G.R. No.

179901 This petition for review on certiorari[1] seeks to set aside the decision[2] of the Court of Appeals (CA) in CA-G.R. SP No. 95659 and its resolution[3] denying reconsideration. After evaluating the financial statements of respondent JAPRL Development Corporation (JAPRL) for fiscal years 1998, 1999 and 2000,[4] petitioner Banco de Oro-EPCI, Inc. extended credit facilities to it amounting to P230,000,000[5] on March 28, 2003. Respondents Rapid Forming Corporation (RFC) and Jose U. Arollado acted as JAPRLs sureties. Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust receipts soon after the approval of its loan.[6] Petitioner later learned from MRM Management, JAPRLs financial adviser, that JAPRL had altered and falsified its financial statements. It allegedly bloated its sales revenues to post a big income from operations for the concerned fiscal years to project itself as a viable investment.[7] The information alarmed petitioner. Citing relevant provisions of the Trust Receipt Agreement,[8] it demanded immediate payment of JAPRLs outstanding obligations amounting to P194,493,388.98.[9] SP PROC NO Q-03-064 On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the Regional Trial Court (RTC) of Quezon City, Branch 90 (Quezon City RTC).[10] It disclosed that it had been experiencing a decline in sales for the three preceding years and a staggering loss in 2002.[11] Because the petition was sufficient in form and substance, a stay order[12] was issued on September 28, 2003.[13] However, the proposed rehabilitation plan for JAPRL and RFC was eventually rejected by the Quezon City RTC in an order dated May 9, 2005.[14] CIVIL CASE NO.03-991

Because JAPRL ignored its demand for payment, petitioner filed a complaint for sum of money with an application for the issuance of a writ of preliminary attachment against respondents in the RTC of Makati City, Branch 145 (Makati RTC) on August 21, 2003.[15] Petitioner essentially asserted that JAPRL was guilty of fraud because it (JAPRL) altered and falsified its financial statements.[16] The Makati RTC subsequently denied the application (for the issuance of a writ of preliminary attachment) for lack of merit as petitioner was unable to substantiate its allegations. Nevertheless, it ordered the service of summons on respondents.[17] Pursuant to the said order, summonses were issued against respondents and were served upon them. Respondents moved to dismiss the complaint due to an allegedly invalid service of summons.[18] Because the officers return stated that an administrative assistant had received the summons,[19] JAPRL and RFC argued that Section 11, Rule 14 of the Rules of Court[20]contained an exclusive list of persons on whom summons against a corporation must be served.[21] An administrative assistant was not one of them. Arollado, on the other hand, cited Section 6, Rule 14 thereof[22] which mandated personal service of summons on an individual defendant.[23] The Makati RTC, in its October 10, 2005 order,[24] noted that because corporate officers are often busy, summonses to corporations are usually received only by administrative assistants or secretaries of corporate officers in the regular course of business. Hence, it denied the motion for lack of merit. Respondents moved for reconsideration[25] but withdrew it before the Makati RTC could resolve the matter.[26]

RTC SEC CASE NO. 68-2008-C

On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the RTC of Calamba, Laguna, Branch 34

(Calamba RTC). Finding JAPRLs petition sufficient in form and in substance, the Calamba RTC issued a stay order[27] on March 13, 2006. In view of the said order, respondents hastily moved to suspend the proceedings in Civil Case No. 03-991 pending in the Makati RTC.[28] On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL and RFC but ordered Arollado to file an answer. It ruled that, because he was jointly and solidarily liable with JAPRL and RFC, the proceedings against him should continue.[29] Respondents moved for reconsideration[30] but it was denied.[31] On August 11, 2006, respondents filed a petition for certiorari[32] in the CA alleging that the Makati RTC committed grave abuse of discretion in issuing the October 10, 2005 and July 7, 2006 orders.[33] They asserted that the court did not acquire jurisdiction over their persons due to defective service of summons. Thus, the Makati RTC could not hear the complaint for sum of money.[34] In its June 7, 2007 decision, the CA held that because the summonses were served on a mere administrative assistant, the Makati RTC never acquired jurisdiction over respondents. Thus, it granted the petition.[35] Petitioner moved for denied. Hence, this petition.
[36]

Therefore, it was only the October 10, 2005 order of the said trial court which they in effect assailed.[38] However, because they withdrew their motion for reconsideration of the said order, it became final. Moreover, the petition was filed 10 months and 1 day after the assailed order was issued by the Makati RTC,[39] way past the 60 days allowed by the Rules of Court. For these reasons, the said petition should have been dismissed outright by the CA. More importantly, when respondents moved for the suspension of proceedings in Civil Case No. 03-991 before the Makati RTC (on the basis of the March 13, 2006 order of the Calamba RTC), they waived whatever defect there was in the service of summons and were deemed to have submitted themselves voluntarily to the jurisdiction of the Makati RTC.[40] We withhold judgment for the moment on the July 7, 2006 order of the Makati RTC suspending the proceedings in Civil Case No. 03-991 insofar as JAPRL and RFC are concerned. Under the Interim Rules of Procedure on Corporate Rehabilitation, a stay order defers all actions or claims against the corporation seeking rehabilitation[41] from the date of its issuance until the dismissal of the petition or termination of the rehabilitation proceedings.[42] The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if there is no ground to go after JAPRL and RFC (as will later be discussed). A creditor can demand payment from the surety solidarily liable with the corporation seeking rehabilitation.[43] Respondents abused procedural technicalities (albeit unsuccessfully) for the sole purpose of preventing, or at least delaying, the collection of their legitimate obligations. Their reprehensible scheme impeded the speedy dispensation of justice. More importantly, however, considering the amount involved, respondents utterly disregarded the significance of a stable and efficient banking system to the national economy.[44] Banks are entities engaged in the lending of funds obtained through deposits[45] from the public.[46] They borrow the publics excess money (i.e., deposits) and lend out the same.[47] Banks therefore

