the amount of the outstanding debt, and the time limitation for its effectivity, shall apply as well to a status quo order. The guidelines speak of strict exceptions and conditions. To reverse the decision of the Court of Appeals and reinstate the writ of preliminary injunction issued by the trial court will be to allow SBI and MFII to circumvent the guidelines and conditions provided by the En Banc Resolution in A.M. No. 99-10-05-0 dated February 20, 2007 and prevent CBC from foreclosing on the mortgaged properties based simply on the allegation that the interest on the loan is unconscionable. This Court will not permit such a situation. What cannot be done directly cannot be done indirectly. All told, the relevant circumstances in this case show that there was failure to satisfy the requisites for the issuance of a writ of preliminary injunction. The injunctive writ issued by the trial court should therefore be lifted and dissolved. That was how the Court of Appeals decided. That is how it should be. WHEREFORE, the petition is hereby DENIED. SO ORDERED. .R. No. 168332, June 19, 2009 ANA MARIA A. KORUGA, Petitioner, vs. TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO, FRANCISCO A. RIVERA, and THE HONORABLE COURT OF APPEALS, THIRD DIVISION, Respondents. Before this Court are two petitions that originated from a Complaint filed by Ana Maria A. Koruga (Koruga) before the Regional Trial Court (RTC) of Makati City against the Board of Directors of Banco Filipino and the Members of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) for violation of the Corporation Code, for inspection of records of a corporation by a stockholder, for receivership, and for the creation of a management committee. G.R. No. 168332 The first is a Petition for Certiorari under Rule 65 of the Rules of Court, docketed as G.R. No. 168332, praying for the annulment of the Court of Appeals (CA) Resolution in CA-G.R. SP No. 88422 dated April 18, 2005 granting the prayer for a Writ of Preliminary Injunction of therein petitioners Teodoro O. Arcenas, Jr., Albert C. Aguirre, Cesar S. Paguio, and Francisco A. Rivera (Arcenas, et al.). Koruga is a minority stockholder of Banco Filipino Savings and Mortgage Bank. On August 20, 2003, she filed a complaint before the Makati RTC which was raffled to Branch 138, presided over by Judge Sixto Marella, Jr. Korugas complaint alleged: 10. 1 Violation of Sections 31 to 34 of the Corporation Code (Code) which prohibit self-dealing and conflicts of interest of directors and officers, thus: (a) For engaging in unsafe, unsound, and fraudulent banking practices that have jeopardized the welfare of the Bank, its shareholders, who includes among others, the Petitioner, and depositors. (sic) (b) For granting and approving loans and/or loaned sums of money to six (6) dummy borrower corporations (Borrower Corporations) which, at the time of loan approval, had no financial capacity to justify the loans. (sic) (c) For approving and accepting a dacion en pago, or payment of loans with property instead of cash, resulting to a diminished future cumulative interest income by the Bank and a decline in its liquidity position. (sic) (d) For knowingly giving favorable treatment to the Borrower Corporations in which some or most of them have interests, i.e. interlocking directors/officers thereof, interlocking ownerships. (sic) (e) For employing their respective offices and functions as the Banks officers and directors, or omitting to p erform their functions and duties, with negligence, unfaithfulness or abuse of confidence of fiduciary duty, misappropriated or misapplied or ratified by inaction the misappropriation or misappropriations, of (sic) almost P1.6 Billion Pesos (sic) constituting the Banks funds placed under their trust and administration, by unlawfully releasing loans to the Borrower Corporations or refusing or failing to impugn these, knowing before the loans were released or thereafter that the Banks cash resources would b e dissipated thereby, to the prejudice of the Petitioner, other Banco Filipino depositors, and the public.

10.2 Right of a stockholder to inspect the records of a corporation (including financial statements) under Sections 74 and 75 of the Code, as implemented by the Interim Rules; (a) Unlawful refusal to allow the Petitioner from inspecting or otherwise accessing the corporate records of the bank despite repeated demand in writing, where she is a stockholder. (sic) 10.3 Receivership and Creation of a Management Committee pursuant to: (a) Rule 59 of the 1997 Rules of Civil Procedure (Rules); (b) Section 5.2 of R.A. No. 8799; (c) Rule 1, Section 1(a)(1) of the Interim Rules; (d) Rule 1, Section 1(a)(2) of the Interim Rules; (e) Rule 7 of the Interim Rules; (f) Rule 9 of the Interim Rules; and (g) The General Banking Law of 2000 and the New Central Bank Act.[3] On September 12, 2003, Arcenas, et al. filed their Answer raising, among others, the trial courts lack of jurisdiction to ta ke cognizance of the case. They also filed a Manifestation and Motion seeking the dismissal of the case on the following grounds: (a) lack of jurisdiction over the subject matter; (b) lack of jurisdiction over the persons of the defendants; (c) forum-shopping; and (d) for being a nuisance/harassment suit. They then moved that the trial court rule on their affirmative defenses, dismiss the intra-corporate case, and set the case for preliminary hearing. In an Order dated October 18, 2004, the trial court denied the Manifestation and Motion, ruling thus: The result of the procedure sought by defendants Arcenas, et al. (sic) is for the Court to conduct a preliminary hearing on the affirmative defenses raised by them in their Answer. This [is] proscribed by the Interim Rules of Procedure on Intracorporate (sic) Controversies because when a preliminary hearing is conducted it is as if a Motion to Dismiss was filed (Rule 16, Section 6, 1997 Rules of Civil Procedu re). A Motion to Dismiss is a prohibited pleading under the Interim Rules, for which reason, no favorable consideration can be given to the Manifestation and Motion of defendants, Arcenas, et al. The Court finds no merit to (sic) the claim that the instant case is a nuisance or harassment suit. WHEREFORE, the Court defers resolution of the affirmative defenses raised by the defendants Arcenas, et al. Arcenas, et al. moved for reconsideration but, on January 18, 2005, the RTC denied the motion. This prompted Arcenas, et al. to file before the CA a Petition for Certiorari and Prohibition under Rule 65 of the Rules of Court with a prayer for the issuance of a writ of preliminary injunction and a temporary retraining order (TRO). On February 9, 2005, the CA issued a 60-day TRO enjoining Judge Marella from conducting further proceedings in the case. On February 22, 2005, the RTC issued a Notice of Pre-trial setting the case for pre-trial on June 2 and 9, 2005. Arcenas, et al. filed a Manifestation and Motion before the CA, reiterating their application for a writ of preliminary injunction. Thus, on April 18, 2005, the CA issued the assailed Resolution, which reads in part: (C)onsidering that the Temporary Restraining Order issued by this Court on February 9, 2005 expired on April 10, 2005, it is necessary that a writ of preliminary injunction be issued in order not to render ineffectual whatever final resolution this Court may render in this case, after the petitioners shall have posted a bond in the amount of FIVE HUNDRED THOUSAND (P500,000.00) PESOS. SO ORDERED. Dissatisfied, Koruga filed this Petition for Certiorari under Rule 65 of the Rules of Court. Koruga alleged that the CA effectively gave due course to Arcenas, et al.s petition when it issued a writ of preliminary injunction without factual or legal basis, either in the Apri l 18, 2005 Resolution itself or in the records of the case. She prayed that this Court restrain the CA from implementing the writ of preliminary injunction and, after due proceedings, make the injunction against the assailed CA Resolution permanent. In their Comment, Arcenas, et al. raised several procedural and substantive issues. They alleged that the Verification and Certification against Forum-Shopping attached to the Petition was not executed in the manner prescribed by Philippine law since, as admitted by Korugas counsel himself, the same was only a facsimile. They also averred that Koruga had admitted in the Petition that she never asked for reconsideration of the CAs April 18, 200 5 Resolution, contending that the Petition did not raise pure questions of law as to constitute an exception to the requirement of filing a Motion for Reconsideration before a Petition for Certiorari is filed. They, likewise, alleged that the Petition may have already been rendered moot and academic by the July 20, 2005 CA Decision, which denied their Petition, and held that the RTC did not commit grave abuse of discretion in issuing the assailed orders, and thus ordered the RTC to proceed with the trial of the case. Meanwhile, on March 13, 2006, this Court issued a Resolution granting the prayer for a TRO and enjoining the Presiding Judge of Makati RTC, Branch 138, from proceeding with the hearing of the case upon the filing by Arcenas, et al. of a P50,000.00 bond. Koruga filed a motion to lift the TRO, which this Court denied on July 5, 2006. On the other hand, respondents Dr. Conrado P. Banzon and Gen. Ramon Montao also filed their Comment on Korugas Petition, raisi ng substantially the same arguments as Arcenas, et al. G.R. No. 169053 G.R. No. 169053 is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, with prayer for the issuance of a TRO and a writ of preliminary injunction filed by Arcenas, et al. In their Petition, Arcenas, et al. asked the Court to set aside the Decision dated July 20, 2005 of the CA in CA-G.R. SP No. 88422, which denied their petition, having found no grave abuse of discretion on the part of the Makati RTC. The CA said that the RTC Orders were interlocutory in nature and, thus, may be assailed by certiorari or prohibition only when it is shown that the court acted without or in excess of jurisdiction or with grave abuse of discretion. It added that the Supreme Court frowns upon resort to remedial measures against interlocutory orders. Arcenas, et al. anchored their prayer on the following grounds: that, in their Answer before the RTC, they had raised the issue of failure of the court to acquire jurisdiction over them due to improper service of summons; that the Koruga action is a nuisance or harassment suit; that there is another case involving the same parties for the same cause pending before the Monetary Board of the BSP, and this constituted forum-shopping; and that jurisdiction over the subject matter of the case is vested by law in the BSP. Arcenas, et al. assign the following errors: I. THE COURT OF APPEALS, IN FINDING NO GRAVE ABUSE OF DISCRETION COMMITTED BY PUBLIC RESPONDENT REGIONAL TRIAL COURT

OF MAKATI, BRANCH 138, IN ISSUING THE ASSAILED ORDERS, FAILED TO CONSIDER AND MERELY GLOSSED OVER THE MORE TRANSCENDENT ISSUES OF THE LACK OF JURISDICTION ON THE PART OF SAID PUBLIC RESPONDENT OVER THE SUBJECT MATTER OF THE CASE BEFORE IT, LITIS PENDENTIA AND FORUM SHOPPING, AND THE CASE BELOW BEING A NUISANCE OR HARASSMENT SUIT, EITHER ONE AND ALL OF WHICH GOES/GO TO RENDER THE ISSUANCE BY PUBLIC RESPONDENT OF THE ASSAILED ORDERS A GRAVE ABUSE OF DISCRETION. II. THE FINDING OF THE COURT OF APPEALS OF NO GRAVE ABUSE OF DISCRETION COMMITTED BY PUBLIC RESPONDENT REGIONAL TRIAL COURT OF MAKATI, BRANCH 138, IN ISSUING THE ASSAILED ORDERS, IS NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THIS HONORABLE COURT. Meanwhile, in a Manifestation and Motion filed on August 31, 2005, Koruga prayed for, among others, the consolidation of her Petition with the Petition for Review on Certiorari under Rule 45 filed by Arcenas, et al., docketed as G.R. No. 169053. The motion was granted by this Court in a Resolution dated September 26, 2005. Our Ruling Initially, we will discuss the procedural issue. Arcenas, et al. argue that Korugas petition should be dismissed for its defective Verification and Certification Against Forum -Shopping, since only a facsimile of the same was attached to the Petition. They also claim that the Verification and Certification Against Forum-Shopping, allegedly executed in , , was not authenticated in the manner prescribed by Philippine law and not certified by the Philippine Consulate in the . This contention deserves scant consideration. On the last page of the Petition in G.R. No. 168332, Korugas counsel executed an Undertaking, which reads as follows: In view of that fact that the Petitioner is currently in the , undersigned counsel is attaching a facsimile copy of the Verification and Certification Against Forum-Shopping duly signed by the Petitioner and notarized by Stephanie N. Goggin, a Notary Public for the Sate (sic) of . Upon arrival of the original copy of the Verification and Certification as certified by the Office of the Philippine Consul, the undersigned counsel shall immediately provide duplicate copies thereof to the Honorable Court. Thus, in a Compliance filed with the Court on September 5, 2005, petitioner submitted the original copy of the duly notarized and authenticated Verification and Certification Against Forum-Shopping she had executed. This Court noted and considered the Compliance satisfactory in its Resolution dated November 16, 2005. There is, therefore, no need to further belabor this issue. We now discuss the substantive issues in this case. First, we resolve the prayer to nullify the CAs April 18, 2005 Resolution. We hold that the Petition in G.R. No. 168332 has become moot and academic. The writ of preliminary injunction being questioned had effectively been dissolved by the CAs July 20, 2005 Decision. The dispositive portion of the Decision reads in part: The case is REMANDED to the court a quo for further proceedings and to resolve with deliberate dispatch the intra-corporate controversies and determine whether there was actually a valid service of summons. If, after hearing, such service is found to have been improper, then new summons should be served forthwith. Accordingly, there is no necessity to restrain the implementation of the writ of preliminary injunction issued by the CA on April 18, 2005, since it no longer exists. However, this Court finds that the CA erred in upholding the jurisdiction of, and remanding the case to, the RTC. The resolution of these petitions rests mainly on the determination of one fundamental issue: Which body has jurisdiction over the Koruga Complaint, the RTC or the BSP? We hold that it is the BSP that has jurisdiction over the case. A reexamination of the Complaint is in order. Korugas Complaint charged defendants with violation of Sections 31 to 34 of the Corporation Code, prohibiting self -dealing and conflict of interest of directors and officers; invoked her right to inspect the corporations records under Sections 74 and 75 of the Corporation Code; and prayed for Receivership and Creation of a Management Committee, pursuant to Rule 59 of the Rules of Civil Procedure, the Securities Regulation Code, the Interim Rules of Procedure Governing Intra-Corporate Controversies, the General Banking Law of 2000, and the New Central Bank Act. She accused the directors and officers of Banco Filipino of engaging in unsafe, unsound, and fraudulent banking practices, more particularly, acts that violate the prohibition on self-dealing. It is clear that the acts complained of pertain to the conduct of Banco Filipinos banking business. A bank, as defined in the General Banking Law, refers to an entity engaged in the lending of funds obtained in the form of deposits. The banking business is properly subject to reasonable regulation under the police power of the state because of its nature and relation to the fiscal affairs of the people and the revenues of the state. Banks are affected with public interest because they receive funds from the general public in the form of deposits. It is the Governments responsibility to see to it that the financial interests of those who deal with banks and banking institutions, as depositors or otherwise, are protected. In this country, that task is delegated to the BSP, which pursuant to its Charter, is authorized to administer the monetary, banking, and credit system of the . It is further authorized to take the necessary steps against any banking institution if its continued operation would cause prejudice to its depositors, creditors and the general public as well. The law vests in the BSP the supervision over operations and activities of banks. The New Central Bank Act provides: Section 25. Supervision and Examination. - The Bangko Sentral shall have supervision over, and conduct periodic or special examinations of, banking institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied activities. Specifically, the BSPs supervisory and regulatory powers include: 4.1 The issuance of rules of conduct or the establishment of standards of operation for uniform application to all institutions or functions covered, taking into consideration the distinctive character of the operations of institutions and the substantive similarities of specific functions to which such rules, modes or standards are to be applied; 4.2 The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as determined by the Monetary Board; 4.3 Overseeing to ascertain that laws and Regulations are complied with; 4.4 Regular investigation which shall not be oftener than once a year from the last date of examination to determine whether an institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities found by or discovered by an audit shall be immediately addressed;

