The Chattel Mortgage law

FIRST DIVISION
UNION
BANK
THEPHILIPPINES,
Petitioner,

OF

G.R. No. 171569

Present:

- versus-

CORONA, C.J., Chairperson,

LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR. JJ.

ALAIN JUNIAT, WINWOOD

APPAREL, INC., WINGYAN
APPAREL, INC., NONWOVEN
FABRIC PHILIPPINES,
Promulgated:
Respondents.
August 1, 2011
x--------------------------------------------------------x

DECISION
DEL CASTILLO, J.:
To have a binding effect on third parties, a contract of pledge must appear in a
public instrument.[1]
This Petition for Review on Certiorari[2] under Rule 45 of the Rules of Court
assails the June 23, 2005 Decision[3] and the February 9, 2006 Resolution[4] of the Court
of Appeals (CA) in CA-G.R. CV No. 66392.
Factual Antecedents
Petitioner Union Bank of the Philippines (Union Bank) is a universal
banking corporation organized and existing under Philippine laws.[5]
Respondents Winwood Apparel, Inc. (Winwood) and Wingyan Apparel, Inc.
(Wingyan) are domestic corporations engaged in the business of apparel manufacturing.
[6]
Both respondent corporations are owned and operated by respondent Alain Juniat
(Juniat), a French national based in Hongkong. [7] Respondent Nonwoven Fabric

Philippines, Inc. (Nonwoven) is a Philippine corporation engaged in the manufacture and

sale of various types of nonwoven fabrics.[8]
On September 3, 1992, petitioner filed with the Regional Trial Court (RTC)
of Makati, Branch 57, a Complaint[9] with prayer for the issuance of ex-parte writs of
preliminary attachment and replevin against Juniat, Winwood, Wingyan, and the person
in possession of the mortgaged motorized sewing machines and equipment.[10] Petitioner
alleged that Juniat, acting for and in behalf of Winwood and Wingyan, executed a
promissory note[11] dated April 11, 1992 and a Chattel Mortgage[12] dated March 27, 1992
over several motorized sewing machines and other allied equipment to secure their
obligation arising from export bills transactions to petitioner in the amount
of P1,131,134.35;[13] that as additional security for the obligation, Juniat executed a
Continuing Surety Agreement[14] dated April 11, 1992 in favor of petitioner;[15] that the
loan remains unpaid;[16] and that the mortgaged motorized sewing machines
are insufficient to answer for the obligation.[17]
On September 10, 1992, the RTC issued writs of preliminary attachment and
replevin in favor of petitioner.[18] The writs were served by the Sheriff upon Nonwoven as
it was in possession of the motorized sewing machines and equipment. [19] Although
Nonwoven was not impleaded in the complaint filed by petitioner, the RTC likewise
served summons upon Nonwoven since it was in possession of the motorized sewing
machines and equipment.[20]
On September 28, 1992, Nonwoven filed an Answer,[21] contending that the
unnotarized Chattel Mortgage executed in favor of petitioner has no binding effect on
Nonwoven and that it has a better title over the motorized sewing machines and
equipment because these were assigned to it by Juniat pursuant to their
Agreement[22] dated May 9, 1992.[23] Juniat, Winwood, and Wingyan, on the other hand,
were declared in default for failure to file an answer within the reglementary period.[24]
On November 23, 1992, petitioner filed a Motion to Sell Chattels Seized by
Replevin,[25] praying that the motorized sewing machines and equipment be sold to avoid
depreciation and deterioration.[26] However, on May 18, 1993, before the RTC could act
on the motion, petitioner sold the attached properties for the amount of P1,350,000.00.[27]
Nonwowen moved to cite the officers of petitioner in contempt for selling the
attached properties, but the RTC denied the same on the ground that Union Bank acted in
good faith.[28]

Ruling of the Regional Trial Court

On May 20, 1999, the RTC of Makati, Branch 145,[29] rendered a Decision[30] in
favor of petitioner. The RTC ruled that both the Chattel Mortgage dated March 27, 1992
in favor of petitioner and the Agreement dated May 9, 1992 in favor of Nonwoven have
no obligatory effect on third persons because these documents were not notarized.
[31]
However, since the Chattel Mortgage in favor of petitioner was executed earlier,
petitioner has a better right over the motorized sewing machines and equipment under the
doctrine of first in time, stronger in right (prius tempore, potior jure).[32] Thus, the RTC
disposed of the case in this wise:
WHEREFORE, above premises considered, judgment is hereby
rendered as follows:
1.] Declaring the [petitioner] UNION BANK OF THE PHILIPPINES,
as having the better right to the goods and/or machineries subject of the Writs
of Preliminary Attachment and Replevin issued by this Court on September
10, 1992.
2.] Declaring the [petitioner] as entitled to the proceeds of the sale of
the subject machineries in the amount of P1,350,000.00;
3.] Declaring [respondents] Allain Juniat, Winwood Apparel, Inc. and
Wingyan Apparel, Inc. to be jointly and severally liable to the [petitioner], for
the deficiency between the proceeds of the sale of the machineries subject of
this suit [P1,350,000.00] and original claim of the plaintiff [P1,919,907.03], in
the amount of P569,907.03, with legal interest at the rate of 12% per annum
from date of this judgment until fully paid; and
4.] Declaring [respondents] Allain Juniat, Winwood Apparel, Inc. and
Wingyan Apparel, Inc. to be jointly and severally liable to the [petitioner] for
the amount of P50,000.00 as reasonable attorneys fees; and
5.] Cost of this suit against the [respondents].
SO ORDERED.[33]

Nonwoven moved for reconsideration[34] but the RTC denied the same in its
Order[35] dated July 14, 1999.

Ruling of the Court of Appeals

On appeal, the CA reversed the ruling of the RTC. The CA ruled that the contract
of pledge entered into between Juniat and Nonwoven is valid and binding, and that the
motorized sewing machines and equipment were ceded to Nonwoven by Juniat by virtue
of a dacion en pago.[36] Thus, the CA declared Nonwoven entitled to the proceeds of the
sale of the attached properties.[37] The fallo reads:
WHEREFORE, premises considered, the assailed decision is
hereby REVERSED and SET ASIDE. [Petitioner] Union Bank of the
Philippines is hereby DIRECTED to pay Nonwoven Fabric Philippines,
Inc. P1,350,000.00, the amount it holds in escrow, realized from the May 18,
1993 sale of the machineries to avoid deterioration during pendency of
suit. No pronouncement as to costs.
SO ORDERED.[38]

Petitioner sought reconsideration[39] which was denied by the CA in a

Resolution[40] dated February 9, 2006.
Issues
Hence, the present recourse where petitioner interposes the following issues:
1. Whether x x x the Court of Appeals committed serious reversible error in
setting aside the Decision of the trial court holding that Union Bank of the
Philippines had a better right over the machineries seized/levied upon in
the proceedings before the trial court and/or the proceeds of the sale
thereof;
2. Whether x x x the Court of Appeals seriously erred in holding that
[Nonwoven] has a valid claim over the subject sewing machines.[41]

Petitioners Arguments
Echoing the reasoning of the RTC, petitioner insists that it has a better title to the
proceeds of the sale.[42] Although the Chattel Mortgage executed in its favor was not
notarized, petitioner insists that it is nevertheless valid, and thus, has preference over a
subsequent unnotarized agreement.[43] Petitioner further claims that except for the said

agreement, no other evidence was presented by Nonwoven to show that the motorized
sewing machines and equipment were indeed transferred to them by
Juniat/Winwood/Wingyan.[44]
Respondent Nonwovens Arguments
Nonwoven, on the other hand, claims ownership over the proceeds of the sale under
Article 1544[45] of the Civil Code on double sale, which it claims can be applied by
analogy in the instant case.[46] Nonwoven contends that since its prior possession over the
motorized sewing machines and equipment was in good faith, it has a better title over the
proceeds of the sale.[47]Nonwoven likewise maintains that petitioner has no right over the
proceeds of the sale because the Chattel Mortgage executed in its favor was unnotarized,
unregistered, and without an affidavit of good faith.[48]
Our Ruling
The petition has merit.
Nonwoven lays claim to the attached motorized sewing machines and equipment
pursuant to the Agreement it entered into with Juniat, to wit:
Hong Kong, 9th May, 1992
With reference to talks held this morning at the Holiday Inn Golden Mile
Coffee Shop, among the following parties:
a.
b.
c.

Redflower Garments Inc. Mrs. Maglipon

Nonwoven Fabrics Phils. Inc. Mr. J. Tan
Winwood Apparel Inc./Wing Yan Apparel, Inc. Mr. A. Juniat, Mrs. S.
Juniat

IT WAS AGREED THAT:

a. Settlement of the accounts between Nonwoven Fabrics Phils. Inc. and
Winwood Apparel Inc./Wing Yan Apparel, Inc. should be effected as agreed
through partial payment by L/C with the balance to be settled at a later date
for which Winwood Apparel, Inc. agrees to consign 94 sewing machines, 3
snap machines and 2 boilers, presently in the care of Redflower
Garments Inc., to the care of Nonwoven Fabrics Phils., Inc. as

guarantee. Meanwhile, Nonwoven will resume delivery to Winwood/Win

Yang as usual.
x x x x[49] (Emphasis supplied.)

It insists that since the attached properties were assigned or ceded to it by Juniat, it has a
better right over the proceeds of the sale of the attached properties than petitioner, whose
claim is based on an unnotarized Chattel Mortgage.
We do not agree.
Indeed, the unnotarized Chattel Mortgage executed by Juniat, for and in behalf of
Wingyan and Winwood, in favor of petitioner does not bind Nonwoven. [50] However, it
must be pointed out that petitioners primary cause of action is for a sum of money with
prayer for the issuance of ex-parte writs of attachment and replevin against Juniat,
Winwood, Wingyan, and the person in possession of the motorized sewing machines and
equipment.[51] Thus, the fact that the Chattel Mortgage executed in favor of petitioner was
not notarized does not affect petitioners cause of action. Petitioner only needed to show
that the loan of Juniat, Wingyan and Winwood remains unpaid and that it is entitled to the
issuance of the writs prayed for. Considering that writs of attachment and replevin were
issued by the RTC,[52] Nonwoven had to prove that it has a better right of possession or
ownership over the attached properties. This it failed to do.
A perusal of the Agreement dated May 9, 1992 clearly shows that the sewing
machines, snap machines and boilers were pledged to Nonwoven by Juniat to guarantee
his obligation.However, under Article 2096 of the Civil Code, [a] pledge shall not take
effect against third persons if a description of the thing pledged and the date of the pledge
do not appear in a public instrument. Hence, just like the chattel mortgage executed in
favor of petitioner, the pledge executed by Juniat in favor of Nonwoven cannot bind
petitioner.
Neither can we sustain the finding of the CA that: The machineries were ceded to
THIRD PARTY NONWOVEN by way of dacion en pago, a contract later entered into
by WINWOOD/WINGYAN and THIRD PARTY NONWOVEN.[53] As aptly pointed
out by petitioner, no evidence was presented by Nonwoven to show that the attached
properties were subsequently sold to it by way of a dacion en pago. Also, there is
nothing in the Agreement dated May 9, 1992 to indicate that the motorized sewing
machines, snap machines and boilers were ceded to Nonwoven as payment for the

Wingyans and Winwoods obligation. It bears stressing that there can be no transfer of
ownership if the delivery of the property to the creditor is by way of security.[54] In fact, in
case of doubt as to whether a transaction is one of pledge or dacion en pago, the
presumption is that it is a pledge as this involves a lesser transmission of rights and
interests.[55]
In view of the foregoing, we are constrained to reverse the ruling of the
CA. Nonwoven is not entitled to the proceeds of the sale of the attached properties
because it failed to show that it has a better title over the same.
WHEREFORE, the petition is hereby GRANTED. The assailed June 23, 2005
Decision and the February 9, 2006 Resolution of the Court of Appeals in CA-G.R. CV
No. 66392 are hereby REVERSED and SET ASIDE. The May 20, 1999 Decision of
the
Regional
Trial
Court
of
Makati,
Branch
145,
is
hereby REINSTATED and AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 103576 August 22, 1996

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners,
vs.
HON. COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN
CITY,respondents.

VITUG, J.:p
Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its
coverage to obligations yet to be contracted or incurred? This question is the core issue in the instant petition
for review oncertiorari.
Petitioner Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber & Plastic
Corporation," executed on 27 June 1978, for and in behalf of the company, a chattel mortgage in favor of
private respondent Producers Bank of the Philippines. The mortgage stood by way of security for petitioner's
corporate loan of three million pesos (P3,000,000.00). A provision in the chattel mortgage agreement was to
this effect

(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the
full obligation or obligations above-stated according to the terms thereof, then this mortgage
shall be null and void. . . .
In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal
of the former note, as an extension thereof, or as a new loan, or is given any other kind of
accommodations such as overdrafts, letters of credit, acceptances and bills of exchange,
releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as
security for the payment of the said promissory note or notes and/or accommodations without
the necessity of executing a new contract and this mortgage shall have the same force and
effect as if the said promissory note or notes and/or accommodations were existing on the
date thereof. This mortgage shall also stand as security for said obligations and any and all
other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature,
whether such obligations have been contracted before, during or after the constitution of this
mortgage. 1
In due time, the loan of P3,000,000.00 was paid by petitioner corporation. Subsequently, in 1981, it obtained
from respondent bank additional financial accommodations totalling P2,700,000.00. 2 These borrowings were

on due date also fully paid.

On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a loan of one million pesos
(P1,000,000.00) covered by four promissory notes for P250,000.00 each. Due to financial constraints, the loan
was not settled at maturity. 3 Respondent bank thereupon applied for an extra judicial foreclosure of the

chattel mortgage, herein before cited, with the Sheriff of Caloocan City, prompting petitioner corporation to
forthwith file an action for injunction, with damages and a prayer for a writ of preliminary injunction, before
the Regional Trial Court of Caloocan City (Civil Case No. C-12081). Ultimately, the court dismissed the
complaint and ordered the foreclosure of the chattel mortgage. It held petitioner corporation bound by the
stipulations, aforequoted, of the chattel mortgage.
Petitioner corporation appealed to the Court of Appeals 4 which, on 14 August 1991, affirmed, "in all

respects," the decision of the court a quo. The motion for reconsideration was denied on 24 January
1992.
The instant petition interposed by petitioner corporation was initially dinied on 04 March 1992 by this Court for
having been insufficient in form and substance. Private respondent filed a motion to dismiss the petition while
petitioner corporation filed a compliance and an opposition to private respondent's motion to dismiss. The Court
denied petitioner's first motion for reconsideration but granted a second motion for reconsideration, thereby
reinstating the petition and requiring private respondent to comment thereon. 5
Except in criminal cases where the penalty of reclusion perpetua or death is imposed 6 which the Court so

reviews as a matter of course, an appeal from judgments of lower courts is not a matter of right but of
sound judicial discretion. The circulars of the Court prescribing technical and other procedural
requirements are meant to weed out unmeritorious petitions that can unnecessarily clog the docket and
needlessly consume the time of the Court. These technical and procedural rules, however, are intended
to help secure, not suppress, substantial justice. A deviation from the rigid enforcement of the rules may
thus be allowed to attain the prime objective for, after all, the dispensation of justice is the core reason for
the existence of courts. In this instance, once again, the Court is constrained to relax the rules in order to
give way to and uphold the paramount and overriding interest of justice.
Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a
suretyship, the faithful performance of the obligation by the principal debt or is secured by
the personalcommitment of another (the guarantor or surety). In contracts of real security, such as a pledge, a

mortgage or an antichresis, that fulfillment is secured by an encumbrance of property in pledge, the placing
of movable property in the possession of the creditor; in chattel mortgage, by the execution of the
corresponding deed substantially in the form prescribed by law; in real estate mortgage, by the execution of a
public instrument encumbering the real property covered thereby; and in antichresis, by a written instrument
granting to the creditor the right to receive the fruits of an immovable property with the obligation to apply such
fruits to the payment of interest, if owing, and thereafter to the principal of his credit upon the essential
condition that if the obligation becomes due and the debtor defaults, then the property encumbered can be
alienated for the payment of the obligation, 7 but that should the obligation be duly paid, then the contract is

automatically extinguished proceeding from the accessory character 8 of the agreement. As the law so
puts it, once the obligation is complied with, then the contract of security becomes, ipso facto, null and
void. 9
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long
as these future debts are accurately described, 10 a chattel mortgage, however, can only cover obligations

existing at the time the mortgage is constituted. Although a promise expressed in a chattel mortgage to
include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the
security itself, however, does not come into existence or arise until after a chattel mortgage agreement
covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by
amending the old contract conformably with the form prescribed by the Chattel Mortgage Law. 11 Refusal
on the part of the borrower to execute the agreement so as to cover the after-incurred obligation can
constitute an act of default on the part of the borrower of the financing agreement whereon the promise is
written but, of course, the remedy of foreclosure can only cover the debts extant at the time of constitution
and during the life of the chattel mortgage sought to be foreclosed.
A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed
by the Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is an affidavit of
good faith. While it is not doubted that if such an affidavit is not appended to the agreement, the chattel
mortgage would still be valid between the parties (not against third persons acting in good faith 12), the

fact, however, that the statute has provided that the parties to the contract must execute an oath
that
. . . (the) mortgage is made for the purpose of securing the obligation specified in the
conditions thereof, and for no other purpose, and that the same is a just and valid obligation,
and one not entered into for the purpose of fraud. 13
makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely
contemplated. In the chattel mortgage here involved, the only obligation specified in the chattel
mortgage contract was the P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of
Section 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the
chattel mortgage void or terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press,
Inc., et al., 14 the Court

said
. . . A mortgage that contains a stipulation in regard to future advances in the credit will take
effect only from the date the same are made and not from the date of the mortgage. 15
The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had
ceased to exist coincidentally with the full payment of the P3,000,000.00 loan, 16 there no longer was

any chattel mortgage that could cover the new loans that were concluded thereafter.
We find no merit in petitioner corporation's other prayer that the case should be remanded to the trial court for a
specific finding on the amount of damages it has sustained "as a result of the unlawful action taken by

respondent bank against it." 17 This prayer is not reflected in its complaint which has merely asked for the

amount of P3,000,000.00 by way of moral damages. 18 In LBC Express, Inc. vs. Court of Appeals, 19 we
have said:
Moral damages are granted in recompense for physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation,
and similar injury. A corporation, being an artificial person and having existence only in legal
contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience
physical suffering and mental anguish. Mental suffering can be experienced only by one
having a nervous system and it flows from real ills, sorrows, and griefs of life all of which
cannot be suffered by respondent bank as an artificial person. 20
While Chua Pac is included in the case, the complaint, however, clearly states that he has merely been
so named as a party in representation of petitioner corporation.
Petitioner corporation's counsel could be commended for his zeal in pursuing his client's cause. It instead
turned out to be, however, a source of disappointment for this Court to read in petitioner's reply to private
respondent's comment on the petition his so-called "One Final Word;" viz:
In simply quoting in toto the patently erroneous decision of the trial court, respondent Court of
Appeals should be required to justify its decision which completely disregarded the basic laws
on obligations and contracts, as well as the clear provisions of the Chattel Mortgage Law and
well-settled jurisprudence of this Honorable Court; that in the event that its explanation is
wholly unacceptable, this Honorable Court should impose appropriate sanctions on the erring
justices. This is one positive step in ridding our courts of law of incompetent and dishonest
magistrates especially members of a superior court of appellate jurisdiction. 21 (Emphasis

supplied.)
The statement is not called for. The Court invites counsel's attention to the admonition in Guerrero
vs.Villamor; 22 thus:
(L)awyers . . . should bear in mind their basic duty "to observe and maintain the respect due to
the courts of justice and judicial officers and . . . (to) insist on similar conduct by others." This
respectful attitude towards the court is to be observed, "not for the sake of the temporary
incumbent of the judicial office, but for the maintenance of its supreme importance." And it is
through a scrupulous preference for respectful language that a lawyer best demonstrates his
observance of the respect due to the courts and judicial officers . . . 23
The virtues of humility and of respect and concern for others must still live on even in an age of
materialism.
WHEREFORE, the questioned decisions of the appellate court and the lower court are set aside without
prejudice to the appropriate legal recourse by private respondent as may still be warranted as an unsecured
creditor. No costs.
Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in dealing with the courts.
SO ORDERED.

THIRD DIVISION

[G.R. No. 110048. November 19, 1999]

SERVICEWIDE SPECIALISTS, INC. petitioner, vs. COURT OF APPEALS,
HILDA TEE, & ALBERTO M. VILLAFRANCA, respondents.
DECISION
PURISIMA, J.:

This is a petition for review on certiorari under Rule 45 of the Decision of the
Court of Appeals[1] in CA-G.R. CV No. 19571, affirming the judgment of the Regional
Trial Court of Manila, Branch XX, dismissing Civil Case No. 84-25763 for replevin
and damages.
The litigation involves a motor vehicle, a Colt Galant, 4-door Sedan automobile,
with Motor No. 2E-08927, Serial No. A112A-5297, Model No. 1976.
The appellate court culled the facts that matter as follows: [2]
"On May 14, 1976, Leticia L. Laus of Quezon City purchased on credit a Colt Galant
xxx from Fortune Motors (Phils.) Corporation. On the same date, she executed a
promissory note for the amount ofP56,028.00, inclusive of interest at 12% per annum,
payable within a period of 48 months starting August, 1976 at a monthly installment
of P1,167.25 due and demandable on the 17th day of each month (Exhibit A, pp. 144,
Orig. Records,). It was agreed upon, among others, that in case of default in the
payment of any installment the total principal sum, together with the interest, shall
become immediately due and payable (Exhibit A; p. 144, Orig. Records). As a
security for the promissory note, a chattel mortgage was constituted over the said
motor vehicle (Exhibit B, ibid.), with a deed of assignment incorporated therein such
that the credit and mortgage rights were assigned by Fortune Motors Corp. in favor of
Filinvest Credit Corporation with the consent of the mortgagor-debtor Leticia Laus
(Exhibits B-1 and B-2; p. 147, ibid.). The vehicle was then registered in the name of
Leticia L. Laus with the chattel mortgage annotated on said certificate. (Exhibit "H";
p. 154, ibid.)
On September 25, 1978, Filinvest Credit Corporation in turn assigned the credit in
favor of Servicewide Specialists, Inc. (Servicewide, for brevity) transferring unto the
latter all its rights under the promissory note and the chattel mortgage (Exhibit B-3; p.
149, ibid.) with the corresponding notice of assignment sent to the registered car
owner (Exhibit C; p. 150, Ibid.).

On April 18, 1977, Leticia Laus failed to pay the monthly installment for that
month. The installments for the succeeding 17 months were not likewise fully paid,
hence on September 25, 1978, pursuant to the provisions of the promissory note,
Servicewide demanded payment of the entire outstanding balance of P46,775.24
inclusive of interests (Exhibits D and E; pp. 151-152, ibid.). Despite said formal
demand, Leticia Laus failed to pay all the monthly installments due until July 18,
1980.
On July 25, 1984, Servicewide sent a statement of account to Leticia Laus and
demanded payment of the amount of P86,613.32 representing the outstanding balance
plus interests up to July 25, 1985, attorneys fees, liquidated damages, estimated
repossession expense, and bonding fee (Exhibit F; p. 153, ibid.)
As a result of the failure of Leticia Laus to settle her obligation, or at least to surrender
possession of the motor vehicle for the purpose of foreclosure, Servicewide instituted
a complaint for replevin, impleading Hilda Tee and John Dee in whose custody the
vehicle was believed to be at the time of the filing of the suit.
In its complaint, plaintiff alleged that it had superior lien over the mortgaged vehicle;
that it is lawfully entitled to the possession of the same together with all its
accessories and equipments; (sic) that Hilda Tee was wrongfully detaining the motor
vehicle for the purpose of defeating its mortgage lien; and that a sufficient bond had
been filed in court. (Complaint with Annexes, pp. 1-13, ibid.). On July 30, 1984, the
court approved the replevin bond (p. 20, ibid.)
On August 1, 1984, Alberto Villafranca filed a third party claim contending that he is
the absolute owner of the subject motor vehicle duly evidenced by the Bureau of Land
Transportations Certificate of Registration issued in his name on June 22, 1984; that
he acquired the said mother vehicle from a certain Remedios D. Yang under a Deed of
Sale dated May 16, 1984; that he acquired the same free from all lien and
emcumbrances; and that on July 30, 1984, the said automobile was taken from his
residence by Deputy Sheriff Bernardo Bernabe pursuant to the seizure order issued by
the court a quo.
Upon motion of the plaintiff below, Alberto Villafranca was substituted as
defendant. Summons was served upon him. (pp. 55-56, ibid).
On March 20, 1985, Alberto Villafranca moved for the dismissal of the complaint on
the ground that there is another action pending between the same parties before the

Regional Trial Court of Makati, Branch 140, docketed as Civil Case No. 8310,
involving the seizure of subject motor vehicle and the indemnity bond posted by
Servicewide (Motion to Dismiss with Annexes; pp. 57-110, ibid.) On March 28, 1985,
the court granted the aforesaid motion (p. 122, ibid.), but subsequently the order of
dismissal was reconsidered and set aside (pp. 135-136, ibid.). For failure to file his
Answer as required by the court aquo, Alberto Villafranca was declared in default and
plaintiffs evidence was received ex parte.
On December 27, 1985, the lower court rendered a decision dismissing the complaint
for insufficiency of evidence. Its motion for reconsideration of said decision having
been denied, xxx.
In its appeal to the Court of Appeals, petitioner theorized that a suit for replevin
aimed at the foreclosure of a chattel is an action quasi in rem, and does not require the
inclusion of the principal obligor in the Complaint. However, the appellate court
affirmed the decision of the lower Court; ratiocinating, thus:
A cursory reading, however, of the Promissory Note dated May 14, 1976 in favor of
Fortune Motors (Phils.) Corp. in the sum of P56,028.00 (Annex A of Complaint, p. 7,
Original Records) and the Chattel Mortgage of the same date (Annex B of Complaint;
pp. 8-9, ibid.) will disclose that the maker and mortgagor respectively are one and the
same person: Leticia Laus. In fact, plaintiff-appellant admits in paragraphs (sic) nos. 2
and 3 of its Complaint that the aforesaid public documents (Annexes A and B thereof)
were executed by Leticia Laus, who, for reasons not explained, was never
impleaded. In the case under consideration, plaintiff-appellants main case is for
judicial foreclosure of the chattel mortgage against Hilda Tee and John Doe who was
later substituted by appellee Alberto Villafranca. But as there is no privity of contract,
not even a causal link, between plaintiff-appellant Servicewide Specialists, Inc. and
defendant-appellee Alberto Villafranca, the court a quo committed no reversible error
when it dismissed the case for insufficiency of evidence against Hilda Tee and Alberto
Villafranca since the evidence adduced pointed to Leticia Laus as the party liable for
the obligation sued upon (p. 2, RTC Decision). [3]
Petitioner presented a Motion for Reconsideration but in its Resolution [4] of May
10, 1993, the Court of Appeals denied the same, taking notice of another case pending
between the same parties xxx relating to the very chattel mortgage of the motor
vehicle in litigation.

Hence, the present petition for review on certiorari under Rule 45. Essentially, the
sole issue here is: Whether or not a case for replevin may be pursued against the
defendant, Alberto Villafranca, without impleading the absconding debtor-mortgagor?
Rule 60 of the Revised Rules of Court requires that an applicant for replevin must
show that he is the owner of the property claimed, particularly describing it, or is
entitled to the possession thereof. [5]Where the right of the plaintiff to the possession of
the specified property is so conceded or evident, the action need only be maintained
against him who so possesses the property. In rem action est per quam rem nostram
quae ab alio possidetur petimus, et semper adversus eum est qui rem possidet. [6]
Citing Northern Motors, Inc. vs. Herrera,[7] the Court said in the case of BA
Finance (which is of similar import with the present case):
There can be no question that persons having a special right of property in the goods
the recovery of which is sought, such as a chattel mortgagee, may maintain an action
for replevin therefor. Where the mortgage authorizes the mortgagee to take possession
of the property on default, he may maintain an action to recover possession of the
mortgaged chattels from the mortgagor or from any person in whose hands he may
find them.[8]
Thus, in default of the mortgagor, the mortgagee is thereby constituted as
attorney-in-fact of the mortgagor, enabling such mortgagee to act for and in behalf of
the owner. That the defendant is not privy to the chattel mortgage should be
inconsequential. By the fact that the object of replevin is traced to his possession, one
properly can be a defendant in an action for replevin. It is here assumed that the
plaintiffs right to possess the thing is not or cannot be disputed. [9] (Italics supplied)
However, in case the right of possession on the part of the plaintiff, or his
authority to claim such possession or that of his principal, is put to great doubt (a
contending party may contest the legal bases for plaintiffs cause of action or an
adverse and independent claim of ownership or right of possession may be raised by
that party), it could become essential to have other persons involved and impleaded
for a complete determination and resolution of the controversy.[10] In the case under
scrutiny, it is not disputed that there is an adverse and independent claim of ownership
by the respondent as evinced by the existence of a pending case before the Court of
Appeals involving subject motor vehicle between the same parties herein. [11] Its
resolution is a factual matter, the province of which properly lies in the lower Court
and not in the Supreme Court, in the guise of a petition for review on certiorari. For it

is basic that under Rule 45, this Court only entertains questions of law, and rare are
the exceptions and the present case does not appear to be one of them.
In a suit for replevin, a clear right of possession must be established. (Italics
supplied) A foreclosure under a chattel mortgage may properly be commenced only
once there is default on the part of the mortgagor of his obligation secured by the
mortgage. The replevin in this case has been resorted to in order to pave the way for
the foreclosure of what is covered by the chattel mortgage. The conditions essential
for such foreclosure would be to show, firstly, the existence of the chattel mortgage
and, secondly, the default of the mortgagor. These requirements must be shown
because the validity of the plaintiffs exercise of the right of foreclosure is inevitably
dependent thereon.[12]
Since the mortgagees right of possession is conditioned upon the actual fact of
default which itself may be controverted, the inclusion of other parties, like the debtor
or the mortgagor himself, may be required in order to allow a full and conclusive
determination of the case. When the mortgagee seeks a replevin in order to effect the
eventual foreclosure of the mortgage, it is not only the existence of, but also the
mortgagors default on, the chattel mortgage that, among other things, can properly
uphold the right to replevy the property. The burden to establish a valid justification
for such action lies with the plaintiff. An adverse possessor, who is not the mortgagor,
cannot just be deprived of his possession, let alone be bound by the terms of the
chattel mortgage contract, simply because the mortgagee brings up an action for
replevin.[13]
Leticia Laus, being an indispensable party, should have been impleaded in the
complaint for replevin and damages. An indispensable party is one whose interest will
be affected by the courts action in the litigation, and without whom no final
determination of the case can be had. The partys interest in the subject matter of the
suit and in the relief sought are so inextricably intertwined with the other parties that
his legal presence as a party to the proceeding is an absolute necessity. In his absence,
there cannot be a resolution of the dispute of the parties before the Court which is
effective, complete, or equitable.
Conversely, a party is not indispensable to the suit if his interest in the controversy
or subject matter is distinct and divisible from the interest of the other parties and will
not necessarily be prejudiced by a judgment which does complete justice to the parties
in Court. He is not indispensable if his presence would merely complete relief
between him and those already parties to the action or will simply avoid multiple

litigation.[14] Without the presence of indispensable parties to a suit or proceeding, a

judgment of a Court cannot attain real finality.[15]
That petitioner could not locate the mortgagor, Leticia Laus, is no excuse for
resorting to a procedural short-cut. It could have properly availed of substituted
service of summons under the Revised Rules of Court. [16] If it deemed such a mode to
be unavailing, it could have proceeded in accordance with Section 14 of the same
Rule.[17] Indeed, petitioner had other proper remedies, it could have resorted to but
failed to avail of. For instance, it could have properly impleaded the mortgagor. Such
failure is fatal to petitioners cause.
With the foregoing disquisition and conclusion, the other issues raised by
petitioner need not be passed upon.
WHEREFORE, the Petition is DENIED and the Decision of the Court of
Appeals in CA-G.R. CV No. 19571 AFFIRMED. No pronouncement as to costs.
SO ORDERED.
AMLA
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 174629

February 14, 2008

REPUBLIC OF THE PHILIPPINES, Represented by THE ANTI-MONEY LAUNDERING COUNCIL

(AMLC),petitioner,
vs.
HON. ANTONIO M. EUGENIO, JR., AS PRESIDING JUDGE OF RTC, MANILA, BRANCH 34, PANTALEON
ALVAREZ and LILIA CHENG, respondents.
DECISION
TINGA, J.:
The present petition for certiorari and prohibition under Rule 65 assails the orders and resolutions issued by
two different courts in two different cases. The courts and cases in question are the Regional Trial Court of
Manila, Branch 24, which heard SP Case No. 06-1142001 and the Court of Appeals, Tenth Division, which
heared CA-G.R. SP No. 95198.2 Both cases arose as part of the aftermath of the ruling of this Court in Agan v.
PIATCO3nullifying the concession agreement awarded to the Philippine International Airport Terminal
Corporation (PIATCO) over the Ninoy Aquino International Airport International Passenger Terminal 3 (NAIA
3) Project.