reconsideration

but

it

was

Petitioner asserts that respondents maliciously evaded the service of summonses to prevent the Makati RTC from acquiring jurisdiction over their persons. Furthermore, they employed bad faith to delay proceedings by cunningly exploiting procedural technicalities to avoid the payment of their obligations.[37] We grant the petition. Respondents, in their petition for certiorari in the CA, questioned the jurisdiction of the Makati RTC over their persons (i.e., whether or not the service of summons was validly made).

redistribute wealth in the economy by channeling idle savings to profitable investments. Banks operate (and earn income) by extending credit facilities financed primarily by deposits from the public.[48] They plough back the bulk of said deposits into the economy in the form of loans.[49] Since banks deal with the publics money, their viability depends largely on their ability to return those deposits on demand. For this reason, banking is undeniably imbued with public interest. Consequently, much importance is given to sound lending practices and good corporate governance.[50] Protecting the integrity of the banking system has become, by large, the responsibility of banks. The role of the public, particularly individual borrowers, has not been emphasized. Nevertheless, we are not unaware of the rampant and unscrupulous practice of obtaining loans without intending to pay the same. In this case, petitioner alleged that JAPRL fraudulently altered and falsified its financial statements in order to obtain its credit facilities. Considering the amount of petitioners exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether or not respondents indeed committed fraud in securing the credit accomodation. A finding of fraud will change the whole picture. In this event, petitioner can use the finding of fraud to move for the dismissal of the rehabilitation case in the Calamba RTC. The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty of fraud. Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against the three respondents guided by Section 40 of the General Banking Law which states: Section 40. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a loan or other credit accommodation, a bank must

ascertain that the debtor is capable of fulfilling his commitments to the bank. Towards this end, a bank may demand from its credit applicants a statement of their assets and liabilities and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal Revenue. Should such statements prove to be false or incorrect in any material detail, the bank may terminate any loan or credit accommodation granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of the obligation. In formulating the rules and regulations under this Section, the Monetary Board shall recognize the peculiar characteristics of microfinancing, such as cash flow-based lending to the basic sectors that are not covered by traditional collateral. (emphasis supplied) Under this provision, banks have the right to annul any credit accommodation or loan, and demand the immediate payment thereof, from borrowers proven to be guilty of fraud. Petitioner would then be entitled to the immediate payment of P194,493,388.98 and other appropriate damages.[51] Finally, considering that respondents failed to pay the four trust receipts, the Makati City Prosecutor should investigate whether or not there is probable cause to indict respondents for violation of Section 13 of the Trust Receipts Law.[52] ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and August 31, 2007 resolution of the Court of

Appeals in CA-G.R. SP No. 95659 are REVERSED and SET ASIDE. The Regional Trial Court of Makati City, Branch 145 is ordered to proceed expeditiously with the trial of Civil Case No. 03-991 with regard to respondent Jose U. Arollado, and the other respondents if warranted. SO ORDERED. G.R. No. L-20583 January 23, 1967 This is an original quo warranto proceeding, initiated by the Solicitor General, to dissolve the Security and Acceptance Corporation for allegedly engaging in banking operations without the authority required therefor by the General Banking Act (Republic Act No. 337). Named as respondents in the petition are, in addition to said corporation, the following, as alleged members of its Board of Directors and/or Executive Officers, namely: NAME POSITION

Rosendo T. Resuello President & Chairman of the Board Pablo Tanjutco Arturo Soriano Ruben Beltran Bienvenido V. Zapa Pilar G. Resuello Ricardo D. Balatbat Jose R. Sebastian Vito Tanjutco Jr. Director Director Director Director & Vice-President Director & Secretary-Treasurer Director & Auditor Director & Legal Counsel Director & Personnel Manager

The record shows that the Articles of Incorporation of defendant corporation1 were registered with the Securities and Exchange Commission on March 27, 1961; that the next day, the Board of Directors of the corporation adopted a set of by-laws,2 which were filed with said Commission on April 5, 1961; that on September 19, 1961, the Superintendent of Banks of the Central Bank of the