4.5 Inquiring into the solvency and liquidity of the institution (2-D); or 4.6 Enforcing prompt corrective action. Koruga alleges that the dispute in the trial court involves the manner with which the Directors (sic) have handled the Banks affairs, specifically the fraudulent loans and dacion en pago authorized by the Directors in favor of several dummy corporations known to have close ties and are indirectly controlled by the Directors. Her allegations, then, call for the examination of the allegedly questionable loans. Whether these loans are covered by the prohibition on self-dealing is a matter for the BSP to determine. These are not ordinary intra-corporate matters; rather, they involve banking activities which are, by law, regulated and supervised by the BSP. As the Court has previously held: It is well-settled in both law and jurisprudence that the Central Monetary Authority, through the Monetary Board, is vested with exclusive authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business would involve a probable loss to its depositors or creditors, forbid bank or non-bank financial institution to do business in the Philippines; and shall designate an official of the BSP or other competent person as receiver to immediately take charge of its assets and liabilities. Correlatively, the General Banking Law of 2000 specifically deals with loans contracted by bank directors or officers, thus: SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related Interests. No director or officer of any bank shall, directly or indirectly, for himself or as the representative or agent of others, borrow from such bank nor shall he become a guarantor, indorser or surety for loans from such bank to others, or in any manner be an obligor or incur any contractual liability to the bank except with the written approval of the majority of all the directors of the bank, excluding the director concerned: Provided, That such written approval shall not be required for loans, other credit accommodations and advances granted to officers under a fringe benefit plan approved by the Bangko Sentral. The required approval shall be entered upon the records of the bank and a copy of such entry shall be transmitted forthwith to the appropriate supervising and examining department of the Bangko Sentral. Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be upon terms not less favorable to the bank than those offered to others. After due notice to the board of directors of the bank, the office of any bank director or officer who violates the provisions of this Section may be declared vacant and the director or officer shall be subject to the penal provisions of the New Central Bank Act. The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that may be extended, directly or indirectly, by a bank to its directors, officers, stockholders and their related interests, as well as investments of such bank in enterprises owned or controlled by said directors, officers, stockholders and their related interests. However, the outstanding loans, credit accommodations and guarantees which a bank may extend to each of its stockholders, directors, or officers and their related interests, shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank: Provided, however, That loans, credit accommodations and guarantees secured by assets considered as non-risk by the Monetary Board shall be excluded from such limit: Provided, further, That loans, credit accommodations and advances to officers in the form of fringe benefits granted in accordance with rules as may be prescribed by the Monetary Board shall not be subject to the individual limit. The Monetary Board shall define the term related interests. The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to loans, credit accommodations and guarantees extended by a cooperative bank to its cooperative shareholders. Furthermore, the authority to determine whether a bank is conducting business in an unsafe or unsound manner is also vested in the Monetary Board. The General Banking Law of 2000 provides: SECTION 56. Conducting Business in an Unsafe or Unsound Manner. In determining whether a particular act or omission, which is not otherwise prohibited by any law, rule or regulation affecting banks, quasi-banks or trust entities, may be deemed as conducting business in an unsafe or unsound manner for purposes of this Section, the Monetary Board shall consider any of the following circumstances: 56.1. The act or omission has resulted or may result in material loss or damage, or abnormal risk or danger to the safety, stability, liquidity or solvency of the institution; 56.2. The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution's depositors, creditors, investors, stockholders or to the Bangko Sentral or to the public in general; 56.3. The act or omission has caused any undue injury, or has given any unwarranted benefits, advantage or preference to the bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence; or 56.4. The act or omission involves entering into any contract or transaction manifestly and grossly disadvantageous to the bank, quasi-bank or trust entity, whether or not the director or officer profited or will profit thereby. Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or unsound manner, the Monetary Board may, without prejudice to the administrative sanctions provided in Section 37 of the New Central Bank Act, take action under Section 30 of the same Act and/or immediately exclude the erring bank from clearing, the provisions of law to the contrary notwithstanding. Finally, the New Central Bank Act grants the Monetary Board the power to impose administrative sanctions on the erring bank: Section 37. Administrative Sanctions on Banks and Quasi-banks. - Without prejudice to the criminal sanctions against the culpable persons provided in Sections 34, 35, and 36 of this Act, the Monetary Board may, at its discretion, impose upon any bank or quasi-bank, their directors and/or officers, for any willful violation of its charter or by-laws, willful delay in the submission of reports or publications thereof as required by law, rules and regulations; any refusal to permit examination into the affairs of the institution; any willful making of a false or misleading statement to the Board or the appropriate supervising and examining department or its examiners; any willful failure or refusal to comply with, or violation of, any banking law or any order, instruction or regulation issued by the Monetary Board, or any order, instruction or ruling by the Governor; or any commission of irregularities, and/or conducting business in an unsafe or unsound manner as may be determined by the Monetary Board , the following administrative sanctions, whenever applicable: (a) fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to exceed Thirty thousand pesos (P30,000) a day for each violation, taking into consideration the attendant circumstances, such as the nature and gravity of the violation or irregularity and the size of the bank or quasi-bank; (b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities; (c) suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments;

(d) suspension of interbank clearing privileges; and/or (e) revocation of quasi-banking license. Resignation or termination from office shall not exempt such director or officer from administrative or criminal sanctions. The Monetary Board may, whenever warranted by circumstances, preventively suspend any director or officer of a bank or quasi-bank pending an investigation: Provided, That should the case be not finally decided by the Bangko Sentral within a period of one hundred twenty (120) days after the date of suspension, said director or officer shall be reinstated in his position: Provided, further, That when the delay in the disposition of the case is due to the fault, negligence or petition of the director or officer, the period of delay shall not be counted in computing the period of suspension herein provided. The above administrative sanctions need not be applied in the order of their severity. Whether or not there is an administrative proceeding, if the institution and/or the directors and/or officers concerned continue with or otherwise persist in the commission of the indicated practice or violation, the Monetary Board may issue an order requiring the institution and/or the directors and/or officers concerned to cease and desist from the indicated practice or violation, and may further order that immediate action be taken to correct the conditions resulting from such practice or violation. The cease and desist order shall be immediately effective upon service on the respondents. The respondents shall be afforded an opportunity to defend their action in a hearing before the Monetary Board or any committee chaired by any Monetary Board member created for the purpose, upon request made by the respondents within five (5) days from their receipt of the order. If no such hearing is requested within said period, the order shall be final. If a hearing is conducted, all issues shall be determined on the basis of records, after which the Monetary Board may either reconsider or make final its order. The Governor is hereby authorized, at his discretion, to impose upon banking institutions, for any failure to comply with the requirements of law, Monetary Board regulations and policies, and/or instructions issued by the Monetary Board or by the Governor, fines not in excess of Ten thousand pesos (P10,000) a day for each violation, the imposition of which shall be final and executory until reversed, modified or lifted by the Monetary Board on appeal. Koruga also accused Arcenas, et al. of violation of the Corporation Codes provisions on self -dealing and conflict of interest. She invoked Section 31 of the Corporation Code, which defines the liability of directors, trustees, or officers of a corporation for, among others, acquiring any personal or pecuniary interest in conflict with their duty as directors or trustees, and Section 32, which prescribes the conditions under which a contract of the corporation with one or more of its directors or trustees the so-called self-dealing directors would be valid. She also alleged that Banco Filipinos directors violated Sections 33 and 34 in approving the loans of corporations with interlocking ownerships, i.e., owned, directed, or managed by close associates of Albert C. Aguirre. Sections 31 to 34 of the Corporation Code provide: Section 31. Liability of directors, trustees or officers. - Directors or trustees who wilfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation. Section 32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation with one or more of its directors or trustees or officers is voidable, at the option of such corporation, unless all the following conditions are present: 1. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting; 2. That the vote of such director or trustee was not necessary for the approval of the contract; 3. That the contract is fair and reasonable under the circumstances; and 4. That in case of an officer, the contract has been previously authorized by the board of directors. Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director or trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at least twothirds (2/3) of the members in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided, however, That the contract is fair and reasonable under the circumstances. Section 33. Contracts between corporations with interlocking directors. - Except in cases of fraud, and provided the contract is fair and reasonable under the circumstances, a contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone: Provided, That if the interest of the interlocking director in one corporation is substantial and his interest in the other corporation or corporations is merely nominal, he shall be subject to the provisions of the preceding section insofar as the latter corporation or corporations are concerned. Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for purposes of interlocking directors. Section 34. Disloyalty of a director. - Where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director risked his own funds in the venture. Korugas invocation of the provisions of the Corporation Code is misplaced. In an earlier case with similar antecedents, we ruled that: The Corporation Code, however, is a general law applying to all types of corporations, while the New Central Bank Act regulates specifically banks and other financial institutions, including the dissolution and liquidation thereof. As between a general and special law, the latter shall prevail generalia specialibus non derogant. Consequently, it is not the Interim Rules of Procedure on Intra-Corporate Controversies, or Rule 59 of the Rules of Civil Procedure on Receivership, that would apply to this case. Instead, Sections 29 and 30 of the New Central Bank Act should be followed, viz.: Section 29. Appointment of Conservator. - Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary Board finds that a bank or a quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a conservator with such powers as the

Monetary Board shall deem necessary to take charge of the assets, liabilities, and the management thereof, reorganize the management, collect all monies and debts due said institution, and exercise all powers necessary to restore its viability. The conservator shall report and be responsible to the Monetary Board and shall have the power to overrule or revoke the actions of the previous management and board of directors of the bank or quasi-bank. xxxx The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary. The conservatorship shall likewise be terminated should the Monetary Board, on the basis of the report of the conservator or of its own findings, determine that the continuance in business of the institution would involve probable loss to its depositors or creditors, in which case the provisions of Section 30 shall apply. Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the supervising or examining department, the Monetary Board finds that a bank or quasi-bank: (a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community; (b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or (c) cannot continue in business without involving probable losses to its depositors or creditors; or (d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts or transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the Monetary Board may summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution. xxxx The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and executory, and may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock within ten (10) days from receipt by the board of directors of the institution of the order directing receivership, liquidation or conservatorship. The designation of a conservator under Section 29 of this Act or the appointment of a receiver under this section shall be vested exclusively with the Monetary Board. Furthermore, the designation of a conservator is not a precondition to the designation of a receiver. On the strength of these provisions, it is the Monetary Board that exercises exclusive jurisdiction over proceedings for receivership of banks. Crystal clear in Section 30 is the provision that says the appointment of a receiver under this section shall be vested exclusively with the Monetary Board. The term exclusively connotes that only the Monetary Board can resolve the issue of whether a bank is to be placed under receivership and, upon an affirmative finding, it also has authority to appoint a receiver. This is further affirmed by the fact that the law allows the Monetary Board to take action summarily and without need for prior hearing. And, as a clincher, the law explicitly provides that actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and executory, and may not be restrained or set aside by the court except on a petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. From the foregoing disquisition, there is no doubt that the RTC has no jurisdiction to hear and decide a suit that seeks to place Banco Filipino under receivership. Koruga herself recognizes the BSPs power over the allegedly unlawful acts of Banco Filipinos directors. The records of this case bear out that Koruga, through her legal counsel, wrote the Monetary Board on April 21, 2003 to bring to its attention the acts she had enumerated in her complaint before the RTC. The letter reads in part: Banco Filipino and the current members of its Board of Directors should be placed under investigation for violations of banking laws, the commission of irregularities, and for conducting business in an unsafe or unsound manner. They should likewise be placed under preventive suspension by virtue of the powers granted to the Monetary Board under Section 37 of the Central Bank Act. These blatant violations of banking laws should not go by without penalty. They have put Banco Filipino, its depositors and stockholders, and the entire banking system (sic) in jeopardy. xxxx We urge you to look into the matter in your capacity as regulators. Our clients, a minority stockholders, (sic) and many depositors of Banco Filipino are prejudiced by a failure to regulate, and taxpayers are prejudiced by accommodations granted by the BSP to Banco Filipino In a letter dated May 6, 2003, BSP Supervision and Examination Department III Director Candon B. Guerrero referred Koruga s letter to Arcenas for comment. On June 6, 2003, Banco Filipinos then Executive Vice President and Corporate Secretary Francisco A. Rivera submitted the banks comments essentially arguing that Korugas accusations lacked legal and factual bases. On the other hand, the BSP, in its Answer before the RTC, said that it had been looking into Banco Filipinos activities. An October 2002 Report of Examination (ROE) prepared by the Supervision and Examination Department (SED) noted certain dacion payments, out-of-the-ordinary expenses, among other dealings. On July 24, 2003, the Monetary Board passed Resolution No. 1034 furnishing Banco Filipino a copy of the ROE with instructions for the bank to file its comment or explanation within 30 to 90 days under threat of being fined or of being subjected to other remedial actions. The ROE, the BSP said, covers substantially the same matters raised in Korugas complaint. At the time of the filing of Korugas complaint on August 20, 2003, the period for Banco Filipino to submit its explanation had not yet expired. Thus, the courts jurisdiction could only have been invoked after the Monetary Board had taken action on the matter and only on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. Finally, there is one other reason why Korugas complaint before the RTC cannot prosper. Given her own admission and the same is likewise supported by evidence that she is merely a minority stockholder of Banco Filipino, she would not have the standing to question the Monetary Boards action. Section 30 of the New Central Bank Act provides: The petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock within ten (10) days from receipt by the board of directors of the institution of the order directing receivership, liquidation or conservatorship. All the foregoing discussion yields the inevitable conclusion that the CA erred in upholding the jurisdiction of, and remanding the case to, the

