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FIRST DIVISION
[G.R. No. 179901, April 14, 2008]
BANCO DE ORO-EPCI, INC.,*
PETITIONER, VS. JAPRL
DEVELOPMENT CORPORATION, RAPID
FORMING CORPORATION AND JOSE U.
AROLLADO, RESPONDENTS.
D E C I S I O N
CORONA, J.:
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 JAPRL's 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,
JAPRL's 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
JAPRL's 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]

2. 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 officer's 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 JAPRL's
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 reconsideration but it was
denied.[36]
Hence, this petition.
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).
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

3. 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 public's excess money
(i.e., deposits) and lend out the same.[47]
Banks
therefore 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 public's
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 petitioner's 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

4. 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.
Puno, C.J., (Chairperson), Carpio, and
Leonardo-De Castro, JJ., concur.
Azcuna, J., on official leave.
* Formerly Equitable PCI Bank, Inc.
[1]
Under Rule 45 of the Rules of Court.
[2]
Penned by Associate Justice Jose L. Sabio, Jr.
and concurred in by Associate Justices Jose C.
Reyes, Jr. and Myrna Dimaranan-Vidal of the
Tenth Division of the Court of Appeals. Dated
June 7, 2007. Rollo, pp. 49-59.
[3]
Dated August 31, 2007. Id., p. 60.
[4]
Id., pp. 62-63.
[5]
Id., p. 63.
[6]
JAPRL failed to pay the value of trust receipt
nos. 114505, 1000006285, 1000006305 and
1000006325. Id.
[7]
Id., pp. 62-66.
[8]
Paragraph 16 of the Trust Receipt Agreement
provided:
16. If any of the following Events of Default
shall have occurred:
x x x x x x x x x
b. The Entrustee shall default in the due
performance or observance of any other
covenant contained herein on in any
agreement under which the Entruster issued
the letter of credit under the terms of which
the Trust Property was purchased, and such
default shall remain unremedied for a period
of five (5) calendar days after the Entrustee
shall have received written notice thereof from
the Entruster; or,
c. Any statement, representation or warranty
made by the Entrustee, hereunder, in its
application with the Entruster or in other
document delivered or made pursuant thereto
shall prove to be incorrect or untrue in the any
material respect; or,

5. d. The Entrustee/ any of its subsidiary or affiliate
fails to pay or default in the payment of any
installment of the principal or interests relative
to, or fails to comply with or to perform, any
other obligation or commits a breach or
violation of any of the terms, conditions or
stipulations, of any agreement, contract or
document with Entruster or any third person or
persons to which the Entruster or any of its
subsidiary or affiliate is a party or privy,
whether executed prior to or after the date
hereof under which credit has or may have
been extended to such Entrustee/ subsidisiary
or affiliate by the Entruster or such third
person or persons or under which the
Entrustee has agreed to act as guarantor,
surety or accommodation party, which, under
the terms of such agreement, contract,
document, guaranty or suretyship, including
any agreement similar or analogous thereto,
shall constitute a default or is defined as an
event of default thereunder; or,
x x x x x x x x x
j. Any adverse circumstance occurs, which in
the reasonable opinion of the Entruster,
materially or adversely affects the ability of
the Entrustee to perform its obligation
hereunder; or
x x x x x x x x x
Id., pp. 65-66.
[9]
JAPRL's outstanding liabilities were broken
down as follows:
LETTER
OF
CREDIT
TRUST RECEIPT
OUTSTANDING
BALANCE
9185863 114505 P 4,818,784.50
9186617 115613 10,002,405.35
9186263 115099 24,421,786.32
9188618 115612 17,742,002.53
9187128 116067 7,718,059.80
14913 100000628
5
1,734.837.50
14927 100000630
5
3,235,780.00
14952 100000632
5
2,809,031.24
14969 100000633
0
3,739,312.50
14982 100000633
9
4,142,952.24
15144 100000653
2
7,080,696.00
15168 100000655
8
4,889,034.00
15181 100000657
1
5,104,317.50
15186 100000657
4
10,129,035.00
15207 100000659
9
7,183,010.00
15236 100000664
6
6,730,310.00
15244 100000664
8
3,481,760.00
15251 100000665
2
6,353,342.50
15273 100000667
0
10,781,095.00
15320 100000672
3
9,043,803.00
15340 100000674
9
8,974,180.00
15374 100000678
1
5,344,652.00
15387 100000680
1
10,545,120.00
100000680
8
6,454,320.00
100000680
9
5,837,680.00
15413 100000682
4
6,196,080.00
TOTAL P194,493,388.98
Id., p. 64.
[10]
Id., pp. 83-84.
[11]
Id., p. 63.
According to the affidavit of general financial
condition executed by Peter Paul Limson,
concurrent chairman and chief executive officer