Philippines asked its legal counsel an opinion on whether or not said corporation is a banking institution, within the purview of Republic Act No. 337; that, acting upon this request, on October 11, 1961, said legal counsel rendered an opinion resolving the query in the affirmative; that in a letter, dated January 15, 1962, addressed to said Superintendent of Banks, the corporation through its president, Rosendo T. Resuello, one of defendants herein, sought a reconsideration of the aforementioned opinion, which reconsideration was denied on March 16, 1962; that, prior thereto, or on March 9, 1961, the corporation had applied with the Securities and Exchange Commission for the registration and licensing of its securities under the Securities Act; that, before acting on this application, the Commission referred it to the Central Bank, which, in turn, gave the former a copy of the above-mentioned opinion, in line with which, the Commission advised the corporation on December 5, 1961, to comply with the requirements of the General Banking Act; that, upon application of members of the Manila Police Department and an agent of the Central Bank, on May 18, 1962, the Municipal Court of Manila issued Search Warrant No. A-1019; that, pursuant thereto, members of the intelligence division of the Central Bank and of the Manila Police Department searched the premises of the corporation and seized documents and records thereof relative to its business operations; that, upon the return of said warrant, the seized documents and records were, with the authority of the court, placed under the custody of the Central Bank of the Philippines; that, upon examination and evaluation of said documents and records, the intelligence division of the Central Bank submitted, to the Acting Deputy Governor thereof, a memorandum dated September 10, 1962, finding that the corporation is: 1. Performing banking functions, without requisite certificate of authority from the Monetary Board of the Central Bank, in violation of Secs. 2 and 6 of Republic Act 337, in that it is soliciting and accepting deposit from the public and lending out the funds so received; 2. Soliciting and accepting savings deposits from the general public when the company's articles of incorporation authorize it only to engage primarily in financing agricultural, commercial and industrial projects, and secondarily, in buying and selling stocks and bonds of any corporation, thereby

exceeding the scope of its powers and authority as granted under its charter; consequently such acts are ultra-vires: 3. Soliciting subscriptions to the corporate shares of stock and accepting deposits on account thereof, without prior registration and/or licensing of such shares or securing exemption therefor, in violation of the Securities Act; and 4. That being a private credit and financial institution, it should come under the supervision of the Monetary Board of the Central Bank, by virtue of the transfer of the authority, power, duties and functions of the Secretary of Finance, Bank Commissioner and the defunct Bureau of Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic Act 265 and Secs. 88 and 89 of Republic Act 337." (Emphasis Supplied.) that upon examination and evaluation of the same records of the corporation, as well as of other documents and pertinent pipers obtained elsewhere, the Superintendent of Banks, submitted to the Monetary Board of the Central Bank a memorandum dated August 28, 1962, stating inter alia. 11. Pursuant to the request for assistance by the Chief, Intelligence Division, contained in his Memorandum to the Governor dated May 23, 1962 and in accordance with the written instructions of Governor Castillo dated May 31, 1962, an examination of the books and records of the Security Credit and Loans Organizations, Inc. seized by the combined MPDCB team was conducted by this Department. The examination disclosed the following findings: a. Considering the extent of its operations, the Security Credit and Acceptance Corporation, Inc.,receives deposits from the public regularly. Such deposits are treated in the Corporation's financial statements as conditional subscription to capital stock. Accumulated deposits of P5,000 of an individual depositor may be converted into stock subscription to the capital stock of the Security Credit and Acceptance Corporation at the option of the depositor. Sale of its shares of stock or subscriptions to its capital stock are offered to the public as part of its regular operations. b. That out of the funds obtained from the public through the receipt of deposits and/or the sale of

securities, loans are made regularly to any person by the Security Credit and Acceptance Corporation. A copy of the Memorandum Report dated July 30, 1962 of the examination made by Examiners of this Department of the seized books and records of the Corporation is attached hereto. 12. Section 2 of Republic Act No. 337, otherwise known as the General Banking Act, defines the term, "banking institution" as follows: Sec. 2. Only duly authorized persons and entities may engage in the lending of funds obtained from the public through the receipts of deposits or the sale of bonds, securities, or obligations of any kind and all entities regularly conducting operations shall be considered as banking institutions and shall be subject to the provisions of this Act, of the Central Bank Act, and of other pertinent laws. ... 13. Premises considered, the examination disclosed that the Security Credit and Acceptance Corporation isregularly lending funds obtained from the receipt of deposits and/or the sale of securities. The Corporation therefore is performing 'banking functions' as contemplated in Republic Act No. 337, without having first complied with the provisions of said Act. Recommendations: In view of all the foregoing, it is recommended that the Monetary Board decide and declare: 1. That the Security Credit and Acceptance Corporation is performing banking functions without having first complied with the provisions of Republic Act No. 337, otherwise known as the General Banking Act, in violation of Sections 2 and 6 thereof; and 2. That this case be referred to the Special Assistant to the Governor (Legal Counsel) for whatever legal actions are warranted, including, if warranted criminal action against the Persons criminally liable and/or quo warranto proceedings with preliminary injunction against the Corporation for its dissolution. (Emphasis supplied.) that, acting upon said memorandum of the Superintendent of Banks, on September 14, 1962, the Monetary Board promulgated its Resolution No. 1095, declaring that the