RTC. Given that the RTC does not have jurisdiction over the subject matter of the case, its refusal to dismiss the case on that ground amounted to grave abuse of discretion. WHEREFORE, the foregoing premises considered, the Petition in G.R. No. 168332 is DISMISSED, while the Petition in G.R. No. 169053 is GRANTED. The Decision of the Court of Appeals dated July 20, 2005 in CA-G.R. SP No. 88422 is hereby SET ASIDE. The Temporary Restraining Order issued by this Court on March 13, 2006 is made PERMANENT. Consequently, Civil Case No. 03-985, pending before the , is DISMISSED. SO ORDERED. G.R. No. 174356, January 20, 2010 EVELINA G. CHAVEZ and AIDA CHAVEZ-DELES, Petitioners, vs. COURT OF APPEALS and ATTY. FIDELA Y. VARGAS, Respondents. DECISION, ABAD, J.: This case is about the propriety of the Court of Appeals (CA), which hears the case on appeal, placing the property in dispute under receivership upon a claim that the defendant has been remiss in making an accounting to the plaintiff of the fruits of such property. The Facts and the Case Respondent Fidela Y. Vargas owned a five-hectare mixed coconut land and rice fields in Sorsogon. Petitioner Evelina G. Chavez had been staying in a remote portion of the land with her family, planting coconut seedlings on the land and supervising the harvest of coconut and palay. Fidela and Evelina agreed to divide the gross sales of all products from the land between themselves. Since Fidela was busy with her law practice, Evelina undertook to hold in trust for Fidela her half of the profits. But Fidela claimed that Evelina had failed to remit her share of the profits and, despite demand to turn over the administration of the property to Fidela, had refused to do so. Consequently, Fidela filed a complaint against Evelina and her daughter, Aida C. Deles, who was assisting her mother, for recovery of possession, rent, and damages with prayer for the immediate appointment of a receiver before the Regional Trial Court (RTC) of Bulan, Sorsogon. In their answer, Evelina and Aida claimed that the RTC did not have jurisdiction over the subject matter of the case since it actually involved an agrarian dispute. After hearing, the RTC dismissed the complaint for lack of jurisdiction based on Fidelas admission that Evelina and Aida were tenants who helped plant coconut seedlings on the land and supervised the harvest of coconut and palay. As tenants, the defendants also shared in the gross sales of the harvest. The court threw out Fidelas claim that, since Evelina and her family received the land already planted with fruit -bearing trees, they could not be regarded as tenants. Cultivation, said the court, included the tending and caring of the trees. The court also regarded as relevant Fidelas pending application for a five-hectare retention and Evelinas pending protest relative to her three-hectare beneficiary share. Dissatisfied, Fidela appealed to the CA. She also filed with that court a motion for the appointment of a receiver. On April 12, 2006 the CA granted the motion and ordained receivership of the land, noting that there appeared to be a need to preserve the property and its fr uits in light of Fidelas allegation that Evelina and Aida failed to account for her share of such fruits. Parenthetically, Fidela also filed three estafa cases with the RTC of Olongapo City and a complaint for dispossession with the Department of Agrarian Reform Adjudication Board (DARAB) against Evelina and Aida. In all these cases, Fidela asked for the immediate appointment of a receiver for the property. The Issues Presented Petitioners present the following issues: 1. Whether or not respondent Fidela is guilty of forum shopping considering that she had earlier filed identical applications for receivership over the subject properties in the criminal cases she filed with the RTC of Olongapo City against petitioners Evelina and Aida and in the administrative case that she filed against them before the DARAB; and 2. Whether or not the CA erred in granting respondent Fidelas application for receivership. The Courts Ruling One. By forum shopping, a party initiates two or more actions in separate tribunals, grounded on the same cause, trusting that one or the other tribunal would favorably dispose of the matter. The elements of forum shopping are the same as in litis pendentia where the final judgment in one case will amount to res judicata in the other. The elements of forum shopping are: (1) identity of parties, or at least such parties as would represent the same interest in both actions; (2) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (3) identity of the two preceding particulars such that any judgment rendered in the other action will, regardless of which party is successful, amount to res judicata in the action under consideration. Here, however, the various suits Fidela initiated against Evelina and Aida involved different causes of action and sought different reliefs. The present civil action that she filed with the RTC sought to recover possession of the property based on Evelina and Aidas failure to account for i ts fruits. The estafa cases she filed with the RTC accused the two of misappropriating and converting her share in the harvests for their own benefit. Her complaint for dispossession under Republic Act 8048 with the DARAB sought to dispossess the two for allegedly cutting coconut trees without the prior authority of Fidela or of the Philippine Coconut Authority. The above cases are similar only in that they involved the same parties and Fidela sought the placing of the properties under receivership in all of them. But receivership is not an action. It is but an auxiliary remedy, a mere incident of the suit to help achieve its purpose. Consequently, it cannot be said that the grant of receivership in one case will amount to res judicata on the merits of the other cases. The grant or denial of this provisional remedy will still depend on the need for it in the particular action. Two. In any event, we hold that the CA erred in granting receivership over the property in dispute in this case. For one thing, a petition for receivership under Section 1(b), Rule 59 of the Rules of Civil Procedure requires that the property or fund subject of the action is in danger of being lost, removed, or materially injured, necessitating its protection or preservation. Its object is the prevention of imminent danger to the property. If the action does not require such protection or preservation, the remedy is not receivership. Here Fidelas main gripe is that Evelina and Aida deprived her of her share of the lands produce. She does not claim that the land or its productive capacity would disappear or be wasted if not entrusted to a receiver. Nor does Fidela claim that the land has been materially injured, necessitating its protection and preservation. Because receivership is a harsh remedy that can be granted only in extreme situations, Fidela must prove a clear right to its issuance. But she has not. Indeed, in none of the other cases she filed against Evelina and Aida has that remedy been granted her. Besides, the RTC dismissed Fidelas action for lack of jurisdiction over the case, holding that the issues it raised properly belong to the DARAB. The

case before the CA is but an offshoot of that RTC case. Given that the RTC has found that it had no jurisdiction over the case, it would seem more prudent for the CA to first provisionally determine that the RTC had jurisdiction before granting receivership which is but an incident of the main action. WHEREFORE, the Court GRANTS the petition. The Resolutions dated April 12, 2006 and July 7, 2006 of the Court of Appeals in CA-G.R. CV 85552, are REVERSED and SET ASIDE. The receivership is LIFTED and the Court of Appeals is directed to resolve CA-G.R. CV 85552 with utmost dispatch. SO ORDERED. G.R. No. 111080, April 5, 2000 JOSE S. OROSA and MARTHA P. OROSA, petitioners, vs. HON. COURT OF APPEALS, FCP CREDIT CORPORATION, respondents. D E C I S I O N, YNARES_SANTIAGO, J.: On December 6, 1984, private respondent FCP Credit Corporation filed a complaint for replevin and damages in the Regional Trial Court of Manila against petitioner Jose S. Orosa and one John Doe to recover possession of a 1983 Ford Laser 1.5 Sedan with Motor and Serial No. SUNKBT-14584. The complaint alleged that on September 28, 1983, petitioner purchased the subject motor vehicle on installment from Fiesta Motor Sales Corporation. He executed and delivered to Fiesta Motor Sales Corp. a promissory note in the sum of P133,824.00 payable in monthly installments. To secure payment, petitioner executed a chattel mortgage over the subject motor vehicle in favor of Fiesta Motor Sales Corp. On September 28, 1983, Fiesta Motor Sales assigned the promissory note and chattel mortgage to private respondent FCP Credit Corporation. The complaint further alleged that petitioner failed to pay part of the installment which fell due on July 28, 1984 as well as three (3) consecutive installments which fell due on August 28, September 28, and October 28, 1984. Consequently, private respondent FCP Credit Corporation demanded from petitioner payment of the entire outstanding balance of the obligation amounting to P106,154.48 with accrued interest and to surrender the vehicle which petitioner was allegedly detaining. After trial, the lower court dismissed private respondent's complaint in a Decision dated March 25, 1988, the decretal portion of which reads: WHEREFORE, judgment is rendered for the defendant, and against the plaintiff: 1) Dismissing the complaint for lack of merit; 2) Declaring that the plaintiff was not entitled to the Writ of Replevin, issued on January 7,1985, and is now liable to the defendant for actual damages under the Replevin bond it filed; nigel 3) On defendant's counter-claim, ordering the plaintiff to pay the defendant the sum of P400,000.00 as moral damages, P100,000.00 as exemplary damages, and P50,000.00 as, and for, attorney's fees; 4) Ordering the plaintiff to return to the defendant the subject 1983 Ford Laser Sedan, with Motor or Serial No. SUNKBT-l4584, or its equivalent, in kind or value, in cash, as of this date, and to pay the costs. SO ORDERED. The trial court ruled that private respondent FCP had no reason to file the present action since petitioner already paid the installments for the months of July to November 1984, which are the sole bases of the complaint. The lower court declared that private respondent was not entitled to the writ of replevin, and was liable to petitioner for actual damages under the replevin bond it filed. Ruling on petitioner's counterclaim, the trial court stated that there was no legal or factual basis for the writ of replevin and that its enforcement by the sheriff was "highly irregular, and unlawful, done, as it was, under shades of extortion, threats and force ." The trial court ordered private respondent to pay the sum of P400,000.00 as moral damages; P100,000.00 as exemplary damages and P50,000.00 as attorney's fees. Private respondent was also ordered to return to petitioner the 1983 Ford Laser 1.5 Sedan, or its equivalent, in kind or value in cash, as of date of judgment and to pay the costs of the suit. On June 7, 1988, a "Supplemental Decision" was rendered by the trial court ordering private respondent's surety, Stronghold Insurance Co., Inc. to jointly and severally [with private respondent] return to petitioner the 1983 Ford Laser 1.5 Sedan or its equivalent in kind or in cash and to pay the damages specified in the main decision to the extent of the value of the replevin bond in the amount of P210,000.00. The surety company filed with the Court of Appeals a petition for certiorari to annul the Order of the trial court denying its motion for partial reconsideration, as well as the Supplemental Decision. On the other hand, private respondent appealed the decision of the RTC Manila to the Court of Appeals. The surety company's petition for certiorari, docketed as CA-G.R. SP No. 14938, was dismissed by the Court of Appeals' First Division which upheld the trial court's order of execution pending appeal. On November 6, 1989, this Court affirmed the Court of Appeals decision, but deleted the order for the issuance of a writ of execution pending appeal. Meanwhile, in private respondent's appeal, the Court of Appeals' Eighth Division partially affirmed the ruling of the trial court, in a Decision dated April 19, 1993, the dispositive portion of which reads: WHEREFORE, the Decision of 25 March 1988 of the Regional Trial Court, Branch 3, Manila is hereby AFFIRMED with the following modifications: (1) The award of moral damages, exemplary damages and attorney's fees is DELETED; (2) The order directing plaintiff-appellant FCP Credit Corporation to return to defendant-appellee Jose S. Orosa the subject 1983 Ford Laser Sedan, with Motor and Serial No. SUNKBT-14584, its equivalent, in kind or value in cash, as of 25 March 1988, and to pay the costs is DELETED; and; (3) Plaintiff-appellant FCP Credit Corporation is ordered to pay defendant-appellee Jose S. Orosa the amount equivalent to the value of the fourteen (14) monthly installments made by the latter to the former on the subject motor vehicle, with interest from the time of filing of the complaint or from 6 December 1984. No costs. SO ORDERED. Hence, this petition for review, on the following assignments of error: (1) The Hon. Court of Appeals (former Eighth Division) acted without or in excess of jurisdiction when it reversed a final decision dated September 9, 1988, of a co-equal division of the Hon. Court of Appeals (Special First Division) promulgated in CA G.R. No. 14938, and which was sustained by the Hon. Supreme Court in a final decision promulgated in G.R. No. 84979 dated November 6, 1989 which cases have the same causes of action, same set of facts, the same parties and the same relief. (2) The Hon. Court of Appeals (former Eighth Division) acted with grave abuse of discretion and authority when it considered causes of actions not allege in the complaint and which were raised for the first time on appeal in deciding this case. (3) The Hon. Court of Appeals (former Eighth Division) committed serious error in applying the case of Filinvest Credit Corporation vs. Ivans Mendez,

