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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 toset aside the decision[2] of the Court of Appeals(CA) in CA-G.R. SP No. 95659 and itsresolution[3] denying reconsideration.

After evaluating the financial statements ofrespondent JAPRL Development Corporation(JAPRL) for fiscal years 1998, 1999 and 2000,[4]petitioner Banco de Oro-EPCI, Inc. extendedcredit facilities to it amounting toP230,000,000[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 trustreceipts soon after the approval of its loan.[6]Petitioner later learned from MRM Management,JAPRL's financial adviser, that JAPRL hadaltered and falsified its financial statements. Itallegedly bloated its sales revenues to post a bigincome from operations for the concerned fiscalyears to project itself as a viable investment.[7]The information alarmed petitioner. Citingrelevant provisions of the Trust ReceiptAgreement,[8] it demanded immediate payment of

JAPRL's outstanding obligations amounting toP194,493,388.98.[9]

SP Proc. No. Q-03-064

On August 30, 2003, JAPRL (and its subsidiary,RFC) filed a petition for rehabilitation in theRegional Trial Court (RTC) of Quezon City,Branch 90 (Quezon City RTC).[10] It disclosedthat it had been experiencing a decline in sales

for the three preceding years and a staggeringloss in 2002.[11]

Because the petition was sufficient in form andsubstance, a stay order[12] was issued onSeptember 28, 2003.[13] However, the proposedrehabilitation plan for JAPRL and RFC was

eventually rejected by the Quezon City RTC inan order dated May 9, 2005.[14]

Civil Case No. 03-991

Because JAPRL ignored its demand forpayment, petitioner filed a complaint for sum ofmoney with an application for the issuance of awrit of preliminary attachment againstrespondents in the RTC of Makati City, Branch145 (Makati RTC) on August 21, 2003.[15]

Petitioner essentially asserted that JAPRL wasguilty of fraud because it (JAPRL) altered andfalsified its financial statements.[16]

The Makati RTC subsequently denied theapplication (for the issuance of a writ ofpreliminary attachment) for lack of merit aspetitioner was unable to substantiate itsallegations. Nevertheless, it ordered the serviceof summons on respondents.[17] Pursuant to thesaid order, summonses were issued against

respondents and were served upon them.

Respondents moved to dismiss the complaint dueto an allegedly invalid service of summons.[18]Because the officer's return stated that an"administrative assistant" had received thesummons,[19] JAPRL and RFC argued thatSection 11, Rule 14 of the Rules of Court[20]contained an exclusive list of persons on whomsummons against a corporation must be served.[21] An "administrative assistant" was not one of

them. Arollado, on the other hand, cited Section6, Rule 14 thereof[22] which mandated personalservice of summons on an individual defendant.[23]

The Makati RTC, in its October 10, 2005 order,[24] noted that because corporate officers are oftenbusy, summonses to corporations are usuallyreceived only by administrative assistants orsecretaries of corporate officers in the regular

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course of business. Hence, it denied the motionfor lack of merit.

Respondents moved for reconsideration[25] butwithdrew it before the Makati RTC could resolvethe matter.[26]

RTC SEC Case No. 68-2008-C

On February 20, 2006, JAPRL (and itssubsidiary, RFC) filed a petition forrehabilitation in the RTC of Calamba, Laguna,Branch 34 (Calamba RTC). Finding JAPRL'spetition sufficient in form and in substance, theCalamba RTC issued a stay order[27] on March13, 2006.

In view of the said order, respondents hastily

moved to suspend the proceedings in Civil CaseNo. 03-991 pending in the Makati RTC.[28]

On July 7, 2006, the Makati RTC granted themotion with regard to JAPRL and RFC butordered Arollado to file an answer. It ruled that,because he was jointly and solidarily liable withJAPRL and RFC, the proceedings against himshould continue.[29] Respondents moved forreconsideration[30] but it was denied.[31]

On August 11, 2006, respondents filed a petitionfor certiorari[32] in the CA alleging that theMakati RTC committed grave abuse ofdiscretion in issuing the October 10, 2005 andJuly 7, 2006 orders.[33] They asserted that thecourt did not acquire jurisdiction over theirpersons due to defective service of summons.Thus, the Makati RTC could not hear thecomplaint for sum of money.[34]

In its June 7, 2007 decision, the CA held that

because the summonses were served on a mereadministrative assistant, the Makati RTC neveracquired jurisdiction over respondents. Thus, itgranted the petition.[35]

Petitioner moved for reconsideration but it wasdenied.[36] Hence, this petition.

Petitioner asserts that respondents maliciouslyevaded the service of summonses to prevent the

Makati RTC from acquiring jurisdiction overtheir persons. Furthermore, they employed badfaith to delay proceedings by cunninglyexploiting procedural technicalities to avoid thepayment of their obligations.[37]

We grant the petition.

Respondents, in their petition for certiorari in theCA, questioned the jurisdiction of the MakatiRTC over their persons (i.e., whether or not theservice of summons was validly made).Therefore, it was only the October 10, 2005order of the said trial court which they in effectassailed.[38] However, because they withdrewtheir motion for reconsideration of the said order,it became final. Moreover, the petition was filed10 months and 1 day after the assailed order was

issued by the Makati RTC,[39] way past the 60days allowed by the Rules of Court. For thesereasons, the said petition should have beendismissed outright by the CA.

More importantly, when respondents moved forthe suspension of proceedings in Civil Case No.03-991 before the Makati RTC (on the basis ofthe March 13, 2006 order of the Calamba RTC),they waived whatever defect there was in theservice of summons and were deemed to have

submitted themselves voluntarily to thejurisdiction of the Makati RTC.[40]

We withhold judgment for the moment on theJuly 7, 2006 order of the Makati RTCsuspending the proceedings in Civil Case No.03-991 insofar as JAPRL and RFC areconcerned. Under the Interim Rules of Procedureon Corporate Rehabilitation, a stay orderdefersall actions or claims against the corporationseeking rehabilitation[41] from the date of its

issuance until the dismissal of the petition ortermination of the rehabilitation proceedings.[42]

The Makati RTC may proceed to hear Civil CaseNo. 03-991 only against Arollado if there is noground to go after JAPRL and RFC (as will laterbe discussed). A creditor can demand paymentfrom the surety solidarily liable with thecorporation seeking rehabilitation.[43]

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Respondents abused procedural technicalities(albeit unsuccessfully) for the sole purpose ofpreventing, or at least delaying, the collection oftheir legitimate obligations. Their reprehensiblescheme impeded the speedy dispensation ofjustice. More importantly, however, consideringthe amount involved, respondents utterly

disregarded the significance of a stable andefficient banking system to the nationaleconomy.[44]

Banks are entities engaged in the lending offunds obtained through deposits[45] from thepublic.[46] They borrow the public's excess money(i.e., deposits) and lend out the same.[47] Bankstherefore redistribute wealth in the economy bychanneling idle savings to profitableinvestments.

Banks operate (and earn income) by extendingcredit facilities financed primarily by depositsfrom the public.[48] They plough back the bulk ofsaid deposits into the economy in the form ofloans.[49] Since banks deal with the public'smoney, their viability depends largely on theirability to return those deposits on demand. Forthis reason, banking is undeniably imbued withpublic interest. Consequently, much importanceis given to sound lending practices and good

corporate governance.[50]

Protecting the integrity of the banking systemhas become, by large, the responsibility of banks.The role of the public, particularly individualborrowers, has not been emphasized.Nevertheless, we are not unaware of the rampantand unscrupulous practice of obtaining loanswithout intending to pay the same.

In this case, petitioner alleged that JAPRL

fraudulently altered and falsified its financialstatements in order to obtain its credit facilities.Considering the amount of petitioner's exposurein JAPRL, justice and fairness dictate that theMakati RTC hear whether or not respondentsindeed committed fraud in securing the creditaccomodation.

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 therehabilitation case in the Calamba RTC.

The protective remedy of rehabilitation wasnever intended to be a refuge of a debtor guiltyof fraud.

Meanwhile, the Makati RTC should proceed tohear Civil Case No. 03-991 against the threerespondents guided by Section 40 of the GeneralBanking Law which states:Section 40.Requirement for Grant of Loans orOther Credit Accommodations. Before granting aloan or other credit accommodation, a bank mustascertain that the debtor is capable of fulfillinghis commitments to the bank.