corporation is performing banking operations, without having first complied with the provisions of Sections 2 and 6 of Republic Act No. 337;3 that on September 25, 1962, the corporation was advised of the aforementioned resolution, but, this notwithstanding, the corporation, as well as the members of its Board of Directors and the officers of the corporation, have been and still are performing the functions and activities which had been declared to constitute illegal banking operations; that during the period from March 27, 1961 to May 18, 1962, the corporation had established 74 branches in principal cities and towns throughout the Philippines; that through a systematic and vigorous campaign undertaken by the corporation, the same had managed to induce the public to open 59,463 savings deposit accounts with an aggregate deposit of P1,689,136.74; that, in consequence of the foregoing deposits with the corporation, its original capital stock of P500,000, divided into 20,000 founders' shares of stock and 80,000 preferred shares of stock, both of which had a par value of P5.00 each, was increased, in less than one (1) year, to P3,000,000 divided into 130,000 founders' shares and 470,000 preferred shares, both with a par value of P5.00 each; and that, according to its statement of assets and liabilities, as of December 31, 1961, the corporation had a capital stock aggregating P1,273,265.98 and suffered, during the year 1961, a loss of P96,685.29. Accordingly, on December 6, 1962, the Solicitor General commenced this quo warranto proceedings for the dissolution of the corporation, with a prayer that, meanwhile, a writ of preliminary injunction be issued ex parte, enjoining the corporation and its branches, as well as its officers and agents, from performing the banking operations complained of, and that a receiver be appointed pendente lite. Upon joint motion of both parties, on August 20, 1963, the Superintendent of Banks of the Central Bank of the Philippines was appointed by this Court receiver pendente lite of defendant corporation, and upon the filing of the requisite bond, said officer assumed his functions as such receiver on September 16, 1963. In their answer, defendants admitted practically all of the allegations of fact made in the petition. They, however, denied that defendants Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran, Zapa, Balatbat and

Sebastian, are directors of the corporation, as well as the validity of the opinion, ruling, evaluation and conclusions, rendered, made and/or reached by the legal counsel and the intelligence division of the Central Bank, the Securities and Exchange Commission, and the Superintendent of Banks of the Philippines, or in Resolution No. 1095 of the Monetary Board, or of Search Warrant No. A-1019 of the Municipal Court of Manila, and of the search and seizure made thereunder. By way of affirmative allegations, defendants averred that, as of July 7, 1961, the Board of Directors of the corporation was composed of defendants Rosendo T. Resuello, Aquilino L. Illera and Pilar G. Resuello; that on July 11, 1962, the corporation had filed with the Superintendent of Banks an application for conversion into a Security Savings and Mortgage Bank, with defendants Zapa, Balatbat, Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran and Sebastian as proposed directors, in addition to the defendants first named above, with defendants Rosendo T. Resullo, Zapa, Pilar G. Resuello, Balatbat and Sebastian as proposed president, vice-president, secretarytreasurer, auditor and legal counsel, respectively; that said additional officers had never assumed their respective offices because of the pendency of the approval of said application for conversion; that defendants Soriano, Beltran, Sebastian, Vito Tanjutco Jr. and Pablo Tanjutco had subsequently withdrawn from the proposed mortgage and savings bank; that on November 29, 1962 or before the commencement of the present proceedings the corporation and defendants Rosendo T. Resuello and Pilar G. Resuello had instituted Civil Case No. 52342 of the Court of First Instance of Manila against Purificacion Santos and other members of the savings plan of the corporation and the City Fiscal for a declaratory relief and an injunction; that on December 3, 1962, Judge Gaudencio Cloribel of said court issued a writ directing the defendants in said case No. 52342 and their representatives or agents to refrain from prosecuting the plaintiff spouses and other officers of the corporation by reason of or in connection with the acceptance by the same of deposits under its savings plan; that acting upon a petition filed by plaintiffs in said case No. 52342, on December 6, 1962, the Court of First Instance of Manila had appointed Jose Ma. Ramirez as receiver of the corporation; that, on December 12, 1962, said Ramirez qualified as such receiver, after filing the requisite bond; that, except as to one of the defendants in said case No. 52342, the issues therein have already been joined; that

the failure of the corporation to honor the demands for withdrawal of its depositors or members of its savings plan and its former employees was due, not to mismanagement or misappropriation of corporate funds, but to an abnormal situation created by the mass demand for withdrawal of deposits, by the attachment of property of the corporation by its creditors, by the suspension by debtors of the corporation of the payment of their debts thereto and by an order of the Securities and Exchange Commission dated September 26, 1962, to the corporation to stop soliciting and receiving deposits; and that the withdrawal of deposits of members of the savings plan of the corporation was understood to be subject, as to time and amounts, to the financial condition of the corporation as an investment firm. In its reply, plaintiff alleged that a photostat copy, attached to said pleading, of the anniversary publication of defendant corporation showed that defendants Pablo Tanjutco, Arturo Soriano, Ruben Beltran, Bienvenido V. Zapa, Ricardo D. Balatbat, Jose R. Sebastian and Vito Tanjutco Jr. are officers and/or directors thereof; that this is confirmed by the minutes of a meeting of stockholders of the corporation, held on September 27, 1962, showing that said defendants had been elected officers thereof; that the views of the legal counsel of the Central Bank, of the Securities and Exchange Commission, the Intelligence Division, the Superintendent of Banks and the Monetary Board above referred to have been expressed in the lawful performance of their respective duties and have not been assailed or impugned in accordance with law; that neither has the validity of Search Warrant No. A-1019 been contested as provided by law; that the only assets of the corporation now consist of accounts receivable amounting approximately to P500,000, and its office equipment and appliances, despite its increased capitalization of P3,000,000 and its deposits amounting to not less than P1,689,136.74; and that the aforementioned petition of the corporation, in Civil Case No. 52342 of the Court of First Instance of Manila, for a declaratory relief is now highly improper, the defendants having already committed infractions and violations of the law justifying the dissolution of the corporation. Although, admittedly, defendant corporation has not secured the requisite authority to engage in banking, defendants deny that its transactions partake of the nature of banking operations. It is conceded, however, that, in consequence of a propaganda campaign therefor, a total of 59,463 savings account deposits have been made by