152 SCRA 598, as basis in deciding this case when said case has a different set of facts from this case. In its first assignment of error, petitioner alleges that the Eighth Division of the Court of Appeals had no jurisdiction to review the present case since the First Division of the Court of Appeals already passed upon the law and the facts of the same. Petitioner alleges that the present appeal involves the same causes of action, same parties, same facts and same relief involved in the decision rendered by the First Division and affirmed by this Court in G.R. No. 84979. Petitioner's argument is untenable. Jurisdiction is simply the power or authority to hear a case. The appellate jurisdiction of the Court of Appeals to review decisions and orders of lower courts is conferred by Batas Pambansa Blg. 129. More importantly, petitioner cannot now assail the Court of Appeals' jurisdiction after having actively participated in the appeal and after praying for affirmative relief. Neither can petitioner argue that res judicata bars the determination of the present case. The two cases involve different subject matters, parties and seek different reliefs. The petition docketed as CA-G.R. SP No. 14938 was for certiorari with injunction, brought by Stronghold Insurance Company, Inc. alleging that there was grave abuse of discretion when the trial court adjudged it liable for damages without due process, in violation of Rule 60, Section 10 in relation to Rule 57, Section 20, of the Rules of Court. The surety also questioned the propriety of the writ of execution issued by the trial court pending appeal. On the other hand, CA-G.R. CV No. 25929 was filed by petitioner Orosa under Rule 45 of the Revised Rules of Court raising alleged errors of law on the part of the trial court. The subject of the appeal was the main decision, while the subject of the petition in CA-G.R. SP No. 14938 was the Supplemental Decision. We agree with the Court of Appeals that: The decisions of the Court of Appeals in CA-G.R. SP No. 14938 and the Supreme Court in G.R. No. 84979 did not pass on the merits of this case. It merely ruled on the issues of whether the surety, Stronghold Insurance Co., Inc., can be held jointly and solidarily liable with plaintiffappellant and whether execution pending appeal is proper under the facts and circumstances of this case. Consequently, this Court is not estopped from reviewing the conclusions reached by the court a quo. (underscoring ours) In its second assigned error, petitioner posits that the Court of Appeals committed grave abuse of discretion when it considered causes of actions which were raised for the first time on appeal. True, private respondent submitted issues to the Court of Appeals which were not raised in the original complaint. Private respondent belatedly pointed out that: 1.1. It is pertinent to note that Defendant-Appellee has waived prior notice and demand in order to be rendered in default, as in fact the Promissory Note expressly stipulates that the monthly installments shall be paid on the date they fall due, without need of prior notice or demand. 1.2. Said Promissory Note likewise expressly stipulates that a late payment charge of 2% per month shall be added on each unpaid installment from maturity thereof until fully paid. 1.3. Of equal significance is the Acceleration Clause in the Promissory Note which states that if default be made in the payment of any of the installments or late payment charges thereon when the same became due and payable, the total principal sum then remaining unpaid, together with the agreed late payment charges thereon, shall at once become due and payable. Private respondent argued that based on the provisions of the Promissory Note itself, petitioner incurred in default since, even though there was actual payment of the installments which fell due on July 28, 1984, as well as the three installments on August 28 to October 28, 1984, the payments were all late and irregular. Private respondent also argued that petitioner assigned the subject car to his daughter without the written consent of the obligee, and hence, violated the terms of the chattel mortgage. Meritorious as these arguments are, they come too late in the day. Basic is the rule that matters not raised in the complaint cannot be raised for the first time on appeal. Contrary to petitioner's accusation, the Court of Appeals restricted the determination of the case to matters alleged in the complaint and raised during trial. Citing jurisprudence, the Court of Appeals held that "it would be offensive to the basic rule of fair play, justice and due process" if it considered issue raised for the first time on appeal. The Court of Appeals' statement that "under the terms and conditions of the chattel mortgage, defendant-appellee Jose S. Orosa was already in default," was made only to justify the deletion of the trial court's award of moral, exemplary damages and attorney's fees, in consonance with its finding that private respondent was motivated by a sincere belief that it had sufficient basis an acted in good faith when it filed the claim. We now come to the matter of moral damages. Petitioner insists that he suffered untold embarrassment when the complaint was filed against him. According to petitioner, the car subject of this case was being used by his daughter, married to Jose Concepcion III, a scion of a prominent family. Petitioner laments that he assigned the car to his daughter so that she could "approximate without equaling the status of her in-laws." This being the case, petitioner experienced anguish and unquantifiable humiliation when he had to face his daughter's wealthy in-laws to explain the "why and the whats of the subject case." Petitioner further insists that an award of moral damages is especially justified since he is no ordinary man, but a businessman of high social standing, a graduate of De La Salle University and belongs to a well known family of bankers. We must deny the claim. The law clearly states that one may only recover moral damages if they are the proximate result of the other party's wrongful act or omission. Two elements are required. First, the act or omission must be the proximate result of the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injury. Second, the act must be wrongful. Petitioner maintains that embarrassment resulted when he had to explain the suit to his daughter's in-laws. However, that could have been avoided had he not assigned the car to his daughter and had he been faithful and prompt in paying the installments required. Petitioner brought the situation upon himself and cannot now complain that private respondent is liable for the mental anguish and humiliation he suffered. Furthermore, we agree with the appellate court that when private respondent brought the complaint, it did so only to exercise a legal right, believing that it had a meritorious cause of action clearly borne out by a mere perusal of the promissory note and chattel mortgage. To constitute malicious prosecution, there must be proof that the prosecution was prompted by a sinister design to vex and humiliate a person, and that it was initiated deliberately, knowing that the charges were false and groundless. Such was not the case when the instant complaint was filed. The rule has always been that moral damages cannot be recovered from a person who has filed a complaint against another in good faith. The law always presumes good faith such that any person who seeks to be awarded damages due to acts of another has the burden of proving that the latter acted in bad faith or with ill motive.

Anent the award of exemplary damages, jurisprudence provides that where a party is not entitled to actual or moral damages, an award of exemplary damages is likewise baseless. In the matter of attorney's fees, petitioner avers that to prosecute and defend this case in the lower court and in the appellate court, he incurred expenses amounting to P50,000.00, and as such, attorney's fees should be granted. We deny the claim. No premium should be placed on the right to litigate and not every winning party is entitled to an automatic grant of attorney's fees. The party must show that he falls under one of the instances enumerated in Article 2208 of the Civil Code. This, petitioner failed to do. Furthermore, where the award of moral and exemplary damages is eliminated, so must the award for attorney's fees be deleted. We also agree with the Court of Appeals that the trial court erred when it ordered private respondent to return the subject car or its equivalent considering that petitioner had not yet fully paid the purchase price. Verily, to sustain the trial court's decision would amount to unjust enrichment. The Court of Appeals was correct when it instead ordered private respondent to return, not the car itself, but only the amount equivalent to the fourteen installments actually paid with interest. WHEREFORE, above premises considered, the petition is DENIED, and the Court of Appeals' Decision of April 19, 1993 and its Resolution of July 22, 1993 are AFFIRMED in toto. No costs. SO ORDERED. A.M. No. P-04-1920, August 17, 2007 SPOUSES NORMANDY and RUTH BAUTISTA, Complainants, vs. Quezon City, Respondent.

ERNESTO

L.

SULA,

Sheriff

IV, Regional

Trial

Court,

Branch

98,

D E C I S I O N, CARPIO, J.: The Facts On 6 December 2003, Ruth B. Bautista (Ruth) borrowed P300,000 from Ceniza C. Glor (Glor). The loan, payable in three months, bore a monthly interest of five percent. The three-month period commenced on 6 December 2003 and expired on 6 March 2004. To secure the loan, Ruth executed a chattel mortgage over her Honda CRV in favor of Glor. Upon maturity of the loan, Glor repeatedly demanded payment from Ruth. Despite the repeated demands, Ruth refused to pay her debt, or surrender possession of the vehicle. Thus, on 6 May 2004, Glor filed with the Regional Trial Court, Branch 98, Quezon City (trial court), a civil case for judicial foreclosure of chattel mortgage with prayer for the issuance of a writ of replevin. Thereafter, the trial court issued a writ of replevin dated 14 May 2004 directing Ernesto L. Sula (respondent), Sheriff IV of the trial court, to take possession of the vehicle and keep it in his custody: WHEREAS, plaintiff Ceniza C. Glor, in the above-entitled case, having filed an application with this Court praying for the seizure and delivery to Ceniza C. Glor of the property, more particularly described hereafter, and having filed the affidavit required by the Rules of Court and executed to the defendant a bond in the sum of EIGHT HUNDRED THOUSAND PESOS ONLY (P800,000.00). You are hereby ordered to take immediate possession of the following property which is now detained by the defendant, to wit: MAKE & TYPE : Honda CRV (Station Wagon) MOTOR NO. : PEWD7P100308 CHASSIS NO. : PADRD1830WV000347 PLATE NO. : HRS-555 FILE NO. : 1320-00000161749 and to keep the said property in your possession for five (5) days. At the expiration of the said period, you shall deliver, subject to the provisions of Sections 5, 6 and 7 of Rule 60 of the Rules of Court, to the plaintiff the said property, provided that your legal fees and all the necessary expenses are fully paid. Respondent enforced the writ on 17 May 2004. On 20 May 2004, spouses Normandy R. Bautista and Ruth B. Bautista (complainants) filed with the trial court an urgent motion for the return of the vehicle and submission of counter-bond. On 21 May 2004, complainants filed a motion to withdraw the urgent motion, attaching thereto an omnibus motion for entry of appearance, urgent setting of hearing, and redelivery of the vehicle to them. Pursuant to Section 5 of Rule 60, complainants required the return of the vehicle to them by filing a counter-bond and serving Glor a copy of the counter-bond. Because the trial court failed to approve complainants counter-bond within the five-day period provided in Section 6 of Rule 60, Glor, in a letter dated 24 May 2004, asked respondent to deliver the vehicle to her. In a letter dated 26 May 2004, complainants asked respondent not to deliver the vehicle to Glor because (1) pursuant to Section 5, they had required the return of the vehicle to them and filed the corresponding counter-bond;(2) the vehicles delivery to Glor was not justified under Section 6; and (3) there was no order from the trial court directing the delivery to Glor. In a letter dated 26 May 2004, Glor reiterated her demand on respondent to deliver the vehicle to her; otherwise, she would be constrained to pursue legal actions against him. On 26 May 2004, complainants alleged that respondent approached them in the Quezon City Hall of Justice building asking them to wait for him by the benches at the back of the second floor. There, respondent told them that he was willing to ignore Glors request in exchange for P20,000. With a little hesitation, they offered him P3,000 and promised to give the balance on the following day. Respondent agreed and immediately received the P3,000. On the next day, however, complainants did not give the balance. They asked respondent if he could give them more time to raise the money. Respondent was irked by this. Complainants alleged that: At he came to us at the designated place and while we were reading his Sheriffs Manifestation, he said he had not eaten lunch yet because in his words dahil sa paggawa ko ng Manifestation at sama ng loob dahil ako ang naipit dito sa kaso nyo, si judge kasi ang bagal magrelease ng order. Kakasuhan na ko sa Ombudsman ng plain tiff. Trying to clarify what he meant about this, we ask [sic] him what we on our part need *sic+ to do so that the property will be ensured that its *sic+ under the custody of the court or custodia legis until such time that the Honorable Court could resolve our motion. However we were totally surprised when he said that Nasa sa inyo yan pero yun kasing kabila talagang desidido na makuha ang property, kung makapagbigay kayo ng kahit Twenty (20) Thousand sa akin magagawan natin yan ng paraan na di makuha ng plaintiff, yun ay kung gusto nyo lang, kasi pag napunta yan sa kanila baka di nyo na makita yan. [With] those words from Sheriff IV Ernesto L. Sula it became clear to us that he was asking money to favor us in the disposition of the property, I

replied that the only cash we have [sic] at the time was only Three (3) Thousand Pesos and ask [sic] him if he could accept it for the meantime and that we will come up with the balance on the following morning. He said Cge pero siguraduhin nyo lang maibigay nyo ang balanse bukas ng maaga kasi meron din akong bibigyan para safe din ako. Ganito kasi dito kailangan may nakakaalam na mas mataas para may proteksiyon tayo. At this point I asked my wife, Ruth B. Bautista what she thought about it and she said its [sic] up to me and thereafter I gestured to give him the Three (3) Thousand Pesos which he said Isimple mo lang ang abot para walang makapansin and I simply slipped the money in his hand and after he received the money put his hand immediately in his pocket. x x x rd [O]n the following day May 2004 at We met him at the benches at the back of the 3 floor of the Justice Hall Bldg. We immediately apologized and told him that we failed to borrow money for the balance of our agreement and ask [sic] if he could wait until at [sic] th May 2004 to come up with the balance of our agreement because it might take some time before we can raise it. x x x He answered that Medyo mahirap pala kayong kausap and left us. On 27 May 2004, respondent filed a sheriffs manifestation asking the trial courts guidance on whether he should deliver the vehicle to Glor or keep it in custodia legis: [T]his Manifestation is respectfully filed before the Honorable Court, in order that he maybe [sic] guided on whether he should release the vehicle as demanded by plaintiff or hold its release until such time that the Motions and Counter[-]bond filed by defendants is [sic] resolved as requested by the defendant. Without waiting for the trial courts instructions regarding the vehicle, respondent filed his sheriffs return on 28 May 2004 stating that he had already delivered the vehicle toGlor: [O]n , after the expiration of the five (5) days [sic] period and in the absence of any Court Order/s, undersigned turned-over the possession of the motor vehicle to the Plaintiff as per Court/Sheriffs Receipt hereto attached. On 31 May 2004, complainants alleged that they went to the trial court to check on the vehicle and to look for respondent. There, respondent admitted to them that he had already delivered the vehicle to Glor he acted on his own discretion. Complainants asked respondent how much he received from Glor and why he did not give them a chance to fulfill their agreement. He just said pasensiyahan na lang tayo. On 2 and 7 June 2004, complainants filed with the Office of the Ombudsman and the Office of the Court Administrator (OCA), respectively, a joint affidavit-complaint against respondent. Since the acts complained of were related to respondents functions as an officer of the court, the Office of st the Ombudsman, in its 1 Indorsement dated 20 July 2004, referred the matter to the OCA. In his comment dated 4 August 2004, respondent prayed that the instant case be dismissed because: 1. Complainants accusations against him were malicious and unfounded. They filed the instant case against him because they amassed so much anxiety and wrath against respondent to the point of even telling telltal es. They felt aggrieved because of the vehicles delivery to Glor and its subsequent foreclosure. 2. He was only guided by the orders of the court and, in their absence, by the Rules of Court particularly Rule 60. Under Section 6 of the said Rule, the vehicles delivery to Glor followed as a matter of course because she posted a bond which was approved by the court. On the other hand, up to the time of the delivery, complainants counter-bond had not been approved by the court. 3. Complainants accusation that he asked for P20,000 was incredulous and a total lie. He never dealt clandestinely with complainants, much less demanded money from them. He did not personally know Glor, nor was he acquainted with complainants. 4. Complainants had no evidence to support their accusation. If it were true that he asked and received money from them, it would have been easy for them to entrap him, yet, they did not do so. 5. He enjoyed the presumption of regularity in the performance of his duties. In their comment to respondents comment dated 4 August 2004, complainants prayed that respondent be preventively suspended pending the investigation of the case. They alleged that they had a witness who was willing to testify on the circumstances surroundin g respondents demand and receipt of the money from them. However, the witness did not want to testify unless respondent was placed under preventive suspension because she was afraid that her testimony would endanger her means of livelihood inside the Hall of Justice building. The Office of the Court Administrators Report and Recommendations In its memorandum dated 14 October 2004, the OCA found that respondent erred when he released the vehicle to Glor without waiting for the trial courts instructions on who had a better right over the vehicle. The OCA recommended that the case be re-docketed as a regular administrative matter and that respondent be held liable for grave abuse of authority and fined P4,000. The OCA recommended that the charges for violation of the Anti-Graft and Corrupt Practices Act, gross ignorance of the law, and conduct prejudicial to the best interest of the service be dismissed for insufficiency of evidence. In a Resolution dated 8 December 2004, the Court ordered the re-docketing of the case as a regular administrative matter and, in a Resolution dated 16 March 2005, the Court required the parties to manifest if they were willing to submit the case for decision based on the pleadings already filed. Complainants filed a motion for further investigation and preventive suspension of respondent pending the investigation of the case. They prayed that the case be referred to the Executive Judge of the Regional Trial Court, Quezon City, for investigation. They also prayed that respondent be placed under preventive suspension to allow their witness to testify without fear of being harassed by respondent. The Court noted complainants motion for further investigation and preventive suspension and referred the case to the OCA for investigation, report, and recommendation. In an Order dated 24 August 2005, the OCA set the case for investigation on 15 and 16 September 2005. In the investigation, only respondent appeared. The complainants filed a manifestation and motion dated 10 September 2005 stating that although they were willing to participate in the investigation, they could not convince their witness to testify unless respondent was preventively suspended. In a letter dated 20 September 2005, the OCA returned the rollo of the case together with complainants manifestation and motion to the Court for further instructions. In a Resolution dated 10 October 2005, the Court noted the said letter and referred the same to the OCA for report and recommendation. Accordingly, the OCA set the case for investigation on 23 and 24 August 2006. Again, only respondent appeared in the investigation. The complainants reiterated their claim that they could not participate in the investigation unless respondent was preventively suspended. In its Report dated 13 September 2006, the OCA recommended that (1) the motion to preventively suspend respondent be denied; (2) the previous recommendation imposing a fine of P4,000 on respondent for grave abuse of authority be adopted; and (3) the charges for violation of the Anti-