Towards this end, a bank may demand from its

credit applicants a statement of their assets andliabilities and of their income and expendituresand such information as may be prescribed bylaw or by rules and regulations of the MonetaryBoard to enable the bank to properly evaluate thecredit application which includes thecorresponding financial statements submitted fortaxation purposes to the Bureau of InternalRevenue. Should such statements prove to befalse or incorrect in any material detail, the

bank may terminate any loan or credit

accommodation granted on the basis of saidstatements and shall have the right to demand

immediate repayment or liquidation of the

obligation.

In formulating the rules and regulations underthis Section, the Monetary Board shall recognizethe peculiar characteristics of microfinancing,such as cash flow-based lending to the basicsectors that are not covered by traditionalcollateral. (emphasis supplied)

Under this provision, banks have the right toannul any credit accommodation or loan, anddemand the immediate payment thereof, fromborrowers proven to be guilty of fraud.Petitioner would then be entitled to theimmediate payment of P194,493,388.98 andother appropriate damages.[51]

Finally, considering that respondents failed topay the four trust receipts, the Makati City

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Prosecutor should investigate whether or notthere is probable cause to indict respondents forviolation of Section 13 of the Trust ReceiptsLaw.[52]

ACCORDINGLY, the petition is herebyGRANTED. The June 7, 2007 decision and

August 31, 2007 resolution of the Court ofAppeals in CA-G.R. SP No. 95659 areREVERSED and SET ASIDE.

The Regional Trial Court of Makati City, Branch145 is ordered to proceed expeditiously with thetrial of Civil Case No. 03-991 with regard torespondent Jose U. Arollado, and the otherrespondents if warranted.

SO ORDERED.

Puno, C.J., (Chairperson), Carpio, andLeonardo-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 theTenth Division of the Court of Appeals. DatedJune 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 receiptnos. 114505, 1000006285, 1000006305 and1000006325. Id.

[7] Id., pp. 62-66.

[8] Paragraph 16 of the Trust Receipt Agreementprovided:

16. If any of the following Events of Defaultshall have occurred:

x x x x x x x x x

b. The Entrustee shall default in the dueperformance or observance of any othercovenant contained herein on in any

agreement under which the Entruster issuedthe letter of credit under the terms of whichthe Trust Property was purchased, and suchdefault shall remain unremedied for a periodof five (5) calendar days after the Entrusteeshall have received written notice thereof fromthe Entruster; or,

c. Any statement, representation or warrantymade by the Entrustee, hereunder, in itsapplication with the Entruster or in other

document delivered or made pursuant theretoshall prove to be incorrect or untrue in the anymaterial respect; or,

d. The Entrustee/ any of its subsidiary or affiliatefails to pay or default in the payment of anyinstallment of the principal or interests relativeto, or fails to comply with or to perform, anyother obligation or commits a breach orviolation of any of the terms, conditions orstipulations, of any agreement, contract or

document with Entruster or any third person orpersons to which the Entruster or any of itssubsidiary or affiliate is a party or privy,whether executed prior to or after the datehereof under which credit has or may havebeen extended to such Entrustee/ subsidisiaryor affiliate by the Entruster or such thirdperson or persons or under which theEntrustee has agreed to act as guarantor,surety or accommodation party, which, underthe terms of such agreement, contract,

document, guaranty or suretyship, includingany agreement similar or analogous thereto,shall constitute a default or is defined as anevent of default thereunder; or,

x x x x x x x x x

j. Any adverse circumstance occurs, which inthe reasonable opinion of the Entruster,materially or adversely affects the ability of

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the Entrustee to perform its obligationhereunder; or

x x x x x x x x xId., pp. 65-66.

[9] JAPRL's outstanding liabilities were broken

down as follows:

LETTEROFCREDIT

TRUST RECEIPTOUTSTANDING

BALANCE

9185863 114505 P 4,818,784.509186617 115613 10,002,405.359186263 115099 24,421,786.329188618 115612 17,742,002.539187128 116067 7,718,059.80

14913 1000006285 1,734.837.50

14927 1000006305

3,235,780.00

14952 1000006325

2,809,031.24

14969 1000006330

3,739,312.50

14982 1000006339

4,142,952.24

15144 100000653

2

7,080,696.00

15168 1000006558

4,889,034.00

15181 1000006571

5,104,317.50

15186 1000006574

10,129,035.00

15207 1000006599

7,183,010.00

15236 1000006646

6,730,310.00

15244 1000006648 3,481,760.0015251 100000665

26,353,342.50

15273 1000006670

10,781,095.00

15320 1000006723

9,043,803.00

15340 1000006749

8,974,180.00

15374 1000006781

5,344,652.00

15387 1000006801

10,545,120.00

1000006808

6,454,320.00

100000680

9

5,837,680.00

15413 1000006824

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 financialcondition executed by Peter Paul Limson,concurrent chairman and chief executive officerof JAPRL and RFC, both corporations have beensuffering staggering losses since the year 2000:

2002 2001 2000SALES

JAPRL P210,570,962

P233,064,377

P303,661,262

RFC

284,828,246

294,940,656

248,013,118

PROFIT/LOSSES

JAPRL (P14,536,976)

P 269,958 P 516,359

RFC215,747

327,462 503,112

[12]See Interim Rules of Procedure on Corporate

Rehabilitation (A.M. No. 00-8-10-SC), Sec. 6which provides:

Section 6. Stay Order. - If the court finds thepetition to be sufficient in form and substance,

it shall, not later than five (5) days from thefiling of the petition, issue an Order: (a)applying a Rehabilitation Receiver and fixing hisbond; (b) staying enforcement of all claims,whether for money or otherwise and whether

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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 anymanner any of its properties except in theordinary course of business; (d) prohibiting the

debtor from making any payment of itsliabilities outstanding as at the date of filing of

the petition; (e) prohibiting the debtor'ssuppliers of goods or services from withholdingsupply of goods and services in the ordinarycourse of business for as long as the debtormakes payments for the services and goodssupplied after the issuance of the stay order; (f)directing the payment in full of all administrativeexpenses incurred after the issuance of the stayorder; (g) fixing the initial hearing on the

petition not earlier than forty-five (45) days butnot later than sixty (60) days from the filingthereof; (h) directing the petitioner to publishthe Order in a newspaper of general circulationin the Philippines once a week for two (2)consecutive weeks; (i) directing all creditorsand all interested parties (including theSecurities and Exchange Commission) to fileand 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 initialhearing 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 tosecure from the court copies of the petition andits annexes within such time as to enablethemselves to file their comment on oropposition to the petition and to prepare for theinitial hearing of the petition. (emphasissupplied)

[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 acopy of summons dated May 5, 2004 issued bythe Honorable Court in connection with [CivilCase No. 03-991], the undersigned served upon[JAPRL], 2/F Vasquez Madrigal Plaza, 51Annapolis St., Greenhills, San Juan, MetroManila, [RFC and Arollado]; thru Ms. GRACECANO, administrative assistant whoacknowledged receipt as evidenced by hersignature at the original copy of summons.

DULY SERVED.

City of Makati, 12 July 2004. (emphasissupplied)

[20] Rules of Court, Rule 14, Sec. 11 provides:

Section 11. Service upon domestic privatejuridical entity. When the defendant is acorporation,partnership or association

organized under the laws of the Philippines witha juridical personality, service may be made onthe president,managing partner, generalmanager, corporate secretary, treasurer, orin-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 beserved by handing a copy thereof to the

defendant in person, or if he refuses to receiveand sign for it, by tendering it to him. (emphasissupplied)

[23]Rollo,p. 93.

[24] Annex "M," id., pp. 102-103.

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[25] Annex "N," id., pp. 104-112.

[26] Annex, "O," id., pp. 113-115.

[27] Issued by Judge Jesus A. Santiago. DatedSeptember 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 waspending in the Makati RTC when they filed thepetition for certiorari in the CA. It (petition)should have been dismissed for being filedprematurely.

[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, 2006orders of the Makati RTC resolved whether ornot the proceedings in Civil Case No. 03-991should be suspended in view of the March 13,2006 order of the Calamba RTC in RTC SECCase No. 68-2008-C.