6. of JAPRL and RFC, both corporations have been
suffering staggering losses since the year 2000:
2002 2001 2000
SALES
JAPRL P210,570,9
62
P233,064,
377
P303,661,
262
RFC
284,828,24
6
294,940,65
6
248,013,11
8
PROFIT/LOS
SES
JAPRL (P14,536,9
76)
P 269,958 P 516,359
RFC
215,747
327,462 503,112
[12]
See Interim Rules of Procedure on Corporate
Rehabilitation (A.M. No. 00-8-10-SC), Sec. 6
which provides:
Section 6. Stay Order. - If the court finds the
petition to be sufficient in form and substance,
it shall, not later than five (5) days from the
filing of the petition, issue an Order: (a)
applying a Rehabilitation Receiver and fixing his
bond; (b) staying enforcement of all claims,
whether for money or otherwise and whether
such enforcement is by court action or
otherwise, against the debtor, its guarantors
and sureties not solidarily liable with the
debtor; (c) prohibiting the debtor from selling,
encumbering, transferring, or disposing in any
manner any of its properties except in the
ordinary course of business; (d) prohibiting the
debtor from making any payment of its
liabilities outstanding as at the date of filing of
the petition; (e) prohibiting the debtor's
suppliers of goods or services from withholding
supply of goods and services in the ordinary
course of business for as long as the debtor
makes payments for the services and goods
supplied after the issuance of the stay order; (f)
directing the payment in full of all administrative
expenses incurred after the issuance of the stay
order; (g) fixing the initial hearing on the
petition not earlier than forty-five (45) days but
not later than sixty (60) days from the filing
thereof; (h) directing the petitioner to publish
the Order in a newspaper of general circulation
in the Philippines once a week for two (2)
consecutive weeks; (i) directing all creditors
and all interested parties (including the
Securities and Exchange Commission) to file
and serve on the debtor a verified comment
on or opposition to the petition, with
supporting affidavits and documents, not later
than ten (10) days before the date of the initial
hearing and putting them on notice that their
failure to do so will bar them from
participating in the proceedings; and (j)
directing the creditors and interested parties to
secure from the court copies of the petition and
its annexes within such time as to enable
themselves to file their comment on or
opposition to the petition and to prepare for the
initial hearing of the petition. (emphasis
supplied)
[13]
Issued by Presiding Judge Reynaldo B.
Daway. Rollo, pp. 83-84.
[14]
Id., p. 127.
[15]
Annex "F," id., pp. 61-71.
[16]
Id., p. 67.
[17]
Issued by Presiding Judge Cesar D.
Santamaria. Dated September 23, 2003. Annex
"G," id., pp. 73-74.
[18]
Annex "K," id., pp. 92-94.
[19]
Annex "J," id., p. 91. It stated:
I HEREBY CERTIFY that on July 9, 2004 a
copy of summons dated May 5, 2004 issued by
the Honorable Court in connection with [Civil
Case No. 03-991], the undersigned served upon
[JAPRL], 2/F Vasquez Madrigal Plaza, 51
Annapolis St., Greenhills, San Juan, Metro
Manila, [RFC and Arollado]; thru Ms. GRACE
CANO, administrative assistant who
acknowledged receipt as evidenced by her
signature at the original copy of summons.
DULY SERVED.

7. City of Makati, 12 July 2004. (emphasis
supplied)
[20]
Rules of Court, Rule 14, Sec. 11 provides:
Section 11. Service upon domestic private
juridical entity. When the defendant is a
corporation, partnership or association
organized under the laws of the Philippines with
a juridical personality, service may be made on
the president, managing partner, general
manager, corporate secretary, treasurer, or
in-house counsel. (emphasis supplied)
[21]
Annex "K," rollo, pp. 92-94. See Mason v.
Court of Appeals, 459 Phil. 689, 698-699 (2003).
[22]
Rules of Court, Sec. 6, Rule 14 provides:
Section 6. Service in person on defendant.
Whenever practicable, the summons shall be
served by handing a copy thereof to the
defendant in person, or if he refuses to receive
and sign for it, by tendering it to him. (emphasis
supplied)
[23]
Rollo, p. 93.
[24]
Annex "M," id., pp. 102-103.
[25]
Annex "N," id., pp. 104-112.
[26]
Annex, "O," id., pp. 113-115.
[27]
Issued by Judge Jesus A. Santiago. Dated
September 11, 2006. Id., pp. 126-129.
[28]
Annex "Q," id., pp. 124-125.
[29]
Annex "R," id., p. 130.
[30]
Annex "S," id., pp. 131-134.
[31]
Annex "T," id., p. 135.
[32]
Under Rule 65 of the Rules of Court.
[33]
Respondents' motion for reconsideration was
pending in the Makati RTC when they filed the
petition for certiorari in the CA. It (petition)
should have been dismissed for being filed
prematurely.
[34]
Annex "U," rollo, pp. 136-149.
[35]
Supra note 2.
[36]
Supra note 3.
[37]
Id., pp. 10-35.
[38]
The July 7, 2006 and September 11, 2006
orders of the Makati RTC resolved whether or
not the proceedings in Civil Case No. 03-991
should be suspended in view of the March 13,
2006 order of the Calamba RTC in RTC SEC
Case No. 68-2008-C.
[39]
See RULES OF COURT, Sec. 4, Rule 65
which provides:
Section 4. When and where petition filed. The
petition shall be filed not later than sixty (60)
days from notice of judgment, order or
resolution. In case a motion for reconsideration
is filed on time, whether such motion is required
or not, the sixty (60) day period shall be counted
for the notice of said motion.
x x x x x x x x x
[40]
See Orosa v. Court of Appeals, 330 Phil. 67
(1996).
[41]
Philippine Airlines v. Kurangking, 438 Phil.
375, 381 (2002).
[42]
Id.
See A.M. No. 00-8-10-SC, Sec. 11 provides:
Section 11. Period of Stay Order. The stay
order shall be effective from the date of its
issuance until the dismissal of the petition or
termination of the rehabilitation proceedings.
The petition shall be dismissed if no
rehabilitation is approved by the court upon the
lapse of one hundred eighty (180) days from the
date of the initial hearing. The court may grant