I.
Following the promulgation of Agan, a series of investigations concerning the award of the NAIA 3 contracts to
PIATCO were undertaken by the Ombudsman and the Compliance and Investigation Staff (CIS) of petitioner
Anti-Money Laundering Council (AMLC). On 24 May 2005, the Office of the Solicitor General (OSG) wrote the
AMLC requesting the latters assistance "in obtaining more evidence to completely reveal the financial trail of
corruption surrounding the [NAIA 3] Project," and also noting that petitioner Republic of the Philippines was
presently defending itself in two international arbitration cases filed in relation to the NAIA 3 Project. 4 The CIS
conducted an intelligence database search on the financial transactions of certain individuals involved in the
award, including respondent Pantaleon Alvarez (Alvarez) who had been the Chairman of the PBAC Technical
Committee, NAIA-IPT3 Project.5 By this time, Alvarez had already been charged by the Ombudsman with
violation of Section 3(j) of R.A. No. 3019.6 The search revealed that Alvarez maintained eight (8) bank accounts
with six (6) different banks.7
On 27 June 2005, the AMLC issued Resolution No. 75, Series of 2005, 8 whereby the Council resolved to
authorize the Executive Director of the AMLC "to sign and verify an application to inquire into and/or examine
the [deposits] or investments of Pantaleon Alvarez, Wilfredo Trinidad, Alfredo Liongson, and Cheng Yong, and
their related web of accounts wherever these may be found, as defined under Rule 10.4 of the Revised
Implementing Rules and Regulations;" and to authorize the AMLC Secretariat "to conduct an inquiry into
subject accounts once the Regional Trial Court grants the application to inquire into and/or examine the bank
accounts" of those four individuals.9 The resolution enumerated the particular bank accounts of Alvarez,
Wilfredo Trinidad (Trinidad), Alfredo Liongson (Liongson) and Cheng Yong which were to be the subject of the
inquiry.10 The rationale for the said resolution was founded on the cited findings of the CIS that amounts were
transferred from a Hong Kong bank account owned by Jetstream Pacific Ltd. Account to bank accounts in the
Philippines maintained by Liongson and Cheng Yong. 11 The Resolution also noted that "[b]y awarding the
contract to PIATCO despite its lack of financial capacity, Pantaleon Alvarez caused undue injury to the
government by giving PIATCO unwarranted benefits, advantage, or preference in the discharge of his official
administrative functions through manifest partiality, evident bad faith, or gross inexcusable negligence, in
violation of Section 3(e) of Republic Act No. 3019."12
Under the authority granted by the Resolution, the AMLC filed an application to inquire into or examine the
deposits or investments of Alvarez, Trinidad, Liongson and Cheng Yong before the RTC of Makati, Branch 138,
presided by Judge (now Court of Appeals Justice) Sixto Marella, Jr. The application was docketed as AMLC
No. 05-005.13 The Makati RTC heard the testimony of the Deputy Director of the AMLC, Richard David C. Funk
II, and received the documentary evidence of the AMLC.14 Thereafter, on 4 July 2005, the Makati RTC rendered
an Order (Makati RTC bank inquiry order) granting the AMLC the authority to inquire and examine the subject
bank accounts of Alvarez, Trinidad, Liongson and Cheng Yong, the trial court being satisfied that there existed
"[p]robable cause [to] believe that the deposits in various bank accounts, details of which appear in paragraph
1 of the Application, are related to the offense of violation of Anti-Graft and Corrupt Practices Act now the
subject of criminal prosecution before the Sandiganbayan as attested to by the Informations, Exhibits C, D, E,
F, and G."15Pursuant to the Makati RTC bank inquiry order, the CIS proceeded to inquire and examine the
deposits, investments and related web accounts of the four.16
Meanwhile, the Special Prosecutor of the Office of the Ombudsman, Dennis Villa-Ignacio, wrote a letter dated 2
November 2005, requesting the AMLC to investigate the accounts of Alvarez, PIATCO, and several other
entities involved in the nullified contract. The letter adverted to probable cause to believe that the bank
accounts "were used in the commission of unlawful activities that were committed" in relation to the criminal
cases then pending before the Sandiganbayan. 17 Attached to the letter was a memorandum "on why the
investigation of the [accounts] is necessary in the prosecution of the above criminal cases before the
Sandiganbayan."18
In response to the letter of the Special Prosecutor, the AMLC promulgated on 9 December 2005 Resolution No.
121 Series of 2005,19 which authorized the executive director of the AMLC to inquire into and examine the
accounts named in the letter, including one maintained by Alvarez with DBS Bank and two other accounts in

the name of Cheng Yong with Metrobank. The Resolution characterized the memorandum attached to the
Special Prosecutors letter as "extensively justif[ying] the existence of probable cause that the bank accounts of
the persons and entities mentioned in the letter are related to the unlawful activity of violation of Sections 3(g)
and 3(e) of Rep. Act No. 3019, as amended."20
Following the December 2005 AMLC Resolution, the Republic, through the AMLC, filed an application 21 before
the Manila RTC to inquire into and/or examine thirteen (13) accounts and two (2) related web of accounts
alleged as having been used to facilitate corruption in the NAIA 3 Project. Among said accounts were the DBS
Bank account of Alvarez and the Metrobank accounts of Cheng Yong. The case was raffled to Manila RTC,
Branch 24, presided by respondent Judge Antonio Eugenio, Jr., and docketed as SP Case No. 06-114200.
On 12 January 2006, the Manila RTC issued an Order (Manila RTC bank inquiry order) granting the Ex
ParteApplication expressing therein "[that] the allegations in said application to be impressed with merit, and in
conformity with Section 11 of R.A. No. 9160, as amended, otherwise known as the Anti-Money Laundering Act
(AMLA) of 2001 and Rules 11.1 and 11.2 of the Revised Implementing Rules and Regulations." 22 Authority was
thus granted to the AMLC to inquire into the bank accounts listed therein.
On 25 January 2006, Alvarez, through counsel, entered his appearance 23 before the Manila RTC in SP Case
No. 06-114200 and filed an Urgent Motion to Stay Enforcement of Order of January 12, 2006. 24 Alvarez alleged
that he fortuitously learned of the bank inquiry order, which was issued following an ex parte application, and he
argued that nothing in R.A. No. 9160 authorized the AMLC to seek the authority to inquire into bank
accounts ex parte.25 The day after Alvarez filed his motion, 26 January 2006, the Manila RTC issued an
Order26 staying the enforcement of its bank inquiry order and giving the Republic five (5) days to respond to
Alvarezs motion.
The Republic filed an Omnibus Motion for Reconsideration 27 of the 26 January 2006 Manila RTC Order and
likewise sought to strike out Alvarezs motion that led to the issuance of said order. For his part, Alvarez filed a
Reply and Motion to Dismiss28 the application for bank inquiry order. On 2 May 2006, the Manila RTC issued an
Omnibus Order29 granting the Republics Motion for Reconsideration, denying Alvarezs motion to dismiss and
reinstating "in full force and effect" the Order dated 12 January 2006. In the omnibus order, the Manila RTC
reiterated that the material allegations in the application for bank inquiry order filed by the Republic stood as
"the probable cause for the investigation and examination of the bank accounts and investments of the
respondents."30
Alvarez filed on 10 May 2006 an Urgent Motion31 expressing his apprehension that the AMLC would
immediately enforce the omnibus order and would thereby render the motion for reconsideration he intended to
file as moot and academic; thus he sought that the Republic be refrained from enforcing the omnibus order in
the meantime. Acting on this motion, the Manila RTC, on 11 May 2006, issued an Order 32 requiring the OSG to
file a comment/opposition and reminding the parties that judgments and orders become final and executory
upon the expiration of fifteen (15) days from receipt thereof, as it is the period within which a motion for
reconsideration could be filed. Alvarez filed his Motion for Reconsideration 33 of the omnibus order on 15 May
2006, but the motion was denied by the Manila RTC in an Order 34 dated 5 July 2006.
On 11 July 2006, Alvarez filed an Urgent Motion and Manifestation 35 wherein he manifested having received
reliable information that the AMLC was about to implement the Manila RTC bank inquiry order even though he
was intending to appeal from it. On the premise that only a final and executory judgment or order could be
executed or implemented, Alvarez sought that the AMLC be immediately ordered to refrain from enforcing the
Manila RTC bank inquiry order.
On 12 July 2006, the Manila RTC, acting on Alvarezs latest motion, issued an Order 36 directing the AMLC "to
refrain from enforcing the order dated January 12, 2006 until the expiration of the period to appeal, without any
appeal having been filed." On the same day, Alvarez filed a Notice of Appeal 37 with the Manila RTC.

On 24 July 2006, Alvarez filed an Urgent Ex Parte Motion for Clarification.38 Therein, he alleged having learned
that the AMLC had began to inquire into the bank accounts of the other persons mentioned in the application
for bank inquiry order filed by the Republic.39 Considering that the Manila RTC bank inquiry order was
issued ex parte, without notice to those other persons, Alvarez prayed that the AMLC be ordered to refrain from
inquiring into any of the other bank deposits and alleged web of accounts enumerated in AMLCs application
with the RTC; and that the AMLC be directed to refrain from using, disclosing or publishing in any proceeding or
venue any information or document obtained in violation of the 11 May 2006 RTC Order.40
On 25 July 2006, or one day after Alvarez filed his motion, the Manila RTC issued an Order 41 wherein it clarified
that "the Ex Parte Order of this Court dated January 12, 2006 can not be implemented against the deposits or
accounts of any of the persons enumerated in the AMLC Application until the appeal of movant Alvarez is finally
resolved, otherwise, the appeal would be rendered moot and academic or even nugatory." 42 In addition, the
AMLC was ordered "not to disclose or publish any information or document found or obtained in [v]iolation of
the May 11, 2006 Order of this Court." 43 The Manila RTC reasoned that the other persons mentioned in AMLCs
application were not served with the courts 12 January 2006 Order. This 25 July 2006 Manila RTC Order is the
first of the four rulings being assailed through this petition.
In response, the Republic filed an Urgent Omnibus Motion for Reconsideration 44 dated 27 July 2006, urging that
it be allowed to immediately enforce the bank inquiry order against Alvarez and that Alvarezs notice of appeal
be expunged from the records since appeal from an order of inquiry is disallowed under the Anti money
Laundering Act (AMLA).
Meanwhile, respondent Lilia Cheng filed with the Court of Appeals a Petition for Certiorari, Prohibition and
Mandamus with Application for TRO and/or Writ of Preliminary Injunction 45 dated 10 July 2006, directed against
the Republic of the Philippines through the AMLC, Manila RTC Judge Eugenio, Jr. and Makati RTC Judge
Marella, Jr.. She identified herself as the wife of Cheng Yong 46 with whom she jointly owns a conjugal bank
account with Citibank that is covered by the Makati RTC bank inquiry order, and two conjugal bank accounts
with Metrobank that are covered by the Manila RTC bank inquiry order. Lilia Cheng imputed grave abuse of
discretion on the part of the Makati and Manila RTCs in granting AMLCs ex parte applications for a bank
inquiry order, arguing among others that the ex parte applications violated her constitutional right to due
process, that the bank inquiry order under the AMLA can only be granted in connection with violations of the
AMLA and that the AMLA can not apply to bank accounts opened and transactions entered into prior to the
effectivity of the AMLA or to bank accounts located outside the Philippines. 47
On 1 August 2006, the Court of Appeals, acting on Lilia Chengs petition, issued a Temporary Restraining
Order48enjoining the Manila and Makati trial courts from implementing, enforcing or executing the respective
bank inquiry orders previously issued, and the AMLC from enforcing and implementing such orders. On even
date, the Manila RTC issued an Order49 resolving to hold in abeyance the resolution of the urgent omnibus
motion for reconsideration then pending before it until the resolution of Lilia Chengs petition for certiorari with
the Court of Appeals. The Court of Appeals Resolution directing the issuance of the temporary restraining order
is the second of the four rulings assailed in the present petition.
The third assailed ruling50 was issued on 15 August 2006 by the Manila RTC, acting on the Urgent Motion for
Clarification51 dated 14 August 2006 filed by Alvarez. It appears that the 1 August 2006 Manila RTC Order had
amended its previous 25 July 2006 Order by deleting the last paragraph which stated that the AMLC "should
not disclose or publish any information or document found or obtained in violation of the May 11, 2006 Order of
this Court."52 In this new motion, Alvarez argued that the deletion of that paragraph would allow the AMLC to
implement the bank inquiry orders and publish whatever information it might obtain thereupon even before the
final orders of the Manila RTC could become final and executory.53 In the 15 August 2006 Order, the Manila
RTC reiterated that the bank inquiry order it had issued could not be implemented or enforced by the AMLC or
any of its representatives until the appeal therefrom was finally resolved and that any enforcement thereof
would be unauthorized.54

The present Consolidated Petition55 for certiorari and prohibition under Rule 65 was filed on 2 October 2006,
assailing the two Orders of the Manila RTC dated 25 July and 15 August 2006 and the Temporary Restraining
Order dated 1 August 2006 of the Court of Appeals. Through an Urgent Manifestation and Motion 56 dated 9
October 2006, petitioner informed the Court that on 22 September 2006, the Court of Appeals hearing Lilia
Chengs petition had granted a writ of preliminary injunction in her favor.57 Thereafter, petitioner sought as well
the nullification of the 22 September 2006 Resolution of the Court of Appeals, thereby constituting the fourth
ruling assailed in the instant petition.58
The Court had initially granted a Temporary Restraining Order 59 dated 6 October 2006 and later on a
Supplemental Temporary Restraining Order60 dated 13 October 2006 in petitioners favor, enjoining the
implementation of the assailed rulings of the Manila RTC and the Court of Appeals. However, on respondents
motion, the Court, through a Resolution61 dated 11 December 2006, suspended the implementation of the
restraining orders it had earlier issued.
Oral arguments were held on 17 January 2007. The Court consolidated the issues for argument as follows:
1. Did the RTC-Manila, in issuing the Orders dated 25 July 2006 and 15 August 2006 which deferred
the implementation of its Order dated 12 January 2006, and the Court of Appeals, in issuing its
Resolution dated 1 August 2006, which ordered the status quo in relation to the 1 July 2005 Order of
the RTC-Makati and the 12 January 2006 Order of the RTC-Manila, both of which authorized the
examination of bank accounts under Section 11 of Rep. Act No. 9160 (AMLA), commit grave abuse of
discretion?
(a) Is an application for an order authorizing inquiry into or examination of bank accounts or
investments under Section 11 of the AMLA ex-parte in nature or one which requires notice and
hearing?
(b) What legal procedures and standards should be observed in the conduct of the
proceedings for the issuance of said order?
(c) Is such order susceptible to legal challenges and judicial review?
2. Is it proper for this Court at this time and in this case to inquire into and pass upon the validity of the
1 July 2005 Order of the RTC-Makati and the 12 January 2006 Order of the RTC-Manila, considering
the pendency of CA G.R. SP No. 95-198 (Lilia Cheng v. Republic) wherein the validity of both orders
was challenged?62
After the oral arguments, the parties were directed to file their respective memoranda, which they did, 63 and the
petition was thereafter deemed submitted for resolution.
II.
Petitioners general advocacy is that the bank inquiry orders issued by the Manila and Makati RTCs are valid
and immediately enforceable whereas the assailed rulings, which effectively stayed the enforcement of the
Manila and Makati RTCs bank inquiry orders, are sullied with grave abuse of discretion. These conclusions flow
from the posture that a bank inquiry order, issued upon a finding of probable cause, may be issued ex
parte and, once issued, is immediately executory. Petitioner further argues that the information obtained
following the bank inquiry is necessarily beneficial, if not indispensable, to the AMLC in discharging its
awesome responsibility regarding the effective implementation of the AMLA and that any restraint in the
disclosure of such information to appropriate agencies or other judicial fora would render meaningless the relief
supplied by the bank inquiry order.

Petitioner raises particular arguments questioning Lilia Chengs right to seek injunctive relief before the Court of
Appeals, noting that not one of the bank inquiry orders is directed against her. Her "cryptic assertion" that she is
the wife of Cheng Yong cannot, according to petitioner, "metamorphose into the requisite legal standing to seek
redress for an imagined injury or to maintain an action in behalf of another." In the same breath, petitioner
argues that Alvarez cannot assert any violation of the right to financial privacy in behalf of other persons whose
bank accounts are being inquired into, particularly those other persons named in the Makati RTC bank inquiry
order who did not take any step to oppose such orders before the courts.
Ostensibly, the proximate question before the Court is whether a bank inquiry order issued in accordance with
Section 10 of the AMLA may be stayed by injunction. Yet in arguing that it does, petitioner relies on what it
posits as the final and immediately executory character of the bank inquiry orders issued by the Manila and
Makati RTCs. Implicit in that position is the notion that the inquiry orders are valid, and such notion is
susceptible to review and validation based on what appears on the face of the orders and the applications
which triggered their issuance, as well as the provisions of the AMLA governing the issuance of such orders.
Indeed, to test the viability of petitioners argument, the Court will have to be satisfied that the subject inquiry
orders are valid in the first place. However, even from a cursory examination of the applications for inquiry
order and the orders themselves, it is evident that the orders are not in accordance with law.
III.
A brief overview of the AMLA is called for.
Money laundering has been generally defined by the International Criminal Police Organization (Interpol) `as
"any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear
to have originated from legitimate sources."64 Even before the passage of the AMLA, the problem was
addressed by the Philippine government through the issuance of various circulars by the Bangko Sentral ng
Pilipinas. Yet ultimately, legislative proscription was necessary, especially with the inclusion of the Philippines in
the Financial Action Task Forces list of non-cooperative countries and territories in the fight against money
laundering.65 The original AMLA, Republic Act (R.A.) No. 9160, was passed in 2001. It was amended by R.A.
No. 9194 in 2003.
Section 4 of the AMLA states that "[m]oney laundering is a crime whereby the proceeds of an unlawful activity
as [defined in the law] are transacted, thereby making them appear to have originated from legitimate
sources."66The section further provides the three modes through which the crime of money laundering is
committed. Section 7 creates the AMLC and defines its powers, which generally relate to the enforcement of
the AMLA provisions and the initiation of legal actions authorized in the AMLA such as civil forefeiture
proceedings and complaints for the prosecution of money laundering offenses. 67
In addition to providing for the definition and penalties for the crime of money laundering, the AMLA also
authorizes certain provisional remedies that would aid the AMLC in the enforcement of the AMLA. These are
the "freeze order" authorized under Section 10, and the "bank inquiry order" authorized under Section 11.
Respondents posit that a bank inquiry order under Section 11 may be obtained only upon the pre-existence of
a money laundering offense case already filed before the courts. 68 The conclusion is based on the phrase
"upon order of any competent court in cases of violation of this Act," the word "cases" generally understood as
referring to actual cases pending with the courts.
We are unconvinced by this proposition, and agree instead with the then Solicitor General who conceded that
the use of the phrase "in cases of" was unfortunate, yet submitted that it should be interpreted to mean "in the
event there are violations" of the AMLA, and not that there are already cases pending in court concerning such
violations.69 If the contrary position is adopted, then the bank inquiry order would be limited in purpose as a tool
in aid of litigation of live cases, and wholly inutile as a means for the government to ascertain whether there is
sufficient evidence to sustain an intended prosecution of the account holder for violation of the AMLA. Should

that be the situation, in all likelihood the AMLC would be virtually deprived of its character as a discovery tool,
and thus would become less circumspect in filing complaints against suspect account holders. After all, under
such set-up the preferred strategy would be to allow or even encourage the indiscriminate filing of complaints
under the AMLA with the hope or expectation that the evidence of money laundering would somehow surface
during the trial. Since the AMLC could not make use of the bank inquiry order to determine whether there is
evidentiary basis to prosecute the suspected malefactors, not filing any case at all would not be an alternative.
Such unwholesome set-up should not come to pass. Thus Section 11 cannot be interpreted in a way that would
emasculate the remedy it has established and encourage the unfounded initiation of complaints for money
laundering.
Still, even if the bank inquiry order may be availed of without need of a pre-existing case under the AMLA, it
does not follow that such order may be availed of ex parte. There are several reasons why the AMLA does not
generally sanction ex parte applications and issuances of the bank inquiry order.
IV.
It is evident that Section 11 does not specifically authorize, as a general rule, the issuance ex parte of the bank
inquiry order. We quote the provision in full:
SEC. 11. Authority to Inquire into Bank Deposits. Notwithstanding the provisions of Republic Act
No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other laws, the AMLC
may inquire into or examine any particular deposit or investment with any banking institution or non bank
financial institution upon order of any competent court in cases of violation of this Act, when it has been
established that there is probable cause that the deposits or investments are related to an unlawful activity
as defined in Section 3(i) hereof or a money laundering offense under Section 4 hereof, except that no court
order shall be required in cases involving unlawful activities defined in Sections 3(i)1, (2) and (12).
To ensure compliance with this Act, the Bangko Sentral ng Pilipinas (BSP) may inquire into or examine
any deposit of investment with any banking institution or non bank financial institution when the
examination is made in the course of a periodic or special examination, in accordance with the rules of
examination of the BSP.70 (Emphasis supplied)
Of course, Section 11 also allows the AMLC to inquire into bank accounts without having to obtain a judicial
order in cases where there is probable cause that the deposits or investments are related to kidnapping for
ransom,71certain violations of the Comprehensive Dangerous Drugs Act of 2002, 72 hijacking and other violations
under R.A. No. 6235, destructive arson and murder. Since such special circumstances do not apply in this
case, there is no need for us to pass comment on this proviso. Suffice it to say, the proviso contemplates a
situation distinct from that which presently confronts us, and for purposes of the succeeding discussion, our
reference to Section 11 of the AMLA excludes said proviso.
In the instances where a court order is required for the issuance of the bank inquiry order, nothing in Section 11
specifically authorizes that such court order may be issued ex parte. It might be argued that this silence does
not preclude the ex parte issuance of the bank inquiry order since the same is not prohibited under Section 11.
Yet this argument falls when the immediately preceding provision, Section 10, is examined.
SEC. 10. Freezing of Monetary Instrument or Property. The Court of Appeals, upon application ex
parteby the AMLC and after determination that probable cause exists that any monetary instrument or property
is in any way related to an unlawful activity as defined in Section 3(i) hereof, may issue a freeze order which
shall be effective immediately. The freeze order shall be for a period of twenty (20) days unless extended by the
court.73
Although oriented towards different purposes, the freeze order under Section 10 and the bank inquiry order
under Section 11 are similar in that they are extraordinary provisional reliefs which the AMLC may avail of to

effectively combat and prosecute money laundering offenses. Crucially, Section 10 uses specific language to
authorize anex parte application for the provisional relief therein, a circumstance absent in Section 11. If indeed
the legislature had intended to authorize ex parte proceedings for the issuance of the bank inquiry order, then it
could have easily expressed such intent in the law, as it did with the freeze order under Section 10.
Even more tellingly, the current language of Sections 10 and 11 of the AMLA was crafted at the same time,
through the passage of R.A. No. 9194. Prior to the amendatory law, it was the AMLC, not the Court of Appeals,
which had authority to issue a freeze order, whereas a bank inquiry order always then required, without
exception, an order from a competent court.74 It was through the same enactment that ex parte proceedings
were introduced for the first time into the AMLA, in the case of the freeze order which now can only be issued
by the Court of Appeals. It certainly would have been convenient, through the same amendatory law, to allow a
similar ex parte procedure in the case of a bank inquiry order had Congress been so minded. Yet nothing in the
provision itself, or even the available legislative record, explicitly points to an ex parte judicial procedure in the
application for a bank inquiry order, unlike in the case of the freeze order.
That the AMLA does not contemplate ex parte proceedings in applications for bank inquiry orders is confirmed
by the present implementing rules and regulations of the AMLA, promulgated upon the passage of R.A. No.
9194. With respect to freeze orders under Section 10, the implementing rules do expressly provide that the
applications for freeze orders be filed ex parte,75 but no similar clearance is granted in the case of inquiry orders
under Section 11.76 These implementing rules were promulgated by the Bangko Sentral ng Pilipinas, the
Insurance Commission and the Securities and Exchange Commission, 77 and if it was the true belief of these
institutions that inquiry orders could be issued ex parte similar to freeze orders, language to that effect would
have been incorporated in the said Rules. This is stressed not because the implementing rules could
authorize ex parteapplications for inquiry orders despite the absence of statutory basis, but rather because the
framers of the law had no intention to allow such ex parte applications.
Even the Rules of Procedure adopted by this Court in A.M. No. 05-11-04-SC 78 to enforce the provisions of the
AMLA specifically authorize ex parte applications with respect to freeze orders under Section 10 79 but make no
similar authorization with respect to bank inquiry orders under Section 11.
The Court could divine the sense in allowing ex parte proceedings under Section 10 and in proscribing the
same under Section 11. A freeze order under Section 10 on the one hand is aimed at preserving monetary
instruments or property in any way deemed related to unlawful activities as defined in Section 3(i) of the AMLA.
The owner of such monetary instruments or property would thus be inhibited from utilizing the same for the
duration of the freeze order. To make such freeze order anteceded by a judicial proceeding with notice to the
account holder would allow for or lead to the dissipation of such funds even before the order could be issued.
On the other hand, a bank inquiry order under Section 11 does not necessitate any form of physical seizure of
property of the account holder. What the bank inquiry order authorizes is the examination of the particular
deposits or investments in banking institutions or non-bank financial institutions. The monetary instruments or
property deposited with such banks or financial institutions are not seized in a physical sense, but are
examined on particular details such as the account holders record of deposits and transactions. Unlike the
assets subject of the freeze order, the records to be inspected under a bank inquiry order cannot be physically
seized or hidden by the account holder. Said records are in the possession of the bank and therefore cannot be
destroyed at the instance of the account holder alone as that would require the extraordinary cooperation and
devotion of the bank.
Interestingly, petitioners memorandum does not attempt to demonstrate before the Court that the bank inquiry
order under Section 11 may be issued ex parte, although the petition itself did devote some space for that
argument. The petition argues that the bank inquiry order is "a special and peculiar remedy, drastic in its name,
and made necessary because of a public necessity [t]hus, by its very nature, the application for an order or
inquiry must necessarily, be ex parte." This argument is insufficient justification in light of the clear disinclination

of Congress to allow the issuance ex parte of bank inquiry orders under Section 11, in contrast to the
legislatures clear inclination to allow the ex parte grant of freeze orders under Section 10.
Without doubt, a requirement that the application for a bank inquiry order be done with notice to the account
holder will alert the latter that there is a plan to inspect his bank account on the belief that the funds therein are
involved in an unlawful activity or money laundering offense. 80 Still, the account holder so alerted will in fact be
unable to do anything to conceal or cleanse his bank account records of suspicious or anomalous transactions,
at least not without the whole-hearted cooperation of the bank, which inherently has no vested interest to aid
the account holder in such manner.
V.
The necessary implication of this finding that Section 11 of the AMLA does not generally authorize the
issuanceex parte of the bank inquiry order would be that such orders cannot be issued unless notice is given to
the owners of the account, allowing them the opportunity to contest the issuance of the order. Without such a
consequence, the legislated distinction between ex parte proceedings under Section 10 and those which are
not ex parte under Section 11 would be lost and rendered useless.
There certainly is fertile ground to contest the issuance of an ex parte order. Section 11 itself requires that it be
established that "there is probable cause that the deposits or investments are related to unlawful activities," and
it obviously is the court which stands as arbiter whether there is indeed such probable cause. The process of
inquiring into the existence of probable cause would involve the function of determination reposed on the trial
court. Determination clearly implies a function of adjudication on the part of the trial court, and not a mechanical
application of a standard pre-determination by some other body. The word "determination" implies deliberation
and is, in normal legal contemplation, equivalent to "the decision of a court of justice." 81
The court receiving the application for inquiry order cannot simply take the AMLCs word that probable cause
exists that the deposits or investments are related to an unlawful activity. It will have to exercise its
own determinative function in order to be convinced of such fact. The account holder would be certainly
capable of contesting such probable cause if given the opportunity to be apprised of the pending application to
inquire into his account; hence a notice requirement would not be an empty spectacle. It may be so that the
process of obtaining the inquiry order may become more cumbersome or prolonged because of the notice
requirement, yet we fail to see any unreasonable burden cast by such circumstance. After all, as earlier stated,
requiring notice to the account holder should not, in any way, compromise the integrity of the bank records
subject of the inquiry which remain in the possession and control of the bank.
Petitioner argues that a bank inquiry order necessitates a finding of probable cause, a characteristic similar to a
search warrant which is applied to and heard ex parte. We have examined the supposed analogy between a
search warrant and a bank inquiry order yet we remain to be unconvinced by petitioner.
The Constitution and the Rules of Court prescribe particular requirements attaching to search warrants that are
not imposed by the AMLA with respect to bank inquiry orders. A constitutional warrant requires that the judge
personally examine under oath or affirmation the complainant and the witnesses he may produce, 82 such
examination being in the form of searching questions and answers. 83 Those are impositions which the
legislative did not specifically prescribe as to the bank inquiry order under the AMLA, and we cannot find
sufficient legal basis to apply them to Section 11 of the AMLA. Simply put, a bank inquiry order is not a search
warrant or warrant of arrest as it contemplates a direct object but not the seizure of persons or property.
Even as the Constitution and the Rules of Court impose a high procedural standard for the determination of
probable cause for the issuance of search warrants which Congress chose not to prescribe for the bank inquiry
order under the AMLA, Congress nonetheless disallowed ex parte applications for the inquiry order. We can
discern that in exchange for these procedural standards normally applied to search warrants, Congress chose

instead to legislate a right to notice and a right to be heard characteristics of judicial proceedings which are
notex parte. Absent any demonstrable constitutional infirmity, there is no reason for us to dispute such
legislative policy choices.
VI.
The Courts construction of Section 11 of the AMLA is undoubtedly influenced by right to privacy considerations.
If sustained, petitioners argument that a bank account may be inspected by the government following an ex
parteproceeding about which the depositor would know nothing would have significant implications on the right
to privacy, a right innately cherished by all notwithstanding the legally recognized exceptions thereto. The
notion that the government could be so empowered is cause for concern of any individual who values the right
to privacy which, after all, embodies even the right to be "let
alone," the most comprehensive of rights and the right most valued by civilized people. 84
One might assume that the constitutional dimension of the right to privacy, as applied to bank deposits,
warrants our present inquiry. We decline to do so. Admittedly, that question has proved controversial in
American jurisprudence. Notably, the United States Supreme Court in U.S. v. Miller85 held that there was no
legitimate expectation of privacy as to the bank records of a depositor.86 Moreover, the text of our Constitution
has not bothered with the triviality of allocating specific rights peculiar to bank deposits.
However, sufficient for our purposes, we can assert there is a right to privacy governing bank accounts in the
Philippines, and that such right finds application to the case at bar. The source of such right is statutory,
expressed as it is in R.A. No. 1405 otherwise known as the Bank Secrecy Act of 1955. The right to privacy is
enshrined in Section 2 of that law, to wit:
SECTION 2. All deposits of whatever nature with banks or banking institutions in the
Philippines including investments in bonds issued by the Government of the Philippines, its
political subdivisions and its instrumentalities, are hereby considered as of an absolutely
confidential nature and may not be examined, inquired or looked into by any person, government
official, bureau or office, except upon written permission of the depositor, or in cases of impeachment,
or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in
cases where the money deposited or invested is the subject matter of the litigation. (Emphasis
supplied)
Because of the Bank Secrecy Act, the confidentiality of bank deposits remains a basic state policy in the
Philippines.87 Subsequent laws, including the AMLA, may have added exceptions to the Bank Secrecy Act, yet
the secrecy of bank deposits still lies as the general rule. It falls within the zones of privacy recognized by our
laws.88The framers of the 1987 Constitution likewise recognized that bank accounts are not covered by either
the right to information89 under Section 7, Article III or under the requirement of full public disclosure 90 under
Section 28, Article II.91 Unless the Bank Secrecy Act is repealed or
amended, the legal order is obliged to conserve the absolutely confidential nature of Philippine bank deposits.
Any exception to the rule of absolute confidentiality must be specifically legislated. Section 2 of the Bank
Secrecy Act itself prescribes exceptions whereby these bank accounts may be examined by "any person,
government official, bureau or office"; namely when: (1) upon written permission of the depositor; (2) in cases
of impeachment; (3) the examination of bank accounts is upon order of a competent court in cases of bribery or
dereliction of duty of public officials; and (4) the money deposited or invested is the subject matter of the
litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft and Corrupt Practices Act, has been recognized by this
Court as constituting an additional exception to the rule of absolute confidentiality,92 and there have been other
similar recognitions as well.93

The AMLA also provides exceptions to the Bank Secrecy Act. Under Section 11, the AMLC may inquire into a
bank account upon order of any competent court in cases of violation of the AMLA, it having been established
that there is probable cause that the deposits or investments are related to unlawful activities as defined in
Section 3(i) of the law, or a money laundering offense under Section 4 thereof. Further, in instances where
there is probable cause that the deposits or investments are related to kidnapping for ransom, 94 certain
violations of the Comprehensive Dangerous Drugs Act of 2002, 95 hijacking and other violations under R.A. No.
6235, destructive arson and murder, then there is no need for the AMLC to obtain a court order before it could
inquire into such accounts.
It cannot be successfully argued the proceedings relating to the bank inquiry order under Section 11 of the
AMLA is a "litigation" encompassed in one of the exceptions to the Bank Secrecy Act which is when "the money
deposited or invested is the subject matter of the litigation." The orientation of the bank inquiry order is simply
to serve as a provisional relief or remedy. As earlier stated, the application for such does not entail a full-blown
trial.
Nevertheless, just because the AMLA establishes additional exceptions to the Bank Secrecy Act it does not
mean that the later law has dispensed with the general principle established in the older law that "[a]ll deposits
of whatever nature with banks or banking institutions in the Philippines x x x are hereby considered as of an
absolutely confidential nature."96 Indeed, by force of statute, all bank deposits are absolutely confidential, and
that nature is unaltered even by the legislated exceptions referred to above. There is disfavor towards
construing these exceptions in such a manner that would authorize unlimited discretion on the part of the
government or of any party seeking to enforce those exceptions and inquire into bank deposits. If there are
doubts in upholding the absolutely confidential nature of bank deposits against affirming the authority to inquire
into such accounts, then such doubts must be resolved in favor of the former. Such a stance would persist
unless Congress passes a law reversing the general state policy of preserving the absolutely confidential
nature of Philippine bank accounts.
The presence of this statutory right to privacy addresses at least one of the arguments raised by petitioner, that
Lilia Cheng had no personality to assail the inquiry orders before the Court of Appeals because she was not the
subject of said orders. AMLC Resolution No. 75, which served as the basis in the successful application for the
Makati inquiry order, expressly adverts to Citibank Account No. 88576248 "owned by Cheng Yong and/or Lilia
G. Cheng with Citibank N.A.,"97 whereas Lilia Chengs petition before the Court of Appeals is accompanied by a
certification from Metrobank that Account Nos. 300852436-0 and 700149801-7, both of which are among the
subjects of the Manila inquiry order, are accounts in the name of "Yong Cheng or Lilia Cheng." 98 Petitioner does
not specifically deny that Lilia Cheng holds rights of ownership over the three said accounts, laying focus
instead on the fact that she was not named as a subject of either the Makati or Manila RTC inquiry orders. We
are reasonably convinced that Lilia Cheng has sufficiently demonstrated her joint ownership of the three
accounts, and such conclusion leads us to acknowledge that she has the standing to assail via certiorari the
inquiry orders authorizing the examination of her bank accounts as the orders interfere with her statutory right
to maintain the secrecy of said accounts.
While petitioner would premise that the inquiry into Lilia Chengs accounts finds root in Section 11 of the AMLA,
it cannot be denied that the authority to inquire under Section 11 is only exceptional in character, contrary as it
is to the general rule preserving the secrecy of bank deposits. Even though she may not have been the subject
of the inquiry orders, her bank accounts nevertheless were, and she thus has the standing to vindicate the right
to secrecy that attaches to said accounts and their owners. This statutory right to privacy will not prevent the
courts from authorizing the inquiry anyway upon the fulfillment of the requirements set forth under Section 11 of
the AMLA or Section 2 of the Bank Secrecy Act; at the same time, the owner of the accounts have the right to
challenge whether the requirements were indeed complied with.
VII.