the public with the corporation and its 74 branches, with an aggregate deposit of P1,689,136.74, which has been lent out to such persons as the corporation deemed suitable therefor. It is clear that these transactions partake of the nature of banking, as the term is used in Section 2 of the General Banking Act. Indeed, a bank has been defined as: ... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347, 348] founded to facilitate the borrowing, lending and safekeeping of money (Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243, 255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of exchange, and credits (State vs. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338). (Banks & Banking, by Zellmann Vol. 1, p. 46). Moreover, it has been held that: An investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and borrower, is a bank. (Western Investment Banking Co. vs. Murray, 56 P. 728, 730, 731; 6 Ariz 215.) ... any person engaged in the business carried on by banks of deposit, of discount, or of circulation is doing a banking business, although but one of these functions is exercised. (MacLaren vs. State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S. 30.) Accordingly, defendant corporation has violated the law by engaging in banking without securing the administrative authority required in Republic Act No. 337. That the illegal transactions thus undertaken by defendant corporation warrant its dissolution is apparent from the fact that the foregoing misuser of the corporate funds and franchise affects the essence of its business, that it is willful and has been repeated 59,463 times, and that its continuance inflicts injury upon the public, owing to the number of persons affected thereby. It is urged, however, that this case should be remanded to the Court of First Instance of Manila upon the authority of Veraguth vs. Isabela Sugar Co. (57 Phil. 266). In this connection, it should be noted that this Court is vested with original jurisdiction, concurrently with courts of first instance, to hear and decide quo warranto cases and, that, consequently, it is discretionary for us to entertain the present case or to require that the issues therein be taken up in said Civil Case No.

52342. The Veraguth case cited by herein defendants, in support of the second alternative, is not in point, because in said case there were issues of fact which required the presentation of evidence, and courts of first instance are, in general, better equipped than appellate courts for the taking of testimony and the determination of questions of fact. In the case at bar, there is, however, no dispute as to the principal facts or acts performed by the corporation in the conduct of its business. The main issue here is one of law, namely, the legal nature of said facts or of the aforementioned acts of the corporation. For this reason, and because public interest demands an early disposition of the case, we have deemed it best to determine the merits thereof. Wherefore, the writ prayed for should be, as it is hereby granted and defendant corporation is, accordingly, ordered dissolved. The appointment of receiver herein issued pendente lite is hereby made permanent, and the receiver is, accordingly, directed to administer the properties, deposits, and other assets of defendant corporation and wind up the affairs thereof conformably to Rules 59 and 66 of the Rules of Court. It is so ordered.

every 25th day of the month starting from September 25, 1980 up to August 25, 1981."[3] Later, C. G. Dizon Construction endorsed with recourse the Promissory Note to ASIA PACIFIC, and to secure payment thereof, C. G. Dizon Construction, through its corporate officers, Cenen Dizon, President, and Juliette B. Dizon, Vice President and Treasurer, executed a Deed of Chattel Mortgage covering three (3) heavy equipment units of Caterpillar Bulldozer Crawler Tractors with Model Nos. D8-14A, D8-2U and D8H in favor of ASIA PACIFIC.[4] Moreover, Cenen Dizon executed on 25 August 1980 a Continuing Undertaking wherein he bound himself to pay the obligation jointly and severally with C. G. Dizon Construction.[5] In compliance with the provisions of the Promissory Note, C. G. Dizon Construction made the following installment payments to ASIA PACIFIC:P32,500.00 on 25 September 1980, P32,500.00 on 27 October 1980 and P65,000.00 on 27 February 1981, or a total of P130,000.00. Thereafter, however, C. G. Dizon Construction defaulted in the payment of the remaining installments, prompting ASIA PACIFIC to send a Statement of Accountto Cenen Dizon for the unpaid balance of P267,737.50 inclusive of interests and charges, and P66,909.38 representing attorney's fees. As the demand was unheeded, ASIA PACIFIC sued Teodoro Baas, C. G. Dizon Construction and Cenen Dizon. While defendants (herein petitioners) admitted the genuineness and due execution of the Promissory Note, the Deed of Chattel Mortgage and the Continuing Undertaking, they nevertheless maintained that these documents were never intended by the parties to be legal, valid and binding but a mere subterfuge to conceal the loan of P390,000.00 with usurious interests. Defendants claimed that since ASIA PACIFIC could not directly engage in banking business, it proposed to them a scheme wherein plaintiff ASIA PACIFIC could extend a loan to them without violating banking laws: first, Cenen Dizon would secure a promissory note from Teodoro Baas with a face value of P390,000.00 payable in installments; second, ASIA PACIFIC would then make it appear that the promissory note was sold to it by Cenen Dizon with the 14% usurious interest on the loan or P54,000.00 discounted and collected in