8. an extension beyond this period only if it appears
by convincing and compelling evidence that the
debtor may successfully be rehabilitated. In no
instance, however, shall the period for approving
or disapproving a rehabilitation plan exceed
eighteen (18) months from the date of filing of
the petition. (emphasis supplied)
[43]
Philippine Blooming Mills v. Court of
Appeals, 459 Phil. 875, 892 (2003) citing
Traders Royal Bank v. Court of Appeals, G.R.
No. 78412, 26 September 1989, 177 SCRA 788,
792.
[44]
GEN. BANKING LAW, Sec. 2 provides:
Section 2. Declaration of Policy. The State
recognizes the vital role of banks providing an
environment conducive to the sustained
development of the national economy and the
fiduciary nature of banking that requires high
standards of integrity and performance. In
furtherance thereof, the State shall promote a
stable and efficient banking and financial
system that is globally competitive, dynamic
and responsive to the demands of a
developing economy. (emphasis supplied)
[45]
GEN. BANKING LAW, Sec. 3.1.
[46]
GEN. BANKING LAW, Sec. 8.2.
[47]
Frederic Mishkin, THE ECONOMICS OF
MONEY, BANKING AND FINANCIAL
MATTERS, 5th
ed., pp. 231-238.
See also Vicente Valdepeñas, Jr., THE
BANGKO SENTRAL AND THE PHILIPPINE
ECONOMY, pp. 123-124.
[48]
Valdepeñas, id., p. 125.
[49]
The Bangko Sentral ng Pilipinas (BSP)
controls bank lending by imposing reserve
requirements which may be increased or
reduced, subject to the financing needs of the
economy.
[50]
Valdepeñas, supra note 47 at 125-126.
[51]
Paragraph 28 of the Trust Receipt Agreement
provides:
28. In all cases where the Entruster is compelled
to resort to the cancellation of this Trust Receipt
or any take legal action to protect its interests,
the Entrustee shall pay attorney fees fixed at
15% of the total obligation of the Entrustee,
which shall in case be less than P20,000
exclusive of costs and fees allowed by law and
the other expenses of collection incurred by the
Entruster, and liquidated damages equal to
fifteen percent (15%) of the total amount due but
in no case less than P20,000. Any deficiency
resulting within 24 hours from such sale, failing
which the Entruster may take such legal action,
without further notice to the Entrustee, as it may
deem necessary to collect such deficiency from
the Entrustee.
Id., pp. 66-67.
[52]
TRUST RECEIPTS LAW, Sec. 13 provides:
Section 13. Penalty Clause. - The failure of an
entrustee to turn over the proceeds of the sale of
the goods, documents or instruments covered by
a trust receipt to the extent of the amount owing
to the entruster or as appears in the trust receipt
or to return said goods, documents or
instruments if they were not sold or disposed of
in accordance with terms of the trust receipt shall
constitute the crime of estafa, punishable under
the provisions of Article Three hundred and
fifteen, paragraph one (b) of Act Numbered
Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal
Code. If the violation or offense is committed by
a corporation, partnership, association or other
juridical entities, the penalty provided for in this
Decree shall be imposed upon the directors,
officers, employees or other officials or persons
therein responsible for the offense, without
prejudice to civil liabilities arising from the
criminal offense. (emphasis supplied)
EN BANC

9. G.R. No. L-20583 January 23, 1967
REPUBLIC OF THE PHILIPPINES,
Petitioner, vs. SECURITY CREDIT AND
ACCEPTANCE CORPORATION,
ROSENDO T. RESUELLO, PABLO
TANJUTCO, ARTURO SORIANO, RUBEN
BELTRAN, BIENVENIDO V. ZAPA, PILAR
G. RESUELLO, RICARDO D. BALATBAT,
JOSE SEBASTIAN and VITO TANJUTCO
JR., Respondents.
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CONCEPCION, C.J.:chanrobles virtual law library
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 Director
Arturo Soriano Director
Ruben Beltran Director
Bienvenido V.
Zapa
Director & Vice-President
Pilar G. Resuello
Director & Secretary-
Treasurer
Ricardo D.
Balatbat
Director & Auditor
Jose R. Sebastian Director & Legal Counsel
Vito Tanjutco Jr.
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

10. 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;chanrobles virtual law library
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:chanrobles virtual law library
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; andchanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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 MPD-CB 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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law
library
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 is regularly lending
funds obtained from the receipt of deposits
and/or the sale of securities. The Corporation

11. therefore is performing 'banking functions' as
contemplated in Republic Act No. 337, without
having first complied with the provisions of said
Act.
SECOND DIVISION
[G.R. No. 128703. October 18, 2000]
TEODORO BAÑAS,* C. G. DIZON
CONSTRUCTION, INC., and CENEN DIZON,
petitioners, vs. ASIA PACIFIC FINANCE
CORPORATION, substituted by
INTERNATIONAL CORPORATE BANK now
known as UNION BANK OF THE
PHILIPPINES, respondent.
D E C I S I O N
BELLOSILLO, J.:
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.
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 Bañas, C. G.
Dizon Construction and Cenen Dizon. Sometime
in August 1980 Teodoro Bañas 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 of P390,000.00 in
installments of "P32,500.00 every 25th day of
the month starting from September 25, 1980 up
to August 25, 1981."
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.
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.
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 Account to
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 Bañas, 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 Bañas with a face value of P390,000.00
payable in installments; second, ASIA PACIFIC