There is a final point of concern which needs to be addressed. Lilia Cheng argues that the AMLA, being a
substantive penal statute, has no retroactive effect and the bank inquiry order could not apply to deposits or
investments opened prior to the effectivity of Rep. Act No. 9164, or on 17 October 2001. Thus, she concludes,
her subject bank accounts, opened between 1989 to 1990, could not be the subject of the bank inquiry order
lest there be a violation of the constitutional prohibition against ex post facto laws.
No ex post facto law may be enacted,99 and no law may be construed in such fashion as to permit a criminal
prosecution offensive to the ex post facto clause. As applied to the AMLA, it is plain that no person may be
prosecuted under the penal provisions of the AMLA for acts committed prior to the enactment of the law on 17
October 2001. As much was understood by the lawmakers since they deliberated upon the AMLA, and indeed
there is no serious dispute on that point.
Does the proscription against ex post facto laws apply to the interpretation of Section 11, a provision which
does not provide for a penal sanction but which merely authorizes the inspection of suspect accounts and
deposits? The answer is in the affirmative. In this jurisdiction, we have defined an ex post facto law as one
which either:
(1) makes criminal an act done before the passage of the law and which was innocent when done, and
punishes such an act;
(2) aggravates a crime, or makes it greater than it was, when committed;
(3) changes the punishment and inflicts a greater punishment than the law annexed to the crime when
committed;
(4) alters the legal rules of evidence, and authorizes conviction upon less or different testimony than
the law required at the time of the commission of the offense;
(5) assuming to regulate civil rights and remedies only, in effect imposes penalty or deprivation of a
right for something which when done was lawful; and
(6) deprives a person accused of a crime of some lawful protection to which he has become
entitled, such as the protection of a former conviction or acquittal, or a proclamation of
amnesty.(Emphasis supplied)100
Prior to the enactment of the AMLA, the fact that bank accounts or deposits were involved in activities later on
enumerated in Section 3 of the law did not, by itself, remove such accounts from the shelter of absolute
confidentiality. Prior to the AMLA, in order that bank accounts could be examined, there was need to secure
either the written permission of the depositor or a court order authorizing such examination, assuming that they
were involved in cases of bribery or dereliction of duty of public officials, or in a case where the money
deposited or invested was itself the subject matter of the litigation. The passage of the AMLA stripped another
layer off the rule on absolute confidentiality that provided a measure of lawful protection to the account holder.
For that reason, the application of the bank inquiry order as a means of inquiring into records of transactions
entered into prior to the passage of the AMLA would be constitutionally infirm, offensive as it is to the ex post
facto clause.
Still, we must note that the position submitted by Lilia Cheng is much broader than what we are willing to affirm.
She argues that the proscription against ex post facto laws goes as far as to prohibit any inquiry into deposits
or investments included in bank accounts opened prior to the effectivity of the AMLA even if the suspect
transactions were entered into when the law had already taken effect. The Court recognizes that if this
argument were to be affirmed, it would create a horrible loophole in the AMLA that would in turn supply the
means to fearlessly engage in money laundering in the Philippines; all that the criminal has to do is to make
sure that the money laundering activity is facilitated through a bank account opened prior to 2001. Lilia Cheng

admits that "actual money launderers could utilize the ex post facto provision of the Constitution as a shield"
but that the remedy lay with Congress to amend the law. We can hardly presume that Congress intended to
enact a self-defeating law in the first place, and the courts are inhibited from such a construction by the cardinal
rule that "a law should be interpreted with a view to upholding rather than destroying it." 101
Besides, nowhere in the legislative record cited by Lilia Cheng does it appear that there was an unequivocal
intent to exempt from the bank inquiry order all bank accounts opened prior to the passage of the AMLA. There
is a cited exchange between Representatives Ronaldo Zamora and Jaime Lopez where the latter confirmed to
the former that "deposits are supposed to be exempted from scrutiny or monitoring if they are already in place
as of the time the law is enacted."102 That statement does indicate that transactions already in place when the
AMLA was passed are indeed exempt from scrutiny through a bank inquiry order, but it cannot yield any
interpretation that records of transactions undertaken after the enactment of the AMLA are similarly exempt.
Due to the absence of cited authority from the legislative record that unqualifiedly supports respondent Lilia
Chengs thesis, there is no cause for us to sustain her interpretation of the AMLA, fatal as it is to the anima of
that law.
IX.
We are well aware that Lilia Chengs petition presently pending before the Court of Appeals likewise assails the
validity of the subject bank inquiry orders and precisely seeks the annulment of said orders. Our current
declarations may indeed have the effect of preempting that0 petition. Still, in order for this Court to rule on the
petition at bar which insists on the enforceability of the said bank inquiry orders, it is necessary for us to
consider and rule on the same question which after all is a pure question of law.
WHEREFORE, the PETITION is DISMISSED. No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 170281

January 18, 2008

REPUBLIC OF THE PHILIPPINES, represented by the ANTI-MONEY LAUNDERING COUNCIL, petitioner,

vs.
GLASGOW CREDIT AND COLLECTION SERVICES, INC. and CITYSTATE SAVINGS BANK,
INC., respondents.
DECISION
CORONA, J.:
This is a petition for review1 of the order2 dated October 27, 2005 of the Regional Trial Court (RTC) of Manila,
Branch 47, dismissing the complaint for forfeiture3 filed by the Republic of the Philippines, represented by the
Anti-Money Laundering Council (AMLC) against respondents Glasgow Credit and Collection Services, Inc.
(Glasgow) and Citystate Savings Bank, Inc. (CSBI).
On July 18, 2003, the Republic filed a complaint in the RTC Manila for civil forfeiture of assets (with urgent plea
for issuance of temporary restraining order [TRO] and/or writ of preliminary injunction) against the bank

deposits in account number CA-005-10-000121-5 maintained by Glasgow in CSBI. The case, filed pursuant to
RA 9160 (the Anti-Money Laundering Act of 2001), as amended, was docketed as Civil Case No. 03-107319.
Acting on the Republics urgent plea for the issuance of a TRO, the executive judge 4 of RTC Manila issued a
72-hour TRO dated July 21, 2003. The case was thereafter raffled to Branch 47 and the hearing on the
application for issuance of a writ of preliminary injunction was set on August 4, 2003.
After hearing, the trial court (through then Presiding Judge Marivic T. Balisi-Umali) issued an order granting the
issuance of a writ of preliminary injunction. The injunctive writ was issued on August 8, 2003.
Meanwhile, summons to Glasgow was returned "unserved" as it could no longer be found at its last known
address.
On October 8, 2003, the Republic filed a verified omnibus motion for (a) issuance of alias summons and (b)
leave of court to serve summons by publication. In an order dated October 15, 2003, the trial court directed the
issuance of alias summons. However, no mention was made of the motion for leave of court to serve summons
by publication.
In an order dated January 30, 2004, the trial court archived the case allegedly for failure of the Republic to
serve the alias summons. The Republic filed an ex parte omnibus motion to (a) reinstate the case and (b)
resolve its pending motion for leave of court to serve summons by publication.
In an order dated May 31, 2004, the trial court ordered the reinstatement of the case and directed the Republic
to serve the alias summons on Glasgow and CSBI within 15 days. However, it did not resolve the Republics
motion for leave of court to serve summons by publication declaring:
Until and unless a return is made on the alias summons, any action on [the Republics] motion for
leave of court to serve summons by publication would be untenable if not premature.
On July 12, 2004, the Republic (through the Office of the Solicitor General [OSG]) received a copy of the
sheriffs return dated June 30, 2004 stating that the alias summons was returned "unserved" as Glasgow was
no longer holding office at the given address since July 2002 and left no forwarding address.
Meanwhile, the Republics motion for leave of court to serve summons by publication remained unresolved.
Thus, on August 11, 2005, the Republic filed a manifestation and ex parte motion to resolve its motion for leave
of court to serve summons by publication.
On August 12, 2005, the OSG received a copy of Glasgows "Motion to Dismiss (By Way of Special
Appearance)" dated August 11, 2005. It alleged that (1) the court had no jurisdiction over its person as
summons had not yet been served on it; (2) the complaint was premature and stated no cause of action as
there was still no conviction for estafa or other criminal violations implicating Glasgow and (3) there was failure
to prosecute on the part of the Republic.
The Republic opposed Glasgows motion to dismiss. It contended that its suit was an action quasi in rem where
jurisdiction over the person of the defendant was not a prerequisite to confer jurisdiction on the court. It
asserted that prior conviction for unlawful activity was not a precondition to the filing of a civil forfeiture case
and that its complaint alleged ultimate facts sufficient to establish a cause of action. It denied that it failed to
prosecute the case.
On October 27, 2005, the trial court issued the assailed order. It dismissed the case on the following grounds:
(1) improper venue as it should have been filed in the RTC of Pasig where CSBI, the depository bank of the
account sought to be forfeited, was located; (2) insufficiency of the complaint in form and substance and (3)

failure to prosecute. It lifted the writ of preliminary injunction and directed CSBI to release to Glasgow or its
authorized representative the funds in CA-005-10-000121-5.
Raising questions of law, the Republic filed this petition.
On November 23, 2005, this Court issued a TRO restraining Glasgow and CSBI, their agents, representatives
and/or persons acting upon their orders from implementing the assailed October 27, 2005 order. It restrained
Glasgow from removing, dissipating or disposing of the funds in account no. CA-005-10-000121-5 and CSBI
from allowing any transaction on the said account.
The petition essentially presents the following issue: whether the complaint for civil forfeiture was correctly
dismissed on grounds of improper venue, insufficiency in form and substance and failure to prosecute.
The Court agrees with the Republic.
The Complaint Was Filed
In The Proper Venue
In its assailed order, the trial court cited the grounds raised by Glasgow in support of its motion to dismiss:
1. That this [c]ourt has no jurisdiction over the person of Glasgow considering that no [s]ummons has
been served upon it, and it has not entered its appearance voluntarily;
2. That the [c]omplaint for forfeiture is premature because of the absence of a prior finding by any
tribunal that Glasgow was engaged in unlawful activity: [i]n connection therewith[,] Glasgow argues
that the [c]omplaint states no cause of action; and
3. That there is failure to prosecute, in that, up to now, summons has yet to be served upon Glasgow. 5
But inasmuch as Glasgow never questioned the venue of the Republics complaint for civil forfeiture against it,
how could the trial court have dismissed the complaint for improper venue? In Dacoycoy v. Intermediate
Appellate Court6 (reiterated in Rudolf Lietz Holdings, Inc. v. Registry of Deeds of Paraaque City),7 this Court
ruled:
The motu proprio dismissal of petitioners complaint by [the] trial court on the ground of improper
venue is plain error. (emphasis supplied)
At any rate, the trial court was a proper venue.
On November 15, 2005, this Court issued A.M. No. 05-11-04-SC, the Rule of Procedure in Cases of Civil
Forfeiture, Asset Preservation, and Freezing of Monetary Instrument, Property, or Proceeds Representing,
Involving, or Relating to an Unlawful Activity or Money Laundering Offense under RA 9160, as amended (Rule
of Procedure in Cases of Civil Forfeiture). The order dismissing the Republics complaint for civil forfeiture of
Glasgows account in CSBI has not yet attained finality on account of the pendency of this appeal. Thus, the
Rule of Procedure in Cases of Civil Forfeiture applies to the Republics complaint. 8 Moreover, Glasgow itself
judicially admitted that the Rule of Procedure in Cases of Civil Forfeiture is "applicable to the instant case." 9
Section 3, Title II (Civil Forfeiture in the Regional Trial Court) of the Rule of Procedure in Cases of Civil
Forfeiture provides:
Sec. 3. Venue of cases cognizable by the regional trial court. A petition for civil forfeiture shall be
filed in any regional trial court of the judicial region where the monetary instrument, property or

proceeds representing, involving, or relating to an unlawful activity or to a money laundering

offense are located; provided, however, that where all or any portion of the monetary instrument,
property or proceeds is located outside the Philippines, the petition may be filed in the regional trial
court in Manila or of the judicial region where any portion of the monetary instrument, property, or
proceeds is located, at the option of the petitioner. (emphasis supplied)
Under Section 3, Title II of the Rule of Procedure in Cases of Civil Forfeiture, therefore, the venue of civil
forfeiture cases is any RTC of the judicial region where the monetary instrument, property or proceeds
representing, involving, or relating to an unlawful activity or to a money laundering offense are located. Pasig
City, where the account sought to be forfeited in this case is situated, is within the National Capital Judicial
Region (NCJR). Clearly, the complaint for civil forfeiture of the account may be filed in any RTC of the NCJR.
Since the RTC Manila is one of the RTCs of the NCJR,10 it was a proper venue of the Republics complaint for
civil forfeiture of Glasgows account.
The Complaint Was Sufficient In Form And Substance
In the assailed order, the trial court evaluated the Republics complaint to determine its sufficiency in form and
substance:
At the outset, this [c]ourt, before it proceeds, takes the opportunity to examine the [c]omplaint and
determine whether it is sufficient in form and substance.
Before this [c]ourt is a [c]omplaint for Civil Forfeiture of Assets filed by the [AMLC], represented by the
Office of the Solicitor General[,] against Glasgow and [CSBI] as necessary party. The [c]omplaint
principally alleges the following:
(a) Glasgow is a corporation existing under the laws of the Philippines, with principal office address at
Unit 703, 7th Floor, Citystate Center [Building], No. 709 Shaw Boulevard[,] Pasig City;
(b) [CSBI] is a corporation existing under the laws of the Philippines, with principal office at Citystate
Center Building, No. 709 Shaw Boulevard, Pasig City;
(c) Glasgow has funds in the amount of P21,301,430.28 deposited with [CSBI], under CA 005-10000121-5;
(d) As events have proved, aforestated bank account is related to the unlawful activities of Estafa and
violation of Securities Regulation Code;
(e) The deposit has been subject of Suspicious Transaction Reports;
(f) After appropriate investigation, the AMLC issued Resolutions No. 094 (dated July 10, 2002), 096
(dated July 12, 2002), 101 (dated July 23, 2002), and 108 (dated August 2, 2002), directing the
issuance of freeze orders against the bank accounts of Glasgow;
(g) Pursuant to said AMLC Resolutions, Freeze Orders Nos. 008-010, 011 and 013 were issued on
different dates, addressed to the concerned banks;
(h) The facts and circumstances plainly showing that defendant Glasgows bank account and deposit
are related to the unlawful activities of Estafa and violation of Securities Regulation Code, as well as to
a money laundering offense [which] [has] been summarized by the AMLC in its Resolution No. 094;
and

(i) Because defendant Glasgows bank account and deposits are related to the unlawful activities of
Estafa and violation of Securities Regulation Code, as well as [to] money laundering offense as
aforestated, and being the subject of covered transaction reports and eventual freeze orders, the same
should properly be forfeited in favor of the government in accordance with Section 12, R.A. 9160, as
amended.11
In a motion to dismiss for failure to state a cause of action, the focus is on the sufficiency, not the veracity, of
the material allegations.12 The determination is confined to the four corners of the complaint and nowhere
else.13
In a motion to dismiss a complaint based on lack of cause of action, the question submitted to the
court for determination is the sufficiency of the allegations made in the complaint to constitute a cause
of action and not whether those allegations of fact are true, for said motion must hypothetically admit
the truth of the facts alleged in the complaint.
The test of the sufficiency of the facts alleged in the complaint is whether or not, admitting the
facts alleged, the court could render a valid judgment upon the same in accordance with the
prayer of the complaint.14 (emphasis ours)
In this connection, Section 4, Title II of the Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 4. Contents of the petition for civil forfeiture. - The petition for civil forfeiture shall be verified and
contain the following allegations:
(a) The name and address of the respondent;
(b) A description with reasonable particularity of the monetary instrument, property, or
proceeds, and their location; and
(c) The acts or omissions prohibited by and the specific provisions of the Anti-Money
Laundering Act, as amended, which are alleged to be the grounds relied upon for the
forfeiture of the monetary instrument, property, or proceeds; and
[(d)] The reliefs prayed for.
Here, the verified complaint of the Republic contained the following allegations:
(a) the name and address of the primary defendant therein, Glasgow; 15
(b) a description of the proceeds of Glasgows unlawful activities with particularity, as well as the
location thereof, account no. CA-005-10-000121-5 in the amount of P21,301,430.28 maintained with
CSBI;
(c) the acts prohibited by and the specific provisions of RA 9160, as amended, constituting the grounds
for the forfeiture of the said proceeds. In particular, suspicious transaction reports showed that
Glasgow engaged in unlawful activities of estafa and violation of the Securities Regulation Code
(under Section 3(i)(9) and (13), RA 9160, as amended); the proceeds of the unlawful activities were
transacted and deposited with CSBI in account no. CA-005-10-000121-5 thereby making them appear
to have originated from legitimate sources; as such, Glasgow engaged in money laundering (under
Section 4, RA 9160, as amended); and the AMLC subjected the account to freeze order and

(d) the reliefs prayed for, namely, the issuance of a TRO or writ of preliminary injunction and the
forfeiture of the account in favor of the government as well as other reliefs just and equitable under the
premises.
The form and substance of the Republics complaint substantially conformed with Section 4, Title II of the Rule
of Procedure in Cases of Civil Forfeiture.
Moreover, Section 12(a) of RA 9160, as amended, provides:
SEC. 12. Forfeiture Provisions.
(a) Civil Forfeiture. When there is a covered transaction report made, and the court has, in a petition
filed for the purpose ordered seizure of any monetary instrument or property, in whole or in part,
directly or indirectly, related to said report, the Revised Rules of Court on civil forfeiture shall apply.
In relation thereto, Rule 12.2 of the Revised Implementing Rules and Regulations of RA 9160, as amended,
states:
RULE 12
Forfeiture Provisions
xxx xxx xxx
Rule 12.2. When Civil Forfeiture May be Applied. When there is a SUSPICIOUS TRANSACTION
REPORT OR A COVERED TRANSACTION REPORT DEEMED SUSPICIOUS AFTER
INVESTIGATION BY THE AMLC, and the court has, in a petition filed for the purpose, ordered the
seizure of any monetary instrument or property, in whole or in part, directly or indirectly, related to said
report, the Revised Rules of Court on civil forfeiture shall apply.
RA 9160, as amended, and its implementing rules and regulations lay down two conditions when applying for
civil forfeiture:
(1) when there is a suspicious transaction report or a covered transaction report deemed suspicious
after investigation by the AMLC and
(2) the court has, in a petition filed for the purpose, ordered the seizure of any monetary instrument or
property, in whole or in part, directly or indirectly, related to said report.
It is the preliminary seizure of the property in question which brings it within the reach of the judicial process. 16 It
is actually within the courts possession when it is submitted to the process of the court. 17 The injunctive writ
issued on August 8, 2003 removed account no. CA-005-10-000121-5 from the effective control of either
Glasgow or CSBI or their representatives or agents and subjected it to the process of the court.
Since account no. CA-005-10-000121-5 of Glasgow in CSBI was (1) covered by several suspicious transaction
reports and (2) placed under the control of the trial court upon the issuance of the writ of preliminary injunction,
the conditions provided in Section 12(a) of RA 9160, as amended, were satisfied. Hence, the Republic,
represented by the AMLC, properly instituted the complaint for civil forfeiture.
Whether or not there is truth in the allegation that account no. CA-005-10-000121-5 contains the proceeds of
unlawful activities is an evidentiary matter that may be proven during trial. The complaint, however, did not
even have to show or allege that Glasgow had been implicated in a conviction for, or the commission of, the
unlawful activities of estafa and violation of the Securities Regulation Code.

A criminal conviction for an unlawful activity is not a prerequisite for the institution of a civil forfeiture
proceeding. Stated otherwise, a finding of guilt for an unlawful activity is not an essential element of civil
forfeiture.
Section 6 of RA 9160, as amended, provides:
SEC. 6. Prosecution of Money Laundering.
(a) Any person may be charged with and convicted of both the offense of money laundering and the
unlawful activity as herein defined.
(b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of
any offense or violation under this Act without prejudice to the freezing and other remedies
provided. (emphasis supplied)
Rule 6.1 of the Revised Implementing Rules and Regulations of RA 9160, as amended, states:
Rule 6.1. Prosecution of Money Laundering
(a) Any person may be charged with and convicted of both the offense of money laundering and the
unlawful activity as defined under Rule 3(i) of the AMLA.
(b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of
any offense or violation under the AMLA without prejudice to the application ex-parte by the AMLC to
the Court of Appeals for a freeze order with respect to the monetary instrument or property involved
therein and resort to other remedies provided under the AMLA, the Rules of Court and other
pertinent laws and rules. (emphasis supplied)
Finally, Section 27 of the Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 27. No prior charge, pendency or conviction necessary. No prior criminal charge, pendency
of or conviction for an unlawful activity or money laundering offense is necessary for the
commencementor the resolution of a petition for civil forfeiture. (emphasis supplied)
Thus, regardless of the absence, pendency or outcome of a criminal prosecution for the unlawful activity or for
money laundering, an action for civil forfeiture may be separately and independently prosecuted and resolved.
There Was No Failure
To Prosecute
The trial court faulted the Republic for its alleged failure to prosecute the case. Nothing could be more
erroneous.
Immediately after the complaint was filed, the trial court ordered its deputy sheriff/process server to serve
summons and notice of the hearing on the application for issuance of TRO and/or writ of preliminary injunction.
The subpoena to Glasgow was, however, returned unserved as Glasgow "could no longer be found at its given
address" and had moved out of the building since August 1, 2002.
Meanwhile, after due hearing, the trial court issued a writ of preliminary injunction enjoining Glasgow from
removing, dissipating or disposing of the subject bank deposits and CSBI from allowing any transaction on,
withdrawal, transfer, removal, dissipation or disposition thereof.

As the summons on Glasgow was returned "unserved," and considering that its whereabouts could not be
ascertained despite diligent inquiry, the Republic filed a verified omnibus motion for (a) issuance
of aliassummons and (b) leave of court to serve summons by publication on October 8, 2003. While the trial
court issued an alias summons in its order dated October 15, 2003, it kept quiet on the prayer for leave of court
to serve summons by publication.
Subsequently, in an order dated January 30, 2004, the trial court archived the case for failure of the Republic to
cause the service of alias summons. The Republic filed an ex parte omnibus motion to (a) reinstate the case
and (b) resolve its pending motion for leave of court to serve summons by publication.
In an order dated May 31, 2004, the trial court ordered the reinstatement of the case and directed the Republic
to cause the service of the alias summons on Glasgow and CSBI within 15 days. However, it deferred its action
on the Republics motion for leave of court to serve summons by publication until a return was made on
the aliassummons.
Meanwhile, the Republic continued to exert efforts to obtain information from other government agencies on the
whereabouts or current status of respondent Glasgow if only to save on expenses of publication of summons.
Its efforts, however, proved futile. The records on file with the Securities and Exchange Commission provided
no information. Other inquiries yielded negative results.
On July 12, 2004, the Republic received a copy of the sheriffs return dated June 30, 2004 stating that
the aliassummons had been returned "unserved" as Glasgow was no longer holding office at the given address
since July 2002 and left no forwarding address. Still, no action was taken by the trial court on the Republics
motion for leave of court to serve summons by publication. Thus, on August 11, 2005, the Republic filed a
manifestation and ex parte motion to resolve its motion for leave of court to serve summons by publication.
It was at that point that Glasgow filed a motion to dismiss by way of special appearance which the Republic
vigorously opposed. Strangely, to say the least, the trial court issued the assailed order granting Glasgows
motion.
Given these circumstances, how could the Republic be faulted for failure to prosecute the complaint for civil
forfeiture? While there was admittedly a delay in the proceeding, it could not be entirely or primarily ascribed to
the Republic. That Glasgows whereabouts could not be ascertained was not only beyond the Republics
control, it was also attributable to Glasgow which left its principal office address without informing the Securities
and Exchange Commission or any official regulatory body (like the Bureau of Internal Revenue or the
Department of Trade and Industry) of its new address. Moreover, as early as October 8, 2003, the Republic
was already seeking leave of court to serve summons by publication.
In Marahay v. Melicor,18 this Court ruled:
While a court can dismiss a case on the ground of non prosequitur, the real test for the exercise of
such power is whether, under the circumstances, plaintiff is chargeable with want of due diligence in
failing to proceed with reasonable promptitude. In the absence of a pattern or scheme to delay the
disposition of the case or a wanton failure to observe the mandatory requirement of the rules
on the part of the plaintiff, as in the case at bar, courts should decide to dispense with rather
than wield their authority to dismiss. (emphasis supplied)
We see no pattern or scheme on the part of the Republic to delay the disposition of the case or a wanton failure
to observe the mandatory requirement of the rules. The trial court should not have so eagerly wielded its power
to dismiss the Republics complaint.
Service Of Summons
May Be By Publication

In Republic v. Sandiganbayan,19 this Court declared that the rule is settled that forfeiture proceedings are
actionsin rem. While that case involved forfeiture proceedings under RA 1379, the same principle applies in
cases for civil forfeiture under RA 9160, as amended, since both cases do not terminate in the imposition of a
penalty but merely in the forfeiture of the properties either acquired illegally or related to unlawful activities in
favor of the State.
As an action in rem, it is a proceeding against the thing itself instead of against the person. 20 In actions in
rem orquasi in rem, jurisdiction over the person of the defendant is not a prerequisite to conferring jurisdiction
on the court, provided that the court acquires jurisdiction over the res.21 Nonetheless, summons must be served
upon the defendant in order to satisfy the requirements of due process. 22 For this purpose, service may be
made by publication as such mode of service is allowed in actions in rem and quasi in rem.23
In this connection, Section 8, Title II of the Rule of Procedure in Cases of Civil Forfeiture provides:
Sec. 8. Notice and manner of service. - (a) The respondent shall be given notice of the petition in the same
manner as service of summons under Rule 14 of the Rules of Court and the following rules:
1. The notice shall be served on respondent personally, or by any other means prescribed in Rule 14
of the Rules of Court;
2. The notice shall contain: (i) the title of the case; (ii) the docket number; (iii) the cause of action; and
(iv) the relief prayed for; and
3. The notice shall likewise contain a proviso that, if no comment or opposition is filed within the
reglementary period, the court shall hear the case ex parte and render such judgment as may be
warranted by the facts alleged in the petition and its supporting evidence.
(b) Where the respondent is designated as an unknown owner or whenever his
whereabouts are unknown and cannot be ascertained by diligent inquiry, service may,
by leave of court, be effected upon him by publication of the notice of the petition in a
newspaper of general circulation in such places and for such time as the court may
order. In the event that the cost of publication exceeds the value or amount of the property to
be forfeited by ten percent, publication shall not be required. (emphasis supplied)
WHEREFORE, the petition is hereby GRANTED. The October 27, 2005 order of the Regional Trial Court of
Manila, Branch 47, in Civil Case No. 03-107319 is SET ASIDE. The August 11, 2005 motion to dismiss of
Glasgow Credit and Collection Services, Inc. is DENIED. And the complaint for forfeiture of the Republic of the
Philippines, represented by the Anti-Money Laundering Council, is REINSTATED.
The case is hereby REMANDED to the Regional Trial Court of Manila, Branch 47 which shall forthwith proceed
with the case pursuant to the provisions of A.M. No. 05-11-04-SC. Pending final determination of the case, the
November 23, 2005 temporary restraining order issued by this Court is hereby MAINTAINED.
SO ORDERED.

Foreign Investment Act

SECOND DIVISION
[G.R. No. 113074. January 22, 1997]

ALFRED
HAHN, petitioner,
vs. COURT
OF
APPEALS
and
BAYERISCHE MOTOREN WERKE AKTIENGESELLSCHAFT
(BMW), respondents.
DECISION
MENDOZA, J.:

This is a petition for review of the decision of the Court of Appeals

dismissing a complaint for specific performance which petitioner had filed
against private respondent on the ground that the Regional Trial Court of
Quezon City did not acquire jurisdiction over private respondent, a
nonresident foreign corporation, and of the appellate court's order denying
petitioner's motion for reconsideration.
[1]

The following are the facts:

Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style
"Hahn-Manila." On the other hand, private respondent Bayerische Motoren Werke
Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the
laws of the former Federal Republic of Germany, with principal office at Munich,
Germany.
On March 7, 1967, petitioner executed in favor of private respondent a
"Deed of Assignment with Special Power of Attorney," which reads in full as
follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark
and device in the Philippines which ASSIGNOR uses and has been using on the
products manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized
exclusive Dealer of the ASSIGNEE in the Philippines, the same being evidenced by
certificate of registration issued by the Director of Patents on 12 December 1963 and
is referred to as Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said
transfer of the said BMW trademark and device in favor of the ASSIGNEE herein
with the Philippines Patent Office;

NOW THEREFORE, in view of the foregoing and in consideration of the stipulations

hereunder stated, the ASSIGNOR hereby affirms the said assignment and transfer in
favor of the ASSIGNEE under the following terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user other than
ASSIGNOR or infringer of the BMW trademark in the Philippines, for such purpose,
the ASSIGNOR shall inform the ASSIGNEE immediately of any such use or
infringement of the said trademark which comes to his knowledge and upon such
information the ASSIGNOR shall automatically act as Attorney-In-Fact of the
ASSIGNEE for such case, with full power, authority and responsibility to prosecute
unilaterally or in concert with ASSIGNEE, any such infringer of the subject mark and
for purposes hereof the ASSIGNOR is hereby named and constituted as ASSIGNEE's
Attorney-In-Fact, but any such suit without ASSIGNEE's consent will exclusively be
the responsibility and for the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has
been usual in the past without a formal contract, and for that purpose, the dealership
of ASSIGNOR shall cover the ASSIGNEE's complete production program with the
only limitation that, for the present, in view of ASSIGNEE's limited production, the
latter shall not be able to supply automobiles to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has been
usual in the past without a formal contract." But on February 16, 1993, in a
meeting with a BMW representative and the president of Columbia Motors
Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was
arranging to grant the exclusive dealership of BMW cars and products to
CMC, which had expressed interest in acquiring the same. On February 24,
1993, petitioner received confirmation of the information from BMW which, in
a letter, expressed dissatisfaction with various aspects of petitioner's
business, mentioning among other things, decline in sales, deteriorating
services, and inadequate showroom and warehouse facilities, and petitioner's
alleged failure to comply with the standards for an exclusive BMW dealer.
Nonetheless, BMW expressed willingness to continue business relations
with the petitioner on the basis of a "standard BMW importer" contract,
otherwise, it said, if this was not acceptable to petitioner, BMW would have no
alternative but to terminate petitioner's exclusive dealership effective June 30,
1993.
[2]

Petitioner protested, claiming that the termination of his exclusive

dealership would be a breach of the Deed of Assignment. Hahn insisted that
as long as the assignment of its trademark and device subsisted, he remained
BMW's exclusive dealer in the Philippines because the assignment was made
in consideration of the exclusive dealership. In the same letter petitioner
explained that the decline in sales was due to lower prices offered for BMW
cars in the United States and the fact that few customers returned for repairs
and servicing because of the durability of BMW parts and the efficiency of
petitioner's service.
[3]

Because of Hahn's insistence on the former business relation, BMW

withdrew on March 26, 1993 its offer of a "standard importer contract" and
terminated the exclusive dealer relationship effective June 30, 1993. At a
conference of BMW Regional Importers held on April 26, 1993 in Singapore,
Hahn was surprised to find Alvarez among those invited from the Asian region.
On April 29, 1993, BMW proposed that Hahn and CMC jointly import and
distribute BMW cars and parts.
[4]

Hahn found the proposal unacceptable. On May 14, 1993, he filed a

complaint for specific performance and damages against BMW to compel it to
continue the exclusive dealership. Later he filed an amended complaint to
include an application for temporary restraining order and for writs of
preliminary, mandatory and prohibitory injunction to enjoin BMW from
terminating his exclusive dealership. Hahn's amended complaint alleged in
pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the Philippines with
principal offices at Munich, Germany. It may be served with summons and other court
processes through the Secretary of the Department of Trade and Industry of the
Philippines. . . .
....
5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of
Assignment with Special Power of Attorney covering the trademark and in
consideration thereof, under its first whereas clause, Plaintiff was duly acknowledged
as the "exclusive Dealer of the Assignee in the Philippines" . . . .
....

8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in
the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA"
and without any monetary contribution from defendant BMW, established BMW's
goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff has
invested a lot of money and resources in order to single-handedly compete against
other motorcycle and car companies .... Moreover, Plaintiff has built buildings and
other infrastructures such as service centers and showrooms to maintain and promote
the car and products of defendant BMW.
....
10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was
willing to maintain with Plaintiff a relationship but only "on the basis of a standard
BMW importer contract as adjusted to reflect the particular situation in the
Philippines" subject to certain conditions, otherwise, defendant BMW would
terminate Plaintiff's exclusive dealership and any relationship for cause effective June
30, 1993. . . .
....
15. The actuations of defendant BMW are in breach of the assignment agreement
between itself and plaintiff since the consideration for the assignment of the BMW
trademark is the continuance of the exclusive dealership agreement. It thus, follows
that the exclusive dealership should continue for so long as defendant BMW enjoys
the use and ownership of the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to
Branch 104 of the Quezon City Regional Trial Court, which on June 14, 1993
issued a temporary restraining order. Summons and copies of the complaint
and amended complaint were thereafter served on the private respondent
through the Department of Trade and Industry, pursuant to Rule 14, 14 of the
Rules of Court. The order, summons and copies of the complaint and
amended complaint were later sent by the DTI to BMW via registered mail on
June 15, 1993 and received by the latter on June 24, 1993.
[5]

On June 17, 1993, without proof of service on BMW, the hearing on the
application for the writ of preliminary injunction proceeded ex parte, with
petitioner Hahn testifying. On June 30, 1993, the trial court issued an order
granting the writ of preliminary injunction upon the filing of a bond

of P100,000.00. On July 13, 1993, following the posting of the required bond,
a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial
court did not acquire jurisdiction over it through the service of summons on the
Department of Trade and Industry, because it (BMW) was a foreign
corporation and it was not doing business in the Philippines. It contended that
the execution of the Deed of Assignment was an isolated transaction; that
Hahn was not its agent because the latter undertook to assemble and sell
BMW cars and products without the participation of BMW and sold other
products; and that Hahn was an indentor or middleman transacting business
in his own name and for his own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was
doing business in the Philippines through him as its agent, as shown by the
fact that BMW invoices and order forms were used to document his
transactions; that he gave warranties as exclusive BMW dealer; that BMW
officials periodically inspected standards of service rendered by him; and that
he was described in service booklets and international publications of BMW
as a "BMW Importer" or "BMW Trading Company" in the Philippines.
The trial court deferred resolution of the Motion to dismiss until after trial
on the merits for the reason that the grounds advanced by BMW in its motion
did not seem to be indubitable.
[6]

Without seeking reconsideration of the aforementioned order, BMW filed a

petition for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR
OTHERWISE INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD
THE ISSUANCE OF THE WRIT OF PRELIMINARY INJUNCTION, AND
IN PRESCRIBING THE TERMS FOR THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING
RESOLUTION OF THE MOTION TO DISMISS ON THE GROUND OF
LACK OF JURISDICTION, AND THEREBY FAILING TO IMMEDIATELY
DISMISS THE CASE A QUO.