[39] See RULES OF COURT, Sec. 4, Rule 65

which provides:

Section 4. When and where petition filed. Thepetition shall be filed not later than sixty (60)days from notice of judgment, order orresolution. In case a motion for reconsiderationis filed on time, whether such motion is requiredor not, the sixty (60) day period shall be countedfor 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 stayorder 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 thelapse of one hundred eighty (180) days from thedate of the initial hearing. The court may grantan extension beyond this period only if it appearsby convincing and compelling evidence that thedebtor may successfully be rehabilitated. In noinstance, however, shall the period for approvingor disapproving a rehabilitation plan exceedeighteen (18) months from the date of filing ofthe petition. (emphasis supplied)

[43] Philippine Blooming Mills v. Court ofAppeals, 459 Phil. 875, 892 (2003) citingTraders 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 Staterecognizes the vital role of banks providing anenvironment conducive to the sustained

development of the national economy and thefiduciary nature of banking that requires highstandards of integrity and performance. Infurtherance thereof, the State shall promote astable 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.

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[46] GEN. BANKING LAW, Sec. 8.2.

[47] Frederic Mishkin, THE ECONOMICS OFMONEY, BANKING AND FINANCIALMATTERS, 5th ed., pp. 231-238.

See also Vicente Valdepeas, Jr., THEBANGKO SENTRAL AND THE PHILIPPINEECONOMY, pp. 123-124.

[48] Valdepeas, id., p. 125.

[49] The Bangko Sentral ng Pilipinas (BSP)controls bank lending by imposing reserverequirements which may be increased orreduced, subject to the financing needs of theeconomy.

[50] Valdepeas,supra note 47 at 125-126.

[51] Paragraph 28 of the Trust Receipt Agreementprovides:

28. In all cases where the Entruster is compelledto resort to the cancellation of this Trust Receiptor any take legal action to protect its interests,the Entrustee shall pay attorney fees fixed at15% of the total obligation of the Entrustee,

which shall in case be less than P20,000exclusive of costs and fees allowed by law andthe other expenses of collection incurred by theEntruster, and liquidated damages equal tofifteen percent (15%) of the total amount due butin no case less than P20,000. Any deficiencyresulting within 24 hours from such sale, failingwhich the Entruster may take such legal action,without further notice to the Entrustee, as it maydeem necessary to collect such deficiency fromthe Entrustee.

Id.,pp. 66-67.

[52] TRUST RECEIPTS LAW, Sec. 13 provides:

Section 13.Penalty Clause. - The failure of anentrustee to turn over the proceeds of the sale ofthe goods, documents or instruments covered bya trust receipt to the extent of the amount owingto the entruster or as appears in the trust receipt

or to return said goods, documents orinstruments if they were not sold or disposed ofin accordance with terms of the trust receipt shallconstitute the crime of estafa, punishable underthe provisions of Article Three hundred andfifteen, paragraph one (b) of Act NumberedThree thousand eight hundred and fifteen, as

amended, otherwise known as the Revised PenalCode. If the violation or offense is committed bya corporation, partnership, association or otherjuridical entities, the penalty provided for in thisDecree shall be imposed upon the directors,officers, employees or other officials or personstherein responsible for the offense, withoutprejudice to civil liabilities arising from thecriminal offense. (emphasis supplied)

EN BANC

G.R. No. L-20583 January 23, 1967

REPUBLIC OF THE PHILIPPINES,

Petitioner, vs. SECURITY CREDIT ANDACCEPTANCE 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.

chanrobles virtual lawlibrary

CONCEPCION, C.J.:chanrobles virtual lawlibrary

This is an original quo warrantoproceeding,initiated by the Solicitor General, to dissolve theSecurity and Acceptance Corporation for

allegedly engaging in banking operationswithout the authority required therefor by theGeneral Banking Act (Republic Act No. 337).Named as respondents in the petition are, inaddition to said corporation, the following, asalleged members of its Board of Directors and/orExecutive Officers, namely:

NAME POSITION

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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. ResuelloDirector & 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 ofIncorporation of defendant corporation1 wereregistered with the Securities and ExchangeCommission on March 27, 1961; that the nextday, the Board of Directors of the corporationadopted a set of by-laws,2 which were filed withsaid Commission on April 5, 1961; that onSeptember 19, 1961, the Superintendent ofBanks of the Central Bank of the Philippines

asked its legal counsel an opinion on whether ornot 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 opinionresolving the query in the affirmative; that in aletter, dated January 15, 1962, addressed to saidSuperintendent of Banks, the corporationthrough its president, Rosendo T. Resuello, oneof defendants herein, sought a reconsideration ofthe aforementioned opinion, which

reconsideration was denied on March 16, 1962;that, prior thereto, or on March 9, 1961, thecorporation had applied with the Securities andExchange Commission for the registration andlicensing of its securities under the SecuritiesAct; that, before acting on this application, theCommission referred it to the Central Bank,which, in turn, gave the former a copy of theabove-mentioned opinion, in line with which, theCommission advised the corporation on

December 5, 1961, to comply with therequirements of the General Banking Act; that,upon application of members of the ManilaPolice Department and an agent of the CentralBank, on May 18, 1962, the Municipal Court ofManila issued Search Warrant No. A-1019; that,pursuant thereto, members of the intelligence

division of the Central Bank and of the ManilaPolice Department searched the premises of thecorporation and seized documents and recordsthereof relative to its business operations; that,upon the return of said warrant, the seizeddocuments and records were, with the authorityof the court, placed under the custody of theCentral Bank of the Philippines; that, uponexamination and evaluation of said documentsand records, the intelligence division of theCentral Bank submitted, to the Acting Deputy

Governor thereof, a memorandum datedSeptember 10, 1962, finding that the corporationis:

1. Performing banking functions, withoutrequisite certificate of authority from theMonetary Board of the Central Bank, in violationof Secs. 2 and 6 of Republic Act 337, in that it issoliciting and accepting deposit from the publicand lending out the funds so received; chanrobles virtual lawlibrary

2. Soliciting and accepting savings deposits fromthe general public when the company's articlesof incorporation authorize it only to engageprimarily in financing agricultural, commercialand industrial projects, and secondarily, inbuying and selling stocks and bonds of anycorporation, thereby exceeding the scope of itspowers and authority as granted under its charter;consequently such acts are ultra-vires: chanrobles virtual lawlibrary

3. Soliciting subscriptions to the corporate

shares of stock and accepting deposits onaccount thereof, without prior registration

and/or licensing of such shares or securingexemption therefor, in violation of the Securities

Act; and chanrobles virtual lawlibrary

4. That being a private credit and financialinstitution, it should come under the supervisionof the Monetary Board of the Central Bank, byvirtue of the transfer of the authority, power,

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duties and functions of the Secretary of Finance,Bank Commissioner and the defunct Bureau ofBanking, to the said Board, pursuant to Secs. 139and 140 of Republic Act 265 and Secs. 88 and89 of Republic Act 337." (Emphasis Supplied.)that upon examination and evaluation of thesame records of the corporation, as well as of

other documents and pertinent pipers obtainedelsewhere, the Superintendent of Banks,submitted to the Monetary Board of the CentralBank a memorandum dated August 28, 1962,stating inter alia.chanroblesvirtualawlibrarychanrobles virtual lawlibrary

11. Pursuant to the request for assistance by theChief, Intelligence Division, contained in hisMemorandum to the Governor dated May 23,1962 and in accordance with the writteninstructions of Governor Castillo dated May 31,

1962, an examination of the books and recordsof the Security Credit and Loans Organizations,Inc. seized by the combined MPD-CB team wasconducted by this Department. The examinationdisclosed the following findings:

a. Considering the extent of its operations, theSecurity Credit and Acceptance Corporation,Inc., receives deposits from the public regularly.Such deposits are treated in the Corporation'sfinancial statements as conditional subscription

to capital stock. Accumulated deposits of P5,000of an individual depositor may be converted intostock subscription to the capital stock of theSecurity Credit and Acceptance Corporation atthe option of the depositor. Sale of its shares ofstock or subscriptions to its capital stock areoffered to the public as part of its regular

operations.chanroblesvirtualawlibrarychanrobles virtual lawlibrary

b. That out of the funds obtained from the publicthrough the receipt of deposits and/or the sale of

securities, loans are made regularly to anyperson by the Security Credit and Acceptance

Corporation.