12. 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 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 for P120,000.00 and D8-2U for
P60,000.00 both to ASIA PACIFIC as the
highest bidder.
During the pendency of the case, defendant
Teodoro Bañas 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 disputed Promissory 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.
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.
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

13. 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. As defined in Sec. 2, par. (a), of the
Revised Securities Act, 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. 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 x x x

14. Makati, Metro Manila, August 25, 1980.
(Sgd) Teodoro Bañas
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.
Interestingly, petitioners' assertions were based
mainly on the self-serving 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. 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

15. 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).
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, 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.
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

16. due by way of attorney's fees. Costs against
petitioners.
SO ORDERED.
Mendoza, Quisumbing, Buena and De Leon, Jr.,
JJ., concur.
* Petitioner Teodoro Bañas should not have been
included in the caption of this case as his name
was ordered excluded by the trial court on 23
October 1997 since he died during the pendency
of the case thereat.
This case was originally titled "Teodoro Bañas,
C.G. Dizon Construction, Inc., and Cenen Dizon
v. Court of Appeals and Asia Pacific Finance
Corporation." The Court of Appeals, which was
inadvertently made party-respondent, was
excluded on motion of petitioners since the court
which rendered the decision appealed from is not
required to be joined as party-respondent (Rule
45, 1997 Rules of Civil Procedure).
Penned by Justice Hilarion L. Aquino, concurred
in by Justices Jainal D. Rasul and Hector L.
Hofileña.
Exh. "A."
Exh. "C."
Exh. "D."
This case however continued to be prosecuted
and defended in the names of ASIA PACIFIC
and Teodoro Bañas, among other defendants,
respectively, notwithstanding the Orders of 22
August 1985 on substitution of party-plaintiff
and of 23 October 1987 re dismissal of the case
against deceased defendant Teodoro Bañas, both
issued by the trial court.
Decision penned by Judge Domingo R. Garcia,
RTC-Br. 157, Pasig City.
See Sec. 4, RA 2629.
B.P. Blg. 178.
RA 337.
Salame v. Court of Appeals, G.R. No. 104373,
22 December 1994, 239 SCRA 356.
Remalante v. Tibe, G.R. No. 59514, 25 February
1988, 158 SCRA 138.
TSN, 15 November 1988, pp. 7-8.
Exh. "F."
See South Surety and Insurance Co., Inc. v.
Court of Appeals, G.R. No. 102253, 2 June
1995, 244 SCRA 744.
Republic of the Philippines
Supreme Court
Manila
THIRD DIVISION
FIRST PLANTERS G.R. No. 174134
PAWNSHOP, INC.,
Petitioner,
Present:
YNARES-
SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-
MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
COMMISSIONER OF
INTERNAL
REVENUE,
Promulgated:
Respondent.
July 30, 2008

17. x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - x
D E C I S I O N
AUSTRIA-MARTINEZ, J.:
First Planters Pawnshop, Inc. (petitioner)
contests the deficiency value-added and documentary
stamp taxes imposed upon it by the Bureau of Internal
Revenue (BIR) for the year 2000. The core of
petitioner's argument is that it is not a lending investor
within the purview of Section 108(A) of the National
Internal Revenue Code (NIRC), as amended, and
therefore not subject to value-added tax (VAT).
Petitioner also contends that a pawn ticket is not
subject to documentary stamp tax (DST) because it is
not proof of the pledge transaction, and even assuming
that it is so, still, it is not subject to tax since a
documentary stamp tax is levied on the document
issued and not on the transaction.
The facts:
In a Pre-Assessment Notice dated July 7,
2003, petitioner was informed by the BIR that it has an
existing tax deficiency on its VAT and DST liabilities
for the year 2000. The deficiency assessment was at
P541,102.79 for VAT and P23,646.33 for DST.
Petitioner protested the assessment for lack of legal
and factual bases.
Petitioner subsequently received a Formal
Assessment Notice on December 29, 2003, directing
payment of VAT deficiency in the amount of
P541,102.79 and DST deficiency in the amount of
P24,747.13, inclusive of surcharge and interest.
Petitioner filed a protest, which was denied by Acting
Regional Director Anselmo G. Adriano per Final
Decision on Disputed Assessment dated January 29,
2004.
Petitioner then filed a petition for review with
the Court of Tax Appeals (CTA). In a Decision dated
May 9, 2005, the 2nd
Division of the CTA upheld the
deficiency assessment. Petitioner filed a motion for
reconsideration which was denied in a Resolution
dated October 7, 2005.
Petitioner appealed to the CTA En Banc
which rendered a Decision dated June 7, 2006, the
dispositive portion of which reads as follows:
WHEREFORE, premises considered, the
Petition for Review is hereby DENIED for lack of
merit. The assailed Decision dated May 9, 2005 and
Resolution dated October 7, 2005 are hereby
AFFIRMED.
SO ORDERED.
Petitioner sought reconsideration but this was
denied by the CTA En Banc per Resolution dated
August 14, 2006.
Hence, the present petition for review under
Rule 45 of the Rules of Court based on the following
grounds:

18. I
THE HONORABLE COURT OF TAX APPEALS
EN BANC GRAVELY ERRED IN FINDING
PETITIONER LIABLE FOR VAT.
II
THE HONORABLE COURT OF TAX APPEALS
EN BANC GRAVELY ERRED IN RULING THAT
PETITIONER IS LIABLE FOR DST ON PAWN
TICKETS.
The determination of petitioner's tax liability
depends on the tax treatment of a pawnshop business.
Oddly, there has not been any definitive declaration in
this regard despite the fact that pawnshops have long
been in existence. All that has been stated is what
pawnshops are not, but not what pawnshops are.
The BIR itself has maintained an ambivalent
stance on this issue. Initially, in Revenue
Memorandum Order No. 15-91 issued on March 11,
1991, a pawnshop business was considered as “akin to
lending investor’s business activity” and subject to 5%
percentage tax beginning January 1, 1991, under
Section 116 of the Tax Code of 1977, as amended by
E.O. No. 273.
With the passage of Republic Act (R.A.) No.
7716 or the EVAT Law in 1994, the BIR abandoned
its earlier position and maintained that pawnshops are
subject to 10% VAT, as implemented by Revenue
Regulations No. 7-95. This was complemented by
Revenue Memorandum Circular No. 45-01 dated
October 12, 2001, which provided that pawnshop
operators are liable to the 10% VAT based on gross
receipts beginning January 1, 1996, while pawnshops
whose gross annual receipts do not exceed
P550,000.00 are liable for percentage tax, pursuant to
Section 109(z) of the Tax Code of 1997.
CTA decisions affirmed the BIR's position
that pawnshops are subject to VAT. In H.
Tambunting Pawnshop, Inc. v. Commissioner of
Internal Revenue, the CTA ruled that the petitioner
therein was subject to 10% VAT under Section 108 of
the Tax Code of 1997. Antam Pawnshop
Corporation v. Commissioner of Internal Revenue
reiterates said ruling. It was the CTA's view that the
services rendered by pawnshops fall under the general
definition of “sale or exchange of services” under
Section 108(A) of the Tax Code of 1997.
On July 15, 2003, the Court rendered
Commissioner of Internal Revenue v. Michel J.
Lhuillier Pawnshop, Inc. in which it was categorically
ruled that while pawnshops are engaged in the
business of lending money, they are not considered
“lending investors” for the purpose of imposing
percentage taxes. The Court gave the following
reasons: first, under the 1997 Tax Code, pawnshops
and lending investors were subjected to different tax
treatments; second, Congress never intended
pawnshops to be treated in the same way as lending
investors; third, Section 116 of the NIRC of 1977
subjects to percentage tax dealers in securities and
lending investors only; and lastly, the BIR had ruled
several times prior to the issuance of RMO No. 15-91
and RMC 43-91 that pawnshops were not subject to
the 5% percentage tax on lending investors imposed
by Section 116 of the NIRC of 1977, as amended by
Executive Order No. 273.
In view of said ruling, the BIR issued
Revenue Memorandum Circular No. 36-2004 dated
June 16, 2004, canceling the previous lending
investor's tax assessments on pawnshops. Said
Circular stated, inter alia:
In view of the said Supreme Court
decision, all assessments on pawnshops for percentage
taxes as lending investors are hereby cancelled. This

19. Circular is being issued for the sole purpose of
resolving the tax liability of pawnshops to the 5%
lending investors tax provided under the then Section
116 of the NIRC of 1977, as amended, and shall not
cover issues relating to their other tax liabilities. All
internal revenue officials are enjoined from issuing
assessments on pawnshops for percentage taxes on
lending investors, under the then Section 116 of the
NIRC of 1977, as amended.
For purposes of the gross receipt tax
provided for under Republic Act No. 9294, the
pawnshops are now subject thereof. This shall
however, be covered by another issuance.
Revenue Memorandum Circular No. 37-2004
was issued on the same date whereby pawnshop
businesses were allowed to settle their VAT liabilities
for the tax years 1996-2002 pursuant to a
memorandum of agreement entered into by the
Commissioner of Internal Revenue and the Chambers
of Pawnbrokers of the Philippines, Inc. The Circular
likewise instructed all revenue officers to ensure that
“all VAT due from pawnshops beginning January 1,
2003, including increments thereto, if any, are
assessed and collected from pawnshops under its
jurisdiction.”
In the interim, however, Congress passed
Republic Act (R.A.) No. 9238 on February 5, 2004
entitled, “An Act Amending Certain Sections of the
National Internal Revenue Code of 1997, as amended,
by Excluding Several Services from the Coverage of
the Value-added Tax and Re-imposing the Gross
Receipts Tax on Banks and Non-bank Financial
Intermediaries Performing Quasi-banking Functions
and Other Non-bank Financial Intermediaries
beginning January 01, 2004.”
Pending publication of R.A. No. 9238, the
BIR issued Bank Bulletin No. 2004-01 on February
10, 2004 advising all banks and non-bank financial
intermediaries that they shall remain liable under the
VAT system.
When R.A. No. 9238 took effect on February
16, 2004, the Department of Finance issued Revenue
Regulations No. 10-2004 dated October 18, 2004,
classifying pawnshops as Other Non-bank Financial
Intermediaries. The BIR then issued Revenue
Memorandum Circular No. 73-2004 on November
25, 2004, prescribing the guidelines and policies on
the assessment and collection of 10% VAT for gross
annual sales/receipts exceeding P550,000.00 or 3%
percentage tax for gross annual sales/receipts not
exceeding P550,000.00 of pawnshops prior to January
1, 2005.
In fine, prior to the EVAT Law, pawnshops
were treated as lending investors subject to lending
investor's tax. Subsequently, with the Court's ruling in
Lhuillier, pawnshops were then treated as VAT-able
enterprises under the general classification of “sale or
exchange of services” under Section 108(A) of the
Tax Code of 1997, as amended. R.A. No. 9238
finally classified pawnshops as Other Non-bank
Financial Intermediaries.
The Court finds that pawnshops should have
been treated as non-bank financial intermediaries from
the very beginning, subject to the appropriate taxes
provided by law, thus –
• Under the National Internal Revenue
Code of 1977, pawnshops should have
been levied the 5% percentage tax on
gross receipts imposed on bank and non-
bank financial intermediaries under
Section 119 (now Section 121 of the Tax
Code of 1997);
• With the imposition of the VAT
under R.A. No. 7716 or the EVAT Law,
pawnshops should have been subjected to