BMW asked for the immediate issuance of a temporary restraining order and,
after hearing, for a writ of preliminary injunction, to enjoin the trial court from
proceeding further in Civil Case No. Q-93-15933. Private respondent pointed
out that, unless the trial court's order was set aside, it would be forced to
submit to the jurisdiction of the court by filing its answer or to accept judgment
in default, when the very question was whether the court had jurisdiction over
it.
The Court of Appeals enjoined the trial court from hearing petitioner's
complaint. On December 20, 1993, it rendered judgment finding the trial court
guilty of grave abuse of discretion in deferring resolution of the motion to
dismiss. It stated:
Going by the pleadings already filed with the respondent court before it came out with
its questioned order of July 26, 1993, we rule and so hold that petitioner's (BMW)
motion to dismiss could be resolved then and there, and that the respondent judge's
deferment of his action thereon until after trial on the merit constitutes, to our mind,
grave abuse of discretion.
....
. . . [T]here is not much appreciable disagreement as regards the factual matters
relating, to the motion to dismiss. What truly divide (sic) the parties and to which they
greatly differ is the legal conclusions they respectively draw from such facts, (sic)
with Hahn maintaining that on the basis thereof, BMW is doing business in the
Philippines while the latter asserts that it is not.
Then, after stating that any ruling which the trial court might make on the
motion to dismiss would anyway be elevated to it on appeal, the Court of
Appeals itself resolved the motion. It ruled that BMW was not doing business
in the country and, therefore, jurisdiction over it could not be acquired through
service of summons on the DTI pursuant to Rule 14, Section 14. The court
upheld private respondent's contention that Hahn acted in his own name and
for his own account and independently of BMW, based on Alfred Hahn's
allegations that he had invested his own money and resources in establishing
BMW's goodwill in the Philippines and on BMW's claim that Hahn sold
products other than those of BMW. It held that petitioner was a mere indentor
or broker and not an agent through whom private respondent BMW transacted

business in the Philippines. Consequently, the Court of Appeals dismissed

petitioner's complaint against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1)
in finding that the trial court gravely abused its discretion in deferring action on
the motion to dismiss and (2) in finding that private respondent BMW is not
doing business in the Philippines and, for this reason, dismissing petitioner's
case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon foreign corporations. If the defendant is a foreign corporation, or a
nonresident joint stock company or association, doing business in the Philippines,
service may be made on its resident agent designated in accordance with law for that
purpose, or, if there be no such agent, on the government official designated by law to
that effect, or on any of its officers or agents within the Philippines. (Emphasis added)
What acts are considered "doing business in the Philippines" are
enumerated in 3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042) as
follows:
[7]

d) the phrase "doing business" shall include soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches, appointing
representatives or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totalling one hundred
eighty (180) days or more; participating in the management, supervision or
control of any domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of commercial
dealings or arrangements and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally incident to,
and in progressive prosecution of, commercial gain or of the purpose and
object of the business organization: Provided, however, That the phrase "doing
business" shall not be deemed to include mere investment as a shareholder by a
foreign entity in domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having, a nominee director or officer to
represent its interests in such corporation; nor appointing a representative or
distributor domiciled in the Philippines which transacts business in its own
name and for its own account. (Emphasis supplied)

Thus, the phrase includes "appointing representatives or distributors in the

Philippines" but not when the representative or distributor "transacts business
in its name and for its own account." In addition, Section 1(f)(1) of the Rules
and Regulations implementing (IRR) the Omnibus Investment Code of 1987
(E.O. No. 226) provided:
(f) "Doing business" shall be any act or combination of acts, enumerated in Article 44
of the Code. In particular, "doing business" includes:
(1).... A foreign firm which does business through middlemen acting in their own
names, such as indentors, commercial brokers or commission merchants, shall not be
deemed doing business in the Philippines. But such indentors, commercial brokers or
commission merchants shall be the ones deemed to be doing business in the
Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor in
the Philippines of private respondent BMW. If he is, BMW may be considered
doing business in the Philippines and the trial court acquired jurisdiction over it
(BMW) by virtue of the service of summons on the Department of Trade and
Industry. Otherwise, if Hahn is not the agent of BMW but an independent
dealer, albeit of BMW cars and products, BMW, a foreign corporation, is not
considered doing business in the Philippines within the meaning of the
Foreign Investments Act of 1991 and the IRR, and the trial court did not
acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own
name and for his own account and not as agent or distributor in the
Philippines of BMW on the ground that "he alone had contacts with individuals
or entities interested in acquiring BMW vehicles. Independence characterizes
Hahn's undertakings, for which reason he is to be considered, under
governing statutes, as doing business." (p. 13) In support of this conclusion,
the appellate court cited the following allegations in Hahn's amended
complaint:
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in
the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA"
and without any monetary contributions from defendant BMW; established BMW's
goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff invested a
lot of money and resources in order to single-handedly compete against other

motorcycle and car companies.... Moreover, Plaintiff has built buildings and other
infrastructures such as service centers and showrooms to maintain and promote the car
and products of defendant BMW.
As the above quoted allegations of the amended complaint show,
however, there is nothing to support the appellate court's finding that Hahn
solicited orders alone and for his own account and without "interference from,
let alone direction of, BMW." (p. 13) To the contrary, Hahn claimed he took
orders for BMW cars and transmitted them to BMW. Upon receipt of the
orders, BMW fixed the down payment and pricing charges, notified Hahn of
the scheduled production month for the orders, and reconfirmed the orders by
signing and returning to Hahn the acceptance sheets. Payment was made by
the buyer directly to BMW. Title to cars purchased passed directly to the buyer
and Hahn never paid for the purchase price of BMW cars sold in the
Philippines. Hahn was credited with a commission equal to 14% of the
purchase price upon the invoicing of a vehicle order by BMW. Upon
confirmation in writing that the vehicles had been registered in the Philippines
and serviced by him, Hahn received an additional 3% of the full purchase
price. Hahn performed after-sale services, including, warranty services, for
which he received reimbursement from BMW. All orders were on invoices and
forms of BMW.
[8]

These allegations were substantially admitted by BMW which, in its

petition for certiorari before the Court of Appeals, stated:
[9]

9.4. As soon as the vehicles are fully manufactured and full payment of the purchase
prices are made, the vehicles are shipped to the Philippines. (The payments may be
made by the purchasers or third-persons or even by Hahn.) The bills of lading are
made up in the name of the purchasers, but Hahn-Manila is therein indicated as the
person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of
conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the
purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a
commission of fourteen percent (14%) of the full purchase price thereof, and as soon
as he confirms in writing, that the vehicles have been registered in the Philippines and

have been serviced by him, he will receive an additional three percent (3%) of the full
purchase prices as commission.
Contrary to the appellate court's conclusion, this arrangement shows an
agency. An agent receives a commission upon the successful conclusion of a
sale. On the other hand, a broker earns his pay merely by bringing the buyer
and the seller together, even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at
his own expense, Hahn said that he had to follow BMW specifications as
exclusive dealer of BMW in the Philippines. According to Hahn, BMW
periodically inspected the service centers to see to it that BMW standards
were maintained. Indeed, it would seem from BMW's letter to Hahn that it was
for Hahn's alleged failure to maintain BMW standards that BMW was
terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service
centers and showrooms does not necessarily prove that he is not an agent of
BMW. For as already noted, there are facts in the record which suggest that
BMW exercised control over Hahn's activities as a dealer and made regular
inspections of Hahn's premises to enforce compliance with BMW standards
and specifications. For example, in its letter to Hahn dated February 23,
1996, BMW stated:
[10]

In the last years we have pointed out to you in several discussions and letters that
we have to tackle the Philippine market more professionally and that we are
through your present activities not adequately prepared to cope with the
forthcoming challenges.
[11]

In effect, BMW was holding Hahn accountable to it under the 1967

Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of
Appeals, in which the foreign corporation entered into a "Representative
Agreement" and a "Licensing Agreement" with a domestic corporation, by
virtue of which the latter was appointed "exclusive representative" in the
Philippines for a stipulated commission. Pursuant to these contracts, the
domestic corporation sold products exported by the foreign corporation and
put up a service center for the products sold locally. This Court held that these
[12]

acts constituted doing business in the Philippines. The arrangement showed

that the foreign corporation's purpose was to penetrate the Philippine market
and establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive
distributor in the Philippines, even as it announced in the Asian region that
Hahn was the "official BMW agent" in the Philippines.
[13]

The Court of Appeals also found that petitioner Alfred Hahn dealt in other
products, and not exclusively in BMW products, and, on this basis, ruled that
Hahn was not an agent of BMW. (p. 14) This finding is based entirely on
allegations of BMW in its motion to dismiss filed in the trial court and in its
petition for certiorari before the Court of Appeals. But this allegation was
denied by Hahn and therefore the Court of Appeals should not have cited it
as if it were the fact.
[14]

[15]

Indeed this is not the only factual issue raised, which should have
indicated to the Court of Appeals the necessity of affirming the trial court's
order deferring resolution of BMW's motion to dismiss. Petitioner alleged that
whether or not he is considered an agent of BMW, the fact is that BMW did
business in the Philippines because it sold cars directly to Philippine buyers.
This was denied by BMW, which claimed that Hahn was not its agent and
that, while it was true that it had sold cars to Philippine buyers, this was done
without solicitation on its part.
[16]

[17]

It is not true then that the question whether BMW is doing business could
have been resolved simply by considering the parties' pleadings. There are
genuine issues of facts which can only be determined on the basis of
evidence duly presented. BMW cannot short circuit the process on the plea
that to compel it to go to trial would be to deny its right not to submit to the
jurisdiction of the trial court which precisely it denies. Rule 16, 3 authorizes
courts to defer the resolution of a motion to dismiss until after the trial if the
ground on which the motion is based does not appear to be indubitable. Here
the record of the case bristles with factual issues and it is not at all clear
whether some allegations correspond to the proof.
Anyway, private respondent need not apprehend that by responding to the
summons it would be waiving its objection to the trial court's jurisdiction. It is
now settled that. for purposes of having summons served on a foreign

corporation in accordance with Rule 14, 14, it is sufficient that it be alleged in

the complaint that the foreign corporation is doing business in the Philippines.
The court need not go beyond the allegations of the complaint in order to
determine whether it has jurisdiction. A determination that the foreign
corporation is doing business is only tentative and is made only for the
purpose of enabling the local court to acquire jurisdiction over the foreign
corporation through service of summons pursuant to Rule 14, 14. Such
determination does not foreclose a contrary finding should evidence later
show that it is not transacting business in the country. As this Court has
explained:
[18]

This is not to say, however, that the petitioner's right to question the jurisdiction of the
court over its person is now to be deemed a foreclosed matter. If it is true, as Signetics
claims, that its only involvement in the Philippines was through a passive investment
in Sigfil, which it even later disposed of, and that TEAM Pacific is not its agent, then
it cannot really be said to be doing business in the Philippines. It is a defense,
however, that requires the contravention of the allegations of the complaint, as well as
a full ventilation, in effect, of the main merits of the case, which should not thus be
within the province of a mere motion to dismiss. So, also, the issue posed by the
petitioner as to whether a foreign corporation which has done business in the country,
but which has ceased to do business at the time of the filing, of a complaint, can still
be made to answer for a cause of action which accrued while it was doing, business, is
another matter that would yet have to await the reception and admission of evidence.
Since these points have seasonably been raised by the petitioner, there should be no
real cause for what may understandably be its apprehension, i.e., that by its
participation during the trial on the merits, it may, absent an invocation of separate or
independent reliefs of its own, be considered to have voluntarily submitted itself to the
court's jurisdiction.
[19]

Far from committing an abuse of discretion, the trial court properly

deferred resolution of the motion to dismiss and thus avoided prematurely
deciding a question which requires a factual basis, with the same result if it
had denied the motion and conditionally assumed jurisdiction. It is the Court of
Appeals which, by ruling that BMW is not doing business on the basis merely
of uncertain allegations in the pleadings, disposed of the whole case with
finality and thereby deprived petitioner of his right to be heard on his cause of
action. Nor was there justification for nullifying the writ of preliminary injunction
issued by the trial court. Although the injunction was issued ex parte, the fact

is that BMW was subsequently heard on its defense by filing a motion to

dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and
the case is REMANDED to the trial court for further proceedings.
SO ORDERED.

SECOND DIVISION
CARGILL, INC.,
Petitioner,

G.R. No. 168266

Present:

- versus -

CARPIO, J., Chairperson,

BRION,
ABAD,
VILLARAMA, JR.,* and
PEREZ, JJ.

INTRA STRATA ASSURANCE

CORPORATION,
Respondent.

Promulgated:

March 15, 2010

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

DECISION
CARPIO, J.:
The Case
This petition for review[1] assails the 26 May 2005 Decision[2] of the Court of
Appeals in CA-G.R. CV No. 48447.
The Facts

Petitioner Cargill, Inc. (petitioner) is a corporation organized and existing under

the laws of the State of Delaware, United States of America. Petitioner and
Northern Mindanao Corporation (NMC) executed a contract dated 16 August 1989
whereby NMC agreed to sell to petitioner 20,000 to 24,000 metric tons of
molasses, to be delivered from 1 Januaryto 30 June 1990 at the price of $44 per
metric ton. The contract provides that petitioner would open a Letter of Credit with
the Bank of Philippine Islands. Under the red clause of the Letter of Credit, NMC
was permitted to draw up to $500,000 representing the minimum price of the
contract upon presentation of some documents.
The contract was amended three times: first, on 11 January 1990, increasing the
purchase price of the molasses to $47.50 per metric ton;[3] second, on 18 June 1990,
reducing the quantity of the molasses to 10,500 metric tons and increasing the
price to $55 per metric ton;[4] and third, on 22 August 1990, providing for the
shipment of 5,250 metric tons of molasses on the last half of December 1990
through the first half of January 1991, and the balance of 5,250 metric tons on the
last half of January 1991 through the first half of February 1991. [5] The third
amendment also required NMC to put up a performance bond equivalent to
$451,500, which represents the value of 10,500 metric tons of molasses computed
at $43 per metric ton. The performance bond was intended to
guarantee NMCs performance to deliver the molasses during the prescribed
shipment periods according to the terms of the amended contract.
In compliance with the terms of the third amendment of the contract, respondent
Intra Strata Assurance Corporation (respondent) issued on 10 October 1990 a
performance bond[6] in the sum of P11,287,500 to guarantee NMCs delivery of the
10,500 tons of molasses, and a surety bond[7] in the sum of P9,978,125 to guarantee
the repayment ofdownpayment as provided in the contract.
NMC was only able to deliver 219.551 metric tons of molasses out of the agreed
10,500 metric tons. Thus, petitioner sent demand letters to respondent claiming
payment under the performance and surety bonds. When respondent refused to pay,
petitioner filed on 12 April 1991 a complaint[8] for sum of money against NMC and
respondent.
Petitioner, NMC, and respondent entered into a compromise agreement, [9] which
the trial court approved in its Decision[10] dated 13 December 1991. The
compromise agreement provides that NMC would pay petitioner P3,000,000 upon
signing of the compromise agreement and would deliver to petitioner 6,991 metric
tons of molasses from 16-31 December 1991. However, NMC still failed to

comply with its obligation under the compromise agreement. Hence, trial
proceeded against respondent.
On 23 November 1994, the trial court rendered a decision, the dispositive portion
of which reads:
WHEREFORE, judgment is rendered in favor of plaintiff [Cargill, Inc.],
ordering defendant INTRA STRATA ASSURANCE CORPORATION
to solidarily pay plaintiff the total amount of SIXTEEN MILLION
NINE HUNDRED NINETY-THREE THOUSAND AND TWO
HUNDRED PESOS (P16,993,200.00), Philippine Currency, with
interest at the legal rate from October 10, 1990 until fully paid, plus
attorneys fees in the sum of TWO HUNDRED THOUSAND PESOS
(P200,000.00), Philippine Currency and the costs of the suit.

The Counterclaim of Intra Strata Assurance Corporation is hereby dismissed for lack
of merit.
SO ORDERED.[11]

On appeal, the Court of Appeals reversed the trial courts decision and dismissed
the complaint. Hence, this petition.
The Court of Appeals Ruling
The Court of Appeals held that petitioner does not have the capacity to file this suit
since it is a foreign corporation doing business in the Philippines without the
requisite license. The Court of Appeals held that petitioners purchases of molasses
were in pursuance of its basic business and not just mere isolated and incidental
transactions.
The Issues
Petitioner raises the following issues:
1. Whether petitioner is doing or transacting business in the
Philippines in contemplation of the law and established
jurisprudence;

2. Whether respondent is estopped from invoking the defense that

petitioner has no legal capacity to sue in the Philippines;
3. Whether petitioner is seeking a review of the findings of fact of the
Court of Appeals; and

4. Whether the advance payment of $500,000 was released to NMC

without the submission of the supporting documents required
in the contract and the red clause Letter of Credit from which
said amount was drawn.[12]
The Ruling of the Court
We find the petition meritorious.
Doing Business in the Philippines and Capacity to Sue
The principal issue in this case is whether petitioner, an unlicensed foreign
corporation, has legal capacity to sue before Philippine courts. Under Article
123[13] of the Corporation Code, a foreign corporation must first obtain a license
and a certificate from the appropriate government agency before it can transact
business in the Philippines. Where a foreign corporation does business in
the Philippines without the proper license, it cannot maintain any action or
proceeding before Philippine courts as provided underSection 133 of the
Corporation Code:
Sec. 133. Doing business without a license. No foreign corporation
transacting business in the Philippines without a license, or its successors
or assigns, shall be permitted to maintain or intervene in any action, suit
or proceeding in any court or administrative agency of the Philippines;
but such corporation may be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause of action recognized
under Philippine laws.

Thus, the threshold question in this case is whether petitioner was doing business
in the Philippines. The Corporation Code provides no definition for the phrase

doing business. Nevertheless, Section 1 of Republic Act No. 5455 (RA 5455),
[14]
provides that:
x x x the phrase doing business shall include soliciting orders, purchases,
service contracts, opening offices, whether called liaison offices or
branches; appointing representatives or distributors who are domiciled in
the Philippines or who in any calendar year stay in the Philippines for a
period or periods totalling one hundred eighty days or more;
participating in the management, supervision or control of any domestic
business firm, entity or corporation in the Philippines; and any other act
or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization. (Emphasis
supplied)

This is also the exact definition provided under Article 44 of the Omnibus
Investments Code of 1987.
Republic Act No. 7042 (RA 7042), otherwise known as the Foreign Investments
Act of 1991, which repealed Articles 44-56 of Book II of the Omnibus Investments
Code of 1987, enumerated not only the acts or activities which constitute doing
business but also those activities which are not deemed doing business. Section
3(d) of RA 7042 states:
[T]he phrase doing business shall include soliciting orders, service
contracts, opening offices, whether called liaison offices or branches;
appointing representatives or distributors domiciled in the Philippines or
who in any calendar year stay in the country for a period or
periods totalling one hundred eighty (180) days or more; participating in
the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines; and any other act or acts that
imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object
of the business organization: Provided, however, That the phrase doing
business shall not be deemed to include mere investment as a
shareholder by a foreign entity in domestic corporations duly registered
to do business, and/or the exercise of rights as such investor; nor having

a nominee director or officer to represent its interests in such

corporation; nor appointing a representative or distributor domiciled in
the Philippines which transacts business in its own name and for its own
account.

Since respondent is relying on Section 133 of the Corporation Code to bar

petitioner from maintaining an action in Philippine courts, respondent bears the
burden of proving that petitioners business activities in the Philippines were not
just casual or occasional, but so systematic and regular as to manifest continuity
and permanence of activity to constitute doing business in the Philippines. In this
case, we find that respondent failed to prove that petitioners activities in the
Philippines constitute doing business as would prevent it from bringing an action.
The determination of whether a foreign corporation is doing business in
the Philippines must be based on the facts of each case.[15] In the case
of Antam Consolidated, Inc. v. CA,[16] in which a foreign corporation filed an action
for collection of sum of money against petitioners therein for damages and loss
sustained for the latters failure to deliver coconut crude oil, the Court emphasized
the importance of the element of continuity of commercial activities to constitute
doing business in the Philippines. The Court held:
In the case at bar, the transactions entered into by the respondent with
the petitioners are not a series of commercial dealings which signify an
intent on the part of the respondent to do business in the Philippines but
constitute an isolated one which does not fall under the category of doing
business. The records show that the only reason why the respondent
entered into the second and third transactions with the petitioners was
because it wanted to recover the loss it sustained from the failure of the
petitioners to deliver the crude coconut oil under the first transaction and
in order to give the latter a chance to make good on their obligation.
xxx
x x x The three seemingly different transactions were entered into by the
parties only in an effort to fulfill the basic agreement and in no way
indicate an intent on the part of the respondent to engage in a continuity
of transactions with petitioners which will categorize it as a foreign
corporation doing business in the Philippines.[17]

Similarly, in this case, petitioner and NMC amended their contract three times to
give a chance to NMC to deliver to petitioner the molasses, considering that NMC

already received the minimum price of the contract. There is no showing that the
transactions between petitioner and NMC signify the intent of petitioner to
establish a continuous business or extend its operations in the Philippines.
The Implementing Rules and Regulations of RA 7042 provide under Section 1(f),
Rule I, that doing business does not include the following acts:
1. Mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights
as such investor;
2. Having a nominee director or officer to represent its interests in such corporation;
3.
Appointing
a
representative
or
distributor
domiciled
in
the Philippines which transacts business in the representative's or distributor's own
name and account;
4. The publication of a general advertisement through any print or broadcast media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of having the
same processed by another entity in the Philippines;
6. Consignment by a foreign entity of equipment with a local company to be used in
the processing of products for export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of sale which are not
on a continuing basis, such as installing in the Philippines machinery it has
manufactured or exported to the Philippines, servicing the same, training domestic
workers to operate it, and similar incidental services.

Most of these activities do not bring any direct receipts or profits to the foreign
corporation, consistent with the ruling of this Court in National Sugar Trading
Corp. v. CA[18]that activities within Philippine jurisdiction that do not create
earnings or profits to the foreign corporation do not constitute doing business in
the Philippines.[19] In that case, the Court held that it would be inequitable for the
National Sugar Trading Corporation, a state-owned corporation, to evade payment
of a legitimate indebtedness owing to the foreign corporation on the plea that the
latter should have obtained a license first before perfecting a contract with the
Philippine government. The Court emphasized that the foreign corporation did not
sell sugar and derive income from the Philippines, but merely purchased sugar
from the Philippine government and allegedly paid for it in full.

In this case, the contract between petitioner and NMC involved the purchase of
molasses by petitioner from NMC. It was NMC, the domestic corporation, which
derived income from the transaction and not petitioner. To constitute doing
business, the activity undertaken in the Philippines should involve profit-making.
[20]
Besides, under Section 3(d) of RA 7042, soliciting purchases has been deleted
from the enumeration of acts or activities which constitute doing business.
Other factors which support the finding that petitioner is not doing business in the
Philippines are: (1) petitioner does not have an office in the Philippines; (2)
petitioner imports products from the Philippines through its non-exclusive local
broker, whose authority to act on behalf of petitioner is limited to soliciting
purchases of products from suppliers engaged in the sugar trade in the Philippines;
and (3) the local broker is an independent contractor and not an agent of petitioner.
[21]

As explained by the Court in B. Van Zuiden Bros., Ltd. v. GTVL Marketing

Industries, Inc.:[22]
An exporter in one country may export its products to many foreign
importing countries without performing in the importing countries
specific commercial acts that would constitute doing business in the
importing countries. The mere act of exporting from ones own country,
without doing any specific commercial act within the territory of the
importing country, cannot be deemed as doing business in the importing
country. The importing country does not require jurisdiction over the
foreign exporter who has not yet performed any specific commercial act
within the territory of the importing country. Without jurisdiction over
the foreign exporter, the importing country cannot compel the foreign
exporter to secure a license to do business in the importing country.
Otherwise, Philippine exporters, by the mere act alone of exporting their products,
could be considered by the importing countries to be doing business in those
countries. This will require Philippine exporters to secure a business license in every
foreign country where they usually export their products, even if they do not perform
any specific commercial act within the territory of such importing countries. Such a
legal concept will have deleterious effect not only on Philippine exports, but also on
global trade.

To be doing or transacting business in the Philippines for purposes of

Section 133 of the Corporation Code, the foreign corporation
must actually transact business in the Philippines, that is, perform
specific business transactions within the Philippine territory on a
continuing basis in its own name and for its own account. Actual
transaction of business within the Philippine territory is an essential
requisite for the Philippines to to acquire jurisdiction over a foreign
corporation and thus require the foreign corporation to secure a
Philippine business license. If a foreign corporation does not transact
such kind of business in the Philippines, even if it exports its products to
the Philippines, the Philippines has no jurisdiction to require such foreign
corporation to secure a Philippine business license. [23] (Emphasis
supplied)

In the present case, petitioner is a foreign company merely importing molasses

from a Philipine exporter. A foreign company that merely imports goods from a
Philippine exporter, without opening an office or appointing an agent in
the Philippines, is not doing business in the Philippines.
Review of Findings of Fact
The Supreme Court may review the findings of fact of the Court of Appeals which
are in conflict with the findings of the trial court.[24] We find that the Court of
Appeals finding that petitioner was doing business is not supported by evidence.
Furthermore, a review of the records shows that the trial court was correct in
holding that the advance payment of $500,000 was released to NMC in accordance
with the conditions provided under the red clause Letter of Credit from which
said amount was drawn. The Head of the International Operations Department of
the Bank of Philippine Islands testified that the bank would not have paid the
beneficiary if the required documents were not complete. It is a requisite in a
documentary credit transaction that the documents should conform to the terms and
conditions of the letter of credit; otherwise, the bank will not pay. The Head of the
International Operations Department of the Bank of Philippine Islands also
testified that they received reimbursement from the issuing bank for the $500,000
withdrawn by NMC.[25] Thus, respondent had no legitimate reason to refuse
payment under the performance and surety bonds when NMC failed to perform its
part under its contract with petitioner.

WHEREFORE
, we GRANT the
petition.
We REVERSE the
Decision dated 26 May 2005 of the Court of Appeals in CA-G.R. CV No. 48447.
We REINSTATE the Decisiondated 23 November 1994 of the trial court.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 154618

April 14, 2004

AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., petitioner,

vs.
INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORPORATION, TEOH KIANG HONG, TEOH KIANG
SENG, ANTHONY CHOO, JOANNE KATE M. DELA CRUZ, JEAN KAY M. DELA CRUZ and ROLANDO T.
NACILLA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the Decision dated August 12, 2002 of the Court of Appeals in CA-G.R. SP No.
66574, which dismissed Civil Case No. 3123-2001-C and annulled and set aside the Order dated September 4,
2001 issued by the Regional Trial Court of Calamba, Laguna, Branch 92.
Petitioner Agilent Technologies Singapore (Pte.), Ltd. ("Agilent") is a foreign corporation, which, by its own
admission, is not licensed to do business in the Philippines. 1 Respondent Integrated Silicon Technology
Philippines Corporation ("Integrated Silicon") is a private domestic corporation, 100% foreign owned, which is
engaged in the business of manufacturing and assembling electronics components. 2 Respondents Teoh Kiang
Hong, Teoh Kiang Seng and Anthony Choo, Malaysian nationals, are current members of Integrated Silicons
board of directors, while Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz, and Rolando T. Nacilla are its
former members.3
The juridical relation among the various parties in this case can be traced to a 5-year Value Added Assembly
Services Agreement ("VAASA"), entered into on April 2, 1996 between Integrated Silicon and the HewlettPackard Singapore (Pte.) Ltd., Singapore Components Operation ("HP-Singapore"). 4 Under the terms of the
VAASA, Integrated Silicon was to locally manufacture and assemble fiber optics for export to HP-Singapore.
HP-Singapore, for its part, was to consign raw materials to Integrated Silicon; transport machinery to the plant
of Integrated Silicon; and pay Integrated Silicon the purchase price of the finished products. 5 The VAASA had a
five-year term, beginning on April 2, 1996, with a provision for annual renewal by mutual written consent. 6 On
September 19, 1999, with the consent of Integrated Silicon,7 HP-Singapore assigned all its rights and
obligations in the VAASA to Agilent.8
On May 25, 2001, Integrated Silicon filed a complaint for "Specific Performance and Damages" against Agilent
and its officers Tan Bian Ee, Lim Chin Hong, Tey Boon Teck and Francis Khor, docketed as Civil Case No.
3110-01-C. It alleged that Agilent breached the parties oral agreement to extend the VAASA. Integrated Silicon
thus prayed that defendant be ordered to execute a written extension of the VAASA for a period of five years as

earlier assured and promised; to comply with the extended VAASA; and to pay actual, moral, exemplary
damages and attorneys fees.9
On June 1, 2001, summons and a copy of the complaint were served on Atty. Ramon Quisumbing, who
returned these processes on the claim that he was not the registered agent of Agilent. Later, he entered a
special appearance to assail the courts jurisdiction over the person of Agilent.
On July 2, 2001, Agilent filed a separate complaint against Integrated Silicon, Teoh Kang Seng, Teoh Kiang
Gong, Anthony Choo, Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz and Rolando T. Nacilla, 10 for "Specific
Performance, Recovery of Possession, and Sum of Money with Replevin, Preliminary Mandatory Injunction,
and Damages", before the Regional Trial Court, Calamba, Laguna, Branch 92, docketed as Civil Case No.
3123-2001-C. Agilent prayed that a writ of replevin or, in the alternative, a writ of preliminary mandatory
injunction, be issued ordering defendants to immediately return and deliver to plaintiff its equipment,
machineries and the materials to be used for fiber-optic components which were left in the plant of Integrated
Silicon. It further prayed that defendants be ordered to pay actual and exemplary damages and attorneys
fees.11
Respondents filed a Motion to Dismiss in Civil Case No. 3123-2001-C, 12 on the grounds of lack of Agilents legal
capacity to sue;13 litis pendentia;14 forum shopping;15 and failure to state a cause of action.16
On September 4, 2001, the trial court denied the Motion to Dismiss and granted petitioner Agilents application
for a writ of replevin.17
Without filing a motion for reconsideration, respondents filed a petition for certiorari with the Court of Appeals. 18
In the meantime, upon motion filed by respondents, Judge Antonio S. Pozas of Branch 92 voluntarily inhibited
himself in Civil Case No. 3123-2001-C. The case was re-raffled and assigned to Branch 35, the same branch
where Civil Case No. 3110-2001-C is pending.
On August 12, 2002, the Court of Appeals granted respondents petition for certiorari, set aside the assailed
Order of the trial court dated September 4, 2001, and ordered the dismissal of Civil Case No. 3123-2001-C.
Hence, the instant petition raising the following errors:
I.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT DISMISSING RESPONDENTS
PETITION FOR CERTIORARI FOR RESPONDENTS FAILURE TO FILE A MOTION FOR
RECONSIDERATION BEFORE RESORTING TO THE REMEDY OF CERTIORARI.
II.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING AND SETTING ASIDE THE
TRIAL COURTS ORDER DATED 4 SEPTEMBER 2001 AND ORDERING THE DISMISSAL OF CIVIL CASE
NO. 3123-2001-C BELOW ON THE GROUND OF LITIS PENDENTIA, ON ACCOUNT OF THE PENDENCY
OF CIVIL CASE NO. 3110-2001-C.
III.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING AND SETTING ASIDE THE
TRIAL COURTS ORDER DATED 4 SEPTEMBER 2001 AND ORDERING THE DISMISSAL OF CIVIL CASE

NO. 3123-2001-C BELOW ON THE GROUND OF FORUM SHOPPING, ON ACCOUNT OF THE PENDENCY
OF CIVIL CASE NO. 3110-2001-C.
IV.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ORDERING THE DISMISSAL OF CIVIL
CASE NO. 323-2001-C BELOW INSTEAD OF ORDERING IT CONSOLIDATED WITH CIVIL CASE NO. 31102001-C.19
The two primary issues raised in this petition: (1) whether or not the Court of Appeals committed reversible
error in giving due course to respondents petition, notwithstanding the failure to file a Motion for
Reconsideration of the September 4, 2001 Order; and (2) whether or not the Court of Appeals committed
reversible error in dismissing Civil Case No. 3123-2001-C.
We find merit in the petition.
The Court of Appeals, citing the case of Malayang Manggagawa sa ESSO v. ESSO Standard Eastern,
Inc.,20 held that the lower court had no jurisdiction over Civil Case No. 3123-2001-C because of the pendency
of Civil Case No. 3110-2001-C and, therefore, a motion for reconsideration was not necessary before resort to
a petition for certiorari. This was error.
Jurisdiction is fixed by law. Batas Pambansa Blg. 129 vests jurisdiction over the subject matter of Civil Case
No. 3123-2001-C in the RTC.21
The Court of Appeals ruling that the assailed Order issued by the RTC of Calamba, Branch 92, was a nullity for
lack of jurisdiction due to litis pendentia and forum shopping, has no legal basis. The pendency of another
action does not strip a court of the jurisdiction granted by law.
The Court of Appeals further ruled that a Motion for Reconsideration was not necessary in view of the urgent
necessity in this case. We are not convinced. In the case of Bache and Co. (Phils.), Inc. v. Ruiz,22 relied on by
the Court of Appeals, it was held that "time is of the essence in view of the tax assessments sought to be
enforced by respondent officers of the Bureau of Internal Revenue against petitioner corporation, on account of
which immediate and more direct action becomes necessary." Tax assessments in that case were based on
documents seized by virtue of an illegal search, and the deprivation of the right to due process tainted the
entire proceedings with illegality. Hence, the urgent necessity of preventing the enforcement of the tax
assessments was patent. Respondents, on the other hand, cite the case of Geronimo v. Commission on
Elections,23 where the urgent necessity of resolving a disqualification case for a position in local government
warranted the expeditious resort to certiorari. In the case at bar, there is no analogously urgent circumstance
which would necessitate the relaxation of the rule on a Motion for Reconsideration.
Indeed, none of the exceptions for dispensing with a Motion for Reconsideration is present here. None of the
following cases cited by respondents serves as adequate basis for their procedural lapse.
In Vigan Electric Light Co., Inc. v. Public Service Commission,24 the questioned order was null and void for
failure of respondent tribunal to comply with due process requirements; in Matanguihan v. Tengco,25 the
questioned order was a patent nullity for failure to acquire jurisdiction over the defendants, which fact the
records plainly disclosed; and in National Electrification Administration v. Court of Appeals,26 the questioned
orders were void for vagueness. No such patent nullity is evident in the Order issued by the trial court in this
case. Finally, while urgency may be a ground for dispensing with a Motion for Reconsideration, in the case
of Vivo v. Cloribel,27 cited by respondents, the slow progress of the case would have rendered the issues moot
had a motion for reconsideration been availed of. We find no such urgent circumstance in the case at bar.