A copy of the Memorandum Report dated July30, 1962 of the examination made by Examinersof this Department of the seized books andrecords of the Corporation is attached hereto. chanroblesvirtualawlibrarychanrobles virtual lawlibrary

12. Section 2 of Republic Act No. 337, otherwiseknown as the General Banking Act, defines theterm, "banking institution" as follows:

Sec. 2. Only duly authorized persons and entitiesmay engage in the lending of funds obtainedfrom the public through the receipts of deposits

or the sale of bonds, securities, or obligations ofany kind and all entities regularly conductingoperations shall be considered as bankinginstitutions and shall be subject to the provisionsof this Act, of the Central Bank Act, and of otherpertinent laws. ...

13. Premises considered, the examinationdisclosed that the Security Credit andAcceptance Corporation is regularly lendingfunds obtained from the receipt of deposits

and/or the sale of securities. The Corporationtherefore is performing 'banking functions' as

contemplated in Republic Act No. 337, without

having first complied with the provisions of saidAct.

SECOND DIVISION

[G.R. No. 128703. October 18, 2000]

TEODORO BAAS,*C. G. DIZONCONSTRUCTION, INC., and CENEN DIZON,petitioners, vs. ASIA PACIFIC FINANCECORPORATION, substituted byINTERNATIONAL CORPORATE BANK nowknown as UNION BANK OF THEPHILIPPINES, respondent.

D E C I S I O N

BELLOSILLO, J.:

C. G. DIZON CONSTRUCTION INC. andCENEN DIZON in this petition for review seekthe reversal of the 24 July 1996 Decision of theCourt of Appeals dismissing their appeal for lackof merit and affirming in toto the decision of thetrial court holding them liable to Asia PacificFinance Corporation in the amount ofP87,637.50 at 14% interest per annum in

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addition to attorney's fees and costs of suit, aswell as its 21 March 1997 Resolution denyingreconsideration thereof.

On 20 March 1981 Asia Pacific FinanceCorporation (ASIA PACIFIC for short) filed acomplaint for a sum of money with prayer for a

writ of replevin against Teodoro Baas, C. G.Dizon Construction and Cenen Dizon. Sometimein August 1980 Teodoro Baas executed aPromissory Note in favor of C. G. DizonConstruction whereby for value received hepromised to pay to the order of C. G. DizonConstruction the sum of P390,000.00 ininstallments of "P32,500.00 every 25th day ofthe month starting from September 25, 1980 upto August 25, 1981."

Later, C. G. Dizon Construction endorsed withrecourse thePromissory Note to ASIAPACIFIC, and to secure payment thereof, C. G.Dizon Construction, through its corporateofficers, Cenen Dizon, President, and Juliette B.Dizon, Vice President and Treasurer, executed aDeed of Chattel Mortgage covering three (3)heavy equipment units of Caterpillar BulldozerCrawler 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 Undertakingwherein hebound himself to pay the obligation jointly andseverally with C. G. Dizon Construction.

In compliance with the provisions of thePromissory Note, C. G. Dizon Constructionmade the following installment payments toASIA PACIFIC: P32,500.00 on 25 September1980, P32,500.00 on 27 October 1980 andP65,000.00 on 27 February 1981, or a total ofP130,000.00. Thereafter, however, C. G. Dizon

Construction defaulted in the payment of theremaining installments, prompting ASIAPACIFIC to send a Statement of AccounttoCenen Dizon for the unpaid balance ofP267,737.50 inclusive of interests and charges,and P66,909.38 representing attorney's fees. Asthe demand was unheeded, ASIA PACIFIC suedTeodoro Baas, C. G. Dizon Construction andCenen Dizon.

While defendants (herein petitioners) admittedthe genuineness and due execution of thePromissory Note, theDeed of Chattel Mortgageand the Continuing Undertaking, theynevertheless maintained that these documentswere never intended by the parties to be legal,valid and binding but a mere subterfuge to

conceal the loan of P390,000.00 with usuriousinterests.

Defendants claimed that since ASIA PACIFICcould not directly engage in banking business, itproposed to them a scheme wherein plaintiffASIA PACIFIC could extend a loan to themwithout violating banking laws:first, CenenDizon would secure a promissory note fromTeodoro Baas with a face value of P390,000.00payable in installments;second, ASIA PACIFIC

would then make it appear that the promissorynote was sold to it by Cenen Dizon with the 14%usurious interest on the loan or P54,000.00discounted and collected in advance by ASIAPACIFIC; and, lastly, Cenen Dizon wouldprovide sufficient collateral to answer for theloan in case of default in payment and execute acontinuing guaranty to assure continuous andprompt payment of the loan. Defendants alsoalleged that out of the loan of P390,000.00defendants actually received only P329,185.00

after ASIA PACIFIC deducted the discountedinterest, service handling charges, insurancepremium, registration and notarial fees.

Sometime in October 1980 Cenen Dizoninformed ASIA PACIFIC that he would bedelayed in meeting his monthly amortization onaccount of business reverses and promised to payinstead in February 1981. Cenen Dizon madegood his promise and tendered payment to ASIAPACIFIC in an amount equivalent to two (2)

monthly amortizations. But ASIA PACIFICattempted to impose a 3% interest for everymonth of delay, which he flatly refused to payfor being usurious.

Afterwards, ASIA PACIFIC allegedly made averbal proposal to Cenen Dizon to surrender to itthe ownership of the two (2) bulldozer crawlertractors and, in turn, the latter would treat theformer's account as closed and the loan fully

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paid. Cenen Dizon supposedly agreed andaccepted the offer. Defendants averred that thevalue of the bulldozer crawler tractors was morethan adequate to cover their obligation to ASIAPACIFIC.

Meanwhile, on 21 April 1981 the trial court

issued a writ of replevin against defendant C. G.Dizon Construction for the surrender of thebulldozer crawler tractors subject of theDeed ofChattel Mortgage. Of the three (3) bulldozercrawler tractors, only two (2) were actuallyturned over by defendants - D8-14A and D8-2U- which units were subsequently foreclosed byASIA PACIFIC to satisfy the obligation. D8-14A was sold for P120,000.00 and D8-2U forP60,000.00 both to ASIA PACIFIC as thehighest bidder.

During the pendency of the case, defendantTeodoro Baas passed away, and on motion ofthe remaining defendants, the trial courtdismissed the case against him. On the otherhand, ASIA PACIFIC was substituted as partyplaintiff by International Corporate Bank afterthe disputedPromissory Note was assignedand/or transferred by ASIA PACIFIC toInternational Corporate Bank. Later,International Corporate Bank merged with Union

Bank of the Philippines. As the surviving entityafter the merger, and having succeeded to all therights and interests of International CorporateBank in this case, Union Bank of the Philippineswas substituted as a party in lieu of InternationalCorporate Bank.

On 25 September 1992 the Regional Trial Courtruled in favor of ASIA PACIFIC holding thedefendants jointly and severally liable for theunpaid balance of the obligation under the

Promissory Note in the amount of P87,637.50 at14% interest per annum, and attorney's feesequivalent to 25% of the monetary award.

On 24 July 1996 the Court of Appeals affirmedin toto the decision of the trial court thus -

Defendant-appellants' contention that theinstruments were executed merely as asubterfuge to skirt banking laws is an untenable

defense. If that were so then they too wereparties to the illegal scheme. Why should theynow be allowed to take advantage of their ownknavery to escape the liabilities that their ownchicanery created?

Defendant-appellants also want us to believe

their story that there was an agreement betweenthem and the plaintiff-appellee that if the formerwould deliver their 2 bulldozer crawler tractorsto the latter, the defendant-appellants' obligationwould fully be extinguished. Again, nothing butthe word that comes out between the teethsupports such story. Why did they not writedown such an important agreement? Is itbelievable that seasoned businessmen such as thedefendant-appellant Cenen G. Dizon and theother officers of the appellant corporation would

deliver the bulldozers without a receipt ofacquittance from the plaintiff-appellee x x x x Inour book, that is not credible.

The pivotal issues raised are: (a) Whether thedisputed transaction between petitioners andASIA PACIFIC violated banking laws, hence,null and void; and (b) Whether the surrender ofthe bulldozer crawler tractors to respondentresulted in the extinguishment of petitioners'obligation.

On the first issue, petitioners insist that ASIAPACIFIC was organized as an investment housewhich could not engage in the lending of fundsobtained from the public through receipt ofdeposits. The disputedPromissory Note, Deed ofChattel Mortgage and Continuing Undertakingwere not intended to be valid and binding on theparties as they were merely devices to concealtheir real intention which was to enter into acontract of loan in violation of banking laws.