Graft and Corrupt Practices Act, gross ignorance of the law, and conduct prejudicial to the best interest of the service be dismissed for insufficiency of evidence. The Courts Ruling The Court finds respondent liable for simple misconduct. On the Charge of Violation of the Anti-Graft and Corrupt Practices Act, Gross Ignorance of the Law, and Conduct Prejudicial to the Best Interest of the Service Complainants bear the burden of proving, by substantial evidence, the allegations in the complaint. Substantial evidence means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. In the instant case, complainants failed to substantiate the allegation that respondent violated the Anti-Graft and Corrupt Practices Act. Aside from their bare allegation that respondent demanded and received money from them, complainants did not present any substantial evidence to support the charge. The only pieces of evidence they offered were (1) respondents admission in his reply that he approached complainants in the Hall of Justice building and (2) a witness who could testify on respondents alleged acts of demanding and receiving money from the complainants: From the very words of the respondent Sheriff himself (page 5 of his Reply), he admitted to have [sic] APPROACHED US when he furnished us a copy of his Manifestation x x x. Why then did the respondent Sheriff approached [sic] us when his Manifestation is addressed and concerns only the Court? To put to rest that this is just a bare allegation, a third person is willing to present herself to the investigation of this Honorable Office to testify to the truth of the circumstances of the said incident which she personally witnessed but which [sic] we could not reveal her identity at the moment upon her own request because the said person makes her living in the hallway of the Hall of Justice of Quezon City. Complainants, however, never appeared in any of the investigations, nor presented their witness. The fact that respondent approached complainants in the Hall of Justice building is not enough basis for this Court to conclude that respondent demanded and received money from them. On complainants witness, the OCA found that *t+he alleged fear from harassment of the complainants unnamed witness *preclu ding her] to testify against the respondent unless the latter is suspended from office is purely speculative. Complainants failed to present the quantum of evidence required to hold respondent liable. There is also no sufficient evidence to prove that respondent is guilty of gross ignorance of the law and conduct prejudicial to the best interest of the service. As the OCA correctly held, *t+he charges for Gross Ignorance of the Law and Conduct Prejudicial to the Best Interest of the Service must likewise fail, for insufficiency of evidence; if there was any fault by herein respondent, it was his overzealousness to perform his duty. On the Charge of Simple Misconduct The Court, however, finds respondent liable for simple misconduct. Simple misconduct has been defined as an unacceptable behavior that transgresses the established rules of conduct for public officers. It is an unlawful behavior. Misconduct in office is any unlawful behavior by a public officer in relation to the duties of his office, willful in character. It generally means wrongful, improper, unlawful conduct motivated by a premeditated, obstinate, or intentional purpose although it may not necessarily imply corruption or criminal intent. The OCA found that respondent erred when he delivered the vehicle to Glor without waiting for the trial courts instructions on the matter: In this case, plaintiff/applicant had posted a replevin bond duly approved by the court. Nevertheless, one of the elements upon which the property subject of replevin may be delivered to the plaintiff/applicant is lacking. There appears to be no court order issued yet for the release of the aforementioned property to the plaintiff/applicant. The order dated 12 May 2004 issued by the court only directed respondent to take into his custody the subject motor vehicle. Further, respondent filed a manifestation seeking guidance from the court on the disposal of the seized property. Hence, respondents justification that the release of the seized property to the plaintiff/applicant follows as a matter of c ourse because the applicant/plaintiff had already filed a replevinbond to answer for any damage that may be suffered by complainants may not be given weight. It must be stressed that the prerogatives of Sheriffs do not give them any discretion to determine who among the parties is entitled to possession of the subject property. The appropriate course of action should have been for respondent to wait for the instructions of the court as to whom he will release the property since he had already asked for its guidance through his Manifestation which was submitted to the court virtually at the close of office hours on 26 May 2004. Yet the following morning, he suddenly decided to release the car to the plaintiff without waiting for any court order on the matter. Such apparent haste raised questions on his actions and leaves doubts as to his intent or interest in the case. Moreover, under the Revised Rules of Court, the property seized under a writ of replevin is not to be delivered immediately to the plaintiff . This is because a possessor has every right to be respected in its possession and may not be deprived of it without due process. The purpose of the five (5) day period in Section 6, Rule 60 is to give defendants in a replevin case a chance to require the return of the property by filing a counter[-]bond. Considering that there was no court order to release the property to the applicant/plaintiff and the complainants were able to require the return of the property and file their counter[-]bond within the five (5) day period required by the Rules, respondent should have been more circumspect in releasing the property to the plaintiff/applicant . By hastily deciding to release the seized property to the plaintiff/applicant without waiting for the courts order, respondent patently abused his authority. (Emphasis ours) Indeed, respondent went beyond the call of his duties when he delivered the vehicle to Glor. The writ of replevin issued by the trial court specifically stated that the vehicle shall be delivered to Glor subject to the provisions of Sections 5 and 6 of Rule 60. Yet, respondent opted to ignore these provisions. Good faith on respondents part, or lack of it, would be of no moment for he is chargeable with the knowledge that being an o fficer of the court, his duty is to comply with the Rules. Sections 5 and 6 of Rule 60 provide that: SEC. 5. Return of property. If the adverse party objects to the sufficiency of the applicants bond, or of the surety or sureties thereon, he cannot immediately require the return of the property, but if he does not so object, he may, at any time before the delivery of the property to the applicant, require the return thereof, by filing with the court where the action is pending a bond executed to the applicant, in double the value of the property as stated in the applicants affidavit for the delivery thereof to the applicant, if such delivery be adjudged, and for the p ayment of such sum to him as may be recovered against the adverse party, and by serving a copy of such bond on the applicant. SEC. 6. Disposition of property by sheriff. If within five (5) days after the taking of the property by the sheriff , the adverse party does not object to the sufficiency of the bond, or of the surety or sureties thereon; or if the adverse party so objects and the court affirms its approval of the applicants bond or approves a new bond, or if the adverse party requires the return of the property but his bond is objected to and found insufficient and he does not forthwith file an approved bond, the property shall be delivered to the applicant . If for any reason the property is not delivered to the applicant, the sheriff must return it to the adverse party. (Emphasis ours)

Under Section 5, complainants may require the return of the vehicle by (1) posting a counter-bond in double the value of the vehicle and (2) serving Glor with a copy of the counter-bond. Both requirements must be complied with before the vehicle is delivered to Glor. Put differently: If a defendant in a replevin action wishes to have the property taken by the sheriff restored to him, he should within five days from such taking, (1) post a counter-bond in double the value of said property, and (2) serve plaintiff with a copy thereof, both requirements as well as compliance therewith within the five-day period mentioned being mandatory. x x x Conformably, a defendant in a replevin suit may demand the return of possession of the property replevined by filing a redelivery bond executed to the plaintiff in double the value of the property as stated in the plaintiffs affidavit within the period specified in Sections 5 and 6. Under Section 6, the vehicle shall be delivered to Glor only under the following instances: 1. If within five days after the taking of the vehicle, complainants do not object to the sufficiency of the bond or of the surety or sureties thereon; 2. If within five days after the taking of the vehicle, complainants object to the sufficiency of the bond and the trial court affirms its approval of Glors bond or approves a new bond; or 3. If within five days after the taking of the vehicle, complainants require the return of the vehicle and their bond is objected to and found insufficient and they do not forthwith file an approved bond. In the instant case, complainants duly complied with all of the requirements under Sections 5 and 6 for the return of the vehicle. Respondent took possession of the vehicle on 17 May 2004. On 20 May 2004, complainants filed their urgent motion for the return of the vehicle and submission of counter-bond and, on 21 May 2004, they filed a motion to withdraw the urgent motion and change the same with an omnibus motion. Both the urgent motion and the omnibus motion were filed before the delivery of the vehicle to Glor and before the expiration of the five-day period. Later, the trial court approved complainants counter-bond. Thus, respondent committed an irregularity when he hastily delivered the vehicle to Glor. Under the Rules of Court, the sheriff should not immediately deliver the property seized under a writ of replevin to the plaintiff. This is because defendants have every right to be respected in their possession and may not be deprived of it without due process. The purpose of the five-day period in Section 6 is to give defendants in a replevin case a chance to require the return of the property by filing a counter-bond. In Pardo v. Velasco, this Court held that: Respondent as an officer of the Court is charged with certain ministerial duties which must be performed faithfully to the letter. Every provision in the Revised Rules of Court has a specific reason or objective. In this case, the purpose of the five (5) days is to give a chance to the defendant to object to the sufficiency of the bond or the surety or sureties thereon or require the return of the property by filing a counter[-]bond. In Sebastian v. Valino,[45] this Court held that: Under the Revised Rules of Court, the property seized under a writ of replevin is not to be delivered immediately to the plaintiff. The sheriff must retain it in his custody for five days and he shall return it to the defendant, if the latter, as in the instant case, requires its return and files a counter[-]bond (Sec. 4, Rule 60, Revised Rules of Court). (Emphasis ours) The prerogatives of sheriffs do not include the discretion to determine who among the parties is entitled to the possession of the property. Even when placed in a difficult situation, they are not called to exercise their own discretion. In Cruz v. Villar, the Court agreed with the OCAs observations: The nature of their functions is essentially ministerial. Their prerogatives do not give them any discretion to determine who among the parties is entitled to possession of the subject properties. The appropriate course of action should have been for respondents to inform their judge of the situation by way of a partial Sheriffs Return and wait for instructions on the proper procedure to be observed. These respondents failed to do. Similarly, in Mamanteo v. Magumun, this Court held that: [T]he novelty of his predicament did not call for him to use his discretion x x x without waiting for instructions from his judge. A sheriffs prerogative does not give him the liberty to determine who among the parties is entitled to the possession of the attached property. Respondents act of filing the manifestation seeking the trial courts guidance vir tually at the close of office hours on 26 May 2004 then delivering the vehicle to Glor in the morning of 27 May 2004 is highly questionable. As the OCA held: [R]espondent filed a Manifestation seeking guidance from the court on the disposal of the seized property. Hence, respondents justification that the release of the seized property to plaintiff/applicant follows as a matter of course because the applicant/plaintiff had already filed a replevin bond to answer for any damage that may be suffered by complainants may not be given weight. The appropriate course of action should have been for respondent to wait for the instructions of the court as to whom he will release the property since he had already asked for its guidance through his Manifestation which was submitted to the court virtually at the close of office hours on 26 May 2004. Yet the following morning, he suddenly decided to release the car to the plaintiff without waiting for any court order on the matter. Such apparent haste raised questions on his action and leaves doubts as to his intent or interest in the case. Since respondent had filed a manifestation seeking the trial courts guidance, the most appropriate course of action should h ave been for him to wait for the trial courts instructions on what he should do with the vehicle. Assuming that the issue may have been too technical for respondent to decide on the spot, it would have been prudent for him to let the trial court decide on the matter. However, he was overzealous and delivered the vehicle to Glor without even giving the trial court a chance to act on his manifestation. His unusual zeal and precipitate decision to give possession of the vehicle to Glor effectively destroyed the presumption of regularity in the performance of his duties. While the expeditious and efficient execution of court orders and writs is commendable, it should not, under any circumstances, be done by departing from the Rules governing the same. Respondent should execute the directives of the trial court strictly in accordance with the letter thereof and without any d eviation therefrom. As an officer of the court, he should follow the provisions of the Rules to the letter especially when the law is clear. When, as in this case, the law is clear, respondent owes it to himself and to the public he serves to adhere to its dictates. The failure to do so exposes the wrongdoer to administrative sanctions. When the inefficiency of an officer of the court springs from a failure to consider so basic and elemental a rule, a law or a principle in the discharge of his duties, he is either too incompetent and undeserving of the position and title he holds or is too vicious that the oversight or omission was deliberately done in bad faith or with grave abuse of authority. Section 52(B)(2) of the Revised Uniform Rules on Administrative Cases in the Civil Service classifies simple misconduct as a less grave offense punishable by suspension of one month and one day to six months for the first offense. Having been in the service for more than 26 years, respondent cannot wrongly interpret basic rules without appearing grossly incompetent or having acted in bad faith. WHEREFORE, we find respondent Ernesto L. Sula, Sheriff IV, Regional Trial Court, Branch 98, Quezon City, GUILTY of SIMPLE MISCONDUCT. Accordingly, we SUSPEND him for six months without pay and STERNLY WARN him that a repetition of the same or similar acts shall