Respondents, therefore, availed of a premature remedy when they immediately raised the matter to the Court
of Appeals on certiorari; and the appellate court committed reversible error when it took cognizance of
respondents petition instead of dismissing the same outright.
We come now to the substantive issues of the petition.
Litis pendentia is a Latin term which literally means "a pending suit." It is variously referred to in some decisions
as lis pendens and auter action pendant. While it is normally connected with the control which the court has on
a property involved in a suit during the continuance proceedings, it is more interposed as a ground for the
dismissal of a civil action pending in court.
Litis pendentia as a ground for the dismissal of a civil action refers to that situation wherein another action is
pending between the same parties for the same cause of action, such that the second action becomes
unnecessary and vexatious. For litis pendentia to be invoked, the concurrence of the following requisites is
necessary:
(a) identity of parties or at least such as represent the same interest in both actions;
(b) identity of rights asserted and reliefs prayed for, the reliefs being founded on the same facts; and
(c) the identity in the two cases should be such that the judgment that may be rendered in one would,
regardless of which party is successful, amount to res judicata in the other.28
The Court of Appeals correctly appreciated the identity of parties in Civil Cases No. 3123-2001-C and 31102001-C. Well-settled is the rule that lis pendens requires only substantial, and not absolute, identity of
parties.29 There is substantial identity of parties when there is a community of interest between a party in the
first case and a party in the second case, even if the latter was not impleaded in the first case. 30 The parties in
these cases are vying over the interests of the two opposing corporations; the individuals are only incidentally
impleaded, being the natural persons purportedly accused of violating these corporations rights.
Likewise, the fact that the positions of the parties are reversed, i.e., the plaintiffs in the first case are the
defendants in the second case or vice versa, does not negate the identity of parties for purposes of determining
whether the case is dismissible on the ground of litis pendentia.31
The identity of parties notwithstanding, litis pendentia does not obtain in this case because of the absence of
the second and third requisites. The rights asserted in each of the cases involved are separate and distinct;
there are two subjects of controversy presented for adjudication; and two causes of action are clearly involved.
The fact that respondents instituted a prior action for "Specific Performance and Damages" is not a ground for
defeating the petitioners action for "Specific Performance, Recovery of Possession, and Sum of Money with
Replevin, Preliminary Mandatory Injunction, and Damages."
In Civil Case No. 3110-2001-C filed by respondents, the issue is whether or not there was a breach of an oral
promise to renew of the VAASA. The issue in Civil Case No. 3123-2001-C, filed by petitioner, is whether
petitioner has the right to take possession of the subject properties. Petitioners right of possession is founded
on the ownership of the subject goods, which ownership is not disputed and is not contingent on the extension
or non-extension of the VAASA. Hence, the replevin suit can validly be tried even while the prior suit is being
litigated in the Regional Trial Court.
Possession of the subject properties is not an issue in Civil Case No. 3110-2001-C. The reliefs sought by
respondent Integrated Silicon therein are as follows: (1) execution of a written extension or renewal of the
VAASA; (2) compliance with the extended VAASA; and (3) payment of overdue accounts, damages, and
attorneys fees. The reliefs sought by petitioner Agilent in Civil Case No. 3123-2001-C, on the other hand, are

as follows: (1) issuance of a Writ of Replevin or Writ of Preliminary Mandatory Injunction; (2) recovery of
possession of the subject properties; (3) damages and attorneys fees.
Concededly, some items or pieces of evidence may be admissible in both actions. It cannot be said, however,
thatexactly the same evidence will support the decisions in both, since the legally significant and controlling
facts in each case are entirely different. Although the VAASA figures prominently in both suits, Civil Case No.
3110-2001-C is premised on a purported breach of an oral obligation to extend the VAASA, and damages
arising out of Agilents alleged failure to comply with such purported extension. Civil Case No. 3123-2001-C, on
the other hand, is premised on a breach of the VAASA itself, and damages arising to Agilent out of that
purported breach.
It necessarily follows that the third requisite for litis pendentia is also absent. The following are the elements of
res judicata:
(a) The former judgment must be final;
(b) The court which rendered judgment must have jurisdiction over the parties and the subject matter;
(c) It must be a judgment on the merits; and
(d) There must be between the first and second actions identity of parties, subject matter, and cause of
action.32
In this case, any judgment rendered in one of the actions will not amount to res judicata in the other action.
There being different causes of action, the decision in one case will not constitute res judicata as to the other.
Of course, a decision in one case may, to a certain extent, affect the other case. This, however, is not the test
to determine the identity of the causes of action. Whatever difficulties or inconvenience may be entailed if both
causes of action are pursued on separate remedies, the proper solution is not the dismissal order of the Court
of Appeals. The possible consolidation of said cases, as well as stipulations and appropriate modes of
discovery, may well be considered by the court below to subserve not only procedural expedience but, more
important, the ends of justice.33
We now proceed to the issue of forum shopping.
The test for determining whether a party violated the rule against forum-shopping was laid down in the case
ofBuan v. Lopez.34 Forum shopping exists where the elements of litis pendentia are present, or where a final
judgment in one case will amount to res judicata in the final other. There being no litis pendentia in this case, a
judgment in the said case will not amount to res judicata in Civil Case No. 3110-2001-C, and respondents
contention on forum shopping must likewise fail.
We are not unmindful of the afflictive consequences that may be suffered by both petitioner and respondents if
replevin is granted by the trial court in Civil Case No. 3123-2001-C. If respondent Integrated Silicon eventually
wins Civil Case No. 3110-2001-C, and the VAASAs terms are extended, petitioner corporation will have to
comply with its obligations thereunder, which would include the consignment of properties similar to those it
may recover by way of replevin in Civil Case No. 3123-2001-C. However, petitioner will also suffer an injustice
if denied the remedy of replevin, resort to which is not only allowed but encouraged by law.
Respondents argue that since Agilent is an unlicensed foreign corporation doing business in the Philippines, it
lacks the legal capacity to file suit.35 The assailed acts of petitioner Agilent, purportedly in the nature of "doing
business" in the Philippines, are the following: (1) mere entering into the VAASA, which is a "service
contract";36(2) appointment of a full-time representative in Integrated Silicon, to "oversee and supervise the

production" of Agilents products;37 (3) the appointment by Agilent of six full-time staff members, who were
permanently stationed at Integrated Silicons facilities in order to inspect the finished goods for Agilent; 38 and (4)
Agilents participation in the management, supervision and control of Integrated Silicon, 39 including instructing
Integrated Silicon to hire more employees to meet Agilents increasing production needs, 40 regularly performing
quality audit, evaluation and supervision of Integrated Silicons employees, 41 regularly performing inventory
audit of raw materials to be used by Integrated Silicon, which was also required to provide weekly inventory
updates to Agilent,42 and providing and dictating Integrated Silicon on the daily production schedule, volume
and models of the products to manufacture and ship for Agilent. 43
A foreign corporation without a license is not ipso facto incapacitated from bringing an action in Philippine
courts. A license is necessary only if a foreign corporation is "transacting" or "doing business" in the country.
The Corporation Code provides:
Sec. 133. Doing business without a license. No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene
in any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.
The aforementioned provision prevents an unlicensed foreign corporation "doing business" in the Philippines
from accessing our courts.
In a number of cases, however, we have held that an unlicensed foreign corporation doing business in the
Philippines may bring suit in Philippine courts against a Philippine citizen or entity who had contracted with and
benefited from said corporation.44 Such a suit is premised on the doctrine of estoppel. A party is estopped from
challenging the personality of a corporation after having acknowledged the same by entering into a contract
with it. This doctrine of estoppel to deny corporate existence and capacity applies to foreign as well as
domestic corporations.45 The application of this principle prevents a person contracting with a foreign
corporation from later taking advantage of its noncompliance with the statutes chiefly in cases where such
person has received the benefits of the contract.46
The principles regarding the right of a foreign corporation to bring suit in Philippine courts may thus be
condensed in four statements: (1) if a foreign corporation does business in the Philippines without a license, it
cannot sue before the Philippine courts;47 (2) if a foreign corporation is not doing business in the Philippines, it
needs no license to sue before Philippine courts on an isolated transaction or on a cause of action entirely
independent of any business transaction48; (3) if a foreign corporation does business in the Philippines without
a license, a Philippine citizen or entity which has contracted with said corporation may be estopped from
challenging the foreign corporations corporate personality in a suit brought before Philippine courts; 49 and (4) if
a foreign corporation does business in the Philippines with the required license, it can sue before Philippine
courts on any transaction.
The challenge to Agilents legal capacity to file suit hinges on whether or not it is doing business in the
Philippines. However, there is no definitive rule on what constitutes "doing", "engaging in", or "transacting"
business in the Philippines, as this Court observed in the case of Mentholatum v. Mangaliman.50 The
Corporation Code itself is silent as to what acts constitute doing or transacting business in the Philippines.
Jurisprudence has it, however, that the term "implies a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions
normally incident to or in progressive prosecution of the purpose and subject of its organization." 51
In Mentholatum,52 this Court discoursed on the two general tests to determine whether or not a foreign
corporation can be considered as "doing business" in the Philippines. The first of these is the substance test,
thus:53

The true test [for doing business], however, seems to be whether the foreign corporation is continuing
the body of the business or enterprise for which it was organized or whether it has substantially retired
from it and turned it over to another.
The second test is the continuity test, expressed thus:54
The term [doing business] implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of the functions
normally incident to, and in the progressive prosecution of, the purpose and object of its organization.
Although each case must be judged in light of its attendant circumstances, jurisprudence has evolved several
guiding principles for the application of these tests. For instance, considering that it transacted with its
Philippine counterpart for seven years, engaging in futures contracts, this Court concluded that the foreign
corporation inMerrill Lynch Futures, Inc. v. Court of Appeals and Spouses Lara, 55 was doing business in the
Philippines. InCommissioner of Internal Revenue v. Japan Airlines ("JAL"),56 the Court held that JAL was doing
business in the Philippines, i.e., its commercial dealings in the country were continuous despite the fact that
no JAL aircraft landed in the country as it sold tickets in the Philippines through a general sales agent, and
opened a promotions office here as well.
In General Corp. of the Phils. v. Union Insurance Society of Canton and Firemans Fund Insurance, 57 a foreign
insurance corporation was held to be doing business in the Philippines, as it appointed a settling agent here,
and issued 12 marine insurance policies. We held that these transactions were not isolated or casual, but
manifested the continuity of the foreign corporations conduct and its intent to establish a continuous business
in the country. In Eriks PTE Ltd. v. Court of Appeals and Enriquez, 58 the foreign corporation sold its products to
a Filipino buyer who ordered the goods 16 times within an eight-month period. Accordingly, this Court ruled that
the corporation was doing business in the Philippines, as there was a clear intention on its part to continue the
body of its business here, despite the relatively short span of time involved. Communication Materials and
Design, Inc., et al. v. Court of Appeals, ITEC, et al. 59 and Top-Weld Manufacturing v. ECED, IRTI, et al.60 both
involved the License and Technical Agreement and Distributor Agreement of foreign corporations with their
respective local counterparts that were the primary bases for the Courts ruling that the foreign corporations
were doing business in the Philippines.61 In particular, the Court cited the highly restrictive nature of certain
provisions in the agreements involved, such that, as stated in Communication Materials, the Philippine entity is
reduced to a mere extension or instrument of the foreign corporation. For example, in Communication
Materials, the Court deemed the "No Competing Product" provision of the Representative Agreement therein
restrictive.62
The case law definition has evolved into a statutory definition, having been adopted with some qualifications in
various pieces of legislation. The Foreign Investments Act of 1991 (the "FIA"; Republic Act No. 7042, as
amended), defines "doing business" as follows:
Sec. 3, par. (d). The phrase "doing business" shall include soliciting orders, service contracts, opening
offices, whether called "liaison" offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay in the country for a period or periods
totaling one hundred eighty (180) days or more; participating in the management, supervision or
control of any domestic business, firm, entity, or corporation in the Philippines; and any other act or
acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent
the performance of acts or works, or the exercise of some of the functions normally incident to, and in
the progressive prosecution of, commercial gain or of the purpose and object of the business
organization.
An analysis of the relevant case law, in conjunction with Section 1 of the Implementing Rules and
Regulations of the FIA (as amended by Republic Act No. 8179), would demonstrate that the acts
enumerated in the VAASA do not constitute "doing business" in the Philippines.

Section 1 of the Implementing Rules and Regulations of the FIA (as amended by Republic Act No.
8179) provides that the following shall not be deemed "doing business":
(1) Mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor;
(2) Having a nominee director or officer to represent its interest in such corporation;
(3) Appointing a representative or distributor domiciled in the Philippines which transacts
business in the representatives or distributors own name and account;
(4) The publication of a general advertisement through any print or broadcast media;
(5) Maintaining a stock of goods in the Philippines solely for the purpose of having the same
processed by another entity in the Philippines;
(6) Consignment by a foreign entity of equipment with a local company to be used in the
processing of products for export;
(7) Collecting information in the Philippines; and
(8) Performing services auxiliary to an existing isolated contract of sale which are not on a
continuing basis, such as installing in the Philippines machinery it has manufactured or
exported to the Philippines, servicing the same, training domestic workers to operate it, and
similar incidental services.
By and large, to constitute "doing business", the activity to be undertaken in the Philippines is one that
is for profit-making.63
By the clear terms of the VAASA, Agilents activities in the Philippines were confined to (1) maintaining a stock
of goods in the Philippines solely for the purpose of having the same processed by Integrated Silicon; and (2)
consignment of equipment with Integrated Silicon to be used in the processing of products for export. As such,
we hold that, based on the evidence presented thus far, Agilent cannot be deemed to be "doing business" in
the Philippines. Respondents contention that Agilent lacks the legal capacity to file suit is therefore devoid of
merit. As a foreign corporation not doing business in the Philippines, it needed no license before it can sue
before our courts.
Finally, as to Agilents purported failure to state a cause of action against the individual respondents, we
likewise rule in favor of petitioner. A Motion to Dismiss hypothetically admits all the allegations in the Complaint,
which plainly alleges that these individual respondents had committed or permitted the commission of acts
prejudicial to Agilent. Whether or not these individuals had divested themselves of their interests in Integrated
Silicon, or are no longer members of Integrated Silicons Board of Directors, is a matter of defense best
threshed out during trial.
WHEREFORE, PREMISES CONSIDERED, the petition is GRANTED. The Decision of the Court of Appeals in
CA-G.R. SP No. 66574 dated August 12, 2002, which dismissed Civil Case No. 3123-2001-C,
is REVERSED and SET ASIDE. The Order dated September 4, 2001 issued by the Regional Trial Court of
Calamba, Laguna, Branch 92, in Civil Case No. 3123-2001-C, is REINSTATED. Agilents application for a Writ
of Replevin is GRANTED.
No pronouncement as to costs.

SO ORDERED.

Real Estate Mortgage

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 115068 November 28, 1996

FORTUNE MOTORS (PHILS.) INC. petitioner,
vs.
METROPOLITAN BANK AND TRUST COMPANY, and THE COURT OF APPEALS, respondents.

HERMOSISIMA, JR., J.:

Before us is a petition for review of the decision of the Court of Appeals in CA G.R CV No. 38340
entitled "Fortune Motors (Phils.) Inc., v. Metropolitan Bank and Trust Company et al. 1 The appellate

court's decision reversed the decision in Civil Case No. 89-5637 of Branch 150 of the Regional
Trial Court of Makati City.
It appears that Fortune Motors (Phils.) Inc. obtained the following loans from the Metropolitan Bank
and Trust Company: (1) P20 Million, on March 31, 1982; (2) P8 Million, on April 30, 1983; (3)
P2,500,000.00, on June 8, 1983 and; (4) P3 Million, on August 16, 1983.
On January 6, 1984, respondent bank consolidated the loans of P8 Million and P3 Million into one
promissory note, which amounted to P12,650,000.00. This included the interest that had accrued
thereon in the amount of P1,650,000.00.
To secure the obligation in the total amount of P34,150,000.00, petitioner mortgaged certain real
estate in favor of respondent bank.
Due to financial constraints, petitioner failed to pay the loan upon maturity. Consequently on May 25,
1984, respondent bank initiated extrajudicial foreclosure proceedings and in effect, foreclosed the real
estate mortgage.
The extrajudicial foreclosure was actually conducted by Senior Deputy Sheriff Pablo Y. Sy who had
sent copies of the Notice of Extrajudicial Sale to the opposing parties by registered mail. In accordance
with law, he posted copies of the Notice of Sheriff's Sale at three conspicuous public places in Makati
the office of the Sheriff, the Assessor's Office and the Register of Deeds in Makati. He thereafter
executed the Certificates of Posting on May 20, 1984. The said notice was in fact published on June 2,
9 and 16, 1984 in three issues of "The New Record." An affidavit of publication, dated June 19,
1984, 2 was executed by Teddy F. Borres, publisher of the said newspaper.

Subsequently, the mortgaged property was sold at public auction for P47,899,264.91 to the mortgagee
bank, the highest bidder.
Petitioner failed to redeem the mortgaged property within the one-year redemption period and so, the
titles thereto were consolidated in the name of respondent bank by which token the latter was entitled
to the possession of the property mortgaged and, in fact possessed the same.
Petitioner then filed a complaint for the annulment of the extrajudicial foreclosure, which covered TCT
Nos. 461087, 432685, 457590, 432684, S-54185, S-54186, S-54187, and S-54188.
On December 27, 1991, the trial court rendered judgment annulling the extrajudicial foreclosure of the
mortgage.
On May 14, 1992, an appeal was interposed by the respondent to the Court of Appeals. Acting
thereon, the Court of Appeals reversed the decision rendered by the lower court. Subsequently, the
Motion for Reconsideration filed by petitioner was denied on April 26, 1994.
Aggrieved by the decision rendered by the Court of Appeals, petitioner appealed before this Court. On
May 30, 1994, however, we issued a Resolution denying said petition. Hence, this motion for
reconsideration.
Petitioner raises the following issues before us, to wit:
I
THAT THE COURT OF APPEALS ERRED IN DECLARING THAT THE PUBLICATION OF
THE NOTICE OF EXTRAJUDICIAL FORECLOSURE WAS VALID. 3

II
THAT THE RESPONDENT COURT OF APPEALS ERRED IN DECLARING THAT THE
NOTICES OF EXTRAJUDICIAL FORECLOSURE, AND SALE WERE DULY RECEIVED BY
THE PETITIONER. 4

III
THAT THE COURT OF APPEALS ERRED IN FAILING TO ADJUDGE THE IRREGULARITIES
IN THE BIDDING, POSTING, PUBLICATION, AND THE SALE OF FORTUNE BUILDING. 5

IV
THAT THE RESPONDENT COURT OF APPEALS ERRED IN RENDERING A JUDGMENT
BASED ON PRESUMPTION. 6
Petitioner contends that the newspaper "Daily Record" 7 where the notice of extrajudicial foreclosure

was published does not qualify as a newspaper of general circulation.

It further contends that the population that can be reached by the "Daily Record" is only .004% as its
circulation in Makati in 1984, was 1000 to 1500 per week. Hence, it concludes that only 1648 out of a
population of 412,069 were probable readers of the "Daily Record," and that this is not the standard
contemplated by law when it refers to a newspaper of general circulation.

In the case of Bonnevie v. Court of Appeals, 8 we had already made a ruling on this point:
The argument that the publication of the notice in the "Luzon Weekly Courier" was not in
accordance with law as said newspaper is not of general circulation must likewise be
disregarded. The affidavit of publication, executed by the publisher, business/advertising
manager of the Luzon Weekly Courier, states that it is "a newspaper of general circulation
in . . . Rizal; and that the Notice of Sheriffs sale was published in said paper on June 30, July
7 and July 14, 1968." This constitutes prima facieevidence of compliance with the requisite
publication. (Sadang v. GSIS, 18 SCRA 491).
To be a newspaper of general circulation, it is enough that "it is published for the
dissemination of local news and general information; that it has a bona fide subscription list of
paying subscribers; that it is published at regular intervals." (Basa v. Mercado, 61 Phil. 632).
The newspaper need not have the largest circulation so long as it is of general circulation.
(Banta v. Pacheco, 74 Phil. 67).
In the case at bench, there was sufficient compliance with the requirements of the law regarding
publication of the notice in a newspaper of general circulation. This is evidenced by the affidavit of
publication executed by the New Record's publisher, Teddy F. Borres, which stated that it is a
newspaper edited in Manila and Quezon City and of general circulation in the cities of Manila, Quezon
City et. al., and in the Provinces of Rizal . . . , published every Saturday by the Daily Record, Inc. This
was affirmed by Pedro Deyto, who was the executive editor of the said newspaper and who was a
witness for petitioner. Deyto testified: a) that the New Record contains news; b) that it has subscribers
from Metro Manila and from all over the Philippines; c) that it is published once a week or four times a
month; and d) that he had been connected with the said paper since 1958, an indication that the said
newspaper had been in existence even before that year. 9
Another contention posited by petitioner is that the New Record is published and edited in Quezon City
and not in Makati where the foreclosed property is situated, and that, when New Record's publisher
enumerated the places where said newspaper is being circulated, Makati was not mentioned.
This contention of petitioner is untenable. In 1984, when the publisher's affidavit relied upon by
petitioner was executed, Makati, Mandaluyong, San Juan, Paraaque et. al., were still part of the
province of Rizal. Apparently, this is the reason why in the New Record's affidavit of publication
executed by its publisher, the enumeration of the places where it was being circulated, only the cities
of Manila, Quezon, Caloocan, Pasay, Tagaytay et. al., were named. Furthermore, as aptly ratiocinated
by the Court of Appeals:
The application given by the trial court to the provisions of P.D. No. 1079 is, to our mind, too
narrow and restricted and could not have been the intention of the said law. Were the
interpretation of the trial court (sic) to be followed, even the leading dailies in the country like
the "Manila Bulletin," the "Philippine Daily Inquirer," or "The Philippine Star" which all enjoy a
wide circulation throughout the country, cannot publish legal notices that would be honored
outside the place of their publication. But this is not the interpretation given by the courts. For
what is important is that a paper should be in general circulation in the place where the
properties to be foreclosed are located in order that publication may serve the purpose for
which it was intended. 10
Petitioner also claims that the New Record is not a daily newspaper because it is published only once
a week.
A perusal of Presidential Decree (P.D.) No. 1079 and Act 3135 shows that the said laws do not require
that the newspaper which publishes judicial notices should be a daily newspaper. Under P.D. 1079, for

a newspaper to qualify, it is enough that it be a "newspaper or periodical which is authorized by law to

publish and which is regularly published for at least one (1) year before the date of publication" which
requirement was satisfied by New Record. Nor is there a requirement, as stated in the said law, that
the newspaper should have the largest circulation in the place of publication.
Petitioner claims that, when its representative went to a newspaper stand to look for a copy of the new
Record, he could not find any. This allegation can not be made a basis to conclude that the newspaper
"New Record" is not of general circulation. By its own admission, petitioner's representative was
looking for a newspaper named "Daily Record." Naturally, he could not find a newspaper by that name
as the newspaper's name is "New Record" and not "Daily Record." Although it is the Daily Record Inc.
which publishes the New Record, it does not mean that the name of the newspaper is Daily Record.
Petitioner contends that, since it was the Executive Judge who caused the publication of the notice of
the sale and not the Sheriff, the extrajudicial foreclosure of the mortgage should be deemed annulled.
Petitioner's contention in this regard is bereft of merit, because Sec. 2 of P.D. No. 1079 clearly
provides that:
The executive judge of the court of first instance shall designate a regular working day and a
definite time each week during which the said judicial notices or advertisements shall be
distributed personally by him 11 for publication to qualified newspapers or periodicals . . . ,

which distribution shall be done by raffle.

The said provision of the law is clear as to who should personally distribute the judicial notices or
advertisements to qualified newspapers for publication. There was substantial compliance with the
requirements when it was the Executive Judge of the Regional Trial Court of Makati who caused the
publication of the said notice by the newspaper selected by means of raffle.
With regard to the second assigned error wherein petitioner claims that it did not personally receive the
notices of extrajudicial foreclosure and sale supposedly sent to it by Metrobank, we find the same
unmeritorious.
Settled is the rule that personal notice to the mortgagor in extrajudicial foreclosure proceedings is not
necessary. Section 3 of Act No. 3135 governing extrajudicial foreclosure of real estate mortgages, as
amended by Act No. 4118, requires only the posting of the notice of sale in three public places and the
publication of that notice in a newspaper of general circulation. It is pristine clear from the above
provision that the lack of personal notice to the mortgagor, herein petitioner, is not a ground to set
aside the foreclosure sale. 12
Petitioner's expostulation that it did not receive the mailed notice to it of the sale of the mortgaged
property should be brushed aside. The fact that respondent was able to receive the registry return card
from the mail in regular course shows that the postal item represented by the return card had been
received by the addressee. Otherwise, as correctly contended by respondent, the mailed item should
have been stamped "Returned to Sender," still sealed with all the postal markings, and the return card
still attached to it.
As to the contention that the signature appearing on the registry return card receipt appears to be only
a dot and that the photostat copy does not contain a signature at all we find, after a close scrutiny of
the registry return card, that there are strokes before and after the dot. These strokes appear to be a
signature which signifies: a) that the registry claim card was received at the given address; b) that the
addressee had authorized a person to present the claim card at the post office and receive the
registered mail matter; and c) that the authorized person signed the return card to acknowledge his
receipt of the mail matter. Even the trial court in its decision ruled that:

. . . the Court finds no cogent reason to overcome the presumption that Sheriff Pablo Sy
performed his task regularly and in accordance with the rules. A closer look at the assailed
xerox copy of the registry receipt and the original form which said xerox was admittedly copied
would indeed show that the xerox is not a faithful reproduction of the original since it does not
bear the complete signature of the addressee as appearing on the original. It does not,
however, follow that the xerox is a forgery. The same bears slight traces of the signature
appearing on the original but, there is no indication that the one was altered to conform to the
other. Rather, there must have been only a misprint of the xerox but not amounting to any
attempt to falsify the same. 13
Petitioner also claims that it had transferred to a different location but the notice was sent to its old
address. Petitioner failed to notify respondent of its supposed change of address. Needless to say, it
can be surmised that respondent had sent the notice to petitioner's official address.
Anent its third assigned error, petitioner assails the posting of the notices of sale by the Sheriff in the
Office of the Sheriff, Office of the Assessor and the Register of Deeds as these are not the
conspicuous public places required by law. Furthermore, it also questions the non-posting of the notice
of sale on the property itself which was to be sold.
Apparently, this assigned error of petitioner is tantamount to a last ditch effort to extricate itself from the
quagmire it is in. Act 3135 does not require posting of the notice of sale on the mortgaged property.
Section 3 of the said law merely requires that the notice of the sale be posted for not less than twenty
days in at least three public places of the municipality or city where the property is situated. The
aforementioned places, to wit: the Sheriff's Office, the Assessor's Office and the Register of Deeds are
certainly the public places contemplated by law, as these are places where people interested in
purchasing real estate congregate.
With regard to the fourth assigned error of petitioner, we do not subscribe to the latter's view that the
decision of the Court of Appeals was mainly based on the presumption of the regularity of the
performance of official function of the officers involved. A perusal of the records indubitably shows that
the requirement of Act No. 3135 on the extrajudicial foreclosure of real estate mortgage had been duly
complied with by Senior Deputy Sheriff Sy.
WHEREFORE, the petition is DENIED and the decision rendered in CA-G.R CV No. 38340 is hereby
AFFIRMED.
SO ORDERED.

FIRST DIVISION
GC DALTON INDUSTRIES, INC., G.R. No. 171169
Petitioner,
Present:
PUNO, C.J., Chairperson,
QUISUMBING,*
- v e r s u s - CORONA,
LEONARDO-DE CASTRO and
BERSAMIN, JJ.

EQUITABLE PCI BANK,

Respondent. Promulgated:
August 24, 2009
x--------------------------------------------------x
DECISION
CORONA, J.:
In 1999, respondent Equitable PCI Bank extended a P30-million credit line to
Camden Industries, Inc. (CII) allowing the latter to avail of several loans (covered
by promissory notes) and to purchase trust receipts. To facilitate collection, CII
executed a hold-out agreement in favor of respondent authorizing it to deduct from
its savings account any amounts due. To guarantee payment, petitioner GC Dalton
Industries, Inc. executed a third-party mortgage of its real properties in Quezon
City[1] and Malolos, Bulacan[2] as security for CIIs loans.[3]
CII did not pay its obligations despite respondents demands. By 2003, its
outstanding consolidated promissory notes and unpaid trust receipts had reached a
staggeringP68,149,132.40.[4]
Consequently, respondent filed a petition for extrajudicial foreclosure of
petitioners Bulacan properties in the Regional Trial Court (RTC) of Bulacan on
May 7, 2004.[5]On August 3, 2004, the mortgaged properties were sold at a public
auction where respondent was declared the highest bidder. Consequently, a
certificate of sale[6] was issued in respondents favor on August 3, 2004.
On September 13, 2004, respondent filed the certificate of sale and an
affidavit of consolidation of ownership[7] in the Register of Deeds of Bulacan
pursuant to Section 47 of the General Banking Law.[8] Hence, petitioners TCTs

covering the Bulacan properties were cancelled and new ones were issued in the
name of respondent.[9]
In view of the foregoing, respondent filed an ex parte motion for the
issuance of a writ of possession[10] in the RTC Bulacan, Branch 10 on January 10,
2005.[11]
Previously, however, on August 4, 2004, CII had filed an action for specific
performance and damages[12] in the RTC of Pasig, Branch 71 (Pasig RTC),
asserting that it had allegedly paid its obligation in full to respondent. [13] CII sought
to compel respondent to render an accounting in order to prove that the bank
fraudulently foreclosed on petitioners mortgaged properties.
Because respondent allegedly failed to appear during the trial, the Pasig RTC
rendered a decision on March 30, 2005[14] based on the evidence presented by CII.
It found that, while CIIs past due obligation amounted only to P14,426,485.66 as
of November 30, 2002, respondent had deducted a total of P108,563,388.06 from
CIIs savings account. Thus, the Pasig RTC ordered respondent: (1) to return to CII
the

overpayment

with

legal

interest

of

12% per

annum amounting

to P94,136,902.40; (2) to compensate it for lost profits amounting to P2,000,000

per month starting August 2004 with legal interest of 12% per annum until full
payment and (3) to return the TCTs covering the mortgaged properties to
petitioner. It likewise awarded CII P2,000,000 and P300,000, respectively, as
moral and exemplary damages and P500,000 as attorneys fees.
Respondent filed a notice of appeal. CII, on the other hand, moved for the
immediate entry and execution of the abovementioned decision.
In an order dated December 7, 2005,[15] the Pasig RTC dismissed
respondents notice of appeal due to its failure to pay the appellate docket fees. It
likewise found respondent guilty of forum-shopping for filing the petition for the

issuance of a writ of possession in the Bulacan RTC. Thus, the Pasig RTC ordered
the immediate entry of its March 30, 2005 decision.[16]
Meanwhile, in view of the pending case in the Pasig RTC, petitioner
opposed respondents ex parte motion for the issuance of a writ of possession in the
Bulacan RTC. It claimed that respondent was guilty of fraud and forum-shopping,
and that it was not informed of the foreclosure. Furthermore, respondent
fraudulently foreclosed on the properties since the Pasig RTC had not yet
determined whether CII indeed failed to pay its obligations.
In an order dated December 10, 2005, the Bulacan RTC granted the motion
and a writ of possession was issued in respondents favor on December 19, 2005.
Petitioner immediately assailed the December 10, 2005 order of the Bulacan
RTC via a petition for certiorari in the Court of Appeals (CA). It claimed that the
order violated Section 14, Article VIII of the Constitution [17] which requires that
every decision must clearly and distinctly state its factual and legal bases. In a
resolution dated January 13, 2006,[18] the CA dismissed the petition for lack of
merit on the ground that an order involving the issuance of a writ of possession is
not a judgment on the merits, hence, not covered by the requirement of Section 14,
Article VIII of the Constitution.
Petitioner elevated the matter to this Court, assailing the January 13, 2006
resolution of the CA. It insists that the December 10, 2005 order of the Bulacan
RTC was void as it was bereft of factual and legal bases.
Petitioner likewise cites the conflict between the December 10, 2005 order
of the Bulacan RTC and the December 7, 2005 order of the Pasig RTC. Petitioner
claims that, since the Pasig RTC already ordered the entry of its March 30, 2005
decision (in turn ordering respondent to return TCT No. 351231 and all such other

owners documents of title as may have been placed in its possession by virtue of
the subject trust receipt and loan transactions), the same was already final and
executory. Thus, inasmuch as CII had supposedly paid respondent in full, it was
erroneous for the Bulacan RTC to order the issuance of a writ of possession to
respondent.
Respondent, on the other hand, asserts that petitioner is raising a question of
fact as it essentially assails the propriety of the issuance of the writ of possession.
It likewise points out that petitioner did not truthfully disclose the status of the
March 30, 2005 decision of the Pasig RTC because, in an order dated April 4,
2006, the Pasig RTC partially reconsidered its December 7, 2005 order and gave
due course to respondents notice of appeal. (The propriety of the said April 4, 2006
order is still pending review in the CA.)
We deny the petition.
The issuance of a writ of possession to a purchaser in an extrajudicial
foreclosure is summary and ministerial in nature as such proceeding is merely an
incident in the transfer of title. [19] The trial court does not exercise discretion in the
issuance thereof.[20] For this reason, an order for the issuance of a writ of
possession is not the judgment on the merits contemplated by Section 14, Article
VIII of the Constitution. Hence, the CA correctly upheld the December 10, 2005
order of the Bulacan RTC.
Furthermore, the mortgagor loses all legal interest over the foreclosed
property after the expiration of the redemption period. [21] Under Section 47 of the
General Banking Law,[22] if the mortgagor is a juridical person, it can exercise the
right to redeem the foreclosed property until, but not after, the registration of the
certificate of foreclosure sale within three months after foreclosure, whichever is
earlier. Thereafter, such mortgagor loses its right of redemption.