We reject the argument. An investment companyrefers to any issuer which is or holds itself out asbeing engaged or proposes to engage primarily inthe business of investing, reinvesting or tradinginsecurities. As defined in Sec. 2, par. (a), of theRevised Securities Act, securities "shall include xx x x commercial papers evidencingindebtedness of any person, financial or non-financial entity, irrespective of maturity, issued,

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endorsed, sold, transferred or in any mannerconveyed to anotherwith or without recourse,such aspromissory notes x x x x" Clearly, thetransaction between petitioners and respondentwas one involving not a loan but purchase ofreceivables at a discount, well within thepurview of "investing, reinvesting or trading in

securities" which an investment company, likeASIA PACIFIC, is authorized to perform anddoes not constitute a violation of the GeneralBanking Act. Moreover, Sec. 2 of the GeneralBanking Actprovides in part -

Sec. 2. Only entities duly authorized by theMonetary Board of the Central Bank may engagein the lending of funds obtained from the publicthrough the receipt of deposits of any kind, andall entities regularly conducting such operations

shall be considered as banking institutions andshall be subject to the provisions of this Act, ofthe Central Bank Act, and of other pertinent laws(underscoring supplied).

Indubitably, what is prohibited by law is forinvestment companies to lend funds obtainedfrom the public through receipts of deposit,which is a function of banking institutions. Buthere, the funds supposedly "lent" to petitionershave not been shown to have been obtained from

the public by way of deposits, hence, theinapplicability of banking laws.

On petitioners' submission that the true intentionof the parties was to enter into a contract of loan,we have examined thePromissory Note andfailed to discern anything therein that wouldsupport such theory. On the contrary, we find theterms and conditions of the instrument clear, freefrom any ambiguity, and expressive of the realintent and agreement of the parties. We quote the

pertinent portions of thePromissory Note -

FOR VALUE RECEIVED, I/We, herebypromise to pay to the order of C.G. DizonConstruction, Inc. the sum of THREEHUNDRED NINETY THOUSAND ONLY(P390,000.00), Philippine Currency in thefollowing manner:

P32,500.00 due every 25th of the month startingfrom September 25, 1980 up to August 25, 1981.

I/We agree that if any of the said installments isnot paid as and when it respectively falls due, allthe installments covered hereby and not paid asyet shall forthwith become due and payable at

the option of the holder of this note with interestat the rate of 14% per annum on each unpaidinstallment until fully paid.

If any amount due on this note is not paid at itsmaturity and this note is placed in the hands ofan attorney for collection, I/We agree to pay inaddition to the aggregate of the principal amountand interest due, a sum equivalent to TENPERCENT (10%) thereof as Attorney's fees, incase no action is filed, otherwise, the sum will be

equivalent to TWENTY FIVE (25%) of the saidprincipal amount and interest due x x x x

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. DizonPresident VP/Treasurer

Likewise, theDeed of Chattel Mortgage andContinuing Undertakingwere dulyacknowledged before a notary public and, assuch, have in their favor the presumption ofregularity. To contradict them there must beclear, convincing and more than merelypreponderant evidence. In the instant case, therecords do not show even a preponderance of

evidence in favor of petitioners' claim that theDeed ofChattel Mortgage and ContinuingUndertakingwere never intended by the partiesto be legal, valid and binding. Notarialdocuments are evidence of the facts in clear andunequivocal manner therein expressed.

Interestingly, petitioners' assertions were basedmainly on the self-serving testimony of Cenen

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Dizon, and not on any other independentevidence. His testimony is not onlyunconvincing, as found by the trial court and theCourt of Appeals, but also self-defeating in lightof the documents presented by respondent, i.e.,Promissory Note,Deed of Chattel Mortgage andContinuing Undertaking, the accuracy,

correctness and due execution of which wereadmitted by petitioners. Oral evidence certainlycannot prevail over the written agreements of theparties. The courts need only rely on the faces ofthe written contracts to determine their trueintention on the principle that when the partieshave reduced their agreements in writing, it ispresumed that they have made the writings theonly repositories and memorials of their trueagreement.

The second issue deals with a question of fact.We have ruled often enough that it is not thefunction of this Court to analyze and weigh theevidence all over again, its jurisdiction beinglimited to reviewing errors of law that mighthave been committed by the lower court. At anyrate, while we are not a trier of facts, hence, notrequired as a rule to look into the factual bases ofthe assailed decision of the Court of Appeals, wedid so just the same in this case if only to satisfypetitioners that we have carefully studied and

evaluated the case, all too mindful of the tenacityand vigor with which the parties, through theirrespective counsel, have pursued this case fornineteen (19) years.

Petitioners contend that the parties already had averbal understanding wherein ASIA PACIFICactually agreed to consider petitioners' accountclosed and the principal obligation fully paid inexchange for the ownership of the two (2)bulldozer crawler tractors.

We are not persuaded. Again, other than the bareallegations of petitioners, the records are bereftof any evidence of the supposed agreement. Ascorrectly observed by the Court of Appeals, it isunbelievable that the parties entirely neglected towrite down such an important agreement.Equally incredulous is the fact that petitionerCenen Dizon, a seasoned businessman, readilyconsented to deliver the bulldozers to respondent

without a corresponding receipt of acquittance.Indeed, even the testimony of petitioner CenenDizon himself negates the supposed verbalunderstanding between the parties -

Q: You said and is it not a fact that yousurrendered the bulldozers to APCOR by virtue

of the seizure order?

A: There was no seizure order. Atty. Caragduring that time said if I surrender the twoequipment, we might finally close a deal if theequipment would come up to the balance of theloan. So I voluntarily surrendered, I pulled themfrom the job site and returned them to APCOR xx 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 withAtty. Carag, we have a verbal agreement if Isurrender the equipment it might suffice to payoff the debt so I did just that (underscoring ours).

In other words, there was no binding andperfected contract between petitioners andrespondent regarding the settlement of the

obligation, but only a conditional one, a mereconjecture in fact, depending on whether thevalue of the tractors to be surrendered wouldequal the balance of the loan plus interests. Andsince the bulldozer crawler tractors were sold atthe foreclosure sale for only P180,000.00, whichwas not enough to cover the unpaid balance ofP267,637.50, petitioners are still liable for thedeficiency.

Barring therefore a showing that the findings

complained of are totally devoid of support inthe records, or that they are so glaringlyerroneous as to constitute serious abuse ofdiscretion, we see no valid reason to discardthem. More so in this case where the findings ofboth the trial court and the appellate courtcoincide with each other on the matter.

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With regard to the computation of petitioners'liability, the records show that petitionersactually paid to respondent a total sum ofP130,000.00 in addition to the P180,000.00proceeds realized from the sale of the bulldozercrawler tractors at public auction. Deductingthese amounts from the principal obligation of

P390,000.00 leaves a balance of P80,000.00, towhich must be added P7,637.50 accrued interestsand charges as of 20 March 1981, or a totalunpaid balance of P87,637.50 for whichpetitioners are jointly and severally liable.Furthermore, the unpaid balance should earn14% interest per annum as stipulated in thePromissory Note, computed from 20 March 1981until fully paid.

On the amount of attorney's fees which under the

Promissory Note is equivalent to 25% of theprincipal obligation and interests due, it is not,strictly speaking, the attorney's fees recoverableas between the attorney and his client regulatedby the Rules of Court. Rather, the attorney's feeshere are in the nature of liquidated damages andthe stipulation therefor is aptly called a penalclause. It has been said that so long as suchstipulation does not contravene the law, moralsand public order, it is strictly binding upon theobligor. It is the litigant, not the counsel, who is

the judgment creditor entitled to enforce thejudgment by execution.

Nevertheless, it appears that petitioners' failureto fully comply with their part of the bargain wasnot motivated by ill will or malice, but due tofinancial distress occasioned by legitimatebusiness reverses. Petitioners in fact paid a totalof P130,000.00 in three (3) installments, andeven went to the extent of voluntarily turningover to respondent their heavy equipment

consisting of two (2) bulldozer crawler tractors,all in a bona fide effort to settle theirindebtedness in full. Article 1229 of the NewCivil Code specifically empowers the judge toequitably reduce the civil penalty when theprincipal obligation has beenpartly orirregularly complied with. Upon the foregoingpremise, we hold that the reduction of theattorney's fees from 25% to 15% of the unpaidprincipal plus interests is in order.