be dealt with more severely. SO ORDERED. G.R. No. 182963, June 3, 2013 SPOUSES DEO AGNER and MARICON AGNER, Petitioners, vs. BPI FAMILY SAVINGS BANK, INC., Respondent. D E C I S I O N, PERALTA, J.: This is a petition for review on certiorari assailing the April 30, 2007 Decision and May 19, 2008 Resolution of the Court of Appeals in CAG.R. CV No. 86021, which affirmed the August 11, 2005 Decision of the Regional Trial Court, Branch 33, Manila City. On February 15, 2001, petitioners spouses Deo Agner and Maricon Agner executed a Promissory Note with Chattel Mortgage in favor of Citimotors, Inc. The contract provides, among others, that: for receiving the amount of Php834, 768.00, petitioners shall pay Php 17,391.00 every 15th day of each succeeding month until fully paid; the loan is secured by a 2001 Mitsubishi Adventure Super Sport; and an interest of 6% per month shall be imposed for failure to pay each installment on or before the stated due date. On the same day, Citimotors, Inc. assigned all its rights, title and interests in the Promissory Note with Chattel Mortgage to ABN AMRO Savings Bank, Inc. (ABN AMRO), which, on May 31, 2002, likewise assigned the same to respondent BPI Family Savings Bank, Inc. For failure to pay four successive installments from May 15, 2002 to August 15, 2002, respondent, through counsel, sent to petitioners a demand letter dated August 29, 2002, declaring the entire obligation as due and demandable and requiring to pay Php576,664.04, or surrender the mortgaged vehicle immediately upon receiving the letter. As the demand was left unheeded, respondent filed on October 4, 2002 an action for Replevin and Damages before the Manila Regional Trial Court (RTC). A writ of replevin was issued. Despite this, the subject vehicle was not seized. Trial on the merits ensued. On August 11, 2005, the Manila RTC Br. 33 ruled for the respondent and ordered petitioners to jointly and severally pay the amount of Php576,664.04 plus interest at the rate of 72% per annum from August 20, 2002 until fully paid, and the costs of suit. Petitioners appealed the decision to the Court of Appeals (CA), but the CA affirmed the lower courts decision and, subsequently, denied the motion for reconsideration; hence, this petition. Before this Court, petitioners argue that: (1) respondent has no cause of action, because the Deed of Assignment executed in its favor did not specifically mention ABN AMROs account receivable from petitioners; (2) petitioners cannot be considered to have defaulted in payment for lack of competent proof that they received the demand letter; and (3) respondents remedy of resorting to both actions of replevin an d collection of sum of money is contrary to the provision of Article 14849 of the Civil Code and the Elisco Tool Manufacturing Corporation v. Court of Appeals ruling. The contentions are untenable. With respect to the first issue, it would be sufficient to state that the matter surrounding the Deed of Assignment had already been considered by the trial court and the CA. Likewise, it is an issue of fact that is not a proper subject of a petition for review under Rule 45. An issue is factual when the doubt or difference arises as to the truth or falsehood of alleged facts, or when the query invites calibration of the whole evidence, considering mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstances, their relation to each other and to the whole, and the probabilities of the situation. Time and again, We stress that this Court is not a trier of facts and generally does not weigh anew evidence which lower courts have passed upon. As to the second issue, records bear that both verbal and written demands were in fact made by respondent prior to the institution of the case against petitioners. Even assuming, for arguments sake, that no demand letter was sent by respondent, there is really no need for it because petitioners legally waived the necessity of notice or demand in the Promissory Note with Chattel Mortgage, which they voluntarily and knowingly signed in favor of respondents predecessor-in-interest. Said contract expressly stipulates: In case of my/our failure to pay when due and payable, any sum which I/We are obliged to pay under this note and/or any other obligation which I/We or any of us may now or in the future owe to the holder of this note or to any other party whether as principal or guarantor x x x then the entire sum outstanding under this note shall, without prior notice or demand, immediately become due and payable. (Emphasis and underscoring supplied) A provision on waiver of notice or demand has been recognized as legal and valid in Bank of the Philippine Islands v. Court of Appeals, wherein We held: The Civil Code in Article 1169 provides that one incurs in delay or is in default from the time the obligor demands the fulfillment of the obligation from the obligee. However, the law expressly provides that demand is not necessary under certain circumstances, and one of these circumstances is when the parties expressly waive demand. Hence, since the co-signors expressly waived demand in the promissory notes, demand was unnecessary for them to be in default. Further, the Court even ruled in Navarro v. Escobido15 that prior demand is not a condition precedent to an action for a writ of replevin, since there is nothing in Section 2, Rule 60 of the Rules of Court that requires the applicant to make a demand on the possessor of the property before an action for a writ of replevin could be filed. Also, petitioners representation that they have not received a demand letter is completely inconsequential as the mere act of sending it would suffice. Again, We look into the Promissory Note with Chattel Mortgage, which provides: All correspondence relative to this mortgage, including demand letters, summonses, subpoenas, or notifications of any judicial or extrajudicial action shall be sent to the MORTGAGOR at the address indicated on this promissory note with chattel mortgage or at the address that may hereafter be given in writing by the MORTGAGOR to the MORTGAGEE or his/its assignee. The mere act of sending any correspondence by mail or by personal delivery to the said address shall be valid and effective notice to the mortgagor for all legal purposes and the fact that any communication is not actually received by the MORTGAGOR or that it has been returned unclaimed to the MORTGAGEE or that no person was found at the address given, or that the address is fictitious or cannot be located shall not excuse or relieve the MORTGAGOR from the effects of such notice. (Emphasis and underscoring supplied) The Court cannot yield to petitioners denial in receiving respondents demand letter. To note, their postal address evidentl y remained unchanged from the time they executed the Promissory Note with Chattel Mortgage up to time the case was filed against them. Thus, the presumption that "a letter duly directed and mailed was received in the regular course of the mail" stands in the absence of satisfactory proof to the contrary. Petitioners cannot find succour from Ting v. Court of Appeals simply because it pertained to violation of Batas Pambansa Blg. 22 or the Bouncing Checks Law. As a higher quantum of proof that is, proof beyond reasonable doubt is required in view of the criminal nature of the case, We

found insufficient the mere presentation of a copy of the demand letter allegedly sent through registered mail and its corresponding registry receipt as proof of receiving the notice of dishonor. Perusing over the records, what is clear is that petitioners did not take advantage of all the opportunities to present their evidence in the proceedings before the courts below. They miserably failed to produce the original cash deposit slips proving payment of the monthly amortizations in question. Not even a photocopy of the alleged proof of payment was appended to their Answer or shown during the trial. Neither have they demonstrated any written requests to respondent to furnish them with official receipts or a statement of account. Worse, petitioners were not able to make a formal offer of evidence considering that they have not marked any documentary evidence during the presentation of Deo Agners testimony. Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of proving it; the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment. When the creditor is in possession of the document of credit, proof of non-payment is not needed for it is presumed. Respondent's possession of the Promissory Note with Chattel Mortgage strongly buttresses its claim that the obligation has not been extinguished. As held in Bank of the Philippine Islands v. Spouses Royeca: x x x The creditor's possession of the evidence of debt is proof that the debt has not been discharged by payment. A promissory note in the hands of the creditor is a proof of indebtedness rather than proof of payment. In an action for replevin by a mortgagee, it is prima facie evidence that the promissory note has not been paid. Likewise, an uncanceled mortgage in the possession of the mortgagee gives rise to the presumption that the mortgage debt is unpaid. Indeed, when the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such defense to the claim of the creditor. The debtor has the burden of showing with legal certainty that the obligation has been discharged by payment. Lastly, there is no violation of Article 1484 of the Civil Code and the Courts decision in Elisco Tool Manufacturing Corporation v. Court of Appeal s. In Elisco, petitioner's complaint contained the following prayer: WHEREFORE, plaintiffs pray that judgment be rendered as follows: ON THE FIRST CAUSE OF ACTION Ordering defendant Rolando Lantan to pay the plaintiff the sum of P39,054.86 plus legal interest from the date of demand until the whole obligation is fully paid; ON THE SECOND CAUSE OF ACTION To forthwith issue a Writ of Replevin ordering the seizure of the motor vehicle more particularly described in paragraph 3 of the Complaint, from defendant Rolando Lantan and/or defendants Rina Lantan, John Doe, Susan Doe and other person or persons in whose possession the said motor vehicle may be found, complete with accessories and equipment, and direct deliver thereof to plaintiff in accordance with law, and after due hearing to confirm said seizure and plaintiff's possession over the same; PRAYER COMMON TO ALL CAUSES OF ACTION 1. Ordering the defendant Rolando Lantan to pay the plaintiff an amount equivalent to twenty-five percent (25%) of his outstanding obligation, for and as attorney's fees; 2. Ordering defendants to pay the cost or expenses of collection, repossession, bonding fees and other incidental expenses to be proved during the trial; and 3. Ordering defendants to pay the costs of suit. Plaintiff also prays for such further reliefs as this Honorable Court may deem just and equitable under the premises. The Court therein ruled: The remedies provided for in Art. 1484 are alternative, not cumulative. The exercise of one bars the exercise of the others. This limitation applies to contracts purporting to be leases of personal property with option to buy by virtue of Art. 1485. The condition that the lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of applying Art. 1485 was fulfilled in this case by the filing by petitioner of the complaint for replevin to recover possession of movable property. By virtue of the writ of seizure issued by the trial court, the deputy sheriff seized the vehicle on August 6, 1986 and thereby deprived private respondents of its use. The car was not returned to private respondent until April 16, 1989, after two (2) years and eight (8) months, upon issuance by the Court of Appeals of a writ of execution. Petitioner prayed that private respondents be made to pay the sum of P39,054.86, the amount that they were supposed to pay as of May 1986, plus interest at the legal rate. At the same time, it prayed for the issuance of a writ of replevin or the delivery to it of the motor vehicle "complete with accessories and equipment." In the event the car could not be delivered to petitioner, it was prayed that private respondent Rolando Lantan be made to pay petitioner the amount of P60,000.00, the "estimated actual value" of the car, "plus accrued monthly rentals thereof with interests at the rate of fourteen percent (14%) per annum until fully paid." This prayer of course cannot be granted, even assuming that private respondents have defaulted in the payment of their obligation. This led the trial court to say that petitioner wanted to eat its cake and have it too. In contrast, respondent in this case prayed: (a) Before trial, and upon filing and approval of the bond, to forthwith issue a Writ of Replevin ordering the seizure of the motor vehicle abovedescribed, complete with all its accessories and equipments, together with the Registration Certificate thereof, and direct the delivery thereof to plaintiff in accordance with law and after due hearing, to confirm the said seizure; (b) Or, in the event that manual delivery of the said motor vehicle cannot be effected to render judgment in favor of plaintiff and against defendant(s) ordering them to pay to plaintiff, jointly and severally, the sum ofP576,664.04 plus interest and/or late payment charges thereon at the rate of 72% per annum from August 20, 2002 until fully paid; (c) In either case, to order defendant(s) to pay jointly and severally: (1) the sum of P297,857.54 as attorneys fees, liquidated damages, bonding fees and other expenses incurred in the seizure of the said motor vehicle; and (2) the costs of suit. Plaintiff further prays for such other relief as this Honorable Court may deem just and equitable in the premises. Compared with Elisco, the vehicle subject matter of this case was never recovered and delivered to respondent despite the issuance of a writ of replevin. As there was no seizure that transpired, it cannot be said that petitioners were deprived of the use and enjoyment of the mortgaged vehicle or that respondent pursued, commenced or concluded its actual foreclosure. The trial court, therefore, rightfully granted the alternative