Respondent filed the certificate of sale and affidavit of consolidation with the
Register of Deeds of Bulacan on September 13, 2004. This terminated the
redemption period granted by Section 47 of the General Banking Law. Because
consolidation of title becomes a right upon the expiration of the redemption period,
[23]

respondent became the owner of the foreclosed properties. [24] Therefore, when

petitioner opposed the ex parte motion for the issuance of the writ of possession on
January 10, 2005 in the Bulacan RTC, it no longer had any legal interest in the
Bulacan properties.
Nevertheless, even if the ownership of the Bulacan properties had already been
consolidated in the name of respondent, petitioner still had, and could have availed
of, the remedy provided in Section 8 of Act 3135.[25] It could have filed a petition to
annul the August 3, 2004 auction sale and to cancel the December 19, 2005 writ
of possession,[26] within 30 days after respondent was given possession. [27] But it
did not. Thus, inasmuch as the 30-day period to avail of the said remedy had
already lapsed, petitioner could no longer assail the validity of the August 3, 2004
sale.
Any question regarding the validity of the mortgage or its foreclosure cannot be
a legal ground for the refusal to issue a writ of possession. Regardless of
whether or not there is a pending suit for the annulment of the mortgage
or the foreclosure itself, the purchaser is entitled to a writ of possession,
without prejudice, of course, to the eventual outcome of the pending
annulment case.[28]

Needless to say, petitioner committed a misstep by completely relying and

pinning all its hopes for relief on its complaint for specific performance and
damages in the Pasig RTC,[29] instead of resorting to the remedy of annulment (of
the auction sale and writ of possession) under Section 8 of Act 3135 in the Bulacan
RTC.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner.
SECOND DIVISION
DEVELOPMENT BANK OF G.R. No. 174329
THE PHILIPPINES,
Petitioner,
Present:
CARPIO, J., Chairperson,
NACHURA,
- versus - LEONARDO-DE CASTRO,*
PERALTA, and
MENDOZA, JJ.
ENVIRONMENTAL AQUATICS,
INC., LAND SERVICES AND
MANAGEMENT ENTERPRISES, Promulgated:
INC. and MARIO MATUTE
Respondents. October 20, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
CARPIO, J.:
The Case
This is a petition[1] for review on certiorari under Rule 45 of the Rules of
Court. The petition challenges the 16 January 2006 Decision [2] and 16 August 2006
Resolution[3] of the Court of Appeals in CA-G.R. CV No. 46207. The Court of
Appeals affirmed with modification the 7 January 1994 Decision [4] of the Regional

Trial Court (RTC), National Capital Judicial Region, Branch 84, Quezon City, in
Civil Case No. Q-91-10563.
The Facts
On 10 September 1976, respondents Environmental Aquatics, Inc. (EAI) and Land
Services and Management Enterprises, Inc. (LSMEI) loaned P1,792,600 from
petitioner Development Bank of the Philippines (DBP). As security for the loan,
LSMEI mortgaged to DBP its 411-square meter parcel of land situated in New
Manila, Quezon City, and covered by Transfer Certificate of Title No. 209937.
[5]
The mortgage contract[6] stated that:
If at anytime the Mortgagor shall fail or refuse to pay any of the
amortization on the indebtedness, or the interest when due, or whatever
other obligation herein secured or to comply with any of the conditions
and stipulations herein agreed, or shall initiate insolvency proceedings or
be declared involuntary insolvent (sic), or uses the proceeds of the loan
for purposes other than those specified herein then all the amortizations
and other obligations of the Mortgagor of any nature, shall become due,
payable and defaulted and the Mortgagee may immediately foreclose
this mortgage judicially or extrajudicially under Act No. 3135 as
amended, or under Republic Act No. 85, as amended and or under Act
No. 1508 as amended.[7]

On 31 August 1981, DBP restructured the loan. In their promissory notes,[8] EAI
and LSMEI stated that:
On or before March 14, 1986, for value received, we jointly and
severally, promise to pay the DEVELOPMENT BANK OF THE
PHILIPPINES, or at its office at Makati, Metro Manila, Philippines, the
sum of * * ONE MILLION NINE HUNDRED SEVENTY THREE
THOUSAND ONE HUNDRED PESOS (P1,973,100.00), Philippine
Currency, with interest at the rate of sixteen per centum (16%) per
annum.[9]
On or before March 14, 1986, for value received, we jointly and
severally, promise to pay the DEVELOPMENT BANK OF THE
PHILIPPINES, or at its office at Makati, Metro Manila, Philippines, the
sum of * * ONE HUNDRED NINETY THOUSAND SEVEN

HUNDRED PESOS * * (P190,700), Philippine Currency, with interest at

the rate of fourteen per centum (14%) per annum. [10]
On or before March 14, 1982, for value received, I/We, jointly and
severally, promise to pay the DEVELOPMENT BANK OF THE
PHILIPPINES, or order at its office at Makati, Metro Manila,
Philippines, the sum of * * SIX HUNDRED EIGHTY FOUR
THOUSAND SEVEN HUNDRED EIGHTY EIGHT PESOS * *
(P684,788.00), Philippine Currency, with interest at the rate of ________
per centum (___%) per annum.[11]

EAI and LSMEI failed to pay the loan. As of 11 September 1990, the loan had
increased to P16,384,419.90.[12] On 25 October 1990, DBP applied for extrajudicial
foreclosure of the real estate mortgage. In its application letter,[13] DBP stated that:
[W]e request [the ex-officio sheriff] to take possession of the properties
described in the above-mentioned mortgages as well as those embraced
in the after acquired properties clause thereof, and sell the same at public
auction in accordance with the provisions of Act 3135, as amended by
Act 4118, with respect to the real estate and Act 1508 with respect to the
chattels, as amended by Presidential Decree No. 385 aforecited. [14]

During the 19 December 1990 public auction, the ex-officio sheriff sold the
property to DBP as the highest bidder for P1,507,000.[15]
On 15 May 1991, LSMEI transferred its right to redeem the property to respondent
Mario Matute (Matute). In his 27 July 1991 letter,[16] Atty. Julian R. Vitug, Jr. (Atty.
Vitug, Jr.) informed DBP that his client Matute was interested in redeeming the
property by paying the P1,507,000 purchase price, plus other costs. In its 29
August 1991 letter,[17]DBP informed Atty. Vitug, Jr. that Matute could redeem the
property by paying the remaining balance of EAI and LSMEI's loan. As of 31
August 1991, the loan amounted toP19,279,106.22.[18]
On 8 November 1991, EAI, LSMEI and Matute filed with the RTC a
complaint[19] praying that DBP be ordered to accept x x x Matute's bonafide offer to
redeem the foreclosed property.[20]
The RTC's Ruling

In its 7 January 1994 Decision, the RTC allowed Matute to redeem the property at
its P1,507,000 purchase price. The RTC held that:
The question is whether, as the defendant DBP contends, the redemption
should be made by paying to the Bank the entire amount owed by
plaintiffs-corporations in the amount ofP18,301,653.11 as of the date of
foreclosure on December 12, 1990, invoking Sec. 16 of Executive Order
No. 81 otherwise known as the 1986 Revised Charter of DBP. On the
other hand, the plaintiffs contend that this redemption may be made only
by reimbursing the defendant Bank what it has paid for at the auction
sale made to it (sic), in the amount of P1,507,000.00, pursuant to Section
5 of Act No. 3135 and Sections 26 to 30 of Rule 39 of the Revised Rules
of Court.
Plaintiffs are correct. It is to be noted that the mortgage at issue was
executed on September 10, 1976, Exhs. A and 2. Republic Act No. 2081
entitled An Act to Amend Republic Act Numbered Eighty-Five and
Other Pertinent Laws, to Provide Facilities for Intermediate and LongTerm Credit by Converting the Rehabilitation Finance Corporation into
the Development Bank of the Philippines, Authorizing the said Bank to
Aid in the Establishment of Provincial and City Private Development
Banks, and for Other Purposes was approved and made effective on June
14, 1958. It was therefore the law the Charter (sic) of DBP, when in 1976
the mortgage here in issue was executed. On the other hand, Executive
Order No. 81, with its Section 16 thereof (sic) reading as follows:
Sec. 16. Right of Redemption. Any mortgagor of the Bank
whose real property has been extrajudicially sold at public
auction shall, within one (1) year counted from the date of
registration of the certificate of sale, have the right to
redeem the real property by paying to the Bank all of the
latter's claim against him, as determined by the Bank.
is of recent vintage. Executive Order No. 81, issued by then President
Corazon C. Aquino, was made effective on December 3, 1986. Clearly,
the application of Executive Order No. 81 to the mortgage herein
involved would violate the constitutional proscription against the
impairment of contracts. Sec. 16 of Executive Order No. 81, which
governs the right of redemption in extrajudicial foreclosures, is not
found in Rep. Act No. 2081 or even in Rep. Act No. 85. And so, to make
the redemption subject to a subsequent law would be obviously

prejudicial to the party exercising the right to redeem. Any change in the
law governing redemption that would make it more difficult than under
the law at the time of the mortgage cannot be given retroactive effect.
Under the terms of the mortgage contract, Exh. 2, specifically paragraph
4 thereof:
x x x the Mortgagee may immediately foreclose this
mortgage judicially or extrajudicially under Act No. 3135
as amended, or under Republic Act No. 85, as amended and
or under Act No. 1508 as amended. x x x x.
Going by the literal terms of this quoted provision of the mortgage
contract, defendant DBP stand bound by the same. When defendant DBP
foreclosed the mortgage at issue, it chose Act 3135.That was an option it
freely exercised without the least intervention of plaintiffs. We cannot,
therefore, escape the conclusion that what defendant DBP agreed to in
respect to (sic) the possible foreclosure of its mortgage was to subject the
same to the provisions of Act No. 3135, as amended, should the DBP opt
to utilize said law. Section 6 of Act No. 3135 very clearly governs the
right of redemption in extrajudicial foreclosures thus:
SEC. 6. In all cases in which an extrajudicial sale is made
under the special power hereinbefore referred to, the
debtor, his successors in interest or any judicial creditor or
judgment creditor of said debtor, or any person having a
lien on the property subsequent to the mortgage or deed of
trust under which the property is sold, may redeem the
same at any time within the term of one year from and after
the date of the sale; and such redemption shall be governed
by the provisions of sections four hundred and sixty-four to
four hundred and sixty-six, inclusive, of the Code of Civil
Procedure, in so far as these are not inconsistent with the
provisions of this Act.
Sections four hundred sixty-four to four hundred sixty-five, inclusive, of
the Code of Civil Procedure, since the promulgation of the Rules of
Court of 1940, became sections 29, 30 and 32 of Rule 39. The same
sections were reproduced in the Revised Rules of Court.

Having thus come to the conclusion that Act 3135 and Sections 29 to 32
of Rule 39 of the Rules of Court rather than Executive Order No. 81 are
the laws applicable to the right of redemption invoke (sic) by plaintiffs in
this case, it would appear that all that remains for this Court to do is to
apply the said legal precepts. Pursuant to Section 30 of Rule 39, the
judgment debtor or his successor-in-interest per Sec. 29, here
plaintiff Mario Batute may redeem the property from the purchaser, at
any time within twelve months after the sale, on paying the purchaser the
amount of his purchase, with one per centum per month interest thereon
in addition, up to the time of redemption, together with the amount of
any assessments or taxes which the purchaser may have paid thereon
after the purchase, and interest on such last-named amount at the same
rate; x x x.[21]

DBP appealed to the Court of Appeals.

The Court of Appeals' Ruling
In its 16 January 2006 Decision, the Court of Appeals affirmed with modification
the RTC's 7 January 1994 Decision. The Court of Appeals imposed a 16% annual
interest on the remaining balance of the loan. The Court of Appeals held that:
The dearth of merit in appellant bank's position is, however, evident
from the fact that, as hereinbefore quoted, paragraph 4 of the September
10, 1976 Deed of Real Estate Mortgage executed in its favor by
appellees EAI and LSMEI provided for three options by which the
extrajudicial foreclosure thereof may be effected. Thereunder given the
choice of resorting to Act No. 3135 as amended, or Republic Act No. 85
as amended, or Act No. 1508 as amended, appellant bank undoubtedly
opted for the first of the aforesaid laws as may be gleaned from the
following prayer it interposed in the application for foreclosure of
mortgage it filed with the Ex-Officio Sheriff of Quezon City on October
25, 1990, viz:
WHEREFORE, we request you to take possession of the
properties described in the above-mentioned mortgages xxx
xxx xxx and sell the same at public auction in accordance
with the provisions of Act 3135, as amended by Act 4118,
with respect to the real estate xxx xxx xxx

With appellant bank's categorical election of Act No. 3135 as the

controlling law for the extrajudicial foreclosure of the subject mortgage,
it goes without saying that, insofar as the redemption of the subject realty
is concerned, the provisions of said law are deemed written into the
parties' agreement and, as such, should be respected as the law between
them.
Anent the redemption of mortgaged properties extrajudicially foreclosed
in accordance therewith, Section 6 of Act No. 3135 provides as follows:
Section 6. In all cases in which an extrajudicial sale is
made under the special power hereinbefore referred to, the
debtor, his successors in interests (sic) or any judicial
creditor or judgment creditor of said debtor, or any person
having a lien on the property subsequent to the mortgage or
deed of trust under which the property is sold, may redeem
the same at any time within the term of one year from and
after the date of the sale; and such redemption shall be
governed by the provisions of sections four hundred and
sixty-four to four hundred sixty-six, inclusive, of the Code
of Civil Procedure, in so far as these are not inconsistent
with the provisions of this Act.
As appropriately noted by the trial court, Sections 464, 465 and 466 of
the Code of Civil Procedure are now, respectively, Sections 27, 28 and
30 of the 1997 Rules of Civil Procedure which, under said second
provision, prescribes the following guidelines for redemption, viz:
Section 28. Time and manner of, and amounts payable on,
successive redemptions; notice to be given and filed. The
judgment obligor, or redemptioner, may redeem the
property from the purchaser, at any time within one (1) year
from the date of the registration of the certificate of sale, by
paying the purchaser the amount of his purchase, with one
per centum per month interest thereon in addition, up to the
time of redemption, together with the amount of any
assessments or taxes which may have been paid thereon
after purchase, and interest on such last named amount at
the same rate; and if the purchaser be also a creditor having
a prior lien to that of the redemptioner, other than the
judgment under which such purchase (sic), the amount of
such other lien, with interest.

Written notice of any redemption must be given to the

officer who made the sale and a duplicate filed with the
registry of deeds of the place, and if any assessments or
taxes are paid by the redemptioner or if he has or acquires
any lien other than that upon which the redemption was
made, notice thereof must in like manner be given to the
officer and filed with the registry of deeds; if such notice be
not filed, the property may be redeemed without paying
such assessments, taxes or liens.
In order to effect the redemption of the foreclosed property, the
foregoing provision notably requires the payment to the purchaser of the
following sums only: (a) the bid price; (b) the interest on the bid price,
computed at one per centum (1%) per month; and (c) the assessments or
taxes, if any, paid by the purchaser, with the same rate of interest.
When the statute is clear and explicit, the basic principle in legal
hermeneutics is to the effect that there is no need for an extended court
ratiocination on the law there is no room for interpretation, vacillation or
equivocation, only application. Having been made in accordance with
Act No. 3135, we find that appellee Matute's offer to redeem the subject
property in the amount of P1,672,770.00 was, therefore, unjustifiably
refused by appellant bank. Corollarily, the rule is settled that the person
effecting redemption is not mandated to pay the whole debt since, in
redemption of properties, the amount payable is no longer the judgment
debt but, rather, the purchase price thereby fetched at the auction sale.
As for the deficiency x x x, the consistent ruling in a cantena of Supreme
Court decisions is to the effect that the mortgagee has the right to recover
the same from the debtor where, in the extrajudicial foreclosure of
mortgage, the proceeds of the sale are insufficient to pay the debt. x x x
Considering, however, that the amount offered by appellee by way of
redemption consisted merely of the purchase price for the foreclosed
property, together with the interests thereon, we find that appellant bank
correctly takes exception to the trial court's imposition of legal interest
on the balance of the mortgage debt. If the obligation consists in the
payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall
be the payment of the interest agreed upon, and in the absence of

stipulation, the legal interest which is six per cent per annum. In the case
at bench, the interest imposable on the balance of the mortgage debt
should, therefore, be the sixteen per cent (16%) per annum provided
under
the
August
31,
1981
Promissory
Note
[22]
appellees EAI and LSMEI executed in favor of appellant.

DBP filed a motion for reconsideration. In its 16 August 2006 Resolution, the
Court of Appeals denied the motion. Hence, the present petition.
Issues
DBP raises as issues that the lower courts erred in finding that the bank chose Act
No. 3135 as the governing law for the extrajudicial foreclosure of the property,
including the determination of the redemption price, and in ruling that the
redemption price is equivalent to the P1,507,000 purchase price.
The Court's Ruling
The petition is meritorious.
Section 16 of Executive Order (EO) No. 81 states that the redemption price for
properties mortgaged to and foreclosed by DBP is equivalent to the remaining
balance of the loan.Section 16 states that, Any mortgagor of the Bank whose
property has been extrajudicially sold at public auction shall x x x have the right to
redeem the real property by paying to the Bank all of the latter's claims against
him, as determined by the Bank.
In Development Bank of the Philippines v. West Negros College, Inc.,[23] the Court
held that the redemption price for properties mortgaged to and foreclosed by DBP
is equivalent to the remaining balance of the loan, with interest at the agreed
rate. The Court held that:
It has long been settled that where the real property is mortgaged to
and foreclosed judicially or extrajudicially by the Development
Bank of the Philippines, the right of redemption may be exercised
only by paying to the Bank all the amount he owed the latter on the
date of the sale, with interest on the total indebtedness at the rate
agreed upon in the obligation from said date, unless the bidder has
taken material possession of the property or unless this had been

delivered to him, in which case the proceeds of the property shall

compensate the interest. x x x
The foregoing rule is embodied consistently in the charters of petitioner
DBP and its predecessor agencies. Section 31 of CA 459 creating the
Agricultural and Industrial Bank explicitly set the redemption price at
the total indebtedness plus contractual interest as of the date of the
auction sale. Under RA 85 the powers vested in and the duties conferred
upon the Agricultural and Industrial Bank by CA 459 as well as its
capital, assets, accounts, contracts, and choses in action were transferred
to the Rehabilitation Finance Corporation. It has been held that among
the salutary provisions of CA 459 ceded to the Rehabilitation Finance
Corporation by RA 85 was Sec. 31 defining the manner of redeeming
properties mortgaged with the corporation.Subsequently, by virtue of RA
2081 (1958), the powers, assets, liabilities and personnel of the
Rehabilitation Finance Corporation under RA 85 and CA 459,
particularly Sec. 31 thereof, were transferred to petitioner
DBP. Significantly, Sec. 31 of CA 459 has been reenacted substantially
in Sec. 16 of the present charter of the DBP, i.e., EO 81 (1986) as
amended by RA 8523 (1998).
xxxx
The unavoidable conclusion is that in redeeming the foreclosed
property respondent West Negros College as assignee of Bacolod
Medical Center should pay the balance of the amount owed by the
latter to petitioner DBP with interest thereon at the rate agreed upon
as of the date of the public auction on 24 August 1989.[24] (Emphasis
supplied)

In Development Bank of the Philippines v. Mirang,[25] the Court held that the
redemption price for properties morgaged to and foreclosed by DBP is equivalent
to the remaining balance of the loan, with interest at the agreed rate. The Court
held that, The unavoidable conclusion is that the appellant, in redeeming the
foreclosed property, should pay the entire amount he owed to the Bank on the
date of the sale, with interest thereon at the rate agreed upon.[26]
As early as 1960, the Court has already settled the issue. In Nepomuceno, et al. v.
Rehabilitation Finance Corporation,[27] the Court held that the redemption price for

properties morgaged to and foreclosed by DBP is equivalent to the remaining

balance of the loan, with interest at the agreed rate. The Court held that:
The issue posed in this appeal is: considering that the loan
of P300,000.00 was obtained from the Rehabilitation Finance
Corporation [now DBP] by spouses Jose Nepomuceno and Isabela Acua
and Jesus Nepomuceno merely acted as accomodation mortgagor, for
what price may the mortgagor redeem his property after the same has
been sold at public auction? Would it be for the price at which the
property was sold, as contended by the mortgagor, or for the balance of
the loan obtained by the borrowers from the banking institution, as
contended by appellant?
xxxx
[T]he inescapable conclusion is that the mortgagor herein or his
assignees cannot redeem the property in dispute without paying the
balance of the total indebtedness then outstanding on the date of the
sale to the Rehabilitation Finance Corporation.[28] (Emphasis
supplied)

The lower courts ruled that the redemption price for the property is equivalent to
the P1,507,000 purchase price because DBP chose Act No. 3135 as the governing
law for the extrajudicial foreclosure. The RTC and Court of Appeals, respectively,
stated that:
When defendant DBP foreclosed the mortgage at issue, it chose Act
3135. That was an option it freely exercised without the least
intervention of plaintiffs. We cannot, therefore, escape the conclusion
that what defendant DBP agreed to in respect to (sic) the possible
foreclosure of its mortgage was to subject the same to the provisions of
Act No. 3135, as amended, should the DBP opt to utilize said law.[29]
Thereunder given the choice of resorting to Act No. 3135 as amended, or
Republic Act No. 85 as amended, or Act No. 1508 as amended, appellant
bank undoubtedly opted for the first of the aforesaid laws as may be
gleaned from the following prayer it interposed in the application for
foreclosure of mortgage it filed with the Ex-Officio Sheriff of Quezon
City on October 25, 1990.[30]

The Court disagrees. Republic Act (RA) No. 85 and Act No. 1508 do not provide a
procedure for extrajudicial foreclosure of real estate mortgage. When DBP stated
in its letter to the ex-officio sheriff that the property be sold at public auction in
accordance with the provisions of Act 3135, it did so merely to find a proceeding
for the sale.
In Development Bank of the Philippines v. Zaragoza,[31] Development Bank of the
Philippines v. Mirang,[32] and Development Bank of the Philippines v. Jimenez, et
al.,[33] the Court held that when the bank resorted to Act No. 3135 in order to sell
the mortgaged property extrajudicially, it did so merely to find a proceeding for the
sale.
In its 10 October 2006 petition, DBP claims that when it resorted to Act No. 3135
in order to sell the mortgaged property extrajudicially, it did so merely to find a
proceeding for the sale. DBP stated that:
[W]hen herein petitioner resorted to Act 3135 in its application for
extrajudicial foreclosure of the subject mortgaged real estate, it did
so only to find a proceeding for the extrajudicial sale.The Court of
Appeals should have noted that neither Republic Act No. 85 (the Charter
of the Rehabilitation Finance Corporation) nor Act 1508 (Chattel
Mortgage Law) prescribe a procedure for extrajudicial foreclosure of
real estate mortgage as provided under Act 3135. Such action, therefore,
cannot be construed to mean a waiver of petitioner's right to demand the
payment of respondents' entire obligation as the proper redemption
price. There is no such waiver on the part of the petitioner.
xxxx
[I]t is hereby stressed that DBP did not elect Act 3135 to the exclusion of
other laws in the extrajudicial foreclosure of the subject mortgaged real
property. Such a conclusion is definitely contrary to law and
jurisprudence, which settled the rule that Act 3135 is the general law that
governs the procedure and requirements in extra-judicial foreclosure of
real estate mortgage, but in determining the redemption price of the
property mortgaged to the Development Bank of the Philippines, the
DBP Charter shall prevail.
It is of judicial notice that Act 3135 is the only law governing the
proceedings in extrajudicial foreclosure of real estate mortgage. Act No.

1508, on the other hand, governs the extrajudicial foreclosure of chattel

mortgage, and should not be in issue in the instant case which involves a
real estate mortgage.
It should likewise be of judicial notice that Republic Act No. 85 is the
charter of the Rehabilitation Finance Corporation, predecessor of
appellant DBP. RA 85 prescribes the redemption price, not the
proceedings and requirements in an extrajudicial foreclosure of real
estate mortgage such as those found in Act 3135.
x x x When appellant DBP cited Act 3135 in its Deed of Real Estate
Mortgage or even in the application for foreclosure of mortgage, it was
not a matter of making an exclusive option or choice because Act 3135
governs the procedure and requirements for an extrajudicial foreclosure
or real estate mortgage. In citing said law, Appellant DBP was merely
finding a proceeding for extra-judicial foreclosure sale x x x. And while
the said Act 3135 provides for redemption, such provision will not apply
in the determination of the redemption price on [sic] mortgages to
DBP.In the latter case, the DBP Charter will prevail. [34]

Even assuming that DBP chose Act No. 3135 as the governing law for the
extrajudicial foreclosure, the redemption price would still be equvalent to the
remaining balance of the loan. EO No. 81, being a special and subsequent law,
amended Act No. 3135 insofar as the as redemption price is concerned.
In Sy v. Court of Appeals,[35] the Court held that RA No. 337 amended Act No. 3135
insofar as the redemption price is concerned. The Court held that:
[T]he General Banking Act partakes of the nature of an amendment
to Act No. 3135 insofar as the redemption price is concerned, when
the mortgagee is a bank or banking or credit institution, Section 6 of Act
No. 3135 being, in this respect, inconsistent with Section 78 of the
General Banking Act. Although foreclosure and sale of the subject
property was done by SIHI pursuant to Act. No. 3135, x x x Section
78 of the General Banking Act, as amended provides the amount at
which the subject property is redeemable from SIHI, which is, in
this case, the amount due under the mortgage deed, or the
outstanding obligation of Carlos Coquinco, plus interest and
expenses.[36] (Emphasis supplied)

In Ponce de Leon v. Rehabilitation Finance Corporation,[37] the Court held that RA

No. 337, being a special and subsequent law, amended Act No. 3135 insofar as the
redemption price is concerned. The Court held that:
Rep. Act No. 337, otherwise known as The General Banking Act, is
entitled An Act Regulating Banks and Banking Institutions and for other
purposes. Section 78 thereof limits the amount of the loans that may be
given by banks and banking or credit institutions on the basis of the
appraised value of the property given as security, as well as provides
that, in the event of foreclosure of a real estate mortgage to said banks or
institutions, the property sold may be redeemed by paying the amount
fixed by the court in the order of execution, or the amount judicially
adjudicated to the creditor bank. This provision had the effect of
amending Section 6 of Act No. 3135, insofar as the redemption price
is concerned, when the mortgagee is a bank or a banking or credit
institution, said Section 6 of Act No. 3135 being, in this respect,
inconsistent with the above-quoted portion of Section 78 of Rep. Act
No. 337. In short, the Paraaque property was sold pursuant to said
Act No. 3135, but the sum for which it is redeemable shall be
governed by Rep. Act No. 337, which partakes of the nature of an
amendment to Act No. 3135, insofar as mortgages to banks or
banking or credit institutions are concerned, to which class the RFC
belongs. At any rate, the conflict between the two (2) laws must be
resolved in favor of Rep. Act No. 337, both as a special and as the
subsequent legislation.[38] (Emphasis supplied)

WHEREFORE, the Court GRANTS the petition. The Court PARTIALLY SETS
ASIDE the 16 January 2006 Decision and 16 August 2006 Resolution of the Court
of Appeals in CA-G.R. CV No. 46207. The Court gives respondent Mario Matute a
grace period of 60 calendar days from notice of finality of this Decision to redeem
the property, by paying petitioner Development Bank of the Philippines the
remaining balance of respondents Environmental Aquatics, Inc. and Land Services
and Management Enterprises, Inc.'s loan, plus expenses and interest at the agreed
rate computed from the 19 December 1990 public auction. If the bank has taken
material possession of the property, the possession of the property shall
compensate for the interest during the period of possession.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 121494

June 8, 2000

SPOUSES VICTOR ONG and GRACE TIU ONG, petitioners,

vs.
COURT OF APPEALS, HON. RODOLFO R. BONIFACIO in his capacity as Presiding Judge, RTC, Pasig
City, Branch 159; PROVINCIAL SHERIFF OF RIZAL GRACE S. BELVIS; DEPUTY SHERIFF VICTOR S.
STA. ANA; and PREMIERE DEVELOPMENT BANK, respondents.
RESOLUTION

QUISUMBING, J.:
Subject of the present petition for review on certiorari is the decision of the Court of Appeals in CA-G.R. SP. No.
34636 dismissing petitioner's special civil action for prohibition with preliminary injunction which sought to
enjoin public respondents from implementing a writ of possession issued in favor of private respondent. The
Court of Appeals likewise denied petitioners' Motion for Reconsideration.
Petitioners are the mortgagors of an 857 square meter lot and residential house in San Juan, Metro Manila,
evidenced by Transfer Certificate Title (TCT) No. (53788) 030-R. The real estate mortgage was used to secure
a promissory note (No. 275-2 and later 285-W) issued by Kenlene Laboratories, Inc. (debtor company), a
domestic corporation, in favor of private respondent Premiere Development Bank (mortgagee-bank).
Upon failure of the debtor company to pay its amortizations, the mortgagee-bank extrajudicially foreclosed the
real estate mortgage under the provisions of Act 3135, as amended by Act 4118. The mortgagee-bank was the
highest bidder. During the one-year redemption period, the mortgagee filed a petition with the Regional Trial
Court of Pasig City, Branch 159 for the issuance of a writ of possession, which was docketed as LRC Case No.
R-4874.
Upon the filing of a bond, the trial court issued the writ of possession. Petitioners filed a Motion for
Reconsideration and to Recall Writ of Possession, which was denied by the trial court.
Petitioners-mortgagors filed with the Court of Appeals a petition for prohibition with an application for a writ of
preliminary mandatory injunction1 to enjoin the implementation of the writ of possession. Petitioners alleged that
there is a pending case for annulment of extrajudicial foreclosure of real estate mortgage with an application for
preliminary injunction and temporary restraining order (TRO), docketed as Civil Case No. 64604, with the
Regional Trial Court of Pasig, Branch 157. Petitioners argued that the implementation of the writ of possession
would render nugatory the judgment of the trial court in Civil Case No. 64604.
Initially, the Court of Appeals granted the TRO, but later dismissed the petition for prohibition for lack of merit
based on:2 (1) failure to allege that there was no appeal or any plain, speedy and adequate remedy in the
ordinary course of law, (2) forum-shopping (though it did not explain why), and (3) Veloso v. IAC, 205 SCRA 22
(1992) which held that the pendency of a civil case for annulment of sale or reformation of contract is not
sufficient ground to deny the issuance of a writ of possession or for the suspension of the resolution thereof.
The Court of Appeals likewise denied petitioner's Motion for Reconsideration. 3
Hence, the present petition for review on certiorari.4

In their Memorandum,5 petitioners argue that the Court of Appeals should have enjoined the implementation of
the writ of possession (LRC Case No. R-4874) pending resolution of their separate case for annulment of
extrajudicial foreclosure of real estate mortgage (Civil Case No. 64604). Petitioners contend that if Civil Case
No. 64604 is resolved in their favor, the RTC-Pasig, Branch 157 cannot enforce it as against a co-equal court
which issued the writ of possession, hence the necessary recourse to the Court of Appeals and this Court.
Petitioners further invoke the case of Allied Bank v. Court of Appeals, G.R. No. 109253, February 7,
1994,6wherein both the SC and CA upheld the trial court's orders setting aside the certificate of sale and
nullifying the extrajudicial foreclosure proceedings on the ground of prematurity. The mortgagee bank therein
foreclosed the real estate mortgage prior to the maturity of the restructured loan. Worse, there was no
publication of the foreclosure sale. No writ of possession was issued in that case. Hence, Allied is not at fours
with this case, and petitioners not similarly situated.
Petitioners insist that appeal under Act 496 is not an available remedy because it merely refers to orders and
decisions of the trial court in "registration proceedings." Further, appeal, even if available, would not be
adequate and speedy remedy because it would not stop the sheriff from implementing the writ of possession.
Lastly, petitioners maintain that the order issuing the writ of possession has not yet attained finality because of
the present petition for prohibition. Inasmuch as the extrajudicial foreclosure proceedings are a nullity, the
issuance of the writ of possession was in excess of jurisdiction, hence correctible by certiorari or prohibition.
On the other hand, in its Memorandum,7 private respondent (mortgagee-bank) contends, in gist, that prohibition
does not lie since petitioners in fact has two remedies available (1) appeal of the order issuing the writ of
possession under Sec. 8 of Act 3135, as amended by Act 4118, and (2) their separate action for annulment of
foreclosure of mortgage. For failure to avail of the first remedy, the issue of possession already attained finality.
Private respondent concedes, nevertheless, that its possession of the mortgaged property would still be subject
to the outcome of Civil Case No. 64604. Further, private respondent claims that the pendency of both the
petition for prohibition and Civil Case No. 64604, both aimed at preventing the implementation of the writ of
possession, constitutes forum shopping.
Simply put, the issues are: (1) Whether or not prohibition lies to enjoin the issuance of a writ of possession? (2)
Whether or not petitioners are guilty of forum shopping?
A writ of possession is "a writ of execution employed to enforce a judgment to recover the possession of land. It
commands the sheriff to enter the land and give possession of it to the person entitled under the judgment." 8
A writ of possession may be issued under the following instances: 9 (1) land registration proceedings under Sec.
17 of Act 496; 10 (2) judicial foreclosure, provided the debtor is in possession of the mortgaged realty and no
third person, not a party to the foreclosure suit, had intervened; 11 and (3) extrajudicial foreclosure of a real
estate mortgage under Sec. 7 of Act 3135 as amended by Act 4118.
The present case falls under the third instance. Under Sec. 7 of Act 3135 as amended by Act 4118, a writ of
possession may be issued either (1) within the one year redemption period, upon the filing of a bond, or (2)
after the lapse of the redemption period, without need of a bond. 12 Sec. 7 of Act 3135, as amended by Act
4118, provides
Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First
Instance of the province or place where the property or any part thereof is situated, to give him
possession thereof during the redemption period, furnishing bond in an amount equivalent to the use
of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale
was made without violating the mortgage or without complying with the requirements of this Act. Such
petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral
proceedings if the property is registered, or in special proceedings in the case of property registered
under the Mortgage Law or under sec. 194 of the Administrative Code, or of any other real property
encumbered with a mortgage duly registered in the office of any register of deeds in accordance with
any existing law, and in each case the clerk of court shall, upon the filing of such petition, collect the

fees specified in par. 11 of sec 114 of Act No. 496, and the court shall, upon approval of the bond,
order that a writ of possession issue, addressed to the sheriff of the province in which the property is
situated, who shall execute said order immediately.
In case it is disputed that there was violation of the mortgage or that the procedural requirements for the
foreclosure sale were not followed, Sec. 8 of Act 3135 as amended by Act 4118, provides that the mortgagor
may file a petition with the trial court which issued the writ to set aside the sale and for cancellation of the writ of
possession within 30 days after the purchaser-mortgagee was given possession. Sec. 8 of Act 3135 as
amended by Act 4118, provides
Sec. 8. The debtor may, in the proceedings in which possession was requested, but not later than
thirty days after the purchaser was given possession, petition that the sale be set aside and the writ of
possession cancelled, specifying the damages suffered by him, because the mortgage was not
violated or the sale was not made in accordance with the provisions hereof, and the court shall take
cognizance of this petition in accordance with the summary procedure provided for in section one
hundred and twelve of Act No. 496; and if it finds the complaint of the debtor justified, it shall dispose in
his favor of all or part of the bond furnished by the person who obtained possession. Either of the
parties may appeal from the order of the judge in accordance with section 14 of Act No. 196; but the
order of possession shall continue in effect during the pendency of the appeal.
The law is clear that the purchaser must first be placed in possession of the mortgaged property pending
proceedings assailing the issuance of the writ of possession. If the trial court later finds merit in the petition to
set aside the writ of possession, it shall dispose in favor of the mortgagor the bond furnished by the purchaser.
Thereafter, either party may appeal from the order of the judge in accordance with Section 14 of Act 496, which
provides that "every order, decision, and decree of the Court of Land Registration may be reviewed . . . in the
same manner as an order, decision decree or judgment of a Court of First Instance (RTC) might be reviewed."
The rationale for the mandate is to allow the purchaser to have possession of the foreclosed property without
delay, such possession being founded on his right of ownership. 13
In several cases, 14 the Court has ruled that the issuance of a writ of possession is a ministerial function. "The
order for a writ of possession issues as a matter of course upon the filing of the proper motion and the approval
of the corresponding bond. The judge issuing the order following these express provisions of law cannot be
charged with having acted without jurisdiction or with grave abuse of discretion." 15 Therefore, the issuance of
the writ of possession being ministerial in character, the implementation of such writ by the sheriff is likewise
ministerial.
Contrary to petitioners' protestations that Veloso v. Intermediate Appellate Court, 205 SCRA 227 (1992) should
only apply to cases wherein the one-year period for redemption has already lapsed, Veloso makes no such
distinction. In said case, the Court merely observed that
Worthy of note is that petitioners do not impugn the validity of the mortgage at its inception. Their
assault is on it is founded on events allegedly transpiring after its execution. The tenability of their
challenge to the mortgage may well be determined in the civil action (No. 136559) instituted by them in
the Manila Regional Trial Court. But clearly, the pendency of that action does not and cannot bar the
issuance of a writ of possession to the mortgagee who has, in the meantime, extrajudicially foreclosed
the mortgaged property and acquired it as highest bidder in the subsequent public auction sale. The
law is quite explicit on this point, and the right of the mortgagee thereunder unquestionable. And
decisions abound applying the law and declaring it to be the court's ministerial duty to uphold the
mortgagee's right to possession even during the redemption period. 16
As a rule, any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for
refusing the issuance of a writ of possession. 17 Regardless of whether or not there is a pending suit for
annulment of the mortgage or the foreclosure itself, the purchaser is entitled to a writ of possession, without
prejudice of course to the eventual outcome of said case. Hence, an injunction to prohibit the issuance of writ of
possession is entirely out of place. 18

The foregoing considered, the petition for review on certiorari assailing the dismissal of the petition for
prohibition must fail.
First. Under Section 2 of Rule 65 of the Rules of Court, prohibition can only be availed of if there is no appeal,
or any other plain, speedy, adequate remedy in the ordinary course of law. In this case, appeal under Sec. 8 of
Act 3135, as amended by Act 4118, is still available. Further, petitioners have a plain, speedy and adequate
remedy in the ordinary course of law, which is their separate case for annulment of the foreclosure of mortgage.
Second. Prohibition does not lie to enjoin the implementation of a writ of possession.
In PNB v. Adil, 118 SCRA 116 (1982), the Court held that "once the writ of possession has been issued, the trial
court has no alternative but to enforce the writ without delay." The Court found it gross error for the judge to
have suspended the implementation of the writ of possession on a very dubious ground as "humanitarian
reason."
With regard to the second issue, it will be recalled that the essence of forum-shopping is the filing of multiple
suits involving the same parties for the same cause of action, either simultaneously or successively, for the
purpose of obtaining favorable judgment. 19 It exists where the elements of litis pendentia are present or where
a final judgment in one case will amount to res judicata in another. 20 The issuance of the writ of possession
being a ministerial function, and summary in nature, it cannot be said to be a judgment on the merits, but
simply an incident in the transfer of title. Hence, a separate case for annulment of mortgage and foreclosure
sale cannot be barred by litis pendentia or res judicata. 21 Clearly, insofar as LRC Case No. R-4874 and Civil
Case No. 64604 pending before different RTCs are concerned, there is no forum shopping.
In fact, in Nartates v. GSIS, 156 SCRA 205 (1987), two cases, one for annulment of foreclosure proceedings
(G.R. No. L-47669) and another for annulment of the writ of possession (G.R. No. L-47744), both reached this
Court at the same time. The Court consolidated the cases since they both stemmed from the foreclosure of the
GSIS of the property mortgaged to it by petitioner. As to the issuance of the writ of possession, the Court
upheld the issuance of the writ. As to the foreclosure proceedings, the records being complete, the Court found
the foreclosure in order.
In this case, however, only the issue of the implementation of the writ of possession is before us. Civil Case
No. 64604 is still pending with the trial court. Hence, the allegations as to the failure to comply with procedural
requirements of the extrajudicial foreclosure sale, being factual, is for the trial court to determine. 22
1awphil

As of the time of filing the petition, private respondent bank has not yet been placed in possession of the
property. Section 8 of Act 3135 as amended by Act 4118 provides that petitioners-mortgagors have "30 days
after the purchaser was given possession" to file a petition that the sale be set aside and the writ of possession
cancelled. Hence, the filing of the petition for prohibition with the CA to enjoin the implementation of the writ of
possession is ill-advised and premature.
WHEREFORE, the instant petition for review on certiorari is DENIED for lack of merit. Costs against
petitioners.
SO ORDERED.