Finally, while we empathize with petitioners, wecannot close our eyes to the overridingconsiderations of the law on obligations andcontracts which must be upheld and honored atall times. Petitioners have undoubtedly benefitedfrom the transaction; they cannot now be allowedto impugn its validity and legality to escape the

fulfillment of a valid and binding obligation.

WHEREFORE, no reversible error having beencommitted by the Court of Appeals, its assailedDecision of 24 July 1996 and its Resolution of21 March 1997 are AFFIRMED. Accordingly,petitioners C.G. Construction Inc. and CenenDizon are ordered jointly and severally to payrespondent Asia Pacific Finance Corporation,substituted by International Corporate Bank(now known as Union Bank of the Philippines),

P87,637.50 representing the unpaid balance onthePromissory Note, with interest at fourteenpercent (14%) per annum computed from 20March 1981 until fully paid, and fifteen percent(15%) of the principal obligation and interestsdue by way of attorney's fees. Costs againstpetitioners.

SO ORDERED.

Mendoza, Quisumbing, Buena and De Leon, Jr.,

JJ., concur.

* Petitioner Teodoro Baas should not have beenincluded in the caption of this case as his namewas ordered excluded by the trial court on 23October 1997 since he died during the pendencyof the case thereat.

This case was originally titled "Teodoro Baas,C.G. Dizon Construction, Inc., and Cenen Dizonv. Court of Appeals and Asia Pacific Finance

Corporation." The Court of Appeals, which wasinadvertently made party-respondent, wasexcluded on motion of petitioners since the courtwhich rendered the decision appealed from is notrequired to be joined as party-respondent (Rule45, 1997 Rules of Civil Procedure).

Penned by Justice Hilarion L. Aquino, concurredin by Justices Jainal D. Rasul and Hector L.Hofilea.

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Exh. "A."

Exh. "C."

Exh. "D."

This case however continued to be prosecuted

and defended in the names of ASIA PACIFICand Teodoro Baas, among other defendants,respectively, notwithstanding the Orders of 22August 1985 on substitution of party-plaintiffand of 23 October 1987 re dismissal of the caseagainst deceased defendant Teodoro Baas, bothissued 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 February1988, 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 June1995, 244 SCRA 744.

Republic of the Philippines

Supreme Court

Manila

THIRD DIVISION

FIRST PLANTERS G.R. No. 174134PAWNSHOP, INC.,

Petitioner,Present:

YNARES-SANTIAGO,J.,

Chairperson,- versus - AUSTRIA-

MARTINEZ,CHICO-NAZARIO,NACHURA, andREYES,JJ.

COMMISSIONER OF INTERNAL

REVENUE,

Promulgated:

Respondent.

July 30, 2008

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 InternalRevenue (BIR) for the year 2000. The core ofpetitioner's argument is that it is not a lending investorwithin the purview of Section 108(A) of the NationalInternal Revenue Code (NIRC), as amended, andtherefore not subject to value-added tax (VAT).Petitioner also contends that a pawn ticket is notsubject to documentary stamp tax (DST) because it isnot proof of the pledge transaction, and even assuming

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that it is so, still, it is not subject to tax since adocumentary stamp tax is levied on the documentissued 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 anexisting tax deficiency on its VAT and DST liabilitiesfor the year 2000. The deficiency assessment was atP541,102.79 for VAT and P23,646.33 for DST.Petitioner protested the assessment for lack of legaland factual bases.

Petitioner subsequently received a FormalAssessment Notice on December 29, 2003, directingpayment of VAT deficiency in the amount ofP541,102.79 and DST deficiency in the amount ofP24,747.13, inclusive of surcharge and interest.Petitioner filed a protest, which was denied by ActingRegional Director Anselmo G. Adriano per FinalDecision on Disputed Assessment dated January 29,2004.

Petitioner then filed a petition for review withthe Court of Tax Appeals (CTA). In a Decision datedMay 9, 2005, the 2nd Division of the CTA upheld thedeficiency assessment. Petitioner filed a motion forreconsideration which was denied in a Resolutiondated October 7, 2005.

Petitioner appealed to the CTAEn Bancwhich rendered a Decision dated June 7, 2006, thedispositive portion of which reads as follows:

WHEREFORE, premises considered, thePetition for Review is hereby DENIED for lack of

merit. The assailed Decision dated May 9, 2005 andResolution dated October 7, 2005 are herebyAFFIRMED.

SO ORDERED.

Petitioner sought reconsideration but this wasdenied by the CTAEnBanc per Resolution datedAugust 14, 2006.

Hence, the present petition for review underRule 45 of the Rules of Court based on the following

grounds:

I

THE HONORABLE COURT OF TAX APPEALSEN BANCGRAVELY ERRED IN FINDINGPETITIONER LIABLE FOR VAT.

II

THE HONORABLE COURT OF TAX APPEALSEN BANCGRAVELY ERRED IN RULING THATPETITIONER IS LIABLE FOR DST ON PAWNTICKETS.

The determination of petitioner's tax liability

depends on the tax treatment of a pawnshop business.Oddly, there has not been any definitive declaration inthis regard despite the fact that pawnshops have longbeen in existence. All that has been stated is whatpawnshops are not, but not what pawnshops are.

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The BIR itself has maintained an ambivalentstance on this issue. Initially, inRevenueMemorandum Order No. 15-91 issued on March 11,1991, a pawnshop business was considered as akin tolending investors business activity and subject to 5%percentage tax beginning January 1, 1991, underSection 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 abandonedits earlier position and maintained that pawnshops aresubject to 10% VAT, as implemented by RevenueRegulations No. 7-95. This was complemented byRevenue Memorandum Circular No. 45-01 datedOctober 12, 2001, which provided that pawnshop

operators are liable to the 10% VAT based on grossreceipts beginning January 1, 1996, while pawnshopswhose gross annual receipts do not exceedP550,000.00 are liable for percentage tax, pursuant toSection 109(z) of the Tax Code of 1997.

CTA decisions affirmed the BIR's positionthat pawnshops are subject to VAT. InH.Tambunting Pawnshop, Inc. v. Commissioner of

Internal Revenue, the CTA ruled that the petitionertherein was subject to 10% VAT under Section 108 ofthe Tax Code of 1997. Antam PawnshopCorporation v. Commissioner of Internal Revenuereiterates said ruling. It was the CTA's view that theservices rendered by pawnshops fall under the generaldefinition of sale or exchange of services underSection 108(A) of the Tax Code of 1997.

On July 15, 2003, the Court renderedCommissioner of Internal Revenue v. Michel J.

Lhuillier Pawnshop, Inc. in which it was categoricallyruled that while pawnshops are engaged in thebusiness of lending money, they are not consideredlending investors for the purpose of imposingpercentage taxes. The Court gave the followingreasons: first, under the 1997 Tax Code, pawnshopsand lending investors were subjected to different taxtreatments; second, Congress never intended

pawnshops to be treated in the same way as lendinginvestors; third, Section 116 of the NIRC of 1977subjects to percentage tax dealers in securities andlending investors only; and lastly, the BIR had ruledseveral times prior to the issuance of RMO No. 15-91and RMC 43-91 that pawnshops were not subject tothe 5% percentage tax on lending investors imposed

by Section 116 of the NIRC of 1977, as amended byExecutive Order No. 273.

In view of said ruling, the BIR issuedRevenue Memorandum Circular No. 36-2004 datedJune 16, 2004, canceling the previous lendinginvestor's tax assessments on pawnshops. SaidCircular stated, inter alia:

In view of the said Supreme Courtdecision, all assessments on pawnshops for percentagetaxes as lending investors are hereby cancelled. ThisCircular is being issued for the sole purpose ofresolving the tax liability of pawnshops to the 5%lending investors tax provided under the then Section116 of the NIRC of 1977, as amended, and shall notcover issues relating to their other tax liabilities. Allinternal revenue officials are enjoined from issuing

assessments on pawnshops for percentage taxes onlending investors, under the then Section 116 of theNIRC of 1977, as amended.

For purposes of the gross receipt taxprovided for under Republic Act No. 9294, thepawnshops are now subject thereof. This shallhowever, be covered by another issuance.

Revenue Memorandum Circular No. 37-2004was issued on the same date whereby pawnshopbusinesses were allowed to settle their VAT liabilitiesfor the tax years 1996-2002 pursuant to amemorandum of agreement entered into by theCommissioner of Internal Revenue and the Chambersof Pawnbrokers of the Philippines, Inc. The Circularlikewise instructed all revenue officers to ensure thatall VAT due from pawnshops beginning January 1,

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2003, including increments thereto, if any, areassessed and collected from pawnshops under itsjurisdiction.