prayer for sum of money, which is equivalent to the remedy of "exacting fulfillment of the obligation." Certainly, there is no double recovery or unjust enrichment30 to speak of. All the foregoing notwithstanding, We are of the opinion that the interest of 6% per month should be equitably reduced to one percent (1%) per month or twelve percent (12%) per annum, to be reckoned from May 16, 2002 until full payment and with the remaining outstanding balance of their car loan as of May 15, 2002 as the base amount. Settled is the principle which this Court has affirmed in a number of cases that stipulated interest rates of three percent (3%) per month and higher are excessive, iniquitous, unconscionable, and exorbitant. While Central Bank 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. Since the stipulation on the interest rate is void for being contrary to morals, if not against the law, it is as if there was no express contract on said interest rate; thus, the interest rate may be reduced as reason and equity demand. WHEREFORE, the petition is DENIED and the Court AFFIRMS WITH MODIFICATION the April 30, 2007 Decision and May 19, 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 86021. Petitioners spouses Deo Agner and Maricon Agner are ORDERED to pay, jointly and severally, respondent BPI Family Savings Bank, Inc. ( 1) the remaining outstanding balance of their auto loan obligation as of May 15, 2002 with interest at one percent ( 1 o/o) per month from May 16, 2002 until fully paid; and (2) costs of suit. SO ORDERED. G.R. Nos. 175279-80, June 5, 2013 SUSAN LIM-LUA, Petitioner, vs. DANILO Y. LUA, Respondent. D E C I S I O N, VILLARAMA, JR., J.: In this petition for review on certiorari under Rule 45, petitioner seeks to set aside the Decision dated April 20, 2006 and Resolution dated October 26, 2006 of the Court of Appeals (CA) dismissing her petition for contempt (CA-G.R. SP No. 01154) and granting respondent's petition for certiorari (CA-G.R. SP No. 01315). The factual background is as follows: On September 3, 2003, petitioner Susan Lim-Lua filed an action for the declaration of nullity of her marriage with respondent Danilo Y. Lua, docketed as Civil Case No. CEB-29346 of the Regional Trial Court (RTC) of Cebu City, Branch 14. In her prayer for support pendente lite for herself and her two children, petitioner sought the amount ofP500,000.00 as monthly support, citing respondents huge earnings from salaries and dividends in several companies and businesses here and abroad. After due hearing, Judge Raphael B. Yrastorza, Sr. issued an Order dated March 31, 2004 granting support pendente lite, as follows: From the evidence already adduced by the parties, the amount of Two Hundred Fifty (P250,000.00) Thousand Pesos would be sufficient to take care of the needs of the plaintiff. This amount excludes the One hundred thirty-five (P135,000.00) Thousand Pesos for medical attendance expenses needed by plaintiff for the operation of both her eyes which is demandable upon the conduct of such operation. The amounts already extended to the two (2) children, being a commendable act of defendant, should be continued by him considering the vast financial resources at his disposal. According to Art. 203 of the Family Code, support is demandable from the time plaintiff needed the said support but is payable only from the date of judicial demand. Since the instant complaint was filed on 03 September 2003, the amount of Two Hundred Fifty (P250,000.00) Thousand should be paid by defendant to plaintiff retroactively to such date until the hearing of the support pendente lite. P250,000.00 x 7 corresponding to the seven (7) months that lapsed from September, 2003 to March 2004 would tantamount to a total of One Million Seven Hundred Fifty (P1,750,000.00) Thousand Pesos. Thereafter, starting the month of April 2004, until otherwise ordered by this Court, defendant is ordered to pay a monthly support of Two Hundred Fifty Thousand (P250,000.00) Pesos payable within the first five (5) days of each corresponding month pursuant to the third paragraph of Art. 203 of the Family Code of the Philippines. The monthly support of P250,000.00 is without prejudice to any increase or decrease thereof that this Court may grant plaintiff as the circumstances may warrant i.e. depending on the proof submitted by the parties during the proceedings for the main action for support. Respondent filed a motion for reconsideration, asserting that petitioner is not entitled to spousal support considering that she does not maintain for herself a separate dwelling from their children and respondent has continued to support the family for their sustenance and well-being in accordance with familys social and financial standing. As to the P250,000.00 granted by the trial court as monthly support pendente lite, as well as theP1,750,000.00 retroactive support, respondent found it unconscionable and beyond the intendment of the law for not having considered the needs of the respondent. In its May 13, 2004 Order, the trial court stated that the March 31, 2004 Order had become final and executory since responde nts motion for reconsideration is treated as a mere scrap of paper for violation of the threeday notice period under Section 4, Rule 15 of the 1997 Rules of Civil Procedure, as amended, and therefore did not interrupt the running of the period to appeal. Respondent was given ten (10) days to show cause why he should not be held in contempt of the court for disregarding the March 31, 2004 order granting support pendente lite. His second motion for reconsideration having been denied, respondent filed a petition for certiorari in the CA. On April 12, 2005, the CA rendered its Decision, finding merit in respondents contention that the trial court gravely abused its discretion in granting P250,000.00 monthly support to petitioner without evidence to prove his actual income. The said court thus decreed: WHEREFORE, foregoing premises considered, this petition is given due course. The assailed Orders dated March 31, 2004, May 13, 2004, June 4, 2004 and June 18, 2004 of the Regional Trial Court, Branch 14, Cebu City issued in Civil Case No. CEB No. 29346 entitled "Susan Lim Lua versus Danilo Y. Lua" are hereby nullified and set aside and instead a new one is entered ordering herein petitioner: a) to pay private respondent a monthly support pendente lite of P115,000.00 beginning the month of April 2005 and every month thereafter within the first five (5) days thereof; b) to pay the private respondent the amount of P115,000.00 a month multiplied by the number of months starting from September 2003 until March 2005 less than the amount supposedly given by petitioner to the private respondent as her and their two (2) children monthly support; and c) to pay the costs. SO ORDERED. Neither of the parties appealed this decision of the CA. In a Compliance dated June 28, 2005, respondent attached a copy of a check he issued in the amount of P162,651.90 payable to petitioner. Respondent explained that, as decreed in the CA decision, he deducted from the amount of support in arrears (September 3, 2003 to March 2005) ordered by the CA -- P2,185,000.00 -- plus P460,000.00 (April, May, June and July 2005),

totalingP2,645,000.00, the advances given by him to his children and petitioner in the sum of P2,482,348.16 (with attached photocopies of receipts/billings). In her Comment to Compliance with Motion for Issuance of a Writ of Execution, petitioner asserted that none of the expenses deducted by respondent may be chargeable as part of the monthly support contemplated by the CA in CA-G.R. SP No. 84740. On September 27, 2005, the trial court issued an Order granting petitioners motion for issuance of a writ of execution as it rejected respondents interpretation of the CA decision. Respondent filed a motion for reconsideration and subsequently also filed a motion for inhibition of Judge Raphael B. Yrastorza, Sr. On November 25, 2005, Judge Yrastorza, Sr. issued an Order denying both motions. WHEREFORE, in view of the foregoing premises, both motions are DENIED. Since a second motion for reconsideration is prohibited under the Rules, this denial has attained finality; let, therefore, a writ of execution be issued in favor of plaintiff as against defendant for the accumulated support in arrears pendente lite. Notify both parties of this Order. SO ORDERED. Since respondent still failed and refused to pay the support in arrears pendente lite, petitioner filed in the CA a Petition for Contempt of Court with Damages, docketed as CA-G.R. SP No. 01154 ("Susan Lim Lua versus Danilo Y. Lua"). Respondent, on the other hand, filed CA-G.R. SP No. 01315, a Petition for Certiorari under Rule 65 of the Rules of Court ("Danilo Y. Lua versus Hon. Raphael B. Yrastorza, Sr., in his capacity as Presiding Judge of Regional Trial Court of Cebu, Branch 14, and Susan Lim Lua"). The two cases were consolidated. By Decision dated April 20, 2006, the CA set aside the assailed orders of the trial court, as follows: WHEREFORE, judgment is hereby rendered: a) DISMISSING, for lack of merit, the case of Petition for Contempt of Court with Damages filed by Susan Lim Lua against Danilo Y. Lua with docket no. SP. CA-GR No. 01154; b) GRANTING Danilo Y. Luas Petition for Certiorari docketed as SP. CA-GR No. 01315. Consequently, the assailed Orders dated 27 September 2005 and 25 November 2005 of the Regional Trial Court, Branch 14, Cebu City issued in Civil Case No. CEB-29346 entitled "Susan Lim Lua versus Danilo Y. Lua, are hereby NULLIFIED and SET ASIDE, and instead a new one is entered: i. ORDERING the deduction of the amount of PhP2,482,348.16 plus 946,465.64, or a total of PhP3,428,813.80 from the current total support in arrears of Danilo Y. Lua to his wife, Susan Lim Lua and their two (2) children; ii. ORDERING Danilo Y. Lua to resume payment of his monthly support of PhP115,000.00 pesos starting from the time payment of this amount was deferred by him subject to the deductions aforementioned. iii. DIRECTING the issuance of a permanent writ of preliminary injunction. SO ORDERED. The appellate court said that the trial court should not have completely disregarded the expenses incurred by respondent consisting of the purchase and maintenance of the two cars, payment of tuition fees, travel expenses, and the credit card purchases involving groceries, dry goods and books, which certainly inured to the benefit not only of the two children, but their mother (petitioner) as well. It held that respondents act of deferring the monthly support adjudged in CA-G.R. SP No. 84740 was not contumacious as it was anchored on valid and justifiable reasons. Respondent said he just wanted the issue of whether to deduct his advances be settled first in view of the different interpretation by the trial court of the appellate courts decision in CA-G.R. SP No. 84740. It also noted the lack of contribution from the petitioner in the joint obligation of spouses to support their children. Petitioner filed a motion for reconsideration but it was denied by the CA. Hence, this petition raising the following errors allegedly committed by the CA: I. THE HONORABLE COURT ERRED IN NOT FINDING RESPONDENT GUILTY OF INDIRECT CONTEMPT. II. THE HONORABLE COURT ERRED IN ORDERING THE DEDUCTION OF THE AMOUNT OF PHP2,482,348.16 PLUS 946,465.64, OR A TOTAL OF PHP3,428,813.80 FROM THE CURRENT TOTAL SUPPORT IN ARREARS OF THE RESPONDENT TO THE PETITIONER AND THEIR CHILDREN. The main issue is whether certain expenses already incurred by the respondent may be deducted from the total support in arrears owing to petitioner and her children pursuant to the Decision dated April 12, 2005 in CA-G.R. SP No. 84740. The pertinent provision of the Family Code of the Philippines provides: Article 194. Support comprises everything indispensable for sustenance, dwelling, clothing, medical attendance, education and transportation, in keeping with the financial capacity of the family. The education of the person entitled to be supported referred to in the preceding paragraph shall include his schooling or training for some profession, trade or vocation, even beyond the age of majority. Transportation shall include expenses in going to and from school, or to and from place of work. (Emphasis supplied.) Petitioner argues that it was patently erroneous for the CA to have allowed the deduction of the value of the two cars and their maintenance costs from the support in arrears, as these items are not indispensable to the sustenance of the family or in keeping them alive. She points out that in the Decision in CA-G.R. SP No. 84740, the CA already considered the said items which it deemed chargeable to respondent, while the monthly support pendente lite (P115,000.00) was fixed on the basis of the documentary evidence of respondents alleged income from various businesses and petitioners testimony that she needed P113,000.00 for the maintenance of the household and other miscellaneous expenses excluding the P135,000.00 medical attendance expenses of petitioner. Respondent, on the other hand, contends that disallowing the subject deductions would result in unjust enrichment, thus making him pay for the same obligation twice. Since petitioner and the children resided in one residence, the groceries and dry goods purchased by the children using respondents credit card, totallingP594,151.58 for the period September 2003 to June 2005 were not consumed by the children alone but shared with their mother. As to the Volkswagen Beetle and BMW 316i respondent bought for his daughter Angelli Suzanne Lua and Daniel Ryan Lua, respectively, these, too, are to be considered advances for support, in keeping with the financial capacity of the family. Respondent stressed that being children of parents belonging to the upper-class society, Angelli and Daniel Ryan had never in their entire life commuted from one place to another, nor do they eat their meals at "carinderias". Hence, the cars a nd their maintenance are indispensable to the childrens day-to-day living, the value of which were properly deducted from the arrearages in support pendente lite ordered by the trial and appellate courts. As a matter of law, the amount of support which those related by marriage and family relationship is generally obliged to give each other shall be in proportion to the resources or means of the giver and to the needs of the recipient. Such support comprises everything indispensable for sustenance, dwelling, clothing, medical attendance, education and transportation, in keeping with the financial capacity of the family. Upon receipt of a verified petition for declaration of absolute nullity of void marriage or for annulment of voidable marriage, or for legal separation,

and at any time during the proceeding, the court, motu proprio or upon verified application of any of the parties, guardian or designated custodian, may temporarily grant support pendente lite prior to the rendition of judgment or final order. Because of its provisional nature, a court does not need to delve fully into the merits of the case before it can settle an application for this relief. All that a court is tasked to do is determine the kind and amount of evidence which may suffice to enable it to justly resolve the application. It is enough that the facts be established by affidavits or other documentary evidence appearing in the record. In this case, the amount of monthly support pendente lite for petitioner and her two children was determined after due hearing and submission of documentary evidence by the parties. Although the amount fixed by the trial court was reduced on appeal, it is clear that the monthly support pendente lite of P115,000.00 ordered by the CA was intended primarily for the sustenance of petitioner and her children, e.g., food, clothing, salaries of drivers and house helpers, and other household expenses. Petitioners testimony also mentioned the cost of regula r therapy for her scoliosis and vitamins/medicines. ATTY. ZOSA: xxxx Q How much do you spend for your food and your two (2) children every month? A Presently, Sir? ATTY. ZOSA: Yes. A For the food alone, I spend not over P40,000.00 to P50,000.00 a month for the food alone. xxxx ATTY. ZOSA: Q What other expenses do you incur in living in that place? A The normal household and the normal expenses for a family to have a decent living, Sir. Q How much other expenses do you incur? WITNESS: A For other expenses, is around over a P100,000.00, Sir. Q Why do you incur that much amount? A For the clothing for the three (3) of us, for the vitamins and medicines. And also I am having a special therapy to straighten my back because I am scoliotic. I am advised by the Doctor to hire a driver, but I cannot still afford it now. Because my eyesight is not reliable for driving. And I still need another househelp to accompany me whenever I go marketing because for my age, I cannot carry anymore heavy loads. xxxx ATTY. FLORES: xxxx Q On the issue of the food for you and the two (2) children, you mentioned P40,000.00 to P50,000.00? A Yes, for the food alone. Q Okay, what other possible expenses that you would like to include in those two (2) items? You mentioned of a driver, am I correct? A Yes, I might need two (2) drivers, Sir for me and my children. Q Okay. How much would you like possibly to pay for those two (2) drivers? A I think P10,000.00 a month for one (1) driver. So I need two (2) drivers. And I need another househelp. Q You need another househelp. The househelp nowadays would charge you something between P3,000.00 toP4,000.00. Thats quite A Right now, my househelp is receiving P8,000.00. I need another which I will give a compensation of P5,000.00. Q Other than that, do you still have other expenses? A My clothing. COURT: How about the schooling for your children? WITNESS: A The schooling is shouldered by my husband, Your Honor. COURT: Everything? A Yes, Your Honor. xxxx ATTY. FLORES: Q Madam witness, let us talk of the present needs. x x x. What else, what specific need that you would like to add so I can tell my client, the defendant. WITNESS: A I need to have an operation both of my eyes. I also need a special therapy for my back because I am scoliotic, three (3) times a week. Q That is very reasonable. [W]ould you care to please repeat that? A Therapy for my scoliotic back and then also for the operation both of my eyes. And I am also taking some vitamins from excel that will cost P20,000.00 a month. Q Okay. Lets have piece by piece. Have you asked the Doctor how much would it cost you for the operation of that scoliotic? A Yes before because I was already due last year. Before, this eye will cost P60,000.00 and the other eyesP75,000.00. Q So for both eyes, you are talking of P60,000.00 plus P75,000.00 is P135,000.00? A Yes. xxxx Q You talk of therapy? A Yes. Q So how much is that?