FIRST DIVISION

SPOUSES BASILIO and

NORMA HILAGA,

G.R. No. 179781

Petitioners,

Present:

- versus -

PUNO, C.J., Chairperson,

RURAL BANK OF ISULAN
(Cotabato, Inc., as
represented by its
Manager),
Respondent.

CARPIO MORALES,
LEONARDO-DE CASTRO,
BERSAMIN, and
VILLARAMA, JR., JJ.

Promulgated:
April 7, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
VILLARAMA, JR., J.:
Petitioners appeal from the Decision [1] dated May 25, 2007
and Resolution[2] dated August 6, 2007 of the Court of Appeals

(CA) in C.A.-G.R. CV No. 81979 which had reversed the August 8,

2003 Judgment[3] of the Regional Trial Court of Surallah, South
Cotabato, Branch 26 in Civil Case No. 666-N for Redemption of
Foreclosed Mortgaged Property Under [Act No.] 3135. The
appellate court held that petitioners right to redeem the
foreclosed property from the respondent bank had expired.
The following facts are established:
Petitioners Basilio and Norma B. Hilaga were the owners of a
parcel of land, identified as Lot No. 172-A, Pls-212-D-7, located at
Barrio Lopez Jaena, Municipality of Norala, Province of South
Cotabato and containing an area of 46,868 square meters, more
or less.
On March 16, 1970, petitioners obtained a loan from
respondent Rural Bank of Isulan (Cotabato) Inc., in the amount
of P2,500.00. To secure the loan, they executed a Real Estate
Mortgage[4] over the above-mentioned property which was then
covered only by Tax Declaration No. 5537. [5] When petitioners
failed to pay their obligation when it became due on March 19,
1971, the respondent bank initiated foreclosure proceedings. The
subject property was sold at a public auction by the Provincial
Sheriff on April 20, 1977 and a Certificate of Extrajudicial
Sale[6] was issued in favor of the Rural Bank of Isulan (Cotabato)
Inc. as the highest bidder. The respondent bank then took
possession of the foreclosed property. Meanwhile, unknown to
respondent bank, a Free Patent title [7] (Original Certificate of Title
No. P-19766) had been issued in favor of petitioners on August 4,
1976 or before the foreclosure sale.
On September 21, 1994, or more than seventeen (17) years
after the foreclosure sale, petitioner Basilio Hilaga sent a
letter[8] to the respondent banks lawyer, the late Atty. Ismail
Arceno, conveying his desire to redeem the subject
property. When the letter remained unanswered, petitioners,
through their counsel, again sent a letter [9] dated May 4, 1999,
seeking to redeem the foreclosed property. The second letter,
however, also remained unheeded.

Thus,
on
June
3,
1999,
petitioners
filed
a
[10]
complaint
for Redemption of Foreclosed Mortgaged Property
Under [Act No. 3135] before the Regional Trial Court of Surallah,
South Cotabato, Branch 26, seeking to redeem the subject
property from the respondent bank under the provisions of Act
No. 3135. In their complaint, petitioners alleged that the
mortgage and subsequent foreclosure of the subject property had
not been annotated on the title nor registered with the Register of
Deeds. Also, no annotation and consolidation of ownership was
made in favor of the respondent bank. Thus, the one (1)-year
redemption period under Act No. 3135, which commences from
the date of registration of the sale, has not yet started. They
insisted that, indeed, their right of redemption has not yet expired
because under Section 119 of Commonwealth Act No. 141 or
the Public Land Act, a homesteader whose homestead has been
sold at a public auction by virtue of an extrajudicial foreclosure,
may repurchase said land within five (5) years from the date of
registration of the sale. Thus, they can still exercise their right of
redemption. They signified their willingness to redeem or
repurchase the foreclosed property by depositing the amount
of P10,000.00 with the court.
In its Answer with Counterclaim,[11] the respondent bank
averred that when the real estate mortgage in its favor was
executed, the parcel of land was merely covered by a tax
declaration. That unknown to the respondent bank, petitioners
proceeded to apply for and cause the issuance in 1976 of a free
patent and torrens title to the land; hence, they are estopped to
claim that the parcel of land mortgaged is covered by a free
patent and torrens title. They likewise cannot avail of the benefits
afforded to a grantee of a public land under the Homestead and
Free Patent Laws because they violated the terms and conditions
of their application to avail of a grant by homestead or free patent
when they mortgaged the land.
As aforesaid, the trial court rendered judgment in favor of
petitioners. The trial court ruled that because the certificate of
sale was not registered, petitioners can still redeem the subject
property. The dispositive portion of the trial courts decision reads--

IN
VIEW
OF
THE
FOREGOING
PREMISES, judgment is hereby rendered in favor of the
Plaintiffs, thereby ordering the defendant Bank:
1) to allow the plaintiffs to exercise their right of
redemption under Act 3135 over the foreclosed property
described above in the amount corresponding to the
principal obligation, plus the corresponding interest
accruing from the date of the filing of this case[; and]
2) to pay attorneys fees in the amount of FIVE
THOUSAND PESOS (PH 5,000.00).
SO ORDERED.[12]

On appeal, the CA reversed the trial court. According to the

CA, the right of petitioners to redeem their foreclosed property
can only be exercised within two (2) years from the date of
foreclosure, as provided under Republic Act No. 720 [13] or
the Rural Banks Act, as amended by Republic Act No. 2670. The
CA also ruled that petitioners are guilty of laches.
On August 6, 2007, the CA denied petitioners motion for
reconsideration.
Hence, this appeal.
Petitioners alleged that-I
THE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR OF LAW IN HOLDING THAT THE APPLICABLE LAW
IS ACT NO. 3135, AS AMENDED BY ACT NO. 4118 IN
CONJUNCTION WITH REPUBLIC ACT NO. 720 AS
AMENDED BY REPUBLIC ACT NO. 2670 (RURAL BANK ACT).

II

THE COURT OF APPEALS COMMITTED A REVERSIBLE

ERROR OF LAW AND GRAVE ABUSE OF DISCRETION IN
HOLDING THAT PETITIONERS HAS ONLY TWO YEARS TO
REDEEM THEIR PROPERTY FROM THE ISSUANCE OF
CERTIFICATE OF SALE AFTER THE SAME WAS
FORECLOSED.
III
THE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR OF LAW AND GRAVE ABUSE OF DISCRETION IN
DECLARING THAT PETITIONERS ARE GUILTY OF LACHES.
[14]

Essentially, the issue is whether petitioners can still redeem

their foreclosed property.
Petitioners assail the CAs ruling that they only have two (2) years
from the time the certificate of sale was issued to the respondent
bank to redeem the property. Petitioners submit that they can still
redeem their foreclosed property from respondent bank since
under the provisions of Act No. 3135, as amended, the one (1)year redemption period should start from the date of registration
of the certificate of sale with the Register of Deeds.
They admit that when the property was mortgaged, the property
was covered by a mere tax declaration. However, they point out
that even though a free patent title was later issued to them,
respondent bank still opted to foreclose the property under Act
No. 3135, as amended, and not under Republic Act No. 720 or
the Rural Banks Act, nor under Act No. 3344 or the Spanish
Mortgage Law. Thus, under the provisions of Act No. 3135, they
have one (1) year from the date of the registration of the sale to
redeem the mortgaged property. Because no registration of the
sale was effected, they can still redeem the property from the
respondent bank.
The petition has no merit.

Section 5 of Republic Act No. 720, as amended by Republic Act

Nos. 2670 and 5939, specifically provides for the redemption
period for lands foreclosed by rural banks. It provides in part as
follows:
SEC. 5. x x x
Loans may be granted by rural banks on the security
of lands without Torrens titles where the owner of private
property can show five years or more of peaceful,
continuous and uninterrupted possession in the concept
of an owner; x x x or of homesteads or free patent lands
pending the issuance of titles but already approved, the
provisions of any law or regulations to the contrary
notwithstanding: Provided, That
when
the
corresponding titles are issued the same shall be
delivered to the register of deeds of the province
where such lands are situated for the annotation of
the encumbrance: x x x
x x x Provided, That when a homestead or free
patent land is foreclosed, the homesteader or free patent
holder, as well as their heirs shall have the right to
redeem the same within two years from the date of
foreclosure in case of a land not covered by a Torrens title
or two years from the date of the registration of the
foreclosure in case of a land covered by a Torrens title x x
x.

In Sta. Ignacia Rural Bank, Inc. v. Court of Appeals,[15] we

summarized the rules on redemption in the case of an
extrajudicial foreclosure of land acquired under our free patent or
homestead statutes as follows. If the land is mortgaged to a rural
bank under Republic Act No. 720, as amended, the mortgagor
may redeem the property within two (2) years from the
date of foreclosure or from the registration of the sheriffs
certificate of sale at such foreclosure if the property is not
covered or is covered, respectively, by a Torrens title. If the
mortgagor fails to exercise such right, he or his heirs may still

repurchase the property within five (5) years from the expiration
of the two (2)-year redemption period pursuant to Section 119 of
the Public Land Act (C.A. No. 141). If the land is mortgaged to
parties other than rural banks, the mortgagor may redeem the
property within one (1) year from the registration of the certificate
of sale pursuant to Act No. 3135. If he fails to do so, he or his
heirs may repurchase the property within five (5) years from the
expiration of the redemption period also pursuant to Section 119
of the Public Land Act.
In the present case, petitioners admit that when the property
was mortgaged, only the tax declaration was presented. Although
a free patent title was subsequently issued in their favor on
August 4, 1976, petitioners failed to inform the creditor rural bank
of such issuance. As a result, the certificate of sale was not
registered or annotated on the free patent title. Petitioners are
estopped from redeeming the property based on the free patent
title which was not presented during the foreclosure sale nor
delivered to the Register of Deeds for annotation of the certificate
of sale as required under Section 5 of Republic Act No. 720, as
amended. Estoppel in pais arises when one, by his acts,
representations or admissions, or by his own silence when he
ought to speak out, intentionally or through culpable negligence,
induces another to believe certain facts to exist and such other
rightfully relies and acts on such belief, so that he will be
prejudiced if the former is permitted to deny the existence of such
facts.[16]
Petitioners cannot fault respondent for the non-registration of
the certificate of sale because petitioners did not inform the
respondent bank that a Torrens title had already been acquired by
them on August 4, 1976. By their silence and inaction, petitioners
misled the respondent bank to believe that their only proof of
ownership was the tax declaration. Thus, the two (2)-year
redemption period shall be reckoned from the date of the
foreclosure. Apropos is the CAs ruling on this matter:
It is undisputed that the foreclosed property was not
yet covered by a Torrens title, being merely covered by a

Tax Declaration, when appellees mortgaged their

property. Clearly, the right of appellees to redeem their
foreclosed property can only be exercised within two (2)
years from the date of foreclosure, as provided for under
R.A. No. 720, as amended by R.A. No. 2670. When the
instant suit commenced on 31 May 1999, appellees right
to redeem had already lapsed since they had only until
1979 to exercise their right of redemption or within two
(2) years from the foreclosure proceedings in 1977.[17]

For the same reason, petitioners assertion that they will have
five (5) years from the date of registration of the sale to redeem the
foreclosed property under Section 119 of thePublic Land Act has no
merit, the reckoning period for the redemption period being
properly from the date of sale.
But even assuming arguendo that petitioners can avail of the
five (5)-year redemption period provided under Section 119 of
the Public Land Act, they still failed to exercise their right of
redemption within the reglementary period provided by law. As
mentioned earlier, Section 119 of said Act expressly provides that
where the land involved is acquired as a homestead or under a
free patent, if the mortgagor fails to exercise the right of
redemption, he or his heirs may still repurchase the property
within five (5) years from the expiration of the two (2)-year
redemption period. The auction sale having been conducted on
April 20, 1977, petitioners had until April 20, 1984 within which to
redeem the mortgaged property. Since petitioner only filed the
instant suit in 1999, their right to redeem had already lapsed. It
took petitioners twenty-two (22) years before instituting an action
for redemption. The considerable delay in asserting ones right
before a court of justice is strongly persuasive of the lack of merit
in petitioners claim, since it is human nature for a person to
enforce his right when the same is threatened or invaded. [18]
WHEREFORE,
the
petition
for
review
on certiorari is
hereby DENIED, for lack of merit. The Decision and Resolution of

the Court of Appeals dated May 25, 2007 and August 6, 2007,
respectively, in C.A.-G.R. CV No. 81979 are AFFIRMED.
With cost against the petitioners.
SO ORDERED.
Truth in Lending Act
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 161397

June 30, 2005

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.
FELIPE P. ARCILLA, JR., Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 161426

June 30, 2005

FELIPE P. ARCILLA, JR., Petitioner,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.
DECISION
CALLEJO, SR., J.:
Atty. Felipe P. Arcilla, Jr. was employed by the Development Bank of the Philippines (DBP) in October 1981.
About five or six months thereafter, he was assigned to the legal department, and thereafter, decided to avail of
a loan under the Individual Housing Project (IHP) of the bank. 1 On September 12, 1983, DBP and Arcilla
executed a Deed of Conditional Sale2 over a parcel of land, as well as the house to be constructed thereon, for
the price ofP160,000.00. Arcilla borrowed the said amount from DBP for the purchase of the lot and the
construction of a residential building thereon. He obliged himself to pay the loan in 25 years, with a monthly
amortization ofP1,417.91, with 9% interest per annum, to be deducted from his monthly salary.3
DBP obliged itself to transfer the title of the property upon the payment of the loan, including any increments
thereof. It was also agreed therein that if Arcilla availed of optional retirement, he could elect to continue paying
the loan, provided that the loan/amount would be converted into a regular real estate loan account with the
prevailing interest assigned on real estate loans, payable within the remaining term of the loan account. 4
Arcilla was notified of the periodic release of his loan.5 During the period of July 1984 to December 31, 1986,
the monthly amortizations for the said account were deducted from his monthly salary, for which he was issued
receipts.6

The monthly amortization was increased to P1,468.92 in November 1984, and to P1,691.51 beginning January
1985. However, Arcilla opted to resign from the bank in December 1986. Conformably with the Deed of
Conditional Sale, the bank informed him, on June 11, 1987, that the balance of his loan account with the bank
had been converted to a regular housing loan, thus:
Amount converted
to PHLoan

Interest Rate

Monthly
Amortization

Remaining Term

P 155,218.79 - 1

9%

22 yrs. & 6 mos<

P1,342.72

6,802.45 - 2

9%

21 yrs. & 10 mos.

59.41

24,342.91 - 3

9%

22 yrs.

212.07

Plus: MRI at PC. 41/thousand

P1,614.20
76.41

P186,364.15

Total

On July 24, 1987, Arcilla signed three Promissory Notes 8 for the total amount of P186,364.15. He was also
obliged to pay service charge and interests, as follows:
a.1 On the amount advanced or balance thereof that remains unpaid for 30 days* or less:
i. Interest on advances at 7% p.a. over DBP's borrowing cost:
ii. No 2% service charge
iii. No 8% penalty charge
a.2 On the amount advanced or balance thereof that remains unpaid for more than 30 days:
i. Interest on the advance at 7% p.a.
over DBP's borrowing cost;

]
]

ii. One time 2% service charge

-- To be computed from

iii. Interest on the service charge

the start of the 30-day

iv. 8% penalty charge on the balances

of the advances and service charge.9

period

Arcilla also agreed to pay to DBP the following:

*Insurance Premiums - 30-day period to be computed from date of advances
Other Advances - 30-day period to be computed from date of notification
b. Taxes
b.1

One time service charge

b.2 Interest and penalty charge

i. Interest of the advance at

2% of the amount advanced

Interest - 7% p.a. over borrowing cost
Penalty charge 8% p.a. if unpaid
after 30 days from date of advance
]

P1,690.617
=========

7% p.a. over DBP's

borrowing costs;

]--

ii. One time 2% service charge

iii. Interest on the service charge

iv. 8% penalty charge on the

balances of the advance and
service charge.

]
]
]

To be computed from start of 30-day period

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

Other Advances - 30-day period to be computed from date of notification.
b. Taxes
b.1

One time service charge

b.2 Interest and penalty charge

2% of the amount advanced

Interest - 7% p.a. over borrowing cost
Penalty charge 8% p.a. if unpaid
after 30 days from date of advance

However, Arcilla also agreed to the reservation by the DBP of its right to increase (with notice to him) the "rate
of interest on the loan, as well as all other fees and charges on loans and advances pursuant to such policy as
it may adopt from time to time during the period of the loan; Provided, that the rate of interest on the loan shall
be reduced by law or by the Monetary Board; Provided, further, that the adjustment in the rate of interest shall
take effect on or after the effectivity of the increase or decrease in the maximum rate of interest." 10
Upon his request, DBP agreed to grant Arcilla an additional cash advance of P32,000.00. Thereafter, on May
23, 1984, a Supplement to the Conditional Sale Agreement was executed in which DBP and Arcilla agreed on
the following terms of the loan:
Amount
P32,000.00

Interest Rate Per Annum

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

Terms
24 years

Amortization
P271.57
12.80

P32,000.00

same to be consolidated with the

original advance in accordance with
Condition No. 8 hereof.11

(Est.
Amort.)

P 284.37
=========

The additional advance was, thus, consolidated to the outstanding balance of Arcilla's original advance,
payable within the remaining term thereof at 9% per annum. However, he failed to pay his loan account,
advances, penalty charges and interests which, as of October 31, 1990, amounted to P241,940.93.12 DBP
rescinded the Deed of Conditional Sale by notarial act on November 27, 1990. 13 Nevertheless, it wrote Arcilla,
on January 3, 1992, giving him until October 24, 1992, within which to repurchase the property upon full
payment of the current appraisal or updated total, whichever is lesser; in case of failure to do so, the property
would be advertised for bidding.14 DBP reiterated the said offer on October 7, 1992.15 Arcilla failed to respond.
Consequently, the property was advertised for sale at public bidding on February 14, 1994. 16
Arcilla filed a complaint against DBP with the Regional Trial Court (RTC) of Antipolo, Rizal, on February 21,
1994. He alleged that DBP failed to furnish him with the disclosure statement required by Republic Act (R.A.)
No. 3765 and Central Bank (CB) Circular No. 158 prior to the execution of the deed of conditional sale and the
conversion of his loan account with the bank into a regular housing loan account. Despite this, DBP

immediately deducted the account from his salary as early as 1984. Moreover, the bank applied its own formula
and imposed its usurious interests, penalties and charges on his loan account and advances. He further
alleged, thus:
13. That when plaintiff could no longer cope-up with defendant's illegal and usurious impositions, the DBP
unilaterally increased further the rate of interest, without notice to the latter, and heaped-up usurious interests,
penalties and charges;
--14. That to further bend the back of the plaintiff, defendant rescinded the subject deed of conditional sale on 4
December 1990 without giving due notice to plaintiff;
15. That much later, on 10 October 1993, plaintiff received a letter from defendant dated 19 September 1993,
informing plaintiff that the subject deed of conditional sale was already rescinded on 4 December 1990 (xerox
copy of the same is hereto attached and made an integral part hereof as Annex "C"; 17
In its answer to the complaint, the DBP alleged that it substantially complied with R.A. No. 3765 and CB
Circular No. 158 because the details required in said statements were particularly disclosed in the promissory
notes, deed of conditional sale and the required notices sent to Arcilla. In any event, its failure to comply strictly
with R.A. No. 3765 did not affect the validity and enforceability of the subject contracts or transactions. DBP
interposed a counterclaim for the possession of the property.
On April 27, 2001, the trial court rendered judgment in favor of Arcilla and nullified the notarial rescission of the
deeds executed by the parties. The fallo of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendant. Defendant is hereby directed to furnish the disclosure statement to the plaintiff within five (5) days
upon receipt hereof in the manner and form provided by R.A. No. 3765 and submit to this Court for approval
the total obligation of the plaintiff as of this date, within ten (10) days from receipt of this order. The Notarial
Rescission (Exh. "16") dated November 27, 1990 is hereby declared null and void. Costs against the
defendant.
1avvphil.zw+

SO ORDERED.18
DBP appealed the decision to the Court of Appeals (CA) wherein it made the following assignment of errors:
4.1. The trial court erred in ruling that the provision of the details of the loan without the issuance of a
"Disclosure Statement" is not compliance with the "Truth in Lending Act;"
4.2. The trial court erred in declaring the Notarial Rescission null and void; and
4.3. The trial court erred in denying DBP's counterclaims for recovery of possession, back rentals and
litigation expenses.19
On May 29, 2003, the CA rendered judgment setting aside and reversing the decision of the RTC. In ordering
the dismissal of the complaint, the appellate court ruled that DBP substantially complied with R.A. No. 3765
and CB Circular No. 158. Arcilla filed a motion for reconsideration of the decision. For its part, DBP filed a
motion for partial reconsideration of the decision, praying that Arcilla be ordered to vacate the property.
However, the appellate court denied both motions.
The parties filed separate petitions for review on certiorari with this Court. The first petition,
entitled Development Bank of the Philippines v. Court of Appeals, was docketed as G.R. No. 161397; the
second petition, entitled Felipe Arcilla, Jr. v. Court of Appeals, was docketed as G.R. No. 161426. The Court
resolved to consolidate the two cases.

The issues raised in the two petitions are the following: a) whether or not petitioner DBP complied with the
disclosure requirement of R.A. No. 3765 and CB Circular No. 158, Series of 1978, in the execution of the deed
of conditional sale, the supplemental deed of conditional sale, as well as the promissory notes; and b) whether
or not respondent Felipe Arcilla, Jr. is mandated to vacate the property and pay rentals for his occupation
thereof after the notarial rescission of the deed of conditional sale was rescinded by notarial act, as well as the
supplement executed by DBP.
On the first issue, Arcilla avers that under R.A. No. 3765 and CB Circular No. 158, the DBP, as the creditor
bank, was mandated to furnish him with the requisite information in such form prescribed by the Central Bank
before the commutation of the loan transaction. He avers that the disclosure of the details of the loan contained
in the deed of conditional sale and the supplement thereto, the promissory notes and release sheet, do not
constitute substantial compliance with the law and the CB Circular. He avers that the required disclosure did
not include the following:
[T]he percentage of Finance Charges to Total Amount Financed (Computed in accordance with Sec. 2(i) of
CB Circular 158; the Additional Charges in case certain stipulations in the contract are not met by the debtor;
Total Non-Finance Charges; Total Finance Charges, Effective Interest Rate, etc. 20
Arcilla further posits that the failure of DBP to comply with its obligation under R.A. No. 3765 and CB Circular
No. 158 forecloses its right to rescind the transaction between them, and to demand compliance of his
obligation arising from said transaction. Moreover, the bank had no right to deduct the monthly amortizations
from his salary without first complying with the mandate of R.A. No. 3765.
DBP, on the other hand, avers that all the information required by R.A. No. 3765 was already contained in the
loan transaction documents. It posits that even if it failed to comply strictly with the disclosure requirement of
R.A. No. 3765, nevertheless, under Section 6(b) of the law, the validity and enforceability of any action or
transaction is not affected. It asserts that Arcilla was estopped from invoking R.A. No. 3765 because he failed
to demand compliance with R.A. No. 3765 from the bank before the consummation of the loan transaction, until
the time his complaint was filed with the trial court.
In its petition in G.R. No. 161397, DBP asserts that the RTC erred in not rendering judgment on its
counterclaim for the possession of the subject property, and the liability of Arcilla for rentals while in the
possession of the property after the notarial rescission of the deeds of conditional sale. For his part, Arcilla (in
G.R. No. 161426) insists that the respondent failed to comply with its obligation under R.A. No. 3765; hence,
the notarial rescission of the deed of conditional sale and the supplement thereof was null and void. Until DBP
complies with its obligation, he is not obliged to comply with his.
The petition of Arcilla has no merit.
Section 1 of R.A. No. 3765 provides that prior to the consummation of a loan transaction, the bank, as creditor,
is obliged to furnish a client with a clear statement, in writing, setting forth, to the extent applicable and in
accordance with the rules and regulations prescribed by the Monetary Board of the Central Bank of the
Philippines, the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in connection with
the transaction but which are not incident to the extension of credit;
(5) the total amount to be financed;

(6) the finance charges expressed in terms of pesos and centavos; and
(7) the percentage that the finance charge bears to the total amount to be financed expressed as a
simple annual rate on the outstanding unpaid balance of the obligation.
Under Circular No. 158 of the Central Bank, the information required by R.A. No. 3765 shall be included in the
contract covering the credit transaction or any other document to be acknowledged and signed by the debtor,
thus:
The contract covering the credit transaction, or any other document to be acknowledged and signed by the
debtor, shall indicate the above seven items of information. In addition, the contract or document shall specify
additional charges, if any, which will be collected in case certain stipulations in the contract are not met by the
debtor.
Furthermore, the contract or document shall specify additional charges, if any, which will be collected in case
certain stipulations in the contract are not met by the debtor.21
If the borrower is not duly informed of the data required by the law prior to the consummation of the availment
or drawdown, the lender will have no right to collect such charge or increases thereof, even if stipulated in the
promissory note.22 However, such failure shall not affect the validity or enforceability of any contract or
transaction.23
In the present case, DBP failed to disclose the requisite information in the disclosure statement form authorized
by the Central Bank, but did so in the loan transaction documents between it and Arcilla. There is no evidence
on record that DBP sought to collect or collected any interest, penalty or other charges, from Arcilla other than
those disclosed in the said deeds/documents.
1avvphi1.zw+

The Court is convinced that Arcilla's claim of not having been furnished the data/information required by R.A.
No. 3765 and CB Circular No. 158 was but an afterthought. Despite the notarial rescission of the conditional
sale in 1990, and DBP's subsequent repeated offers to repurchase the property, the latter maintained his
silence. Arcilla filed his complaint only on February 21, 1994, or four years after the said notarial rescission.
The Court finds and so holds that the following findings and ratiocinations of the CA are correct:
After a careful perusal of the records, We find that the appellee had been sufficiently informed of the terms and
the requisite charges necessarily included in the subject loan. It must be stressed that the Truth in Lending Act
(R.A. No. 3765), was enacted primarily "to protect its citizens from a lack of awareness of the true cost of credit
to the user
by using a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of
the national economy" (Emata vs. Intermediate Appellate Court, 174, SCRA 464 [1989]; Sec. 2, R.A. No.
3765).Contrary to appellee's claim that he was not sufficiently informed of the details of the loan, the records
disclose that the required informations were readily available in the three (3) promissory notes he executed.
Precisely, the said promissory notes were executed to apprise appellee of the remaining balance on his loan
when the same was converted into a regular housing loan. And on its face, the promissory notes signed by no
less than the appellee readily shows all the data required by the Truth in Lending Act (R.A. No. 3765).
Apropos, We agree with the appellant that appellee, a lawyer, would not be so gullible or negligent as to sign
documents without knowing fully well the legal implications and consequences of his actions, and that appellee
was a former employee of appellant. As such employee, he is as well presumed knowledgeable with matters
relating to appellant's business and fully cognizant of the terms of the loan he applied for, including the charges
that had to be paid.
It might have been different if the borrower was, say, an ordinary employee eager to buy his first house and is
easily lured into accepting onerous terms so long as the same is payable on installments. In such cases, the
Court would be disposed to be stricter in the application of the Truth in Lending Act, insisting that the borrower
be fully informed of what he is entering into. But in the case at bar, considering appellee's education and

training, We must hold, in the light of the evidence at hand, that he was duly informed of the necessary charges
and fully understood their implications and effects. Consequently, the trial court's annulment of the rescission
anchored on this ground was unjustified. 24
Anent the prayer of DBP to order Arcilla to vacate the property and pay rentals therefor from 1990, a review of
the records has shown that it failed to adduce evidence on the reasonable amount of rentals for Arcilla's
occupancy of the property. Hence, the Court orders a remand of the case to the court of origin, for the parties to
adduce their respective evidence on the bank's counterclaim.
IN LIGHT OF ALL THE FOREGOING, the petition in G.R. No. 161426 is DENIED for lack of merit. The petition
in G.R. No. 161397 is
PARTIALLY GRANTED. The case is hereby REMANDED to the Regional Trial Court of Antipolo, Rizal, Branch
73, for it to resolve the counterclaim of the Development Bank of the Philippines for possession of the property,
and for the reasonable rentals for Felipe P. Arcilla, Jr.'s occupancy thereof after the notarial rescission of the
Deed of Conditional Sale in 1990.
Costs against petitioner Felipe P. Arcilla, Jr.
SO ORDERED.

THIRD DIVISION

UNITED
COCONUT
PLANTERS BANK,

G.R. No. 159912

Petitioner,
Present:

YNARES-SANTIAGO, J.,
- versus -

Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

SPOUSES SAMUEL
ODETTE BELUSO,
Respondents.

and
Promulgated:
August 17, 2007

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

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of

the Rules of Court, which seeks to annul the Court of Appeals
Decision[1] dated 21 January 2003 and its Resolution[2] dated 9
September 2003 in CA-G.R. CV No. 67318. The assailed Court of
Appeals Decision and Resolution affirmed in turn the
Decision[3] dated 23 March 2000 and Order[4] dated 8 May 2000 of
the Regional Trial Court (RTC), Branch 65 of Makati City, in Civil
Case No. 99-314, declaring void the interest rate provided in the
promissory notes executed by the respondents Spouses Samuel
and Odette Beluso (spouses Beluso) in favor of petitioner United
Coconut Planters Bank (UCPB).
The procedural and factual antecedents of this case are as
follows:

On 16 April 1996, UCPB granted the spouses Beluso a

Promissory Notes Line under a Credit Agreement whereby the
latter could avail from the former credit of up to a maximum
amount of P1.2 Million pesos for a term ending on 30 April
1997. The spouses Beluso constituted, other than their
promissory notes, a real estate mortgage over parcels of land
in Roxas City, covered by Transfer Certificates of Title No. T-31539
and T-27828, as additional security for the obligation. The Credit
Agreement was subsequently amended to increase the amount of
the Promissory Notes Line to a maximum of P2.35 Million pesos
and to extend the term thereof to 28 February 1998.
The spouses Beluso availed themselves of the credit line
under the following Promissory Notes:
PN #

Date of PN

Maturity Date

Amount
Secured

8314-96-000833

29 April 1996

27
1996

August

P 700,000

8314-96-000850

2 May 1996

30
1996

August

P 500,000

8314-96000292-2

20
November 20
1996
1997

March

P 800,000

The three promissory notes were renewed several

times. On 30 April 1997, the payment of the principal and interest
of the latter two promissory notes were debited from the spouses
Belusos account with UCPB; yet, a consolidated loan for P1.3
Million was again released to the spouses Beluso under one
promissory note with a due date of 28 February 1998.