20. the 10% VAT imposed on banks and
non-bank financial intermediaries and
financial institutions under Section 102 of
the Tax Code of 1977 (now Section 108
of the Tax Code of 1997);
• This was restated by R.A. No. 8241,
which amended R.A. No. 7716, although
the levy, collection and assessment of the
10% VAT on services rendered by banks,
non-bank financial intermediaries, finance
companies, and other financial
intermediaries not performing quasi-
banking functions, were made effective
January 1, 1998;
• R.A. No. 8424 or the Tax Reform
Act of 1997 likewise imposed a 10%
VAT under Section 108 but the levy,
collection and assessment thereof were
again deferred until December 31, 1999;
• The levy, collection and assessment
of the 10% VAT was further deferred by
R.A. No. 8761 until December 31, 2000,
and by R.A. No. 9010, until December
31, 2002;
• With no further deferments given by
law, the levy, collection and assessment of
the 10% VAT on banks, non-bank
financial intermediaries, finance
companies, and other financial
intermediaries not performing quasi-
banking functions were finally made
effective beginning January 1, 2003;
• Finally, with the enactment of R.A.
No. 9238, the services of banks, non-bank
financial intermediaries, finance
companies, and other financial
intermediaries not performing quasi-
banking functions were specifically
exempted from VAT, and the 0% to 5%
percentage tax on gross receipts on other
non-bank financial intermediaries was
reimposed under Section 122 of the Tax
Code of 1997.
At the time of the disputed assessment, that is,
for the year 2000, pawnshops were not subject to 10%
VAT under the general provision on “sale or exchange
of services” as defined under Section 108(A) of the
Tax Code of 1997, which states: “'sale or exchange of
services' means the performance of all kinds of
services in the Philippines for others for a fee,
remuneration or consideration x x x.” Instead, due to
the specific nature of its business, pawnshops were
then subject to 10% VAT under the category of non-
bank financial intermediaries, as provided in the same
Section 108(A), which reads:
SEC. 108. Value-added Tax on Sale of
Services and Use or Lease of Properties. -
(A) Rate and Base of Tax. - There shall be
levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts
derived from the sale or exchange of services,
including the use or lease of properties.
The phrase "sale or exchange of services"
means the performance of all kinds or services in the
Philippines for others for a fee, remuneration or
consideration, including x x x services of banks,
non-bank financial intermediaries and finance
companies; and non-life insurance companies (except
their crop insurances), including surety, fidelity,
indemnity and bonding companies; and similar
services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or
mental faculties. The phrase 'sale or exchange of
services' shall likewise include: x x x (Emphasis and
underscoring supplied)
The tax treatment of pawnshops as non-bank
financial intermediaries is not without basis.
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

21. 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.
Financial intermediaries, on the other hand,
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.”
It need not be elaborated that pawnshops are
non-banks/banking institutions. Moreover, the nature
of their business activities partakes that of a financial
intermediary in that its principal function is lending.
A pawnshop's business and operations are
governed by Presidential Decree (P.D.) No. 114 or the
Pawnshop Regulation Act and Central Bank Circular
No. 374 (Rules and Regulations for Pawnshops).
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 security for
loans and shall be synonymous, and may be used
interchangeably, with pawnbroker or pawn
brokerage.”
That pawnshops are to be treated as non-bank
financial intermediaries is further bolstered by the fact
that pawnshops are under the regulatory supervision of
the Bangko Sentral ng Pilipinas and covered by its
Manual of Regulations for Non-Bank Financial
Institutions. The Manual includes pawnshops in the
list of non-bank financial intermediaries, viz.:
§ 4101Q.1 Financial Intermediaries
x x x
Non-bank financial intermediaries shall
include the following:
(1) A person or entity licensed and/or
registered with any government regulatory body as a
non-bank financial intermediary, such as investment
house, investment company, financing company,
securities dealer/broker, lending investor, pawnshop,
money broker x x x. (Emphasis supplied)
Revenue Regulations No. 10-2004, in fact,
recognized these bases, to wit:
SEC. 2. BASES OF QUALIFYING
PAWNSHOPS AS NON-BANK FINANCIAL
INTERMEDIARIES. - Whereas, in relation to Sec.
2.3 of Rev. Regs No. 9-2004 defining “Non-bank
Financial Intermediaries, the term “pawnshop” as
defined under Presidential Decree No. 114 which
authorized its creation, to be a person or entity
engaged in the business of lending money, all fall
within the classification of Non-bank Financial
Intermediaries and therefore, covered by Sec. 4 of
R.A. No. 9238.
This classification is equally supported by
Subsection 4101Q.1 of the BSP Manual of
Regulations for Non-Bank Financial Intermediaries
and reiterated in BSP Circular No. 204-99, classifying
pawnshops as one of Non-bank Financial
Intermediaries within the supervision of the Bangko
Sentral ng Pilipinas.