In the interim, however, Congress passed

Republic Act (R.A.) No. 9238 on February 5, 2004entitled, An Act Amending Certain Sections of theNational Internal Revenue Code of 1997, as amended,by Excluding Several Services from the Coverage ofthe Value-added Tax and Re-imposing the GrossReceipts Tax on Banks and Non-bank FinancialIntermediaries Performing Quasi-banking Functionsand Other Non-bank Financial Intermediariesbeginning January 01, 2004.

Pending publication of R.A. No. 9238, theBIR issued Bank Bulletin No. 2004-01 on February10, 2004 advising all banks and non-bank financialintermediaries that they shall remain liable under theVAT system.

When R.A. No. 9238 took effect on February16, 2004, the Department of Finance issuedRevenue

Regulations No. 10-2004 dated October 18, 2004,classifying pawnshops as Other Non-bank FinancialIntermediaries. The BIR then issuedRevenueMemorandum Circular No. 73-2004 on November25, 2004, prescribing the guidelines and policies onthe assessment and collection of 10% VAT for grossannual sales/receipts exceeding P550,000.00 or 3%percentage tax for gross annual sales/receipts notexceeding P550,000.00 of pawnshops prior to January1, 2005.

In fine, prior to the EVAT Law, pawnshopswere treated as lending investors subject to lendinginvestor's tax. Subsequently, with the Court's ruling inLhuillier, pawnshops were then treated as VAT-ableenterprises under the general classification ofsale orexchange of services under Section 108(A) of theTax Code of 1997, as amended. R.A. No. 9238

finally classified pawnshops as Other Non-bankFinancial Intermediaries.

The Court finds that pawnshops should havebeen treated as non-bank financial intermediaries from

the very beginning, subject to the appropriate taxesprovided by law, thus

Under the National Internal RevenueCode of 1977, pawnshops should havebeen levied the 5% percentage tax ongross receipts imposed on bank and non-bank financial intermediaries underSection 119 (now Section 121 of the Tax

Code of 1997);

With the imposition of the VATunder R.A. No. 7716 or the EVAT Law,pawnshops should have been subjected tothe 10% VAT imposed on banks andnon-bank financial intermediaries andfinancial institutions under Section 102 ofthe Tax Code of 1977 (now Section 108of the Tax Code of 1997);

This was restated by R.A. No. 8241,which amended R.A. No. 7716, althoughthe levy, collection and assessment of the10% VAT on services rendered by banks,non-bank financial intermediaries, financecompanies, and other financialintermediaries not performing quasi-banking functions, were made effectiveJanuary 1, 1998;

R.A. No. 8424 or the Tax ReformAct of 1997 likewise imposed a 10%

VAT under Section 108 but the levy,collection and assessment thereof wereagain deferred until December 31, 1999;

The levy, collection and assessmentof the 10% VAT was further deferred byR.A. No. 8761 until December 31, 2000,and by R.A. No. 9010, until December31, 2002;

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With no further deferments given bylaw, the levy, collection and assessment ofthe 10% VAT on banks, non-bankfinancial intermediaries, financecompanies, and other financialintermediaries 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-bankfinancial intermediaries, financecompanies, and other financialintermediaries not performing quasi-banking functions were specificallyexempted from VAT, and the 0% to 5%percentage tax on gross receipts on othernon-bank financial intermediaries was

reimposed under Section 122 of the TaxCode 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 exchangeof services as defined under Section 108(A) of theTax Code of 1997, which states: 'sale or exchange ofservices' means the performance of all kinds of

services in the Philippines for others for a fee,remuneration or consideration x x x. Instead, due tothe specific nature of its business, pawnshops werethen subject to 10% VAT under the category of non-bank financial intermediaries, as provided in the sameSection 108(A), which reads:

SEC. 108. Value-added Tax on Sale ofServices and Use or Lease of Properties. -

(A)Rate and Base of Tax. - There shall belevied, assessed and collected, a value-added taxequivalent to ten percent (10%) of gross receiptsderived 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 thePhilippines 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 (excepttheir crop insurances), including surety, fidelity,indemnity and bonding companies; and similarservices regardless of whether or not the performancethereof calls for the exercise or use of the physical or

mental faculties. The phrase 'sale or exchange ofservices' shall likewise include: x x x (Emphasis andunderscoring supplied)

The tax treatment of pawnshops as non-bankfinancial intermediaries is not without basis.

R.A. No. 337, as amended, or the GeneralBanking Act characterizes the terms bankinginstitution and bankas synonymous andinterchangeable and specifically include commercialbanks, savings bank, mortgage banks, developmentbanks, rural banks, stock savings and loanassociations, and branches and agencies in thePhilippines of foreign banks. R.A. No. 8791 or theGeneral Banking Law of 2000, meanwhile, providedthat banks shall refer to entities engaged in the lendingof funds obtained in the form of deposits. R.A. No.

8791 also included cooperative banks, Islamic banksand other banks as determined by the Monetary Boardof theBangko Sentral ng Pilipinas in theclassification of banks.

Financial intermediaries, on the other hand,are defined as persons or entities whose principalfunctions include the lending, investing or placementof funds or evidences of indebtedness or equity

deposited with them, acquired by them, or otherwisecoursed through them, either for their own account orfor the account of others.

It need not be elaborated that pawnshops arenon-banks/banking institutions. Moreover, the nature

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of their business activities partakes that of a financialintermediary in that its principal function is lending.

A pawnshop's business and operations aregoverned by Presidential Decree (P.D.) No. 114 or the

Pawnshop Regulation Act and Central Bank CircularNo. 374 (Rules and Regulations for Pawnshops).Section 3 of P.D. No. 114 definespawnshop as aperson or entity engaged in the business of lendingmoney on personal property delivered as security forloans and shall be synonymous, and may be usedinterchangeably, with pawnbroker or pawnbrokerage.

That pawnshops are to be treated as non-bankfinancial intermediaries is further bolstered by the factthat pawnshops are under the regulatory supervision oftheBangko Sentral ng Pilipinas and covered by itsManual of Regulations for Non-Bank FinancialInstitutions. The Manual includes pawnshops in thelist of non-bank financial intermediaries, viz.:

4101Q.1Financial Intermediaries

x x x

Non-bank financial intermediaries shallinclude the following:

(1) A person or entity licensed and/orregistered with any government regulatory body as anon-bank financial intermediary, such as investmenthouse, 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 QUALIFYINGPAWNSHOPS AS NON-BANK FINANCIALINTERMEDIARIES. - Whereas, in relation to Sec.2.3 of Rev. Regs No. 9-2004 defining Non-bankFinancial Intermediaries, the term pawnshop asdefined under Presidential Decree No. 114 whichauthorized its creation, to be a person or entity

engaged in the business of lending money, all fallwithin the classification of Non-bank FinancialIntermediaries and therefore, covered by Sec. 4 ofR.A. No. 9238.

This classification is equally supported bySubsection 4101Q.1 of the BSP Manual ofRegulations for Non-Bank Financial Intermediariesand reiterated in BSP Circular No. 204-99, classifyingpawnshops as one of Non-bank FinancialIntermediaries within the supervision of the Bangko

Sentral ng Pilipinas.

Ultimately, R.A. No. 9238 categoricallyconfirmed 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 issubject 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 petitioneris not liable for VAT during these tax years. Butwith the full implementation of the VAT system onnon-bank financial intermediaries starting January 1,2003, petitioner is liable for 10% VAT for said taxyear. And beginning 2004 up to the present, by virtueof R.A. No. 9238, petitioner is no longer liable for

VAT but it is subject to percentage tax on grossreceipts from 0% to 5 %, as the case may be.

Lastly, petitioner is liable for documentarystamp taxes.