To completely avail themselves of the P2.35 Million credit

line extended to them by UCPB, the spouses Beluso executed two
more promissory notes for a total ofP350,000.00:
PN #

Date of PN

97-00363-1

11
1997

98-00002-4

2 January 1998

Maturity Date

December 28
February
1998
28
February
1998

Amount
Secured
P 200,000
P 150,000

However, the spouses Beluso alleged that the amounts covered

by these last two promissory notes were never released or
credited to their account and, thus, claimed that the principal
indebtedness was only P2 Million.
In any case, UCPB applied interest rates on the different
promissory notes ranging from 18% to 34%. From 1996 to
February 1998 the spouses Beluso were able to pay the total sum
of P763,692.03.
From 28 February 1998 to 10 June 1998, UCPB continued to
charge interest and penalty on the obligations of the spouses
Beluso, as follows:
PN #

Amount
Secured

Interest

Penalty

Total

97-00363-1

P 200,000

31%

36%

P 225,313.24

97-00366-6

P 700,000

30.17%

32.786%
(102
days)

P 795,294.72

30.41%

P 1,462,124.5

(7 days)
97-00368-2

P 1,300,000

28%

98-00002-4

P 150,000

(2 days)

(102
days)

33%

36%

P 170,034.71

(102
days)

The spouses Beluso, however, failed to make any payment of

the foregoing amounts.
On 2 September 1998, UCPB demanded that the spouses
Beluso pay their total obligation of P2,932,543.00 plus 25%
attorneys fees, but the spouses Beluso failed to comply
therewith. On 28 December 1998, UCPB foreclosed the properties
mortgaged by the spouses Beluso to secure their credit line,
which, by that time, already ballooned toP3,784,603.00.
On 9 February 1999, the spouses Beluso filed a Petition for
Annulment, Accounting and Damages against UCPB with the RTC
of Makati City.
On 23 March 2000, the RTC ruled in favor of the spouses
Beluso, disposing of the case as follows:
PREMISES CONSIDERED, judgment is hereby rendered declaring
the interest rate used by [UCPB] void and the foreclosure and Sheriffs
Certificate of Sale void. [UCPB] is hereby ordered to return to [the
spouses Beluso] the properties subject of the foreclosure; to pay [the
spouses Beluso] the amount of P50,000.00 by way of attorneys fees;
and to pay the costs of suit.[The spouses Beluso] are hereby ordered to
pay [UCPB] the sum of P1,560,308.00.[5]

On 8 May 2000, the RTC denied UCPBs Motion for

Reconsideration,[6] prompting UCPB to appeal the RTC Decision

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

On 9 September 2003, the Court of Appeals denied UCPBs

Motion for Reconsideration for lack of merit. UCPB thus filed the
present petition, submitting the following issues for our
resolution:
I

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION
OF THE TRIAL COURT WHICH DECLARED VOID THE PROVISION ON
INTEREST RATE AGREED UPON BETWEEN PETITIONER AND
RESPONDENTS

II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE
COMPUTATION BY THE TRIAL COURT OF RESPONDENTS INDEBTEDNESS
AND ORDERED RESPONDENTS TO PAY PETITIONER THE AMOUNT OF
ONLY ONE MILLION FIVE HUNDRED SIXTY THOUSAND THREE HUNDRED
EIGHT PESOS (P1,560,308.00)

III

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION
OF THE TRIAL COURT WHICH ANNULLED THE FORECLOSURE BY
PETITIONER OF THE SUBJECT PROPERTIES DUE TO AN ALLEGED
INCORRECT COMPUTATION OF RESPONDENTS INDEBTEDNESS

IV

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION
OF THE TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR
VIOLATION OF THE TRUTH IN LENDING ACT

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

SERIOUS AND REVERSIBLE ERROR WHEN IT FAILED TO ORDER THE
DISMISSAL OF THE CASE BECAUSE THE RESPONDENTS ARE GUILTY OF
FORUM SHOPPING[8]

Validity of the Interest Rates

The Court of Appeals held that the imposition of interest in
the following provision found in the promissory notes of the
spouses Beluso is void, as the interest rates and the bases
therefor were determined solely by petitioner UCPB:
FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS.
SAMUEL AND ODETTE BELUSO (BORROWER), jointly and severally
promise to pay to UNITED COCONUT PLANTERS BANK (LENDER) or
order at UCPB Bldg., Makati Avenue, Makati City, Philippines, the sum
of ______________ PESOS, (P_____), Philippine Currency, with interest
thereon at the rate indicative of DBD retail rate or as determined by
the Branch Head.[9]

UCPB asserts that this is a reversible error, and claims that

while the interest rate was not numerically quantified in the face
of the promissory notes, it was nonetheless categorically fixed, at
the time of execution thereof, at the rate indicative of the DBD
retail rate. UCPB contends that said provision must be read with
another stipulation in the promissory notes subjecting to review
the interest rate as fixed:
The interest rate shall be subject to review and may be
increased or decreased by the LENDER considering among others the
prevailing financial and monetary conditions; or the rate of interest and
charges which other banks or financial institutions charge or offer to
charge for similar accommodations; and/or the resulting profitability to
the LENDER after due consideration of all dealings with the
BORROWER.[10]

In this regard, UCPB avers that these are valid reference

rates akin to a prevailing rate or prime rate allowed by this Court
in Polotan v. Court of Appeals. [11] Furthermore, UCPB argues that
even if the proviso as determined by the branch head is
considered void, such a declaration would not ipso facto render
the connecting clause indicative of DBD retail rate void in view of
the separability clause of the Credit Agreement, which reads:
Section 9.08 Separability Clause. If any one or more of the
provisions contained in this AGREEMENT, or documents executed in
connection herewith shall be declared invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired. [12]

According to UCPB, the imposition of the questioned interest

rates did not infringe on the principle of mutuality of contracts,
because the spouses Beluso had the liberty to choose whether or
not to renew their credit line at the new interest rates pegged by
petitioner.[13] UCPB also claims that assuming there was any
defect in the mutuality of the contract at the time of its inception,
such defect was cured by the subsequent conduct of the spouses

Beluso in availing themselves of the credit line from April 1996 to

February 1998 without airing any protest with respect to the
interest rates imposed by UCPB. According to UCPB, therefore, the
spouses Beluso are in estoppel.[14]
We agree with the Court of Appeals, and find no merit in the
contentions of UCPB.
Article 1308 of the Civil Code provides:
Art. 1308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.

We applied this provision in Philippine National Bank v. Court

of Appeals,[15] where we held:
In order that obligations arising from contracts may have the
force of law between the parties, there must be mutuality between the
parties based on their essential equality. A contract containing a
condition which makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is void (Garcia vs.
Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8
million loan agreement between the PNB and the private respondent
gave the PNB a license (although in fact there was none) to increase
the interest rate at will during the term of the loan, that license would
have been null and void for being violative of the principle of mutuality
essential in contracts. It would have invested the loan agreement with
the character of a contract of adhesion, where the parties do not
bargain on equal footing, the weaker party's (the debtor) participation
being reduced to the alternative "to take it or leave it" (Qua vs. Law
Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable
trap for the weaker party whom the courts of justice must protect
against abuse and imposition.

The provision stating that the interest shall be at the rate

indicative of DBD retail rate or as determined by the Branch Head
is indeed dependent solely on the will of petitioner UCPB. Under
such provision, petitioner UCPB has two choices on what the
interest rate shall be: (1) a rate indicative of the DBD retail rate;
or (2) a rate as determined by the Branch Head. As UCPB is given
this choice, the rate should be categorically determinable
in both choices. If either of these two choices presents an
opportunity for UCPB to fix the rate at will, the bank can easily
choose such an option, thus making the entire interest rate
provision violative of the principle of mutuality of contracts.
Not just one, but rather both, of these choices are
dependent solely on the will of UCPB. Clearly, a rate as
determined by the Branch Head gives the latter unfettered
discretion on what the rate may be. The Branch Head may choose
any rate he or she desires. As regards the rate indicative of the
DBD retail rate, the same cannot be considered as valid for being
akin to a prevailing rate or prime rate allowed by this Court
in Polotan. The interest rate in Polotan reads:
The Cardholder agrees to pay interest per annum at 3% plus the prime
rate of Security Bank and Trust Company. x x x.[16]

In this provision in Polotan, there is a fixed margin over the

reference rate: 3%. Thus, the parties can easily determine the
interest rate by applying simple arithmetic. On the other hand,
the provision in the case at bar does not specify any margin
above or below the DBD retail rate. UCPB can peg the interest at
any percentage above or below the DBD retail rate, again giving it
unfettered discretion in determining the interest rate.
The stipulation in the promissory notes subjecting the interest
rate to review does not render the imposition by UCPB of interest
rates on the obligations of the spouses Beluso valid. According to
said stipulation:

The interest rate shall be subject to review and may be

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

It should be pointed out that the authority to review the interest

rate was given UCPB alone as the lender. Moreover, UCPB may
apply the considerations enumerated in this provision as it
wishes. As worded in the above provision, UCPB may give as
much weight as it desires to each of the following considerations:
(1) the prevailing financial and monetary condition; (2) the rate of
interest and charges which other banks or financial institutions
charge or offer to charge for similar accommodations; and/or (3)
the resulting profitability to the LENDER (UCPB) after due
consideration of all dealings with the BORROWER (the spouses
Beluso). Again, as in the case of the interest rate provision, there
is no fixed margin above or below these considerations.
In view of the foregoing, the Separability Clause cannot save
either of the two options of UCPB as to the interest to be imposed,
as both options violate the principle of mutuality of contracts.
UCPB likewise failed to convince us that the spouses Beluso
were in estoppel.
Estoppel cannot be predicated on an illegal act. As between
the parties to a contract, validity cannot be given to it by estoppel
if it is prohibited by law or is against public policy. [18]

The interest rate provisions in the case at bar are illegal not
only because of the provisions of the Civil Code on mutuality of
contracts, but also, as shall be discussed later, because they
violate the Truth in Lending Act. Not disclosing the true finance
charges in connection with the extensions of credit is,
furthermore, a form of deception which we cannot countenance. It
is against the policy of the State as stated in the Truth in Lending
Act:
Sec. 2. Declaration of Policy. It is hereby declared to be the
policy of the State to protect its citizens from a lack of awareness of
the true cost of credit to the user by assuring a full disclosure of such
cost with a view of preventing the uninformed use of credit to the
detriment of the national economy.[19]

Moreover, while the spouses Beluso indeed agreed to renew

the credit line, the offending provisions are found in the
promissory notes themselves, not in the credit line. In fixing the
interest rates in the promissory notes to cover the renewed credit
line, UCPB still reserved to itself the same two options (1) a rate
indicative of the DBD retail rate; or (2) a rate as determined by
the Branch Head.
Error in Computation
UCPB asserts that while both the RTC and the Court of
Appeals voided the interest rates imposed by UCPB, both failed to
include in their computation of the outstanding obligation of the
spouses Beluso the legal rate of interest of 12% per
annum. Furthermore, the penalty charges were also deleted in the
decisions of the RTC and the Court of Appeals. Section 2.04,
Article II on Interest and other Bank Charges of the subject Credit
Agreement, provides:
Section 2.04 Penalty Charges. In addition to the interest provided
for in Section 2.01 of this ARTICLE, any principal obligation of the

CLIENT hereunder which is not paid when due shall be subject to a

penalty charge of one percent (1%) of the amount of such obligation
per month computed from due date until the obligation is paid in full. If
the bank accelerates teh (sic) payment of availments hereunder
pursuant to ARTICLE VIII hereof, the penalty charge shall be used on
the total principal amount outstanding and unpaid computed from the
date of acceleration until the obligation is paid in full. [20]

Paragraph 4 of the promissory notes also states:

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

Petitioner further claims that it is likewise entitled to

attorneys fees, pursuant to Section 9.06 of the Credit Agreement,
thus:
If the BANK shall require the services of counsel for the
enforcement of its rights under this AGREEMENT, the Note(s), the
collaterals and other related documents, the BANK shall be entitled to
recover attorneys fees equivalent to not less than twenty-five percent
(25%) of the total amounts due and outstanding exclusive of costs and
other expenses.[22]

Another alleged computational error pointed out by UCPB is

the negation of the Compounding Interest agreed upon by the
parties under Section 2.02 of the Credit Agreement:

Section 2.02 Compounding Interest. Interest not paid when due shall
form part of the principal and shall be subject to the same interest rate
as herein stipulated.[23]

and paragraph 3 of the subject promissory notes:

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

UCPB lastly avers that the application of the spouses Belusos

payments in the disputed computation does not reflect the parties
agreement. The RTC deducted the payment made by the spouses
Beluso
amounting
to P763,693.00
from
the
principal
of P2,350,000.00. This was allegedly inconsistent with the Credit
Agreement, as well as with the agreement of the parties as to the
facts of the case. In paragraph 7 of the spouses Belusos
Manifestation and Motion on Proposed Stipulation of Facts and
Issues vis--vis UCPBs Manifestation, the parties agreed that the
amount of P763,693.00 was applied to the interest and not to the
principal, in accord with Section 3.03, Article II of the Credit
Agreement on Order of the Application of Payments, which
provides:
Section 3.03 Application of Payment. Payments made by the
CLIENT shall be applied in accordance with the following order of
preference:

1.
2.

Accounts receivable and other out-of-pocket expenses

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

3.

Penalty charges;

4.

Past due interest;

5.

Principal amortization/Payment in arrears;

6.

Advance interest;

7.

Outstanding balance; and

8.

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

Thus, according to UCPB, the interest charges, penalty

charges, and attorneys fees had been erroneously excluded by
the RTC and the Court of Appeals from the computation of the
total amount due and demandable from spouses Beluso.
The spouses Belusos defense as to all these issues is that
the demand made by UCPB is for a considerably bigger amount
and, therefore, the demand should be considered void. There
being no valid demand, according to the spouses Beluso, there
would be no default, and therefore the interests and penalties
would not commence to run. As it was likewise improper to
foreclose the mortgaged properties or file a case against the
spouses Beluso, attorneys fees were not warranted.
We agree with UCPB on this score. Default commences upon
judicial or extrajudicial demand.[26] The excess amount in such a
demand does not nullify the demand itself, which is valid with
respect to the proper amount. A contrary ruling would put
commercial transactions in disarray, as validity of demands would
be dependent on the exactness of the computations thereof,
which are too often contested.
There being a valid demand on the part of UCPB, albeit
excessive, the spouses Beluso are considered in default with
respect to the proper amount and, therefore, the interests and the
penalties began to run at that point.
As regards the award of 12% legal interest in favor of
petitioner, the RTC actually recognized that said legal interest

should be imposed, thus: There being no valid stipulation as to

interest, the legal rate of interest shall be charged. [27] It seems
that the RTC inadvertently overlooked its non-inclusion in its
computation.
The spouses Beluso had even originally asked for the RTC to
impose this legal rate of interest in both the body and the prayer
of its petition with the RTC:
12. Since the provision on the fixing of the rate of interest by the
sole will of the respondent Bank is null and void, only the legal rate of
interest which is 12% per annum can be legally charged and imposed
by the bank, which would amount to only about P599,000.00 since
1996 up to August 31, 1998.

xxxx

WHEREFORE, in view of the foregoing, petiitoners pray for

judgment or order:

xxxx

2. By way of example for the public good against the Banks

taking unfair advantage of the weaker party to their contract, declaring
the legal rate of 12% per annum, as the imposable rate of interest up
to February 28, 1999 on the loan of 2.350 million.[28]

All these show that the spouses Beluso had acknowledged before
the RTC their obligation to pay a 12% legal interest on their
loans. When the RTC failed to include the 12% legal interest in its
computation, however, the spouses Beluso merely defended in
the appellate courts this non-inclusion, as the same was beneficial
to them. We see, however, sufficient basis to impose a 12% legal
interest in favor of petitioner in the case at bar, as what we have

voided is merely the stipulated rate of interest and not the

stipulation that the loan shall earn interest.
We must likewise uphold the contract stipulation providing
the compounding of interest. The provisions in the Credit
Agreement and in the promissory notes providing for the
compounding of interest were neither nullified by the RTC or the
Court of Appeals, nor assailed by the spouses Beluso in their
petition with the RTC. The compounding of interests has
furthermore been declared by this Court to be legal. We have held
in Tan v. Court of Appeals,[29] that:
Without prejudice to the provisions of Article 2212, interest due
and unpaid shall not earn interest. However, the contracting
parties may by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn new interest.

As regards the imposition of penalties, however, although we

are likewise upholding the imposition thereof in the contract, we
find the rate iniquitous. Like in the case of grossly excessive
interests, the penalty stipulated in the contract may also be
reduced by the courts if it is iniquitous or unconscionable. [30]
We find the penalty imposed by UCPB, ranging from 30.41%
to 36%, to be iniquitous considering the fact that this penalty is
already over and above the compounded interest likewise
imposed in the contract. If a 36% interest in itself has been
declared unconscionable by this Court, [31] what more a 30.41% to
36% penalty, over and above the payment of compounded
interest? UCPB itself must have realized this, as it gave us a
sample computation of the spouses Belusos obligation if both the
interest and the penalty charge are reduced to 12%.

As regards the
actually be liable
demand. Filing a case
Article 1169[32] of the
delay.

attorneys fees, the spouses Beluso can

therefor even if there had been no
in court is the judicial demand referred to in
Civil Code, which would put the obligor in

The RTC, however, also held UCPB liable for attorneys fees in
this case, as the spouses Beluso were forced to litigate the issue
on the illegality of the interest rate provision of the promissory
notes. The award of attorneys fees, it must be recalled, falls under
the sound discretion of the court. [33] Since both parties were
forced to litigate to protect their respective rights, and both are
entitled to the award of attorneys fees from the other, practical
reasons dictate that we set off or compensate both parties
liabilities for attorneys fees. Therefore, instead of awarding
attorneys fees in favor of petitioner, we shall merely affirm the
deletion of the award of attorneys fees to the spouses Beluso.
In sum, we hold that spouses Beluso should still be held
liable for a compounded legal interest of 12% per annum and a
penalty charge of 12% per annum. We also hold that, instead of
awarding attorneys fees in favor of petitioner, we shall merely
affirm the deletion of the award of attorneys fees to the spouses
Beluso.
Annulment of the Foreclosure Sale
Properties of spouses Beluso had been foreclosed, titles to
which had already been consolidated on 19 February 2001 and 20
March 2001 in the name of UCPB, as the spouses Beluso failed to
exercise their right of redemption which expired on 25 March
2000. The RTC, however, annulled the foreclosure of mortgage
based on an alleged incorrect computation of the spouses Belusos
indebtedness.

UCPB alleges that none of the grounds for the annulment of a

foreclosure sale are present in the case at bar. Furthermore, the
annulment of the foreclosure proceedings and the certificates of
sale were mooted by the subsequent issuance of new certificates
of title in the name of said bank. UCPB claims that the spouses
Belusos action for annulment of foreclosure constitutes a collateral
attack on its certificates of title, an act proscribed by Section 48 of
Presidential Decree No. 1529, otherwise known as the Property
Registration Decree, which provides:
Section 48. Certificate not subject to collateral attack. A
certificate of title shall not be subject to collateral attack. It cannot be
altered, modified or cancelled except in a direct proceeding in
accordance with law.

The spouses Beluso retort that since they had the right to
refuse payment of an excessive demand on their account, they
cannot be said to be in default for refusing to pay the
same. Consequently, according to the spouses Beluso, the
enforcement of such illegal and overcharged demand through
foreclosure of mortgage should be voided.
We agree with UCPB and affirm the validity of the foreclosure
proceedings. Since we already found that a valid demand was
made by UCPB upon the spouses Beluso, despite being excessive,
the spouses Beluso are considered in default with respect to the
proper amount of their obligation to UCPB and, thus, the property
they
mortgaged
to
secure
such
amounts
may
be
foreclosed. Consequently, proceeds of the foreclosure sale should
be applied to the extent of the amounts to which UCPB is
rightfully entitled.
As argued by UCPB, none of the grounds for the annulment of
a foreclosure sale are present in this case. The grounds for the
proper annulment of the foreclosure sale are the following: (1) that

there was fraud, collusion, accident, mutual mistake, breach of

trust or misconduct by the purchaser; (2) that the sale had not
been fairly and regularly conducted; or (3) that the price was
inadequate and the inadequacy was so great as to shock the
conscience of the court.[34]

Liability for Violation of Truth in Lending Act

The RTC, affirmed by the Court of Appeals, imposed a fine
of P26,000.00 for UCPBs alleged violation of Republic Act No.
3765, otherwise known as the Truth in Lending Act.
UCPB challenges this imposition, on the argument that
Section 6(a) of the Truth in Lending Act which mandates the filing
of an action to recover such penalty must be made under the
following circumstances:
Section 6. (a) Any creditor who in connection with any credit
transaction fails to disclose to any person any information in violation
of this Act or any regulation issued thereunder shall be liable to such
person in the amount of P100 or in an amount equal to twice the
finance charge required by such creditor in connection with such
transaction, whichever is greater, except that such liability shall not
exceed P2,000 on any credit transaction. Action to recover such
penalty may be brought by such person within one year from
the date of the occurrence of the violation, in any court of
competent jurisdiction. x x x (Emphasis ours.)

According to UCPB, the Court of Appeals even stated that

[a]dmittedly the original complaint did not explicitly allege a
violation of the Truth in Lending Act and no action to formally
admit the amended petition [which expressly alleges violation of

the Truth in Lending Act] was made either by [respondents]

spouses Beluso and the lower court. x x x.[35]
UCPB further claims that the action to recover the penalty
for the violation of the Truth in Lending Act had been barred by
the one-year prescriptive period provided for in the Act. UCPB
asserts that per the records of the case, the latest of the subject
promissory notes had been executed on 2 January 1998, but the
original petition of the spouses Beluso was filed before the RTC
on 9 February 1999, which was after the expiration of the period
to file the same on 2 January 1999.
On the matter of allegation of the violation of the Truth in
Lending Act, the Court of Appeals ruled:
Admittedly the original complaint did not explicitly allege a violation of
the Truth in Lending Act and no action to formally admit the amended
petition was made either by [respondents] spouses Beluso and the
lower court. In such transactions, the debtor and the lending
institutions do not deal on an equal footing and this law was intended
to protect the public from hidden or undisclosed charges on their loan
obligations, requiring a full disclosure thereof by the lender. We find
that its infringement may be inferred or implied from allegations that
when [respondents] spouses Beluso executed the promissory notes,
the interest rate chargeable thereon were left blank. Thus, [petitioner]
UCPB failed to discharge its duty to disclose in full to [respondents]
Spouses Beluso the charges applicable on their loans. [36]

We agree with the Court of Appeals. The allegations in the

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

b.) In unilaterally imposing an increased interest rates (sic)

respondent bank has relied on the provision of their promissory note
granting respondent bank the power to unilaterally fix the interest
rates, which rate was not determined in the promissory note but was
left solely to the will of the Branch Head of the respondent Bank, x x x.
[37]

The allegation that the promissory notes grant UCPB the

power to unilaterally fix the interest rates certainly also means
that the promissory notes do not contain a clear statement in
writing of (6) the finance charge expressed in terms of pesos and
centavos; and (7) the percentage that the finance charge bears to
the amount to be financed expressed as a simple annual rate on
the outstanding unpaid balance of the obligation. [38] Furthermore,
the spouses Belusos prayer for such other reliefs just and
equitable in the premises should be deemed to include the civil
penalty provided for in Section 6(a) of the Truth in Lending Act.
UCPBs contention that this action to recover the penalty for
the violation of the Truth in Lending Act has already prescribed is
likewise without merit. The penalty for the violation of the act
is P100 or an amount equal to twice the finance charge required
by such creditor in connection with such transaction, whichever is
greater, except that such liability shall not exceed P2,000.00 on
any credit transaction.[39] As this penalty depends on the finance
charge required of the borrower, the borrowers cause of action
would only accrue when such finance charge is required. In the
case at bar, the date of the demand for payment of the finance
charge is 2 September 1998, while the foreclosure was made
on 28 December 1998. The filing of the case on 9 February
1999 is therefore within the one-year prescriptive period.
UCPB argues that a violation of the Truth in Lending Act,
being a criminal offense, cannot be inferred nor implied from the
allegations made in the complaint. [40]Pertinent provisions of the
Act read:

Sec. 6. (a) Any creditor who in connection with any credit

transaction fails to disclose to any person any information in violation
of this Act or any regulation issued thereunder shall be liable to such
person in the amount of P100 or in an amount equal to twice the
finance charge required by such creditor in connection with such
transaction, whichever is the greater, except that such liability shall
not exceed P2,000 on any credit transaction. Action to recover such
penalty may be brought by such person within one year from the date
of the occurrence of the violation, in any court of competent
jurisdiction. In any action under this subsection in which any person is
entitled to a recovery, the creditor shall be liable for reasonable
attorneys fees and court costs as determined by the court.

xxxx

(c)
Any person who willfully violates any provision of this
Act or any regulation issued thereunder shall be fined by not less
than P1,000 or more than P5,000 or imprisonment for not less than 6
months, nor more than one year or both.

As can be gleaned from Section 6(a) and (c) of the Truth in

Lending Act, the violation of the said Act gives rise to both
criminal and civil liabilities. Section 6(c) considers a criminal
offense the willful violation of the Act, imposing the penalty
therefor of fine, imprisonment or both. Section 6(a), on the other
hand, clearly provides for a civil cause of action for failure
to disclose any information of the required information to any
person in violation of the Act. The penalty therefor is an amount
of P100 or in an amount equal to twice the finance charge
required by the creditor in connection with such transaction,
whichever is greater, except that the liability shall not
exceed P2,000.00 on any credit transaction. The action to recover
such penalty may be instituted by the aggrieved private person
separately and independently from the criminal case for the same
offense.

In the case at bar, therefore, the civil action to recover the

penalty under Section 6(a) of the Truth in Lending Act had been
jointly instituted with (1) the action to declare the interests in the
promissory notes void, and (2) the action to declare the
foreclosure void. This joinder is allowed under Rule 2, Section 5 of
the Rules of Court, which provides:
SEC. 5. Joinder of causes of action.A party may in one pleading
assert, in the alternative or otherwise, as many causes of action as he
may have against an opposing party, subject to the following
conditions:
(a) The party joining the causes of action shall comply with the
rules on joinder of parties;
(b) The joinder shall not include special civil actions or actions
governed by special rules;
(c) Where the causes of action are between the same parties but
pertain to different venues or jurisdictions, the joinder may be allowed
in the Regional Trial Court provided one of the causes of action falls
within the jurisdiction of said court and the venue lies therein; and
(d) Where the claims in all the causes of action are principally for
recovery of money, the aggregate amount claimed shall be the test of
jurisdiction.

In attacking the RTCs disposition on the violation of the Truth

in Lending Act since the same was not alleged in the complaint,
UCPB is actually asserting a violation of due process. Indeed, due
process mandates that a defendant should be sufficiently
apprised of the matters he or she would be defending himself or
herself against. However, in the1 July 1999 pre-trial brief filed by
the spouses Beluso before the RTC, the claim for civil sanctions for
violation of the Truth in Lending Act was expressly alleged, thus:
Moreover, since from the start, respondent bank violated the Truth in
Lending Act in not informing the borrower in writing before the
execution of the Promissory Notes of the interest rate expressed as a
percentage of the total loan, the respondent bank instead is liable to

pay petitioners double the amount the bank is charging petitioners by

way of sanction for its violation.[41]

In the same pre-trial brief, the spouses Beluso also expressly

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

These assertions are so clear and unequivocal that any

attempt of UCPB to feign ignorance of the assertion of this issue
in this case as to prevent it from putting up a defense thereto is
plainly hogwash.
Petitioner further posits that it is the Metropolitan Trial Court
which has jurisdiction to try and adjudicate the alleged violation
of the Truth in Lending Act, considering that the present action
allegedly involved a single credit transaction as there was only
one Promissory Note Line.
We disagree. We have already ruled that the action to
recover the penalty under Section 6(a) of the Truth in Lending Act
had been jointly instituted with (1) the action to declare the
interests in the promissory notes void, and (2) the action to
declare the foreclosure void. There had been no question that the
above actions belong to the jurisdiction of the RTC. Subsection (c)
of the above-quoted Section 5 of the Rules of Court on Joinder of
Causes of Action provides:
(c) Where the causes of action are between the same parties but
pertain to different venues or jurisdictions, the joinder may be allowed
in the Regional Trial Court provided one of the causes of action falls
within the jurisdiction of said court and the venue lies therein.

Furthermore, opening a credit line does not create a credit

transaction of loan or mutuum, since the former is merely a
preparatory contract to the contract of loan ormutuum. Under
such credit line, the bank is merely obliged, for the considerations
specified therefor, to lend to the other party amounts not
exceeding the limit provided. The credit transaction thus occurred
not when the credit line was opened, but rather when the credit
line was availed of. In the case at bar, the violation of the Truth in
Lending Act allegedly occurred not when the parties executed the
Credit Agreement, where no interest rate was mentioned, but
when the parties executed the promissory notes, where the
allegedly offending interest rate was stipulated.
UCPB further argues that since the spouses Beluso were duly
given copies of the subject promissory notes after their execution,
then they were duly notified of the terms thereof, in substantial
compliance with the Truth in Lending Act.
Once more, we disagree. Section 4 of the Truth in Lending
Act clearly provides that the disclosure statement must be
furnished prior to the consummation of the transaction:
SEC. 4. Any creditor shall furnish to each person to whom credit
is extended, prior to the consummation of the transaction, a
clear statement in writing setting forth, to the extent applicable and in
accordance with rules and regulations prescribed by the Board, the
following information:

(1) the cash price or delivered price of the property or service to

be acquired;

(2) the amounts, if any, to be credited as down payment and/or

trade-in;

(3) the difference between the amounts set forth under clauses
(1) and (2)

(4) the charges, individually itemized, which are paid or to be

paid by such person in connection with the transaction but
which are not incident to the extension of credit;

(5) the total amount to be financed;

(6) the finance charge expressed in terms of pesos and

centavos; and

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

The rationale of this provision is to protect users of credit

from a lack of awareness of the true cost thereof, proceeding from
the experience that banks are able to conceal such true cost by
hidden charges, uncertainty of interest rates, deduction of
interests from the loaned amount, and the like. The law thereby
seeks to protect debtors by permitting them to fully appreciate
the true cost of their loan, to enable them to give full consent to
the contract, and to properly evaluate their options in arriving at
business decisions.Upholding UCPBs claim of substantial
compliance would defeat these purposes of the Truth in Lending
Act. The belated discovery of the true cost of credit will too often
not be able to reverse the ill effects of an already consummated
business decision.
In addition, the promissory notes, the copies of which were
presented to the spouses Beluso after execution, are not sufficient
notification from UCPB. As earlier discussed, the interest rate

provision therein does not sufficiently indicate with particularity

the interest rate to be applied to the loan covered by said
promissory notes.
Forum Shopping
UCPB had earlier moved to dismiss the petition (originally
Case No. 99-314 in RTC, Makati City) on the ground that the
spouses Beluso instituted another case (Civil Case No. V-7227)
before the RTC of Roxas City, involving the same parties and
issues. UCPB claims that while Civil Case No. V-7227 initially
appears to be a different action, as it prayed for the issuance of a
temporary restraining order and/or injunction to stop foreclosure
of spouses Belusos properties, it poses issues which are similar to
those of the present case. [43] To prove its point, UCPB cited the
spouses Belusos Amended Petition in Civil Case No. V-7227, which
contains similar allegations as those in the present case.The RTC
of Makati denied UCPBs Motion to Dismiss Case No. 99-314 for
lack of merit. Petitioner UCPB raised the same issue with the
Court of Appeals, and is raising the same issue with us now.
The spouses Beluso claim that the issue in Civil Case No. V7227 before the RTC of Roxas City, a Petition for Injunction Against
Foreclosure, is the propriety of the foreclosure before the true
account of spouses Beluso is determined. On the other hand, the
issue in Case No. 99-314 before the RTC of Makati City is the
validity of the interest rate provision. The spouses Beluso claim
that Civil Case No. V-7227 has become moot because, before the
RTC of Roxas City could act on the restraining order, UCPB
proceeded with the foreclosure and auction sale. As the act
sought to be restrained by Civil Case No. V-7227 has already been
accomplished, the spouses Beluso had to file a different action,
that of Annulment of the Foreclosure Sale, Case No. 99-314 with
the RTC, Makati City.
Even if we assume for the sake of argument, however, that
only one cause of action is involved in the two civil actions,

namely, the violation of the right of the spouses Beluso not to

have their property foreclosed for an amount they do not owe, the
Rules of Court nevertheless allows the filing of the second
action. Civil Case No. V-7227 was dismissed by the RTC of Roxas
City before the filing of Case No. 99-314 with the RTC of Makati
City, since the venue of litigation as provided for in the Credit
Agreement is inMakati City.
Rule 16, Section 5 bars the refiling of an action previously
dismissed only in the following instances:
SEC. 5. Effect of dismissal.Subject to the right of appeal, an
order granting a motion to dismiss based on paragraphs (f), (h) and (i)
of section 1 hereof shall bar the refiling of the same action or claim.
(n)

Improper venue as a ground for the dismissal of an action is

found in paragraph (c) of Section 1, not in paragraphs (f), (h) and
(i):
SECTION 1. Grounds.Within the time for but before filing the
answer to the complaint or pleading asserting a claim, a motion to
dismiss may be made on any of the following grounds:

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

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

(c) That venue is improperly laid;

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

(e) That there is another action pending between the same

parties for the same cause;

(f) That the cause of action is barred by a prior judgment

or by the statute of limitations;

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

action;

(h) That the claim or demand set forth in the plaintiffs

pleading has been paid, waived, abandoned, or otherwise
extinguished;

(i) That the claim on which the action is founded is

unenforceable under the provisions of the statute of
frauds; and

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

When an action is dismissed on the motion of the other

party, it is only when the ground for the dismissal of an action is
found in paragraphs (f), (h) and (i) that the action cannot be
refiled. As regards all the other grounds, the complainant is
allowed to file same action, but should take care that, this time, it
is filed with the proper court or after the accomplishment of the
erstwhile absent condition precedent, as the case may be.
UCPB, however, brings to the attention of this Court a Motion
for Reconsideration filed by the spouses Beluso on 15 January
1999 with the RTC of Roxas City, which Motion had not yet been
ruled upon when the spouses Beluso filed Civil Case No. 99-314
with the RTC of Makati. Hence, there were allegedly two pending
actions between the same parties on the same issue at the time

of the filing of Civil Case No. 99-314 on 9 February 1999 with the
RTC of Makati. This will still not change our findings. It is indeed
the general rule that in cases where there are two pending
actions between the same parties on the same issue, it should be
the later case that should be dismissed. However, this rule is not
absolute. According to this Court in Allied Banking Corporation v.
Court of Appeals[45]:
In these cases, it is evident that the first action was filed in
anticipation of the filing of the later action and the purpose is to
preempt the later suit or provide a basis for seeking the dismissal of
the second action.

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

[T]he rule on litis pendentia does not require that

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

Given, therefore, the pendency of two actions, the following are

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

In the case at bar, Civil Case No. V-7227 before the RTC of
Roxas City was an action for injunction against a foreclosure sale
that has already been held, while Civil Case No. 99-314 before the

RTC of Makati City includes an action for the annulment of said

foreclosure, an action certainly more proper in view of the
execution of the foreclosure sale. The former case was improperly
filed in Roxas City, while the latter was filed in Makati City, the
proper venue of the action as mandated by the Credit
Agreement. It is evident, therefore, that Civil Case No. 99-314 is
the more appropriate vehicle for litigating the issues between the
parties, as compared to Civil Case No. V-7227. Thus, we rule that
the RTC of Makati City was not in error in not dismissing Civil Case
No. 99-314.
WHEREFORE, the Decision of the Court of Appeals is
hereby AFFIRMED with the following MODIFICATIONS:
1.

In addition to the sum of P2,350,000.00 as

determined by the courts a quo, respondent spouses
Samuel and Odette Beluso are also liable for the
following amounts:
a. Penalty of 12% per annum on the amount due [46] from
the date of demand; and
b. Compounded legal interest of 12% per annum on the
amount due[47] from date of demand;

2.

The following amounts shall be deducted from the

liability of the spouses Samuel and Odette Beluso:
a. Payments made by the spouses in the amount
of P763,692.00. These payments shall be applied to
the date of actual payment of the following in the
order that they are listed, to wit:
i. penalty charges due and demandable
as of the time of payment;
ii. interest due and demandable as of the
time of payment;
iii. principal
amortization/payment
arrears as of the time of payment;

in

iv. outstanding balance.

b. Penalty under Republic Act No. 3765 in the amount
of P26,000.00. This amount shall be deducted from
the liability of the spouses Samuel and Odette Beluso
on9 February 1999 to the following in the order
that they are listed, to wit:
i. penalty charges due and demandable
as of time of payment;
ii. interest due and demandable as of the
time of payment;
iii. principal
amortization/payment
arrears as of the time of payment;

in

iv. outstanding balance.

3.

The foreclosure of mortgage is hereby declared

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

SO ORDERED.