22. Ultimately, R.A. No. 9238 categorically
confirmed the classification of pawnshops as non-
bank financial intermediaries.
Coming now to the issue at hand - 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
non-bank 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.
Lastly, petitioner is liable for documentary
stamp taxes.
The Court has settled this issue in Michel J.
Lhuillier Pawnshop, Inc. v. Commissioner of Internal
Revenue, in which it was ruled that the 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 also
subject to DST, thus –
x x x the subject of a DST is not limited to
the document embodying the enumerated transactions.
A DST is an excise tax on the exercise of a right or
privilege to transfer obligations, rights or properties
incident thereto. In Philippine Home Assurance
Corporation v. Court of Appeals, it was held that:
x x x x
Pledge is among the privileges, the exercise
of which is subject to DST. A pledge may be defined
as an accessory, real and unilateral contract by virtue
of which the debtor or a third person delivers to the
creditor or to a third person movable property as
security for the performance of the principal
obligation, upon the fulfillment of which the thing
pledged, with all its accessions and accessories, shall
be returned to the debtor or to the third person. This 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.
Section 12 of the Pawnshop Regulation Act
and Section 21 of the Rules and Regulations For
Pawnshops issued by the Central Bank to implement
the Act, require every pawnshop or pawnbroker to
issue, at the time of every such loan or pledge, a
memorandum or ticket signed by the pawnbroker and
containing the following details: (1) name and
residence of the pawner; (2) date the loan is granted;
(3) amount of principal loan; (4) interest rate in
percent; (5) period of maturity; (6) description of
pawn; (7) signature of pawnbroker or his authorized
agent; (8) signature or thumb mark of pawner or his
authorized agent; and (9) such other terms and
conditions as may be agreed upon between the
pawnbroker and the pawner. In addition, Central Bank
Circular No. 445, prescribed a standard form of pawn
tickets with entries for the required details on its face
and the mandated terms and conditions of the pledge
at the dorsal portion thereof.
Section 3 of the Pawnshop Regulation Act
defines a pawn ticket as follows:
x x x x
True, the law does not consider said ticket
as an evidence of security or indebtedness. However,
for purposes of taxation, the same pawn ticket is proof
of an exercise of a taxable privilege of concluding a
contract of pledge. At any rate, it is not said ticket that
creates the pawnshop’s obligation to pay DST but the
exercise of the privilege to enter into a contract of
pledge. There is therefore no basis in petitioner’s
assertion that a DST is literally a tax on a document
and that no tax may be imposed on a pawn ticket.
The settled rule is that tax laws must be
construed in favor of the taxpayer and strictly against
the government; and that a tax cannot be imposed

23. without clear and express words for that purpose.
Taking our bearing from the foregoing doctrines, we
scrutinized Section 195 of the NIRC, but there is no
way that said provision may be interpreted in favor of
petitioner. Section 195 unqualifiedly subjects all
pledges to DST. It states that “[o]n every x x x pledge
x x x there shall be collected a documentary stamp tax
x x x.” It is clear, categorical, and needs no further
interpretation or construction. The explicit tenor
thereof requires hardly anything than a simple
application.
x x x x
In the instant case, there is no law
specifically and expressly exempting pledges entered
into by pawnshops from the payment of DST. Section
199 of the NIRC enumerated certain documents
which are not subject to stamp tax; but a pawnshop
ticket is not one of them. Hence, petitioner’s nebulous
claim that it is not subject to DST is without merit. It
cannot be over-emphasized that tax exemption
represents a loss of revenue to the government and
must, therefore, not rest on vague inference.
Exemption from taxation is never presumed. For tax
exemption to be recognized, the grant must be clear
and express; it cannot be made to rest on doubtful
implications.
Under the principle of stare decisis et non
quieta movere (follow past precedents and do not
disturb what has been settled), once a case has been
decided one way, any other case involving exactly the
same point at issue, as in the case at bar, should be
decided in the same manner.
WHEREFORE, the petition is
PARTIALLY GRANTED. The Decision dated
June 7, 2006 and Resolution dated August 14, 2006 of
the Court of Tax Appeals En Banc is MODIFIED to
the effect that the Bureau of Internal Revenue
assessment for VAT deficiency in the amount of
P541,102.79 for the year 2000 is REVERSED and
SET ASIDE, while its assessment for DST
deficiency in the amount of P24,747.13, inclusive of
surcharge and interest, is UPHELD.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MINITA V. CHICO-NAZARIO
Associate Justice
ANTONIO EDU
Asso

24. RUBEN T. REYES
Associate Justice
ATTESTATION
I attest that the conclusions in the above
Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the
Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of
the Constitution, and the Division
Chairperson’s Attestation, it is hereby
certified that the conclusions in the above
Decision had been reached in consultation
before the case was assigned to the writer of
the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Rollo, Annex “C”, p. 84.
Id., Annex “D”, pp. 85-90.
Id., Annex “E”, pp. 91-95.
Id., Annex “F”, pp. 96-107.
Id., Annex “G”, p. 108.
Id., Annex “H”, pp. 109-122.
Id., Annex “I”, pp. 150-168.
Id., Annex “J”, pp. 169-183.
Id., Annex “K”, pp. 184-188.
Id. at 80.
Rollo, pp. 82-83.
Id. at 34.
As clarified by BIR Revenue
Memorandum Circular No. 43-91 issued on May 27,
1991.
Entitled, “An Act Restructuring the
Value-Added Tax (VAT) System, Widening its Tax
Base and Enhancing its Administration, and for these
purposes Amending and Repealing the Relevant