A Around P5,000.00 a week. As to the financial capacity of the respondent, it is beyond doubt that he can solely provide for the subsistence, education, transportation, health/medical needs and recreational activities of his children, as well as those of petitioner who was then unemployed and a full-time housewife. Despite this, respondents counsel manifested during the same hearing that respondent was willing to grant the am ount of only P75,000.00 as monthly support pendente lite both for the children and petitioner as spousal support. Though the receipts of expenses submitted in court unmistakably show how much respondent lavished on his children, it appears that the matter of spousal support was a different matter altogether. Rejecting petitioners prayer for P500,000.00 monthly support and finding the P75,000.00 monthly support offered by respondent as insufficient, the trial court fixed the monthly support pendente lite at P250,000.00. However, since the supposed income in millions of respondent was based merely on the allegations of petitioner in her complaint and registration documents of various corporations which respondent insisted are owned not by him but his parents and siblings, the CA reduced the amount of support pendente lite to P115,000.00, which ruling was no longer questioned by both parties. Controversy between the parties resurfaced when respondents compliance with the final CA decision indicated that he deducted from the total amount in arrears (P2,645,000.00) the sum of P2,482,348.16, representing the value of the two cars for the children, their cost of maintenance and advances given to petitioner and his children. Respondent explained that the deductions were made consistent with the fallo of the CA Decision in CA-G.R. SP No. 84740 ordering him to pay support pendente lite in arrears less the amount supposedly given by him to petitioner as her and their two childrens monthly support. The following is a summary of the subject deductions under Compliance dated June 28, 2005, duly supported by receipts: Car purchases for Angelli Suzanne Php1,350,000.00 and Daniel Ryan 613,472.86 Car Maintenance fees of Angelli - Suzanne 51,232.50 Credit card statements of Daniel Ryan 348,682.28 Car Maintenance fees of Daniel Ryan 118,960.52 Php2,482,348.16 After the trial court disallowed the foregoing deductions, respondent filed a motion for reconsideration further asserting that the following amounts, likewise with supporting receipts, be considered as additional advances given to petitioner and the children: Medical expenses of Susan Lim-Lua Php 42,450.71 Dental Expenses of Daniel Ryan 11,500.00 Travel expenses of Susan Lim-Lua 14,611.15 Credit card purchases of Angelli Suzanne 408,891.08 Salon and travel expenses of Angelli Suzanne 87,112.70 School expenses of Daniel Ryan Lua 260,900.00 Cash given to Daniel and Angelli 121,000.00 TOTAL Php 946,465.64 GRAND TOTAL Php 3,428,813.80 The CA, in ruling for the respondent said that all the foregoing expenses already incurred by the respondent should, in equity, be considered advances which may be properly deducted from the support in arrears due to the petitioner and the two children. Said court also noted the absence of petitioners contribution to the joint obligation of support for their children. We reverse in part the decision of the CA. Judicial determination of support pendente lite in cases of legal separation and petitions for declaration of nullity or annulment of marriage are guided by the following provisions of the Rule on Provisional Orders Sec. 2. Spousal Support.In determining support for the spouses, the court may be guided by the following rules: (a) In the absence of adequate provisions in a written agreement between the spouses, the spouses may be supported from the properties of the absolute community or the conjugal partnership. (b) The court may award support to either spouse in such amount and for such period of time as the court may deem just and reasonable based on their standard of living during the marriage. (c) The court may likewise consider the following factors: (1) whether the spouse seeking support is the custodian of a child whose circumstances make it appropriate for that spouse not to seek outside employment; (2) the time necessary to acquire sufficient education and training to enable the spouse seeking support to find appropriate employment, and that spouses future earning capacity; (3) the duration of the marriage; (4) the comparative financial resources of the spouses, including their comparative earning abilities in the labor market; (5) the needs and obligations of each spouse; (6) the contribution of each spouse to the marriage, including services rendered in home-making, child care, education, and career building of the other spouse; (7) the age and health of the spouses; (8) the physical and emotional conditions of the spouses; (9) the ability of the supporting spouse to give support, taking into account that spouses earning capacity, earned and unearned income, assets, and standard of living; and (10) any other factor the court may deem just and equitable. (d) The Family Court may direct the deduction of the provisional support from the salary of the spouse. Sec. 3. Child Support.The common children of the spouses shall be supported from the properties of the absolute community or the conjugal partnership. Subject to the sound discretion of the court, either parent or both may be ordered to give an amount necessary for the support, maintenance, and education of the child. It shall be in proportion to the resources or means of the giver and to the necessities of the recipient. In determining the amount of provisional support, the court may likewise consider the following factors: (1) the financial resources of the custodial and non-custodial parent and those of the child; (2) the physical and emotional health of the child and his or her special needs and aptitudes; (3) the standard of living the child has been accustomed to; (4) the non-monetary contributions that the parents will make toward the care and wellbeing of the child. The Family Court may direct the deduction of the provisional support from the salary of the parent. Since the amount of monthly support pendente lite as fixed by the CA was not appealed by either party, there is no controversy as to its sufficiency

and reasonableness. The dispute concerns the deductions made by respondent in settling the support in arrears. On the issue of crediting of money payments or expenses against accrued support, we find as relevant the following rulings by US courts. In Bradford v. Futrell, appellant sought review of the decision of the Circuit Court which found him in arrears with his child support payments and entered a decree in favor of appellee wife. He complained that in determining the arrearage figure, he should have been allowed full credit for all money and items of personal property given by him to the children themselves, even though he referred to them as gifts. The Court of Appeals of Maryland ruled that in the suit to determine amount of arrears due the divorced wife under decree for support of minor children, the husband (appellant) was not entitled to credit for checks which he had clearly designated as gifts, nor was he entitled to credit for an automobile given to the oldest son or a television set given to the children. Thus, if the children remain in the custody of the mother, the father is not entitled to credit for money paid directly to the children if such was paid without any relation to the decree. In the absence of some finding of consent by the mother, most courts refuse to allow a husband to dictate how he will meet the requirements for support payments when the mode of payment is fixed by a decree of court. Thus he will not be credited for payments made when he unnecessarily interposed himself as a volunteer and made payments direct to the children of his own accord. Wills v. Baker, 214 S. W. 2d 748 (Mo. 1948); Openshaw v. Openshaw, 42 P. 2d 191 (Utah 1935). In the latter case the court said in part: "The payments to the children themselves do not appear to have been made as payments upon alimony, but were rather the result of his fatherly interest in the welfare of those children. We do not believe he should be permitted to charge them to plaintiff. By so doing he would be determining for Mrs. Openshaw the manner in which she should expend her allowances. It is a very easy thing for children to say their mother will not give them money, especially as they may realize that such a plea is effective in attaining their ends. If she is not treating them right the courts are open to the father for redress." In Martin, Jr. v. Martin, the Supreme Court of Washington held that a father, who is required by a divorce decree to make child support payments directly to the mother, cannot claim credit for payments voluntarily made directly to the children. However, special considerations of an equitable nature may justify a court in crediting such payments on his indebtedness to the mother, when such can be done without injustice to her. The general rule is to the effect that when a father is required by a divorce decree to pay to the mother money for the support of their dependent children and the unpaid and accrued installments become judgments in her favor, he cannot, as a matter of law, claim credit on account of payments voluntarily made directly to the children. Koon v. Koon, supra; Briggs v. Briggs, supra. However, special considerations of an equitable nature may justify a court in crediting such payments on his indebtedness to the mother, when that can be done without injustice to her. Briggs v. Briggs, supra. The courts are justifiably reluctant to lay down any general rules as to when such credits may be allowed. (Emphasis supplied.) Here, the CA should not have allowed all the expenses incurred by respondent to be credited against the accrued support pendente lite. As earlier mentioned, the monthly support pendente lite granted by the trial court was intended primarily for food, household expenses such as salaries of drivers and house helpers, and also petitioners scoliosis therapy sessions. Hence, the value of two expensive cars bought by respondent for his children plus their maintenance cost, travel expenses of petitioner and Angelli, purchases through credit card of items other than groceries and dry goods (clothing) should have been disallowed, as these bear no relation to the judgment awarding support pendente lite. While it is true that the dispositive portion of the executory decision in CA-G.R. SP No. 84740 ordered herein respondent to pay the support in arrears "less than the amount supposedly given by petitioner to the private respondent as her and their two (2) children monthly support," the deductions should be limited to those basic needs and expenses considered by the trial and appellate courts. The assailed ruling of the CA allowing huge deductions from the accrued monthly support of petitioner and her children, while correct insofar as it commends the generosity of the respondent to his children, is clearly inconsistent with the executory decision in CA-G.R. SP No. 84740. More important, it completely ignores the unfair consequences to petitioner whose sustenance and well-being, was given due regard by the trial and appellate courts. This is evident from the March 31, 2004 Order granting support pendente lite to petitioner and her children, when the trial court observed: While there is evidence to the effect that defendant is giving some forms of financial assistance to his two (2) children via their credit cards and paying for their school expenses, the same is, however, devoid of any form of spousal support to the plaintiff, for, at this point in time, while the action for nullity of marriage is still to be heard, it is incumbent upon the defendant, considering the physical and financial condition of the plaintiff and the overwhelming capacity of defendant, to extend support unto the latter. x x x On appeal, while the Decision in CA-G.R. SP No. 84740 reduced the amount of monthly support fixed by the trial court, it nevertheless held that considering respondents financial resources, it is but fair and just that he give a monthly support for the sustenance and b asic necessities of petitioner and his children. This would imply that any amount respondent seeks to be credited as monthly support should only cover those incurred for sustenance and household expenses.1avvphi1 In the case at bar, records clearly show and in fact has been admitted by petitioner that aside from paying the expenses of their two (2) childrens schooling, he gave his two (2) children two (2) cars and credit cards of which the expenses for various items namely: clothes, grocery items and repairs of their cars were chargeable to him which totaled an amount of more than One Hundred Thousand (P100,000.00) for each of them and considering that as testified by the private respondent that she needs the total amount of P113,000.00 for the maintenance of the household and other miscellaneous expenses and considering further that petitioner can afford to buy cars for his two (2) children, and to pay the expenses incurred by them which are chargeable to him through the credit cards he provided them in the amount of P100,000.00 each, it is but fair and just that the monthly support pendente lite for his wife, herein private respondent, be fixed as of the present in the amount of P115,000.00 which would be sufficient enough to take care of the household and other needs. This monthly support pendente lite to private respondent in the amount of P115,000.00 excludes the amount of One Hundred ThirtyFive (P135,000.00) Thousand Pesos for medical attendance expenses needed by private respondent for the operation of both her eyes which is demandable upon the conduct of such operation. Likewise, this monthly support of P115,000.00 is without prejudice to any increase or decrease thereof that the trial court may grant private respondent as the circumstances may warrant i.e. depending on the proof submitted by the parties during the proceedings for the main action for support. The amounts already extended to the two (2) children, being a commendable act of petitioner, should be continued by him considering the vast financial resources at his disposal. (Emphasis supplied.) Accordingly, only the following expenses of respondent may be allowed as deductions from the accrued support pendente lite for petitioner and her children: Medical expenses of Susan Lim-Lua Php 42,450.71 Dental Expenses of Daniel Ryan 11,500.00 Credit card purchases of Angelli 365,282.20 (Groceries and Dry Goods) 228,869.38

Credit Card purchases of Daniel Ryan TOTAL Php 648,102.29 As to the contempt charge, we sustain the CA in holding that respondent is not guilty of indirect contempt. Contempt of court is defined as a disobedience to the court by acting in opposition to its authority, justice, and dignity. It signifies not only a willful disregard or disobedience of the courts order, but such conduct which tends to bring the authority of the court and the administration of law into disrepute or, in some manner, to impede the due administration of justice. To constitute contempt, the act must be done willfully and for an illegitimate or improper purpose. The good faith, or lack of it, of the alleged contemnor should be considered. Respondent admittedly ceased or suspended the giving of monthly support pendente lite granted by the trial court, which is immediately executory. However, we agree with the CA that respondents act was not contumacious considering that he had not been remiss in actually providing for the needs of his children. It is a matter of record that respondent continued shouldering the full cost of their education and even beyond their basic necessities in keeping with the familys social status. Moreover, respondent believed in good faith that the trial and appella te courts, upon equitable grounds, would allow him to offset the substantial amounts he had spent or paid directly to his children. Respondent complains that petitioner is very much capacitated to generate income on her own because she presently maintains a boutique at the Ayala Center Mall in Cebu City and at the same time engages in the business of lending money. He also claims that the two children have finished their education and are now employed in the family business earning their own salaries. Suffice it to state that the matter of increase or reduction of support should be submitted to the trial court in which the action for declaration for nullity of marriage was filed, as this Court is not a trier of facts. The amount of support may be reduced or increased proportionately according to the reduction or increase of the necessities of the recipient and the resources or means of the person obliged to support. As we held in Advincula v. Advincula Judgment for support does not become final. The right to support is of such nature that its allowance is essentially provisi onal; for during the entire period that a needy party is entitled to support, his or her alimony may be modified or altered, in accordance with his increased or decreased needs, and with the means of the giver. It cannot be regarded as subject to final determination. WHEREFORE, the petition is PARTLY GRANTED. The Decision dated April 20, 2006 of the Court of Appeals in CA-G.R. SP Nos. 01154 and 01315 is hereby MODIFIED to read as follows: "WHEREFORE, judgment is hereby rendered: a) DISMISSING, for lack of merit, the case of Petition for Contempt of Court with Damages filed by Susan Lim Lua against Danilo Y. Lua with docket no. SP. CA-G.R. No. 01154; b) GRANTING IN PART Danilo Y. Lua's Petition for Certiorari docketed as SP. CA-G.R. No. 01315. Consequently, the assailed Orders dated 27 September 2005 and 25 November 2005 of the Regional Trial Court, Branch 14, Cebu City issued in Civil Case No. CEB-29346 entitled "Susan Lim Lua versus Danilo Y. Lua, are hereby NULLIFIED and SET ASIDE, and instead a new one is entered: i. ORDERING the deduction of the amount of Php 648,102.29 from the support pendente lite in arrears of Danilo Y. Lua to his wife, Susan Lim Lua and their two (2) children; ii. ORDERING Danilo Y. Lua to resume payment of his monthly support of PhP115,000.00 pesos starting from the time payment of this amount was deferred by him subject to the deduction aforementioned. iii. DIRECTING the immediate execution of this judgment. SO ORDERED." No pronouncement as to costs. SO ORDERED.

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