BANAS CASE C. G. DIZON CONSTRUCTION INC. and CENEN DIZON in this petition for review seek the reversal of the 24 July 1996 Decision of the Court of Appeals dismissing their appeal for lack of merit and affirming in toto the decision of the trial court holding them liable to Asia Pacific Finance Corporation in the amount of P87,637.50 at 14% interest per annum in addition to attorney's fees and costs of suit, as well as its 21 March 1997 Resolution denying reconsideration thereof.[2] On 20 March 1981 Asia Pacific Finance Corporation (ASIA PACIFIC for short) filed a complaint for a sum of money with prayer for a writ of replevin against Teodoro Baas, C. G. Dizon Construction and Cenen Dizon. Sometime in August 1980 Teodoro Baas executed a Promissory Note in favor of C. G. Dizon Construction whereby for value received he promised to pay to the order of C. G. Dizon Construction the sum ofP390,000.00 in installments of "P32,500.00

advance by ASIA PACIFIC; and, lastly, Cenen Dizon would provide sufficient collateral to answer for the loan in case of default in payment and execute a continuing guaranty to assure continuous and prompt payment of the loan. Defendants also alleged that out of the loan of P390,000.00 defendants actually received only P329,185.00 after ASIA PACIFIC deducted the discounted interest, service handling charges, insurance premium, registration and notarial fees. Sometime in October 1980 Cenen Dizon informed ASIA PACIFIC that he would be delayed in meeting his monthly amortization on account of business reverses and promised to pay instead in February 1981. Cenen Dizon made good his promise and tendered payment to ASIA PACIFIC in an amount equivalent to two (2) monthly amortizations. But ASIA PACIFIC attempted to impose a 3% interest for every month of delay, which he flatly refused to pay for being usurious. Afterwards, ASIA PACIFIC allegedly made a verbal proposal to Cenen Dizon to surrender to it the ownership of the two (2) bulldozer crawler tractors and, in turn, the latter would treat the former's account as closed and the loan fully paid. Cenen Dizon supposedly agreed and accepted the offer. Defendants averred that the value of the bulldozer crawler tractors was more than adequate to cover their obligation to ASIA PACIFIC. Meanwhile, on 21 April 1981 the trial court issued a writ of replevin against defendant C. G. Dizon Construction for the surrender of the bulldozer crawler tractors subject of the Deed of Chattel Mortgage. Of the three (3) bulldozer crawler tractors, only two (2) were actually turned over by defendants - D8-14A and D8-2U - which units were subsequently foreclosed by ASIA PACIFIC to satisfy the obligation. D8-14A was sold forP120,000.00 and D8-2U for P60,000.00 both to ASIA PACIFIC as the highest bidder. During the pendency of the case, defendant Teodoro Baas passed away, and on motion of the remaining defendants, the trial court dismissed the case against him. On the other hand, ASIA PACIFIC was substituted as party plaintiff by International Corporate Bank after the disputedPromissory Note was assigned and/or transferred by ASIA PACIFIC to International Corporate Bank. Later, International Corporate Bank merged with Union Bank of the Philippines. As the

surviving entity after the merger, and having succeeded to all the rights and interests of International Corporate Bank in this case, Union Bank of the Philippines was substituted as a party in lieu of International Corporate Bank.[6] On 25 September 1992 the Regional Trial Court ruled in favor of ASIA PACIFIC holding the defendants jointly and severally liable for the unpaid balance of the obligation under the Promissory Note in the amount of P87,637.50 at 14% interest per annum, and attorney's fees equivalent to 25% of the monetary award.[7] On 24 July 1996 the Court of Appeals affirmed in toto the decision of the trial court thus Defendant-appellants' contention that the instruments were executed merely as a subterfuge to skirt banking laws is an untenable defense. If that were so then they too were parties to the illegal scheme. Why should they now be allowed to take advantage of their own knavery to escape the liabilities that their own chicanery created? Defendant-appellants also want us to believe their story that there was an agreement between them and the plaintiff-appellee that if the former would deliver their 2 bulldozer crawler tractors to the latter, the defendant-appellants' obligation would fully be extinguished. Again, nothing but the word that comes out between the teeth supports such story. Why did they not write down such an important agreement? Is it believable that seasoned businessmen such as the defendant-appellant Cenen G. Dizon and the other officers of the appellant corporation would deliver the bulldozers without a receipt of acquittance from the plaintiff-appellee x x x x In our book, that is not credible. The pivotal issues raised are: (a) Whether the disputed transaction between petitioners and ASIA PACIFIC violated banking laws, hence, null and void; and (b) Whether the surrender of the bulldozer crawler tractors to respondent resulted in the extinguishment of petitioners' obligation. On the first issue, petitioners insist that ASIA PACIFIC was organized as an investment house which could not engage in the lending of funds obtained from the public through receipt of