25. Provisions of the National Internal Revenue Code, as
amended, and for Other Purposes.”
C.T.A. Case No. 6915, April 11, 2004.
C.T.A. Case No. 7069, June 17, 2005.
G.R. No. 150947, July 15, 2003, 406
SCRA 178. Penned by Chief Justice Hilario G.
Davide, Jr. with the concurrence of Associate Justices
Jose Vitug, Consuelo Ynares-Santiago, Antonio T.
Carpio and Adolfo S. Azcuna.
Id. at 185.
ftp://ftp.bir.gov.ph/webadmin1/pdf/1887rmc36_04.pd
f.
Republic Act (R.A.) No. 9238 lapsed
into law on February 05, 2004 without the signature of
the President, in accordance with Article VI, Section
27 (1) of the Constitution.
Presidential Decree No. 1158.
Effective May 28, 1994.
The implementation of the VAT system
under R.A. No. 7716 was made effective January 1,
1996 (see Commissioner of Internal Revenue v.
Philippine Global Communications, Inc., G.R. No.
144696, August 16, 2006, 499 SCRA 53).
Approved on December 20, 1996.
R.A. No. 8241, Section 11 provides:
SEC.11. Section17ofRepublicAct No.
7716is herebyamended toread as follows:
“EC. 17. Effectivity of theImpositionof VAT on
CertainGoods,Properties andServices.–The value-added tax
shall be levied, assessed andcollected onthefollowing
transactions, startingJanuary1,1998:
x x x x
(b) Services rendered bybanks,non-bankfinancial
intermediaries, finance companies and other financial
intermediaries not performing quasi-banking functions;
x x x x:”
R.A. No. 8424 renamed the National
Internal Revenue Code of 1977 to National Internal
Revenue Code of 1997, or the Tax Code of 1997, and
took effect on January 1, 1998.
R.A. No. 8428, Section 5 provides:
SEC. 5.
Transitory Provisions. - Deferment of the
Effectivity of the Imposition of VAT on
Certain Services. - The effectivity of the
imposition of the value-added tax on services
as prescribed in Section 17(a) and (b) of
Republic Act No. 7616, as amended by
Republic Act. 8241, is hereby further deferred
until December 31, 1999, unless Congress
deems otherwise: Provided, That the said
services shall continue to pay the applicable
tax prescribed under the present provisions of
the National Internal Revenue Code, as
amended.
R.A. No. 9238, Section 2 provides:
SEC. 2. Section 109 of the
same Code is hereby amended by rewording
paragraph (1) and inserting additional paragraphs after
(z) which shall now read as follows:
"SEC. 109.
Exempt Transactions. – The following shall
be exempt from the value-added tax:
x x x x
(aa) Services
of banks, non-bank financial intermediaries
performing quasi-banking functions, and
other non-bank financial intermediaries;
x x x x
The
foregoing exemptions to the contrary
notwithstanding, any person whose sale of
goods or properties or services which are
otherwise not subject to VAT, but who issue a
VAT invoice or receipt therefor shall, in

26. additional to his liability to other applicable
percentage tax, if any, be liable to the tax
imposed in Section 106 or 108 without the
benefit of input tax credit, and such tax shall
also be recognized as input tax credit to the
purchaser under Section 110, all of this Code."
R.A. No. 9238, Section 4 reads:
Section 4. Section
122 of the National Internal Revenue Code of 1997, as
amended, is hereby restored with amendments to read
as follows:
"Sec. 122. Tax on Other
Non-Bank Financial Intermediaries.– There
shall be collected a tax of five percent (5%) on
the gross receipts derived by other non-bank
financial intermediaries doing business in the
Philippines, from interest, commissions,
discounts and all other items treated as gross
income under this code: Provided, that
interests, commissions and discounts from
lending activities, as well as income from
financial leasing, shall be taxed on the basis of
remaining maturities of the instruments from
which such receipts are derived, in accordance
with the following schedule:
maturity
period is five (5) years or
less....................... 5%
maturity
period is more than five (5)
years..................1%
Provided, however, that in
case the maturity period is shortened thru
pretermination, then the maturity period shall
be reckoned to end as of the date of
pretermination for purposes of classifying the
transaction and the correct rate shall be
applied accordingly.
Provided, finally, that the
generally accepted accounting principles as
may be prescribed by the Securities and
Exchange Commission for other non-bank
financial intermediaries shall likewise be the
basis for the calculation of gross receipts.
Nothing in this code shall
preclude the Commissioner from imposing
the same tax herein provided on persons
performing similar financing activities."
Section 2.
Section 3.1.
Section 3.1 (e), (f), and (g).
General Banking Act, Section 2-D(c);
Manual of Regulations for Non-Bank Financial
Institutions, § 4101Q.1.
See pages 7-8 of this Decision.
G.R. No. 166786, May 3, 2006, 489
SCRA 147.
Commissioner of Internal Revenue v.
Trustworthy Pawnshop, Inc., G.R. No. 149834, May
2, 2006, 488 SCRA 538, 545.