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The Court has settled this issue inMichel J.Lhuillier Pawnshop, Inc. v. Commissioner of InternalRevenue, in which it was ruled that the subject ofDST is not limited to the document alone. Pledge,which is an exercise of a privilege to transferobligations, rights or properties incident thereto, is alsosubject to DST, thus

x x x the subject of a DST is not limited tothe document embodying the enumerated transactions.A DST is an excise tax on the exercise of a right orprivilege to transfer obligations, rights or propertiesincident thereto. InPhilippine Home AssuranceCorporation 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 definedas an accessory, real and unilateral contract by virtueof which the debtor or a third person delivers to thecreditor or to a third person movable property assecurity for the performance of the principalobligation, upon the fulfillment of which the thingpledged, with all its accessions and accessories, shallbe returned to the debtor or to the third person. This isessentially the business of pawnshops which aredefined under Section 3 of Presidential Decree No.114, or the Pawnshop Regulation Act, as persons or

entities engaged in lending money on personalproperty delivered as security for loans.

Section 12 of the Pawnshop Regulation Actand Section 21 of the Rules and Regulations ForPawnshops issued by the Central Bank to implementthe Act, require every pawnshop or pawnbroker toissue, at the time of every such loan or pledge, amemorandum or ticket signed by the pawnbroker andcontaining the following details: (1) name andresidence of the pawner; (2) date the loan is granted;

(3) amount of principal loan; (4) interest rate inpercent; (5) period of maturity; (6) description ofpawn; (7) signature of pawnbroker or his authorizedagent; (8) signature or thumb mark of pawner or hisauthorized agent; and (9) such other terms andconditions as may be agreed upon between thepawnbroker and the pawner. In addition, Central BankCircular No. 445, prescribed a standard form of pawntickets with entries for the required details on its face

and the mandated terms and conditions of the pledgeat the dorsal portion thereof.

Section 3 of the Pawnshop Regulation Actdefines a pawn ticket as follows:

x x x x

True, the law does not consider said ticketas an evidence of security or indebtedness. However,for purposes of taxation, the same pawn ticket is proofof an exercise of a taxable privilege of concluding acontract of pledge. At any rate, it is not said ticket thatcreates the pawnshops obligation to pay DST but theexercise of the privilege to enter into a contract ofpledge. There is therefore no basis in petitionersassertion that a DST is literally a tax on a documentand that no tax may be imposed on a pawn ticket.

The settled rule is that tax laws must beconstrued in favor of the taxpayer and strictly againstthe government; and that a tax cannot be imposedwithout clear and express words for that purpose.Taking our bearing from the foregoing doctrines, wescrutinized Section 195 of the NIRC, but there is noway that said provision may be interpreted in favor ofpetitioner. Section 195 unqualifiedly subjects allpledges to DST. It states that [o]n every x x x pledgex x x there shall be collected a documentary stamp tax

x x x. It is clear, categorical, and needs no furtherinterpretation or construction. The explicit tenorthereof requires hardly anything than a simpleapplication.

x x x x

In the instant case, there is no lawspecifically and expressly exempting pledges enteredinto by pawnshops from the payment of DST. Section199 of the NIRC enumerated certain documents

which are not subject to stamp tax; but a pawnshopticket is not one of them. Hence, petitioners nebulousclaim that it is not subject to DST is without merit. Itcannot be over-emphasized that tax exemptionrepresents a loss of revenue to the government andmust, therefore, not rest on vague inference.Exemption from taxation is never presumed. For taxexemption to be recognized, the grant must be clearand express; it cannot be made to rest on doubtfulimplications.

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Under the principle ofstaredecisiset nonquieta movere (follow past precedents and do notdisturb what has been settled), once a case has beendecided one way, any other case involving exactly thesame point at issue, as in the case at bar, should be

decided in the same manner.

WHEREFORE, the petition isPARTIALLY GRANTED. The Decision datedJune 7, 2006 and Resolution dated August 14, 2006 ofthe Court of Tax AppealsEn Banc is MODIFIED tothe effect that the Bureau of Internal Revenueassessment for VAT deficiency in the amount ofP541,102.79 for the year 2000 is REVERSED and

SET ASIDE, whileits assessment for DSTdeficiency in the amount of P24,747.13, inclusive ofsurcharge and interest, is UPHELD.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson

MINITA V. CHICO-NAZARIOAssociate Justice

ANTON

RUBEN T. REYES

Associate Justice

ATTESTATION

I attest that the conclusions in the aboveDecision had been reached in consultation before thecase was assigned to the writer of the opinion of theCourts Division.

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CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII ofthe Constitution, and the DivisionChairpersons Attestation, it is herebycertified that the conclusions in the aboveDecision had been reached in consultation

before the case was assigned to the writer of

the opinion of the Courts 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 RevenueMemorandum Circular No. 43-91 issued on May 27,1991.

Entitled, An Act Restructuring theValue-Added Tax (VAT) System, Widening its TaxBase and Enhancing its Administration, and for thesepurposes Amending and Repealing the RelevantProvisions of the National Internal Revenue Code, asamended, 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, 406SCRA 178. Penned by Chief Justice Hilario G.Davide, Jr. with the concurrence of Associate JusticesJose Vitug, Consuelo Ynares-Santiago, Antonio T.Carpio and Adolfo S. Azcuna.

Id. at 185.

ftp://ftp.bir.gov.ph/webadmin1/pdf/1887rmc36_04.pdf.

Republic Act (R.A.) No. 9238 lapsedinto law on February 05, 2004 without the signature ofthe President, in accordance with Article VI, Section27 (1) of the Constitution.

Presidential Decree No. 1158.

Effective May 28, 1994.

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The implementation of the VAT systemunder 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. Section 17 of Republic Act No.7716 is hereby amended to read as follows:

EC. 17. Effectivity of the Imposition of VAT on CertainGoods, Properties and Services. The value-added tax shall belevied, assessed and collected on the following transactions,starting January 1, 1998:

x x x x

(b) Services rendered by banks, non-bank financialintermediaries, finance companies and other financialintermediaries not performing quasi-banking functions;

x x x x:

R.A. No. 8424 renamed the NationalInternal Revenue Code of 1977 to National InternalRevenue Code of 1997, or the Tax Code of 1997, andtook effect on January 1, 1998.

R.A. No. 8428, Section 5 provides:

SEC. 5.Transitory Provisions. - Deferment of theEffectivity of the Imposition of VAT onCertain Services. - The effectivity of theimposition of the value-added tax on servicesas prescribed in Section 17(a) and (b) ofRepublic Act No. 7616, as amended byRepublic Act. 8241, is hereby further deferreduntil December 31, 1999, unless Congress

deems otherwise:Provided, That the saidservices shall continue to pay the applicabletax prescribed under the present provisions ofthe National Internal Revenue Code, asamended.

R.A. No. 9238, Section 2 provides:

SEC. 2. Section 109 of thesame Code is hereby amended by rewordingparagraph (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) Servicesof banks, non-bank financial intermediariesperforming quasi-banking functions, andother non-bank financial intermediaries;

x x x x

Theforegoing exemptions to the contrarynotwithstanding, any person whose sale ofgoods or properties or services which areotherwise not subject to VAT, but who issue aVAT invoice or receipt therefor shall, inadditional to his liability to other applicablepercentage tax, if any, be liable to the taximposed in Section 106 or 108 without thebenefit of input tax credit, and such tax shallalso 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. Section122 of the National Internal Revenue Code of 1997, asamended, is hereby restored with amendments to readas follows:

"Sec. 122. Tax on OtherNon-Bank Financial Intermediaries. There

shall be collected a tax of five percent (5%) onthe gross receipts derived by other non-bankfinancial intermediaries doing business in thePhilippines, from interest, commissions,discounts and all other items treated as grossincome under this code:Provided, thatinterests, commissions and discounts fromlending activities, as well as income fromfinancial leasing, shall be taxed on the basis of

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remaining maturities of the instruments fromwhich such receipts are derived, in accordancewith the following schedule:

maturityperiod is five (5) years orless....................... 5%

maturityperiod is more than five (5)years..................1%

Provided, however, that incase the maturity period is shortened thrupretermination, then the maturity period shallbe reckoned to end as of the date ofpretermination for purposes of classifying thetransaction and the correct rate shall beapplied accordingly.

Provided,finally, that thegenerally accepted accounting principles asmay be prescribed by the Securities andExchange Commission for other non-bankfinancial intermediaries shall likewise be thebasis for the calculation of gross receipts.

Nothing in this code shallpreclude the Commissioner from imposingthe 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 FinancialInstitutions, 4101Q.1.

See pages 7-8 of this Decision.

G.R. No. 166786, May 3, 2006, 489SCRA 147.

Commissioner of Internal Revenue v.

Trustworthy Pawnshop, Inc., G.R. No. 149834, May2, 2006, 488 SCRA 538, 545.