deposits. The disputed Promissory Note, Deed of Chattel Mortgage and Continuing Undertaking were not intended to be valid and binding on the parties as they were merely devices to conceal their real intention which was to enter into a contract of loan in violation of banking laws. We reject the argument. An investment company refers to any issuer which is or holds itself out as being engaged or proposes to engage primarily in the business of investing, reinvesting or trading in securities.[8] As defined in Sec. 2, par. (a), of the Revised Securities Act,[9] securities "shall include x x x x commercial papers evidencing indebtedness of any person, financial or non-financial entity, irrespective of maturity, issued,endorsed, sold, transferred or in any manner conveyed to another with or without recourse, such as promissory notes x x x x" Clearly, the transaction between petitioners and respondent was one involving not a loan but purchase of receivables at a discount, well within the purview of "investing, reinvesting or trading in securities" which an investment company, like ASIA PACIFIC, is authorized to perform and does not constitute a violation of the General Banking Act.[10] Moreover, Sec. 2 of the General Banking Act provides in part Sec. 2. Only entities duly authorized by the Monetary Board of the Central Bank may engage in the lending of funds obtained from the public through the receipt of deposits of any kind, and all entities regularly conducting such operations shall be considered as banking institutions and shall be subject to the provisions of this Act, of the Central Bank Act, and of other pertinent laws (underscoring supplied). Indubitably, what is prohibited by law is for investment companies to lend funds obtained from the public through receipts of deposit, which is a function of banking institutions. But here, the funds supposedly "lent" to petitioners have not been shown to have been obtained from the public by way of deposits, hence, the inapplicability of banking laws. On petitioners' submission that the true intention of the parties was to enter into a contract of loan, we have examined the Promissory Note and failed to discern anything therein that would support such theory. On the contrary, we find the terms and conditions of the

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

them there must be clear, convincing and more than merely preponderant evidence. In the instant case, the records do not show even a preponderance of evidence in favor of petitioners' claim that the Deed of Chattel Mortgage and Continuing Undertaking were never intended by the parties to be legal, valid and binding. Notarial documents are evidence of the facts in clear and unequivocal manner therein expressed.[11] Interestingly, petitioners' assertions were based mainly on the selfserving testimony of Cenen Dizon, and not on any other independent evidence.His testimony is not only unconvincing, as found by the trial court and the Court of Appeals, but also self-defeating in light of the documents presented by respondent, i.e., Promissory Note, Deed of Chattel Mortgage and Continuing Undertaking, the accuracy, correctness and due execution of which were admitted by petitioners. Oral evidence certainly cannot prevail over the written agreements of the parties. The courts need only rely on the faces of the written contracts to determine their true intention on the principle that when the parties have reduced their agreements in writing, it is presumed that they have made the writings the only repositories and memorials of their true agreement. The second issue deals with a question of fact. We have ruled often enough that it is not the function of this Court to analyze and weigh the evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court.[12] At any rate, while we are not a trier of facts, hence, not required as a rule to look into the factual bases of the assailed decision of the Court of Appeals, we did so just the same in this case if only to satisfy petitioners that we have carefully studied and evaluated the case, all too mindful of the tenacity and vigor with which the parties, through their respective counsel, have pursued this case for nineteen (19) years. Petitioners contend that the parties already had a verbal understanding wherein ASIA PACIFIC actually agreed to consider petitioners' account closed and the principal obligation fully paid in exchange for the ownership of the two (2) bulldozer crawler tractors. We are not persuaded. Again, other than the bare allegations of petitioners, the records are bereft of any evidence of the supposed

agreement.As correctly observed by the Court of Appeals, it is unbelievable that the parties entirely neglected to write down such an important agreement.Equally incredulous is the fact that petitioner Cenen Dizon, a seasoned businessman, readily consented to deliver the bulldozers to respondent without a corresponding receipt of acquittance. Indeed, even the testimony of petitioner Cenen Dizon himself negates the supposed verbal understanding between the parties Q: You said and is it not a fact that you surrendered the bulldozers to APCOR by virtue of the seizure order? A: There was no seizure order. Atty. Carag during that time said if I surrender the two equipment, we might finally close a deal if the equipment would come up to the balance of the loan. So I voluntarily surrendered, I pulled them from the job site and returned them to APCOR x x x x Q: You mentioned a certain Atty. Carag, who is he? A: He was the former legal counsel of APCOR. They were handling cases. In fact, I talked with Atty. Carag, we have a verbal agreement if I surrender the equipment it might suffice to pay off the debt so I did just that (underscoring ours).[13] In other words, there was no binding and perfected contract between petitioners and respondent regarding the settlement of the obligation, but only a conditional one, a mere conjecture in fact, depending on whether the value of the tractors to be surrendered would equal the balance of the loan plus interests. And since the bulldozer crawler tractors were sold at the foreclosure sale for only P180,000.00,[14] which was not enough to cover the unpaid balance of P267,637.50, petitioners are still liable for the deficiency. Barring therefore a showing that the findings complained of are totally devoid of support in the records, or that they are so glaringly erroneous as to constitute serious abuse of discretion, we see no valid reason to discard them. More so in this case where the findings of both the trial court and the appellate court coincide with each other on the matter.

With regard to the computation of petitioners' liability, the records show that petitioners actually paid to respondent a total sum of P130,000.00 in addition to the P180,000.00 proceeds realized from the sale of the bulldozer crawler tractors at public auction. Deducting these amounts from the principal obligation of P390,000.00 leaves a balance of P80,000.00, to which must be added P7,637.50 accrued interests and charges as of 20 March 1981, or a total unpaid balance of P87,637.50 for which petitioners are jointly and severally liable. Furthermore, the unpaid balance should earn 14% interest per annum as stipulated in the Promissory Note, computed from 20 March 1981 until fully paid. On the amount of attorney's fees which under the Promissory Note is equivalent to 25% of the principal obligation and interests due, it is not, strictly speaking, the attorney's fees recoverable as between the attorney and his client regulated by the Rules of Court. Rather, the attorney's fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It has been said that so long as such stipulation does not contravene the law, morals and public order, it is strictly binding upon the obligor. It is the litigant, not the counsel, who is the judgment creditor entitled to enforce the judgment by execution.[15] Nevertheless, it appears that petitioners' failure to fully comply with their part of the bargain was not motivated by ill will or malice, but due to financial distress occasioned by legitimate business reverses. Petitioners in fact paid a total of P130,000.00 in three (3) installments, and even went to the extent of voluntarily turning over to respondent their heavy equipment consisting of two (2) bulldozer crawler tractors, all in a bona fide effort to settle their indebtedness in full. Article 1229 of the New Civil Code specifically empowers the judge to equitably reduce the civil penalty when the principal obligation has been partly or irregularly complied with. Upon the foregoing premise, we hold that the reduction of the attorney's fees from 25% to 15% of the unpaid principal plus interests is in order. Finally, while we empathize with petitioners, we cannot close our eyes to the overriding considerations of the law on obligations and contracts which must be upheld and honored at all times. Petitioners have undoubtedly benefited from the transaction; they cannot now be

allowed to impugn its validity and legality to escape the fulfillment of a valid and binding obligation. WHEREFORE, no reversible error having been committed by the Court of Appeals, its assailed Decision of 24 July 1996 and its Resolution of 21 March 1997 are AFFIRMED. Accordingly, petitioners C.G. Construction Inc. and Cenen Dizon are ordered jointly and severally to pay respondent Asia Pacific Finance Corporation, substituted by International Corporate Bank (now known as Union Bank of the Philippines), P87,637.50 representing the unpaid balance on the Promissory Note, with interest at fourteen percent (14%) per annum computed from 20 March 1981 until fully paid, and fifteen percent (15%) of the principal obligation and interests due by way of attorney's fees. Costs against petitioners. SO ORDERED.

FIRST PLANTERS Facts: The BIR informed the petitioner on its VAT and Documentary Stamp Tax (DST) deficiency for the year 2000. The petitioner protested after receiving the formal assessment notice from the BIR directing it to pay its VAT deficiencies with surcharges and interest. They contend they are not a lending investor within the scope of Section 108 (A) of the National Internal Revenue Code therefore not subject to Vat and that a pawn ticket is not subject to DST because it is not a proof of pledge of transaction. Their protest was denied by the BIR Regional Director and their appeal was likewise denied by the Court of Tax Appeal hence this petition for review. Issue: Whether or not pawnshops maybe subjected to VAT and Documentary stamp tax?

Ruling: At the time of the disputed assessment in 2000, pawnshops were not subject to 10% under the general provision on "sale or exchange of services" as defined under Section 108(A) of the Tax Code of 1997 which was amended by the RA 9238 classifying pawnshops as Other Non-Bank Financial Intermediaries. Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax years 1996 to 2002; however, with the levy, assessment and collection of VAT from non-bank financial intermediaries being specifically deferred by law,then petitioner is not liable for VAT during these tax years. But with the full implementation of the VAT system on nonbank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5 %, as the case may be. Pawnshops are liable for documentary stamp tax. Subject of DST is not limited to the document alone. Pledge (which is an exercise of a privilege to transfer obligations, rights or properties incident thereto) is essentially the business of pawnshops which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending money on personal property delivered as security for loans. The DST is an excise tax imposed in the exercise of a pledge. Although the law does not consider a pawn ticket as an evidence of security or indebtedness, for purposes of taxation it is treated as an exercise of a taxable privilege of concluding a contract of pledge. Thus, the court partially granted the petition where the decision on the BIR assessment on VAT deficiency is reversed and set aside while the decision on payment for DST is affirmed. R.A. No. 337, as amended, or the General Banking Act characterizes the terms banking institution and bank as synonymous and interchangeable and specifically include commercial banks, savings bank, mortgage banks, development banks, rural banks, stock

savings and loan associations, and branches and agencies in the Philippines of foreign banks. R.A. No. 8791 or the General Banking Law of 2000, meanwhile, provided that banks shall refer to entities engaged in the lending of funds obtained in the form of deposits. R.A. No. 8791 also included cooperative banks, Islamic banks and other banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas in the classification of banks. phi1 Financial intermediaries are defined as "persons or entities whose principal functions include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through them, either for their own account or for the account of others." Section 3 of P.D. No. 114 defines pawnshop as "a person or entity engaged in the business of lending money on personal property delivered as securityfor loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage."