PAYMENT OR PERFORMANCE

IDENTITY OF PRESTATION
FIRST DIVISION
[G.R. No. 150843. March 14, 2003]
CATHAY PACIFIC AIRWAYS, LTD., petitioner, vs. SPOUSES DANIEL VAZQUEZ and
MARIA LUISA MADRIGAL VAZQUEZ, respondents.
DECISION
DAVIDE, JR., C.J.:
Is an involuntary upgrading of an airline passengers accommodation from one class to a more
superior class at no extra cost a breach of contract of carriage that would entitle the passenger to
an award of damages? This is a novel question that has to be resolved in this case.
The facts in this case, as found by the Court of Appeals and adopted by petitioner Cathay Pacific
Airways, Ltd., (hereinafter Cathay) are as follows:
Cathay is a common carrier engaged in the business of transporting passengers and goods by air.
Among the many routes it services is the Manila-Hongkong-Manila course. As part of its
marketing strategy, Cathay accords its frequent flyers membership in its Marco Polo Club. The
members enjoy several privileges, such as priority for upgrading of booking without any extra
charge whenever an opportunity arises. Thus, a frequent flyer booked in the Business Class has
priority for upgrading to First Class if the Business Class Section is fully booked.
Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez are
frequent flyers of Cathay and are Gold Card members of its Marco Polo Club. On 24 September
1996, the Vazquezes, together with their maid and two friends Pacita Cruz and Josefina Vergel
de Dios, went to Hongkong for pleasure and business.
For their return flight to Manila on 28 September 1996, they were booked on Cathays Flight CX-
905, with departure time at 9:20 p.m. Two hours before their time of departure, the Vazquezes
and their companions checked in their luggage at Cathays check-in counter at Kai Tak Airport
and were given their respective boarding passes, to wit, Business Class boarding passes for the
Vazquezes and their two friends, and Economy Class for their maid. They then proceeded to the
Business Class passenger lounge.
When boarding time was announced, the Vazquezes and their two friends went to Departure
Gate No. 28, which was designated for Business Class passengers. Dr. Vazquez presented his
boarding pass to the ground stewardess, who in turn inserted it into an electronic machine reader
or computer at the gate. The ground stewardess was assisted by a ground attendant by the name
of Clara Lai Han Chiu. When Ms. Chiu glanced at the computer monitor, she saw a message that
there was a seat change from Business Class to First Class for the Vazquezes.
Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes accommodations were
upgraded to First Class. Dr. Vazquez refused the upgrade, reasoning that it would not look nice
for them as hosts to travel in First Class and their guests, in the Business Class; and moreover,
they were going to discuss business matters during the flight. He also told Ms. Chiu that she
could have other passengers instead transferred to the First Class Section. Taken aback by the
refusal for upgrading, Ms. Chiu consulted her supervisor, who told her to handle the situation
and convince the Vazquezes to accept the upgrading. Ms. Chiu informed the latter that the
Business Class was fully booked, and that since they were Marco Polo Club members they had
the priority to be upgraded to the First Class. Dr. Vazquez continued to refuse, so Ms. Chiu told
them that if they would not avail themselves of the privilege, they would not be allowed to take
the flight. Eventually, after talking to his two friends, Dr. Vazquez gave in. He and Mrs. Vazquez
then proceeded to the First Class Cabin.
Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996 addressed to Cathays
Country Manager, demanded that they be indemnified in the amount of P1million for the
humiliation and embarrassment caused by its employees. They also demanded a written apology
from the management of Cathay, preferably a responsible person with a rank of no less than the
Country Manager, as well as the apology from Ms. Chiu within fifteen days from receipt of the
letter.
In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathays Country Manager
Argus Guy Robson, informed the Vazquezes that Cathay would investigate the incident and get
back to them within a weeks time.
On 8 November 1996, after Cathays failure to give them any feedback within its self-imposed
deadline, the Vazquezes instituted before the Regional Trial Court of Makati City an action for
damages against Cathay, praying for the payment to each of them the amounts of P250,000 as
temperate damages; P500,000 as moral damages; P500,000 as exemplary or corrective damages;
and P250,000 as attorneys fees.
In their complaint, the Vazquezes alleged that when they informed Ms. Chiu that they preferred
to stay in Business Class, Ms. Chiu obstinately, uncompromisingly and in a loud, discourteous
and harsh voice threatened that they could not board and leave with the flight unless they go to
First Class, since the Business Class was overbooked. Ms. Chius loud and stringent shouting
annoyed, embarrassed, and humiliated them because the incident was witnessed by all the other
passengers waiting for boarding. They also claimed that they were unjustifiably delayed to board
the plane, and when they were finally permitted to get into the aircraft, the forward storage
compartment was already full. A flight stewardess instructed Dr. Vazquez to put his roll-on
luggage in the overhead storage compartment. Because he was not assisted by any of the crew in
putting up his luggage, his bilateral carpal tunnel syndrome was aggravated, causing him
extreme pain on his arm and wrist. The Vazquezes also averred that they belong to the
uppermost and absolutely top elite of both Philippine Society and the Philippine financial
community, [and that] they were among the wealthiest persons in the Philippine[s].
In its answer, Cathay alleged that it is a practice among commercial airlines to upgrade
passengers to the next better class of accommodation, whenever an opportunity arises, such as
when a certain section is fully booked. Priority in upgrading is given to its frequent flyers, who
are considered favored passengers like the Vazquezes. Thus, when the Business Class Section of
Flight CX-905 was fully booked, Cathays computer sorted out the names of favored passengers
for involuntary upgrading to First Class. When Ms. Chiu informed the Vazquezes that they were
upgraded to First Class, Dr. Vazquez refused. He then stood at the entrance of the boarding
apron, blocking the queue of passengers from boarding the plane, which inconvenienced other
passengers. He shouted that it was impossible for him and his wife to be upgraded without his
two friends who were traveling with them. Because of Dr. Vazquezs outburst, Ms. Chiu thought
of upgrading the traveling companions of the Vazquezes. But when she checked the computer,
she learned that the Vazquezes companions did not have priority for upgrading. She then tried to
book the Vazquezes again to their original seats. However, since the Business Class Section was
already fully booked, she politely informed Dr. Vazquez of such fact and explained that the
upgrading was in recognition of their status as Cathays valued passengers. Finally, after talking
to their guests, the Vazquezes eventually decided to take the First Class accommodation.
Cathay also asserted that its employees at the Hong Kong airport acted in good faith in dealing
with the Vazquezes; none of them shouted, humiliated, embarrassed, or committed any act of
disrespect against them (the Vazquezes). Assuming that there was indeed a breach of contractual
obligation, Cathay acted in good faith, which negates any basis for their claim for temperate,
moral, and exemplary damages and attorneys fees. Hence, it prayed for the dismissal of the
complaint and for payment of P100,000 for exemplary damages and P300,000 as attorneys fees
and litigation expenses.
During the trial, Dr. Vazquez testified to support the allegations in the complaint. His testimony
was corroborated by his two friends who were with him at the time of the incident, namely,
Pacita G. Cruz and Josefina Vergel de Dios.
For its part, Cathay presented documentary evidence and the testimonies of Mr. Yuen; Ms. Chiu;
Norma Barrientos, Comptroller of its retained counsel; and Mr. Robson. Yuen and Robson
testified on Cathays policy of upgrading the seat accommodation of its Marco Polo Club
members when an opportunity arises. The upgrading of the Vazquezes to First Class was done in
good faith; in fact, the First Class Section is definitely much better than the Business Class in
terms of comfort, quality of food, and service from the cabin crew. They also testified that
overbooking is a widely accepted practice in the airline industry and is in accordance with the
International Air Transport Association (IATA) regulations. Airlines overbook because a lot of
passengers do not show up for their flight. With respect to Flight CX-905, there was no overall
overbooking to a degree that a passenger was bumped off or downgraded. Yuen and Robson also
stated that the demand letter of the Vazquezes was immediately acted upon. Reports were
gathered from their office in Hong Kong and immediately forwarded to their counsel Atty.
Remollo for legal advice. However, Atty. Remollo begged off because his services were likewise
retained by the Vazquezes; nonetheless, he undertook to solve the problem in behalf of Cathay.
But nothing happened until Cathay received a copy of the complaint in this case. For her part,
Ms. Chiu denied that she shouted or used foul or impolite language against the Vazquezes. Ms.
Barrientos testified on the amount of attorneys fees and other litigation expenses, such as those
for the taking of the depositions of Yuen and Chiu.
In its decision1[1] of 19 October 1998, the trial court found for the Vazquezes and decreed as
follows:
WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is
hereby rendered in favor of plaintiffs Vazquez spouses and against defendant Cathay Pacific
Airways, Ltd., ordering the latter to pay each plaintiff the following:
a) Nominal damages in the amount of P100,000.00 for each plaintiff;
b) Moral damages in the amount of P2,000,000.00 for each plaintiff;
c) Exemplary damages in the amount of P5,000,000.00 for each plaintiff;
d) Attorneys fees and expenses of litigation in the amount of P1,000,000.00
for each plaintiff; and
e) Costs of suit.
SO ORDERED.
According to the trial court, Cathay offers various classes of seats from which passengers are
allowed to choose regardless of their reasons or motives, whether it be due to budgetary
constraints or whim. The choice imposes a clear obligation on Cathay to transport the passengers
in the class chosen by them. The carrier cannot, without exposing itself to liability, force a
passenger to involuntarily change his choice. The upgrading of the Vazquezes accommodation
over and above their vehement objections was due to the overbooking of the Business Class. It
was a pretext to pack as many passengers as possible into the plane to maximize Cathays
revenues. Cathays actuations in this case displayed deceit, gross negligence, and bad faith, which
entitled the Vazquezes to awards for damages.
On appeal by the petitioners, the Court of Appeals, in its decision of 24 July 2001,2[2] deleted
the award for exemplary damages; and it reduced the awards for moral and nominal damages for
each of the Vazquezes to P250,000 and P50,000, respectively, and the attorneys fees and
litigation expenses to P50,000 for both of them.
The Court of Appeals ratiocinated that by upgrading the Vazquezes to First Class, Cathay
novated the contract of carriage without the formers consent. There was a breach of contract not
because Cathay overbooked the Business Class Section of Flight CX-905 but because the latter
pushed through with the upgrading despite the objections of the Vazquezes.
However, the Court of Appeals was not convinced that Ms. Chiu shouted at, or meant to be
discourteous to, Dr. Vazquez, although it might seemed that way to the latter, who was a member
of the elite in Philippine society and was not therefore used to being harangued by anybody. Ms.
Chiu was a Hong Kong Chinese whose fractured Chinese was difficult to understand and whose
manner of speaking might sound harsh or shrill to Filipinos because of cultural differences. But
the Court of Appeals did not find her to have acted with deliberate malice, deceit, gross
negligence, or bad faith. If at all, she was negligent in not offering the First Class
accommodations to other passengers. Neither can the flight stewardess in the First Class Cabin
be said to have been in bad faith when she failed to assist Dr. Vazquez in lifting his baggage into
the overhead storage bin. There is no proof that he asked for help and was refused even after
saying that he was suffering from bilateral carpal tunnel syndrome. Anent the delay of Yuen in
responding to the demand letter of the Vazquezes, the Court of Appeals found it to have been
sufficiently explained.
The Vazquezes and Cathay separately filed motions for a reconsideration of the decision, both of
which were denied by the Court of Appeals.
Cathay seasonably filed with us this petition in this case. Cathay maintains that the award for
moral damages has no basis, since the Court of Appeals found that there was no wanton,
fraudulent, reckless and oppressive display of manners on the part of its personnel; and that the
breach of contract was not attended by fraud, malice, or bad faith. If any damage had been
suffered by the Vazquezes, it was damnum absque injuria, which is damage without injury,
damage or injury inflicted without injustice, loss or damage without violation of a legal right, or
a wrong done to a man for which the law provides no remedy. Cathay also invokes our decision
in United Airlines, Inc. v. Court of Appeals3[3] where we recognized that, in accordance with the
Civil Aeronautics Boards Economic Regulation No. 7, as amended, an overbooking that does not
exceed ten percent cannot be considered deliberate and done in bad faith. We thus deleted in that
case the awards for moral and exemplary damages, as well as attorneys fees, for lack of proof of
overbooking exceeding ten percent or of bad faith on the part of the airline carrier.
On the other hand, the Vazquezes assert that the Court of Appeals was correct in granting awards
for moral and nominal damages and attorneys fees in view of the breach of contract committed
by Cathay for transferring them from the Business Class to First Class Section without prior
notice or consent and over their vigorous objection. They likewise argue that the issuance of
passenger tickets more than the seating capacity of each section of the plane is in itself
fraudulent, malicious and tainted with bad faith.
The key issues for our consideration are whether (1) by upgrading the seat accommodation of the
Vazquezes from Business Class to First Class Cathay breached its contract of carriage with the
Vazquezes; (2) the upgrading was tainted with fraud or bad faith; and (3) the Vazquezes are
entitled to damages.
We resolve the first issue in the affirmative.
A contract is a meeting of minds between two persons whereby one agrees to give something or
render some service to another for a consideration. There is no contract unless the following
requisites concur: (1) consent of the contracting parties; (2) an object certain which is the subject
of the contract; and (3) the cause of the obligation which is established.4[4] Undoubtedly, a
contract of carriage existed between Cathay and the Vazquezes. They voluntarily and freely gave
their consent to an agreement whose object was the transportation of the Vazquezes from Manila
to Hong Kong and back to Manila, with seats in the Business Class Section of the aircraft, and
whose cause or consideration was the fare paid by the Vazquezes to Cathay.
The only problem is the legal effect of the upgrading of the seat accommodation of the
Vazquezes. Did it constitute a breach of contract?
Breach of contract is defined as the failure without legal reason to comply with the terms of a
contract.5[5] It is also defined as the [f]ailure, without legal excuse, to perform any promise
which forms the whole or part of the contract.6[6]
In previous cases, the breach of contract of carriage consisted in either the bumping off of a
passenger with confirmed reservation or the downgrading of a passengers seat accommodation
from one class to a lower class. In this case, what happened was the reverse. The contract
between the parties was for Cathay to transport the Vazquezes to Manila on a Business Class
accommodation in Flight CX-905. After checking-in their luggage at the Kai Tak Airport in
Hong Kong, the Vazquezes were given boarding cards indicating their seat assignments in the
Business Class Section. However, during the boarding time, when the Vazquezes presented their
boarding passes, they were informed that they had a seat change from Business Class to First
Class. It turned out that the Business Class was overbooked in that there were more passengers
than the number of seats. Thus, the seat assignments of the Vazquezes were given to waitlisted
passengers, and the Vazquezes, being members of the Marco Polo Club, were upgraded from
Business Class to First Class.
We note that in all their pleadings, the Vazquezes never denied that they were members of
Cathays Marco Polo Club. They knew that as members of the Club, they had priority for
upgrading of their seat accommodation at no extra cost when an opportunity arises. But, just like
other privileges, such priority could be waived. The Vazquezes should have been consulted first
whether they wanted to avail themselves of the privilege or would consent to a change of seat
accommodation before their seat assignments were given to other passengers. Normally, one
would appreciate and accept an upgrading, for it would mean a better accommodation. But,
whatever their reason was and however odd it might be, the Vazquezes had every right to decline
the upgrade and insist on the Business Class accommodation they had booked for and which was
designated in their boarding passes. They clearly waived their priority or preference when they
asked that other passengers be given the upgrade. It should not have been imposed on them over
their vehement objection. By insisting on the upgrade, Cathay breached its contract of carriage
with the Vazquezes.
We are not, however, convinced that the upgrading or the breach of contract was attended by
fraud or bad faith. Thus, we resolve the second issue in the negative.
Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are
serious accusations that can be so conveniently and casually invoked, and that is why they are
never presumed. They amount to mere slogans or mudslinging unless convincingly substantiated
by whoever is alleging them.
Fraud has been defined to include an inducement through insidious machination. Insidious
machination refers to a deceitful scheme or plot with an evil or devious purpose. Deceit exists
where the party, with intent to deceive, conceals or omits to state material facts and, by reason of
such omission or concealment, the other party was induced to give consent that would not
otherwise have been given.7[7]
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious doing of a wrong, a breach of a known duty through some
motive or interest or ill will that partakes of the nature of fraud.8[8]
We find no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced
to agree to the upgrading through insidious words or deceitful machination or through willful
concealment of material facts. Upon boarding, Ms. Chiu told the Vazquezes that their
accommodations were upgraded to First Class in view of their being Gold Card members of
Cathays Marco Polo Club. She was honest in telling them that their seats were already given to
other passengers and the Business Class Section was fully booked. Ms. Chiu might have failed to
consider the remedy of offering the First Class seats to other passengers. But, we find no bad
faith in her failure to do so, even if that amounted to an exercise of poor judgment.
Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As testified
to by Mr. Robson, the First Class Section is better than the Business Class Section in terms of
comfort, quality of food, and service from the cabin crew; thus, the difference in fare between
the First Class and Business Class at that time was $250.9[9] Needless to state, an upgrading is
for the better condition and, definitely, for the benefit of the passenger.
We are not persuaded by the Vazquezes argument that the overbooking of the Business Class
Section constituted bad faith on the part of Cathay. Section 3 of the Economic Regulation No. 7
of the Civil Aeronautics Board, as amended, provides:
Sec 3. Scope. This regulation shall apply to every Philippine and foreign air carrier with respect
to its operation of flights or portions of flights originating from or terminating at, or serving a
point within the territory of the Republic of the Philippines insofar as it denies boarding to a
passenger on a flight, or portion of a flight inside or outside the Philippines, for which he holds
confirmed reserved space. Furthermore, this Regulation is designed to cover only honest
mistakes on the part of the carriers and excludes deliberate and willful acts of non-
accommodation. Provided, however, that overbooking not exceeding 10% of the seating capacity
of the aircraft shall not be considered as a deliberate and willful act of non-accommodation.
It is clear from this section that an overbooking that does not exceed ten percent is not
considered deliberate and therefore does not amount to bad faith.10[10] Here, while there was
admittedly an overbooking of the Business Class, there was no evidence of overbooking of the
plane beyond ten percent, and no passenger was ever bumped off or was refused to board the
aircraft.
Now we come to the third issue on damages.
The Court of Appeals awarded each of the Vazquezes moral damages in the amount of
P250,000. Article 2220 of the Civil Code provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith.
Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. Although
incapable of pecuniary computation, moral damages may be recovered if they are the proximate
result of the defendants wrongful act or omission.11[11] Thus, case law establishes the following
requisites for the award of moral damages: (1) there must be an injury clearly sustained by the
claimant, whether physical, mental or psychological; (2) there must be a culpable act or omission
factually established; (3) the wrongful act or omission of the defendant is the proximate cause of
the injury sustained by the claimant; and (4) the award for damages is predicated on any of the
cases stated in Article 2219 of the Civil Code.12[12]
Moral damages predicated upon a breach of contract of carriage may only be recoverable in
instances where the carrier is guilty of fraud or bad faith or where the mishap resulted in the
death of a passenger.13[13] Where in breaching the contract of carriage the airline is not shown
to have acted fraudulently or in bad faith, liability for damages is limited to the natural and
probable consequences of the breach of the obligation which the parties had foreseen or could
have reasonably foreseen. In such a case the liability does not include moral and exemplary
damages.14[14]
In this case, we have ruled that the breach of contract of carriage, which consisted in the
involuntary upgrading of the Vazquezes seat accommodation, was not attended by fraud or bad
faith. The Court of Appeals award of moral damages has, therefore, no leg to stand on.
The deletion of the award for exemplary damages by the Court of Appeals is correct. It is a
requisite in the grant of exemplary damages that the act of the offender must be accompanied by
bad faith or done in wanton, fraudulent or malevolent manner.15[15] Such requisite is absent in
this case. Moreover, to be entitled thereto the claimant must first establish his right to moral,
temperate, or compensatory damages.16[16] Since the Vazquezes are not entitled to any of these
damages, the award for exemplary damages has no legal basis. And where the awards for moral
and exemplary damages are eliminated, so must the award for attorneys fees.17[17]
The most that can be adjudged in favor of the Vazquezes for Cathays breach of contract is an
award for nominal damages under Article 2221 of the Civil Code, which reads as follows:
Article 2221 of the Civil Code provides:
Article 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.
Worth noting is the fact that in Cathays Memorandum filed with this Court, it prayed only for the
deletion of the award for moral damages. It deferred to the Court of Appeals discretion in
awarding nominal damages; thus:
As far as the award of nominal damages is concerned, petitioner respectfully defers to the
Honorable Court of Appeals discretion. Aware as it is that somehow, due to the resistance of
respondents-spouses to the normally-appreciated gesture of petitioner to upgrade their
accommodations, petitioner may have disturbed the respondents-spouses wish to be with their
companions (who traveled to Hong Kong with them) at the Business Class on their flight to
Manila. Petitioner regrets that in its desire to provide the respondents-spouses with additional
amenities for the one and one-half (1 1/2) hour flight to Manila, unintended tension
ensued.18[18]
Nonetheless, considering that the breach was intended to give more benefit and advantage to the
Vazquezes by upgrading their Business Class accommodation to First Class because of their
valued status as Marco Polo members, we reduce the award for nominal damages to P5,000.
Before writing finis to this decision, we find it well-worth to quote the apt observation of the
Court of Appeals regarding the awards adjudged by the trial court:
We are not amused but alarmed at the lower courts unbelievable alacrity, bordering on the
scandalous, to award excessive amounts as damages. In their complaint, appellees asked for P1
million as moral damages but the lower court awarded P4 million; they asked for P500,000.00 as
exemplary damages but the lower court cavalierly awarded a whooping P10 million; they asked
for P250,000.00 as attorneys fees but were awarded P2 million; they did not ask for nominal
damages but were awarded P200,000.00. It is as if the lower court went on a rampage, and why it
acted that way is beyond all tests of reason. In fact the excessiveness of the total award invites
the suspicion that it was the result of prejudice or corruption on the part of the trial court.
The presiding judge of the lower court is enjoined to hearken to the Supreme Courts admonition
in Singson vs. CA (282 SCRA 149 [1997]), where it said:
The well-entrenched principle is that the grant of moral damages depends upon the discretion of
the court based on the circumstances of each case. This discretion is limited by the principle that
the amount awarded should not be palpably and scandalously excessive as to indicate that it was
the result of prejudice or corruption on the part of the trial court.
and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held:
Nonetheless, we agree with the injunction expressed by the Court of Appeals that passengers
must not prey on international airlines for damage awards, like trophies in a safari. After all
neither the social standing nor prestige of the passenger should determine the extent to which he
would suffer because of a wrong done, since the dignity affronted in the individual is a quality
inherent in him and not conferred by these social indicators. 19[19]
We adopt as our own this observation of the Court of Appeals.
WHEREFORE, the instant petition is hereby partly GRANTED. The Decision of the Court of
Appeals of 24 July 2001 in CA-G.R. CV No. 63339 is hereby MODIFIED, and as modified, the
awards for moral damages and attorneys fees are set aside and deleted, and the award for
nominal damages is reduced to P5,000.
No pronouncement on costs.
SO ORDERED.
Vitug, Carpio, and Azcuna, JJ., concur.
Ynares-Santiago, J., on leave.

SECOND DIVISION

ASJ CORPORATION and G.R. No. 158086

ANTONIO SAN JUAN,
Petitioners, Present:

QUISUMBING, J., Chairperson,

CARPIO,
- versus - CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

SPS. EFREN & MAURA Promulgated:

EVANGELISTA,
Respondents. February 14, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

QUISUMBING, J.:

For review on certiorari is the Decision20[1] dated April 30, 2003 of the Court of Appeals
in CA-G.R. CV No. 56082, which had affirmed the Decision21[2] dated July 8, 1996 of the Regional
Trial Court (RTC) of Malolos, Bulacan, Branch 9 in Civil Case No. 745-M-93. The Court of
Appeals, after applying the doctrine of piercing the veil of corporate fiction, held petitioners ASJ
Corporation (ASJ Corp.) and Antonio San Juan solidarily liable to respondents Efren and Maura
Evangelista for the unjustified retention of the chicks and egg by-products covered by Setting Report
Nos. 108 to 113.22[3]
The pertinent facts, as found by the RTC and the Court of Appeals, are as follows:
Respondents, under the name and style of R.M. Sy Chicks, are engaged in the large-scale
business of buying broiler eggs, hatching them, and selling their hatchlings (chicks) and egg by-
products23[4] in Bulacan and Nueva Ecija. For the incubation and hatching of these eggs,
respondents availed of the hatchery services of ASJ Corp., a corporation duly registered in the
name of San Juan and his family.
Sometime in 1991, respondents delivered to petitioners various quantities of eggs at an
agreed service fee of 80 centavos per egg, whether successfully hatched or not. Each delivery was
reflected in a Setting Report indicating the following: the number of eggs delivered; the date of
setting or the date the eggs were delivered and laid out in the incubators; the date of candling or
the date the eggs, through a lighting system, were inspected and determined if viable or capable of
being hatched into chicks; and the date of hatching, which is also the date respondents would pick-
up the chicks and by-products. Initially, the service fees were paid upon release of the eggs and
by-products to respondents. But as their business went along, respondents delays on their payments
were tolerated by San Juan, who just carried over the balance, as there may be, into the next
delivery, out of keeping goodwill with respondents.
From January 13 to February 3, 1993, respondents had delivered to San Juan a total of
101,3[50]24[5] eggs, detailed as follows:25[6]
Date Set SR Number No. of eggs delivered Date hatched/Pick-up date
1/13/1993 SR 108 32,566 eggs February 3, 1993
 1/20/1993 SR 109 21,485 eggs February 10, 1993
1/22/1993 SR 110 7,213 eggs February 12, 1993
1/28/1993 SR 111 14,495 eggs February 18, 1993
1/30/1993 SR 112 15,346 eggs February 20, 1993
2/3/1993 SR 113 10,24[5]26[7] eggs February 24, 1993
TOTAL 101,350 eggs
On February 3, 1993, respondent Efren went to the hatchery to pick up the chicks and by-
products covered by Setting Report No. 108, but San Juan refused to release the same due to
respondents failure to settle accrued service fees on several setting reports starting from Setting
Report No. 90. Nevertheless, San Juan accepted from Efren 10,245 eggs covered by Setting Report
No. 113 and P15,000.0027[8] in cash as partial payment for the accrued service fees.
On February 10, 1993, Efren returned to the hatchery to pick up the chicks and by-products
covered by Setting Report No. 109, but San Juan again refused to release the same unless
respondents fully settle their accounts. In the afternoon of the same day, respondent Maura, with
her son Anselmo, tendered P15,000.0028[9] to San Juan, and tried to claim the chicks and by-
products. She explained that she was unable to pay their balance because she was hospitalized for
an undisclosed ailment. San Juan accepted the P15,000.00, but insisted on the full settlement of
respondents accounts before releasing the chicks and by-products. Believing firmly that the total
value of the eggs delivered was more than sufficient to cover the outstanding balance, Maura
promised to settle their accounts only upon proper accounting by San Juan. San Juan disliked the
idea and threatened to impound their vehicle and detain them at the hatchery compound if they
should come back unprepared to fully settle their accounts with him.
On February 11, 1993, respondents directed their errand boy, Allan Blanco, to pick up the
chicks and by-products covered by Setting Report No. 110 and also to ascertain if San Juan was
still willing to settle amicably their differences. Unfortunately, San Juan was firm in his refusal
and reiterated his threats on respondents. Fearing San Juans threats, respondents never went back
to the hatchery.
The parties tried to settle amicably their differences before police authorities, but to no
avail. Thus, respondents filed with the RTC an action for damages based on petitioners retention
of the chicks and by-products covered by Setting Report Nos. 108 to 113.
On July 8, 1996, the RTC ruled in favor of respondents and made the following findings:
(1) as of Setting Report No. 107, respondents owed petitioners P102,336.80;29[10] (2) petitioners
withheld the release of the chicks and by-products covered by Setting Report Nos. 108-113;30[11]
and (3) the retention of the chicks and by-products was unjustified and accompanied by threats
and intimidations on respondents.31[12] The RTC disregarded the corporate fiction of ASJ
Corp.,32[13] and held it and San Juan solidarily liable to respondents for P529,644.80 as actual
damages, P100,000.00 as moral damages, P50,000.00 as attorneys fees, plus interests and costs of
suit. The decretal portion of the decision reads:
WHEREFORE, based on the evidence on record and the laws/jurisprudence
applicable thereon, judgment is hereby rendered ordering the defendants to pay,
jointly and severally, unto the plaintiffs the amounts of P529,644.80, representing
the value of the hatched chicks and by-products which the plaintiffs on the average
expected to derive under Setting Reports Nos. 108 to 113, inclusive, with legal
interest thereon from the date of this judgment until the same shall have been fully
paid, P100,000.00 as moral damages and P50,000.00 as attorneys fees, plus the
costs of suit.
SO ORDERED.33[14]
 Both parties appealed to the Court of Appeals. Respondents prayed for an additional award
of P76,139.00 as actual damages for the cost of other unreturned by-products and P1,727,687.52
as unrealized profits, while petitioners prayed for the reversal of the trial courts entire decision.
On April 30, 2003, the Court of Appeals denied both appeals for lack of merit and affirmed
the trial courts decision, with the slight modification of including an award of exemplary damages
of P10,000.00 in favor of respondents. The Court of Appeals, applying the doctrine of piercing the
veil of corporate fiction, considered ASJ Corp. and San Juan as one entity, after finding that there
was no bona fide intention to treat the corporation as separate and distinct from San Juan and his
wife Iluminada. The fallo of the Court of Appeals decision reads:
WHEREFORE, in view of the foregoing, the Decision appealed from is
hereby AFFIRMED, with the slight modification that exemplary damages in the
amount of P10,000.00 are awarded to plaintiffs.
Costs against defendants.
SO ORDERED.34[15]
Hence, the instant petition, assigning the following errors:
I.
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING, AS DID THE COURT A QUO, THAT PETITIONERS
WITHHELD/OR FAILED TO RELEASE THE CHICKS AND BY-PRODUCTS
COVERED BY SETTING REPORT NOS. 108 AND 109.
II.
THE HONORABLE COURT OF APPEALS ERRED IN ADMITTING THE
HEARSAY TESTIMONY OF MAURA EVANGELISTA SUPPORTIVE OF ITS
FINDINGS THAT PETITIONERS WITHHELD/OR FAILED TO RELEASE THE
CHICKS AND BY-PRODUCTS COVERED BY SETTING REPORT NOS. 108
AND 109.
III.
THE HONORABLE COURT OF APPEALS, AS DID THE COURT A QUO,
ERRED IN NOT FINDING THAT RESPONDENTS FAILED TO RETURN TO
THE PLANT TO GET THE CHICKS AND BY-PRODUCTS COVERED BY
SETTING REPORT NOS. 110, 111, 112 AND 113.
IV.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING, AS DID
THE COURT A QUO, THAT THE PIERCING OF THE VEIL OF CORPORATE
ENTITY IS JUSTIFIED, AND CONSEQUENTLY HOLDING PETITIONERS
JOINTLY AND SEVERALLY LIABLE TO PAY RESPONDENTS THE SUM
OF P529,644.[80].
 V.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONERS HAVE VIOLATED THE PRINCIPLES ENUNCIATED IN ART.
19 OF THE NEW CIVIL CODE AND CONSEQUENTLY IN AWARDING
MORAL DAMAGES, EXEMPLARY DAMAGES AND ATTORNEYS FEES.
VI.
THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING
PETITIONERS COUNTERCLAIM.35[16]
Plainly, the issues submitted for resolution are: First, did the Court of Appeals err when
(a) it ruled that petitioners withheld or failed to release the chicks and by-products covered by
Setting Report Nos. 108 and 109; (b) it admitted the testimony of Maura; (c) it did not find that it
was respondents who failed to return to the hatchery to pick up the chicks and by-products covered
by Setting Report Nos. 110 to 113; and (d) it pierced the veil of corporate fiction and held ASJ
Corp. and Antonio San Juan as one entity? Second, was it proper to hold petitioners solidarily
liable to respondents for the payment of P529,644.80 and other damages?
In our view, there are two sets of issues that the petitioners have raised.
The first set is factual. Petitioners seek to establish a set of facts contrary to the factual
findings of the trial and appellate courts. However, as well established in our jurisprudence, only
errors of law are reviewable by this Court in a petition for review under Rule 45.36[17] The trial
court, having had the opportunity to personally observe and analyze the demeanor of the witnesses
while testifying, is in a better position to pass judgment on their credibility.37[18] More
importantly, factual findings of the trial court, when amply supported by evidence on record and
affirmed by the appellate court, are binding upon this Court and will not be disturbed on
appeal.38[19] While there are exceptional circumstances39[20] when these findings may be set
aside, none of them is present in this case.
Based on the records, as well as the parties own admissions, the following facts were
uncontroverted: (1) As of Setting Report No. 107, respondents were indebted to petitioners for
P102,336.80 as accrued service fees for Setting Report Nos. 90 to 107;40[21] (2) Petitioners, based
on San Juans own admission,41[22] did not release the chicks and by-products covered by Setting
Report Nos. 108 and 109 for failure of respondents to fully settle their previous accounts; and (3)
Due to San Juans threats, respondents never returned to the hatchery to pick up those covered by
Setting Report Nos. 110 to 113.42[23]
Furthermore, although no hard and fast rule can be accurately laid down under which the
juridical personality of a corporate entity may be disregarded, the following probative factors of
identity justify the application of the doctrine of piercing the veil of corporate fiction43[24] in this
case: (1) San Juan and his wife own the bulk of shares of ASJ Corp.; (2) The lot where the hatchery
plant is located is owned by the San Juan spouses; (3) ASJ Corp. had no other properties or assets,
except for the hatchery plant and the lot where it is located; (4) San Juan is in complete control of
the corporation; (5) There is no bona fide intention to treat ASJ Corp. as a different entity from
San Juan; and (6) The corporate fiction of ASJ Corp. was used by San Juan to insulate himself
from the legitimate claims of respondents, defeat public convenience, justify wrong, defend crime,
and evade a corporations subsidiary liability for damages.44[25] These findings, being purely one
of fact,45[26] should be respected. We need not assess and evaluate the evidence all over again
where the findings of both courts on these matters coincide.
On the second set of issues, petitioners contend that the retention was justified and did not
constitute an abuse of rights since it was respondents who failed to comply with their obligation.
Respondents, for their part, aver that all the elements on abuse of rights were present. They further
state that despite their offer to partially satisfy the accrued service fees, and the fact that the value of
the chicks and by-products was more than sufficient to cover their unpaid obligations, petitioners
still chose to withhold the delivery.
The crux of the controversy, in our considered view, is simple enough. Was petitioners
retention of the chicks and by-products on account of respondents failure to pay the corresponding
service fees unjustified? While the trial and appellate courts had the same decisions on the matter,
suffice it to say that a modification is proper. Worth stressing, petitioners act of withholding the
chicks and by-products is entirely different from petitioners unjustifiable acts of threatening
respondents. The retention had legal basis; the threats had none.
To begin with, petitioners obligation to deliver the chicks and by-products corresponds to
three dates: the date of hatching, the delivery/pick-up date and the date of respondents payment.
On several setting reports, respondents made delays on their payments, but petitioners tolerated
such delay. When respondents accounts accumulated because of their successive failure to pay on
several setting reports, petitioners opted to demand the full settlement of respondents accounts as
a condition precedent to the delivery. However, respondents were unable to fully settle their
accounts.
Respondents offer to partially satisfy their accounts is not enough to extinguish their
obligation. Under Article 124846[27] of the Civil Code, the creditor cannot be compelled to accept
partial payments from the debtor, unless there is an express stipulation to that effect. More so,
respondents cannot substitute or apply as their payment the value of the chicks and by-products
they expect to derive because it is necessary that all the debts be for the same kind, generally of a
monetary character. Needless to say, there was no valid application of payment in this case.
Furthermore, it was respondents who violated the very essence of reciprocity in contracts,
consequently giving rise to petitioners right of retention. This case is clearly one among the species
of non-performance of a reciprocal obligation. Reciprocal obligations are those which arise from
the same cause, wherein each party is a debtor and a creditor of the other, such that the performance
of one is conditioned upon the simultaneous fulfillment of the other.47[28] From the moment one
of the parties fulfills his obligation, delay by the other party begins.48[29]
Since respondents are guilty of delay in the performance of their obligations, they are liable
to pay petitioners actual damages of P183,416.80, computed as follows: From respondents
outstanding balance of P102,336.80, as of Setting Report No. 107, we add the corresponding
services fees of P81,080.0049[30] for Setting Report Nos. 108 to 113 which had remain unpaid.
Nonetheless, San Juans subsequent acts of threatening respondents should not remain
among those treated with impunity. Under Article 1950[31] of the Civil Code, an act constitutes
an abuse of right if the following elements are present: (a) the existence of a legal right or duty;
(b) which is exercised in bad faith; and (c) for the sole intent of prejudicing or injuring
another.51[32] Here, while petitioners had the right to withhold delivery, the high-handed and
oppressive acts of petitioners, as aptly found by the two courts below, had no legal leg to stand on.
We need not weigh the corresponding pieces of evidence all over again because factual findings
of the trial court, when adopted and confirmed by the appellate court, are binding and conclusive
and will not be disturbed on appeal.52[33]
Since it was established that respondents suffered some pecuniary loss anchored on
petitioners abuse of rights, although the exact amount of actual damages cannot be ascertained,
temperate damages are recoverable. In arriving at a reasonable level of temperate damages of
P408,852.10, which is equivalent to the value of the chicks and by-products, which respondents,
on the average, are expected to derive, this Court was guided by the following factors: (a) award
of temperate damages will cover only Setting Report Nos. 109 to 113 since the threats started only
on February 10 and 11, 1993, which are the pick-up dates for Setting Report Nos. 109 and 110;
the rates of (b) 41% and (c) 17%, representing the average rates of conversion of broiler eggs into
hatched chicks and egg by-products as tabulated by the trial court based on available statistical
data which was unrebutted by petitioners; (d) 68,784 eggs,53[34] or the total number of broiler
eggs under Setting Report Nos. 109 to 113; and (e) P14.00 and (f) P1.20, or the then unit market
price of the chicks and by-products, respectively.
Thus, the temperate damages of P408,852.10 is computed as follows:
[b X (d X e) + c X (d X f)] = Temperate Damages
41% X (68,784 eggs X P14) = P394,820.16
17% X (68,784 eggs X P1.20) = P 14,031.94
[P394,820.16 + P14,031.94] = P408,852.10
At bottom, we agree that petitioners conduct flouts the norms of civil society and justifies
the award of moral and exemplary damages. As enshrined in civil law jurisprudence: Honeste
vivere, non alterum laedere et jus suum cuique tribuere. To live virtuously, not to injure others
and to give everyone his due.54[35] Since exemplary damages are awarded, attorneys fees are also
proper. Article 2208 of the Civil Code provides that:
In the absence of stipulation, attorneys fees and expenses of litigation, other
than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
xxxx
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated April 30, 2003
of the Court of Appeals in CA-G.R. CV No. 56082 is hereby MODIFIED as follows:
a. Respondents are ORDERED to pay petitioners P183,416.80 as actual
damages, with interest of 6% from the date of filing of the complaint until fully
paid, plus legal interest of 12% from the finality of this decision until fully paid.
b. The award of actual damages of P529,644.80 in favor of respondents is hereby
REDUCED to P408,852.10, with legal interest of 12% from the date of finality
of this judgment until fully paid.
c. The award of moral damages, exemplary damages and attorneys fees of
P100,000.00, P10,000.00, P50,000.00, respectively, in favor of respondents is
hereby AFFIRMED.
d. All other claims are hereby DENIED.
No pronouncement as to costs.
SO ORDERED.
DATION IN PAYMENT
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 149420 October 8, 2003

SONNY LO, petitioner,

vs.
KJS ECO-FORMWORK SYSTEM PHIL., INC., respondent.
 DECISION

YNARES-SANTIAGO, J.:

Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of
steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style San’s
Enterprises, is a building contractor. On February 22, 1990, petitioner ordered scaffolding
equipments from respondent worth P540,425.80.1 He paid a downpayment in the amount of
P150,000.00. The balance was made payable in ten monthly installments.

Respondent delivered the scaffoldings to petitioner.2 Petitioner was able to pay the first two
monthly installments.1a\^/phi1.net His business, however, encountered financial difficulties and
he was unable to settle his obligation to respondent despite oral and written demands made
against him.3

On October 11, 1990, petitioner and respondent executed a Deed of Assignment,4 whereby
petitioner assigned to respondent his receivables in the amount of P335,462.14 from Jomero
Realty Corporation. Pertinent portions of the Deed provide:

WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house located
at Greenmeadow Avenue, Quezon City owned by Jomero Realty Corporation;

WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR

purchased on account scaffolding equipments from the ASSIGNEE payable to the latter;

WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the
purchase of the aforementioned scaffoldings now in the amount of Three Hundred Thirty Five
Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14);

NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five
Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine Currency which
represents part of the ASSIGNOR’s collectible from Jomero Realty Corp., said ASSIGNOR
hereby assigns, transfers and sets over unto the ASSIGNEE all collectibles amounting to the said
amount of P335, 462.14;

And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full
power and authority to demand, collect, receive, compound, compromise and give acquittance
for the same or any part thereof, and in the name and stead of the said ASSIGNOR;

And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its successors
and assigns that said debt is justly owing and due to the ASSIGNOR for Jomero Realty
Corporation and that said ASSIGNOR has not done and will not cause anything to be done to
diminish or discharge said debt, or delay or to prevent the ASSIGNEE, its successors or assigns,
from collecting the same;
And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his
heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said
ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further
acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover
whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of
these presents. xxx5 (Italics supplied)

However, when respondent tried to collect the said credit from Jomero Realty Corporation, the
latter refused to honor the Deed of Assignment because it claimed that petitioner was also
indebted to it.6 On November 26, 1990, respondent sent a letter7 to petitioner demanding
payment of his obligation, but petitioner refused to pay claiming that his obligation had been
extinguished when they executed the Deed of Assignment.

Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money
against the petitioner before the Regional Trial Court of Makati, Branch 147, which was
docketed as Civil Case No. 91-074.8

During the trial, petitioner argued that his obligation was extinguished with the execution of the
Deed of Assignment of credit. Respondent, for its part, presented the testimony of its employee,
Almeda Bañaga, who testified that Jomero Realty refused to honor the assignment of credit
because it claimed that petitioner had an outstanding indebtedness to it.

On August 25, 1994, the trial court rendered a decision9 dismissing the complaint on the ground
that the assignment of credit extinguished the obligation. The decretal portion thereof provides:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the
defendant and against the plaintiff, dismissing the complaint and ordering the plaintiff to pay the
defendant attorney’s fees in the amount of P25,000.00.1a\^/phi1.net

Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the appellate court
rendered a decision,10 the dispositive portion of which reads:

WHEREFORE, finding merit in this appeal, the court REVERSES the appealed Decision and
enters judgment ordering defendant-appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-
FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four
Hundred Sixty-Two and 14/100 (P335,462.14) with legal interest of 6% per annum from January
10, 1991 (filing of the Complaint) until fully paid and attorney’s fees equivalent to 10% of the
amount due and costs of the suit.

SO ORDERED.11

In finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the
respondent, the Court of Appeals held that (1) petitioner failed to comply with his warranty
under the Deed; (2) the object of the Deed did not exist at the time of the transaction, rendering it
void pursuant to Article 1409 of the Civil Code; and (3) petitioner violated the terms of the Deed
of Assignment when he failed to execute and do all acts and deeds as shall be necessary to
effectually enable the respondent to recover the collectibles.12

Petitioner filed a motion for reconsideration of the said decision, which was denied by the Court
of Appeals.13

In this petition for review, petitioner assigns the following errors:

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN

DECLARING THE DEED OF ASSIGNMENT (EXH. "4") AS NULL AND VOID FOR LACK
OF OBJECT ON THE BASIS OF A MERE HEARSAY CLAIM.

II

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF

ASSIGNMENT (EXH. "4") DID NOT EXTINGUISH PETITIONER’S OBLIGATION ON
THE WRONG NOTION THAT PETITIONER FAILED TO COMPLY WITH HIS
WARRANTY THEREUNDER.

III

THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF

THE TRIAL COURT AND IN ORDERING PAYMENT OF INTERESTS AND ATTORNEY’S
FEES.14

The petition is without merit.

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the assignor could enforce it against
the debtor.15

Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers another
thing to the creditor who accepts it as equivalent of payment of an outstanding debt.16 In order
that there be a valid dation in payment, the following are the requisites: (1) There must be the
performance of the prestation in lieu of payment (animo solvendi) which may consist in the
delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be
some difference between the prestation due and that which is given in substitution (aliud pro
alio); (3) There must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different from that due.17
The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged against the
debtor’s debt. As such, the vendor in good faith shall be responsible, for the existence and
legality of the credit at the time of the sale but not for the solvency of the debtor, in specified
circumstances.18

Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal
property,19 produced the effects of a dation in payment which may extinguish the obligation.20
However, as in any other contract of sale, the vendor or assignor is bound by certain warranties.
More specifically, the first paragraph of Article 1628 of the Civil Code provides:

The vendor in good faith shall be responsible for the existence and legality of the credit at the
time of the sale, unless it should have been sold as doubtful; but not for the solvency of the
debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale
and of common knowledge.

From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence
and legality of the credit at the time of the sale or assignment. When Jomero claimed that it was
no longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially
meant that its obligation to petitioner has been extinguished by compensation.21 In other words,
respondent alleged the non-existence of the credit and asserted its claim to petitioner’s warranty
under the assignment. Therefore, it behooved on petitioner to make good its warranty and paid
the obligation.

Furthermore, we find that petitioner breached his obligation under the Deed of Assignment, to
wit:

And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his
heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said
ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further
acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover
whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of
these presents.22 (underscoring ours)

Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured
the performance thereof in case the same is later found to be inexistent. He should be held liable
to pay to respondent the amount of his indebtedness.

Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay respondent the
sum of P335,462.14 with legal interest thereon. However, we find that the award by the Court of
Appeals of attorney’s fees is without factual basis. No evidence or testimony was presented to
substantiate this claim. Attorney’s fees, being in the nature of actual damages, must be duly
substantiated by competent proof.

WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated April 19,
2001 in CA-G.R. CV No. 47713, ordering petitioner to pay respondent the sum of P335,462.14
with legal interest of 6% per annum from January 10, 1991 until fully paid is AFFIRMED with
MODIFICATION. Upon finality of this Decision, the rate of legal interest shall be 12% per
annum, inasmuch as the obligation shall thereafter become equivalent to a forbearance of
credit.23 The award of attorney’s fees is DELETED for lack of evidentiary basis.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, Carpio and Azcuna, JJ., concur.

DATION IN PAYMENT/PAYMENT BY CESSION

FIRST DIVISION

[G.R. No. 118342. January 5, 1998]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and

LYDIA CUBA, respondents.

[G.R. No. 118367. January 5, 1998]

LYDIA P. CUBA, petitioner, vs. COURT OF APPEALS, DEVELOPMENT BANK OF THE

PHILIPPINES and AGRIPINA P. CAPERAL, respondents.

DECISION

DAVIDE, JR., J.:

These two consolidated cases stemmed from a complainti[1] filed against the Development Bank
of the Philippines (hereafter DBP) and Agripina Caperal filed by Lydia Cuba (hereafter CUBA)
on 21 May 1985 with the Regional Trial Court of Pangasinan, Branch 54. The said complaint
sought (1) the declaration of nullity of DBPs appropriation of CUBAs rights, title, and interests
over a 44-hectare fishpond located in Bolinao, Pangasinan, for being violative of Article 2088 of
the Civil Code; (2) the annulment of the Deed of Conditional Sale executed in her favor by DBP;
(3) the annulment of DBPs sale of the subject fishpond to Caperal; (4) the restoration of her
rights, title, and interests over the fishpond; and (5) the recovery of damages, attorneys fees, and
expenses of litigation.

After the joinder of issues following the filing by the parties of their respective pleadings, the
trial court conducted a pre-trial where CUBA and DBP agreed on the following facts, which
were embodied in the pre-trial order:ii[2]

1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new) dated
May 13, 1974 from the Government;

2. Plaintiff Lydia P. Cuba obtained loans from the Development Bank of the Philippines in
the amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms stated in the
Promissory Notes dated September 6, 1974; August 11, 1975; and April 4, 1977;
3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of
her Leasehold Rights;

4. Plaintiff failed to pay her loan on the scheduled dates thereof in accordance with the terms
of the Promissory Notes;

5. Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP

appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question;

6. After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba over
the fishpond in question, defendant DBP, in turn, executed a Deed of Conditional Sale
of the Leasehold Rights in favor of plaintiff Lydia Cuba over the same fishpond in
question;

7. In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to the
Manager DBP, Dagupan City dated November 6, 1979 and December 20, 1979. DBP
thereafter accepted the offer to repurchase in a letter addressed to plaintiff dated
February 1, 1982;

8. After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba, a new
Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by the
Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding her
husband;

9. Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of Conditional
Sale;

10. After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of Conditional
Sale, she entered with the DBP a temporary arrangement whereby in consideration for
the deferment of the Notarial Rescission of Deed of Conditional Sale, plaintiff Lydia
Cuba promised to make certain payments as stated in temporary Arrangement dated
February 23, 1982;

11. Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March 13,
1984, and which was received by plaintiff Lydia Cuba;

12. After the Notice of Rescission, defendant DBP took possession of the Leasehold Rights
of the fishpond in question;

13. That after defendant DBP took possession of the Leasehold Rights over the fishpond in
question, DBP advertised in the SUNDAY PUNCH the public bidding dated June 24,
1984, to dispose of the property;

14. That the DBP thereafter executed a Deed of Conditional Sale in favor of defendant
Agripina Caperal on August 16, 1984;
 15. Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No. 2083-A on
December 28, 1984 by the Ministry of Agriculture and Food.

Defendant Caperal admitted only the facts stated in paragraphs 14 and 15 of the pre-trial order.
iii[3]

Trial was thereafter had on other matters.

The principal issue presented was whether the act of DBP in appropriating to itself CUBAs
leasehold rights over the fishpond in question without foreclosure proceedings was contrary to
Article 2088 of the Civil Code and, therefore, invalid. CUBA insisted on an affirmative
resolution. DBP stressed that it merely exercised its contractual right under the Assignments of
Leasehold Rights, which was not a contract of mortgage. Defendant Caperal sided with DBP.

The trial court resolved the issue in favor of CUBA by declaring that DBPs taking possession
and ownership of the property without foreclosure was plainly violative of Article 2088 of the
Civil Code which provides as follows:

ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is null and void.

It disagreed with DBPs stand that the Assignments of Leasehold Rights were not contracts of
mortgage because (1) they were given as security for loans, (2) although the fishpond land in
question is still a public land, CUBAs leasehold rights and interest thereon are alienable rights
which can be the proper subject of a mortgage; and (3) the intention of the contracting parties to
treat the Assignment of Leasehold Rights as a mortgage was obvious and unmistakable; hence,
upon CUBAs default, DBPs only right was to foreclose the Assignment in accordance with law.

The trial court also declared invalid condition no. 12 of the Assignment of Leasehold Rights for
being a clear case of pactum commissorium expressly prohibited and declared null and void by
Article 2088 of the Civil Code. It then concluded that since DBP never acquired lawful
ownership of CUBAs leasehold rights, all acts of ownership and possession by the said bank
were void. Accordingly, the Deed of Conditional Sale in favor of CUBA, the notarial rescission
of such sale, and the Deed of Conditional Sale in favor of defendant Caperal, as well as the
Assignment of Leasehold Rights executed by Caperal in favor of DBP, were also void and
ineffective.

As to damages, the trial court found ample evidence on record that in 1984 the representatives of
DBP ejected CUBA and her caretakers not only from the fishpond area but also from the
adjoining big house; and that when CUBAs son and caretaker went there on 15 September 1985,
they found the said house unoccupied and destroyed and CUBAs personal belongings,
machineries, equipment, tools, and other articles used in fishpond operation which were kept in
the house were missing. The missing items were valued at about P550,000. It further found that
when CUBA and her men were ejected by DBP for the first time in 1979, CUBA had stocked the
fishpond with 250,000 pieces of bangus fish (milkfish), all of which died because the DBP
representatives prevented CUBAs men from feeding the fish. At the conservative price of P3.00
per fish, the gross value would have been P690,000, and after deducting 25% of said value as
reasonable allowance for the cost of feeds, CUBA suffered a loss of P517,500. It then set the
aggregate of the actual damages sustained by CUBA at P1,067,500.

The trial court further found that DBP was guilty of gross bad faith in falsely representing to the
Bureau of Fisheries that it had foreclosed its mortgage on CUBAs leasehold rights. Such
representation induced the said Bureau to terminate CUBAs leasehold rights and to approve the
Deed of Conditional Sale in favor of CUBA. And considering that by reason of her unlawful
ejectment by DBP, CUBA suffered moral shock, degradation, social humiliation, and serious
anxieties for which she became sick and had to be hospitalized the trial court found her entitled
to moral and exemplary damages. The trial court also held that CUBA was entitled to P100,000
attorneys fees in view of the considerable expenses she incurred for lawyers fees and in view of
the finding that she was entitled to exemplary damages.

In its decision of 31 January 1990, iv[4] the trial court disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff:

1. DECLARING null and void and without any legal effect the act of defendant
Development Bank of the Philippines in appropriating for its own interest, without any
judicial or extra-judicial foreclosure, plaintiffs leasehold rights and interest over the
fishpond land in question under her Fishpond Lease Agreement No. 2083 (new);

2. DECLARING the Deed of Conditional Sale dated February 21, 1980 by and between the
defendant Development Bank of the Philippines and plaintiff (Exh. E and Exh. 1) and
the acts of notarial rescission of the Development Bank of the Philippines relative to said
sale (Exhs. 16 and 26) as void and ineffective;

3. DECLARING the Deed of Conditional Sale dated August 16, 1984 by and between the
Development Bank of the Philippines and defendant Agripina Caperal (Exh. F and Exh.
21), the Fishpond Lease Agreement No. 2083-A dated December 28, 1984 of defendant
Agripina Caperal (Exh. 23) and the Assignment of Leasehold Rights dated February 12,
1985 executed by defendant Agripina Caperal in favor of the defendant Development
Bank of the Philippines (Exh. 24) as void ab initio;

4. ORDERING defendant Development Bank of the Philippines and defendant Agripina

Caperal, jointly and severally, to restore to plaintiff the latters leasehold rights and
interests and right of possession over the fishpond land in question, without prejudice to
the right of defendant Development Bank of the Philippines to foreclose the securities
given by plaintiff;

5. ORDERING defendant Development Bank of the Philippines to pay to plaintiff the

following amounts:

a) The sum of ONE MILLION SIXTY-SEVEN THOUSAND FIVE HUNDRED

PESOS (P1,067,500.00), as and for actual damages;
 b) The sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS as moral
damages;

c) The sum of FIFTY THOUSAND (P50,000.00) PESOS, as and for exemplary

damages;

d) And the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS, as and for
attorneys fees;

6. And ORDERING defendant Development Bank of the Philippines to reimburse and pay
to defendant Agripina Caperal the sum of ONE MILLION FIVE HUNDRED THIRTY-
TWO THOUSAND SIX HUNDRED TEN PESOS AND SEVENTY-FIVE
CENTAVOS (P1,532,610.75) representing the amounts paid by defendant Agripina
Caperal to defendant Development Bank of the Philippines under their Deed of
Conditional Sale.

CUBA and DBP interposed separate appeals from the decision to the Court of Appeals. The
former sought an increase in the amount of damages, while the latter questioned the findings of
fact and law of the lower court.

In its decision v[5] of 25 May 1994, the Court of Appeals ruled that (1) the trial court erred in
declaring that the deed of assignment was null and void and that defendant Caperal could not
validly acquire the leasehold rights from DBP; (2) contrary to the claim of DBP, the assignment
was not a cession under Article 1255 of the Civil Code because DBP appeared to be the sole
creditor to CUBA - cession presupposes plurality of debts and creditors; (3) the deeds of
assignment represented the voluntary act of CUBA in assigning her property rights in payment of
her debts, which amounted to a novation of the promissory notes executed by CUBA in favor of
DBP; (4) CUBA was estopped from questioning the assignment of the leasehold rights, since she
agreed to repurchase the said rights under a deed of conditional sale; and (5) condition no. 12 of
the deed of assignment was an express authority from CUBA for DBP to sell whatever right she
had over the fishpond. It also ruled that CUBA was not entitled to loss of profits for lack of
evidence, but agreed with the trial court as to the actual damages of P1,067,500. It, however,
deleted the amount of exemplary damages and reduced the award of moral damages from
P100,000 to P50,000 and attorneys fees, from P100,000 to P50,000.

The Court of Appeals thus declared as valid the following: (1) the act of DBP in appropriating
Cubas leasehold rights and interest under Fishpond Lease Agreement No. 2083; (2) the deeds of
assignment executed by Cuba in favor of DBP; (3) the deed of conditional sale between CUBA
and DBP; and (4) the deed of conditional sale between DBP and Caperal, the Fishpond Lease
Agreement in favor of Caperal, and the assignment of leasehold rights executed by Caperal in
favor of DBP. It then ordered DBP to turn over possession of the property to Caperal as lawful
holder of the leasehold rights and to pay CUBA the following amounts: (a) P1,067,500 as actual
damages; P50,000 as moral damages; and P50,000 as attorneys fees.

Since their motions for reconsideration were denied,vi[6] DBP and CUBA filed separate
petitions for review.
In its petition (G.R. No. 118342), DBP assails the award of actual and moral damages and
attorneys fees in favor of CUBA.

Upon the other hand, in her petition (G.R. No. 118367), CUBA contends that the Court of
Appeals erred (1) in not holding that the questioned deed of assignment was a pactum
commissorium contrary to Article 2088 of the Civil Code; (b) in holding that the deed of
assignment effected a novation of the promissory notes; (c) in holding that CUBA was estopped
from questioning the validity of the deed of assignment when she agreed to repurchase her
leasehold rights under a deed of conditional sale; and (d) in reducing the amounts of moral
damages and attorneys fees, in deleting the award of exemplary damages, and in not increasing
the amount of damages.

We agree with CUBA that the assignment of leasehold rights was a mortgage contract.

It is undisputed that CUBA obtained from DBP three separate loans totalling P335,000, each of
which was covered by a promissory note. In all of these notes, there was a provision that: In the
event of foreclosure of the mortgage securing this notes, I/We further bind myself/ourselves,
jointly and severally, to pay the deficiency, if any. vii[7]

Simultaneous with the execution of the notes was the execution of Assignments of Leasehold
Rights viii[8] where CUBA assigned her leasehold rights and interest on a 44-hectare fishpond,
together with the improvements thereon. As pointed out by CUBA, the deeds of assignment
constantly referred to the assignor (CUBA) as borrower; the assigned rights, as mortgaged
properties; and the instrument itself, as mortgage contract. Moreover, under condition no. 22 of
the deed, it was provided that failure to comply with the terms and condition of any of the loans
shall cause all other loans to become due and demandable and all mortgages shall be foreclosed.
And, condition no. 33 provided that if foreclosure is actually accomplished, the usual 10%
attorneys fees and 10% liquidated damages of the total obligation shall be imposed. There is,
therefore, no shred of doubt that a mortgage was intended.

Besides, in their stipulation of facts the parties admitted that the assignment was by way of
security for the payment of the loans; thus:

3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of
her Leasehold Rights.

In Peoples Bank & Trust Co. vs. Odom,ix[9] this Court had the occasion to rule that an
assignment to guarantee an obligation is in effect a mortgage.

We find no merit in DBPs contention that the assignment novated the promissory notes in that
the obligation to pay a sum of money the loans (under the promissory notes) was substituted by
the assignment of the rights over the fishpond (under the deed of assignment). As correctly
pointed out by CUBA, the said assignment merely complemented or supplemented the notes;
both could stand together. The former was only an accessory to the latter. Contrary to DBPs
submission, the obligation to pay a sum of money remained, and the assignment merely served
as security for the loans covered by the promissory notes. Significantly, both the deeds of
assignment and the promissory notes were executed on the same dates the loans were granted.
Also, the last paragraph of the assignment stated: The assignor further reiterates and states all
terms, covenants, and conditions stipulated in the promissory note or notes covering the proceeds
of this loan, making said promissory note or notes, to all intent and purposes, an integral part
hereof.

Neither did the assignment amount to payment by cession under Article 1255 of the Civil Code
for the plain and simple reason that there was only one creditor, the DBP. Article 1255
contemplates the existence of two or more creditors and involves the assignment of all the
debtors property.

Nor did the assignment constitute dation in payment under Article 1245 of the civil Code, which
reads: Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law on sales. It bears stressing that the assignment, being in its
essence a mortgage, was but a security and not a satisfaction of indebtedness.x[10]

We do not, however, buy CUBAs argument that condition no. 12 of the deed of assignment
constituted pactum commissorium. Said condition reads:

12. That effective upon the breach of any condition of this assignment, the Assignor hereby
appoints the Assignee his Attorney-in-fact with full power and authority to take actual
possession of the property above-described, together with all improvements thereon, subject to
the approval of the Secretary of Agriculture and Natural Resources, to lease the same or any
portion thereof and collect rentals, to make repairs or improvements thereon and pay the same, to
sell or otherwise dispose of whatever rights the Assignor has or might have over said property
and/or its improvements and perform any other act which the Assignee may deem convenient to
protect its interest. All expenses advanced by the Assignee in connection with purpose above
indicated which shall bear the same rate of interest aforementioned are also guaranteed by this
Assignment. Any amount received from rents, administration, sale or disposal of said property
may be supplied by the Assignee to the payment of repairs, improvements, taxes, assessments
and other incidental expenses and obligations and the balance, if any, to the payment of interest
and then on the capital of the indebtedness secured hereby. If after disposal or sale of said
property and upon application of total amounts received there shall remain a deficiency, said
Assignor hereby binds himself to pay the same to the Assignee upon demand, together with all
interest thereon until fully paid. The power herein granted shall not be revoked as long as the
Assignor is indebted to the Assignee and all acts that may be executed by the Assignee by virtue
of said power are hereby ratified.

The elements of pactum commissorium are as follows: (1) there should be a property mortgaged
by way of security for the payment of the principal obligation, and (2) there should be a
stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-
payment of the principal obligation within the stipulated period.xi[11]

Condition no. 12 did not provide that the ownership over the leasehold rights would
automatically pass to DBP upon CUBAs failure to pay the loan on time. It merely provided for
the appointment of DBP as attorney-in-fact with authority, among other things, to sell or
otherwise dispose of the said real rights, in case of default by CUBA, and to apply the proceeds
to the payment of the loan. This provision is a standard condition in mortgage contracts and is in
conformity with Article 2087 of the Civil Code, which authorizes the mortgagee to foreclose the
mortgage and alienate the mortgaged property for the payment of the principal obligation.

DBP, however, exceeded the authority vested by condition no. 12 of the deed of assignment. As
admitted by it during the pre-trial, it had [w]ithout foreclosure proceedings, whether judicial or
extrajudicial, appropriated the [l]easehold [r]ights of plaintiff Lydia Cuba over the fishpond in
question. Its contention that it limited itself to mere administration by posting caretakers is
further belied by the deed of conditional sale it executed in favor of CUBA. The deed stated:

WHEREAS, the Vendor [DBP] by virtue of a deed of assignment executed in its favor by the
herein vendees [Cuba spouses] the former acquired all the rights and interest of the latter over the
above-described property;

The title to the real estate property [sic] and all improvements thereon shall remain in the name
of the Vendor until after the purchase price, advances and interest shall have been fully paid.
(Emphasis supplied).

It is obvious from the above-quoted paragraphs that DBP had appropriated and taken ownership
of CUBAs leasehold rights merely on the strength of the deed of assignment.

DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its act of
appropriating the leasehold rights. As stated earlier, condition no. 12 did not provide that CUBAs
default would operate to vest in DBP ownership of the said rights. Besides, an assignment to
guarantee an obligation, as in the present case, is virtually a mortgage and not an absolute
conveyance of title which confers ownership on the assignee.xii[12]

At any rate, DBPs act of appropriating CUBAs leasehold rights was violative of Article 2088 of
the Civil Code, which forbids a creditor from appropriating, or disposing of, the thing given as
security for the payment of a debt.

The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did not
estop her from questioning DBPs act of appropriation. Estoppel is unavailing in this case. As
held by this Court in some cases,xiii[13] estoppel cannot give validity to an act that is prohibited
by law or against public policy. Hence, the appropriation of the leasehold rights, being contrary
to Article 2088 of the Civil Code and to public policy, cannot be deemed validated by estoppel.

Instead of taking ownership of the questioned real rights upon default by CUBA, DBP should
have foreclosed the mortgage, as has been stipulated in condition no. 22 of the deed of
assignment. But, as admitted by DBP, there was no such foreclosure. Yet, in its letter dated 26
October 1979, addressed to the Minister of Agriculture and Natural Resources and coursed
through the Director of the Bureau of Fisheries and Aquatic Resources, DBP declared that it had
foreclosed the mortgage and enforced the assignment of leasehold rights on March 21, 1979 for
failure of said spouses [Cuba spouces] to pay their loan amortizations.xiv[14] This only goes to
show that DBP was aware of the necessity of foreclosure proceedings.
In view of the false representation of DBP that it had already foreclosed the mortgage, the
Bureau of Fisheries cancelled CUBAs original lease permit, approved the deed of conditional
sale, and issued a new permit in favor of CUBA. Said acts which were predicated on such false
representation, as well as the subsequent acts emanating from DBPs appropriation of the
leasehold rights, should therefore be set aside. To validate these acts would open the floodgates
to circumvention of Article 2088 of the Civil Code.

Even in cases where foreclosure proceedings were had, this Court had not hesitated to nullify the
consequent auction sale for failure to comply with the requirements laid down by law, such as
Act No. 3135, as amended.xv[15] With more reason that the sale of property given as security
for the payment of a debt be set aside if there was no prior foreclosure proceeding.

Hence, DBP should render an accounting of the income derived from the operation of the
fishpond in question and apply the said income in accordance with condition no. 12 of the deed
of assignment which provided: Any amount received from rents, administration, may be applied
to the payment of repairs, improvements, taxes, assessment, and other incidental expenses and
obligations and the balance, if any, to the payment of interest and then on the capital of the
indebtedness.

We shall now take up the issue of damages.

Article 2199 provides:

Except as provided by law or by stipulation, one is entitled to an adequate compensation only for
such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as
actual or compensatory damages.

Actual or compensatory damages cannot be presumed, but must be proved with reasonable
degree of certainty.xvi[16] A court cannot rely on speculations, conjectures, or guesswork as to
the fact and amount of damages, but must depend upon competent proof that they have been
suffered by the injured party and on the best obtainable evidence of the actual amount
thereof.xvii[17] It must point out specific facts which could afford a basis for measuring
whatever compensatory or actual damages are borne.xviii[18]

In the present case, the trial court awarded in favor of CUBA P1,067,500 as actual damages
consisting of P550,000 which represented the value of the alleged lost articles of CUBA and
P517,500 which represented the value of the 230,000 pieces of bangus allegedly stocked in 1979
when DBP first ejected CUBA from the fishpond and the adjoining house. This award was
affirmed by the Court of Appeals.

We find that the alleged loss of personal belongings and equipment was not proved by clear
evidence. Other than the testimony of CUBA and her caretaker, there was no proof as to the
existence of those items before DBP took over the fishpond in question. As pointed out by DBP,
there was not inventory of the alleged lost items before the loss which is normal in a project
which sometimes, if not most often, is left to the care of other persons. Neither was a single
receipt or record of acquisition presented.
Curiously, in her complaint dated 17 May 1985, CUBA included losses of property as among the
damages resulting from DBPs take-over of the fishpond. Yet, it was only in September 1985
when her son and a caretaker went to the fishpond and the adjoining house that she came to
know of the alleged loss of several articles. Such claim for losses of property, having been made
before knowledge of the alleged actual loss, was therefore speculative. The alleged loss could
have been a mere afterthought or subterfuge to justify her claim for actual damages.

With regard to the award of P517,000 representing the value of the alleged 230,000 pieces of
bangus which died when DBP took possession of the fishpond in March 1979, the same was not
called for. Such loss was not duly proved; besides, the claim therefor was delayed unreasonably.
From 1979 until after the filing of her complaint in court in May 1985, CUBA did not bring to
the attention of DBP the alleged loss. In fact, in her letter dated 24 October 1979,xix[19] she
declared:

1. That from February to May 1978, I was then seriously ill in Manila and within the same period
I neglected the management and supervision of the cultivation and harvest of the produce of the
aforesaid fishpond thereby resulting to the irreparable loss in the produce of the same in the
amount of about P500,000.00 to my great damage and prejudice due to fraudulent acts of some
of my fishpond workers.

Nowhere in the said letter, which was written seven months after DBP took possession of the
fishpond, did CUBA intimate that upon DBPs take-over there was a total of 230,000 pieces of
bangus, but all of which died because of DBPs representatives prevented her men from feeding
the fish.

The award of actual damages should, therefore, be struck down for lack of sufficient basis.

In view, however, of DBPs act of appropriating CUBAs leasehold rights which was contrary to
law and public policy, as well as its false representation to the then Ministry of Agriculture and
Natural Resources that it had foreclosed the mortgage, an award of moral damages in the amount
of P50,000 is in order conformably with Article 2219(10), in relation to Article 21, of the Civil
Code. Exemplary or corrective damages in the amount of P25,000 should likewise be awarded
by way of example or correction for the public good.xx[20] There being an award of exemplary
damages, attorneys fees are also recoverable.xxi[21]

WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CA-G.R. CV No. 26535
is hereby REVERSED, except as to the award of P50,000 as moral damages, which is hereby
sustained. The 31 January 1990 Decision of the Regional Trial Court of Pangasinan, Branch 54,
in Civil Case No. A-1574 is MODIFIED setting aside the finding that condition no. 12 of the
deed of assignment constituted pactum commissorium and the award of actual damages; and by
reducing the amounts of moral damages from P100,000 to P50,000; the exemplary damages,
from P50,000 to P25,000; and the attorneys fees, from P100,000 to P20,000. The Development
Bank of the Philippines is hereby ordered to render an accounting of the income derived from the
operation of the fishpond in question.
Let this case be REMANDED to the trial court for the reception of the income statement of DBP,
as well as the statement of the account of Lydia P. Cuba, and for the determination of each partys
financial obligation to one another.

SO ORDERED.

Bellosillo, Vitug, and Kapunan, JJ., concur.

PROPER PAYEE

SECOND DIVISION

[G.R. No. 125862. April 15, 2004]

FRANCISCO CULABA and DEMETRIA CULABA, doing business under the name and style
Culaba Store, petitioners, vs. COURT OF APPEALS and SAN MIGUEL CORPORATION,
respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review under Rule 45 of the Revised Rules of Civil Procedure of the
Decision55[1] of the Court of Appeals in CA-G.R. CV No. 19836 affirming in toto the
Decision56[2] of the Regional Trial Court of Makati, Branch 138, in Civil Case No. 1033 for
collection of sum of money, and the Resolution57[3] denying the motion for reconsideration of
the said decision.

The Undisputed Facts

The spouses Francisco and Demetria Culaba were the owners and proprietors of the Culaba Store
and were engaged in the sale and distribution of San Miguel Corporations (SMC) beer products.
SMC sold beer products on credit to the Culaba spouses in the amount of P28,650.00, as
evidenced by Temporary Credit Invoice No. 42943.58[4] Thereafter, the Culaba spouses made a
partial payment of P3,740.00, leaving an unpaid balance of P24,910.00. As they failed to pay
despite repeated demands, SMC filed an action for collection of a sum of money against them
before the RTC of Makati, Branch 138.

The defendant-spouses denied any liability, claiming that they had already paid the plaintiff in
full on four separate occasions. To substantiate this claim, the defendants presented four (4)
Temporary Charge Sales (TCS) Liquidation Receipts, as follows:

April 19, 1983 Receipt No. 27331 for P8,00059[5]

April 22, 1983 Receipt No. 27318 for P9,00060[6]
April 27, 1983 Receipt No. 27339 for P4,50061[7]
April 30, 1983 Receipt No. 27346 for P3,41062[8]

Defendant Francisco Culaba testified that he made the foregoing payments to an SMC supervisor
who came in an SMC van. He was then showed a list of customers accountabilities which
included his account. The defendant, in good faith, then paid to the said supervisor, and he was,
in turn, issued genuine SMC liquidation receipts.

For its part, SMC submitted a publishers affidavit63[9] to prove that the entire booklet of TCSL
Receipts bearing Nos. 27301-27350 were reported lost by it, and that it caused the publication of
the notice of loss in the July 9, 1983 issue of the Daily Express, as follows:

NOTICE OF LOSS
OUR CUSTOMERS ARE HEREBY INFORMED THAT TEMPORARY CHARGE SALES
LIQUIDATION RECEIPTS WITH SERIAL NOS. 27301-27350 HAVE BEEN LOST.
ANY TRANSACTION, THEREFORE, ENTERED INTO WITH THE USE OF THE ABOVE
RECEIPTS WILL NOT BE HONORED.

SAN MIGUEL CORPORATION

BEER DIVISION
Makati Beer Region64[10]

The Trial Courts Ruling

After trial on the merits, the trial court rendered judgment in favor of SMC, and held the Culaba
spouses liable on the balance of its obligation, thus:

Wherefore, judgment is hereby rendered in favor of the plaintiff, as follows:

1. Ordering defendants to pay the amount of P24,910.00 plus legal interest of 6% per annum
from April 12, 1983 until the whole amount is fully paid;

2. Ordering defendants to pay 20% of the amount due to plaintiff as and for attorneys fees
plus costs.

SO ORDERED.65[11]

According to the trial court, it was unusual that defendant Francisco Culaba forgot the name of
the collector to whom he made the payments and that he did not require the said collector to print
his name on the receipts. The court also noted that although they were part of a single booklet,
the TCS Liquidation Receipts submitted by the defendants did not appear to have been issued in
their natural sequence. Furthermore, they were part of the lost booklet receipts, which the public
was duly warned of through the Notice of Loss the plaintiff caused to be published in a daily
newspaper. This confirmed the plaintiffs claim that the receipts presented by the defendants were
spurious ones.

The Case on Appeal

On appeal, the appellants interposed the following assignment of errors:

I
THE TRIAL COURT ERRED IN FINDING THAT THE RECEIPTS PRESENTED BY
DEFENDANTS EVIDENCING HIS PAYMENTS TO PLAINTIFF SAN MIGUEL
CORPORATION, ARE SPURIOUS.

II

THE TRIAL COURT ERRED IN CONCLUDING THAT PLAINTIFF-APPELLEE HAS

SUFFICIENTLY PROVED ITS CAUSE OF ACTION AGAINST THE DEFENDANTS.

III

THE TRIAL COURT ERRED IN ORDERING DEFENDANTS TO PAY 20% OF THE

AMOUNT DUE TO PLAINTIFF AS ATTORNEYS FEES.66[12]

The appellants asserted that while the trial courts observations were true, it was the usual
business practice in previous transactions between them and SMC. The SMC previously honored
receipts not bearing the salesmans name. According to appellant Francisco Culaba, he even lost
some of the receipts, but did not encounter any problems.

According to appellant Francisco, he could not be faulted for paying the SMC collector who
came in a van and was in uniform, and that any regular customer would, without any
apprehension, transact with such an SMC employee. Furthermore, the respective receipts issued
to him at the time he paid on the four occasions mentioned had not yet then been declared lost.
Thus, the subsequent publication in a daily newspaper declaring the booklets lost did not affect
the validity and legality of the payments made. Accordingly, by its actuations, the SMC was
estopped from questioning the legality of the payments and had no cause of action against the
appellants.

Anent the issue of attorneys fees, the order of the trial court for payment thereof is without basis.
According to the appellant, the provision for attorneys fees is a contingent fee, already provided
for in the SMCs contract with the law firm. To further order them to pay 20% of the amount due
as attorneys fees is double payment, tantamount to undue enrichment and therefore
improper.67[13]

The appellee, for its part, contended that the primary issue in the case at bar revolved around the
basic and fundamental principles of agency.68[14] It was incumbent upon the defendants-
appellants to exercise ordinary prudence and reasonable diligence to verify and identify the
extent of the alleged agents authority. It was their burden to establish the true identity of the
assumed agent, and this could not be established by mere representation, rumor or general
reputation. As they utterly failed in this regard, the appellants must suffer the consequences.

The Court of Appeals affirmed the decision of the trial court, thus:

In the face of the somewhat tenuous evidence presented by the appellants, we cannot fault the
lower court for giving more weight to appellees testimonial and documentary evidence, all of
which establish with some degree of preponderance the existence of the account sued upon.

ALL CONSIDERED, we cannot find any justification to reject the factual findings of the lower
court to which we must accord respect, for which reason, the judgment appealed from is hereby
AFFIRMED in all respects.

SO ORDERED.69[15]

Hence, the instant petition.

The petitioners pose the following issues for the Courts resolution:

I. WHETHER OR NOT THE RESPONDENT HAD PROVEN BY PREPONDERANT

EVIDENCE THAT IT HAD PROPERLY AND TIMELY NOTIFIED PETITIONER OF LOST
BOOKLET OF RECEIPTS

II. WHETHER OR NOT RESPONDENT HAD PROVEN BY PREPONDERANT

EVIDENCE THAT PETITIONER WAS REMISS IN THE PAYMENT OF HIS ACCOUNTS
TO ITS AGENT.70[16]

According to the petitioners, receiving receipts from the private respondents agents instead of its
salesmen was a usual occurrence, as they had been operating the store since 1979. Thus, on four
occasions in April 1983, when an agent of the respondent came to the store wearing an SMC
uniform and driving an SMC van, petitioner Francisco Culaba, without question, paid his
accounts. He received the receipts without fear, as they were similar to what he used to receive
before. Furthermore, the petitioners assert that, common experience will attest that unless the
attention of the customers is called for, they would not take note of the serial number of the
receipts.
The petitioners contend that the private respondent advertised its warning to the public only after
the damage was done, or on July 9, 1993. Its belated notice showed its glaring lack of interest or
concern for its customers welfare, and, in sum, its negligence.

Anent the second issue, petitioner Francisco Culaba avers that the agent to whom the accounts
were paid had all the physical and material attributes or indications of a representative of the
private respondent, leaving no doubt that he was duly authorized by the latter. Petitioner
Francisco Culabas testimony that he does not necessarily check the contents of the receipts
issued to him except for the amount indicated if [the] same accurately reflects his actual payment
is a common attitude of customers. He could, thus, not be faulted for paying the private
respondents agent on four occasions. Petitioner Francisco Culaba asserts that he made the
payment in good faith, to an agent who issued SMC receipts which appeared to be genuine.
Thus, according to the petitioners, they had duly paid their obligation in accordance with Articles
1240 and 1242 of the New Civil Code.

The private respondent, for its part, avers that the burden of proving payment is with the debtor,
in consonance with the express provision of Article 1233 of the New Civil Code. The petitioners
miserably failed to prove the self-serving allegation that they already paid their liability to the
private respondent. Furthermore, under normal circumstances, an obligor would not just pay a
substantial amount to someone whom he saw for the first time, without even asking for the
latters name.

The Ruling of the Court

The petition is dismissed.

The petitioners question the findings of the Court of Appeals as to whether the payment of the
petitioners obligation to the private respondent was properly made, thus, extinguishing the same.
This is clearly a factual issue, and beyond the purview of the Court to delve into. This is in
consonance with the well-settled rule that findings of fact of the trial court, especially when
affirmed by the Court of Appeals, are accorded the highest degree of respect, and generally will
not be disturbed on appeal. Such findings are binding and conclusive on the Court.71[17]
Furthermore, it is not the Courts function under Rule 45 of the Rules of Court, as amended, to
review, examine and evaluate or weigh the probative value of the evidence presented.72[18]

To reiterate, the issue being raised by the petitioners does not involve a question of law, but a
question of fact, not cognizable by this Court in a petition for review under Rule 45. The
jurisdiction of the Court in such a case is limited to reviewing only errors of law, unless the
factual findings being assailed are not supported by evidence on record or the impugned
judgment is based on a misapprehension of facts.73[19]

A careful study of the records of the case reveal that the appellate court affirmed the trial courts
factual findings as follows:

First. Receipts Nos. 27331, 27318, 27339 and 27346 were included in the private respondents
lost booklet, which loss was duly advertised in a newspaper of general circulation; thus, the
private respondent could not have officially issued them to the petitioners to cover the alleged
payments on the dates appearing thereon.

Second. There was something amiss in the way the receipts were issued to the petitioners, as one
receipt bearing a higher serial number was issued ahead of another receipt bearing a lower serial
number, supposedly covering a later payment. The petitioners failed to explain the apparent mix-
up in these receipts, and no attempt was made in this regard.

Third. The fact that the salesmans name was invariably left blank in the four receipts and that the
petitioners could not even remember the name of the supposed impostor who received the said
payments strongly argue against the veracity of the petitioners claim.

We find no cogent reason to reverse the said findings.

The dismissal of the petition is inevitable even upon close perusal of the merits of the case.

Payment is a mode of extinguishing an obligation.74[20] Article 1240 of the Civil Code provides
that payment shall be made to the person in whose favor the obligation has been constituted, or
his successor-in-interest, or any person authorized to receive it.75[21] In this case, the payments
were purportedly made to a supervisor of the private respondent, who was clad in an SMC
uniform and drove an SMC van. He appeared to be authorized to accept payments as he showed
a list of customers accountabilities and even issued SMC liquidation receipts which looked
genuine. Unfortunately for petitioner Francisco Culaba, he did not ascertain the identity and
authority of the said supervisor, nor did he ask to be shown any identification to prove that the
latter was, indeed, an SMC supervisor. The petitioners relied solely on the mans representation
that he was collecting payments for SMC. Thus, the payments the petitioners claimed they made
were not the payments that discharged their obligation to the private respondent.
The basis of agency is representation.76[22] A person dealing with an agent is put upon inquiry
and must discover upon his peril the authority of the agent.77[23] In the instant case, the
petitioners loss could have been avoided if they had simply exercised due diligence in
ascertaining the identity of the person to whom they allegedly made the payments. The fact that
they were parting with valuable consideration should have made them more circumspect in
handling their business transactions. Persons dealing with an assumed agent are bound at their
peril to ascertain not only the fact of agency but also the nature and extent of authority, and in
case either is controverted, the burden of proof is upon them to establish it.78[24] The petitioners
in this case failed to discharge this burden, considering that the private respondent vehemently
denied that the payments were accepted by it and were made to its authorized representative.

Negligence is the omission to do something which a reasonable man, guided by those

considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something, which a prudent and reasonable man would not do.79[25] In the case at bar, the most
prudent thing the petitioners should have done was to ascertain the identity and authority of the
person who collected their payments. Failing this, the petitioners cannot claim that they acted in
good faith when they made such payments. Their claim therefor is negated by their negligence,
and they are bound by its consequences. Being negligent in this regard, the petitioners cannot
seek relief on the basis of a supposed agency.80[26]

WHEREFORE, the instant petition is hereby DENIED. The assailed Decision dated April 16,
1996, and the Resolution dated July 19, 1996 of the Court of Appeals are AFFIRMED. Costs
against the petitioners.

SO ORDERED.

Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 121413 January 29, 2001

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK

OF ASIA AND AMERICA), petitioner,
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A.,
respondents.

G.R. No. 121479 January 29, 2001

FORD PHILIPPINES, INC., petitioner-plaintiff,

vs.
COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE COMMERCIAL
INTERNATIONAL BANK, respondents.

G.R. No. 128604 January 29, 2001

FORD PHILIPPINES, INC., petitioner,

vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and
COURT OF APPEALS, respondents.

QUISUMBING, J.:

These consolidated petitions involve several fraudulently negotiated checks.

The original actions a quo were instituted by Ford Philippines to recover from the drawee bank,
CITIBANK, N.A. (Citibank) and collecting bank, Philippine Commercial International Bank
(PCIBank) [formerly Insular Bank of Asia and America], the value of several checks payable to
the Commissioner of Internal Revenue, which were embezzled allegedly by an organized
syndicate.1âwphi1.nêt

G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision1 of
the Court of Appeals in CA-G.R. CV No. 25017, entitled "Ford Philippines, Inc. vs. Citibank,
N.A. and Insular Bank of Asia and America (now Philipppine Commercial International Bank),
and the August 8, 1995 Resolution,2 ordering the collecting bank, Philippine Commercial
International Bank, to pay the amount of Citibank Check No. SN-04867.

In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision3 of the
Court of Appeals and its March 5, 1997 Resolution4 in CA-G.R. No. 28430 entitled "Ford
Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial International Bank," affirming in
toto the judgment of the trial court holding the defendant drawee bank, Citibank, N.A., solely
liable to pay the amount of P12,163,298.10 as damages for the misapplied proceeds of the
plaintiff's Citibanl Check Numbers SN-10597 and 16508.

I. G.R. Nos. 121413 and 121479

The stipulated facts submitted by the parties as accepted by the Court of Appeals are as follows:

"On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-
04867 in the amount of P4,746,114.41, in favor of the Commissioner of Internal Revenue
as payment of plaintiff;s percentage or manufacturer's sales taxes for the third quarter of
1977.

The aforesaid check was deposited with the degendant IBAA (now PCIBank) and was
subsequently cleared at the Central Bank. Upon presentment with the defendant Citibank,
the proceeds of the check was paid to IBAA as collecting or depository bank.

The proceeds of the same Citibank check of the plaintiff was never paid to or received by
the payee thereof, the Commissioner of Internal Revenue.

As a consequence, upon demand of the Bureau and/or Commissioner of Internal

Revenue, the plaintiff was compelled to make a second payment to the Bureau of Internal
Revenue of its percentage/manufacturers' sales taxes for the third quarter of 1977 and that
said second payment of plaintiff in the amount of P4,746,114.41 was duly received by the
Bureau of Internal Revenue.

It is further admitted by defendant Citibank that during the time of the transactions in
question, plaintiff had been maintaining a checking account with defendant Citibank; that
Citibank Check No. SN-04867 which was drawn and issued by the plaintiff in favor of
the Commissioner of Internal Revenue was a crossed check in that, on its face were two
parallel lines and written in between said lines was the phrase "Payee's Account Only";
and that defendant Citibank paid the full face value of the check in the amount of
P4,746,114.41 to the defendant IBAA.

It has been duly established that for the payment of plaintiff's percentage tax for the last
quarter of 1977, the Bureau of Internal Revenue issued Revenue Tax Receipt No.
18747002, dated October 20, 1977, designating therein in Muntinlupa, Metro Manila, as
the authorized agent bank of Metrobanl, Alabang branch to receive the tax payment of
the plaintiff.
On December 19, 1977, plaintiff's Citibank Check No. SN-04867, together with the
Revenue Tax Receipt No. 18747002, was deposited with defendant IBAA, through its
Ermita Branch. The latter accepted the check and sent it to the Central Clearing House for
clearing on the samd day, with the indorsement at the back "all prior indorsements and/or
lack of indorsements guaranteed." Thereafter, defendant IBAA presented the check for
payment to defendant Citibank on same date, December 19, 1977, and the latter paid the
face value of the check in the amount of P4,746,114.41. Consequently, the amount of
P4,746,114.41 was debited in plaintiff's account with the defendant Citibank and the
check was returned to the plaintiff.

Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the
amount of P4,746,114.41 was not paid to the Commissioner of Internal Revenue. Hence,
in separate letters dated October 26, 1979, addressed to the defendants, the plaintiff
notified the latter that in case it will be re-assessed by the BIR for the payment of the
taxes covered by the said checks, then plaintiff shall hold the defendants liable for
reimbursement of the face value of the same. Both defendants denied liability and refused
to pay.

In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue
addressed to the plaintiff - supposed to be Exhibit "D", the latter was officially informed,
among others, that its check in the amount of P4, 746,114.41 was not paid to the
government or its authorized agent and instead encashed by unauthorized persons, hence,
plaintiff has to pay the said amount within fifteen days from receipt of the letter. Upon
advice of the plaintiff's lawyers, plaintiff on March 11, 1982, paid to the Bureau of
Internal Revenue, the amount of P4,746,114.41, representing payment of plaintiff's
percentage tax for the third quarter of 1977.

As a consequence of defendant's refusal to reimburse plaintiff of the payment it had made

for the second time to the BIR of its percentage taxes, plaintiff filed on January 20, 1983
its original complaint before this Court.

On December 24, 1985, defendant IBAA was merged with the Philippine Commercial
International Bank (PCI Bank) with the latter as the surviving entity.

Defendant Citibank maintains that; the payment it made of plaintiff's Citibank Check No.
SN-04867 in the amount of P4,746,114.41 "was in due course"; it merely relied on the
clearing stamp of the depository/collecting bank, the defendant IBAA that "all prior
indorsements and/or lack of indorsements guaranteed"; and the proximate cause of
plaintiff's injury is the gross negligence of defendant IBAA in indorsing the plaintiff's
Citibank check in question.

It is admitted that on December 19, 1977 when the proceeds of plaintiff's Citibank Check
No. SN-048867 was paid to defendant IBAA as collecting bank, plaintiff was
maintaining a checking account with defendant Citibank."5
Although it was not among the stipulated facts, an investigation by the National Bureau of
Investigation (NBI) revealed that Citibank Check No. SN-04867 was recalled by Godofredo
Rivera, the General Ledger Accountant of Ford. He purportedly needed to hold back the check
because there was an error in the computation of the tax due to the Bureau of Internal Revenue
(BIR). With Rivera's instruction, PCIBank replaced the check with two of its own Manager's
Checks (MCs). Alleged members of a syndicate later deposited the two MCs with the Pacific
Banking Corporation.

Ford, with leave of court, filed a third-party complaint before the trial court impleading Pacific
Banking Corporation (PBC) and Godofredo Rivera, as third party defendants. But the court
dismissed the complaint against PBC for lack of cause of action. The course likewise dismissed
the third-party complaint against Godofredo Rivera because he could not be served with
summons as the NBI declared him as a "fugitive from justice".

On June 15, 1989, the trial court rendered its decision, as follows:

"Premises considered, judgment is hereby rendered as follows:

"1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and
severally, to pay the plaintiff the amount of P4,746,114.41 representing the face
value of plaintiff's Citibank Check No. SN-04867, with interest thereon at the
legal rate starting January 20, 1983, the date when the original complaint was
filed until the amount is fully paid, plus costs;

"2. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA (now

PCI Bank) to reimburse defendant Citibank for whatever amount the latter has
paid or may pay to the plaintiff in accordance with next preceding paragraph;

"3. The counterclaims asserted by the defendants against the plaintiff, as well as
that asserted by the cross-defendant against the cross-claimant are dismissed, for
lack of merits; and

"4. With costs against the defendants.

SO ORDERED."6

Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated their
respective petitions for review on certiorari to the Courts of Appeals. On March 27, 1995, the
appellate court issued its judgment as follows:

"WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision
with modifications.

The court hereby renderes judgment:

 1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant
Citibank N.A. is concerned;

2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount of
P4,746,114.41 representing the face value of plaintiff's Citibank Check No. SN-
04867, with interest thereon at the legal rate starting January 20, 1983, the date
when the original complaint was filed until the amount is fully paid;

3. Dismissing the counterclaims asserted by the defendants against the plaintiff as

well as that asserted by the cross-defendant against the cross-claimant, for lack of
merits.

Costs against the defendant IBAA (now PCI Bank).

IT IS SO ORDERED."7

PCI Bank moved to reconsider the above-quoted decision of the Court of Appeals, while Ford
filed a "Motion for Partial Reconsideration." Both motions were denied for lack of merit.

Separately, PCIBank and Ford filed before this Court, petitions for review by certiorari under
Rule 45.

In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the Twelfth
Division of the Court of Appeals contending that it merely acted on the instruction of Ford and
such casue of action had already prescribed.

PCIBank sets forth the following issues for consideration:

I. Did the respondent court err when, after finding that the petitioner acted on the check
drawn by respondent Ford on the said respondent's instructions, it nevertheless found the
petitioner liable to the said respondent for the full amount of the said check.

II. Did the respondent court err when it did not find prescription in favor of the
petitioner.8

In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the same
decision and resolution of the Court of Appeals, and praying for the reinstatement in toto of the
decision of the trial court which found both PCIBank and Citibank jointly and severally liable for
the loss.

In G.R. No. 121479, appellant Ford presents the following propositions for consideration:

I. Respondent Citibank is liable to petitioner Ford considering that:

1. As drawee bank, respondent Citibank owes to petitioner Ford, as the drawer of

the subject check and a depositor of respondent Citibank, an absolute and
 contractual duty to pay the proceeds of the subject check only to the payee
thereof, the Commissioner of Internal Revenue.

2. Respondent Citibank failed to observe its duty as banker with respect to the
subject check, which was crossed and payable to "Payee's Account Only."

3. Respondent Citibank raises an issue for the first time on appeal; thus the same
should not be considered by the Honorable Court.

4. As correctly held by the trial court, there is no evidence of gross negligence on

the part of petitioner Ford.9

II. PCI Bank is liable to petitioner Ford considering that:

1. There were no instructions from petitioner Ford to deliver the proceeds of the
subject check to a person other than the payee named therein, the Commissioner
of the Bureau of Internal Revenue; thus, PCIBank's only obligation is to deliver
the proceeds to the Commissioner of the Bureau of Internal Revenue.10

2. PCIBank which affixed its indorsement on the subject check ("All prior
indorsement and/or lack of indorsement guaranteed"), is liable as collecting
bank.11

3. PCIBank is barred from raising issues of fact in the instant proceedings.12

4. Petitioner Ford's cause of action had not prescribed.13

II. G.R. No. 128604

The same sysndicate apparently embezzled the proceeds of checks intended, this time, to settle
Ford's percentage taxes appertaining to the second quarter of 1978 and the first quarter of 1979.

The facts as narrated by the Court of Appeals are as follows:

Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of P5,851,706.37
representing the percentage tax due for the second quarter of 1978 payable to the Commissioner
of Internal Revenue. A BIR Revenue Tax Receipt No. 28645385 was issued for the said purpose.

On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the amount of
P6,311,591.73, representing the payment of percentage tax for the first quarter of 1979 and
payable to the Commissioner of Internal Revenue. Again a BIR Revenue Tax Receipt No. A-
1697160 was issued for the said purpose.

Both checks were "crossed checks" and contain two diagonal lines on its upper corner between,
which were written the words "payable to the payee's account only."
The checks never reached the payee, CIR. Thus, in a letter dated February 28, 1980, the BIR,
Region 4-B, demanded for the said tax payments the corresponding periods above-mentioned.

As far as the BIR is concernced, the said two BIR Revenue Tax Receipts were considered "fake
and spurious". This anomaly was confirmed by the NBI upon the initiative of the BIR. The
findings forced Ford to pay the BIR a new, while an action was filed against Citibank and
PCIBank for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508.

The Regional Trial Court of Makati, Branch 57, which tried the case, made its findings on the
modus operandi of the syndicate, as follows:

"A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General
Ledger Accountant. As such, he prepared the plaintiff's check marked Ex. 'A' [Citibank
Check No. Sn-10597] for payment to the BIR. Instead, however, fo delivering the same
of the payee, he passed on the check to a co-conspirator named Remberto Castro who
was a pro-manager of the San Andres Branch of PCIB.* In connivance with one Winston
Dulay, Castro himself subsequently opened a Checking Account in the name of a
fictitious person denominated as 'Reynaldo reyes' in the Meralco Branch of PCIBank
where Dulay works as Assistant Manager.

After an initial deposit of P100.00 to validate the account, Castro deposited a worthless
Bank of America Check in exactly the same amount as the first FORD check (Exh. "A",
P5,851,706.37) while this worthless check was coursed through PCIB's main office
enroute to the Central Bank for clearing, replaced this worthless check with FORD's
Exhibit 'A' and accordingly tampered the accompanying documents to cover the
replacement. As a result, Exhibit 'A' was cleared by defendant CITIBANK, and the
fictitious deposit account of 'Reynaldo Reyes' was credited at the PCIB Meralco Branch
with the total amount of the FORD check Exhibit 'A'. The same method was again
utilized by the syndicate in profiting from Exh. 'B' [Citibank Check No. SN-16508]
which was subsequently pilfered by Alexis Marindo, Rivera's Assistant at FORD.

From this 'Reynaldo Reyes' account, Castro drew various checks distributing the sahres
of the other participating conspirators namely (1) CRISANTO BERNABE, the
mastermind who formulated the method for the embezzlement; (2) RODOLFO R. DE
LEON a customs broker who negotiated the initial contact between Bernabe, FORD's
Godofredo Rivera and PCIB's Remberto Castro; (3) JUAN VASTILLO who assisted de
Leon in the initial arrangements; (4) GODOFREDO RIVERA, FORD's accountant who
passed on the first check (Exhibit "A") to Castro; (5) REMERTO CASTRO, PCIB's pro-
manager at San Andres who performed the switching of checks in the clearing process
and opened the fictitious Reynaldo Reyes account at the PCIB Meralco Branch; (6)
WINSTON DULAY, PCIB's Assistant Manager at its Meralco Branch, who assisted
Castro in switching the checks in the clearing process and facilitated the opening of the
fictitious Reynaldo Reyes' bank account; (7) ALEXIS MARINDO, Rivera's Assistant at
FORD, who gave the second check (Exh. "B") to Castro; (8) ELEUTERIO JIMENEZ,
BIR Collection Agent who provided the fake and spurious revenue tax receipts to make it
appear that the BIR had received FORD's tax payments.
 Several other persons and entities were utilized by the syndicate as conduits in the
disbursements of the proceeds of the two checks, but like the aforementioned participants
in the conspiracy, have not been impleaded in the present case. The manner by which the
said funds were distributed among them are traceable from the record of checks drawn
against the original "Reynaldo Reyes" account and indubitably identify the parties who
illegally benefited therefrom and readily indicate in what amounts they did so."14

On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-bank, Citibank,
liable for the value of the two checks while adsolving PCIBank from any liability, disposing as
follows:

"WHEREFORE, judgment is hereby rendered sentencing defendant CITIBANK to

reimburse plaintiff FORD the total amount of P12,163,298.10 prayed for in its complaint,
with 6% interest thereon from date of first written demand until full payment, plus
P300,000.00 attorney's fees and expenses litigation, and to pay the defendant, PCIB (on
its counterclaim to crossclaim) the sum of P300,000.00 as attorney's fees and costs of
litigation, and pay the costs.

SO ORDERED."15

Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the decision of
the trial court. Hence, this petition.

Petitioner Ford prays that judgment be rendered setting aside the portion of the Court of Appeals
decision and its resolution dated March 5, 1997, with respect to the dismissal of the complaint
against PCIBank and holding Citibank solely responsible for the proceeds of Citibank Check
Numbers SN-10597 and 16508 for P5,851,706.73 and P6,311,591.73 respectively.

Ford avers that the Court of Appeals erred in dismissing the complaint against defendant
PCIBank considering that:

I. Defendant PCIBank was clearly negligent when it failed to exercise the diligence
required to be exercised by it as a banking insitution.

II. Defendant PCIBank clearly failed to observe the diligence required in the selection
and supervision of its officers and employees.

III. Defendant PCIBank was, due to its negligence, clearly liable for the loss or damage
resulting to the plaintiff Ford as a consequence of the substitution of the check consistent
with Section 5 of Central Bank Circular No. 580 series of 1977.

IV. Assuming arguedo that defedant PCIBank did not accept, endorse or negotiate in due
course the subject checks, it is liable, under Article 2154 of the Civil Code, to return the
money which it admits having received, and which was credited to it its Central bank
account.16
The main issue presented for our consideration by these petitions could be simplified as follows:
Has petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee bank
(Citibank) the value of the checks intended as payment to the Commissioner of Internal
Revenue? Or has Ford's cause of action already prescribed?

Note that in these cases, the checks were drawn against the drawee bank, but the title of the
person negotiating the same was allegedly defective because the instrument was obtained by
fraud and unlawful means, and the proceeds of the checks were not remitted to the payee. It was
established that instead of paying the checks to the CIR, for the settlement of the approprite
quarterly percentage taxes of Ford, the checks were diverted and encashed for the eventual
distribution among the mmbers of the syndicate. As to the unlawful negotiation of the check the
applicable law is Section 55 of the Negotiable Instruments Law (NIL), which provides:

"When title defective -- The title of a person who negotiates an instrument is defective
within the meaning of this Act when he obtained the instrument, or any signature thereto,
by fraud, duress, or fore and fear, or other unlawful means, or for an illegal consideration,
or when he negotiates it in breach of faith or under such circumstances as amount to a
fraud."

Pursuant to this provision, it is vital to show that the negotiation is made by the perpetator in
breach of faith amounting to fraud. The person negotiating the checks must have gone beyond
the authority given by his principal. If the principal could prove that there was no negligence in
the performance of his duties, he may set up the personal defense to escape liability and recover
from other parties who. Though their own negligence, alowed the commission of the crime.

In this case, we note that the direct perpetrators of the offense, namely the embezzlers belonging
to a syndicate, are now fugitives from justice. They have, even if temporarily, escaped liability
for the embezzlement of millions of pesos. We are thus left only with the task of determining
who of the present parties before us must bear the burden of loss of these millions. It all boils
down to thequestion of liability based on the degree of negligence among the parties concerned.

Foremost, we must resolve whether the injured party, Ford, is guilty of the "imputed contributory
negligence" that would defeat its claim for reimbursement, bearing ing mind that its employees,
Godofredo Rivera and Alexis Marindo, were among the members of the syndicate.

Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to negotiate the
checks to his co-conspirators, instead of delivering them to the designated authorized collecting
bank (Metrobank-Alabang) of the payee, CIR. Citibank bewails the fact that Ford was remiss in
the supervision and control of its own employees, inasmuch as it only discovered the syndicate's
activities through the information given by the payee of the checks after an unreasonable period
of time.

PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera to
divert the proceeds of Citibank Check No. SN-04867, instead of using it to pay the BIR. As to
the subsequent run-around of unds of Citibank Check Nos. SN-10597 and 16508, PCIBank
claims that the proximate cause of the damge to Ford lies in its own officers and employees who
carried out the fradulent schemes and the transactions. These circumstances were not checked by
other officers of the company including its comptroller or internal auditor. PCIBank contends
that the inaction of Ford despite the enormity of the amount involved was a sheer negligence and
stated that, as between two innocent persons, one of whom must suffer the consequences of a
breach of trust, the one who made it possible, by his act of negligence, must bear the loss.

For its part, Ford denies any negligence in the performance of its duties. It avers that there was
no evidence presented before the trial court showing lack of diligence on the part of Ford. And,
citing the case of Gempesaw vs. Court of Appeals,17 Ford argues that even if there was a finding
therein that the drawer was negligent, the drawee bank was still ordered to pay damages.

Furthermore, Ford contends the Godofredo rivera was not authorized to make any representation
in its behalf, specifically, to divert the proceeds of the checks. It adds that Citibank raised the
issue of imputed negligence against Ford for the first time on appeal. Thus, it should not be
considered by this Court.

On this point, jurisprudence regarding the imputed negligence of employer in a master-servant

relationship is instructive. Since a master may be held for his servant's wrongful act, the law
imputes to the master the act of the servant, and if that act is negligent or wrongful and
proximately results in injury to a third person, the negligence or wrongful conduct is the
negligence or wrongful conduct of the master, for which he is liable.18 The general rule is that if
the master is injured by the negligence of a third person and by the concuring contributory
negligence of his own servant or agent, the latter's negligence is imputed to his superior and will
defeat the superior's action against the third person, asuming, of course that the contributory
negligence was the proximate cause of the injury of which complaint is made.19

Accordingly, we need to determine whether or not the action of Godofredo Rivera, Ford's
General Ledger Accountant, and/or Alexis Marindo, his assistant, was the proximate cause of the
loss or damage. AS defined, proximate cause is that which, in the natural and continuous
sequence, unbroken by any efficient, intervening cause produces the injury and without the result
would not have occurred.20

It appears that although the employees of Ford initiated the transactions attributable to an
organized syndicate, in our view, their actions were not the proximate cause of encashing the
checks payable to the CIR. The degree of Ford's negligence, if any, could not be characterized as
the proximate cause of the injury to the parties.

The Board of Directors of Ford, we note, did not confirm the request of Godofredo Rivera to
recall Citibank Check No. SN-04867. Rivera's instruction to replace the said check with
PCIBank's Manager's Check was not in theordinary course of business which could have
prompted PCIBank to validate the same.

As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established that these
checks were made payable to the CIR. Both were crossed checks. These checks were apparently
turned around by Ford's emploees, who were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a drawer-payor's
confidential employee or agent, who by virtue of his position had unusual facilities for
perpertrating the fraud and imposing the forged paper upon the bank, does notentitle the bank
toshift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against
the drawer.21 This rule likewise applies to the checks fraudulently negotiated or diverted by the
confidential employees who hold them in their possession.

With respect to the negligence of PCIBank in the payment of the three checks involved,
separately, the trial courts found variations between the negotiation of Citibank Check No. SN-
04867 and the misapplication of total proceeds of Checks SN-10597 and 16508. Therefore, we
have to scrutinize, separately, PCIBank's share of negligence when the syndicate achieved its
ultimate agenda of stealing the proceeds of these checks.

G.R. Nos. 121413 and 121479

Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It was
coursed through the ordinary banking transaction, sent to Central Clearing with the indorsement
at the back "all prior indorsements and/or lack of indorsements guaranteed," and was presented
to Citibank for payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR,
prepared two of its Manager's checks and enabled the syndicate to encash the same.

On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The
neglect of PCIBank employees to verify whether his letter requesting for the replacement of the
Citibank Check No. SN-04867 was duly authorized, showed lack of care and prudence required
in the circumstances.

Furthermore, it was admitted that PCIBank is authorized to collect the payment of taxpayers in
behalf of the BIR. As an agent of BIR, PCIBank is duty bound to consult its principal regarding
the unwarranted instructions given by the payor or its agent. As aptly stated by the trial court, to
wit:

"xxx. Since the questioned crossed check was deposited with IBAA [now PCIBank],
which claimed to be a depository/collecting bank of BIR, it has the responsibility to make
sure that the check in question is deposited in Payee's account only.

xxx xxx xxx

As agent of the BIR (the payee of the check), defendant IBAA should receive instructions
only from its principal BIR and not from any other person especially so when that person
is not known to the defendant. It is very imprudent on the part of the defendant IBAA to
just rely on the alleged telephone call of the one Godofredo Rivera and in his signature
considering that the plaintiff is not a client of the defendant IBAA."

It is a well-settled rule that the relationship between the payee or holder of commercial paper and
the bank to which it is sent for collection is, in the absence of an argreement to the contrary, that
of principal and agent.22 A bank which receives such paper for collection is the agent of the
payee or holder.23

Even considering arguendo, that the diversion of the amount of a check payable to the collecting
bank in behalf of the designated payee may be allowed, still such diversion must be properly
authorized by the payor. Otherwise stated, the diversion can be justified only by proof of
authority from the drawer, or that the drawer has clothed his agent with apparent authority to
receive the proceeds of such check.

Citibank further argues that PCI Bank's clearing stamp appearing at the back of the questioned
checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF INDORSEMENTS
GURANTEED should render PCIBank liable because it made it pass through the clearing house
and therefore Citibank had no other option but to pay it. Thus, Citibank had no other option but
to pay it. Thus, Citibank assets that the proximate cause of Ford's injury is the gross negligence
of PCIBank. Since the questione dcrossed check was deposited with PCIBank, which claimed to
be a depository/collecting bank of the BIR, it had the responsibility to make sure that the check
in questions is deposited in Payee's account only.

Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the
check should be deposited only in the account of the CIR. Thus, it is the duty of the collecting
bank PCIBank to ascertain that the check be deposited in payee's account only. Therefore, it is
the collecting bank (PCIBank) which is bound to scruninize the check and to know its depositors
before it could make the clearing indorsement "all prior indorsements and/or lack of indorsement
guaranteed".

In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation,24 we ruled:

"Anent petitioner's liability on said instruments, this court is in full accord with the ruling
of the PCHC's Board of Directors that:

'In presenting the checks for clearing and for payment, the defendant made an express
guarantee on the validity of "all prior endorsements." Thus, stamped at the back of the
checks are the defedant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR
LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would
not have paid on the checks.'

No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the
warranty has proven to be false and inaccurate, the defendant is liable for any damage
arising out of the falsity of its representation."25

Lastly, banking business requires that the one who first cashes and negotiates the check must
take some percautions to learn whether or not it is genuine. And if the one cashing the check
through indifference or othe circumstance assists the forger in committing the fraud, he should
not be permitted to retain the proceeds of the check from the drawee whose sole fault was that it
did not discover the forgery or the defect in the title of the person negotiating the instrument
before paying the check. For this reason, a bank which cashes a check drawn upon another bank,
without requiring proof as to the identity of persons presenting it, or making inquiries with
regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks
were afterwards diverted to the hands of a third party. In such cases the drawee bank has a right
to believe that the cashing bank (or the collecting bank) had, by the usual proper investigation,
satisfied itself of the authenticity of the negotiation of the checks. Thus, one who encashed a
check which had been forged or diverted and in turn received payment thereon from the drawee,
is guilty of negligence which proximately contributed to the success of the fraud practiced on the
drawee bank. The latter may recover from the holder the money paid on the check.26

Having established that the collecting bank's negligence is the proximate cause of the loss, we
conclude that PCIBank is liable in the amount corresponding to the proceeds of Citibank Check
No. SN-04867.

G.R. No. 128604

The trial court and the Court of Appeals found that PCIBank had no official act in the ordinary
course of business that would attribute to it the case of the embezzlement of Citibank Check
Numbers SN-10597 and 16508, because PCIBank did not actually receive nor hold the two Ford
checks at all. The trial court held, thus:

"Neither is there any proof that defendant PCIBank contributed any official or conscious
participation in the process of the embezzlement. This Court is convinced that the
switching operation (involving the checks while in transit for "clearing") were the
clandestine or hidden actuations performed by the members of the syndicate in their own
personl, covert and private capacity and done without the knowledge of the defendant
PCIBank…"27

In this case, there was no evidence presented confirming the conscious particiapation of
PCIBank in the embezzlement. As a general rule, however, a banking corporation is liable for the
wrongful or tortuous acts and declarations of its officers or agents within the course and scope of
their employment.28 A bank will be held liable for the negligence of its officers or agents when
acting within the course and scope of their employment. It may be liable for the tortuous acts of
its officers even as regards that species of tort of which malice is an essential element. In this
case, we find a situation where the PCIBank appears also to be the victim of the scheme hatched
by a syndicate in which its own management employees had particiapted.

The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check
Numbers SN-10597 and 16508. He passed the checks to a co-conspirator, an Assistant Manager
of PCIBank's Meralco Branch, who helped Castro open a Checking account of a fictitious person
named "Reynaldo Reyes." Castro deposited a worthless Bank of America Check in exactly the
same amount of Ford checks. The syndicate tampered with the checks and succeeded in
replacing the worthless checks and the eventual encashment of Citibank Check Nos. SN 10597
and 16508. The PCIBank Ptro-manager, Castro, and his co-conspirator Assistant Manager
apparently performed their activities using facilities in their official capacity or authority but for
their personal and private gain or benefit.
A bank holding out its officers and agents as worthy of confidence will not be permitted to profit
by the frauds these officers or agents were enabled to perpetrate in the apparent course of their
employment; nor will t be permitted to shirk its responsibility for such frauds, even though no
benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the
fraudulent acts or representations of an officer or agent acting within the course and apparent
scope of his employment or authority.29 And if an officer or employee of a bank, in his official
capacity, receives money to satisfy an evidence of indebetedness lodged with his bank for
collection, the bank is liable for his misappropriation of such sum.30

Moreover, as correctly pointed out by Ford, Section 531 of Central Bank Circular No. 580, Series
of 1977 provides that any theft affecting items in transit for clearing, shall be for the account of
sending bank, which in this case is PCIBank.

But in this case, responsibility for negligence does not lie on PCIBank's shoulders alone.

The evidence on record shows that Citibank as drawee bank was likewise negligent in the
performance of its duties. Citibank failed to establish that its payment of Ford's checjs were
made in due course and legally in order. In its defense, Citibank claims the genuineness and due
execution of said checks, considering that Citibank (1) has no knowledge of any informity in the
issuance of the checks in question (2) coupled by the fact that said checks were sufficiently
funded and (3) the endorsement of the Payee or lack thereof was guaranteed by PCI Bank
(formerly IBAA), thus, it has the obligation to honor and pay the same.

For its part, Ford contends that Citibank as the drawee bank owes to Ford an absolute and
contractual duty to pay the proceeds of the subject check only to the payee thereof, the CIR.
Citing Section 6232 of the Negotiable Instruments Law, Ford argues that by accepting the
instrument, the acceptro which is Citibank engages that it will pay according to the tenor of its
acceptance, and that it will pay only to the payee, (the CIR), considering the fact that here the
check was crossed with annotation "Payees Account Only."

As ruled by the Court of Appeals, Citibank must likewise answer for the damages incurred by
Ford on Citibank Checks Numbers SN 10597 and 16508, because of the contractual relationship
existing between the two. Citibank, as the drawee bank breached its contractual obligation with
Ford and such degree of culpability contributed to the damage caused to the latter. On this score,
we agree with the respondent court's ruling.

Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying
the amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the
record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear
any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been
duly examined, the switching of the worthless checks to Citibank Check Nos. 10597 and 16508
would have been discovered in time. For this reason, Citibank had indeed failed to perform what
was incumbent upon it, which is to ensure that the amount of the checks should be paid only to
its designated payee. The fact that the drawee bank did not discover the irregularity seasonably,
in our view, consitutes negligence in carrying out the bank's duty to its depositors. The point is
that as a business affected with public interest and because of the nature of its functions, the bank
is under obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.33

Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIBank
and Citibank failed in their respective obligations and both were negligent in the selection and
supervision of their employees resulting in the encashment of Citibank Check Nos. SN 10597
AND 16508. Thus, we are constrained to hold them equally liable for the loss of the proceeds of
said checks issued by Ford in favor of the CIR.

Time and again, we have stressed that banking business is so impressed with public interest
where the trust and confidence of the public in general is of paramount umportance such that the
appropriate standard of diligence must be very high, if not the highest, degree of diligence.34 A
bank's liability as obligor is not merely vicarious but primary, wherein the defense of exercise of
due diligence in the selection and supervision of its employees is of no moment.35

Banks handle daily transactions involving millions of pesos.36 By the very nature of their work
the degree of responsibility, care and trustworthiness expected of their employees and officials is
far greater than those of ordinary clerks and employees.37 Banks are expected to exercise the
highest degree of diligence in the selection and supervision of their employees.38

On the issue of prescription, PCIBank claims that the action of Ford had prescribed because of
its inability to seek judicial relief seasonably, considering that the alleged negligent act took
place prior to December 19, 1977 but the relief was sought only in 1983, or seven years
thereafter.

The statute of limitations begins to run when the bank gives the depositor notice of the payment,
which is ordinarily when the check is returned to the alleged drawer as a voucher with a
statement of his account,39 and an action upon a check is ordinarily governed by the statutory
period applicable to instruments in writing.40

Our laws on the matter provide that the action upon a written contract must be brought within ten
year from the time the right of action accrues.41 hence, the reckoning time for the prescriptive
period begins when the instrument was issued and the corresponding check was returned by the
bank to its depositor (normally a month thereafter). Applying the same rule, the cause of action
for the recovery of the proceeds of Citibank Check No. SN 04867 would normally be a month
after December 19, 1977, when Citibank paid the face value of the check in the amount of
P4,746,114.41. Since the original complaint for the cause of action was filed on January 20,
1984, barely six years had lapsed. Thus, we conclude that Ford's cause of action to recover the
amount of Citibank Check No. SN 04867 was seasonably filed within the period provided by
law.

Finally, we also find thet Ford is not completely blameless in its failure to detect the fraud.
Failure on the part of the depositor to examine its passbook, statements of account, and cancelled
checks and to give notice within a reasonable time (or as required by statute) of any discrepancy
which it may in the exercise of due care and diligence find therein, serves to mitigate the banks'
liability by reducing the award of interest from twelve percent (12%) to six percent (6%) per
annum. As provided in Article 1172 of the Civil Code of the Philippines, respondibility arising
from negligence in the performance of every kind of obligation is also demandable, but such
liability may be regulated by the courts, according to the circumstances. In quasi-delicts, the
contributory negligence of the plaintiff shall reduce the damages that he may recover.42

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV
No. 25017 are AFFIRMED. PCIBank, know formerly as Insular Bank of Asia and America, id
declared solely responsible for the loss of the proceeds of Citibank Check No SN 04867 in the
amount P4,746,114.41, which shall be paid together with six percent (6%) interest thereon to
Ford Philippines Inc. from the date when the original complaint was filed until said amount is
fully paid.

However, the Decision and Resolution of the Court of Appeals in CA-G.R. No. 28430 are
MODIFIED as follows: PCIBank and Citibank are adjudged liable for and must share the loss,
(concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totalling
P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDERED to pay Ford Philippines Inc.
P6,081,649.05, with six percent (6%) interest thereon, from the date the complaint was filed until
full payment of said amount.1âwphi1.nêt

Costs against Philippine Commercial International Bank and Citibank N.A.

SO ORDERED.

Bellosillo, Mendoza, Buena, De Leon, Jr., JJ, concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 82233 March 22, 1990

JOSE BARITUA and EDGAR BITANCOR, petitioners,

vs.
HONORABLE COURT OF APPEALS, NICOLAS NACARIO and VICTORIA RONDA
NACARIO, respondents.

Domingo Lucenario for petitioners.

Ernesto A. Atienza for private respondents.

SARMIENTO, J.:

This petition for review on certiorari assails as erroneous and contrary to existing relevant laws
and applicable jurisprudence the decision 1 of the Court of Appeals dated December 11, 1987
which reversed and set aside that of the Regional Trial Court, Branch XXXII, at Pili, Camarines
Sur. 2 The challenged decision adjudged the petitioners liable to the private respondents in the
total amount of P20,505.00 and for costs.

The facts are as follows:

In the evening of November 7, 1979, the tricycle then being driven by Bienvenido Nacario along
the national highway at Barangay San Cayetano, in Baao, Camarines Sur, figured in an accident
with JB Bus No. 80 driven by petitioner Edgar Bitancor and owned and operated by petitioner
Jose Baritua. 3 As a result of that accident Bienvenido and his passenger died 4 and the tricycle
was damaged. 5 No criminal case arising from the incident was ever instituted. 6

Subsequently, on March 27, 1980, as a consequence of the extra-judicial settlement of the matter
negotiated by the petitioners and the bus insurer — Philippine First Insurance Company,
Incorporated (PFICI for brevity) — Bienvenido Nacario's widow, Alicia Baracena Vda. de
Nacario, received P18,500.00. In consideration of the amount she received, Alicia executed on
March 27, 1980 a "Release of Claim" in favor of the petitioners and PFICI, releasing and forever
discharging them from all actions, claims, and demands arising from the accident which resulted
in her husband's death and the damage to the tricycle which the deceased was then driving.
Alicia likewise executed an affidavit of desistance in which she formally manifested her lack of
interest in instituting any case, either civil or criminal, against the petitioners. 7

On September 2, 1981, or about one year and ten months from the date of the accident on
November 7, 1979, the private respondents, who are the parents of Bienvenido Nacario, filed a
complaint for damages against the petitioners with the then Court of First Instance of Camarines
Sur. 8 In their complaint, the private respondents alleged that during the vigil for their deceased
son, the petitioners through their representatives promised them (the private respondents) that as
extra-judicial settlement, they shall be indemnified for the death of their son, for the funeral
expenses incurred by reason thereof, and for the damage for the tricycle the purchase price of
which they (the private respondents) only loaned to the victim. The petitioners, however, reneged
on their promise and instead negotiated and settled their obligations with the long-estranged wife
of their late son. The Nacario spouses prayed that the defendants, petitioners herein, be ordered
to indemnify them in the amount of P25,000.00 for the death of their son Bienvenido,
P10,000.00 for the damaged tricycle, P25,000.00 for compensatory and exemplary damages,
P5,000.00 for attorney's fees, and for moral damages. 9

After trial, the court a quo dismissed the complaint, holding that the payment by the defendants
(herein petitioners) to the widow and her child, who are the preferred heirs and successors-in-
interest of the deceased Bienvenido to the exclusion of his parents, the plaintiffs (herein private
respondents), extinguished any claim against the defendants (petitioners). 10

The parents appealed to the Court of Appeals which reversed the judgment of the trial court. The
appellate court ruled that the release executed by Alicia Baracena Vda. de Nacario did not
discharge the liability of the petitioners because the case was instituted by the private
respondents in their own capacity and not as "heirs, representatives, successors, and assigns" of
Alicia; and Alicia could not have validly waived the damages being prayed for (by the private
respondents) since she was not the one who suffered these damages arising from the death of
their son. Furthermore, the appellate court said that the petitioners "failed to rebut the testimony
of the appellants (private respondents) that they were the ones who bought the tricycle that was
damaged in the incident. Appellants had the burden of proof of such fact, and they did establish
such fact in their testimony . . . 11 Anent the funeral expenses, "(T)he expenses for the funeral
were likewise shouldered by the appellants (the private respondents). This was never
contradicted by the appellees (petitioners). . . . Payment (for these) were made by the appellants,
therefore, the reimbursement must accrue in their favor. 12

Consequently, the respondent appellate court ordered the petitioners to pay the private
respondents P10,000.00 for the damage of the tricycle, P5,000.00 for "complete" funeral
services, P450.00 for cemetery lot, P55.00 for oracion adulto, and P5,000.00 for attorney's fees.
13 The petitioners moved for

a reconsideration of the appellate court's decision 14 but their motion was denied. 15 Hence, this
petition.

The issue here is whether or not the respondent appellate court erred in holding that the
petitioners are still liable to pay the private respondents the aggregate amount of P20,505.00
despite the agreement of extrajudicial settlement between the petitioners and the victim's
compulsory heirs.

The petition is meritorious.

Obligations are extinguished by various modes among them being by payment. Article 1231 of
the Civil Code of the Philippines provides:

Art. 1231. Obligations are extinguished:

(1) By payment or performance;

(2) By the loss of the thing due;

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation;

(6) By novation.

(Emphasis ours.)

There is no denying that the petitioners had paid their obligation petition arising from the
accident that occurred on November 7, 1979. The only question now is whether or not Alicia, the
spouse and the one who received the petitioners' payment, is entitled to it.
Article 1240 of the Civil Code of the Philippines enumerates the persons to whom payment to
extinguish an obligation should be made.

Art 1240. Payment shall be made to the person in whose favor the obligation has
been constituted, or his successor in interest, or any person authorized to receive
it.

Certainly there can be no question that Alicia and her son with the deceased are the successors in
interest referred to in law as the persons authorized to receive payment. The Civil Code states:

Article 887. The following are compulsory heirs:

1. Legitimate children and descendants, with respect to their legitimate parents

and ascendants;

2. In default of the foregoing, legitimate parents and ascendants with respect to

their legitimate children and decendants;

3. The widow or widower;

4. Acknowledged natural children and natural children by legal fiction;

5. Other illegitimate children referred to in Article 287.

Compulsory heirs mentioned in Nos. 3, 4 and 5 are not excluded by those in Nos.
1 and 2. Neither do they exclude one another. (Emphasis ours.)

Article 985. In default of legitimate children and descendants of the deceased, his
parents and ascendants shall inherit from him, to the exclusion of collateral
relatives.

(Emphasis ours.)

It is patently clear that the parents of the deceased succeed only when the latter dies without a
legitimate descendant. On the other hand, the surviving spouse concurs with all classes of heirs.
As it has been established that Bienvenido was married to Alicia and that they begot a child, the
private respondents are not successors-in-interest of Bienvenido; they are not compulsory heirs.
The petitioners therefore acted correctly in settling their obligation with Alicia as the widow of
Bienvenido and as the natural guardian of their lone child. This is so even if Alicia had been
estranged from Bienvenido. Mere estrangement is not a legal ground for the disqualification of a
surviving spouse as an heir of the deceased spouse.

Neither could the private respondents, as alleged creditors of Bienvenido, seek relief and
compensation from the petitioners. While it may be true that the private respondents loaned to
Bienvenido the purchase price of the damaged tricycle and shouldered the expenses for his
funeral, the said purchase price and expenses are but money claims against the estate of their
deceased son. 16 These money claims are not the liabilities of the petitioners who, as we have
said, had been released by the agreement of the extra-judicial settlement they concluded with
Alicia Baracena Vda. de Nacario, the victim's widow and heir, as well as the natural guardian of
their child, her co-heir. As a matter of fact, she executed a "Release Of Claim" in favor of the
petitioners.

WHEREFORE, the petition is GRANTED; the decision of the Court of Appeals is REVERSED
and SET ASIDE and the decision of the Regional Trial Court is hereby REINSTATED. Costs
against the private respondents.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Regalado, JJ., concur.

THIRD DIVISION

[G.R. No. 138018. July 26, 2002]

RIDO MONTECILLO, petitioner, vs. IGNACIA REYNES and SPOUSES REDEMPTOR and
ELISA ABUCAY, respondents.

DECISION

CARPIO, J.:

The Case

On March 24, 1993, the Regional Trial Court of Cebu City, Branch 18, rendered a
Decisionxxii[1] declaring the deed of sale of a parcel of land in favor of petitioner null and void
ab initio. The Court of Appeals,xxiii[2] in its July 16, 1998 Decisionxxiv[3] as well as its
February 11, 1999 Orderxxv[4] denying petitioners Motion for Reconsideration, affirmed the
trial courts decision in toto. Before this Court now is a Petition for Review on Certiorarixxvi[5]
assailing the Court of Appeals decision and order.

The Facts

Respondents Ignacia Reynes (Reynes for brevity) and Spouses Abucay (Abucay Spouses for
brevity) filed on June 20, 1984 a complaint for Declaration of Nullity and Quieting of Title
against petitioner Rido Montecillo (Montecillo for brevity). Reynes asserted that she is the owner
of a lot situated in Mabolo, Cebu City, covered by Transfer Certificate of Title No. 74196 and
containing an area of 448 square meters (Mabolo Lot for brevity). In 1981, Reynes sold 185
square meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the lot
they bought.

Reynes alleged further that on March 1, 1984 she signed a Deed of Sale of the Mabolo Lot in
favor of Montecillo (Montecillos Deed of Sale for brevity). Reynes, being illiterate,xxvii[6]
signed by affixing her thumb-markxxviii[7] on the document. Montecillo promised to pay the
agreed P47,000.00 purchase price within one month from the signing of the Deed of Sale.
Montecillos Deed of Sale states as follows:

That I, IGNACIA T. REYNES, of legal age, Filipino, widow, with residence and postal address
at Mabolo, Cebu City, Philippines, for and in consideration of FORTY SEVEN THOUSAND
(P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO MONTECILLO, of
legal age, Filipino, married, with residence and postal address at Mabolo, Cebu City, Philippines,
the receipt hereof is hereby acknowledged, have sold, transferred, and conveyed, unto RIDO
MONTECILLO, his heirs, executors, administrators, and assigns, forever, a parcel of land
together with the improvements thereon, situated at Mabolo, Cebu City, Philippines, free from
all liens and encumbrances, and more particularly described as follows:

A parcel of land (Lot 203-B-2-B of the subdivision plan Psd-07-01-00 2370, being a portion of
Lot 203-B-2, described on plan (LRC) Psd-76821, L.R.C. (GLRO) Record No. 5988), situated in
the Barrio of Mabolo, City of Cebu. Bounded on the SE., along line 1-2 by Lot 206; on the SW.,
along line 2-3, by Lot 202, both of Banilad Estate; on the NW., along line 4-5, by Lot 203-B-2-A
of the subdivision of Four Hundred Forty Eight (448) square meters, more or less.

of which I am the absolute owner in accordance with the provisions of the Land Registration
Act, my title being evidenced by Transfer Certificate of Title No. 74196 of the Registry of Deeds
of the City of Cebu, Philippines. That This Land Is Not Tenanted and Does Not Fall Under the
Purview of P.D. 27.xxix[8] (Emphasis supplied)

Reynes further alleged that Montecillo failed to pay the purchase price after the lapse of the one-
month period, prompting Reynes to demand from Montecillo the return of the Deed of Sale.
Since Montecillo refused to return the Deed of Sale,xxx[9] Reynes executed a document
unilaterally revoking the sale and gave a copy of the document to Montecillo.

Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the Abucay
Spouses the entire Mabolo Lot, at the same time confirming the previous sale in 1981 of a 185-
square meter portion of the lot. This Deed of Sale states:

I, IGNACIA T. REYNES, of legal age, Filipino, widow and resident of Mabolo, Cebu City, do
hereby confirm the sale of a portion of Lot No. 74196 to an extent of 185 square meters to
Spouses Redemptor Abucay and Elisa Abucay covered by Deed per Doc. No. 47, Page No. 9,
Book No. V, Series of 1981 of notarial register of Benedicto Alo, of which spouses is now in
occupation;

That for and in consideration of the total sum of FIFTY THOUSAND (P50,000) PESOS,
Philippine Currency, received in full and receipt whereof is herein acknowledged from
SPOUSES REDEMPTOR ABUCAY and ELISA ABUCAY, do hereby in these presents, SELL,
TRANSFER and CONVEY absolutely unto said Spouses Redemptor Abucay and Elisa Abucay,
their heirs, assigns and successors-in-interest the whole parcel of land together with
improvements thereon and more particularly described as follows:
 TCT No. 74196

A parcel of land (Lot 203-B-2-B of the subdivision plan psd-07-01-002370, being a portion of
Lot 203-B-2, described on plan (LRC) Psd 76821, LRC (GLRO) Record No. 5988) situated in
Mabolo, Cebu City, along Arcilla Street, containing an area of total FOUR HUNDRED FORTY
EIGHT (448) Square meters.

of which I am the absolute owner thereof free from all liens and encumbrances and warrant the
same against claim of third persons and other deeds affecting said parcel of land other than that
to the said spouses and inconsistent hereto is declared without any effect.

In witness whereof, I hereunto signed this 23rd day of May, 1984 in Cebu City, Philippines.
xxxi[10]

Reynes and the Abucay Spouses alleged that on June 18, 1984 they received information that the
Register of Deeds of Cebu City issued Certificate of Title No. 90805 in the name of Montecillo
for the Mabolo Lot.

Reynes and the Abucay Spouses argued that for lack of consideration there (was) no meeting of
the mindsxxxii[11] between Reynes and Montecillo. Thus, the trial court should declare null and
void ab initio Montecillos Deed of Sale, and order the cancellation of Certificate of Title No.
90805 in the name of Montecillo.

In his Answer, Montecillo, a bank executive with a B.S. Commerce degree,xxxiii[12] claimed he
was a buyer in good faith and had actually paid the P47,000.00 consideration stated in his Deed
of Sale. Montecillo, however, admitted he still owed Reynes a balance of P10,000.00. He also
alleged that he paid P50,000.00 for the release of the chattel mortgage which he argued
constituted a lien on the Mabolo Lot. He further alleged that he paid for the real property tax as
well as the capital gains tax on the sale of the Mabolo Lot.

In their Reply, Reynes and the Abucay Spouses contended that Montecillo did not have authority
to discharge the chattel mortgage, especially after Reynes revoked Montecillos Deed of Sale and
gave the mortgagee a copy of the document of revocation. Reynes and the Abucay Spouses
claimed that Montecillo secured the release of the chattel mortgage through machination. They
further asserted that Montecillo took advantage of the real property taxes paid by the Abucay
Spouses and surreptitiously caused the transfer of the title to the Mabolo Lot in his name.

During pre-trial, Montecillo claimed that the consideration for the sale of the Mabolo Lot was the
amount he paid to Cebu Ice and Cold Storage Corporation (Cebu Ice Storage for brevity) for the
mortgage debt of Bienvenido Jayag (Jayag for brevity). Montecillo argued that the release of the
mortgage was necessary since the mortgage constituted a lien on the Mabolo Lot.

Reynes, however, stated that she had nothing to do with Jayags mortgage debt except that the
house mortgaged by Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the
payment by Montecillo to release the mortgage on Jayags house is a matter between Montecillo
and Jayag. The mortgage on the house, being a chattel mortgage, could not be interpreted in any
way as an encumbrance on the Mabolo Lot. Reynes further claimed that the mortgage debt had
long prescribed since the P47,000.00 mortgage debt was due for payment on January 30, 1967.

The trial court rendered a decision on March 24, 1993 declaring the Deed of Sale to Montecillo
null and void. The trial court ordered the cancellation of Montecillos Transfer Certificate of Title
No. 90805 and the issuance of a new certificate of title in favor of the Abucay Spouses. The trial
court found that Montecillos Deed of Sale had no cause or consideration because Montecillo
never paid Reynes the P47,000.00 purchase price, contrary to what is stated in the Deed of Sale
that Reynes received the purchase price. The trial court ruled that Montecillos Deed of Sale
produced no effect whatsoever for want of consideration. The dispositive portion of the trial
courts decision reads as follows:

WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered declaring

the deed of sale in favor of defendant null and void and of no force and effect thereby ordering
the cancellation of Transfer Certificate of Title No. 90805 of the Register of Deeds of Cebu City
and to declare plaintiff Spouses Redemptor and Elisa Abucay as rightful vendees and Transfer
Certificate of Title to the property subject matter of the suit issued in their names. The
defendants are further directed to pay moral damages in the sum of P20,000.00 and attorneys
fees in the sum of P2,000.00 plus cost of the suit.

xxx

Not satisfied with the trial courts Decision, Montecillo appealed the same to the Court of
Appeals.

Ruling of the Court of Appeals

The appellate court affirmed the Decision of the trial court in toto and dismissed the
appealxxxiv[13] on the ground that Montecillos Deed of Sale is void for lack of consideration.
The appellate court also denied Montecillos Motion for Reconsiderationxxxv[14] on the ground
that it raised no new arguments.

Still dissatisfied, Montecillo filed the present petition for review on certiorari.

The Issues

Montecillo raises the following issues:

1. Was there an agreement between Reynes and Montecillo that the stated consideration of
P47,000.00 in the Deed of Sale be paid to Cebu Ice and Cold Storage to secure the release of the
Transfer Certificate of Title?

2. If there was none, is the Deed of Sale void from the beginning or simply rescissible?xxxvi[15]

The Ruling of the Court

The petition is devoid of merit.

First issue: manner of payment of the P47,000.00 purchase price.

Montecillos Deed of Sale does not state that the P47,000.00 purchase price should be paid by
Montecillo to Cebu Ice Storage. Montecillo failed to adduce any evidence before the trial court
showing that Reynes had agreed, verbally or in writing, that the P47,000.00 purchase price
should be paid to Cebu Ice Storage. Absent any evidence showing that Reynes had agreed to the
payment of the purchase price to any other party, the payment to be effective must be made to
Reynes, the vendor in the sale. Article 1240 of the Civil Code provides as follows:

Payment shall be made to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it.

Thus, Montecillos payment to Cebu Ice Storage is not the payment that would
extinguishxxxvii[16] Montecillos obligation to Reynes under the Deed of Sale.

It militates against common sense for Reynes to sell her Mabolo Lot for P47,000.00 if this entire
amount would only go to Cebu Ice Storage, leaving not a single centavo to her for giving up
ownership of a valuable property. This incredible allegation of Montecillo becomes even more
absurd when one considers that Reynes did not benefit, directly or indirectly, from the payment
of the P47,000.00 to Cebu Ice Storage.

The trial court found that Reynes had nothing to do with Jayags mortgage debt with Cebu Ice
Storage. The trial court made the following findings of fact:

x x x. Plaintiff Ignacia Reynes was not a party to nor privy of the obligation in favor of the Cebu
Ice and Cold Storage Corporation, the obligation being exclusively of Bienvenido Jayag and wife
who mortgaged their residential house constructed on the land subject matter of the complaint.
The payment by the defendant to release the residential house from the mortgage is a matter
between him and Jayag and cannot by implication or deception be made to appear as an
encumbrance upon the land.xxxviii[17]

Thus, Montecillos payment to Jayags creditor could not possibly redound to the benefitxxxix[18]
of Reynes. We find no reason to disturb the factual findings of the trial court. In petitions for
review on certiorari as a mode of appeal under Rule 45, as in the instant case, a petitioner can
raise only questions of law.xl[19] This Court is not the proper venue to consider a factual issue
as it is not a trier of facts.

Second issue: whether the Deed of Sale is void ab initio or only rescissible.

Under Article 1318 of the Civil Code, [T]here is no contract unless the following requisites
concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of
the contract; (3) Cause of the obligation which is established. Article 1352 of the Civil Code also
provides that [C]ontracts without cause x x x produce no effect whatsoever.
Montecillo argues that his Deed of Sale has all the requisites of a valid contract. Montecillo
points out that he agreed to purchase, and Reynes agreed to sell, the Mabolo Lot at the price of
P47,000.00. Thus, the three requisites for a valid contract concur: consent, object certain and
consideration. Montecillo asserts there is no lack of consideration that would prevent the
existence of a valid contract. Rather, there is only non-payment of the consideration within the
period agreed upon for payment.

Montecillo argues there is only a breach of his obligation to pay the full purchase price on time.
Such breach merely gives Reynes a right to ask for specific performance, or for annulment of the
obligation to sell the Mabolo Lot. Montecillo maintains that in reciprocal obligations, the injured
party can choose between fulfillment and rescission,xli[20] or more properly cancellation, of the
obligation under Article 1191xlii[21] of the Civil Code. This Article also provides that the court
shall decree the rescission claimed, unless there be just cause authorizing the fixing of the period.
Montecillo claims that because Reynes failed to make a demand for payment, and instead
unilaterally revoked Montecillos Deed of Sale, the court has a just cause to fix the period for
payment of the balance of the purchase price.

These arguments are not persuasive.

Montecillos Deed of Sale states that Montecillo paid, and Reynes received, the P47,000.00
purchase price on March 1, 1984, the date of signing of the Deed of Sale. This is clear from the
following provision of the Deed of Sale:

That I, IGNACIA T. REYNES, x x x for and in consideration of FORTY SEVEN

THOUSAND (P47,000.00) PESOS, Philippine Currency, to me in hand paid by RIDO
MONTECILLO xxx, receipt of which is hereby acknowledged, have sold, transferred, and
conveyed, unto RIDO MONTECILLO, x x x a parcel of land x x x.

On its face, Montecillos Deed of Absolute Salexliii[22] appears supported by a valuable

consideration. However, based on the evidence presented by both Reynes and Montecillo, the
trial court found that Montecillo never paid to Reynes, and Reynes never received from
Montecillo, the P47,000.00 purchase price. There was indisputably a total absence of
consideration contrary to what is stated in Montecillos Deed of Sale. As pointed out by the trial
court

From the allegations in the pleadings of both parties and the oral and documentary evidence
adduced during the trial, the court is convinced that the Deed of Sale (Exhibits 1 and 1-A)
executed by plaintiff Ignacia Reynes acknowledged before Notary Public Ponciano Alvinio is
devoid of any consideration. Plaintiff Ignacia Reynes through the representation of Baudillo
Baladjay had executed a Deed of Sale in favor of defendant on the promise that the consideration
should be paid within one (1) month from the execution of the Deed of Sale. However, after the
lapse of said period, defendant failed to pay even a single centavo of the consideration. The
answer of the defendant did not allege clearly why no consideration was paid by him except for
the allegation that he had a balance of only P10,000.00. It turned out during the pre-trial that
what the defendant considered as the consideration was the amount which he paid for the
obligation of Bienvenido Jayag with the Cebu Ice and Cold Storage Corporation over which
plaintiff Ignacia Reynes did not have a part except that the subject of the mortgage was
constructed on the parcel of land in question. Plaintiff Ignacia Reynes was not a party to nor
privy of the obligation in favor of the Cebu Ice and Cold Storage Corporation, the obligation
being exclusively of Bienvenido Jayag and wife who mortgaged their residential house
constructed on the land subject matter of the complaint. The payment by the defendant to release
the residential house from the mortgage is a matter between him and Jayag and cannot by
implication or deception be made to appear as an encumbrance upon the land. xliv[23]

Factual findings of the trial court are binding on us, especially if the Court of Appeals affirms
such findings.xlv[24] We do not disturb such findings unless the evidence on record clearly does
not support such findings or such findings are based on a patent misunderstanding of
facts,xlvi[25] which is not the case here. Thus, we find no reason to deviate from the findings of
both the trial and appellate courts that no valid consideration supported Montecillos Deed of
Sale.

This is not merely a case of failure to pay the purchase price, as Montecillo claims, which can
only amount to a breach of obligation with rescission as the proper remedy. What we have here
is a purported contract that lacks a cause - one of the three essential requisites of a valid contract.
Failure to pay the consideration is different from lack of consideration. The former results in a
right to demand the fulfillment or cancellation of the obligation under an existing valid
contractxlvii[26] while the latter prevents the existence of a valid contract

Where the deed of sale states that the purchase price has been paid but in fact has never been
paid, the deed of sale is null and void ab initio for lack of consideration. This has been the well-
settled rule as early as Ocejo Perez & Co. v. Flores,xlviii[27] a 1920 case. As subsequently
explained in Mapalo v. Mapaloxlix[28]

In our view, therefore, the ruling of this Court in Ocejo Perez & Co. vs. Flores, 40 Phil. 921, is
squarely applicable herein. In that case we ruled that a contract of purchase and sale is null and
void and produces no effect whatsoever where the same is without cause or consideration in that
the purchase price which appears thereon as paid has in fact never been paid by the purchaser to
the vendor.

The Court reiterated this rule in Vda. De Catindig v. Heirs of Catalina Roque,l[29] to wit

The Appellate Courts finding that the price was not paid or that the statement in the supposed
contracts of sale (Exh. 6 to 26) as to the payment of the price was simulated fortifies the view
that the alleged sales were void. If the price is simulated, the sale is void . . . (Art. 1471, Civil
Code)

A contract of sale is void and produces no effect whatsoever where the price, which appears
thereon as paid, has in fact never been paid by the purchaser to the vendor (Ocejo, Perez & Co.
vs. Flores and Bas, 40 Phil. 921; Mapalo vs. Mapalo, L-21489, May 19, 1966, 64 O.G. 331, 17
SCRA 114, 122). Such a sale is non-existent (Borromeo vs. Borromeo, 98 Phil. 432) or cannot
be considered consummated (Cruzado vs. Bustos and Escaler, 34 Phil. 17; Garanciang vs.
Garanciang, L-22351, May 21, 1969, 28 SCRA 229).
Applying this well-entrenched doctrine to the instant case, we rule that Montecillos Deed of Sale
is null and void ab initio for lack of consideration.

Montecillo asserts that the only issue in controversy is the mode and/or manner of payment
and/or whether or not payment has been made.li[30] Montecillo implies that the mode or manner
of payment is separate from the consideration and does not affect the validity of the contract. In
the recent case of San Miguel Properties Philippines, Inc. v. Huang,lii[31] we ruled that

In Navarro v. Sugar Producers Cooperative Marketing Association, Inc. (1 SCRA 1181 [1961]),
we laid down the rule that the manner of payment of the purchase price is an essential
element before a valid and binding contract of sale can exist. Although the Civil Code does
not expressly state that the minds of the parties must also meet on the terms or manner of
payment of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc.
v. Court of Appeals (244 SCRA 320 [1995]), agreement on the manner of payment goes into the
price such that a disagreement on the manner of payment is tantamount to a failure to agree
on the price. (Emphasis supplied)

One of the three essential requisites of a valid contract is consent of the parties on the object and
cause of the contract. In a contract of sale, the parties must agree not only on the price, but also
on the manner of payment of the price. An agreement on the price but a disagreement on the
manner of its payment will not result in consent, thus preventing the existence of a valid contract
for lack of consent. This lack of consent is separate and distinct from lack of consideration
where the contract states that the price has been paid when in fact it has never been paid.

Reynes expected Montecillo to pay him directly the P47,000.00 purchase price within one month
after the signing of the Deed of Sale. On the other hand, Montecillo thought that his agreement
with Reynes required him to pay the P47,000.00 purchase price to Cebu Ice Storage to settle
Jayags mortgage debt. Montecillo also acknowledged a balance of P10,000.00 in favor of Reynes
although this amount is not stated in Montecillos Deed of Sale. Thus, there was no consent, or
meeting of the minds, between Reynes and Montecillo on the manner of payment. This
prevented the existence of a valid contract because of lack of consent.

In summary, Montecillos Deed of Sale is null and void ab initio not only for lack of
consideration, but also for lack of consent. The cancellation of TCT No. 90805 in the name of
Montecillo is in order as there was no valid contract transferring ownership of the Mabolo Lot
from Reynes to Montecillo.

WHEREFORE, the petition is DENIED and the assailed Decision dated July 16, 1998 of the
Court of Appeals in CA-G.R. CV No. 41349 is AFFIRMED. Costs against petitioner.

SO ORDERED.

Puno, (Chairman), Panganiban, and Sandoval-Gutierrez, JJ., concur.

PROPER PAYOR
SECOND DIVISION

[G.R. No. 151060. August 31, 2005]

JN DEVELOPMENT CORPORATION, and SPS. RODRIGO and LEONOR STA. ANA,

petitioners, vs. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE
CORPORATION, respondent.

[G.R. No. 151311. August 31, 2005]

NARCISO V. CRUZ, petitioner, vs. PHILIPPINE EXPORT and FOREIGN LOAN

GUARANTEE CORPORATION, respondent.

DECISION

TINGA, J.:

Before us are consolidated petitions questioning the Decision[1] of the Court of Appeals (CA) in
CA-G.R. CV No. 61318, entitled Philippine Export and Foreign Loan Guarantee Corporation v.
JN Development Corporation, et al., which reversed the Decision of the Regional Trial Court
(RTC) of Makati, Branch 60.

On 13 December 1979, petitioner JN Development Corporation (JN) and Traders Royal Bank
(TRB) entered into an agreement whereby TRB would extend to JN an Export Packing Credit
Line for Two Million Pesos (P2,000,000.00). The loan was covered by several securities,
including a real estate mortgage[2] and a letter of guarantee from respondent Philippine Export
and Foreign Loan Guarantee Corporation (PhilGuarantee), now Trade and Investment
Development Corporation of the Philippines, covering seventy percent (70%) of the credit
line.[3] With PhilGuarantee issuing a guarantee in favor of TRB,[4] JN, petitioner spouses
Rodrigo and Leonor Sta. Ana[5] and petitioner Narciso Cruz[6] executed a Deed of
Undertaking[7] (Undertaking) to assure repayment to PhilGuarantee.

It appears that JN failed to pay the loan to TRB upon its maturity; thus, on 8 October 1980 TRB
requested PhilGuarantee to make good its guarantee.[8] PhilGuarantee informed JN about the
call made by TRB, and inquired about the action of JN to settle the loan.[9] Having received no
response from JN, on 10 March 1981 PhilGuarantee paid TRB Nine Hundred Thirty Four
Thousand Eight Hundred Twenty Four Pesos and Thirty Four Centavos (P934,824.34).[10]
Subsequently, PhilGuarantee made several demands on JN, but the latter failed to pay. On 30
May 1983, JN, through Rodrigo Sta. Ana, proposed to settle the obligation by way of
development and sale of the mortgaged property.[11] PhilGuarantee, however, rejected the
proposal.

PhilGuarantee thus filed a Complaint[12] for collection of money and damages against herein
petitioners.
In its Decision dated 20 August 1998, the RTC dismissed PhilGuarantees Complaint as well as
the counterclaim of petitioners. It ruled that petitioners are not liable to reimburse PhilGuarantee
what it had paid to TRB. Crucial to this holding was the courts finding that TRB was able to
foreclose the real estate mortgage executed by JN, thus extinguishing petitioners obligation.[13]
Moreover, there was no showing that after the said foreclosure, TRB had demanded from JN any
deficiency or the payment of the difference between the proceeds of the foreclosure sale and the
actual loan.[14] In addition, the RTC held that since PhilGuarantees guarantee was good for only
one year from 17 December 1979, or until 17 December 1980, and since it was not renewed after
the expiry of said period, PhilGuarantee had no more legal duty to pay TRB on 10 March
1981.[15] The RTC likewise ruled that Cruz cannot be held liable under the Undertaking since
he was not the one who signed the document, in line with its finding that his signature found in
the records is totally different from the signature on the Undertaking.[16]

According to the RTC, the failure of TRB to sue JN for the recovery of the loan precludes
PhilGuarantee from seeking recoupment from the spouses Sta. Ana and Cruz what it paid to
TRB. Thus, PhilGuarantees payment to TRB amounts to a waiver of its right under Art. 2058 of
the Civil Code.[17]

Aggrieved by the RTC Decision, PhilGuarantee appealed to the CA. The appellate court reversed
the RTC and ordered petitioners to pay PhilGuarantee Nine Hundred Thirty Four Thousand Six
Hundred Twenty Four Pesos and Thirty Four Centavos (P934,624.34), plus service charge and
interest.[18]

In reaching its denouement, the CA held that the RTCs finding that the loan was extinguished by
virtue of the foreclosure sale of the mortgaged property had no factual support,[19] and that such
finding is negated by Rodrigo Sta. Anas testimony that JN did not receive any notice of
foreclosure from PhilGuarantee or from TRB. [20] Moreover, Sta. Ana even offered the same
mortgaged property to PhilGuarantee to settle its obligations with the latter.[21]

The CA also ruled that JNs obligation had become due and demandable within the one-year
period of effectivity of the guarantee; thus, PhilGuarantees payment to TRB conformed with its
guarantee, although the payment itself was effected one year after the maturity date of the
loan.[22] Contrary to the trial courts finding, the CA ruled that the contract of guarantee was not
extinguished by the alleged lack of evidence on PhilGuarantees consent to the extensions granted
by TRB to JN.[23] Interpreting Art. 2058 of the Civil Code,[24] the appellate court explained
that while the provision states that the guarantor cannot be compelled to pay unless the properties
of the debtor are exhausted, the guarantor is not precluded from waiving the benefit of excussion
and paying the obligation altogether.[25]

Finally, the CA found that Narciso Cruz was unable to prove the alleged forgery of his signature
in the Undertaking, the evidence presented not being sufficient to overcome the presumption of
regularity of the Undertaking which is a notarized document. [26]

Petitioners sought reconsideration of the Decision and prayed for the admission of documents
evidencing the foreclosure of the real estate mortgage, but the motion for reconsideration was
denied by the CA for lack of merit. The CA ruled that the documentary evidence presented by
petitioners cannot be considered as newly discovered evidence, it being already in existence
while the case was pending before the trial court, the very forum before which it should have
been presented. Besides, a foreclosure sale per se is not proof of petitioners payment of the loan
to PhilGuarantee, the CA added.[27]

So now before the Court are the separate petitions for review of the CA Decision. JN and the
spouses Sta. Ana, petitioners in G.R. No. 151060, posit that the CA erred in interpreting Articles
2079, 2058, and 2059 of the Civil Code in its Decision.[28] Meanwhile, petitioner Narciso Cruz
in G.R. No. 151311 claims that the CA erred when it held that petitioners are liable to
PhilGuarantee despite its payment after the expiration of its contract of guarantee and the lack of
PhilGuarantees consent to the extensions granted by TRB to JN. Moreover, Cruz questions the
reversal of the ruling of the trial court anent his liability as a signatory to the Undertaking.[29]

On the other hand, PhilGuarantee maintains that the date of default, not the actual date of
payment, determines the liability of the guarantor and that having paid TRB when the loan
became due, it should be indemnified by petitioners.[30] It argues that, contrary to petitioners
claim, there could be no waiver of its right to excussion more explicit than its act of payment to
TRB very directly.[31] Besides, the right to excussion is for the benefit of the guarantor and is
not a defense for the debtor to raise and use to evade liability.[32] Finally, PhilGuarantee
maintains that there is no sufficient evidence proving the alleged forgery of Cruzs signature on
the Undertaking, which is a notarized document and as such must be accorded the presumption
of regularity.[33]

The Court finds for PhilGuarantee.

Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation
of the principal debtor in case the latter should fail to do so.[34] The guarantor who pays for a
debtor, in turn, must be indemnified by the latter.[35] However, the guarantor cannot be
compelled to pay the creditor unless the latter has exhausted all the property of the debtor and
resorted to all the legal remedies against the debtor.[36] This is what is otherwise known as the
benefit of excussion.

It is clear that excussion may only be invoked after legal remedies against the principal debtor
have been expanded. Thus, it was held that the creditor must first obtain a judgment against the
principal debtor before assuming to run after the alleged guarantor, for obviously the exhaustion
of the principals property cannot even begin to take place before judgment has been
obtained.[37] The law imposes conditions precedent for the invocation of the defense. Thus, in
order that the guarantor may make use of the benefit of excussion, he must set it up against the
creditor upon the latters demand for payment and point out to the creditor available property of
the debtor within the Philippines sufficient to cover the amount of the debt.[38]

While a guarantor enjoys the benefit of excussion, nothing prevents him from paying the
obligation once demand is made on him. Excussion, after all, is a right granted to him by law and
as such he may opt to make use of it or waive it. PhilGuarantees waiver of the right of excussion
cannot prevent it from demanding reimbursement from petitioners. The law clearly requires the
debtor to indemnify the guarantor what the latter has paid.[39]
Petitioners claim that PhilGuarantee had no more obligation to pay TRB because of the alleged
expiration of the contract of guarantee is untenable. The guarantee, dated17 December 1979,
states:

In the event of default by JNDC and as a consequence thereof, PHILGUARANTEE is made to

pay its obligation arising under the aforesaid guarantee PHILGUARANTEE shall pay the BANK
the amount of P1.4 million or 70% of the total obligation unpaid

....

This guarantee shall be valid for a period of one (1) year from date hereof but may be renewed
upon payment by JNDC of the guarantee fee at the same rate of 1.5% per annum.[40]

The guarantee was only up to 17 December 1980. JNs obligation with TRB fell due on 30 June
1980, and demand on PhilGuarantee was made by TRB on 08 October 1980. That payment was
actually made only on 10 March 1981 does not take it out of the terms of the guarantee. What is
controlling is that default and demand on PhilGuarantee had taken place while the guarantee was
still in force.

There is likewise no merit in petitioners claim that PhilGuarantees failure to give its express
consent to the alleged extensions granted by TRB to JN had extinguished the guarantee. The
requirement that the guarantor should consent to any extension granted by the creditor to the
debtor under Art. 2079 is for the benefit of the guarantor. As such, it is likewise waivable by the
guarantor. Thus, even assuming that extensions were indeed granted by TRB to JN,
PhilGuarantee could have opted to waive the need for consent to such extensions. Indeed, a
guarantor is not precluded from waiving his right to be notified of or to give his consent to
extensions obtained by the debtor. Such waiver is not contrary to public policy as it is purely
personal and does not affect public interest.[41] In the instant case, PhilGuarantees waiver can be
inferred from its actual payment to TRB after the latters demand, despite JNs failure to pay the
renewal/guarantee fee as indicated in the guarantee.[42]

For the above reasons, there is no basis for petitioners claim that PhilGuarantee was a mere
volunteer payor and had no legal obligation to pay TRB. The law does not prohibit the payment
by a guarantor on his own volition, heedless of the benefit of excussion. In fact, it recognizes the
right of a guarantor to recover what it has paid, even if payment was made before the debt
becomes due,[43] or if made without notice to the debtor,[44] subject of course to some
conditions.

Petitioners invocation of our ruling in Willex Plastic Industries, Corp. v. Court of Appeals[45] is
misplaced, if not irrelevant. In the said case, the guarantor claimed that it could not be proceeded
against without first exhausting all of the properties of the debtor. The Court, finding that there
was an express renunciation of the benefit of excussion in the contract of guarantee, ruled against
the guarantor.
The cited case finds no application in the case a quo. PhilGuarantee is not invoking the benefit of
excussion. It cannot be overemphasized that excussion is a right granted to the guarantor and,
therefore, only he may invoke it at his discretion.

The benefit of excussion, as well as the requirement of consent to extensions of payment, is a

protective device pertaining to and conferred on the guarantor. These may be invoked by the
guarantor against the creditor as defenses to bar the unwarranted enforcement of the guarantee.
However, PhilGuarantee did not avail of these defenses when it paid its obligation according to
the tenor of the guarantee once demand was made on it. What is peculiar in the instant case is
that petitioners, the principal debtors themselves, are muddling the issues and raising the same
defenses against the guarantor, which only the guarantor may invoke against the creditor, to
avoid payment of their own obligation to the guarantor. The Court cannot countenance their self-
seeking desire to be exonerated from the duty to reimburse PhilGuarantee after it had paid TRB
on their behalf and to unjustly enrich themselves at the expense of PhilGuarantee.

Petitioners assert that TRBs alleged foreclosure of the real estate mortgage over the land
executed as security for the loan agreement had extinguished PhilGuarantees obligation; thus,
PhilGuarantees recourse should be directed against TRB, as per the pari-passu provision[46] in
the contract of guarantee.[47] We disagree.

The foreclosure was made on 27 August 1993, after the case was submitted for decision in 1992
and before the issuance of the decision of the court a quo in 1998.[48] Thus, foreclosure was
resorted to by TRB against JN when they both had become aware that PhilGuarantee had already
paid TRB and that there was a pending case filed by PhilGuarantee against petitioners. This
matter was not raised and proved in the trial court, nor in the appeal before the CA, but raised for
the first time in petitioners motion for reconsideration in the CA. In their appellants Brief,
petitioners claimed that there was no need for the defendant-appellee JNDC to present any
evidence before the lower court to show that indeed foreclosure of the REM took place.[49] As
properly held by the CA,

Firstly, the documents evidencing foreclosure of mortgage cannot be considered as newly

discovered evidence. The said documents were already subsisting and should have been
presented during the trial of the case. The alleged foreclosure sale was made on August 23, 1993
while the decision was rendered by the trial court on August 20, 1998 about five (5) years
thereafter. These documents were likewise not submitted by the defendants-appellees when they
submitted their appellees Brief to this Court. Thus, these cannot be considered as newly
discovered evidence but are more correctly ascribed as suppressed forgotten evidence Secondly,
the alleged foreclosure sale is not proof of payment of the loan by defendant-appellees to the
plaintiffs-appellants.[50]

Besides, the complaint a quo was filed by PhilGuarantee as guarantor for JN, and its cause of
action was premised on its payment of JNs obligation after the latters default. PhilGuarantee was
well within its rights to demand reimbursement for such payment made, regardless of whether
the creditor, TRB, was subsequently able to obtain payment from JN. If double payment was
indeed made, then it is JN which should go after TRB, and not PhilGuarantee. Petitioners have
no one to blame but themselves, having allowed the foreclosure of the property for the full value
of the loan despite knowledge of PhilGuarantees payment to TRB. Having been aware of such
payment, they should have opposed the foreclosure, or at the very least, filed a supplemental
pleading with the trial court informing the same of the foreclosure sale.

Likewise, petitioners cannot invoke the pari-passu clause in the guarantee, not being parties to
the said agreement. The clause is clearly for the benefit of the guarantor and no other.

The Court notes the letter[51] of Rodrigo Sta. Ana offering, by way of settlement of JNs
obligations to PhilGuarantee, the very same parcel of land mortgaged as security for the loan
agreement. This further weakens the position of petitioners, since it becomes obvious that they
acknowledged the payment made by PhilGuarantee on their behalf and that they were in fact
willing to negotiate with PhilGuarantee for the settlement of the said obligation before the filing
of the complaint a quo.

Anent the issue of forgery, the CA is correct in reversing the decision of the trial court. Save for
the denial of Narciso Cruz that it was not his signature in the Undertaking and the perfunctory
comparison of the signatures, nothing in the records would support the claim of forgery. Forgery
cannot be presumed and must be proved by clear, positive and convincing evidence and the
burden of proof lies on the party alleging forgery.[52] Mere denial will not suffice to overcome
the positive value of the Undertaking, which is a notarized document, has in its favor the
presumption of regularity, and carries the evidentiary weight conferred upon it with respect to its
due execution.[53] Even in cases where the alleged forged signature was compared to samples of
genuine signatures to show its variance therefrom, this Court still found such evidence
insufficient.[54] Mere variance of the signatures cannot be considered as conclusive proof that
the same were forged.[55]

WHEREFORE, the consolidated petitions are DENIED. The Decision of the Court of Appeals
in CA-G.R. CV No. 61318 is AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

SECOND DIVISION

[G.R. No. 112214. June 18, 1998]

SECURITY BANK & TRUST COMPANY, petitioner, vs. COURT OF APPEALS, CRISPULO
IKE ARBOLEDA, and AMADOR LIBONGCO, respondents.

DECISION
MENDOZA, J.:

This is an appeal from the decision of the Court of Appealsliii[1] in CA-G.R. No. 33716,
affirming the ruling of the Regional Trial Court, Branch 58, of Makati, Metro Manila.

The facts are as follows:

Petitioner filed an action against private respondents for the recovery of a sum of money with
damages and preliminary attachment. It alleged that sometime in 1983, A.T. Diaz Realty,
through Anita Diaz, bought from Ricardo Lorenzo his undivided share in a parcel of land which
he owned in common with Servando Solomon. In connection with this transaction, Diaz issued a
check for P60,000.00 in the name of Ricardo Lorenzos agent, private respondent Crispulo
Arboleda. The check, dated November 7, 1983, was to be drawn against the current account of
A.T. Diaz Realty in the Marikina branch of the Security Bank and Trust Co. (SBTC). According
to Diaz, the money was part of the purchase price of the land. It was to be used to pay the capital
gains tax on the transaction and to reimburse Solomon for payments he had made for delinquent
real estate taxes on the land. In return, Solomon would deliver to Diaz the title to the land.

On November 8, 1983, Solomon informed Diaz that, as he had not yet been reimbursed by
private respondent, he could not deliver to Diaz the title to the land. Diaz decided to reimburse
Solomon and to pay the capital gains tax herself. Consequently, she issued two more checks, one
for P20,000.00, in the name of Solomon for the reimbursement, and another one for P40,000.00,
payable to bearer, for the payment of the tax. Thereafter, on the same date, she ordered petitioner
to stop payment on the check. Diaz allegedly advised private respondent of the order and
requested the return of the check to her.

Instead of returning the check to Diaz, however, private respondent encashed it on November 24,
1983. For their part, employees of petitioner bank failed to notice that the check was the subject
of a stop payment order and allowed private respondent to encash it. (It appears that the drawer,
A.T. Diaz Realty, had two accounts with petitioner, a savings account and a current account. It
had an agreement with petitioner for automatic transfer which made it possible for the drawer to
draw a check against its current account and have it supported by funds from the savings
account, if funds from the current account were insufficient to cover the amount of the check.
The stop payment order issued by A.T. Diaz Realty was posted in the current account ledger.
However, when the check was presented for encashment, bank personnel consulted not the
current account ledger in which the stop payment order was posted but the savings account
ledger, to see if the funds therein deposited were sufficient to cover the amount of the check.
Since no stop payment order was posted in that ledger, the check was encashed.)

The error was discovered only the next day, November 25, 1983. Petitioner recredited the
amount (P60,000.00) of the check to A.T. Diaz Realtys account.

Bank officials went to see respondent Arboleda to ask for the return of the amount of
P60,000.00. But they were told the money had been turned over to Amador Libongco. When
asked by bank officials, Libongco did not deny receipt of the money, but said he would return it
provided Diaz showed him the receipt for payment of the capital gains tax.
As Diaz failed to show receipts, Arboleda and Libongco refused to return the money. Petitioner,
therefore, filed the instant suit.

In their answer, Arboleda and Libongco denied any obligation to return the money, alleging that
it was due them, the P45,000.00 as payment for the balance of the purchase price, and the
P15,000.00 as payment for Arboledas commission as agent. Arboleda also denied having been
notified of the stop payment order, while Libongco denied having received the money.liv[2]
Libongco died on January 19, 1989lv[3] and, accordingly, the case against him was
dismissed.lvi[4]

On May 21, 1990, the trial court rendered its decision, dismissing petitioners complaint. It ruled
that private respondent and Libongco had no obligation to return the P60,000.00 to Diaz. First,
because private respondent was entitled to P15,000.00 as his commission. Second, because Diaz
could not demand reimbursement for the amount she paid for capital gains tax without receipts to
show for the payment. The trial court found that no tax had actually been paid as the sale of the
land was antedated May 21, 1976 to avoid payment of the capital gains tax. Consequently, it was
held, petitioner should not have recredited A.T. Diaz Realty with the P60,000.00.

The reason given for the stop payment order was transaction incomplete. However, according to
the trial court, since the sale of the land had been completed on November 22, 1983, when the
sale to A.T. Diaz Realty was annotated on the title while the check was encashed on November
24, 1983, the transaction had already been completed at the time the check was encashed. The
reason given for the stop payment order, i.e., that transaction incomplete was, thus, a gross
misrepresentation.lvii[5]

The trial court ruled that petitioner incurred no liability even if it encashed the check despite a
stop payment order, because of a note in the stop payment order form:

[T]he depositor agrees . . . not to hold the bank liable on account of payment contrary to the
request . . . if the same occurs through inadvertence, accident or oversight. . . .lviii[6]

Petitioner appealed to the Court of Appeals which, as earlier stated, affirmed the decision of the
trial court. Hence, this petition. Petitioner contends:

1. The Court of Appeals erred in upholding the decision of the lower court dismissing the
complaint and in not ordering respondent Arboleda to return the value of the subject check to
petitioner.

2. The Court of Appeals erred in affirming the decision of the lower court not ordering
respondent Arboleda to pay petitioner interest on the value of the subject check, and exemplary
damages, attorneys fees and cost of suit.lix[7]

The petition must fail.

Petitioner contends that whatever claim respondent has against Anita Diaz is immaterial to this
case. It is argued that private respondent has an obligation to return the money he received based
on Art. 2154 of the Civil Code, which provides:

If something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises.

This contention has no merit. There was no contractual relation created between petitioner and
private respondent as a result of the payment by the former of the amount of the check. Petitioner
simply paid the check for and in behalf of Anita Diaz. Therefore, the question whether private
respondent Crispulo Arboleda has a right to keep the proceeds of the check is very relevant to
this action brought to recover the amount. As private respondent points out:

It is Anita Diaz to whom respondent sold their property. It is Anita Diaz who issued the
subject check in payment of the balance of the purchase price, and earmarked for the
payment of the capital gains tax and agents commission for the sale of the property. If the
check was dishonored upon presentment for payment, respondent cannot sue petitioner but
only the drawer (Anita Diaz) for lack of privity. The funds from which the check shall be
paid belong to Anita Diaz and merely deposited with the petitioner bank. The stop payment
order was issued by Anita Diaz for alleged incomplete transaction which is a
misrepresentation.lx[8]

Whether petitioner is liable to Anita Diaz for cashing the check after it had been ordered not to
pay is a matter between them. By restoring the amount it had paid to the account of A.T. Diaz
Realty, petitioner merely stepped into the shoes of the drawer. Consequently, its present action is
subject to the defenses which private respondent Arboleda might raise had this action been
instituted by Anita Diaz.

What appears to have happened in this case is that there was an agreement that if Anita Diaz, the
drawer of the check, paid the capital gains tax, she would be reimbursed the amount she had paid
to Arboleda. Claiming that she had paid the capital gains tax, Diaz issued a stop payment order
to petitioner and asked for the return of the check she had issued to Arboleda. As she could not
show any receipt for payment, however, Arboleda refused to return the check. Arboleda instead
cashed the check and refused to pay its proceeds.

Not only was there no receipt presented in this case to prove payment of the tax by Anita Diaz.
There are circumstances which render Anita Diaz claim that she has paid the tax doubtful: (1) the
Deputy Registrar of Deeds of Marikina testified that they did not have any record showing
payment of the capital gains tax;lxi[9] (2) the check for the P40,000.00, which Anita Diaz
claimed she had issued in payment of the tax, was payable to cash,lxii[10] and thus, it could not
be determined to whom the proceeds of such check were paid; and (3) Jose Angeles, to whom
the check was allegedly given by Anita Diaz, was not presented in court.

Petitioner contends that defenses against Anita Diaz should not be considered in this case
because she has not been impleaded as a party. It appears, however, that petitioner was ordered
by the trial court to implead Diaz but it did not do so on the ground that it was going to present
her as a witness.

Indeed, even if petitioner is considered to have paid Anita Diaz in behalf of Arboleda, its right to
recover from Arboleda would be only to the extent that the payment benefitted Arboleda,
because the payment (recrediting) was made without the consent of Arboleda. Since Arboleda
denies owing any obligation to Diaz, petitioner cannot ask for reimbursement. Thus, Art. 1236 of
the Civil Code states:

The creditor is not bound to accept payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Regalado (Chairman), Melo, Puno and Martinez, JJ., concur

TIME OF PERFORMANCE

SECOND DIVISION

[G.R. No. 145483. November 19, 2004]

LORENZO SHIPPING CORP., petitioner, vs. BJ MARTHEL INTERNATIONAL, INC.,

respondent.

DECISION

CHICO-NAZARIO, J.:

This is a petition for review seeking to set aside the Decision[1] of the Court of Appeals in CA-
G.R. CV No. 54334 and its Resolution denying petitioners motion for reconsideration.

The factual antecedents of this case are as follows:

Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise

shipping. It used to own the cargo vessel M/V Dadiangas Express.

Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in
trading, marketing, and selling of various industrial commodities. It is also an importer and
distributor of different brands of engines and spare parts.
From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for
the latters marine engines. Sometime in 1989, petitioner asked respondent for a quotation for
various machine parts. Acceding to this request, respondent furnished petitioner with a formal
quotation,[2] thus:

May 31, 1989

MINQ-6093

LORENZO SHIPPING LINES

Pier 8, North Harbor
Manila

SUBJECT: PARTS FOR ENGINE MODEL

MITSUBISHI 6UET 52/60

Dear Mr. Go:

We are pleased to submit our offer for your above subject requirements.

Description Qty. Unit Price Total Price

Nozzle Tip 6 pcs. P 5,520.00 33,120.00

Plunger & Barrel 6 pcs. 27,630.00 165,780.00
Cylinder Head 2 pcs. 1,035,000.00 2,070,000.00
Cylinder Liner 1 set 477,000.00
TOTAL PRICE FOB P2,745,900.00
MANILA ___________
DELIVERY: Within 2 months after receipt of firm order.
TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal
Installment[s] not to exceed 90 days.
We trust you find our above offer acceptable and look forward to your most valued order.

Very truly yours,

(SGD) HENRY PAJARILLO

Sales Manager
Petitioner thereafter issued to respondent Purchase Order No. 13839,[3] dated 02 November
1989, for the procurement of one set of cylinder liner, valued at P477,000, to be used for M/V
Dadiangas Express. The purchase order was co-signed by Jose Go, Jr., petitioners vice-
president, and Henry Pajarillo. Quoted hereunder is the pertinent portion of the purchase order:

Name of Description Qty. Amount

CYL. LINER M/E 1 SET P477,000.00

NOTHING FOLLOW
INV. #

TERM OF PAYMENT: 25% DOWN PAYMENT

5 BI-MONTHLY INSTALLMENT[S]
Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of
respondent ten postdated checks[4] to be drawn against the formers account with Allied Banking
Corporation. The checks were supposed to represent the full payment of the aforementioned
cylinder liner.

Subsequently, petitioner issued Purchase Order No. 14011,[5] dated 15 January 1990, for yet
another unit of cylinder liner. This purchase order stated the term of payment to be 25% upon
delivery, balance payable in 5 bi-monthly equal installment[s].[6] Like the purchase order of 02
November 1989, the second purchase order did not state the date of the cylinder liners delivery.

On 26 January 1990, respondent deposited petitioners check that was postdated 18 January 1990,
however, the same was dishonored by the drawee bank due to insufficiency of funds. The
remaining nine postdated checks were eventually returned by respondent to petitioner.

The parties presented disparate accounts of what happened to the check which was previously
dishonored. Petitioner claimed that it replaced said check with a good one, the proceeds of
which were applied to its other obligation to respondent. For its part, respondent insisted that it
returned said postdated check to petitioner.

Respondent thereafter placed the order for the two cylinder liners with its principal in Japan,
Daiei Sangyo Co. Ltd., by opening a letter of credit on 23 February 1990 under its own name
with the First Interstate Bank of Tokyo.

On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioners warehouse in North
Harbor, Manila. The sales invoices[7] evidencing the delivery of the cylinder liners both contain
the notation subject to verification under which the signature of Eric Go, petitioners
warehouseman, appeared.

Respondent thereafter sent a Statement of Account dated 15 November 1990[8] to

petitioner. While the other items listed in said statement of account were fully paid by petitioner,
the two cylinder liners delivered to petitioner on 20 April 1990 remained
unsettled. Consequently, Mr. Alejandro Kanaan, Jr., respondents vice-president, sent a demand
letter dated 02 January 1991[9] to petitioner requiring the latter to pay the value of the cylinder
liners subjects of this case. Instead of heeding the demand of respondent for the full payment of
the value of the cylinder liners, petitioner sent the former a letter dated 12 March 1991[10]
offering to pay only P150,000 for the cylinder liners. In said letter, petitioner claimed that as the
cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas Express, it
(petitioner) would have to sell the cylinder liners in Singapore and pay the balance from the
proceeds of said sale.
Shortly thereafter, another demand letter dated 27 March 1991[11] was furnished petitioner by
respondents counsel requiring the former to settle its obligation to respondent together with
accrued interest and attorneys fees.

Due to the failure of the parties to settle the matter, respondent filed an action for sum of money
and damages before the Regional Trial Court (RTC) of Makati City. In its complaint,[12]
respondent (plaintiff below) alleged that despite its repeated oral and written demands, petitioner
obstinately refused to settle its obligations. Respondent prayed that petitioner be ordered to pay
for the value of the cylinder liners plus accrued interest of P111,300 as of May 1991 and
additional interest of 14% per annum to be reckoned from June 1991 until the full payment of the
principal; attorneys fees; costs of suits; exemplary damages; actual damages; and compensatory
damages.

On 25 July 1991, and prior to the filing of a responsive pleading, respondent filed an amended
complaint with preliminary attachment pursuant to Sections 2 and 3, Rule 57 of the then Rules of
Court.[13] Aside from the prayer for the issuance of writ of preliminary attachment, the
amendments also pertained to the issuance by petitioner of the postdated checks and the amounts
of damages claimed.

In an Order dated 25 July 1991,[14] the court a quo granted respondents prayer for the issuance
of a preliminary attachment. On 09 August 1991, petitioner filed an Urgent Ex-Parte Motion to
Discharge Writ of Attachment[15] attaching thereto a counter-bond as required by the Rules of
Court. On even date, the trial court issued an Order[16] lifting the levy on petitioners properties
and the garnishment of its bank accounts.

Petitioner afterwards filed its Answer[17] alleging therein that time was of the essence in the
delivery of the cylinder liners and that the delivery on 20 April 1990 of said items was late as
respondent committed to deliver said items within two (2) months after receipt of firm order[18]
from petitioner. Petitioner likewise sought counterclaims for moral damages, exemplary
damages, attorneys fees plus appearance fees, and expenses of litigation.

Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment

dated 25 October 1991.[19] The amendment introduced dealt solely with the number of
postdated checks issued by petitioner as full payment for the first cylinder liner it ordered from
respondent. Whereas in the first amended complaint, only nine postdated checks were involved,
in its second amended complaint, respondent claimed that petitioner actually issued ten postdated
checks. Despite the opposition by petitioner, the trial court admitted respondents Second
Amended Complaint with Preliminary Attachment.[20]

Prior to the commencement of trial, petitioner filed a Motion (For Leave To Sell Cylinder
Liners)[21] alleging therein that [w]ith the passage of time and with no definite end in sight to
the present litigation, the cylinder liners run the risk of obsolescence and deterioration[22] to the
prejudice of the parties to this case. Thus, petitioner prayed that it be allowed to sell the cylinder
liners at the best possible price and to place the proceeds of said sale in escrow. This motion,
unopposed by respondent, was granted by the trial court through the Order of 17 March
1991.[23]
After trial, the court a quo dismissed the action, the decretal portion of the Decision stating:

WHEREFORE, the complaint is hereby dismissed, with costs against the plaintiff, which is
ordered to pay P50,000.00 to the defendant as and by way of attorneys fees.[24]

The trial court held respondent bound to the quotation it submitted to petitioner particularly with
respect to the terms of payment and delivery of the cylinder liners. It also declared that
respondent had agreed to the cancellation of the contract of sale when it returned the postdated
checks issued by petitioner. Respondents counterclaims for moral, exemplary, and compensatory
damages were dismissed for insufficiency of evidence.

Respondent moved for the reconsideration of the trial courts Decision but the motion was denied
for lack of merit.[25]

Aggrieved by the findings of the trial court, respondent filed an appeal with the Court of
Appeals[26] which reversed and set aside the Decision of the court a quo. The appellate court
brushed aside petitioners claim that time was of the essence in the contract of sale between the
parties herein considering the fact that a significant period of time had lapsed between
respondents offer and the issuance by petitioner of its purchase orders. The dispositive portion
of the Decision of the appellate court states:

WHEREFORE, the decision of the lower court is REVERSED and SET ASIDE. The appellee is
hereby ORDERED to pay the appellant the amount of P954,000.00, and accrued interest
computed at 14% per annum reckoned from May, 1991.[27]

The Court of Appeals also held that respondent could not have incurred delay in the delivery of
cylinder liners as no demand, judicial or extrajudicial, was made by respondent upon petitioner
in contravention of the express provision of Article 1169 of the Civil Code which provides:

Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.

Likewise, the appellate court concluded that there was no evidence of the alleged cancellation of
orders by petitioner and that the delivery of the cylinder liners on 20 April 1990 was reasonable
under the circumstances.

On 22 May 2000, petitioner filed a motion for reconsideration of the Decision of the Court of
Appeals but this was denied through the resolution of 06 October 2000.[28] Hence, this petition
for review which basically raises the issues of whether or not respondent incurred delay in
performing its obligation under the contract of sale and whether or not said contract was validly
rescinded by petitioner.

That a contract of sale was entered into by the parties is not disputed. Petitioner, however,
maintains that its obligation to pay fully the purchase price was extinguished because the
adverted contract was validly terminated due to respondents failure to deliver the cylinder liners
within the two-month period stated in the formal quotation dated 31 May 1989.
The threshold question, then, is: Was there late delivery of the subjects of the contract of sale to
justify petitioner to disregard the terms of the contract considering that time was of the essence
thereof?

In determining whether time is of the essence in a contract, the ultimate criterion is the actual or
apparent intention of the parties and before time may be so regarded by a court, there must be a
sufficient manifestation, either in the contract itself or the surrounding circumstances of that
intention.[29] Petitioner insists that although its purchase orders did not specify the dates when
the cylinder liners were supposed to be delivered, nevertheless, respondent should abide by the
term of delivery appearing on the quotation it submitted to petitioner.[30] Petitioner theorizes
that the quotation embodied the offer from respondent while the purchase order represented its
(petitioners) acceptance of the proposed terms of the contract of sale.[31] Thus, petitioner is of
the view that these two documents cannot be taken separately as if there were two distinct
contracts.[32] We do not agree.

It is a cardinal rule in interpretation of contracts that if the terms thereof are clear and leave no
doubt as to the intention of the contracting parties, the literal meaning shall control.[33]
However, in order to ascertain the intention of the parties, their contemporaneous and subsequent
acts should be considered.[34] While this Court recognizes the principle that contracts are
respected as the law between the contracting parties, this principle is tempered by the rule that
the intention of the parties is primordial[35] and once the intention of the parties has been
ascertained, that element is deemed as an integral part of the contract as though it has been
originally expressed in unequivocal terms.[36]

In the present case, we cannot subscribe to the position of petitioner that the documents, by
themselves, embody the terms of the sale of the cylinder liners. One can easily glean the
significant differences in the terms as stated in the formal quotation and Purchase Order No.
13839 with regard to the due date of the down payment for the first cylinder liner and the date of
its delivery as well as Purchase Order No. 14011 with respect to the date of delivery of the
second cylinder liner. While the quotation provided by respondent evidently stated that the
cylinder liners were supposed to be delivered within two months from receipt of the firm order of
petitioner and that the 25% down payment was due upon the cylinder liners delivery, the
purchase orders prepared by petitioner clearly omitted these significant items. The petitioners
Purchase Order No. 13839 made no mention at all of the due dates of delivery of the first
cylinder liner and of the payment of 25% down payment. Its Purchase Order No. 14011 likewise
did not indicate the due date of delivery of the second cylinder liner.

In the case of Bugatti v. Court of Appeals,[37] we reiterated the principle that [a] contract
undergoes three distinct stages preparation or negotiation, its perfection, and finally, its
consummation. Negotiation begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of agreement of the parties. The perfection
or birth of the contract takes place when the parties agree upon the essential elements of the
contract. The last stage is the consummation of the contract wherein the parties fulfill or perform
the terms agreed upon in the contract, culminating in the extinguishment thereof.
In the instant case, the formal quotation provided by respondent represented the negotiation
phase of the subject contract of sale between the parties. As of that time, the parties had not yet
reached an agreement as regards the terms and conditions of the contract of sale of the cylinder
liners. Petitioner could very well have ignored the offer or tendered a counter-offer to respondent
while the latter could have, under the pertinent provision of the Civil Code,[38] withdrawn or
modified the same. The parties were at liberty to discuss the provisions of the contract of sale
prior to its perfection. In this connection, we turn to the testimonies of Pajarillo and Kanaan, Jr.,
that the terms of the offer were, indeed, renegotiated prior to the issuance of Purchase Order No.
13839.

During the hearing of the case on 28 January 1993, Pajarillo testified as follows:

Q: You testified Mr. Witness, that you submitted a quotation with defendant Lorenzo Shipping
Corporation dated rather marked as Exhibit A stating the terms of payment and delivery of the
cylinder liner, did you not?

A: Yes sir.

Q: I am showing to you the quotation which is marked as Exhibit A there appears in the
quotation that the delivery of the cylinder liner will be made in two months time from the time
you received the confirmation of the order. Is that correct?

A: Yes sir.

Q: Now, after you made the formal quotation which is Exhibit A how long a time did the
defendant make a confirmation of the order?

A: After six months.

Q: And this is contained in the purchase order given to you by Lorenzo Shipping Corporation?

A: Yes sir.

Q: Now, in the purchase order dated November 2, 1989 there appears only the date the terms of
payment which you required of them of 25% down payment, now, it is stated in the purchase
order the date of delivery, will you explain to the court why the date of delivery of the cylinder
liner was not mentioned in the purchase order which is the contract between you and Lorenzo
Shipping Corporation?

A: When Lorenzo Shipping Corporation inquired from us for that cylinder liner, we have
inquired [with] our supplier in Japan to give us the price and delivery of that item. When we
received that quotation from our supplier it is stated there that they can deliver within two
months but we have to get our confirmed order within June.

Q: But were you able to confirm the order from your Japanese supplier on June of that year?
A: No sir.

Q: Why? Will you tell the court why you were not able to confirm your order with your
Japanese supplier?

A: Because Lorenzo Shipping Corporation did not give us the purchase order for that cylinder
liner.

Q: And it was only on November 2, 1989 when they gave you the purchase order?

A: Yes sir.

Q: So upon receipt of the purchase order from Lorenzo Shipping Lines in 1989 did you confirm
the order with your Japanese supplier after receiving the purchase order dated November 2,
1989?

A: Only when Lorenzo Shipping Corporation will give us the down payment of 25%.[39]

For his part, during the cross-examination conducted by counsel for petitioner, Kanaan, Jr.,
testified in the following manner:

WITNESS: This term said 25% upon delivery. Subsequently, in the final contract, what was
agreed upon by both parties was 25% down payment.

Q: When?

A: Upon confirmation of the order.

...

Q: And when was the down payment supposed to be paid?

A: It was not stated when we were supposed to receive that. Normally, we expect to receive at
the earliest possible time. Again, that would depend on the customers. Even after receipt of the
purchase order which was what happened here, they re-negotiated the terms and sometimes we
do accept that.

Q: Was there a re-negotiation of this term?

A: This offer, yes. We offered a final requirement of 25% down payment upon delivery.

Q: What was the re-negotiated term?

A: 25% down payment

Q: To be paid when?
A: Supposed to be paid upon order.[40]

The above declarations remain unassailed. Other than its bare assertion that the subject contracts
of sale did not undergo further renegotiation, petitioner failed to proffer sufficient evidence to
refute the above testimonies of Pajarillo and Kanaan, Jr.

Notably, petitioner was the one who caused the preparation of Purchase Orders No. 13839 and
No. 14011 yet it utterly failed to adduce any justification as to why said documents contained
terms which are at variance with those stated in the quotation provided by respondent. The only
plausible reason for such failure on the part of petitioner is that the parties had, in fact,
renegotiated the proposed terms of the contract of sale. Moreover, as the obscurity in the terms
of the contract between respondent and petitioner was caused by the latter when it omitted the
date of delivery of the cylinder liners in the purchase orders and varied the term with respect to
the due date of the down payment,[41] said obscurity must be resolved against it.[42]

Relative to the above discussion, we find the case of Smith, Bell & Co., Ltd. v. Matti,[43]
instructive. There, we held that

When the time of delivery is not fixed or is stated in general and indefinite terms, time is not of
the essence of the contract. . . .

In such cases, the delivery must be made within a reasonable time.

The law implies, however, that if no time is fixed, delivery shall be made within a reasonable
time, in the absence of anything to show that an immediate delivery intended. . . .

We also find significant the fact that while petitioner alleges that the cylinder liners were to be
used for dry dock repair and maintenance of its M/V Dadiangas Express between the later part of
December 1989 to early January 1990, the record is bereft of any indication that respondent was
aware of such fact. The failure of petitioner to notify respondent of said date is fatal to its claim
that time was of the essence in the subject contracts of sale.

In addition, we quote, with approval, the keen observation of the Court of Appeals:

. . . It must be noted that in the purchase orders issued by the appellee, dated November 2, 1989
and January 15, 1990, no specific date of delivery was indicated therein. If time was really of
the essence as claimed by the appellee, they should have stated the same in the said purchase
orders, and not merely relied on the quotation issued by the appellant considering the lapse of
time between the quotation issued by the appellant and the purchase orders of the appellee.

In the instant case, the appellee should have provided for an allowance of time and made the
purchase order earlier if indeed the said cylinder liner was necessary for the repair of the vessel
scheduled on the first week of January, 1990. In fact, the appellee should have cancelled the first
purchase order when the cylinder liner was not delivered on the date it now says was
necessary. Instead it issued another purchase order for the second set of cylinder liner. This fact
negates appellees claim that time was indeed of the essence in the consummation of the contract
of sale between the parties.[44]

Finally, the ten postdated checks issued in November 1989 by petitioner and received by the
respondent as full payment of the purchase price of the first cylinder liner supposed to be
delivered on 02 January 1990 fail to impress. It is not an indication of failure to honor a
commitment on the part of the respondent. The earliest maturity date of the checks was 18
January 1990. As delivery of said checks could produce the effect of payment only when they
have been cashed,[45] respondents obligation to deliver the first cylinder liner could not have
arisen as early as 02 January 1990 as claimed by petitioner since by that time, petitioner had yet
to fulfill its undertaking to fully pay for the value of the first cylinder liner. As explained by
respondent, it proceeded with the placement of the order for the cylinder liners with its principal
in Japan solely on the basis of its previously harmonious business relationship with petitioner.

As an aside, let it be underscored that [e]ven where time is of the essence, a breach of the
contract in that respect by one of the parties may be waived by the other partys subsequently
treating the contract as still in force.[46] Petitioners receipt of the cylinder liners when they were
delivered to its warehouse on 20 April 1990 clearly indicates that it considered the contract of
sale to be still subsisting up to that time. Indeed, had the contract of sale been cancelled already
as claimed by petitioner, it no longer had any business receiving the cylinder liners even if said
receipt was subject to verification. By accepting the cylinder liners when these were delivered to
its warehouse, petitioner indisputably waived the claimed delay in the delivery of said items.

We, therefore, hold that in the subject contracts, time was not of the essence. The delivery of the
cylinder liners on 20 April 1990 was made within a reasonable period of time considering that
respondent had to place the order for the cylinder liners with its principal in Japan and that the
latter was, at that time, beset by heavy volume of work.[47]

There having been no failure on the part of the respondent to perform its obligation, the power to
rescind the contract is unavailing to the petitioner. Article 1191 of the New Civil Code runs as
follows:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.

The law explicitly gives either party the right to rescind the contract only upon the failure of the
other to perform the obligation assumed thereunder.[48] The right, however, is not an unbridled
one. This Court in the case of University of the Philippines v. De los Angeles,[49] speaking
through the eminent civilist Justice J.B.L. Reyes, exhorts:

Of course, it must be understood that the act of a party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must be made known to the
other and is always provisional, being ever subject to scrutiny and review by the proper court. If
the other party denied that rescission is justified, it is free to resort to judicial action in its own
behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the
resolution of the contract was not warranted, the responsible party will be sentenced to damages;
in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to
the party prejudiced. (Emphasis supplied)

In other words, the party who deems the contract violated may consider it resolved or rescinded,
and act accordingly, without previous court action, but it proceeds at its own risk. For it is only
the final judgment of the corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. But the law definitely does not require that the
contracting party who believes itself injured must first file suit and wait for a judgment before
taking extrajudicial steps to protect its interest. Otherwise, the party injured by the others breach
will have to passively sit and watch its damages accumulate during the pendency of the suit until
the final judgment of rescission is rendered when the law itself requires that he should exercise
due diligence to minimize its own damages.[50]

Here, there is no showing that petitioner notified respondent of its intention to rescind the
contract of sale between them. Quite the contrary, respondents act of proceeding with the
opening of an irrevocable letter of credit on 23 February 1990 belies petitioners claim that it
notified respondent of the cancellation of the contract of sale. Truly, no prudent businessman
would pursue such action knowing that the contract of sale, for which the letter of credit was
opened, was already rescinded by the other party.

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is

DENIED. The Decision of the Court of Appeals, dated 28 April 2000, and its Resolution, dated
06 October 2000, are hereby AFFIRMED. No costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 112182 December 12, 1994

BRICKTOWN DEVELOPMENT CORP. (its new corporate name MULTINATIONAL

REALTY DEVELOPMENT CORPORATION) and MARIANO Z. VERALDE, petitioners,
vs.
AMOR TIERRA DEVELOPMENT CORPORATION and the HON. COURT OF
APPEALS, respondents.

Tabaquero, Dela Torre, Simando & Associates for petitioners.

Robles, Ricafrente & Aguirre Law Firm for private respondent.

VITUG, J.:

A contract, once perfected, has the force of law between the parties with which they are bound to
comply in good faith and from which neither one may renege without the consent of the other.
The autonomy of contracts allows the parties to establish such stipulations, clauses, terms and
conditions as they may deem appropriate provided only that they are not contrary to law, morals,
good customs, public order or public policy. The standard norm in the performance of their
respective covenants in the contract, as well as in the exercise of their rights thereunder, is
expressed in the cardinal principle that the parties in that juridical relation must act with justice,
honesty and good faith.

These basic tenets, once again, take the lead in the instant controversy.

Private respondent reminds us that the factual findings of the trial court, sustained by the Court
of Appeals, should be considered binding on this Court in this petition. We concede to this
reminder since, indeed, there appears to be no valid justification in the case at bench for us to
take an exception from the rule. We shall, therefore, momentarily paraphrase these findings.

On 31 March 1981, Bricktown Development Corporation (herein petitioner corporation),

represented by its President and co-petitioner Mariano Z. Velarde, executed two Contracts to Sell
(Exhs. "A" and "B") in favor of Amor Tierra Development Corporation (herein private
respondent), represented in these acts by its Vice-President, Moises G. Petilla, covering a total of
96 residential lots, situated at the Multinational Village Subdivision, La Huerta, Parañaque,
Metro Manila, with an aggregate area of 82,888 square meters. The total price of P21,639,875.00
was stipulated to be paid by private respondent in such amounts and maturity dates, as follows:
P2,200,000.00 on 31 March 1981; P3,209,968.75 on 30 June 1981; P4,729,906.25 on 31
December 1981; and the balance of P11,500,000.00 to be paid by means of an assumption by
private respondent of petitioner corporation's mortgage liability to the Philippine Savings Bank
or, alternatively, to be made payable in cash. On even date, 31 March 1981, the parties executed
a Supplemental Agreement (Exh. "C"), providing that private respondent would additionally pay
to petitioner corporation the amounts of P55,364.68, or 21% interest on the balance of
downpayment for the period from 31 March to 30 June 1981, and of P390,369.37 representing
interest paid by petitioner corporation to the Philippine Savings Bank in updating the bank loan
for the period from 01 February to 31 March 1981.

Private respondent was only able to pay petitioner corporation the sum of P1,334,443.21 (Exhs.
"A" to "K"). In the meanwhile, however, the parties continued to negotiate for a possible
modification of their agreement, although nothing conclusive would appear to have ultimately
been arrived at.

Finally, on 12 October 1981, petitioner corporation, through its legal counsel, sent private
respondent a "Notice of Cancellation of Contract" (Exh. "D") on account of the latter's continued
failure to pay the installment due 30 June 1981 and the interest on the unpaid balance of the
stipulated initial payment. Petitioner corporation advised private respondent, however, that it
(private respondent) still had the right to pay its arrearages within 30 days from receipt of the
notice "otherwise the actual cancellation of the contract (would) take place."

Several months later, or on 26 September 1983, private respondent, through counsel, demanded
(Exh. "E") the refund of private respondent's various payments to petitioner corporation,
allegedly "amounting to P2,455,497.71," with interest within fifteen days from receipt of said
letter, or, in lieu of a cash payment, to assign to private respondent an equivalent number of
unencumbered lots at the same price fixed in the contracts. The demand, not having been heeded,
private respondent commenced, on 18 November 1983, its action with the court a quo. 1

Following the reception of evidence, the trial court rendered its decision, the dispositive portion
of which read:

In view of all the foregoing, judgment is hereby rendered as follows:

1. Declaring the Contracts to Sell and the Supplemental Agreement (Exhibits "A",
"B" and "C") rescinded;

2. Ordering the [petitioner] corporation, Bricktown Development Corporation,

also known as Multinational Realty Development Corporation, to return to the
[private respondent] the amount of One Million Three Hundred Thirty Four
Thousand Four Hundred Forty-Three Pesos and Twenty-One Centavos
(P1,334,443.21) with interest at the rate of Twelve (12%) percent per annum,
starting November 18, 1983, the date when the complaint was filed, until the
amount is fully paid;

3. Ordering the [petitioner] corporation to pay the [private respondent] the amount
of Twenty-five Thousand (P25,000.00) Pesos, representing attorney's fees;

4. Dismissing [petitioner's] counterclaim for lack of merit; and

5. With costs against the [petitioner] corporation.

SO ORDERED. 2

On appeal, the appellate court affirmed in toto the trial court's findings and judgment.

In their instant petition, petitioners contend that the Court of Appeals has erred in ruling that —

(1) By petitioners' acts, conduct and representation, they themselves delayed or

prevented the performance of the contracts to sell and the supplemental agreement
and were thus estopped from cancelling the same.
 (2) Petitioners were no justified in resolving the contracts to sell and the
supplemental agreement.

(3) The cancellation of the contract required a positive act on the part of
petitioners giving private respondent the sixty (60) day grace period provided in
the contracts to sell; and

(4) In not holding that the forfeiture of the P1,378,197.48 was warranted under the
liquidated damages provisions of the contracts to sell and the supplemental
agreement and was not iniquitous nor unconscionable.

The core issues would really come down to (a) whether or not the contracts to sell were validly
rescinded or cancelled by petitioner corporation and, in the affirmative, (b) whether or not the
amounts already remitted by private respondent under said contracts were rightly forfeited by
petitioner corporation.

Admittedly, the terms of payment agreed upon by the parties were not met by private respondent.
Of a total selling price of P21,639,875.00, private respondent was only able to remit the sum of
P1,334,443.21 which was even short of the stipulated initial payment of P2,200,000.00. No
additional payments, it would seem, were made. A notice of cancellation was ultimately made
months after the lapse of the contracted grace period. Paragraph 15 of the Contracts to Sell
provided thusly:

15. Should the PURCHASER fail to pay when due any of the installments
mentioned in stipulation No. 1 above, the OWNER shall grant the purchaser a
sixty (60)-day grace period within which to pay the amount/s due, and should the
PURCHASER still fail to pay the due amount/s within the 60-day grace period,
the PURCHASER shall have the right to ex-parte cancel or rescind this contract,
provided, however, that the actual cancellation or rescission shall take effect only
after the lapse of thirty (30) days from the date of receipt by the PURCHASER of
the notice of cancellation of this contract or the demand for its rescission by a
notarial act, and thereafter, the OWNER shall have the right to resell the lot/s
subject hereof to another buyer and all payments made, together with all
improvements introduced on the aforementioned lot/s shall be forfeited in favor of
the OWNER as liquidated damages, and in this connection, the PURCHASER
obligates itself to peacefully vacate the aforesaid lot/s without necessity of notice
or demand by the OWNER. 3

A grace period is a right, not an obligation, of the debtor. When unconditionally conferred, such
as in this case, the grace period is effective without further need of demand either calling for the
payment of the obligation or for honoring the right. The grace period must not be likened to an
obligation, the non-payment of which, under Article 1169 of the Civil Code, would generally
still require judicial or extrajudicial demand before "default" can be said to arise. 4

Verily, in the case at bench, the sixty-day grace period under the terms of the contracts to sell
became ipso facto operative from the moment the due payments were not met at their stated
maturities. On this score, the provisions of Article 1169 of the Civil Code would find no
relevance whatsoever.

The cancellation of the contracts to sell by petitioner corporation accords with the contractual
covenants of the parties, and such cancellation must be respected. It may be noteworthy to add
that in a contract to sell, the
non-payment of the purchase price (which is normally the condition for the final sale) can
prevent the obligation to convey title from acquiring any obligatory force (Roque vs. Lapuz, 96
SCRA 741; Agustin vs. Court of Appeals, 186 SCRA 375).

The forfeiture of the payments thus far remitted under the cancelled contracts in question, given
the factual findings of both the trial court and the appellate court, must be viewed differently.
While clearly insufficient to justify a foreclosure of the right of petitioner corporation to rescind
or cancel its contracts with private respondent, the series of events and circumstances described
by said courts to have prevailed in the interim between the parties, however, warrant some
favorable consideration by this Court.

Petitioners do not deny the fact that there has indeed been a constant dialogue between the
parties during the period of their juridical relation. Concededly, the negotiations that they have
pursued strictly did not result in the novation, either extinctive or modificatory, of the contracts
to sell; nevertheless, this Court is unable to completely disregard the following findings of both
the trial court and the appellate court. Said the trial court:

It has been duly established through the testimony of plaintiff's witnesses Marcosa
Sanchez and Vicente Casas that there were negotiations to enter into another
agreement between the parties, after March 31, 1981. The first negotiation took
place before June 30, 1981, when Moises Petilla and Renato Dragon, Vice-
President and president, respectively, of the plaintiff corporation, together with
Marcosa Sanchez, went to the office of the defendant corporation and made some
proposals to the latter, thru its president, the defendant Mariano Velarde. They
told the defendant Velarde of the plaintiff's request for the division of the lots to
be purchased into smaller lots and the building of town houses or smaller houses
therein as these kinds of houses can be sold easily than big ones. Velarde replied
that subdivision owners would not consent to the building of small houses. He,
however, made two counter-proposals, to wit: that the defendant corporation
would assign to the plaintiff a number of lots corresponding to the amounts the
latter had already paid, or that the defendant corporation may sell the corporation
itself, together with the Multinational Village Subdivision, and its other
properties, to the plaintiff and the latter's sister companies engaged in the real
estate business. The negotiations between the parties went on for sometime but
nothing definite was accomplished. 5

For its part, the Court of Appeals observed:

We agree with the court a quo that there is, therefore, reasonable ground to
believe that because of the negotiations between the parties, coupled with the fact
 that the plaintiff never took actual possession of the properties and the defendants
did not also dispose of the same during the pendency of said negotiations, the
plaintiff was led to believe that the parties may ultimately enter into another
agreement in place of the "contracts to sell." There was, evidently, no malice or
bad faith on the part of the plaintiff in suspending payments. On the contrary, the
defendants not only contributed, but had consented to the delay or suspension of
payments. They did not give the plaintiff a categorical answer that their counter-
proposals will not materialize. 6

In fine, while we must conclude that petitioner corporation still acted within its legal right to
declare the contracts to sell rescinded or cancelled, considering, nevertheless, the peculiar
circumstances found to be extant by the trial court, confirmed by the Court of Appeals, it would
be unconscionable, in our view, to likewise sanction the forfeiture by petitioner corporation of
payments made to it by private respondent. Indeed, in the opening statement of this ponencia, we
have intimated that the relationship between parties in any contract must always be characterized
and punctuated by good faith and fair dealing. Judging from what the courts below have said,
petitioners did fall well behind that standard. We do not find it equitable, however, to adjudge
any interest payment by petitioners on the amount to be thus refunded, computed from judicial
demand, for, indeed, private respondent should not be allowed to totally free itself from its own
breach.

WHEREFORE, the appealed decision is AFFIRMED insofar as it declares valid the cancellation
of the contracts in question but MODIFIED by ordering the refund by petitioner corporation of
P1,334,443.21 with 12% interest per annum to commence only, however, from the date of
finality of this decision until such refund is effected. No costs.

SO ORDERED.

Bidin, Romero and Melo, JJ., concur.

Feliciano, J., is on leave.

BURDEN OF PROVING PAYMENT

FIRST DIVISION

G & M PHILIPPINES, INC., G.R. No. 162308

Petitioner,

Present:
 PANGANIBAN, C.J., Chairperson,
- versus - YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.

ROMIL V. CUAMBOT, Promulgated:

Respondent.
November 22, 2006
x--------------------------------------------------x

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
Decision81[1] of the Court of Appeals (CA) in CA-G.R. SP No. 64744, as well as the
Resolution82[2] dated February 20, 2004 denying the motion for reconsideration thereof.

The antecedent facts are as follows:

On November 7, 1994, respondent Romil V. Cuambot applied for deployment to Saudi

Arabia as a car body builder with petitioner G & M Philippines, Inc., a duly licensed placement
and recruitment agency. Respondents application was duly processed and he later signed a two-
year employment contract to work at the Al Waha Workshop in Unaizah City, Gassim, Kingdom
of Saudi Arabia. He left the country on January 5, 1995. However, respondent did not finish his
contract and returned to the Philippines barely six months later, on July 24, 1995. On July 26,
1995, he filed before the National Labor Relations Commission (NLRC) a complaint for unpaid
wages, withheld salaries, refund of plane ticket and repatriation bond, later amended to include
illegal dismissal, claim for the unexpired portion of his employment contract, actual, exemplary
and moral damages, and attorneys fees. The complaint was docketed as NLRC-NCR Case No. 00-
07-05252-95.

Respondent narrated that he began working for Mohd Al Motairi,83[3] the President and
General Manager of the Al Waha Workshop, on January 8, 1995. Along with his Filipino co-
workers, he was subjected to inhuman and unbearable working conditions, to wit:

1. [He] was required to work from 7:00 oclock in the morning to 10:00 oclock
in the evening everyday, except Friday, or six (6) hours overtime work daily
from the usual eight (8) working hours per day.

2. [He] was never paid x x x his monthly basic salary of 1,200 [Riyals] including
his overtime pay for the six (6) hours overtime work he rendered every working
day during his work in Saudi Arabia except for the amount of 100 [Riyals] given
every month for his meal allowance;

3. [He] was subjected to serious insult by respondent Muthiri everytime he asked

or demanded for his salary; and,

4. [S]ome of complainants letters that were sent by his family were not given by
respondent Muthiri and/or his staff x x x.84[4]
 When respondent asked Motairi for his salary, he was told that since a huge sum had been
paid to the agency for his recruitment and deployment, he would only be paid after the said amount
had already been recovered. He was also told that his salary was only 800 Saudi Riyals (SAR) per
month, in contrast to the SAR1200 that was promised him under the contract. Motairi warned that
he would be sent home the next time he demanded for his salary. Due to his familys incessant
letters asking for financial support, however, respondent mustered the courage to again demand
for his salaries during the second week of July 1996. True to his word, Motairi ordered him to pack
up and leave. He was able to purchase his plane ticket only through the contributions of his fellow
Filipinos. Motairi even accompanied him to the airport when he bought his plane ticket. In the
meantime, his wife had been making inquiries about him.

To corroborate his claims, respondent submitted the following documents: an undated

letter85[5] he had written addressed to the Philippine Labor Attach in Riyadh, with Arabic
translation;86[6] his wifes letter87[7] dated June 28, 1995 addressed to the Gulangco Monteverde
Agency, Manila Head Office, asking for a favor to help [her] husband to come home as early as
possible; a fax message88[8] dated July 17, 1995 from a representative of the Land Bank of the
Philippines (LBP) to a
counterpart in Riyadh, asking for assistance to locate respondent;89[9] and the
reply90[10] from the Riyadh LBP representative requesting for contact numbers to facilitate
communication with respondent.

Respondent further claimed that his employers actuations violated Articles 83 and 103 of
the Labor Code. While he was entitled to terminate his employment in accordance with Article
285 (b) due to the treatment he received, he did not exercise this right. He was nevertheless illegally
dismissed by his employer when he tried to collect the salaries due him. Respondent further
claimed that the reduction of his monthly salary from SAR1,200 to SAR800 and petitioners failure
to furnish him a copy of the employment contract before his departure amounted to prohibited
practices under Article 34 (i) and (k) of the Labor Code.

Respondent prayed for the following relief:

WHEREFORE, premises considered, complainant most respectfully prays

unto this Honorable Office that the instant complaint be given due course and that
a decision be rendered in his favor and against
respondents G & M (Phils.), Inc., Alwaha (sic) Workshop and/or Muhamd (sic)
Muthiri, as follows:

(1) Ordering the respondents to pay, jointly and severally,

complainant the unpaid salaries and overtime pay in the
amounts of P61,560.00 and P66,484.80, respectively,
including interests, until the same will be fully paid;

(2) Ordering the respondents to pay, jointly and severally,

complainant[s] salary for the unexpired portion of the contract
 in the amount of P184,680.00, including interests, until the
same will be fully paid;

(3) Ordering the respondents to pay, jointly and severally,

complainant[s] actual expenses which he incurred in applying
for the job, including expenses in leaving for the job, including
expenses in leaving for Saudi Arabia and plane ticket, as well
as repatriation bond and incidental expenses in going home to
the Philippines in the amounts of P49,000.00 and P20,000.00,
respectively, including interests, until the same will be fully
paid;

(4) Ordering the respondents to pay, jointly and severally,

complainant moral damages in the amount of P150,000.00 and
exemplary damages in the amount of P150,000.00, including
interests, until the same will be fully paid;

(5) Ordering the respondents to pay, jointly and severally,

complainant for and as attorneys fees in the amount of
P68,172.48 or the amount equivalent to 10% of the total
amount of the foregoing claims and damages that may be
awarded by the Honorable Office to the complainant.91[11]

In its position paper, petitioner alleged that respondent was deployed for overseas work as
car body builder for its Principal Golden Wings Est. for General Services and Recruitment in Saudi
Arabia for an employment period of 24 months, with a monthly salary of US$400.00.92[12] It
insisted that respondent was religiously paid his salaries as they fell due. After working for a little
over seven months, respondent pleaded with his employer to be allowed to return home since there
were family problems he had to settle personally. Respondent even submitted a resignation
letter93[13] dated July 23, 1995.

To support its claim that respondent had been paid his salaries as they fell due, petitioner
submitted in evidence copies of seven payslip94[14] authenticated by the Philippine Labor Attach
in Riyadh, Saudi Arabia. Petitioner asserted that since respondent only worked for a little over
seven months and did not finish his contract, he should pay the cost of the plane ticket. It pointed
out that according to the standard employment contract, the employer would provide the employee
with a free plane ticket for the flight home only if the worker finishes his contract.

Respondent countered that his signatures in the purported payslips were forged. He denied
having received his salaries for the said period, except only for the SAR100 as monthly allowance.
He pointed out that the authentication of the alleged pay slips and resignation letter before the
labor attach in Riyadh is immaterial, since the documents themselves were falsified.

Respondent further claimed that petitioner required him to pay a P10,000.00 placement fee
and that he had to borrow P2,000.00 from a relative. He was then told that the amount would be
considered as an advance payment and that the balance would be deducted from his salary. He was
not, however, given any receipt. He insisted that the employment contract which he signed
indicated that he was supposed to receive a monthly salary of SAR1,200 for working eight hours
a day, excluding overtime pay. He was repeatedly promised to be furnished a copy of the contract
and was later told that it would be given to his wife, Minda. However, she was also given the run-
around and was told that the contract had already been given to her husband.

To counter the allegation of forgery, petitioner claimed that there was a great possibility
that respondent had changed his signature while abroad so that he could file a complaint for illegal
dismissal upon his return. The argument that the stroke and handwriting on the payslip was written
by one and the same person is mere conjecture, as respondent could have requested someone, i.e.,
the cashier, to prepare the resignation letter for him. While it is the employer who fills up the pay
slip, respondent could have asked another employee to prepare the resignation letter, particularly
if he (respondent) did not know how to phrase it himself. Moreover, it could not be presumed that
the payslip and resignation letter were prepared by one and the same person, as respondent is not
a handwriting expert. Petitioner further pointed out that respondent has different signatures, not
only in the pleadings submitted before the Labor Arbiter, but also in respondents personal
documents.

On January 30, 1997, Labor Arbiter Jose De Vera ruled in favor of respondent on the
following ratiocination:

What convinced this Arbitration Branch about the unreliability of the

complainants signature in the payslip is the close semblance of the handwritings in
the payslips and the handwritings in the purported handwritten resignation of the
complainant. It unmistakably appears to this Arbitration Branch that the payslips as
well as the handwritten letter-resignation were prepared by one and the same
person. If it were true that the handwritten letter-resignation was prepared by the
complainant, it follows that he also prepared the payslips because the handwritings
in both documents are exactly the same and identical. But [this] is quite
unbelievable that complainant himself as the payee prepared the payslips with the
corresponding entries therein in his own handwriting. Under the circumstances, the
only logical conclusion is that both the payslips and the handwritten letter-
resignation were prepared and signed by one and the same person definitely not the
complainant.
 With the foregoing findings and conclusions, this Arbitration Branch is of
the well-considered view that complainant was not paid his salaries from January
5, 1995 up to July 23, 1995 and that he was unjustifiably dismissed from his
employment when he repeatedly demanded for his unpaid salaries. Respondents
are, therefore, liable to pay the complainant his salaries from January 5, 1995 up to
July 23, 1995 which amount to US$2,640.00 (US$400 x 6.6 mos). Further,
respondents are also liable to the complainant for the latters salaries for the
unexpired portion of his contract up to the maximum of three (3) months pursuant
to Section 10 of RA 8042, which amount to US$1,200.00. Respondents must also
refund complainants plane fare for his return flight. And finally, being compelled
to litigate his claims, it is but just and x x x that complainant must be awarded
attorneys fees at the rate of ten percent (10%) of the judgment award.

WHEREFORE, all the foregoing premises considered, judgment is hereby

rendered ordering the respondents to pay complainant the aggregate sum of
US$3,840.00 or its equivalent in Philippine Currency at the exchange rate
prevailing at the time of payment, and to refund complainants plane fare for his
return flight. Further, respondents are ordered to pay complainant attorneys fees at
the rate of Ten percent (10%) of the foregoing judgment award.95[15]

Petitioner appealed the Decision of the Labor Arbiter to the NLRC, alleging that the Labor
Arbiter, not being a handwriting expert, committed grave abuse of discretion amounting to lack of
jurisdiction in finding for respondent. In its Decision96[16] dated December 9, 1997, the NLRC
upheld this contention and remanded the case to the Arbitration Branch of origin for referral to the
government agency concerned for calligraphy examination of the questioned documents.97[17]
 The case was then re-raffled to Labor Arbiter Enrico Angelo Portillo. On September 11,
1998, the parties agreed to a resetting to enable petitioner to secure the original copies of
documents from its foreign principal. However, on December 9, 1998, the parties agreed to submit
the case for resolution based on the pleadings and on the evidence on record.

This time, the complaint was dismissed for lack of merit. According to Labor Arbiter
Portillo, aside from respondents bare allegations, he failed to substantiate his claim of poor
working conditions and long hours of employment. The fact that he executed a handwritten
resignation letter is enough evidence of the fact that he voluntarily resigned from work. Moreover,
respondent failed to submit any evidence to refute the pay slips duly signed and authenticated by
the labor attach in Saudi Arabia, inasmuch as their probative value cannot be impugned by mere
self-serving allegations. The Labor Arbiter concluded that as between the oral allegations of
workers that they were not paid monetary benefits and the documentary evidence presented by
employer, the latter should prevail. 98[18]

Respondent appealed the decision before the NLRC, alleging that the Labor Arbiter failed
to consider the genuineness of the signature which appears in the purported resignation letter dated
July 23, 1995, as well as those that appear in the seven pay slips. He insisted that these documents
should have been endorsed to the National Bureau of Investigation Questioned Documents
Division or the Philippine National Police Crime Laboratory for calligraphy examination.

The NLRC dismissed the appeal for lack of merit in a Resolution99[19] dated December
27, 2000. It held that the questioned documents could not be endorsed to the agency concerned
since mere photocopies had been submitted in evidence. The records also revealed that petitioner
had communicated to the foreign employer abroad, who sent the original copies, but there was no
response from respondent. It also stressed that during the December 9, 1998 hearing, the parties
agreed to submit the case for resolution on the basis of the pleadings and the evidence on record;
if respondent had wanted to have the documents endorsed to the NBI or the PNP, he should have
insisted that the documents be examined by a handwriting expert of the government. Thus,
respondent was estopped from assailing the Labor Arbiters ruling.

Unsatisfied, respondent elevated the matter to the CA via petition for certiorari. He pointed
out that he merely acceded to the submission of the case for resolution due to the inordinate delays
in the case. Moreover, the questioned documents were within petitioners control, and it was
petitioner that repeatedly failed to produce the original copies.

The CA reversed the ruling of the NLRC. According to the appellate court, a visual
examination of the questioned signatures would instantly reveal significant differences in the
handwriting movement, stroke, and structure, as well as the quality of lines of the signatures; Labor
Arbiter Portillo committed patent error in examining the signatures, and it is the decision of Labor
Arbiter De Vera which must be upheld. The CA also pointed out the initial ruling of the NLRC
(Second Division) dated December 9, 1997 which set aside the earlier decision of Labor Arbiter
De Vera included a special directive to the Arbitration Branch of origin to endorse the questioned
documents for calligraphy examination. However, respondent Cuambot failed to produce original
copies of the documents; hence, Labor Arbiter Portillo proceeded with the case and ruled in favor
of petitioner G.M.Phils. The dispositive portion of the CA ruling reads:

IN VIEW OF ALL THE FOREGOING, the instant petition is hereby

GRANTED. Accordingly, the assailed Resolutions dated 27 December 2000 and
12 February 2001, respectively, of the NLRC Second Division are hereby SET
 ASIDE and the Decision dated 20 February 1997 rendered by Labor Arbiter Jose
De Vera is hereby REINSTATED.100[20]

Petitioner filed a motion for reconsideration, which the CA denied for lack of merit in its
Resolution101[21] dated February 20, 2004.

Hence, the present petition, where petitioner claims that

THE COURT OF APPEALS GRAVELY ERRED ON A MATTER OF LAW IN

HOLDING THAT LABOR ARBITER ENRICO PORTILLO GRAVELY
ABUSED HIS DISCRETION WHEN HE HELD THAT THE SIGNATURES
APPEARING ON THE QUESTIONED DOCUMENTS ARE THOSE OF THE
PETITIONER.102[22]

Petitioner points out that most of the signatures which Labor Arbiter De Vera used as
standards for comparison with the signatures appearing on the questioned documents were those
in the pleadings filed by the respondent long after the questioned documents had been supposedly
signed by him. It claims that respondent affixed his signatures on the pleadings in question and
intentionally made them different from his true signature so that he could later on conveniently
impugn their authenticity. Petitioner claims that had Labor Arbiter De Vera taken pains in
considering these circumstances, he could have determined that respondent may have actually
intentionally given a different name and slightly changed his signature in his application, which
name and signature he used when he signed the questioned letter of resignation and payslips, only
to conveniently disown the same when he came back to the country to file the present case.103[23]
Thus, according to petitioner, the CA clearly committed a palpable error of law when it reversed
the ruling of the NLRC, which in turn affirmed Labor Arbiter Portillos decision.

For his part, respondent contends that petitioners arguments were already raised in the
pleadings filed before Labor Arbiter De Vera which had already been passed upon squarely in the
Labor Arbiters Decision of January 30, 1997.

The determinative issues in this case are essentially factual in nature - (a) whether the
signatures of respondent in the payslips are mere forgeries, and (b) whether respondent executed
the resignation letter. Generally, it is not our function to review findings of fact. However, in case
of a divergence in the findings and conclusions of the NLRC on the one hand, and those of the
Labor Arbiter and the CA on the other, the Court may examine the evidence presented by the
parties to determine whether or not the employee was illegally dismissed or voluntarily resigned
from employment.104[24] The instant case thus falls within the exception.

We have carefully examined the evidence on record and find that the petition must fail.
 In its Decision105[25] dated December 9, 1997, the NLRC had ordered the case remanded
to the Labor Arbiter precisely so that the questioned documents purportedly signed/executed by
respondent could be subjected to calligraphy examination by experts. It is precisely where a
judgment or ruling fails to make findings of fact that the case may be remanded to the lower
tribunal to enable it to determine them.106[26] However, instead of referring the questioned
documents to the NBI or the PNP as mandated by the Commissions ruling, Labor Arbiter Portillo
proceeded to rule in favor of petitioner, concluding that respondents signatures were not forged,
and as such, respondents separation from employment was purely voluntary. In fine, then, the
Labor Arbiter gravely abused his discretion when he ruled in favor of petitioner without abiding
by the Commissions directive.

We note, however, that a remand of the case at this juncture would only result in
unnecessary delay, especially considering that this case has been pending since 1995. Indeed, it is
this Courts duty to settle, whenever possible, the entire controversy in a single proceeding, leaving
no root or branch to bear the seeds of future litigation.107[27] Hence, the case shall be fully
resolved on its merits.

We find that petitioners failure to submit the original copies of the pay slips and the
resignation letter raises doubts as to the veracity of its claim that they were actually signed/penned
by respondent. The failure of a party to produce the original copy of the document which is in
issue has been taken against such party, and has even been considered as a mere bargaining chip,
a dilatory tactic so that such party would be granted the opportunity to adduce controverting
evidence.108[28] In fact, petitioner did not even present in evidence the original copy of the
employment contract, much less a machine copy, giving credence to respondents claim that he was
not at all given a copy of the employment contract after he signed it. What petitioner presented
was a mere photocopy of the OCW Info Sheet109[29] issued by the Philippine Overseas
Employment Administration as well as the Personal Data Sheet110[30] which respondent filled
up. It bears stressing that the original copies of all these documents, including the employment
contract, were in the possession of petitioner, or, at the very least, petitioners principal.

Moreover, as correctly noted by the CA, the opinions of handwriting experts, although
helpful in the examination of forged documents because of the technical procedure involved in the
analysis, are not binding upon the courts.111[31] As such, resort to these experts is not mandatory
or indispensable to the examination or the comparison of handwriting. A finding of forgery does
not depend entirely on the testimonies of handwriting experts, because the judge must conduct an
independent examination of the questioned signature in order to arrive at a reasonable conclusion
as to its authenticity.112[32] No less than Section 22, Rule 132 of the Rules of Court explicitly
authorizes the court, by itself, to make a comparison of the disputed handwriting with writings
admitted or treated as genuine by the party against whom the evidence is offered or proved to be
genuine to the satisfaction of the judge. Indeed, the authenticity of signatures is not a highly
technical issue in the same sense that questions concerning, e.g., quantum physics or topology, or
molecular biology, would constitute matters of a highly technical nature. The opinion of a
handwriting expert on the genuineness of a questioned signature is certainly much less compelling
upon a judge than an opinion rendered by a specialist on a highly technical issue.113[33]

Even a cursory perusal of the resignation letter114[34] and the handwritten pay slips will
readily show that they were written by only one person. A mere layman will immediately notice
that the strokes and letters in the documents are very similar, if not identical, to one another. It is
also quite apparent from a comparison of the signatures in the pay slips that they are inconsistent,
irregular, with uneven and faltering strokes.

We also find it unbelievable that after having waited for so long to be deployed to Saudi
Arabia and with the hopes of opportunity to earn a better living within his reach, respondent would
just suddenly decide to abandon his work and go home due to family problems. At the very least,
respondent could have at least specified the reason or elaborated on the details of such an urgent
matter so as not to jeopardize future employment opportunities.

That respondent also filed the complaint immediately gives more credence to his claim that
he was illegally dismissed. He arrived in the Philippines on July 24, 1995, and immediately filed
his complaint for illegal dismissal two days later, on July 26, 1995.
 We are not impervious of petitioners claim that respondent could have asked another
person to execute the resignation letter for him. However, petitioner failed to present even an
affidavit from a representative of its foreign principal in order to support this allegation.

Indeed, the rule is that all doubts in the implementation and the interpretation of the Labor
Code shall be resolved in favor of labor,115[35] in order to give effect to the policy of the State to
afford protection to labor, promote full employment, ensure equal work opportunities regardless
of sex, race or creed, and regulate the relations between workers and employers, and to assure the
rights of workers to self-organization, collective bargaining, security of tenure, and just and
humane conditions of work.116[36] We reiterate the following pronouncement in Nicario v.
National Labor Relations Commission:117[37]

It is a well-settled doctrine, that if doubts exist between the evidence

presented by the employer and the employee, the scales of justice must be tilted
in favor of the latter. It is a time-honored rule that in controversies between a
laborer and his master, doubts reasonably arising from the evidence, or in the
interpretation of agreements and writing should be resolved in the formers
favor. The policy is to extend the doctrine to a greater number of employees
who can avail of the benefits under the law, which is in consonance with the
avowed policy of the State to give maximum aid and protection of labor.
 Moreover, one who pleads payment has the burden of proving it. The reason for the rule is
that the pertinent personnel files, payrolls, records, remittances and other similar documents which
will show that overtime, differentials, service incentive leave, and other claims of workers have
been paid are not in the possession of the worker but in the custody and absolute control of the
employer. Thus, the burden of showing with legal certainty that the obligation has been discharged
with payment falls on the debtor, in accordance with the rule that one who pleads payment has the
burden of proving it.118[38] Only when the debtor introduces evidence that the obligation has
been extinguished does the burden shift to the creditor, who is then under a duty of producing
evidence to show why payment does not extinguish the obligation.119[39] In this case, petitioner
was unable to present ample evidence to prove its claim that respondent had received all his salaries
and benefits in full.

IN LIGHT OF ALL THE FOREGOING, the Petition is DENIED for lack of merit. The
Decision of the Court of Appeals in CA-G.R. SP No. 64744 is AFFIRMED. Costs against the
petitioners.

SO ORDERED.

FIRST DIVISION

CITIBANK, N.A. (Formerly First G.R. No. 156132

National City Bank) and INVESTORS
FINANCE CORPORATION, doing
 business under the name and style of
FNCB Finance,
Present:
Petitioners,

PANGANIBAN, C.J.

Chairperson,
- versus-
YNARES-SANTIAGO,

AUSTRIA-MARTINEZ,

CALLEJO, SR., and

MODESTA R. SABENIANO,
CHICO-NAZARIO, JJ.
Respondent.

Promulgated:

October 16, 2006

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

DECISION

CHICO-NAZARIO, J.:
 Before this Court is a Petition for Review on Certiorari,120[1] under Rule 45 of the
Revised Rules of Court, of the Decision121[2] of the Court of Appeals in CA-G.R. CV No.
51930, dated 26 March 2002, and the Resolution,122[3] dated 20 November 2002, of the same
court which, although modifying its earlier Decision, still denied for the most part the Motion for
Reconsideration of herein petitioners.

Petitioner Citibank, N.A. (formerly known as the First National City Bank) is a banking
corporation duly authorized and existing under the laws of the United States of America and
licensed to do commercial banking activities and perform trust functions in the Philippines.

Petitioner Investors Finance Corporation, which did business under the name and style of
FNCB Finance, was an affiliate company of petitioner Citibank, specifically handling money
market placements for its clients. It is now, by virtue of a merger, doing business as part of its
successor-in-interest, BPI Card Finance Corporation. However, so as to consistently establish its
identity in the Petition at bar, the said petitioner shall still be referred to herein as FNCB
Finance.123[4]
 Respondent Modesta R. Sabeniano was a client of both petitioners Citibank and FNCB
Finance. Regrettably, the business relations among the parties subsequently went awry.

On 8 August 1985, respondent filed a Complaint124[5] against petitioners, docketed as

Civil Case No. 11336, before the Regional Trial Court (RTC) of Makati City. Respondent
claimed to have substantial deposits and money market placements with the petitioners, as well
as money market placements with the Ayala Investment and Development Corporation (AIDC),
the proceeds of which were supposedly deposited automatically and directly to respondents
accounts with petitioner Citibank. Respondent alleged that petitioners refused to return her
deposits and the proceeds of her money market placements despite her repeated demands, thus,
compelling respondent to file Civil Case No. 11336 against petitioners for Accounting, Sum of
Money and Damages. Respondent eventually filed an Amended Complaint125[6] on 9 October
1985 to include additional claims to deposits and money market placements inadvertently left out
from her original Complaint.

In their joint Answer126[7] and Answer to Amended Complaint,127[8] filed on 12

September 1985 and 6 November 1985, respectively, petitioners admitted that respondent had
deposits and money market placements with them, including dollar accounts in the Citibank
branch in Geneva, Switzerland (Citibank-Geneva). Petitioners further alleged that the respondent
later obtained several loans from petitioner Citibank, for which she executed Promissory Notes
(PNs), and secured by (a) a Declaration of Pledge of her dollar accounts in Citibank-Geneva, and
(b) Deeds of Assignment of her money market placements with petitioner FNCB Finance. When
respondent failed to pay her loans despite repeated demands by petitioner Citibank, the latter
exercised its right to off-set or compensate respondents outstanding loans with her deposits and
money market placements, pursuant to the Declaration of Pledge and the Deeds of Assignment
executed by respondent in its favor. Petitioner Citibank supposedly informed respondent
Sabeniano of the foregoing compensation through letters, dated 28 September 1979 and 31
October 1979. Petitioners were therefore surprised when six years later, in 1985, respondent and
her counsel made repeated requests for the withdrawal of respondents deposits and money
market placements with petitioner Citibank, including her dollar accounts with Citibank-Geneva
and her money market placements with petitioner FNCB Finance. Thus, petitioners prayed for
the dismissal of the Complaint and for the award of actual, moral, and exemplary damages, and
attorneys fees.

When the parties failed to reach a compromise during the pre-trial hearing,128[9] trial
proper ensued and the parties proceeded with the presentation of their respective evidence. Ten
years after the filing of the Complaint on 8 August 1985, a Decision129[10] was finally rendered
in Civil Case No. 11336 on 24 August 1995 by the fourth Judge130[11] who handled the said
case, Judge Manuel D. Victorio, the dispositive portion of which reads

WHEREFORE, in view of all the foregoing, decision is hereby rendered

as follows:
 (1) Declaring as illegal, null and void the setoff effected by the defendant
Bank [petitioner Citibank] of plaintiffs [respondent Sabeniano] dollar deposit with
Citibank, Switzerland, in the amount of US$149,632.99, and ordering the said
defendant [petitioner Citibank] to refund the said amount to the plaintiff with
legal interest at the rate of twelve percent (12%) per annum, compounded yearly,
from 31 October 1979 until fully paid, or its peso equivalent at the time of
payment;

(2) Declaring the plaintiff [respondent Sabeniano] indebted to the

defendant Bank [petitioner Citibank] in the amount of P1,069,847.40 as of 5
September 1979 and ordering the plaintiff [respondent Sabeniano] to pay said
amount, however, there shall be no interest and penalty charges from the time the
illegal setoff was effected on 31 October 1979;

(3) Dismissing all other claims and counterclaims interposed by the parties
against each other.

Costs against the defendant Bank.

All the parties appealed the foregoing Decision of the RTC to the Court of Appeals,
docketed as CA-G.R. CV No. 51930. Respondent questioned the findings of the RTC that she was
still indebted to petitioner Citibank, as well as the failure of the RTC to order petitioners to render
an accounting of respondents deposits and money market placements with them. On the other
hand, petitioners argued that petitioner Citibank validly compensated respondents outstanding
loans with her dollar accounts with Citibank-Geneva, in accordance with the Declaration of Pledge
she executed in its favor. Petitioners also alleged that the RTC erred in not declaring respondent
liable for damages and interest.

On 26 March 2002, the Court of Appeals rendered its Decision131[12] affirming with
modification the RTC Decision in Civil Case No. 11336, dated 24 August 1995, and ruling entirely
in favor of respondent in this wise
 Wherefore, premises considered, the assailed 24 August 1995 Decision of
the court a quo is hereby AFFIRMED with MODIFICATION, as follows:

1. Declaring as illegal, null and void the set-off effected by the

defendant-appellant Bank of the plaintiff-appellants dollar deposit with Citibank,
Switzerland, in the amount of US$149,632.99, and ordering defendant-appellant
Citibank to refund the said amount to the plaintiff-appellant with legal interest at
the rate of twelve percent (12%) per annum, compounded yearly, from 31 October
1979 until fully paid, or its peso equivalent at the time of payment;

2. As defendant-appellant Citibank failed to establish by competent

evidence the alleged indebtedness of plaintiff-appellant, the set-off of
P1,069,847.40 in the account of Ms. Sabeniano is hereby declared as without legal
and factual basis;

3. As defendants-appellants failed to account the following plaintiff-

appellants money market placements, savings account and current accounts, the
former is hereby ordered to return the same, in accordance with the terms and
conditions agreed upon by the contending parties as evidenced by the certificates
of investments, to wit:

(i) Citibank NNPN Serial No. 023356 (Cancels and

Supersedes NNPN No. 22526) issued on 17 March 1977,
P318,897.34 with 14.50% interest p.a.;

(ii) Citibank NNPN Serial No. 23357 (Cancels and

Supersedes NNPN No. 22528) issued on 17 March 1977,
P203,150.00 with 14.50 interest p.a.;

(iii) FNCB NNPN Serial No. 05757 (Cancels and

Supersedes NNPN No. 04952), issued on 02 June 1977,
P500,000.00 with 17% interest p.a.;
 (iv) FNCB NNPN Serial No. 05758 (Cancels and
Supersedes NNPN No. 04962), issued on 02 June 1977,
P500,000.00 with 17% interest per annum;

(v) The Two Million (P2,000,000.00) money market

placements of Ms. Sabeniano with the Ayala Investment &
Development Corporation (AIDC) with legal interest at the rate of
twelve percent (12%) per annum compounded yearly, from 30
September 1976 until fully paid;

4. Ordering defendants-appellants to jointly and severally pay the

plaintiff-appellant the sum of FIVE HUNDRED THOUSAND PESOS
(P500,000.00) by way of moral damages, FIVE HUNDRED THOUSAND PESOS
(P500,000.00) as exemplary damages, and ONE HUNDRED THOUSAND PESOS
(P100,000.00) as attorneys fees.

Apparently, the parties to the case, namely, the respondent, on one hand, and the
petitioners, on the other, made separate attempts to bring the aforementioned Decision of the
Court of Appeals, dated 26 March 2002, before this Court for review.

G.R. No. 152985

Respondent no longer sought a reconsideration of the Decision of the Court of Appeals in

CA-G.R. CV No. 51930, dated 26 March 2002, and instead, filed immediately with this Court on
3 May 2002 a Motion for Extension of Time to File a Petition for Review,132[13] which, after
payment of the docket and other lawful fees, was assigned the docket number G.R. No. 152985.
In the said Motion, respondent alleged that she received a copy of the assailed Court of Appeals
Decision on 18 April 2002 and, thus, had 15 days therefrom or until 3 May 2002 within which to
file her Petition for Review. Since she informed her counsel of her desire to pursue an appeal of
the Court of Appeals Decision only on 29 April 2002, her counsel neither had enough time to file
a motion for reconsideration of the said Decision with the Court of Appeals, nor a Petition for
Certiorari with this Court. Yet, the Motion failed to state the exact extension period respondent
was requesting for.

Since this Court did not act upon respondents Motion for Extension of Time to file her
Petition for Review, then the period for appeal continued to run and still expired on 3 May
2002.133[14] Respondent failed to file any Petition for Review within the prescribed period for
appeal and, hence, this Court issued a Resolution,134[15] dated 13 November 2002, in which it
pronounced that

G.R. No. 152985 (Modesta R. Sabeniano vs. Court of Appeals, et al.). It

appearing that petitioner failed to file the intended petition for review on certiorari
within the period which expired on May 3, 2002, the Court Resolves to
DECLARE THIS CASE TERMINATED and DIRECT the Division Clerk of
Court to INFORM the parties that the judgment sought to be reviewed has
become final and executory.

The said Resolution was duly recorded in the Book of Entries of Judgments on 3 January 2003.

G.R. No. 156132

 Meanwhile, petitioners filed with the Court of Appeals a Motion for Reconsideration of
its Decision in CA-G.R. CV No. 51930, dated 26 March 2002. Acting upon the said Motion, the
Court of Appeals issued the Resolution,135[16] dated 20 November 2002, modifying its
Decision of 26 March 2002, as follows

WHEREFORE, premises considered, the instant Motion for

Reconsideration is PARTIALLY GRANTED as Sub-paragraph (V) paragraph 3
of the assailed Decisions dispositive portion is hereby ordered DELETED.

The challenged 26 March 2002 Decision of the Court is AFFIRMED with

MODIFICATION.

Assailing the Decision and Resolution of the Court of Appeals in CA-G.R. CV No.
51930, dated 26 March 2002 and 20 November 2002, respectively, petitioners filed the present
Petition, docketed as G.R. No. 156132. The Petition was initially denied136[17] by this Court for
failure of the petitioners to attach thereto a Certification against Forum Shopping. However,
upon petitioners Motion and compliance with the requirements, this Court resolved137[18] to
reinstate the Petition.

The Petition presented fourteen (14) assignments of errors allegedly committed by the
Court of Appeals in its Decision, dated 26 March 2002, involving both questions of fact and
questions of law which this Court, for the sake of expediency, discusses jointly, whenever
possible, in the succeeding paragraphs.

The Resolution of this Court, dated 13 November

2002, in G.R. No. 152985, declaring the Decision
of the Court of Appeals, dated 26 March 2002,
final and executory, pertains to respondent
Sabeniano alone.

Before proceeding to a discussion of the merits of the instant Petition, this Court wishes
to address first the argument, persistently advanced by respondent in her pleadings on record, as
well as her numerous personal and unofficial letters to this Court which were no longer made
part of the record, that the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26
March 2002, had already become final and executory by virtue of the Resolution of this Court in
G.R. No. 152985, dated 13 November 2002.

G.R. No. 152985 was the docket number assigned by this Court to respondents Motion
for Extension of Time to File a Petition for Review. Respondent, though, did not file her
supposed Petition. Thus, after the lapse of the prescribed period for the filing of the Petition, this
Court issued the Resolution, dated 13 November 2002, declaring the Decision of the Court of
Appeals, dated 26 March 2002, final and executory. It should be pointed out, however, that the
Resolution, dated 13 November 2002, referred only to G.R. No. 152985, respondents appeal,
which she failed to perfect through the filing of a Petition for Review within the prescribed
period. The declaration of this Court in the same Resolution would bind respondent solely, and
not petitioners which filed their own separate appeal before this Court, docketed as G.R. No.
156132, the Petition at bar. This would mean that respondent, on her part, should be bound by
the findings of fact and law of the Court of Appeals, including the monetary amounts
consequently awarded to her by the appellate court in its Decision, dated 26 March 2002; and she
can no longer refute or assail any part thereof. 138[19]

This Court already explained the matter to respondent when it issued a Resolution139[20]
in G.R. No. 156132, dated 2 February 2004, which addressed her Urgent Motion for the Release
of the Decision with the Implementation of the Entry of Judgment in the following manner

[A]cting on Citibanks and FNCB Finances Motion for Reconsideration, we

resolved to grant the motion, reinstate the petition and require Sabeniano to file a
comment thereto in our Resolution of June 23, 2003. Sabeniano filed a Comment
dated July 17, 2003 to which Citibank and FNCB Finance filed a Reply dated
August 20, 2003.

From the foregoing, it is clear that Sabeniano had knowledge of, and in
fact participated in, the proceedings in G.R. No. 156132. She cannot feign
ignorance of the proceedings therein and claim that the Decision of the Court of
Appeals has become final and executory. More precisely, the Decision became
final and executory only with regard to Sabeniano in view of her failure to file a
petition for review within the extended period granted by the Court, and not to
Citibank and FNCB Finance whose Petition for Review was duly reinstated and is
now submitted for decision.

Accordingly, the instant Urgent Motion is hereby DENIED. (Emphasis

supplied.)

To sustain the argument of respondent would result in an unjust and incongruous situation
wherein one party may frustrate the efforts of the opposing party to appeal the case by merely
filing with this Court a Motion for Extension of Time to File a Petition for Review, ahead of the
opposing party, then not actually filing the intended Petition.140[21] The party who fails to file
its intended Petition within the reglementary or extended period should solely bear the
consequences of such failure.

Respondent Sabeniano did not commit forum

shopping.

Another issue that does not directly involve the merits of the present Petition, but raised
by petitioners, is whether respondent should be held liable for forum shopping.

Petitioners contend that respondent committed forum shopping on the basis of the
following facts:

While petitioners Motion for Reconsideration of the Decision in CA-G.R. CV No. 51930,
dated 26 March 2002, was still pending before the Court of Appeals, respondent already filed
with this Court on 3 May 2002 her Motion for Extension of Time to File a Petition for Review of
the same Court of Appeals Decision, docketed as G.R. No. 152985. Thereafter, respondent
continued to participate in the proceedings before the Court of Appeals in CA-G.R. CV No.
51930 by filing her Comment, dated 17 July 2002, to petitioners Motion for Reconsideration;
and a Rejoinder, dated 23 September 2002, to petitioners Reply. Thus, petitioners argue that by
seeking relief concurrently from this Court and the Court of Appeals, respondent is undeniably
guilty of forum shopping, if not indirect contempt.

This Court, however, finds no sufficient basis to hold respondent liable for forum
shopping.

Forum shopping has been defined as the filing of two or more suits involving the same
parties for the same cause of action, either simultaneously or successively, for the purpose of
obtaining a favorable judgment.141[22] The test for determining forum shopping is whether in
the two (or more) cases pending, there is an identity of parties, rights or causes of action, and
relief sought.142[23] To guard against this deplorable practice, Rule 7, Section 5 of the revised
Rules of Court imposes the following requirement

SEC. 5. Certification against forum shopping. The plaintiff or principal

party shall certify under oath in the complaint or other initiatory pleading
asserting a claim for relief, or in a sworn certification annexed thereto and
simultaneously filed therewith: (a) that he has not theretofore commenced any
action or filed any claim involving the same issues in any court, tribunal or quasi-
judicial agency and, to the best of his knowledge, no such other action or claim is
pending therein; (b) if there is such other pending action or claim, a complete
statement of the present status thereof; and (c) if he should thereafter learn that the
same or similar action or claim has been filed or is pending, he shall report that
fact within five (5) days therefrom to the court wherein his aforesaid complaint or
initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by

mere amendment of the complaint or other initiatory pleading but shall be cause
for the dismissal of the case without prejudice, unless otherwise provided, upon
motion and after hearing. The submission of a false certification or non-
compliance with any of the undertakings therein shall constitute indirect contempt
of court, without prejudice to the corresponding administrative and criminal
actions. If the acts of the party or his counsel clearly constitute willful and
deliberate forum shopping, the same shall be ground for summary dismissal with
prejudice and shall constitute direct contempt, as well as cause for administrative
sanctions.

Although it may seem at first glance that respondent was simultaneously seeking recourse
from the Court of Appeals and this Court, a careful and closer scrutiny of the details of the case
at bar would reveal otherwise.
 It should be recalled that respondent did nothing more in G.R. No. 152985 than to file
with this Court a Motion for Extension of Time within which to file her Petition for Review. For
unexplained reasons, respondent failed to submit to this Court her intended Petition within the
reglementary period. Consequently, this Court was prompted to issue a Resolution, dated 13
November 2002, declaring G.R. No. 152985 terminated, and the therein assailed Court of
Appeals Decision final and executory. G.R. No. 152985, therefore, did not progress and
respondents appeal was unperfected.

The Petition for Review would constitute the initiatory pleading before this Court, upon
the timely filing of which, the case before this Court commences; much in the same way a case is
initiated by the filing of a Complaint before the trial court. The Petition for Review establishes
the identity of parties, rights or causes of action, and relief sought from this Court, and without
such a Petition, there is technically no case before this Court. The Motion filed by respondent
seeking extension of time within which to file her Petition for Review does not serve the same
purpose as the Petition for Review itself. Such a Motion merely presents the important dates and
the justification for the additional time requested for, but it does not go into the details of the
appealed case.

Without any particular idea as to the assignments of error or the relief respondent
intended to seek from this Court, in light of her failure to file her Petition for Review, there is
actually no second case involving the same parties, rights or causes of action, and relief sought,
as that in CA-G.R. CV No. 51930.

It should also be noted that the Certification against Forum Shopping is required to be
attached to the initiatory pleading, which, in G.R. No. 152985, should have been respondents
Petition for Review. It is in that Certification wherein respondent certifies, under oath, that: (a)
she has not commenced any action or filed any claim involving the same issues in any court,
tribunal or quasi-judicial agency and, to the best of her knowledge, no such other action or claim
is pending therein; (b) if there is such other pending action or claim, that she is presenting a
complete statement of the present status thereof; and (c) if she should thereafter learn that the
same or similar action or claim has been filed or is pending, she shall report that fact within five
days therefrom to this Court. Without her Petition for Review, respondent had no obligation to
execute and submit the foregoing Certification against Forum Shopping. Thus, respondent did
not violate Rule 7, Section 5 of the Revised Rules of Court; neither did she mislead this Court as
to the pendency of another similar case.

Lastly, the fact alone that the Decision of the Court of Appeals, dated 26 March 2002,
essentially ruled in favor of respondent, does not necessarily preclude her from appealing the
same. Granted that such a move is ostensibly irrational, nonetheless, it does not amount to
malice, bad faith or abuse of the court processes in the absence of further proof. Again, it should
be noted that the respondent did not file her intended Petition for Review. The Petition for
Review would have presented before this Court the grounds for respondents appeal and her
arguments in support thereof. Without said Petition, any reason attributed to the respondent for
appealing the 26 March 2002 Decision would be grounded on mere speculations, to which this
Court cannot give credence.

II

As an exception to the general rule, this Court

takes cognizance of questions of fact raised in the
Petition at bar.
It is already a well-settled rule that the jurisdiction of this Court in cases brought before it
from the Court of Appeals by virtue of Rule 45 of the Revised Rules of Court is limited to
reviewing errors of law. Findings of fact of the Court of Appeals are conclusive upon this Court.
There are, however, recognized exceptions to the foregoing rule, namely: (1) when the findings
are grounded entirely on speculation, surmises, or conjectures; (2) when the interference made is
manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when
the judgment is based on a misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when in making its findings, the Court of Appeals went beyond the issues of the
case, or its findings are contrary to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to those of the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioners main and reply briefs are not disputed by the respondent; and
(10) when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record.143[24]

Several of the enumerated exceptions pertain to the Petition at bar.

It is indubitable that the Court of Appeals made factual findings that are contrary to those
of the RTC,144[25] thus, resulting in its substantial modification of the trial courts Decision, and
a ruling entirely in favor of the respondent. In addition, petitioners invoked in the instant Petition
for Review several exceptions that would justify this Courts review of the factual findings of the
Court of Appeals, i.e., the Court of Appeals made conflicting findings of fact; findings of fact
which went beyond the issues raised on appeal before it; as well as findings of fact premised on
the supposed absence of evidence and contradicted by the evidence on record.

On the basis of the foregoing, this Court shall proceed to reviewing and re-evaluating the
evidence on record in order to settle questions of fact raised in the Petition at bar.

The fact that the trial judge who rendered the RTC
Decision in Civil Case No. 11336, dated 24 August
1995, was not the same judge who heard and tried
the case, does not, by itself, render the said
Decision erroneous.
 The Decision in Civil Case No. 11336 was rendered more than 10 years from the
institution of the said case. In the course of its trial, the case was presided over by four (4)
different RTC judges.145[26] It was Judge Victorio, the fourth judge assigned to the case, who
wrote the RTC Decision, dated 24 August 1995. In his Decision,146[27] Judge Victorio made
the following findings

After carefully evaluating the mass of evidence adduced by the parties,

this Court is not inclined to believe the plaintiffs assertion that the promissory
notes as well as the deeds of assignments of her FNCB Finance money market
placements were simulated. The evidence is overwhelming that the plaintiff
received the proceeds of the loans evidenced by the various promissory notes she
had signed. What is more, there was not an iota of proof save the plaintiffs bare
testimony that she had indeed applied for loan with the Development Bank of the
Philippines.

More importantly, the two deeds of assignment were notarized, hence they
partake the nature of a public document. It makes more than preponderant proof
to overturn the effect of a notarial attestation. Copies of the deeds of assignments
were actually filed with the Records Management and Archives Office.

Finally, there were sufficient evidence wherein the plaintiff had admitted
the existence of her loans with the defendant Bank in the total amount of
P1,920,000.00 exclusive of interests and penalty charges (Exhibits 28, 31, 32, and
33).

In fine, this Court hereby finds that the defendants had established the
genuineness and due execution of the various promissory notes heretofore
identified as well as the two deeds of assignments of the plaintiffs money market
placements with defendant FNCB Finance, on the strength of which the said
money market placements were applied to partially pay the plaintiffs past due
obligation with the defendant Bank. Thus, the total sum of P1,053,995.80 of the
plaintiffs past due obligation was partially offset by the said money market
placement leaving a balance of P1,069,847.40 as of 5 September 1979 (Exhibit
34).
 Disagreeing in the foregoing findings, the Court of Appeals stressed, in its Decision in
CA-G.R. CV No. 51930, dated 26 March 2002, that the ponente of the herein assailed Decision
is not the Presiding Judge who heard and tried the case.147[28] This brings us to the question of
whether the fact alone that the RTC Decision was rendered by a judge other than the judge who
actually heard and tried the case is sufficient justification for the appellate court to disregard or
set aside the findings in the Decision of the court a quo?

This Court rules in the negative.

What deserves stressing is that, in this jurisdiction, there exists a disputable presumption
that the RTC Decision was rendered by the judge in the regular performance of his official
duties. While the said presumption is only disputable, it is satisfactory unless contradicted or
overcame by other evidence.148[29] Encompassed in this presumption of regularity is the
presumption that the RTC judge, in resolving the case and drafting his Decision, reviewed,
evaluated, and weighed all the evidence on record. That the said RTC judge is not the same
judge who heard the case and received the evidence is of little consequence when the records and
transcripts of stenographic notes (TSNs) are complete and available for consideration by the
former.

In People v. Gazmen,149[30] this Court already elucidated its position on such an issue
 Accused-appellant makes an issue of the fact that the judge who penned
the decision was not the judge who heard and tried the case and concludes
therefrom that the findings of the former are erroneous. Accused-appellants
argument does not merit a lengthy discussion. It is well-settled that the decision of
a judge who did not try the case is not by that reason alone erroneous.

It is true that the judge who ultimately decided the case had not heard the
controversy at all, the trial having been conducted by then Judge Emilio L. Polig,
who was indefinitely suspended by this Court. Nonetheless, the transcripts of
stenographic notes taken during the trial were complete and were presumably
examined and studied by Judge Baguilat before he rendered his decision. It is not
unusual for a judge who did not try a case to decide it on the basis of the record.
The fact that he did not have the opportunity to observe the demeanor of the
witnesses during the trial but merely relied on the transcript of their testimonies
does not for that reason alone render the judgment erroneous.

(People vs. Jaymalin, 214 SCRA 685, 692 [1992])

Although it is true that the judge who heard the witnesses testify is in a
better position to observe the witnesses on the stand and determine by their
demeanor whether they are telling the truth or mouthing falsehood, it does not
necessarily follow that a judge who was not present during the trial cannot render
a valid decision since he can rely on the transcript of stenographic notes taken
during the trial as basis of his decision.

Accused-appellants contention that the trial judge did not have the
opportunity to observe the conduct and demeanor of the witnesses since he was
not the same judge who conducted the hearing is also untenable. While it is true
that the trial judge who conducted the hearing would be in a better position to
ascertain the truth and falsity of the testimonies of the witnesses, it does not
necessarily follow that a judge who was not present during the trial cannot render
a valid and just decision since the latter can also rely on the transcribed
stenographic notes taken during the trial as the basis of his decision.

(People vs. De Paz, 212 SCRA 56, 63 [1992])

At any rate, the test to determine the value of the testimony of the witness
is whether or not such is in conformity with knowledge and consistent with the
experience of mankind (People vs. Morre, 217 SCRA 219 [1993]). Further, the
credibility of witnesses can also be assessed on the basis of the substance of their
testimony and the surrounding circumstances (People v. Gonzales, 210 SCRA 44
[1992]). A critical evaluation of the testimony of the prosecution witnesses
 reveals that their testimony accords with the aforementioned tests, and carries
with it the ring of truth end perforce, must be given full weight and credit.

Irrefragably, by reason alone that the judge who penned the RTC Decision was not the
same judge who heard the case and received the evidence therein would not render the findings
in the said Decision erroneous and unreliable. While the conduct and demeanor of witnesses may
sway a trial court judge in deciding a case, it is not, and should not be, his only consideration.
Even more vital for the trial court judges decision are the contents and substance of the witnesses
testimonies, as borne out by the TSNs, as well as the object and documentary evidence submitted
and made part of the records of the case.

This Court proceeds to making its own findings

of fact.

Since the Decision of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March
2002, has become final and executory as to the respondent, due to her failure to interpose an
appeal therefrom within the reglementary period, she is already bound by the factual findings in
the said Decision. Likewise, respondents failure to file, within the reglementary period, a Motion
for Reconsideration or an appeal of the Resolution of the Court of Appeals in the same case,
dated 20 November 2002, which modified its earlier Decision by deleting paragraph 3(v) of its
dispositive portion, ordering petitioners to return to respondent the proceeds of her money
market placement with AIDC, shall already bar her from questioning such modification before
this Court. Thus, what is for review before this Court is the Decision of the Court of Appeals,
dated 26 March 2002, as modified by the Resolution of the same court, dated 20 November
2002.

Respondent alleged that she had several deposits and money market placements with
petitioners. These deposits and money market placements, as determined by the Court of
Appeals in its Decision, dated 26 March 2002, and as modified by its Resolution, dated 20
November 2002, are as follows
 Deposit/Placement Amount
Dollar deposit with Citibank-Geneva $ 149,632.99
Money market placement with Citibank, evidenced by
Promissory Note (PN) No. 23356 (which cancels and
supersedes PN No. 22526), earning 14.5% interest per
annum (p.a.)
P 318,897.34
Money market placement with Citibank, evidenced by PN
No. 23357 (which cancels and supersedes PN No. 22528),
earning 14.5% interest p.a.
P 203,150.00
Money market placement with FNCB Finance, evidenced
by PN No. 5757 (which cancels and supersedes PN No.
4952), earning 17% interest p.a.
P 500,000.00
Money market placement with FNCB Finance, evidenced
by PN No. 5758 (which cancels and supersedes PN No.
2962), earning 17% interest p.a.
P 500,000.00
This Court is tasked to determine whether petitioners are indeed liable to return the foregoing
amounts, together with the appropriate interests and penalties, to respondent. It shall trace
respondents transactions with petitioners, from her money market placements with petitioner
Citibank and petitioner FNCB Finance, to her savings and current accounts with petitioner
Citibank, and to her dollar accounts with Citibank-Geneva.

Money market placements with petitioner Citibank

The history of respondents money market placements with petitioner Citibank began on 6
December 1976, when she made a placement of P500,000.00 as principal amount, which was
supposed to earn an interest of 16% p.a. and for which PN No. 20773 was issued. Respondent
did not yet claim the proceeds of her placement and, instead, rolled-over or re-invested the
principal and proceeds several times in the succeeding years for which new PNs were issued by
petitioner Citibank to replace the ones which matured. Petitioner Citibank accounted for
respondents original placement and the subsequent roll-overs thereof, as follows

Date Maturity
Date
(mm/dd/yyyy) PN No. Cancels PN Amount Interest
No. (mm/dd/yyyy)
(P) (p.a.)
12/06/1976 20773 None 01/13/1977 500,000.00 16%
01/14/1977 21686 20773 02/08/1977 508,444.44 15%
02/09/1977 22526 21686 03/16/1977 313,952.59 15-3/4%
22528 21686 03/16/1977 200,000.00 15-3/4%
03/17/1977 23356 22526 04/20/1977 318,897.34 14-1/2%
23357 22528 04/20/1977 203,150.00 14-1/2%

Petitioner Citibank alleged that it had already paid to respondent the principal amounts
and proceeds of PNs No. 23356 and 23357, upon their maturity. Petitioner Citibank further
averred that respondent used the P500,000.00 from the payment of PNs No. 23356 and 23357,
plus P600,000.00 sourced from her other funds, to open two time deposit (TD) accounts with
petitioner Citibank, namely, TD Accounts No. 17783 and 17784.

Petitioner Citibank did not deny the existence nor questioned the authenticity of PNs No.
23356 and 23357 it issued in favor of respondent for her money market placements. In fact, it
admitted the genuineness and due execution of the said PNs, but qualified that they were no
longer outstanding.150[31] In Hibberd v. Rohde and McMillian,151[32] this Court delineated the
consequences of such an admission
 By the admission of the genuineness and due execution of an instrument,
as provided in this section, is meant that the party whose signature it bears admits
that he signed it or that it was signed by another for him with his authority; that at
the time it was signed it was in words and figures exactly as set out in the
pleading of the party relying upon it; that the document was delivered; and that
any formal requisites required by law, such as a seal, an acknowledgment, or
revenue stamp, which it lacks, are waived by him. Hence, such defenses as that
the signature is a forgery (Puritan Mfg. Co. vs. Toti & Gradi, 14 N. M., 425; Cox
vs. Northwestern Stage Co., 1 Idaho, 376; Woollen vs. Whitacre, 73 Ind., 198;
Smith vs. Ehnert, 47 Wis., 479; Faelnar vs. Escao, 11 Phil. Rep., 92); or that it
was unauthorized, as in the case of an agent signing for his principal, or one
signing in behalf of a partnership (Country Bank vs. Greenberg, 127 Cal., 26;
Henshaw vs. Root, 60 Inc., 220; Naftzker vs. Lantz, 137 Mich., 441) or of a
corporation (Merchant vs. International Banking Corporation, 6 Phil Rep., 314;
Wanita vs. Rollins, 75 Miss., 253; Barnes vs. Spencer & Barnes Co., 162 Mich.,
509); or that, in the case of the latter, that the corporation was authorized under its
charter to sign the instrument (Merchant vs. International Banking Corporation,
supra); or that the party charged signed the instrument in some other capacity
than that alleged in the pleading setting it out (Payne vs. National Bank, 16 Kan.,
147); or that it was never delivered (Hunt vs. Weir, 29 Ill., 83; Elbring vs. Mullen,
4 Idaho, 199; Thorp vs. Keokuk Coal Co., 48 N.Y., 253; Fire Association of
Philadelphia vs. Ruby, 60 Neb., 216) are cut off by the admission of its
genuineness and due execution.

The effect of the admission is such that in the case of a promissory note a
prima facie case is made for the plaintiff which dispenses with the necessity of
evidence on his part and entitles him to a judgment on the pleadings unless a
special defense of new matter, such as payment, is interposed by the defendant
(Papa vs. Martinez, 12 Phil. Rep., 613; Chinese Chamber of Commerce vs. Pua
To Ching, 14 Phil. Rep., 222; Banco Espaol-Filipino vs. McKay & Zoeller, 27
Phil. Rep., 183). x x x

Since the genuineness and due execution of PNs No. 23356 and 23357 are uncontested,
respondent was able to establish prima facie that petitioner Citibank is liable to her for the
amounts stated therein. The assertion of petitioner Citibank of payment of the said PNs is an
affirmative allegation of a new matter, the burden of proof as to such resting on petitioner
Citibank. Respondent having proved the existence of the obligation, the burden of proof was
upon petitioner Citibank to show that it had been discharged.152[33] It has already been
established by this Court that

As a general rule, one who pleads payment has the burden of proving it.
Even where the plaintiff must allege non-payment, the general rule is that the
burden rests on the defendant to prove payment, rather than on the plaintiff to
prove non-payment. The debtor has the burden of showing with legal certainty
that the obligation has been discharged by payment.

When the existence of a debt is fully established by the evidence contained

in the record, the burden of proving that it has been extinguished by payment
devolves upon the debtor who offers such defense to the claim of the creditor.
Where the debtor introduces some evidence of payment, the burden of going
forward with the evidence as distinct from the general burden of proof shifts to
the creditor, who is then under the duty of producing some evidence of non-
payment.153[34]

Reviewing the evidence on record, this Court finds that petitioner Citibank failed to
satisfactorily prove that PNs No. 23356 and 23357 had already been paid, and that the amount so
paid was actually used to open one of respondents TD accounts with petitioner Citibank.

Petitioner Citibank presented the testimonies of two witnesses to support its contention of
payment: (1) That of Mr. Herminio Pujeda,154[35] the officer-in-charge of loans and placements
at the time when the questioned transactions took place; and (2) that of Mr. Francisco
Tan,155[36] the former Assistant Vice-President of Citibank, who directly dealt with respondent
with regard to her deposits and loans.

The relevant portion156[37] of Mr. Pujedas testimony as to PNs No. 23356 and 23357
(referred to therein as Exhibits No. 47 and 48, respectively) is reproduced below

Atty. Mabasa:

Okey [sic]. Now Mr. Witness, you were asked to testify in this case and
this case is [sic] consist [sic] of several documents involving transactions
between the plaintiff and the defendant. Now, were you able to make your
own memorandum regarding all these transactions?

A Yes, based on my recollection of these facts, I did come up of [sic] the

outline of the chronological sequence of events.

Court:

Are you trying to say that you have personal knowledge or participation to
these transactions?

A Yes, your Honor, I was the officer-in charge of the unit that was
processing these transactions. Some of the documents bear my signature.

Court:

And this resume or summary that you have prepared is based on purely
your recollection or documents?

A Based on documents, your Honor.

Court:
 Are these documents still available now?

A Yes, your honor.

Court:

Better present the documents.

Atty. Mabasa:

Yes, your Honor, that is why your Honor.

Atty. Mabasa:

Q Now, basing on the notes that you prepared, Mr. Witness, and according to
you basing also on your personal recollection about all the transactions
involved between Modesta Sabeniano and defendant City Bank [sic] in
this case. Now, would you tell us what happened to the money market
placements of Modesta Sabeniano that you have earlier identified in Exhs.
47 and 48?

A The transactions which I said earlier were terminated and booked to time
deposits.

Q And you are saying time deposits with what bank?

A With First National Citibank.

Q Is it the same bank as Citibank, N.A.?

A Yes, sir.

Q And how much was the amount booked as time deposit with defendant
Citibank?

A In the amount of P500,000.00.

Q And outside this P500,000.00 which you said was booked out of the
proceeds of Exhs. 47 and 48, were there other time deposits opened by
Mrs. Modesta Sabeniano at that time.

A Yes, she also opened another time deposit for P600,000.00.

 Q So all in all Mr. Witness, sometime in April of 1978 Mrs. Modesta
Sabeneano [sic] had time deposit placements with Citibank in the amount
of P500,000.00 which is the proceeds of Exh. 47 and 48 and another
P600,000.00, is it not?

A Yes, sir.

Q And would you know where did the other P600,000 placed by Mrs.
Sabeneano [sic] in a time deposit with Citibank, N.A. came [sic] from?

A She funded it directly.

Q What are you saying Mr. Witness is that the P600,000 is a [sic] fresh
money coming from Mrs. Modesta Sabeneano [sic]?

A That is right.

In his deposition in Hong Kong, Mr. Tan recounted what happened to PNs No. 23356 and
23357 (referred to therein as Exhibits E and F, respectively), as follows

Atty. Mabasa : Now from the Exhibits that you have identified Mr. Tan from
Exhibits A to F, which are Exhibits of the plaintiff. Now, do I
understand from you that the original amount is Five Hundred
Thousand and thereafter renewed in the succeeding exhibits?

Mr. Tan : Yes, Sir.

Atty. Mabasa : Alright, after these Exhibits E and F matured, what happened
thereafter?

Mr. Tan : Split into two time deposits.

Atty. Mabasa : Exhibits E and F?

Before anything else, it should be noted that when Mr. Pujedas testimony before the RTC
was made on 12 March 1990 and Mr. Tans deposition in Hong Kong was conducted on 3
September 1990, more than a decade had passed from the time the transactions they were
testifying on took place. This Court had previously recognized the frailty and unreliability of
human memory with regards to figures after the lapse of five years.157[38] Taking into
consideration the substantial length of time between the transactions and the witnesses
testimonies, as well as the undeniable fact that bank officers deal with multiple clients and
process numerous transactions during their tenure, this Court is reluctant to give much weight to
the testimonies of Mr. Pujeda and Mr. Tan regarding the payment of PNs No. 23356 and 23357
and the use by respondent of the proceeds thereof for opening TD accounts. This Court finds it
implausible that they should remember, after all these years, this particular transaction with
respondent involving her PNs No. 23356 and 23357 and TD accounts. Both witnesses did not
give any reason as to why, from among all the clients they had dealt with and all the transactions
they had processed as officers of petitioner Citibank, they specially remembered respondent and
her PNs No. 23356 and 23357. Their testimonies likewise lacked details on the circumstances
surrounding the payment of the two PNs and the opening of the time deposit accounts by
respondent, such as the date of payment of the two PNs, mode of payment, and the manner and
context by which respondent relayed her instructions to the officers of petitioner Citibank to use
the proceeds of her two PNs in opening the TD accounts.

Moreover, while there are documentary evidences to support and trace respondents
money market placements with petitioner Citibank, from the original PN No. 20773, rolled-over
several times to, finally, PNs No. 23356 and 23357, there is an evident absence of any
documentary evidence on the payment of these last two PNs and the use of the proceeds thereof
by respondent for opening TD accounts. The paper trail seems to have ended with the copies of
PNs No. 23356 and 23357. Although both Mr. Pujeda and Mr. Tan said that they based their
testimonies, not just on their memories but also on the documents on file, the supposed
documents on which they based those portions of their testimony on the payment of PNs No.
23356 and 23357 and the opening of the TD accounts from the proceeds thereof, were never
presented before the courts nor made part of the records of the case. Respondents money
market placements were of substantial amounts consisting of the principal amount of
P500,000.00, plus the interest it should have earned during the years of placement and it is
difficult for this Court to believe that petitioner Citibank would not have had documented the
payment thereof.

When Mr. Pujeda testified before the RTC on 6 February 1990,158[39] petitioners
counsel attempted to present in evidence a document that would supposedly support the claim of
petitioner Citibank that the proceeds of PNs No. 23356 and 23357 were used by respondent to
open one of her two TD accounts in the amount of P500,000.00. Respondents counsel objected
to the presentation of the document since it was a mere xerox" copy, and was blurred and hardly
readable. Petitioners counsel then asked for a continuance of the hearing so that they can have
time to produce a better document, which was granted by the court. However, during the next
hearing and continuance of Mr. Pujedas testimony on 12 March 1990, petitioners counsel no
longer referred to the said document.

As respondent had established a prima facie case that petitioner Citibank is obligated to
her for the amounts stated in PNs No. 23356 and 23357, and as petitioner Citibank failed to
present sufficient proof of payment of the said PNs and the use by the respondent of the proceeds
thereof to open her TD accounts, this Court finds that PNs No. 23356 and 23357 are still
outstanding and petitioner Citibank is still liable to respondent for the amounts stated
therein.

The significance of this Courts declaration that PNs No. 23356 and 23357 are still
outstanding becomes apparent in the light of petitioners next contentions that respondent used
the proceeds of PNs No. 23356 and 23357, together with additional money, to open TD
Accounts No. 17783 and 17784 with petitioner Citibank; and, subsequently, respondent pre-
terminated these TD accounts and transferred the proceeds thereof, amounting to P1,100,000.00,
to petitioner FNCB Finance for money market placements. While respondents money market
placements with petitioner FNCB Finance may be traced back with definiteness to TD Accounts
No. 17783 and 17784, there is only flimsy and unsubstantiated connection between the said TD
accounts and the supposed proceeds paid from PNs No. 23356 and 23357. With PNs No. 23356
and 23357 still unpaid, then they represent an obligation of petitioner Citibank separate and
distinct from the obligation of petitioner FNCB Finance arising from respondents money market
placements with the latter.

Money market placements with petitioner FNCB Finance

According to petitioners, respondents TD Accounts No. 17783 and 17784, in the total
amount of P1,100,000.00, were supposed to mature on 15 March 1978. However, respondent,
through a letter dated 28 April 1977,159[40] pre-terminated the said TD accounts and transferred
all the proceeds thereof to petitioner FNCB Finance for money market placement. Pursuant to
her instructions, TD Accounts No. 17783 and 17784 were pre-terminated and petitioner Citibank
(then still named First National City Bank) issued Managers Checks (MC) No. 199253160[41]
and 199251161[42] for the amounts of P500,000.00 and P600,00.00, respectively. Both MCs
were payable to Citifinance (which, according to Mr. Pujeda,162[43] was one with and the same
as petitioner FNCB Finance), with the additional notation that A/C MODESTA R.
SABENIANO. Typewritten on MC No. 199253 is the phrase Ref. Proceeds of TD 17783, and on
MC No. 199251 is a similar phrase, Ref. Proceeds of TD 17784. These phrases purportedly
established that the MCs were paid from the proceeds of respondents pre-terminated TD
accounts with petitioner Citibank. Upon receipt of the MCs, petitioner FNCB Finance deposited
the same to its account with Feati Bank and Trust Co., as evidenced by the rubber stamp mark of
the latter found at the back of both MCs. In exchange, petitioner FNCB Finance booked the
amounts received as money market placements, and accordingly issued PNs No. 4952 and 4962,
for the amounts of P500,000.00 and P600,000.00, respectively, payable to respondents savings
account with petitioner Citibank, S/A No. 25-13703-4, upon their maturity on 1 June 1977. Once
again, respondent rolled-over several times the principal amounts of her money market
placements with petitioner FNCB Finance, as follows

Date Maturity
Date
(mm/dd/yyyy) PN No. Cancels Amount Interest
PN No. (mm/dd/yyyy)
(P) (p.a.)
04/29/1977 4952 None 06/01/1977 500,000.00 17%
4962 None 06/01/1977 600,000.00 17%
06/02/1977 5757 4952 08/31/1977 500,000.00 17%
5758 4962 08/31/1977 500,000.00 17%
08/31/1977 8167 5757 08/25/1978 500,000.00 14%
8169 5752 08/25/1978 500,000.00 14%

As presented by the petitioner FNCB Finance, respondent rolled-over only the principal amounts
of her money market placements as she chose to receive the interest income therefrom. Petitioner
FNCB Finance also pointed out that when PN No. 4962, with principal amount of P600,000.00,
matured on 1 June 1977, respondent received a partial payment of the principal which, together
with the interest, amounted to P102,633.33;163[44] thus, only the amount of P500,000.00 from
PN No. 4962 was rolled-over to PN No. 5758.
 Based on the foregoing records, the principal amounts of PNs No. 5757 and 5758, upon
their maturity, were rolled over to PNs No. 8167 and 8169, respectively. PN No. 8167164[45]
expressly canceled and superseded PN No. 5757, while PN No. 8169165[46] also explicitly
canceled and superseded PN No. 5758. Thus, it is patently erroneous for the Court of Appeals to
still award to respondent the principal amounts and interests covered by PNs No. 5757 and 5758
when these were already canceled and superseded. It is now incumbent upon this Court to
determine what subsequently happened to PNs No. 8167 and 8169.

Petitioner FNCB Finance presented four checks as proof of payment of the principal
amounts and interests of PNs No. 8167 and 8169 upon their maturity. All the checks were
payable to respondents savings account with petitioner Citibank, with the following details

Date of Issuance Amount

(mm/dd/yyyy) Check No. (P) Notation
09/01/1978 76962 12,833.34 Interest payment on PN#08167

09/01/1978 76961 12,833.34 Interest payment on PN#08169

09/05/1978 77035 500,000.00 Full payment of principal on PN#08167

which is hereby cancelled
09/05/ 1978 77034 500,000.00 Full payment of principal on PN#08169
which is hereby cancelled
Then again, Checks No. 77035 and 77034 were later returned to petitioner FNCB Finance
together with a memo,166[47] dated 6 September 1978, from Mr. Tan of petitioner Citibank, to a
Mr. Bobby Mendoza of petitioner FNCB Finance. According to the memo, the two checks, in the
total amount of P1,000,000.00, were to be returned to respondents account with instructions to
book the said amount in money market placements for one more year. Pursuant to the said
memo, Checks No. 77035 and 77034 were invested by petitioner FNCB Finance, on behalf of
respondent, in money market placements for which it issued PNs No. 20138 and 20139. The PNs
each covered P500,000.00, to earn 11% interest per annum, and to mature on 3 September 1979.

On 3 September 1979, petitioner FNCB Finance issued Check No. 100168, pay to the
order of Citibank N.A. A/C Modesta Sabeniano, in the amount of P1,022,916.66, as full payment
of the principal amounts and interests of both PNs No. 20138 and 20139 and, resultantly,
canceling the said PNs.167[48] Respondent actually admitted the issuance and existence of
Check No. 100168, but with the qualification that the proceeds thereof were turned over to
petitioner Citibank.168[49] Respondent did not clarify the circumstances attending the supposed
turn over, but on the basis of the allegations of petitioner Citibank itself, the proceeds of PNs No.
20138 and 20139, amounting to P1,022,916.66, was used by it to liquidate respondents
outstanding loans. Therefore, the determination of whether or not respondent is still entitled to
the return of the proceeds of PNs No. 20138 and 20139 shall be dependent on the resolution of
the issues raised as to the existence of the loans and the authority of petitioner Citibank to use the
proceeds of the said PNs, together with respondents other deposits and money market
placements, to pay for the same.
Savings and current accounts with petitioner Citibank

Respondent presented and submitted before the RTC deposit slips and bank statements to
prove deposits made to several of her accounts with petitioner Citibank, particularly, Accounts
No. 00484202, 59091, and 472-751, which would have amounted to a total of P3,812,712.32,
had there been no withdrawals or debits from the said accounts from the time the said deposits
were made.

Although the RTC and the Court of Appeals did not make any definitive findings as to
the status of respondents savings and current accounts with petitioner Citibank, the Decisions of
both the trial and appellate courts effectively recognized only the P31,079.14 coming from
respondents savings account which was used to off-set her alleged outstanding loans with
petitioner Citibank.169[50]

Since both the RTC and the Court of Appeals had consistently recognized only the
P31,079.14 of respondents savings account with petitioner Citibank, and that respondent failed to
move for reconsideration or to appeal this particular finding of fact by the trial and appellate
courts, it is already binding upon this Court. Respondent is already precluded from claiming any
greater amount in her savings and current accounts with petitioner Citibank. Thus, this Court
shall limit itself to determining whether or not respondent is entitled to the return of the amount
of P31,079.14 should the off-set thereof by petitioner Citibank against her supposed loans be
found invalid.
Dollar accounts with Citibank-Geneva

Respondent made an effort of preparing and presenting before the RTC her own
computations of her money market placements and dollar accounts with Citibank-Geneva,
purportedly amounting to a total of United States (US) $343,220.98, as of 23 June 1985.170[51]
In her Memorandum filed with the RTC, she claimed a much bigger amount of deposits and
money market placements with Citibank-Geneva, totaling US$1,336,638.65.171[52] However,
respondent herself also submitted as part of her formal offer of evidence the computation of her
money market placements and dollar accounts with Citibank-Geneva as determined by the
latter.172[53] Citibank-Geneva accounted for respondents money market placements and dollar
accounts as follows

MODESTA SABENIANO &/OR

==================

US$ 30000.-- Principal Fid. Placement

+ US$ 339.06 Interest at 3,875% p.a. from 12.07. 25.10.79
- US$ 95.-- Commission (minimum)

US$ 30244.06 Total proceeds on 25.10.1979

 US$ 114000.-- Principal Fid. Placement
+ US$ 1358.50 Interest at 4,125% p.a. from 12.07. 25.10.79
- US$ 41.17 Commission

US$ 115317.33 Total proceeds on 25.10.1979

US$ 145561.39 Total proceeds of both placements on 25.10.1979

+ US$ 11381.31 total of both current accounts

US$ 156942.70 Total funds available

- US$ 149632.99 Transfer to Citibank Manila on 26.10.1979

(counter value of Pesos 1102944.78)

US$ 7309.71 Balance in current accounts

- US$ 6998.84 Transfer to Citibank Zuerich ac no. 121359 on March

13, 1980

US$ 310.87 various charges including closing charges

According to the foregoing computation, by 25 October 1979, respondent had a total of
US$156,942.70, from which, US$149,632.99 was transferred by Citibank-Geneva to petitioner
Citibank in Manila, and was used by the latter to off-set respondents outstanding loans. The
balance of respondents accounts with Citibank-Geneva, after the remittance to petitioner
Citibank in Manila, amounted to US$7,309.71, which was subsequently expended by a transfer
to another account with Citibank-Zuerich, in the amount of US$6,998.84, and by payment of
various bank charges, including closing charges, in the amount of US$310.87. Rightly so, both
the RTC and the Court of Appeals gave more credence to the computation of Citibank-Geneva as
to the status of respondents accounts with the said bank, rather than the one prepared by
respondent herself, which was evidently self-serving. Once again, this Court shall limit itself to
determining whether or not respondent is entitled to the return of the amount of US$149,632.99
should the off-set thereof by petitioner Citibank against her alleged outstanding loans be found
invalid. Respondent cannot claim any greater amount since she did not perfect an appeal of the
Decision of the Court of Appeals, dated 26 March 2002, which found that she is entitled only to
the return of the said amount, as far as her accounts with Citibank-Geneva is concerned.

III

Petitioner Citibank was able to establish by

preponderance of evidence the existence of
respondents loans.

Petitioners version of events

In sum, the following amounts were used by petitioner Citibank to liquidate respondents
purported outstanding loans

Description Amount
Principal and interests of PNs No. 20138 and 20139
(money market placements with petitioner FNCB Finance) P 1,022,916.66
Savings account with petitioner Citibank 31,079.14
Dollar remittance from Citibank-Geneva (peso equivalent
Of US$149,632.99) 1,102,944.78

Total P 2,156,940.58

According to petitioner Citibank, respondent incurred her loans under the circumstances
narrated below.
 As early as 9 February 1978, respondent obtained her first loan from petitioner Citibank
in the principal amount of P200,000.00, for which she executed PN No. 31504.173[54] Petitioner
Citibank extended to her several other loans in the succeeding months. Some of these loans were
paid, while others were rolled-over or renewed. Significant to the Petition at bar are the loans
which respondent obtained from July 1978 to January 1979, appropriately covered by PNs (first
set).174[55] The aggregate principal amount of these loans was P1,920,000.00, which could be
broken down as follows

Date of Date of Date of

Issuance Maturity Release
PN Principal MC
No. (mm/dd/yyyy) (mm/dd/yyyy) (mm/dd/yyyy) No.
Amount
32935 07/20/1978 09/18/1978 P 400,000.00 07/20/1978 220701
33751 10/13/1978 12/12/1978 100,000.00 Unrecovered
33798 10/19/1978 11/03/1978 100,000.00 10/19/1978 226285
34025 11/15/1978 01/15/1979 150,000.00 11/16/1978 226439
34079 11/21/1978 01/19/1979 250,000.00 11/21/1978 226467
34192 12/04/1978 01/18/1979 100,000.00 12/05/1978 228057
34402 12/26/1978 02/23/1979 300,000.00 12/26/1978 228203
34534 01/09/1979 03/09/1979 150,000.00 01/09/1979 228270
34609 01/17/1979 03/19/1979 150,000.00 01/17/1979 228357
34740 01/30/1979 03/30/1979 220,000.00 01/30/1979 228400

Total P 1,920,000.00
When respondent was unable to pay the first set of PNs upon their maturity, these were rolled-
over or renewed several times, necessitating the execution by respondent of new PNs in favor of
petitioner Citibank. As of 5 April 1979, respondent had the following outstanding PNs (second
set),175[56] the principal amount of which remained at P1,920,000.00

Date of Issuance Date of Maturity

PN No. (mm/dd/yyyy) (mm/dd/yyyy) Principal Amount
34510 01/01/1979 03/02/1979 P 400,000.00
34509 01/02/1979 03/02/1979 100,000.00
34534 01/09/1979 03/09/1979 150,000.00
34612 01/19/1979 03/16/1979 150,000.00
34741 01/26/1979 03/12/1979 100,000.00
35689 02/23/1979 05/29/1979 300,000.00
35694 03/19/1979 05/29/1979 150,000.00
35695 03/19/1979 05/29/1979 100,000.00
356946 03/20/1979 05/29/1979 250,000.00
35697 03/30/1979 05/29/1979 220,000.00

Total P 1,920,000.00

All the PNs stated that the purpose of the loans covered thereby is To liquidate existing
obligation, except for PN No. 34534, which stated for its purpose personal investment.

Respondent secured her foregoing loans with petitioner Citibank by executing Deeds of
Assignment of her money market placements with petitioner FNCB Finance. On 2 March 1978,
respondent executed in favor of petitioner Citibank a Deed of Assignment176[57] of PN No.
8169, which was issued by petitioner FNCB Finance, to secure payment of the credit and
banking facilities extended to her by petitioner Citibank, in the aggregate principal amount of
P500,000.00. On 9 March 1978, respondent executed in favor of petitioner Citibank another
Deed of Assignment,177[58] this time, of PN No. 8167, also issued by petitioner FNCB Finance,
to secure payment of the credit and banking facilities extended to her by petitioner Citibank, in
the aggregate amount of P500,000.00. When PNs No. 8167 and 8169, representing respondents
money market placements with petitioner FNCB Finance, matured and were rolled-over to PNs
No. 20138 and 20139, respondent executed new Deeds of Assignment,178[59] in favor of
petitioner Citibank, on 25 August 1978. According to the more recent Deeds, respondent
assigned PNs No. 20138 and 20139, representing her rolled-over money market placements with
petitioner FNCB Finance, to petitioner Citibank as security for the banking and credit facilities it
extended to her, in the aggregate principal amount of P500,000.00 per Deed.

In addition to the Deeds of Assignment of her money market placements with petitioner
FNCB Finance, respondent also executed a Declaration of Pledge,179[60] in which she
supposedly pledged [a]ll present and future fiduciary placements held in my personal and/or joint
name with Citibank, Switzerland, to secure all claims the petitioner Citibank may have or, in the
future, acquire against respondent. The petitioners copy of the Declaration of Pledge is undated,
while that of the respondent, a copy certified by a Citibank-Geneva officer, bore the date 24
September 1979.180[61]
 When respondent failed to pay the second set of PNs upon their maturity, an exchange of
letters ensued between respondent and/or her representatives, on one hand, and the
representatives of petitioners, on the other.

The first letter181[62] was dated 5 April 1979, addressed to respondent and signed by
Mr. Tan, as the manager of petitioner Citibank, which stated, in part, that

Despite our repeated requests and follow-up, we regret you have not granted us
with any response or payment.

We, therefore, have no alternative but to call your loan of P1,920,000.00 plus
interests and other charges due and demandable. If you still fail to settle this
obligation by 4/27/79, we shall have no other alternative but to refer your account
to our lawyers for legal action to protect the interest of the bank.

Respondent sent a reply letter182[63] dated 26 April 1979, printed on paper bearing the
letterhead of respondents company, MC Adore International Palace, the body of which reads

This is in reply to your letter dated April 5, 1979 inviting my attention to my loan
which has become due. Pursuant to our representation with you over the
telephone through Mr. F. A. Tan, you allow us to pay the interests due for the
meantime.

Please accept our Comtrust Check in the amount of P62,683.33.

Please bear with us for a little while, at most ninety days. As you know, we have a
pending loan with the Development Bank of the Philippines in the amount of P11-
 M. This loan has already been recommended for approval and would be submitted
to the Board of Governors. In fact, to further facilitate the early release of this
loan, we have presented and furnished Gov. J. Tengco a xerox copy of your letter.

You will be doing our corporation a very viable service, should you grant us our
request for a little more time.

A week later or on 3 May 1979, a certain C. N. Pugeda, designated as Executive

Secretary, sent a letter183[64] to petitioner Citibank, on behalf of respondent. The letter was
again printed on paper bearing the letterhead of MC Adore International Palace. The pertinent
paragraphs of the said letter are reproduced below

Per instructions of Mrs. Modesta R. Sabeniano, we would like to request for a re-
computation of the interest and penalty charges on her loan in the aggregate
amount of P1,920,000.00 with maturity date of all promissory notes at June 30,
1979. As she has personally discussed with you yesterday, this date will more or
less assure you of early settlement.

In this regard, please entrust to bearer, our Comtrust check for P62,683.33 to be
replaced by another check with amount resulting from the new computation. Also,
to facilitate the processing of the same, may we request for another set of
promissory notes for the signature of Mrs. Sabeniano and to cancel the previous
ones she has signed and forwarded to you.

This was followed by a telegram,184[65] dated 5 June 1979, and received by petitioner
Citibank the following day. The telegram was sent by a Dewey G. Soriano, Legal Counsel. The
telegram acknowledged receipt of the telegram sent by petitioner Citibank regarding the re-past
due obligation of McAdore International Palace. However, it reported that respondent, the
President and Chairman of MC Adore International Palace, was presently abroad negotiating for
a big loan. Thus, he was requesting for an extension of the due date of the obligation until
respondents arrival on or before 31 July 1979.

The next letter,185[66] dated 21 June 1979, was signed by respondent herself and
addressed to Mr. Bobby Mendoza, a Manager of petitioner FNCB Finance. Respondent wrote
therein

Re: PN No. 20138 for P500,000.00 & PN No. 20139 for

P500,000.00 totalling P1 Million, both PNs will
mature on 9/3/1979.

This is to authorize you to release the accrued quarterly interests payment

from my captioned placements and forward directly to Citibank, Manila
Attention: Mr. F. A. Tan, Manager, to apply to my interest payable on my
outstanding loan with Citibank.

Please note that the captioned two placements are continuously

pledged/hypothecated to Citibank, Manila to support my personal outstanding
loan. Therefore, please do not release the captioned placements upon maturity
until you have received the instruction from Citibank, Manila.

On even date, respondent sent another letter186[67] to Mr. Tan of petitioner Citibank,
stating that

Re: S/A No. 25-225928

and C/A No. 484-946

This letter serves as an authority to debit whatever the outstanding balance

from my captioned accounts and credit the amount to my loan outstanding
account with you.
Unlike respondents earlier letters, both letters, dated 21 June 1979, are printed on plain paper,
without the letterhead of her company, MC Adore International Palace.

By 5 September 1979, respondents outstanding and past due obligations to petitioner

Citibank totaled P2,123,843.20, representing the principal amounts plus interests. Relying on
respondents Deeds of Assignment, petitioner Citibank applied the proceeds of respondents
money market placements with petitioner FNCB Finance, as well as her deposit account with
petitioner Citibank, to partly liquidate respondents outstanding loan balance,187[68] as follows

Respondents outstanding obligation (principal and interest) P 2,123,843.20

Less: Proceeds from respondents money market placements
with petitioner FNCB Finance (principal and interest) (1,022,916.66)
Deposits in respondents bank accounts with petitioner
Citibank (31,079.14)

Balance of respondents obligation P 1,069,847.40

Mr. Tan of petitioner Citibank subsequently sent a letter,188[69] dated 28 September

1979, notifying respondent of the status of her loans and the foregoing compensation which
petitioner Citibank effected. In the letter, Mr. Tan informed respondent that she still had a
remaining past-due obligation in the amount of P1,069,847.40, as of 5 September 1979, and
should respondent fail to pay the amount by 15 October 1979, then petitioner Citibank shall
proceed to off-set the unpaid amount with respondents other collateral, particularly, a money
market placement in Citibank-Hongkong.

On 5 October 1979, respondent wrote Mr. Tan of petitioner Citibank, on paper bearing
the letterhead of MC Adore International Palace, as regards the P1,920,000.00 loan account
supposedly of MC Adore Finance & Investment, Inc., and requested for a statement of account
covering the principal and interest of the loan as of 31 October 1979. She stated therein that the
loan obligation shall be paid within 60 days from receipt of the statement of account.

Almost three weeks later, or on 25 October 1979, a certain Atty. Moises Tolentino
dropped by the office of petitioner Citibank, with a letter, dated 9 October 1979, and printed on
paper with the letterhead of MC Adore International Palace, which authorized the bearer thereof
to represent the respondent in settling the overdue account, this time, purportedly, of MC Adore
International Palace Hotel. The letter was signed by respondent as the President and Chairman of
the Board.

Eventually, Atty. Antonio Agcaoili of Agcaoili & Associates, as counsel of petitioner

Citibank, sent a letter to respondent, dated 31 October 1979, informing her that petitioner
Citibank had effected an off-set using her account with Citibank-Geneva, in the amount of
US$149,632.99, against her outstanding, overdue, demandable and unpaid obligation to
petitioner Citibank. Atty. Agcaoili claimed therein that the compensation or off-set was made
pursuant to and in accordance with the provisions of Articles 1278 through 1290 of the Civil
Code. He further declared that respondents obligation to petitioner Citibank was now fully paid
and liquidated.

Unfortunately, on 7 October 1987, a fire gutted the 7th floor of petitioner Citibanks
building at Paseo de Roxas St., Makati, Metro Manila. Petitioners submitted a
Certification189[70] to this effect, dated 17 January 1991, issued by the Chief of the Arson
Investigation Section, Fire District III, Makati Fire Station, Metropolitan Police Force. The 7th
floor of petitioner Citibanks building housed its Control Division, which was in charge of
keeping the necessary documents for cases in which it was involved. After compiling the
documentary evidence for the present case, Atty. Renato J. Fernandez, internal legal counsel of
petitioner Citibank, forwarded them to the Control Division. The original copies of the MCs,
which supposedly represent the proceeds of the first set of PNs, as well as that of other
documentary evidence related to the case, were among those burned in the said fire.190[71]

Respondents version of events

Respondent disputed petitioners narration of the circumstances surrounding her loans

with petitioner Citibank and the alleged authority she gave for the off-set or compensation of her
money market placements and deposit accounts with petitioners against her loan obligation.

Respondent denied outright executing the first set of PNs, except for one (PN No. 34534
in particular). Although she admitted that she obtained several loans from petitioner Citibank,
these only amounted to P1,150,000.00, and she had already paid them. She secured from
petitioner Citibank two loans of P500,000.00 each. She executed in favor of petitioner Citibank
the corresponding PNs for the loans and the Deeds of Assignment of her money market
placements with petitioner FNCB Finance as security.191[72] To prove payment of these loans,
respondent presented two provisional receipts of petitioner Citibank No. 19471,192[73] dated 11
August 1978, and No. 12723,193[74] dated 10 November 1978 both signed by Mr. Tan, and
acknowledging receipt from respondent of several checks in the total amount of P500,744.00 and
P500,000.00, respectively, for liquidation of loan.

She borrowed another P150,000.00 from petitioner Citibank for personal investment, and
for which she executed PN No. 34534, on 9 January 1979. Thus, she admitted to receiving the
proceeds of this loan via MC No. 228270. She invested the loan amount in another money
market placement with petitioner FNCB Finance. In turn, she used the very same money market
placement with petitioner FNCB Finance as security for her P150,000.00 loan from petitioner
Citibank. When she failed to pay the loan when it became due, petitioner Citibank allegedly
forfeited her money market placement with petitioner FNCB Finance and, thus, the loan was
already paid.194[75]

Respondent likewise questioned the MCs presented by petitioners, except for one (MC
No. 228270 in particular), as proof that she received the proceeds of the loans covered by the
first set of PNs. As recounted in the preceding paragraph, respondent admitted to obtaining a
loan of P150,000.00, covered by PN No. 34534, and receiving MC No. 228270 representing the
proceeds thereof, but claimed that she already paid the same. She denied ever receiving MCs No.
220701 (for the loan of P400,000.00, covered by PN No. 33935) and No. 226467 (for the loan of
P250,000.00, covered by PN No. 34079), and pointed out that the checks did not bear her
indorsements. She did not deny receiving all other checks but she interposed that she received
these checks, not as proceeds of loans, but as payment of the principal amounts and/or interests
from her money market placements with petitioner Citibank. She also raised doubts as to the
notation on each of the checks that reads RE: Proceeds of PN#[corresponding PN No.], saying
that such notation did not appear on the MCs when she originally received them and that the
notation appears to have been written by a typewriter different from that used in writing all other
information on the checks (i.e., date, payee, and amount).195[76] She even testified that MCs
were not supposed to bear notations indicating the purpose for which they were issued.

As to the second set of PNs, respondent acknowledged having signed them all. However,
she asserted that she only executed these PNs as part of the simulated loans she and Mr. Tan of
petitioner Citibank concocted. Respondent explained that she had a pending loan application for
a big amount with the Development Bank of the Philippines (DBP), and when Mr. Tan found out
about this, he suggested that they could make it appear that the respondent had outstanding loans
with petitioner Citibank and the latter was already demanding payment thereof; this might
persuade DBP to approve respondents loan application. Mr. Tan made the respondent sign the
second set of PNs, so that he may have something to show the DBP investigator who might
inquire with petitioner Citibank as to respondents loans with the latter. On her own copies of the
said PNs, respondent wrote by hand the notation, This isa (sic) simulated non-negotiable note,
signed copy given to Mr. Tan., (sic) per agreement to be shown to DBP representative. itwill
(sic) be returned to me if the P11=M (sic) loan for MC Adore Palace Hotel is approved by
DBP.196[77]

Findings of this Court as to the existence of the loans

 After going through the testimonial and documentary evidence presented by both sides to
this case, it is this Courts assessment that respondent did indeed have outstanding loans with
petitioner Citibank at the time it effected the off-set or compensation on 25 July 1979 (using
respondents savings deposit with petitioner Citibank), 5 September 1979 (using the proceeds of
respondents money market placements with petitioner FNCB Finance) and 26 October 1979
(using respondents dollar accounts remitted from Citibank-Geneva). The totality of petitioners
evidence as to the existence of the said loans preponderates over respondents. Preponderant
evidence means that, as a whole, the evidence adduced by one side outweighs that of the adverse
party.197[78]

Respondents outstanding obligation for P1,920,000.00 had been sufficiently documented

by petitioner Citibank.

The second set of PNs is a mere renewal of the prior loans originally covered by the first
set of PNs, except for PN No. 34534. The first set of PNs is supported, in turn, by the existence
of the MCs that represent the proceeds thereof received by the respondent.

It bears to emphasize that the proceeds of the loans were paid to respondent in MCs, with
the respondent specifically named as payee. MCs checks are drawn by the banks manager upon
the bank itself and regarded to be as good as the money it represents.198[79] Moreover, the MCs
were crossed checks, with the words Payees Account Only.
 In general, a crossed check cannot be presented to the drawee bank for payment in cash.
Instead, the check can only be deposited with the payees bank which, in turn, must present it for
payment against the drawee bank in the course of normal banking hours. The crossed check
cannot be presented for payment, but it can only be deposited and the drawee bank may only pay
to another bank in the payees or indorsers account.199[80] The effect of crossing a check was
described by this Court in Philippine Commercial International Bank v. Court of Appeals200[81]

[T]he crossing of a check with the phrase Payees Account Only is a warning that
the check should be deposited in the account of the payee. Thus, it is the duty of
the collecting bank PCI Bank to ascertain that the check be deposited in payees
account only. It is bound to scrutinize the check and to know its depositors before
it can make the clearing indorsement all prior indorsements and/or lack of
indorsement guaranteed.

The crossed MCs presented by petitioner Bank were indeed deposited in several different
bank accounts and cleared by the Clearing Office of the Central Bank of the Philippines, as
evidenced by the stamp marks and notations on the said checks. The crossed MCs are already in
the possession of petitioner Citibank, the drawee bank, which was ultimately responsible for the
payment of the amount stated in the checks. Given that a check is more than just an instrument of
credit used in commercial transactions for it also serves as a receipt or evidence for the drawee
bank of the cancellation of the said check due to payment,201[82] then, the possession by
petitioner Citibank of the said MCs, duly stamped Paid gives rise to the presumption that the said
MCs were already paid out to the intended payee, who was in this case, the respondent.
 This Court finds applicable herein the presumptions that private transactions have been
fair and regular,202[83] and that the ordinary course of business has been followed.203[84]
There is no question that the loan transaction between petitioner Citibank and the respondent is a
private transaction. The transactions revolving around the crossed MCs from their issuance by
petitioner Citibank to respondent as payment of the proceeds of her loans; to its deposit in
respondents accounts with several different banks; to the clearing of the MCs by an independent
clearing house; and finally, to the payment of the MCs by petitioner Citibank as the drawee bank
of the said checks are all private transactions which shall be presumed to have been fair and
regular to all the parties concerned. In addition, the banks involved in the foregoing transactions
are also presumed to have followed the ordinary course of business in the acceptance of the
crossed MCs for deposit in respondents accounts, submitting them for clearing, and their
eventual payment and cancellation.

The afore-stated presumptions are disputable, meaning, they are satisfactory if

uncontradicted, but may be contradicted and overcome by other evidence.204[85] Respondent,
however, was unable to present sufficient and credible evidence to dispute these presumptions.

It should be recalled that out of the nine MCs presented by petitioner Citibank,
respondent admitted to receiving one as proceeds of a loan (MC No. 228270), denied receiving
two (MCs No. 220701 and 226467), and admitted to receiving all the rest, but not as proceeds of
her loans, but as return on the principal amounts and interests from her money market
placements.
 Respondent admitted receiving MC No. 228270 representing the proceeds of her loan
covered by PN No. 34534. Although the principal amount of the loan is P150,000.00, respondent
only received P146,312.50, because the interest and handling fee on the loan transaction were
already deducted therefrom.205[86] Stamps and notations at the back of MC No. 228270 reveal
that it was deposited at the Bank of the Philippine Islands (BPI), Cubao Branch, in Account No.
0123-0572-28.206[87] The check also bore the signature of respondent at the back.207[88] And,
although respondent would later admit that she did sign PN No. 34534 and received MC No.
228270 as proceeds of the loan extended to her by petitioner Citibank, she contradicted herself
when, in an earlier testimony, she claimed that PN No. 34534 was among the PNs she executed
as simulated loans with petitioner Citibank.208[89]

Respondent denied ever receiving MCs No. 220701 and 226467. However, considering
that the said checks were crossed for payees account only, and that they were actually deposited,
cleared, and paid, then the presumption would be that the said checks were properly deposited to
the account of respondent, who was clearly named the payee in the checks. Respondents bare
allegations that she did not receive the two checks fail to convince this Court, for to sustain her,
would be for this Court to conclude that an irregularity had occurred somewhere from the time of
the issuance of the said checks, to their deposit, clearance, and payment, and which would have
involved not only petitioner Citibank, but also BPI, which accepted the checks for deposit, and
the Central Bank of the Philippines, which cleared the checks. It falls upon the respondent to
overcome or dispute the presumption that the crossed checks were issued, accepted for deposit,
cleared, and paid for by the banks involved following the ordinary course of their business.

The mere fact that MCs No. 220701 and 226467 do not bear respondents signature at the
back does not negate deposit thereof in her account. The liability for the lack of indorsement on
the MCs no longer fall on petitioner Citibank, but on the bank who received the same for deposit,
in this case, BPI Cubao Branch. Once again, it must be noted that the MCs were crossed, for
payees account only, and the payee named in both checks was none other than respondent. The
crossing of the MCs was already a warning to BPI to receive said checks for deposit only in
respondents account. It was up to BPI to verify whether it was receiving the crossed MCs in
accordance with the instructions on the face thereof. If, indeed, the MCs were deposited in
accounts other than respondents, then the respondent would have a cause of action against
BPI.209[90]

BPI further stamped its guarantee on the back of the checks to the effect that, All prior
endorsement and/or Lack of endorsement guaranteed. Thus, BPI became the indorser of the
MCs, and assumed all the warranties of an indorser,210[91] specifically, that the checks were
genuine and in all respects what they purported to be; that it had a good title to the checks; that
all prior parties had capacity to contract; and that the checks were, at the time of their
indorsement, valid and subsisting.211[92] So even if the MCs deposited by BPI's client, whether
it be by respondent herself or some other person, lacked the necessary indorsement, BPI, as the
collecting bank, is bound by its warranties as an indorser and cannot set up the defense of lack of
indorsement as against petitioner Citibank, the drawee bank.212[93]

Furthermore, respondents bare and unsubstantiated denial of receipt of the MCs in

question and their deposit in her account is rendered suspect when MC No. 220701 was actually
deposited in Account No. 0123-0572-28 of BPI Cubao Branch, the very same account in which
MC No. 228270 (which respondent admitted to receiving as proceeds of her loan from petitioner
Citibank), and MCs No. 228203, 228357, and 228400 (which respondent admitted to receiving
as proceeds from her money market placements) were deposited. Likewise, MC No. 226467 was
deposited in Account No. 0121-002-43 of BPI Cubao Branch, to which MCs No. 226285 and
226439 (which respondent admitted to receiving as proceeds from her money market
placements) were deposited. It is an apparent contradiction for respondent to claim having
received the proceeds of checks deposited in an account, and then deny receiving the proceeds of
another check deposited in the very same account.

Another inconsistency in respondents denial of receipt of MC No. 226467 and her deposit
of the same in her account, is her presentation of Exhibit HHH, a provisional receipt which was
supposed to prove that respondent turned over P500,000.00 to Mr. Tan of petitioner Citibank,
that the said amount was split into three money market placements, and that MC No. 226467
represented the return on her investment from one of these placements.213[94] Because of her
Exhibit HHH, respondent effectively admitted receipt of MC No. 226467, although for reasons
other than as proceeds of a loan.
 Neither can this Court give credence to respondents contention that the notations on the
MCs, stating that they were the proceeds of particular PNs, were not there when she received the
checks and that the notations appeared to be written by a typewriter different from that used to
write the other information on the checks. Once more, respondents allegations were
uncorroborated by any other evidence. Her and her counsels observation that the notations on the
MCs appear to be written by a typewriter different from that used to write the other information
on the checks hardly convinces this Court considering that it constitutes a mere opinion on the
appearance of the notation by a witness who does not possess the necessary expertise on the
matter. In addition, the notations on the MCs were written using both capital and small letters,
while the other information on the checks were written using capital letters only, such difference
could easily confuse an untrained eye and lead to a hasty conclusion that they were written by
different typewriters.

Respondents testimony, that based on her experience transacting with banks, the MCs
were not supposed to include notations on the purpose for which the checks were issued, also
deserves scant consideration. While respondent may have extensive experience dealing with
banks, it still does not qualify her as a competent witness on banking procedures and practices.
Her testimony on this matter is even belied by the fact that the other MCs issued by petitioner
Citibank (when it was still named First National City Bank) and by petitioner FNCB Finance, the
existence and validity of which were not disputed by respondent, also bear similar notations that
state the reason for which they were issued.

Respondent presented several more pieces of evidence to substantiate her claim that she
received MCs No. 226285, 226439, 226467, 226057, 228357, and 228400, not as proceeds of
her loans from petitioner Citibank, but as the return of the principal amounts and payment of
interests from her money market placements with petitioners. Part of respondents exhibits were
personal checks214[95] drawn by respondent on her account with Feati Bank & Trust Co., which
she allegedly invested in separate money market placements with both petitioners, the returns
from which were paid to her via MCs No. 226285 and 228400. Yet, to this Court, the personal
checks only managed to establish respondents issuance thereof, but there was nothing on the face
of the checks that would reveal the purpose for which they were issued and that they were
actually invested in money market placements as respondent claimed.

Respondent further submitted handwritten notes that purportedly computed and presented
the returns on her money market placements, corresponding to the amount stated in the MCs she
received from petitioner Citibank. Exhibit HHH-1215[96] was a handwritten note, which
respondent attributed to Mr. Tan of petitioner Citibank, showing the breakdown of her BPI
Check for P500,000.00 into three different money market placements with petitioner Citibank.
This Court, however, noticed several factors which render the note highly suspect. One, it was
written on the reversed side of Provisional Receipt No. 12724 of petitioner Citibank which bore
the initials of Mr. Tan acknowledging receipt of respondents BPI Check No. 120989 for
P500,000.00; but the initials on the handwritten note appeared to be that of Mr. Bobby Mendoza
of petitioner FNCB Finance.216[97] Second, according to Provisional Receipt No. 12724, BPI
Check No. 120989 for P500,000.00 was supposed to be invested in three money market
placements with petitioner Citibank for the period of 60 days. Since all these money market
placements were made through one check deposited on the same day, 10 November 1978, it
made no sense that the handwritten note at the back of Provisional Receipt No. 12724 provided
for different dates of maturity for each of the money market placements (i.e., 16 November 1978,
17 January 1979, and 21 November 1978), and such dates did not correspond to the 60 day
placement period stated on the face of the provisional receipt. And third, the principal amounts
of the money market placements as stated in the handwritten note P145,000.00, P145,000.00 and
P242,000.00 totaled P532,000.00, and was obviously in excess of the P500,000.00
acknowledged on the face of Provisional Receipt No. 12724.

Exhibits III and III-1, the front and bank pages of a handwritten note of Mr. Bobby
Mendoza of petitioner FNCB Finance,217[98] also did not deserve much evidentiary weight, and
this Court cannot rely on the truth and accuracy of the computations presented therein. Mr.
Mendoza was not presented as a witness during the trial before the RTC, so that the document
was not properly authenticated nor its contents sufficiently explained. No one was able to
competently identify whether the initials as appearing on the note were actually Mr. Mendozas.

Also, going by the information on the front page of the note, this Court observes that
payment of respondents alleged money market placements with petitioner FNCB Finance were
made using Citytrust Checks; the MCs in question, including MC No. 228057, were issued by
petitioner Citibank. Although Citytrust (formerly Feati Bank & Trust Co.), petitioner FNCB
Finance, and petitioner Citibank may be affiliates of one another, they each remained separate
and distinct corporations, each having its own financial system and records. Thus, this Court
cannot simply assume that one corporation, such as petitioner Citibank or Citytrust, can issue a
check to discharge an obligation of petitioner FNCB Finance. It should be recalled that when
petitioner FNCB Finance paid for respondents money market placements, covered by its PNs
No. 8167 and 8169, as well as PNs No. 20138 and 20139, petitioner FNCB Finance issued its
own checks.

As a last point on this matter, if respondent truly had money market placements with
petitioners, then these would have been evidenced by PNs issued by either petitioner Citibank or
petitioner FNCB Finance, acknowledging the principal amounts of the investments, and stating
the applicable interest rates, as well as the dates of their of issuance and maturity. After
respondent had so meticulously reconstructed her other money market placements with
petitioners and consolidated the documentary evidence thereon, she came surprisingly short of
offering similar details and substantiation for these particular money market placements.

Since this Court is satisfied that respondent indeed received the proceeds of the first set
of PNs, then it proceeds to analyze her evidence of payment thereof.

In support of respondents assertion that she had already paid whatever loans she may
have had with petitioner Citibank, she presented as evidence Provisional Receipts No. 19471,
dated 11 August 1978, and No. 12723, dated 10 November 1978, both of petitioner Citibank and
signed by Mr. Tan, for the amounts of P500,744.00 and P500,000.00, respectively. While these
provisional receipts did state that Mr. Tan, on behalf of petitioner Citibank, received respondents
checks as payment for her loans, they failed to specifically identify which loans were actually
paid. Petitioner Citibank was able to present evidence that respondent had executed several PNs
in the years 1978 and 1979 to cover the loans she secured from the said bank. Petitioner Citibank
did admit that respondent was able to pay for some of these PNs, and what it identified as the
first and second sets of PNs were only those which remained unpaid. It thus became incumbent
upon respondent to prove that the checks received by Mr. Tan were actually applied to the PNs
in either the first or second set; a fact that, unfortunately, cannot be determined from the
provisional receipts submitted by respondent since they only generally stated that the checks
received by Mr. Tan were payment for respondents loans.

Mr. Tan, in his deposition, further explained that provisional receipts were issued when
payment to the bank was made using checks, since the checks would still be subject to clearing.
The purpose for the provisional receipts was merely to acknowledge the delivery of the checks to
the possession of the bank, but not yet of payment.218[99] This bank practice finds legitimacy in
the pronouncement of this Court that a check, whether an MC or an ordinary check, is not legal
tender and, therefore, cannot constitute valid tender of payment. In Philippine Airlines, Inc. v.
Court of Appeals, 219[100] this Court elucidated that:

Since a negotiable instrument is only a substitute for money and not

money, the delivery of such an instrument does not, by itself, operate as payment
(Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v.
American Bank, 7 Phil. 255; Tan Sunco, v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61).
A check, whether a manager's check or ordinary check, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is not extinguished and
remains suspended until the payment by commercial document is actually realized
(Art. 1249, Civil Code, par. 3).

In the case at bar, the issuance of an official receipt by petitioner Citibank would have
been dependent on whether the checks delivered by respondent were actually cleared and paid
for by the drawee banks.

As for PN No. 34534, respondent asserted payment thereof at two separate instances by
two different means. In her formal offer of exhibits, respondent submitted a deposit slip of
petitioner Citibank, dated 11 August 1978, evidencing the deposit of BPI Check No. 5785 for
P150,000.00.220[101] In her Formal Offer of Documentary Exhibits, dated 7 July 1989,
respondent stated that the purpose for the presentation of the said deposit slip was to prove that
she already paid her loan covered by PN No. 34534.221[102] In her testimony before the RTC
three years later, on 28 November 1991, she changed her story. This time she narrated that the
loan covered by PN No. 34534 was secured by her money market placement with petitioner
FNCB Finance, and when she failed to pay the said PN when it became due, the security was
applied to the loan, therefore, the loan was considered paid.222[103] Given the foregoing,
respondents assertion of payment of PN No. 34534 is extremely dubious.

According to petitioner Citibank, the PNs in the second set, except for PN No. 34534,
were mere renewals of the unpaid PNs in the first set, which was why the PNs stated that they
were for the purpose of liquidating existing obligations. PN No. 34534, however, which was part
of the first set, was still valid and subsisting and so it was included in the second set without need
for its renewal, and it still being the original PN for that particular loan, its stated purpose was for
personal investment.223[104] Respondent essentially admitted executing the second set of PNs,
but they were only meant to cover simulated loans. Mr. Tan supposedly convinced her that her
pending loan application with DBP would have a greater chance of being approved if they made
it appear that respondent urgently needed the money because petitioner Citibank was already
demanding payment for her simulated loans.

Respondents defense of simulated loans to escape liability for the second set of PNs is
truly a novel one. It is regrettable, however, that she was unable to substantiate the same. Yet
again, respondents version of events is totally based on her own uncorroborated testimony. The
notations on the second set of PNs, that they were non-negotiable simulated notes, were
admittedly made by respondent herself and were, thus, self-serving. Equally self-serving was
respondents letter, written on 7 October 1985, or more than six years after the execution of the
second set of PNs, in which she demanded return of the simulated or fictitious PNs, together with
the letters relating thereto, which Mr. Tan purportedly asked her to execute. Respondent further
failed to present any proof of her alleged loan application with the DBP, and of any circumstance
or correspondence wherein the simulated or fictitious PNs were indeed used for their supposed
purpose.

In contrast, petitioner Citibank, as supported by the testimonies of its officers and

available documentation, consistently treated the said PNs as regular loans accepted, approved,
and paid in the ordinary course of its business.

The PNs executed by the respondent in favor of petitioner Citibank to cover her loans
were duly-filled out and signed, including the disclosure statement found at the back of the said
PNs, in adherence to the Central Bank requirement to disclose the full finance charges to a loan
granted to borrowers.

Mr. Tan, then an account officer with the Marketing Department of petitioner Citibank,
testified that he dealt directly with respondent; he facilitated the loans; and the PNs, at least in
the second set, were signed by respondent in his presence.224[105]

Mr. Pujeda, the officer who was previously in charge of loans and placements, confirmed
that the signatures on the PNs were verified against respondents specimen signature with the
bank.225[106]

Ms. Cristina Dondoyano, who worked at petitioner Citibank as a loan processor, was
responsible for booking respondents loans. Booking the loans means recording it in the General
Ledger. She explained the procedure for booking loans, as follows: The account officer, in the
Marketing Department, deals directly with the clients who wish to borrow money from petitioner
Citibank. The Marketing Department will forward a loan booking checklist, together with the
borrowing clients PNs and other supporting documents, to the loan pre-processor, who will
check whether the details in the loan booking checklist are the same as those in the PNs. The
documents are then sent to Signature Control for verification of the clients signature in the PNs,
after which, they are returned to the loan pre-processor, to be forwarded finally to the loan
processor. The loan processor shall book the loan in the General Ledger, indicating therein the
client name, loan amount, interest rate, maturity date, and the corresponding PN number. Since
she booked respondents loans personally, Ms. Dondoyano testified that she saw the original PNs.
In 1986, Atty. Fernandez of petitioner Citibank requested her to prepare an accounting of
respondents loans, which she did, and which was presented as Exhibit 120 for the petitioners.
The figures from the said exhibit were culled from the bookings in the General Ledger, a fact
which respondents counsel was even willing to stipulate.226[107]

Ms. Teresita Glorioso was an Investigation and Reconcilement Clerk at the Control
Department of petitioner Citibank. She was presented by petitioner Citibank to expound on the
microfilming procedure at the bank, since most of the copies of the PNs were retrieved from
microfilm. Microfilming of the documents are actually done by people at the Operations
Department. At the end of the day or during the day, the original copies of all bank documents,
not just those pertaining to loans, are microfilmed. She refuted the possibility that insertions
could be made in the microfilm because the microfilm is inserted in a cassette; the cassette is
placed in the microfilm machine for use; at the end of the day, the cassette is taken out of the
microfilm machine and put in a safe vault; and the cassette is returned to the machine only the
following day for use, until the spool is full. This is the microfilming procedure followed
everyday. When the microfilm spool is already full, the microfilm is developed, then sent to the
Control Department, which double checks the contents of the microfilms against the entries in
the General Ledger. The Control Department also conducts a random comparison of the contents
of the microfilms with the original documents; a random review of the contents is done on every
role of microfilm.227[108]

Ms. Renee Rubio worked for petitioner Citibank for 20 years. She rose from the ranks,
initially working as a secretary in the Personnel Group; then as a secretary to the Personnel
Group Head; a Service Assistant with the Marketing Group, in 1972 to 1974, dealing directly
with corporate and individual clients who, among other things, secured loans from petitioner
Citibank; the Head of the Collection Group of the Foreign Department in 1974 to 1976; the Head
of the Money Transfer Unit in 1976 to 1978; the Head of the Loans and Placements Unit up to
the early 1980s; and, thereafter, she established operations training for petitioner Citibank in the
Asia-Pacific Region responsible for the training of the officers of the bank. She testified on the
standard loan application process at petitioner Citibank. According to Ms. Rubio, the account
officer or marketing person submits a proposal to grant a loan to an individual or corporation.
Petitioner Citibank has a worldwide policy that requires a credit committee, composed of a
minimum of three people, which would approve the loan and amount thereof. There can be no
instance when only one officer has the power to approve the loan application. When the loan is
approved, the account officer in charge will obtain the corresponding PNs from the client. The
PNs are sent to the signature verifier who would validate the signatures therein against those
appearing in the signature cards previously submitted by the client to the bank. The Operations
Unit will check and review the documents, including the PNs, if it is a clean loan, and securities
and deposits, if it is collateralized. The loan is then recorded in the General Ledger. The Loans
and Placements Department will not book the loans without the PNs. When the PNs are
liquidated, whether they are paid or rolled-over, they are returned to the client.228[109] Ms.
Rubio further explained that she was familiar with respondents accounts since, while she was
still the Head of the Loan and Placements Unit, she was asked by Mr. Tan to prepare a list of
respondents outstanding obligations.229[110] She thus calculated respondents outstanding loans,
which was sent as an attachment to Mr. Tans letter to respondent, dated 28 September 1979, and
presented before the RTC as Exhibits 34-B and 34-C.230[111]

Lastly, the exchange of letters between petitioner Citibank and respondent, as well as the
letters sent by other people working for respondent, had consistently recognized that respondent
owed petitioner Citibank money.

In consideration of the foregoing discussion, this Court finds that the preponderance of
evidence supports the existence of the respondents loans, in the principal sum of P1,920,000.00,
as of 5 September 1979. While it is well-settled that the term preponderance of evidence should
not be wholly dependent on the number of witnesses, there are certain instances when the
number of witnesses become the determining factor

The preponderance of evidence may be determined, under certain

conditions, by the number of witnesses testifying to a particular fact or state of
facts. For instance, one or two witnesses may testify to a given state of facts, and
six or seven witnesses of equal candor, fairness, intelligence, and truthfulness, and
equally well corroborated by all the remaining evidence, who have no greater
interest in the result of the suit, testify against such state of facts. Then the
preponderance of evidence is determined by the number of witnesses. (Wilcox vs.
Hines, 100 Tenn. 524, 66 Am. St. Rep., 761.)231[112]

Best evidence rule

 This Court disagrees in the pronouncement made by the Court of Appeals summarily
dismissing the documentary evidence submitted by petitioners based on its broad and
indiscriminate application of the best evidence rule.

In general, the best evidence rule requires that the highest available degree of proof must
be produced. Accordingly, for documentary evidence, the contents of a document are best proved
by the production of the document itself,232[113] to the exclusion of any secondary or
substitutionary evidence.233[114]

The best evidence rule has been made part of the revised Rules of Court, Rule 130,
Section 3, which reads

SEC. 3. Original document must be produced; exceptions. When the

subject of inquiry is the contents of a document, no evidence shall be admissible
other than the original document itself, except in the following cases:
(a) When the original has been lost or destroyed, or cannot be produced in
court, without bad faith on the part of the offeror;
(b) When the original is in the custody or under the control of the party
against whom the evidence is offered, and the latter fails to produce it after
reasonable notice;
(c) When the original consists of numerous accounts or other documents
which cannot be examined in court without great loss of time and the fact sought
to be established from them is only the general result of the whole; and
(d) When the original is a public record in the custody of a public officer
or is recorded in a public office.
As the afore-quoted provision states, the best evidence rule applies only when the subject of the
inquiry is the contents of the document. The scope of the rule is more extensively explained thus

But even with respect to documentary evidence, the best evidence rule
applies only when the content of such document is the subject of the inquiry.
Where the issue is only as to whether such document was actually executed, or
exists, or on the circumstances relevant to or surrounding its execution, the best
evidence rule does not apply and testimonial evidence is admissible (5 Moran, op.
cit., pp. 76-66; 4 Martin, op. cit., p. 78). Any other substitutionary evidence is
likewise admissible without need for accounting for the original.

Thus, when a document is presented to prove its existence or condition it

is offered not as documentary, but as real, evidence. Parol evidence of the fact of
execution of the documents is allowed (Hernaez, et al. vs. McGrath, etc., et al., 91
Phil 565). x x x 234[115]

In Estrada v. Desierto,235[116] this Court had occasion to rule that

It is true that the Court relied not upon the original but only copy of the
Angara Diary as published in the Philippine Daily Inquirer on February 4-6,
2001. In doing so, the Court, did not, however, violate the best evidence rule.
Wigmore, in his book on evidence, states that:

Production of the original may be dispensed with, in the trial courts

discretion, whenever in the case in hand the opponent does not bona fide dispute
the contents of the document and no other useful purpose will be served by
requiring production.24

xxxx

In several Canadian provinces, the principle of unavailability has been

abandoned, for certain documents in which ordinarily no real dispute arised. This
measure is a sensible and progressive one and deserves universal adoption (post,
 sec. 1233). Its essential feature is that a copy may be used unconditionally, if the
opponent has been given an opportunity to inspect it. (Emphasis supplied.)

This Court did not violate the best evidence rule when it considered and weighed in
evidence the photocopies and microfilm copies of the PNs, MCs, and letters submitted by the
petitioners to establish the existence of respondents loans. The terms or contents of these
documents were never the point of contention in the Petition at bar. It was respondents position
that the PNs in the first set (with the exception of PN No. 34534) never existed, while the PNs in
the second set (again, excluding PN No. 34534) were merely executed to cover simulated loan
transactions. As for the MCs representing the proceeds of the loans, the respondent either denied
receipt of certain MCs or admitted receipt of the other MCs but for another purpose. Respondent
further admitted the letters she wrote personally or through her representatives to Mr. Tan of
petitioner Citibank acknowledging the loans, except that she claimed that these letters were just
meant to keep up the ruse of the simulated loans. Thus, respondent questioned the documents as
to their existence or execution, or when the former is admitted, as to the purpose for which the
documents were executed, matters which are, undoubtedly, external to the documents, and which
had nothing to do with the contents thereof.

Alternatively, even if it is granted that the best evidence rule should apply to the evidence
presented by petitioners regarding the existence of respondents loans, it should be borne in mind
that the rule admits of the following exceptions under Rule 130, Section 5 of the revised Rules of
Court

SEC. 5. When the original document is unavailable. When the original

document has been lost or destroyed, or cannot be produced in court, the offeror,
upon proof of its execution or existence and the cause of its unavailability without
bad faith on his part, may prove its contents by a copy, or by a recital of its
contents in some authentic document, or by the testimony of witnesses in the
order stated.

The execution or existence of the original copies of the documents was established
through the testimonies of witnesses, such as Mr. Tan, before whom most of the documents were
personally executed by respondent. The original PNs also went through the whole loan booking
system of petitioner Citibank from the account officer in its Marketing Department, to the pre-
processor, to the signature verifier, back to the pre-processor, then to the processor for
booking.236[117] The original PNs were seen by Ms. Dondoyano, the processor, who recorded
them in the General Ledger. Mr. Pujeda personally saw the original MCs, proving respondents
receipt of the proceeds of her loans from petitioner Citibank, when he helped Attys. Cleofe and
Fernandez, the banks legal counsels, to reconstruct the records of respondents loans. The original
MCs were presented to Atty. Cleofe who used the same during the preliminary investigation of
the case, sometime in years 1986-1987. The original MCs were subsequently turned over to the
Control and Investigation Division of petitioner Citibank.237[118]

It was only petitioner FNCB Finance who claimed that they lost the original copies of the
PNs when it moved to a new office. Citibank did not make a similar contention; instead, it
explained that the original copies of the PNs were returned to the borrower upon liquidation of
the loan, either through payment or roll-over. Petitioner Citibank proffered the excuse that they
were still looking for the documents in their storage or warehouse to explain the delay and
difficulty in the retrieval thereof, but not their absence or loss. The original documents in this
case, such as the MCs and letters, were destroyed and, thus, unavailable for presentation before
the RTC only on 7 October 1987, when a fire broke out on the 7th floor of the office building of
petitioner Citibank. There is no showing that the fire was intentionally set. The fire destroyed
relevant documents, not just of the present case, but also of other cases, since the 7th floor housed
the Control and Investigation Division, in charge of keeping the necessary documents for cases
in which petitioner Citibank was involved.
 The foregoing would have been sufficient to allow the presentation of photocopies or
microfilm copies of the PNs, MCs, and letters by the petitioners as secondary evidence to
establish the existence of respondents loans, as an exception to the best evidence rule.

The impact of the Decision of the Court of Appeals in the Dy case

In its assailed Decision, the Court of Appeals made the following pronouncement

Besides, We find the declaration and conclusions of this Court in CA-

G.R. CV No. 15934 entitled Sps. Dr. Ricardo L. Dy and Rosalind O. Dy vs. City
Bank, N.A., et al, promulgated on 15 January 1990, as disturbing taking into
consideration the similarities of the fraud, machinations, and deceits employed by
the defendant-appellant Citibank and its Account Manager Francisco Tan.

Worthy of note is the fact that Our declarations and conclusions against
Citibank and the person of Francisco Tan in CA-G.R. CV No. 15934 were
affirmed in toto by the Highest Magistrate in a Minute Resolution dated 22
August 1990 entitled Citibank, N.A., vs. Court of Appeals, G.R. 93350.

As the factual milieu of the present appeal created reasonable doubts as to

whether the nine (9) Promissory Notes were indeed executed with considerations,
the doubts, coupled by the findings and conclusions of this Court in CA-G.R. CV
No. 15934 and the Supreme Court in G.R. No. 93350. should be construed
against herein defendants-appellants Citibank and FNCB Finance.

What this Court truly finds disturbing is the significance given by the Court of Appeals in
its assailed Decision to the Decision238[119] of its Third Division in CA-G.R. CV No. 15934 (or
the Dy case), when there is an absolute lack of legal basis for doing such.
 Although petitioner Citibank and its officer, Mr. Tan, were also involved in the Dy case,
that is about the only connection between the Dy case and the one at bar. Not only did the Dy
case tackle transactions between parties other than the parties presently before this Court, but the
transactions are absolutely independent and unrelated to those in the instant Petition.

In the Dy case, Severino Chua Caedo managed to obtain loans from herein petitioner
Citibank amounting to P7,000,000.00, secured to the extent of P5,000,000.00 by a Third Party
Real Estate Mortgage of the properties of Caedos aunt, Rosalind Dy. It turned out that Rosalind
Dy and her husband were unaware of the said loans and the mortgage of their properties. The
transactions were carried out exclusively between Caedo and Mr. Tan of petitioner Citibank. The
RTC found Mr. Tan guilty of fraud for his participation in the questionable transactions,
essentially because he allowed Caedo to take out the signature cards, when these should have
been signed by the Dy spouses personally before him. Although the Dy spouses signatures in the
PNs and Third Party Real Estate Mortgage were forged, they were approved by the signature
verifier since the signature cards against which they were compared to were also forged. Neither
the RTC nor the Court of Appeals, however, categorically declared Mr. Tan personally
responsible for the forgeries, which, in the narration of the facts, were more likely committed by
Caedo.

In the Petition at bar, respondent dealt with Mr. Tan directly, there was no third party
involved who could have perpetrated any fraud or forgery in her loan transactions. Although
respondent attempted to raise suspicion as to the authenticity of her signatures on certain
documents, these were nothing more than naked allegations with no corroborating evidence;
worse, even her own allegations were replete with inconsistencies. She could not even establish
in what manner or under what circumstances the fraud or forgery was committed, or how Mr.
Tan could have been directly responsible for the same.

While the Court of Appeals can take judicial notice of the Decision of its Third Division
in the Dy case, it should not have given the said case much weight when it rendered the assailed
Decision, since the former does not constitute a precedent. The Court of Appeals, in the
challenged Decision, did not apply any legal argument or principle established in the Dy case
but, rather, adopted the findings therein of wrongdoing or misconduct on the part of herein
petitioner Citibank and Mr. Tan. Any finding of wrongdoing or misconduct as against herein
petitioners should be made based on the factual background and pieces of evidence submitted in
this case, not those in another case.

It is apparent that the Court of Appeals took judicial notice of the Dy case not as a legal
precedent for the present case, but rather as evidence of similar acts committed by petitioner
Citibank and Mr. Tan. A basic rule of evidence, however, states that, Evidence that one did or
did not do a certain thing at one time is not admissible to prove that he did or did not do the same
or similar thing at another time; but it may be received to prove a specific intent or knowledge,
identity, plan, system, scheme, habit, custom or usage, and the like.239[120] The rationale for
the rule is explained thus

The rule is founded upon reason, public policy, justice and judicial
convenience. The fact that a person has committed the same or similar acts at
some prior time affords, as a general rule, no logical guaranty that he committed
the act in question. This is so because, subjectively, a mans mind and even his
modes of life may change; and, objectively, the conditions under which he may
find himself at a given time may likewise change and thus induce him to act in a
different way. Besides, if evidence of similar acts are to be invariably admitted,
they will give rise to a multiplicity of collateral issues and will subject the
defendant to surprise as well as confuse the court and prolong the trial.240[121]

The factual backgrounds of the two cases are so different and unrelated that the Dy case cannot
be used to prove specific intent, knowledge, identity, plan, system, scheme, habit, custom or
usage on the part of petitioner Citibank or its officer, Mr. Tan, to defraud respondent in the
present case.

IV

The liquidation of respondents outstanding loans

were valid in so far as petitioner Citibank used
respondents savings account with the bank and
her money market placements with petitioner
FNCB Finance; but illegal and void in so far as
petitioner Citibank used respondents dollar
accounts with Citibank-Geneva.

Savings Account with petitioner Citibank

Compensation is a recognized mode of extinguishing obligations. Relevant provisions of

the Civil Code provides

Art. 1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other.

Art. 1279. In order that compensation may be proper, it is necessary;

(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter has
been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
 There is little controversy when it comes to the right of petitioner Citibank to compensate
respondents outstanding loans with her deposit account. As already found by this Court,
petitioner Citibank was the creditor of respondent for her outstanding loans. At the same time,
respondent was the creditor of petitioner Citibank, as far as her deposit account was concerned,
since bank deposits, whether fixed, savings, or current, should be considered as simple loan or
mutuum by the depositor to the banking institution.241[122] Both debts consist in sums of
money. By June 1979, all of respondents PNs in the second set had matured and became
demandable, while respondents savings account was demandable anytime. Neither was there any
retention or controversy over the PNs and the deposit account commenced by a third person and
communicated in due time to the debtor concerned. Compensation takes place by operation of
law,242[123] therefore, even in the absence of an expressed authority from respondent,
petitioner Citibank had the right to effect, on 25 June 1979, the partial compensation or off-set of
respondents outstanding loans with her deposit account, amounting to P31,079.14.

Money market placements with FNCB Finance

Things though are not as simple and as straightforward as regards to the money market
placements and bank account used by petitioner Citibank to complete the compensation or off-
set of respondents outstanding loans, which came from persons other than petitioner Citibank.

Respondents money market placements were with petitioner FNCB Finance, and after
several roll-overs, they were ultimately covered by PNs No. 20138 and 20139, which, by 3
September 1979, the date the check for the proceeds of the said PNs were issued, amounted to
P1,022,916.66, inclusive of the principal amounts and interests. As to these money market
placements, respondent was the creditor and petitioner FNCB Finance the debtor; while, as to the
outstanding loans, petitioner Citibank was the creditor and respondent the debtor. Consequently,
legal compensation, under Article 1278 of the Civil Code, would not apply since the first
requirement for a valid compensation, that each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the other, was not met.

What petitioner Citibank actually did was to exercise its rights to the proceeds of
respondents money market placements with petitioner FNCB Finance by virtue of the Deeds of
Assignment executed by respondent in its favor.

The Court of Appeals did not consider these Deeds of Assignment because of petitioners
failure to produce the original copies thereof in violation of the best evidence rule. This Court
again finds itself in disagreement in the application of the best evidence rule by the appellate
court.

To recall, the best evidence rule, in so far as documentary evidence is concerned, requires
the presentation of the original copy of the document only when the context thereof is the subject
of inquiry in the case. Respondent does not question the contents of the Deeds of Assignment.
While she admitted the existence and execution of the Deeds of Assignment, dated 2 March 1978
and 9 March 1978, covering PNs No. 8169 and 8167 issued by petitioner FNCB Finance, she
claimed, as defense, that the loans for which the said Deeds were executed as security, were
already paid. She denied ever executing both Deeds of Assignment, dated 25 August 1978,
covering PNs No. 20138 and 20139. These are again issues collateral to the contents of the
documents involved, which could be proven by evidence other than the original copies of the
said documents.

Moreover, the Deeds of Assignment of the money market placements with petitioner
FNCB Finance were notarized documents, thus, admissible in evidence. Rule 132, Section 30 of
the Rules of Court provides that
 SEC. 30. Proof of notarial documents. Every instrument duly
acknowledged or proved and certified as provided by law, may be presented in
evidence without further proof, the certificate of acknowledgement being prima
facie evidence of the execution of the instrument or document involved.
Significant herein is this Courts elucidation in De Jesus v. Court of Appeals,243[124]
which reads

On the evidentiary value of these documents, it should be recalled that the

notarization of a private document converts it into a public one and renders it
admissible in court without further proof of its authenticity (Joson vs. Baltazar,
194 SCRA 114 [1991]). This is so because a public document duly executed and
entered in the proper registry is presumed to be valid and genuine until the
contrary is shown by clear and convincing proof (Asido vs. Guzman, 57 Phil. 652
[1918]; U.S. vs. Enriquez, 1 Phil 241 [1902]; Favor vs. Court of Appeals, 194
SCRA 308 [1991]). As such, the party challenging the recital of the document
must prove his claim with clear and convincing evidence (Diaz vs. Court of
Appeals, 145 SCRA 346 [1986]).

The rule on the evidentiary weight that must be accorded a notarized document is clear
and unambiguous. The certificate of acknowledgement in the notarized Deeds of Assignment
constituted prima facie evidence of the execution thereof. Thus, the burden of refuting this
presumption fell on respondent. She could have presented evidence of any defect or irregularity
in the execution of the said documents244[125] or raised questions as to the verity of the notary
publics acknowledgment and certificate in the Deeds.245[126] But again, respondent admitted
executing the Deeds of Assignment, dated 2 March 1978 and 9 March 1978, although claiming
that the loans for which they were executed as security were already paid. And, she assailed the
Deeds of Assignment, dated 25 August 1978, with nothing more than her bare denial of
execution thereof, hardly the clear and convincing evidence required to trounce the presumption
of due execution of a notarized document.

Petitioners not only presented the notarized Deeds of Assignment, but even secured
certified literal copies thereof from the National Archives.246[127] Mr. Renato Medua, an
archivist, working at the Records Management and Archives Office of the National Library,
testified that the copies of the Deeds presented before the RTC were certified literal copies of
those contained in the Notarial Registries of the notary publics concerned, which were already in
the possession of the National Archives. He also explained that he could not bring to the RTC the
Notarial Registries containing the original copies of the Deeds of Assignment, because the
Department of Justice (DOJ) Circular No. 97, dated 8 November 1968, prohibits the bringing of
original documents to the courts to prevent the loss of irreplaceable and priceless
documents.247[128]

Accordingly, this Court gives the Deeds of Assignment grave importance in establishing
the authority given by the respondent to petitioner Citibank to use as security for her loans her
money her market placements with petitioner FNCB Finance, represented by PNs No. 8167 and
8169, later to be rolled-over as PNs No. 20138 and 20139. These Deeds of Assignment constitute
the law between the parties, and the obligations arising therefrom shall have the force of law
between the parties and should be complied with in good faith.248[129] Standard clauses in all
of the Deeds provide that
 The ASSIGNOR and the ASSIGNEE hereby further agree as follows:

xxxx

2. In the event the OBLIGATIONS are not paid at maturity or upon

demand, as the case may be, the ASSIGNEE is fully authorized and empowered
to collect and receive the PLACEMENT (or so much thereof as may be
necessary) and apply the same in payment of the OBLIGATIONS. Furthermore,
the ASSIGNOR agrees that at any time, and from time to time, upon request by
the ASSIGNEE, the ASSIGNOR will promptly execute and deliver any and all
such further instruments and documents as may be necessary to effectuate this
Assignment.

xxxx

5. This Assignment shall be considered as sufficient authority to FNCB

Finance to pay and deliver the PLACEMENT or so much thereof as may be
necessary to liquidate the OBLIGATIONS, to the ASSIGNEE in accordance with
terms and provisions hereof.249[130]

Petitioner Citibank was only acting upon the authority granted to it under the foregoing
Deeds when it finally used the proceeds of PNs No. 20138 and 20139, paid by petitioner FNCB
Finance, to partly pay for respondents outstanding loans. Strictly speaking, it did not effect a
legal compensation or off-set under Article 1278 of the Civil Code, but rather, it partly
extinguished respondents obligations through the application of the security given by the
respondent for her loans. Although the pertinent documents were entitled Deeds of Assignment,
they were, in reality, more of a pledge by respondent to petitioner Citibank of her credit due from
petitioner FNCB Finance by virtue of her money market placements with the latter. According to
Article 2118 of the Civil Code
 ART. 2118. If a credit has been pledged becomes due before it is
redeemed, the pledgee may collect and receive the amount due. He shall apply the
same to the payment of his claim, and deliver the surplus, should there be any, to
the pledgor.

PNs No. 20138 and 20139 matured on 3 September 1979, without them being redeemed
by respondent, so that petitioner Citibank collected from petitioner FNCB Finance the proceeds
thereof, which included the principal amounts and interests earned by the money market
placements, amounting to P1,022,916.66, and applied the same against respondents outstanding
loans, leaving no surplus to be delivered to respondent.

Dollar accounts with Citibank-Geneva

Despite the legal compensation of respondents savings account and the total application
of the proceeds of PNs No. 20138 and 20139 to respondents outstanding loans, there still
remained a balance of P1,069,847.40. Petitioner Citibank then proceeded to applying
respondents dollar accounts with Citibank-Geneva against her remaining loan balance, pursuant
to a Declaration of Pledge supposedly executed by respondent in its favor.

Certain principles of private international law should be considered herein because the
property pledged was in the possession of an entity in a foreign country, namely, Citibank-
Geneva. In the absence of any allegation and evidence presented by petitioners of the specific
rules and laws governing the constitution of a pledge in Geneva, Switzerland, they will be
presumed to be the same as Philippine local or domestic laws; this is known as processual
presumption.250[131]
 Upon closer scrutiny of the Declaration of Pledge, this Court finds the same exceedingly
suspicious and irregular.

First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of
Assignment of the PNs notarized, yet left the Declaration of Pledge unnotarized. This Court
would think that petitioner Citibank would take greater cautionary measures with the preparation
and execution of the Declaration of Pledge because it involved respondents all present and future
fiduciary placements with a Citibank branch in another country, specifically, in Geneva,
Switzerland. While there is no express legal requirement that the Declaration of Pledge had to be
notarized to be effective, even so, it could not enjoy the same prima facie presumption of due
execution that is extended to notarized documents, and petitioner Citibank must discharge the
burden of proving due execution and authenticity of the Declaration of Pledge.

Second, petitioner Citibank was unable to establish the date when the Declaration of
Pledge was actually executed. The photocopy of the Declaration of Pledge submitted by
petitioner Citibank before the RTC was undated.251[132] It presented only a photocopy of the
pledge because it already forwarded the original copy thereof to Citibank-Geneva when it
requested for the remittance of respondents dollar accounts pursuant thereto. Respondent, on the
other hand, was able to secure a copy of the Declaration of Pledge, certified by an officer of
Citibank-Geneva, which bore the date 24 September 1979.252[133] Respondent, however,
presented her passport and plane tickets to prove that she was out of the country on the said date
and could not have signed the pledge. Petitioner Citibank insisted that the pledge was signed
before 24 September 1979, but could not provide an explanation as to how and why the said date
was written on the pledge. Although Mr. Tan testified that the Declaration of Pledge was signed
by respondent personally before him, he could not give the exact date when the said signing took
place. It is important to note that the copy of the Declaration of Pledge submitted by the
respondent to the RTC was certified by an officer of Citibank-Geneva, which had possession of
the original copy of the pledge. It is dated 24 September 1979, and this Court shall abide by the
presumption that the written document is truly dated.253[134] Since it is undeniable that
respondent was out of the country on 24 September 1979, then she could not have executed the
pledge on the said date.

Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard
printed form. It was constituted in favor of Citibank, N.A., otherwise referred to therein as the
Bank. It should be noted, however, that in the space which should have named the pledgor, the
name of petitioner Citibank was typewritten, to wit

The pledge right herewith constituted shall secure all claims which the Bank now
has or in the future acquires against Citibank, N.A., Manila (full name and
address of the Debtor), regardless of the legal cause or the transaction (for
example current account, securities transactions, collections, credits, payments,
documentary credits and collections) which gives rise thereto, and including
principal, all contractual and penalty interest, commissions, charges, and costs.

The pledge, therefore, made no sense, the pledgor and pledgee being the same entity. Was a
mistake made by whoever filled-out the form? Yes, it could be a possibility. Nonetheless,
considering the value of such a document, the mistake as to a significant detail in the pledge
could only be committed with gross carelessness on the part of petitioner Citibank, and raised
serious doubts as to the authenticity and due execution of the same. The Declaration of Pledge
had passed through the hands of several bank officers in the country and abroad, yet, surprisingly
and implausibly, no one noticed such a glaring mistake.
 Lastly, respondent denied that it was her signature on the Declaration of Pledge. She
claimed that the signature was a forgery. When a document is assailed on the basis of forgery,
the best evidence rule applies

Basic is the rule of evidence that when the subject of inquiry is the
contents of a document, no evidence is admissible other than the original
document itself except in the instances mentioned in Section 3, Rule 130 of the
Revised Rules of Court. Mere photocopies of documents are inadmissible
pursuant to the best evidence rule. This is especially true when the issue is that of
forgery.

As a rule, forgery cannot be presumed and must be proved by clear,

positive and convincing evidence and the burden of proof lies on the party
alleging forgery. The best evidence of a forged signature in an instrument is the
instrument itself reflecting the alleged forged signature. The fact of forgery can
only be established by a comparison between the alleged forged signature and the
authentic and genuine signature of the person whose signature is theorized upon
to have been forged. Without the original document containing the alleged forged
signature, one cannot make a definitive comparison which would establish
forgery. A comparison based on a mere xerox copy or reproduction of the
document under controversy cannot produce reliable results.254[135]

Respondent made several attempts to have the original copy of the pledge produced
before the RTC so as to have it examined by experts. Yet, despite several Orders by the
RTC,255[136] petitioner Citibank failed to comply with the production of the original
Declaration of Pledge. It is admitted that Citibank-Geneva had possession of the original copy of
the pledge. While petitioner Citibank in Manila and its branch in Geneva may be separate and
distinct entities, they are still incontestably related, and between petitioner Citibank and
respondent, the former had more influence and resources to convince Citibank-Geneva to return,
albeit temporarily, the original Declaration of Pledge. Petitioner Citibank did not present any
evidence to convince this Court that it had exerted diligent efforts to secure the original copy of
the pledge, nor did it proffer the reason why Citibank-Geneva obstinately refused to give it back,
when such document would have been very vital to the case of petitioner Citibank. There is thus
no justification to allow the presentation of a mere photocopy of the Declaration of Pledge in lieu
of the original, and the photocopy of the pledge presented by petitioner Citibank has nil
probative value.256[137] In addition, even if this Court cannot make a categorical finding that
respondents signature on the original copy of the pledge was forged, it is persuaded that
petitioner Citibank willfully suppressed the presentation of the original document, and takes into
consideration the presumption that the evidence willfully suppressed would be adverse to
petitioner Citibank if produced.257[138]

Without the Declaration of Pledge, petitioner Citibank had no authority to demand the
remittance of respondents dollar accounts with Citibank-Geneva and to apply them to her
outstanding loans. It cannot effect legal compensation under Article 1278 of the Civil Code
since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct and separate entity.
As for the dollar accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as
for the outstanding loans, petitioner Citibank was the creditor and respondent was the debtor.
The parties in these transactions were evidently not the principal creditor of each other.

Therefore, this Court declares that the remittance of respondents dollar accounts from
Citibank-Geneva and the application thereof to her outstanding loans with petitioner Citibank
was illegal, and null and void. Resultantly, petitioner Citibank is obligated to return to
respondent the amount of US$149,632,99 from her Citibank-Geneva accounts, or its present
equivalent value in Philippine currency; and, at the same time, respondent continues to be
obligated to petitioner Citibank for the balance of her outstanding loans which, as of 5 September
1979, amounted to P1,069,847.40.

The parties shall be liable for interests on their

monetary obligations to each other, as determined
herein.

In summary, petitioner Citibank is ordered by this Court to pay respondent the proceeds
of her money market placements, represented by PNs No. 23356 and 23357, amounting to
P318,897.34 and P203,150.00, respectively, earning an interest of 14.5% per annum as stipulated
in the PNs,258[139] beginning 17 March 1977, the date of the placements.

Petitioner Citibank is also ordered to refund to respondent the amount of US$149,632.99,

or its equivalent in Philippine currency, which had been remitted from her Citibank-Geneva
accounts. These dollar accounts, consisting of two fiduciary placements and current accounts
with Citibank-Geneva shall continue earning their respective stipulated interests from 26 October
1979, the date of their remittance by Citibank-Geneva to petitioner Citibank in Manila and
applied against respondents outstanding loans.

As for respondent, she is ordered to pay petitioner Citibank the balance of her
outstanding loans, which amounted to P1,069,847.40 as of 5 September 1979. These loans
continue to earn interest, as stipulated in the corresponding PNs, from the time of their respective
maturity dates, since the supposed payment thereof using respondents dollar accounts from
Citibank-Geneva is deemed illegal, null and void, and, thus, ineffective.
 VI

Petitioner Citibank shall be liable for damages to

respondent.

Petitioners protest the award by the Court of Appeals of moral damages, exemplary
damages, and attorneys fees in favor of respondent. They argued that the RTC did not award any
damages, and respondent, in her appeal before the Court of Appeals, did not raise in issue the
absence of such.

While it is true that the general rule is that only errors which have been stated in the
assignment of errors and properly argued in the brief shall be considered, this Court has also
recognized exceptions to the general rule, wherein it authorized the review of matters, even those
not assigned as errors in the appeal, if the consideration thereof is necessary in arriving at a just
decision of the case, and there is a close inter-relation between the omitted assignment of error
and those actually assigned and discussed by the appellant.259[140] Thus, the Court of Appeals
did not err in awarding the damages when it already made findings that would justify and support
the said award.

Although this Court appreciates the right of petitioner Citibank to effect legal
compensation of respondents local deposits, as well as its right to the proceeds of PNs No. 20138
and 20139 by virtue of the notarized Deeds of Assignment, to partly extinguish respondents
outstanding loans, it finds that petitioner Citibank did commit wrong when it failed to pay and
properly account for the proceeds of respondents money market placements, evidenced by PNs
No. 23356 and 23357, and when it sought the remittance of respondents dollar accounts from
Citibank-Geneva by virtue of a highly-suspect Declaration of Pledge to be applied to the
remaining balance of respondents outstanding loans. It bears to emphasize that banking is
impressed with public interest and its fiduciary character requires high standards of integrity and
performance.260[141] A bank is under the obligation to treat the accounts of its depositors with
meticulous care whether such accounts consist only of a few hundred pesos or of millions of
pesos.261[142] The bank must record every single transaction accurately, down to the last
centavo, and as promptly as possible.262[143] Petitioner Citibank evidently failed to exercise the
required degree of care and transparency in its transactions with respondent, thus, resulting in the
wrongful deprivation of her property.

Respondent had been deprived of substantial amounts of her investments and deposits for
more than two decades. During this span of years, respondent had found herself in desperate
need of the amounts wrongfully withheld from her. In her testimony263[144] before the RTC,
respondent narrated

Q By the way Mrs. Witness will you kindly tell us again, you said before that
you are a businesswoman, will you tell us again what are the businesses
you are engaged into [sic]?

A I am engaged in real estate. I am the owner of the Modesta Village 1 and 2

in San Mateo, Rizal. I am also the President and Chairman of the Board of
Macador [sic] Co. and Business Inc. which operates the Macador [sic]
International Palace Hotel. I am also the President of the Macador [sic]
International Palace Hotel, and also the Treasures Home Industries, Inc.
which I am the Chairman and president of the Board and also operating
 affiliated company in the name of Treasures Motor Sales engaged in car
dealers [sic] like Delta Motors, we are the dealers of the whole Northern
Luzon and I am the president of the Disto Company, Ltd., based in
Hongkong licensed in Honkong [sic] and now operating in Los Angeles,
California.

Q What is the business of that Disto Company Ltd.?

A Disto Company, Ltd., is engaged in real estate and construction.

Q Aside from those businesses are you a member of any national or

community organization for social and civil activities?

A Yes sir.

Q What are those?

A I am the Vice-President of thes [sic] Subdivision Association of the

Philippines in 1976, I am also an officer of the Chamber of Real Estate
Business Association; I am also an officer of the Chatholic [sic] Womens
League and I am also a member of the CMLI, I forgot the definition.

Q How about any political affiliation or government position held if any?

A I was also a candidate for Mayo last January 30, 1980.

Q Where?

A In Dagupan City, Pangasinan.

Q What else?

A I also ran as an Assemblywoman last May, 1984, Independent party in

Regional I, Pangasinan.

Q What happened to your businesses you mentioned as a result of your

failure to recover you [sic] investments and bank deposits from the
defendants?

A They are not all operating, in short, I was hampered to push through the
businesses that I have.
 A [sic] Of all the businesses and enterprises that you mentioned what are those
that are paralyzed and what remain inactive?

A Of all the company [sic] that I have, only the Disto Company that is now
operating in California.

Q How about your candidacy as Mayor of Dagupan, [sic] City, and later as
Assemblywoman of Region I, what happened to this?

A I won by voting but when election comes on [sic] the counting I lost and I
protested this, it is still pending and because I dont have financial
resources I was not able to push through the case. I just have it pending in
the Comelec.

Q Now, do these things also affect your social and civic activities?

A Yes sir, definitely.

Q How?

A I was embarrassed because being a businesswoman I would like to inform

the Honorable Court that I was awarded as the most outstanding
businesswoman of the year in 1976 but when this money was not given
back to me I was not able to comply with the commitments that I have
promised to these associations that I am engaged into [sic], sir.

For the mental anguish, serious anxiety, besmirched reputation, moral shock and social
humiliation suffered by the respondent, the award of moral damages is but proper. However, this
Court reduces the amount thereof to P300,000.00, for the award of moral damages is meant to
compensate for the actual injury suffered by the respondent, not to enrich her.264[145]
 Having failed to exercise more care and prudence than a private individual in its dealings
with respondent, petitioner Citibank should be liable for exemplary damages, in the amount of
P250,000.00, in accordance with Article 2229265[146] and 2234266[147] of the Civil Code.

With the award of exemplary damages, then respondent shall also be entitled to an award
of attorneys fees.267[148] Additionally, attorney's fees may be awarded when a party is
compelled to litigate or to incur expenses to protect his interest by reason of an unjustified act of
the other party.268[149] In this case, an award of P200,000.00 attorneys fees shall be
satisfactory.

In contrast, this Court finds no sufficient basis to award damages to petitioners.

Respondent was compelled to institute the present case in the exercise of her rights and in the
protection of her interests. In fact, although her Complaint before the RTC was not sustained in
its entirety, it did raise meritorious points and on which this Court rules in her favor. Any injury
resulting from the exercise of ones rights is damnum absque injuria.269[150]

IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The

assailed Decision of the Court of Appeals in CA-G.R. No. 51930, dated 26 March 2002, as
already modified by its Resolution, dated 20 November 2002, is hereby AFFIRMED WITH
MODIFICATION, as follows

1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding.
Petitioner Citibank is ORDERED to return to respondent the principal amounts of the said PNs,
amounting to Three Hundred Eighteen Thousand Eight Hundred Ninety-Seven Pesos and Thirty-
Four Centavos (P318,897.34) and Two Hundred Three Thousand One Hundred Fifty Pesos
(P203,150.00), respectively, plus the stipulated interest of Fourteen and a half percent (14.5%)
per annum, beginning 17 March 1977;

2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two
US Dollars and Ninety-Nine Cents (US$149,632.99) from respondents Citibank-Geneva
accounts to petitioner Citibank in Manila, and the application of the same against respondents
outstanding loans with the latter, is DECLARED illegal, null and void. Petitioner Citibank is
ORDERED to refund to respondent the said amount, or its equivalent in Philippine currency
using the exchange rate at the time of payment, plus the stipulated interest for each of the
fiduciary placements and current accounts involved, beginning 26 October 1979;

3. Petitioner Citibank is ORDERED to pay respondent moral damages in the

amount of Three Hundred Thousand Pesos (P300,000.00); exemplary damages in the amount of
Two Hundred Fifty Thousand Pesos (P250,000.00); and attorneys fees in the amount of Two
Hundred Thousand Pesos (P200,000.00); and

4. Respondent is ORDERED to pay petitioner Citibank the balance of her

outstanding loans, which, from the respective dates of their maturity to 5 September 1979, was
computed to be in the sum of One Million Sixty-Nine Thousand Eight Hundred Forty-Seven
Pesos and Forty Centavos (P1,069,847.40), inclusive of interest. These outstanding loans shall
continue to earn interest, at the rates stipulated in the corresponding PNs, from 5 September 1979
until payment thereof.
 SO ORDERED.

FIRST DIVISION

MAGDALENA CORUA, JORGE G.R. No. 154286

CORUA, ESTATE OF ALBERTO
CORUA, ROSITA CORUA, ESTATE
OF BENJAMIN CORUA, JUANITA
ELIZALDE, FLORA ACOSTA,
LORETO CORUA, and ESTATE OF
Present:
JOSE CORUA,

Petitioners,
PANGANIBAN, C.J.

Chairperson,

YNARES-SANTIAGO,
- versus -
AUSTRIA-MARTINEZ,

CALLEJO, SR., and

CHICO-NAZARIO, JJ.
SATURNINO CINAMIN,270[1]
ANDRES ACANA, ROSITA
LAUREANO, ROGELIO
ENGAG,271[2] DOMINADOR
GABIOTA, JR., FEDERICO GABIOTA,
RAUL VANGUARDIA, ROMEO
LOCSIN, GUALBERTO
 GUALDRAPA,272[3] CARLITO
GOROY, GERVACIO SONQUIAWON,
LEOPOLDO BELO, and NORMA
LOCSIN,

Respondents.

Promulgated:

February 28, 2006

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

DECISION

CHICO-NAZARIO, J.:
 This is a petition for review on certiorari assailing the Decision273[4] of the Court of
Appeals in CA-G.R. SP No. 59922 dated 14 December 2001, and its Resolution274[5] dated 23
May 2002, which denied petitioners motion for reconsideration thereby affirming the
decision275[6] of the Department of Agrarian Reform Adjudication Board (DARAB) in DARAB
Case No. 4338 and DARAB Case No. 4339 promulgated on 07 June 2000. The DARAB decision,
in turn, affirmed in toto the decision276[7] of the Provincial Agrarian Reform Adjudication Board
(PARAD) of Bacolod City which dismissed petitioners complaints for lack of merit.

The factual antecedents follow:

Julieta Vasquez Corua was the owner of Lot No. 1176-A located in Himaya, Hinigaran,
Negros Occidental, with an area of 119.3830 hectares and Lot No. 350-B situated in Payao,
Binalbagan, Negros Occidental, composed of 25.2513 hectares. When Julieta died intestate on 30
September 1972, these properties passed on to petitioners who were her children, namely:
Magdalena, Jorge, Rosita, Loreto, Rosendo, Jose, Benjamin, all surnamed Corua, Juanita Elizalde,
and Flora Acosta. Rosendo died leaving behind as compulsory heirs Marivic Togle, Diana, Cesar,
and Anna Corua. When Jose passed away, he left, as his compulsory heirs Priscilla, Patricia, Ma.
Fe, and Jose Ma., all surnamed Corua, while Benjamin died without issues.
 Lot No. 1176-A was tenanted by respondents Saturnino Cinamin, Andres Acana, Rosita
Laureano, Rogelio Egang, Dominador Gabiota, and Federico Gabiota. On the other hand, Lot No.
350-B was tenanted by respondents Raul Vanguardia, Romeo Locsin, Gilberto Gualdrapa, Carlito
Goroy, Gervacio Sonquiawon, Leopoldo Belo, and Norma Locsin.277[8]

On 28 June 1994, petitioners filed before the (PARAD) two separate complaints for
cancellation and/or nullification of emancipation patents and/or certificates of land transfers issued
in favor of respondents.278[9] The first complaint, docketed as PARAD Case No. VI-71-NO-94,
was instituted against respondents Cinamin, Acana, Laureano, Engag, Gabiota, Jr., and
Gabiota.279[10]

In said complaint, petitioners alleged that Lot No. 1176-A was primarily devoted to sugar
production and only a small portion thereof or about 9.92 hectares were devoted to rice and corn
production. As the entire property was still under the regime of co-ownership, each petitioner was
the pro-indiviso owner of only 9,920 square meters which was way below the seven-hectare
retention limit mandated by Presidential Decree No. 27.280[11] Despite this and the fact that
neither respondents Cinamin, Acana, Laureano, Engag, Gabiota, Jr., and Gabiota nor their
predecessors-in-interest were petitioners tenants, emancipation patents were issued in favor of said
respondents. Moreover, petitioners claimed that respondents failed to pay the rentals and
amortizations for the lands awarded to them.

In their answer with motion to dismiss,281[12] respondents Cinamin, Acana, Laureano,

Engag, Gabiota, Jr., and Gabiota insisted that they were tenants of Lot No. 1176-A as they and
their predecessors-in-interest were duly paying the landowners shares on the lands they were
farming such that when Pres. Decree No. 27 took effect, the Department of Agrarian Reform
(DAR) immediately recognized them as farmer-beneficiaries. They likewise alleged that they were
paying their amortizations for the lands granted to them through the Land Bank of the Philippines
(LBP) and that aside from this, they had been paying the real property taxes due on the subject
lands.

The second case was instituted by petitioners against respondents Vanguardia, Locsin,
Gualdrapa, Goroy, Sonquiawon, Belo, and Locsin and this was docketed as PARAD Case No. VI-
72-NO-94.282[13] In this complaint, petitioners alleged that Lot No. 350-B was primarily devoted
to sugar production and only 8.10 hectares thereof, more or less, were used for rice and corn
production. Petitioners stated that as Lot 350-B was still owned in common, each petitioners share
in the 8.10 hectares which was supposed to be covered by Pres. Decree No. 27 would be less than
the retention limit stated in said statute. Petitioners, therefore, assailed the issuance of
emancipation patents to respondents Vanguardia, Locsin, Gualdrapa, Goroy, Sonquiawon, Belo,
and Locsin for being violative of the retention limit imposed by Pres. Decree No. 27. The issuance
of emancipation patents in this PARAD case was likewise questioned on the grounds that
respondents Vanguardia, Locsin, Gualdrapa, Goroy, Sonquiawon, Belo, and Locsin or their
predecessors-in-interest were not tenants of Lot 350-B and that they failed to pay for the value of
the lands awarded to them prior to the issuance of emancipation patents.

Respondents Vanguardia, Locsin, Gualdrapa, Goroy, Sonquiawon, Belo, and Locsin

countered in their answer with motion to dismiss283[14] that like the respondents in the other case,
they and their predecessors-in-interest, as tenants of Lot 350-B, paid to petitioners the latters share
in their tenancy relationship. They also alleged that when Pres. Decree No. 27 was implemented,
they were recognized by no less than the DAR as farmer-beneficiaries. As regards their alleged
failure to pay for the value of the portions of Lot 350-B awarded to them, respondents Vanguardia,
Locsin, Gualdrapa, Goroy, Sonquiawon, Belo, and Locsin claimed that they had been paying their
amortizations through the LBP and that they were the ones paying the real property taxes for the
lands awarded to them.

In a decision dated 22 December 1994, the PARAD disposed of the complaints in the
following manner:

WHEREFORE, premises considered, decision is hereby rendered dismissing the

complaints for utter lack of merit.

For lack of evidence, the counterclaim is denied.284[15]

 According to the PARAD, petitioners failed to support their claim that respondents
were not tenants of the lands subject of this dispute while for their part, respondents were
able to prove the existence of tenancy relationship between them and petitioners.
According to the PARAD, respondents were identified by the DAR as farmer-beneficiaries
of Pres. Decree No. 27 and Letter of Instruction No. 474 and as such, they became owners
of the land they tilled when Pres. Decree No. 27 took effect on 21 October 1972.285[16]
Respondents status as tenants of Lot Nos. 1176-A and 350-B was also corroborated by
receipts evidencing their payments of rentals or landowners share to petitioners which
were signed by petitioner Jorge Corua and the affidavits executed by respondents to the
effect that they were tenants in petitioners lands.286[17] As for respondents alleged failure
to pay rentals, the PARAD ruled in this wise:

Payment of rentals to the landowner is no longer the concern of EP beneficiaries. From

the moment the EP is issued, the obligation of the EP holder is concentrated with the Land Bank
of the Philippines for purposes of amortizations of the value of the land. It is in fact prevalent on
the date the value of the land is established (Memo Circular No. 6, Series of 1978, Curso v.
Court of Appeals, G.R. No. L-62985, April 2, 1984). In the instant case, aside from being not the
proper party, complainants [petitioners herein] presented no concrete evidence showing that
respondents failed to do so. On the contrary, they presented LBP receipts to prove no cause of
claim (Annexes O-15, R-15, Y-19, OO, OO-1, and OO-2) against the provisions of IV-B-7 of
DAR Administrative Order No. 02, Series of 1994 which makes as a ground for cancellation of
registered EPs or (CLOAs), the failure of the ARBs to pay for at least three (3) annual
amortizations to the LBP, except in cases of fortuitous events and force majeure.287[18]
 Anent petitioners contention that the inclusion of parts of Lot Nos. 1176-A and 350-B
within the coverage of Pres. Decree No. 27 undermined their retention limit under said law, the
PARAD held that as each complainant already owned around 12.7614 hectares of agricultural
land aside from the area covered by Operation Land Transfer, they are no longer entitled to the
seven-hectare retention area. The PARAD based this finding on the following provision of DAR
Administrative Order No. 4, Series of 1991, which was quoted in its decision:

x x x An owner of tenanted rice and corn lands may not retain these lands under the
following cases:

xxxx

b) By virtue of LOI 474, if he as of 21 October 1976 owned less than 24 hectares of

tenanted rice or corn lands but additionally owned the following:

- Other agricultural lands of more than seven hectares, whether tenanted or not,
whether cultivated or not, and regardless of income derived therefrom; or x x x288[19]

On 14 February 1995, petitioners filed a motion for reconsideration289[20] but this was
denied by the PARAD.
 Petitioners thereafter filed a notice of appeal dated 29 June 1995290[21] before the
DARAB which, however, affirmed in toto the decision of the PARAD.291[22]

Still undaunted, petitioners then sought relief before the Court of Appeals where their
case once again failed to prosper for in its decision dated 14 December 2001, the Court of
Appeals denied petitioners petition for review. Petitioners motion for reconsideration failed to
persuade the Court of Appeals and so it was denied through the Court of Appeals resolution
dated 23 May 2002.

Hence, the present petition where petitioners pray that we reverse and set aside the
assailed decision of the Court of Appeals and in lieu thereof a new judgment be rendered
declaring as null and void the emancipation patents and/or certificates of land transfer issued by
the DAR in favor of respondents.292[23]

In their memorandum, the petitioners raise the following issues for our consideration:

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT

INVALIDATING THE EMANCIPATION PATENTS AND CERTIFICATES OF LAND
TRANSFER AWARDED TO THE RESPONDENTS FOR HAVING BEEN ISSUED PRIOR
TO THE FULL PAYMENT OF THE AMORTIZATION REQUIRED UNDER
PRESIDENTIAL DECREE NO. 27.293[24]
THE COURT OF APPEALS ERRED IN RULING THAT THE PAYMENTS MADE BY THE
RESPONDENTS TO THE LAND BANK OF THE PHILIPPINES ARE CREDITED AS
VALID AMORTIZATION PAYMENTS AS REQUIRED UNDER PRESIDENTIAL DECREE
NO. 27.294[25]

Petitioners contend that under both law and jurisprudence, emancipation patents may
only be issued to farmer-beneficiaries after they had fully complied with the requirements of
Pres. Decree No. 27 including the full payment of amortization. In support of this contention,
they cite the first paragraph of Section 2, Pres. Decree No. 266295[26] which states:

Sec. 2. After the tenant-farmer shall have fully complied with the requirements for a grant
of title under Presidential Decree No. 27, an Emancipation Patent and/or Grant shall be issued by
the Department of Agrarian Reform on the basis of a duly approved survey plan.

Petitioners likewise rely on our following pronouncement in the case of Pagtalunan v.

Tamayo:296[27]

x x x However, a careful study of the provisions of Pres. Decree No. 27, and the
certificate of land transfer issued to qualified farmers, will reveal that the transfer of ownership
over these lands is subject to particular terms and conditions the compliance with which is
necessary in order that the grantees can claim the right of absolute ownership over them.
 xxxx

And under Pres. Decree No. 266 which specifies the procedure for the registration of title
to lands acquired under Pres. Decree No. 27, full compliance by the grantee with the above-
mentioned undertakings is required for a grant of title under the Tenant Emancipation Decree
and the subsequent issuance of an emancipation patent in favor of the farmer/grantee [Section 2,
Pres. Decree No. 266]. x x x.297[28]

In this case, petitioners assert that the emancipation patents were issued to respondents on
various dates between 1989 and 1990 notwithstanding the fact that they were still paying their
amortizations to the LBP beyond said period in clear violation of the provisions of Pres. Decree
No. 27 and Pres. Decree No. 266.298[29]

Also, petitioners insist that the payments made by respondents to the LBP were invalid
considering that Pres. Decree No. 816 requires the direct payment of amortizations to the
landowners. According to petitioners, LBPs authority for receiving payments for lands within the
coverage of Pres. Decree No. 27 was DAR Memorandum Circular No. 6, Series of 1978.
However, this memorandum circular had already been declared invalid by the Court of Appeals
in the case of Gonzales v. Land Bank of the Philippines299[30] as it contravenes Pres. Decree
No. 816s requirement of direct payment to the landowners of the value of the lands subjected to
Pres. Decree No. 27.300[31]
 For their part, respondents claim that they have complied with what is required of them
under the law. For one, petitioners maintain that they have been paying to the LBP the monthly
amortization due on the lands awarded to them and that in fact, some of them had paid the LBP
the full amount of their obligations.301[32] They also assert that even prior to this, they
religiously paid the landowners share in the portions of the land that they respectively
tilled.302[33] Respondents likewise point to the initiatory steps taken by the DAR in the
implementation of Operation Land Transfer program of Pres. Decree No. 27 particularly the
determination of the average gross production data per hectare conducted by the Barangay
Committee on Land Production (BCLP).303[34] As the BLCP had already done its duty of
determining the value of the subject lands, respondents were then authorized to pay for the lands
awarded to them to the LBP.304[35]

Anent the issue of the validity of the payments to the LBP, respondents direct us to our
holding in the case of Locsin v. Valenzuela305[36] where we declared that (u)nder PD No. 251,
dated July 21, 1973, the Land Bank is tasked to finance the acquisition of farm lots and
whenever it pays the whole or a portion of the total cost of the farm lots, it shall be subrogated to
the right of the landowner to collect and receive the yearly amortizations or the amount paid
including interest thereon, from the tenants-farmers in whose favor the farm lots had been
transferred pursuant to PD No. 27.306[37]

We find the petition partly meritorious.

As the opening paragraph of Pres. Decree No. 27 explains, said statute was issued in
order to address the then prevailing violent conflict and social tension brought about by the
iniquitous landownership by a few. It is within this context that former President Ferdinand
Marcos deemed it proper to declare the emancipation of all tenant-farmers effective 21 October
1972. Nevertheless, such emancipation does not come free for the farmers who were supposed to
benefit from said decree. Indeed, a reading of the full text of said statute reveals that the transfer
of ownership over the lands covered under Pres. Decree No. 27 is still subject to particular terms
and conditions which must be complied with by the grantee.307[38] As this Court held in the
case of Paris v. Alfeche308[39] where one of the issues raised was the propriety of the issuance
of emancipation patents notwithstanding lack of payment of just compensation

Petitioner, however, claims that she was not paid just compensation and, thus, prays for
the cancellation of the Emancipation Patents issued to respondents under PD 27. She contends
that it is illegal for the DAR to take property without full payment of just compensation[;] until
full payment is done the title and ownership remain with the landholder.

Petitioners contention has merit. Section 2 of PD 266 states:

 After the tenant-farmer shall have fully complied with the
requirements for a grant of title under Presidential Decree No. 27,
an Emancipation Patent and/or Grant shall be issued by the
Department of Agrarian Reform on the basis of a duly approved
survey plan.

On the other hand, paragraphs 8 and 9 of PD 27 reads as follows:

For the purpose of determining the cost of the land to be

transferred to the tenant-farmer pursuant to this Decree, the value
of the land shall be equivalent to two and one-half (2 ) times the
average harvest of three normal crop years immediately preceding
the promulgation of this Decree;

The total cost of the land, including interest at the rate of

six (6) per centum per annum, shall be paid by the tenant in fifteen
(15) years of fifteen (15) equal annual amortizations[.]

Although, under the law, tenant farmers are already deemed owners of the land they till,
they are still required to pay the cost of the land, including interest, within fifteen years before
the title is transferred to them. Thus, the Court held in Association of Small Landowners in the
Philippines v. Secretary of Agrarian Reform:309[40]

It is true that PD 27 expressly ordered the emancipation of

tenant-farmers as of October 21, 1972 and declared that he shall be
deemed the owner of a portion of land consisting of a family-sized
farm except that no title to the land owned by him was to be
actually issued to him unless and until he had become a full-
fledged member of a duly recognized farmers cooperative. It was
understood, however, that full payment of the just compensation
also had to be made first, conformably to the constitutional
requirement.

xxxx
 Presidential Decree 27 and subsequently Executive Order (EO) 228, which recognized
the rights acquired by tenant-farmers under PD 27, provide in detail the computation to be used
in arriving at the exact total cost of the parcels of land. Evidently, therefore, the law recognizes
that their exact value, or the just compensation to be given to the landowner, cannot just be
assumed; it must be determined with certainty before the land titles are transferred.

Although EO 228 provides that the total lease rentals paid for the lands from October 21,
1972 shall be considered as advance payment, it does not sanction the assumption that such
rentals are automatically considered as equivalent to just compensation for the land. The
provision significantly designates the lease rentals as advance, not full payment. The
determination of the exact value of the lands cannot simply be brushed aside, as it is fundamental
to the determination of whether full payment has been made.

In the case at bar, respondents submitted as evidence the accomplished forms of Land
Valuation Summary & Farmers Undertaking of the LBP310[41] and the average gross
production prepared by the BCLPs in Barangays Hinigaran and Payao, Binalbagan, Negros
Occidental.311[42] To our mind, however, these documentary evidence, pertaining merely to the
valuation of the subject lands, do not meet the requirement of Pres. Decree No. 27 and Pres.
Decree No. 266 with respect to the issuance of emancipation patents to respondents. Valuation of
the land is only one aspect of the whole process of agrarian reform; full compensation for the
value of land is another. As discussed above, the laws mandate the full compensation for the
lands acquired under Pres. Decree No. 27 prior to the issuance of emancipation patents. This is
understandable particularly since the emancipation patent presupposes that the grantee thereof
has already complied with all the requirements prescribed by Pres. Decree No. 27.312[43] The
issuance of emancipation patent, therefore, conclusively vests upon the farmer/grantee the rights
of absolute ownership over the land awarded to him.313[44]

While this Court commiserates with respondents in their plight, we are constrained by the
explicit requirements of the laws and jurisprudence on the matter to annul the emancipation
patents issued to respondents in the absence of any proof that they or the LBP has already fully
paid the value of the lands put under the coverage of Pres. Decree No. 27. The requirement is
unequivocal in that the values of the lands awarded to respondents must, prior to the issuance of
emancipation patents, be paid in full.

Under the rules of evidence, respondents, as debtors, bear the onus of showing with legal
certainty that the obligation to petitioners with respect to the value of the lands awarded to them
has been discharged by payment.314[45] Sadly for respondents, they failed to dispose of this
burden as the records of this case is bereft of any evidence, such as certifications from the proper
government authorities, which would satisfactorily establish that the requisite full payment to
petitioners has been complied with. The cancellation of the emancipation patents subject of this
case, perforce, follows. Dura lex sed lex.

Despite the cancellation of emancipation patents in this case, respondents, however,

should remain in possession of the disputed lands. Section 22 of Republic Act No. 6657,315[46]
which we have ruled to apply to lands rice and corn lands under Pres. Decree No. 27,316[47]
clearly provides that actual tenant-tillers in the landholding shall not be ejected or removed
therefrom.317[48] Thus, while actual titles remain with petitioners, respondents are entitled to
maintain possession of the lands granted to them.

We cannot, however, agree in the petitioners contention that the amortization payments
made by respondents to the LBP were invalid. Petitioners reliance in the holding of the Court of
Appeals in Gonzales v. Land Bank of the Philippines318[49] is unavailing. As this Court held in
Curso v. Court of Appeals,319[50] there is neither inconsistency nor incompatibility between
Pres. Decree No. 816 and DARs Memorandum Circular No. 6, Series of 1978, thus:

2. The CAR was of the opinion that as between P.D. 816 and the MAR Circular, it is
the former that should prevail. Actually, we find no inconsistency nor incompatibility between
them. Of significance are the two whereas clauses of P.D. 816 quoted hereunder:

WHEREAS, in the meanwhile that the implementing rules and regulations of Presidential
Decree No. 27 have not yet been issued completely, the status quo shall be maintained between
the parties, that is, the landowner shall continue to pay the land taxes thereon if the said
landholdings is not yet covered by Certificate of Land Transfer, while on the other hand the
tenant-farmer who is now called agricultural lessee shall continue to pay the rental to the
landowner whether or not his landholding planted to rice and corn is already covered by
Certificate of Land Transfer;

WHEREAS, such payment of rental shall continue until and after the valuation of the
property shall have been determined or agreed upon between the landowner and the Department
of Agrarian Reform which, in turn, will become the basis for computing the amortization
payment to be made by the agricultural lessee in 15 years with 6% interest per annum under
Presidential Decree No. 27. (Italics supplied)

Clearly, under P.D. No. 816, rentals are to be paid to the landowner by the agricultural
lessee until and after the valuation of the property shall have been determined.

In the same vein, the MAR Circular provides:

Payment of lease rentals to landowners covered by OLT

shall terminate on the date the value of the land is established.
Thereafter, the tenant-farmers shall pay their lease
rentals/amortizations to the LBP or its authorized agents x x x

and

The value of the land is established on the date the

Secretary (now Minister) or his authorized representative has
finally approved the average gross production data established by
the Barangay Committee on Land Production (BCLP) or upon the
signing of the LTPA by landowners and tenant-farmers concerned
heretofore authorized.

In other words, the MAR Circular merely provides guidelines in the payment of lease
rentals/amortizations in implementation of P.D. 816. Under both P.D. 816 and the MAR
Circular, payment of lease rentals shall terminate on the date the value of the land is established.
Therafter, the tenant-farmers shall pay amortizations to the Land Bank (LBP). The rentals
previously paid are to be credited as partial payment of the land transferred to tenant-farmers.
 This was our similar holding in the case of Sigre v. Court of Appeals320[51] where we
declared that there is no irreconcilable conflict between P.D. No. 816 and the DAR
Memorandum Circular No. 6.

In the present case, the value of the land located in Barangay Himaya was determined on
17 June 1988 by the BCLP321[52] while that of the land situated in Barangay Payao was
ascertained on 20 December 1977.322[53] Notably, these values were subsequently adopted by
the LBP.323[54] As the valuation of the subject lands was already accomplished, respondents
were then authorized to course their payment through the LBP pursuant to Pres. Decree No. 816
and DAR Memorandum Circular No. 6.

WHEREFORE, premises considered, the present petition is PARTIALLY GRANTED

and the Decision dated 14 December 2001 is hereby MODIFIED by declaring that the
emancipation patents issued to respondents are null and void. No costs.

MONETARY OBLIGATIONS – ART. 1250

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION
G.R. No. 100290 June 4, 1993

NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners,

vs.
THE HONORABLE COURT OF APPEALS and EDEN TAN, respondents.

PADILLA, J.:

Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this Court assailing the
decision * of respondent appellate court dated 24 April 1991 in CA-G.R. SP No. 24164 denying
their petition for certiorari prohibition, and injunction which sought to annul the order of Judge
Eutropio Migriño of the Regional Trial Court, Branch 151, Pasig, Metro Manila in Civil Case
No. 54863 entitled "Eden Tan vs. Sps. Norberto and Carmen Tibajia."

Stated briefly, the relevant facts are as follows:

Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan against the
Tibajia spouses. A writ of attachment was issued by the trial court on 17 August 1987 and on 17
September 1987, the Deputy Sheriff filed a return stating that a deposit made by the Tibajia
spouses in the Regional Trial Court of Kalookan City in the amount of Four Hundred Forty Two
Thousand Seven Hundred and Fifty Pesos (P442,750.00) in another case, had been garnished by
him. On 10 March 1988, the Regional Trial Court, Branch 151 of Pasig, Metro Manila rendered
its decision in Civil Case No. 54863 in favor of the plaintiff Eden Tan, ordering the Tibajia
spouses to pay her an amount in excess of Three Hundred Thousand Pesos (P300,000.00). On
appeal, the Court of Appeals modified the decision by reducing the award of moral and
exemplary damages. The decision having become final, Eden Tan filed the corresponding motion
for execution and thereafter, the garnished funds which by then were on deposit with the cashier
of the Regional Trial Court of Pasig, Metro Manila, were levied upon.

On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total
money judgment in the following form:

Cashier's Check P262,750.00

Cash 135,733.70
————
Total P398,483.70

Private respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and
instead insisted that the garnished funds deposited with the cashier of the Regional Trial Court of
Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. On 15 January 1991,
defendant spouses (petitioners) filed a motion to lift the writ of execution on the ground that the
judgment debt had already been paid. On 29 January 1991, the motion was denied by the trial
court on the ground that payment in cashier's check is not payment in legal tender and that
payment was made by a third party other than the defendant. A motion for reconsideration was
denied on 8 February 1991. Thereafter, the spouses Tibajia filed a petition for certiorari,
prohibition and injunction in the Court of Appeals. The appellate court dismissed the petition on
24 April 1991 holding that payment by cashier's check is not payment in legal tender as required
by Republic Act No. 529. The motion for reconsideration was denied on 27 May 1991.

In this petition for review, the Tibajia spouses raise the following issues:

I WHETHER OR NOT THE BPI CASHIER'S CHECK NO. 014021 IN THE

AMOUNT OF P262,750.00 TENDERED BY PETITIONERS FOR PAYMENT
OF THE JUDGMENT DEBT, IS "LEGAL TENDER".

II WHETHER OR NOT THE PRIVATE RESPONDENT MAY VALIDLY

REFUSE THE TENDER OF PAYMENT PARTLY IN CHECK AND PARTLY
IN CASH MADE BY PETITIONERS, THRU AURORA VITO AND
COUNSEL, FOR THE SATISFACTION OF THE MONETARY OBLIGATION
OF PETITIONERS-SPOUSES. 1

The only issue to be resolved in this case is whether or not payment by means of check (even by
cashier's check) is considered payment in legal tender as required by the Civil Code, Republic
Act No. 529, and the Central Bank Act.

It is contended by the petitioners that the check, which was a cashier's check of the Bank of the
Philippine Islands, undoubtedly a bank of good standing and reputation, and which was a crossed
check marked "For Payee's Account Only" and payable to private respondent Eden Tan, is
considered legal tender, payment with which operates to discharge their monetary obligation. 2
Petitioners, to support their contention, cite the case of New Pacific Timber and Supply Co., Inc.
v. Señeris 3 where this Court held through Mr. Justice Hermogenes Concepcion, Jr. that "It is a
well-known and accepted practice in the business sector that a cashier's check is deemed as
cash".

The provisions of law applicable to the case at bar are the following:

a. Article 1249 of the Civil Code which provides:

Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency
which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other

mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in
abeyance.;
b. Section 1 of Republic Act No. 529, as amended, which provides:

Sec. 1. Every provision contained in, or made with respect to, any obligation
which purports to give the obligee the right to require payment in gold or in any
particular kind of coin or currency other than Philippine currency or in an amount
of money of the Philippines measured thereby, shall be as it is hereby declared
against public policy null and void, and of no effect, and no such provision shall
be contained in, or made with respect to, any obligation thereafter incurred. Every
obligation heretofore and hereafter incurred, whether or not any such provision as
to payment is contained therein or made with respect thereto, shall be discharged
upon payment in any coin or currency which at the time of payment is legal
tender for public and private debts.

c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:

Sec. 63. Legal character — Checks representing deposit money do not have legal
tender power and their acceptance in the payment of debts, both public and
private, is at the option of the creditor: Provided, however, that a check which has
been cleared and credited to the account of the creditor shall be equivalent to a
delivery to the creditor of cash in an amount equal to the amount credited to his
account.

From the aforequoted provisions of law, it is clear that this petition must fail.

In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals 4 and Roman Catholic Bishop
of Malolos, Inc. vs. Intermediate Appellate Court, 5 this Court held that —

A check, whether a manager's check or ordinary check, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor.

The ruling in these two (2) cases merely applies the statutory provisions which lay down the rule
that a check is not legal tender and that a creditor may validly refuse payment by check, whether
it be a manager's, cashier's or personal check.

Petitioners erroneously rely on one of the dissenting opinions in the Philippine Airlines case 6 to
support their cause. The dissenting opinion however does not in any way support the contention
that a check is legal tender but, on the contrary, states that "If the PAL checks in question had not
been encashed by Sheriff Reyes, there would be no payment by PAL and, consequently, no
discharge or satisfaction of its judgment obligation." 7 Moreover, the circumstances in the
Philippine Airlines case are quite different from those in the case at bar for in that case the
checks issued by the judgment debtor were made payable to the sheriff, Emilio Z. Reyes, who
encashed the checks but failed to deliver the proceeds of said encashment to the judgment
creditor.
In the more recent case of Fortunado vs. Court of Appeals, 8 this Court stressed that, "We are not,
by this decision, sanctioning the use of a check for the payment of obligations over the objection
of the creditor."

WHEREFORE, the petition is DENIED. The appealed decision is hereby AFFIRMED, with
costs against the petitioners.

SO ORDERED.

Narvasa, C.J., Regalado and Nocon, JJ., concur.

Republic of the Philippines

Supreme Court

Manila

SECOND DIVISION

TELENGTAN BROTHERS & SONS, G.R. No. 132284

INC.,

Petitioner,
Present:

PUNO, J., Chairperson,

- versus -
SANDOVAL-GUTIERREZ,

* CORONA,

AZCUNA, and

GARCIA, JJ.
UNITED STATES LINES, INC. and the
COURT OF APPEALS,
 Respondents. Promulgated:

February 28, 2006

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

DECISION

GARCIA, J.:

Thru this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner
Telengtan Brothers & Sons, Inc. (Telengtan) seeks the reversal and setting aside of the
decision324[1] dated January 8, 1998 of the Court of Appeals (CA) in CA-G.R. CV No. 18349
which affirmed in toto the decision dated January 10, 1985325[2] of the Regional Trial Court of
Manila, Branch 38, finding petitioner liable to respondent United States Lines, Inc. (U.S. Lines)
for demurrage and damages.

Petitioner Telengtan is a domestic corporation doing business under the name and style La
Suerte Cigar & Cigarette Factory, while respondent U.S. Lines is a foreign corporation engaged in
the business of overseas shipping. During the period material, the provisions of the Far East
Conference Tariff No. 12 were specifically made applicable to Philippine containerized cargo from
the U.S. and Gulf Ports, effective with vessels arriving at Philippine ports on and after December
15, 1978. After that date, consignees who fail to take delivery of their containerized cargo within
the 10-day free period are liable to pay demurrage charges.

As recited in the decision under review, the factual antecedents may be summarized as
follows:

On June 22, 1981, respondent U.S. Lines filed a suit against petitioner Telengtan seeking
payment of demurrage charges plus interest and damages. Docketed as Civil Case No. R-81-1196
of the Regional Trial Court of Manila and raffled to Branch 38 thereof, the complaint alleged that
between the years 1979 and 1980, goods belonging to petitioner loaded on containers aboard its
(respondents) vessels arrived in Manila from U.S. ports. After the 10-day free period, petitioner
still failed to withdraw its goods from the containers wherein the goods had been shipped.
Continuing, respondent U.S. Lines alleged that petitioner incurred on all those shipments a
demurrage in the total amount of P94,000.00 which the latter refused to pay despite repeated
demands.
 In its amended answer with compulsory counterclaim, petitioner Telengtan, as defendant
a quo, disclaims liability for the demanded demurrage, alleging that it has never entered into a
contract nor signed an agreement to be bound by any rule on demurrage. It likewise maintains that,
absent an obligation to pay respondent who made no proper or legal demands in the first place,
there is justifiable reason to refuse payment of the latters unwarranted claims. By way of
counterclaim, petitioner states that, upon arrival of the conveying vessels, it presented the Bills of
Lading (B/Ls) and all other pertinent documents covering seven (7) shipments and demanded from
respondent delivery of all the goods covered by the aforesaid B/Ls, only to be informed that
respondent had already unloaded the goods from the container vans, stripped them of their contents
which contents were then stored in warehouses. Petitioner further states that respondent had
refused to deliver the goods covered by the B/Ls and required petitioner to pay the amount of
P123,738.04 before the goods can be released. It thus prays that respondent be ordered to pay the
aforestated amount with interest.

After due proceedings, the trial court found for respondent U.S. Lines, as plaintiff therein,
and accordingly rendered judgment, as follows:

WHEREFORE, in view of all the foregoing, the Court finds [petitioner]

liable to [respondent] for demurrage incurred in the amount of P99,408.00 which
sum will bear interest at the legal rate from the date of the filing of the complaint
till full payment thereof plus attorneys fees in the amount of 20% of the total sum
due, all of which shall be recomputed as of the date of payment in accordance with
the provisions of Article 1250 of the Civil Code. Exemplary damages in the amount
of P80,000.00 are also granted. The counterclaim is dismissed. Costs against
[petitioner]. (Words in bracket ours)326[3]

Party explains the trial court in its decision:327[4]

 In other words, contrary to [petitioners] contentions, both the provisions of
the contract between the parties, in this case the bill of lading, and the interpretation
given by the higher courts to these provisions are to the effect that demurrage may
be lawfully collected. As a matter of fact, [respondent U.S. Lines] has submitted
official receipts showing that on many other and previous occasions, [petitioner]
paid demurrage to [respondent] (Exhibits F, F-1 to F-4, G, G-1 to G-4, H, H-1 to
H-4, and I, I-1 to I-3). [Petitioner] is, therefore, in estoppel to claim that it did not
know of demurrage being charged by [respondent] and that it had not agreed to it
since these exhibits show that [petitioner] knew of this demurrage and by paying
for the same, it in effect, agreed to the collection of demurrage.

xxx xxx xxx

On the other hand, [petitioner] claims that [respondent] company owes them
the far larger sum of P123,738.04 by way of damages allegedly suffered by their
goods when [respondent] company removed these goods from its cargo vans and
deposited them in bonded warehouses without its consent. It is not disputed that
[respondent] company did not [sic] in fact remove these goods belonging to
[petitioner] from its vans and deposited them in warehouses. However, this was
done by authority of the Bureau of Customs and for that purpose, [respondent]
addressed a letter-request to the Collector of Customs, for permission to remove the
goods of defendant from its vans (Exhibit L). xxx.

xxx xxx xxx

The Court finds that the charges for warehousing were necessary expenses
covered by the terms of the bill of lading which the consignee was responsible for.
There is therefore now no necessity of discussing whether or not the counterclaim
of [petitioner] had prescribed or not. Neither is there any question of bad faith on
the part of [respondent]. When it requested for authority to remove [petitioners]
consigned goods from its vans and deposited them in warehouses, [respondent] had
already given consignee sufficient time to take delivery of the shipment. This,
[petitioner] chose not to do. Instead, it sat pat by the telephone calling without
making any positive effort to check up on the shipment or arrange for its delivery
to its factory. Once arrived at the port, the shipment was available to consignee for
its proper delivery and receipt and the carrier discharged of its responsibility
therefor. Rather, by its inaction, [petitioner] was guilty of bad faith. Once it had
received the notice of arrival of the carrier in port, it was incumbent on consignee
to put wheels in motion in order that the shipment could be delivered to it. The
inaction of [petitioner] would only indicate that it had no intention of taking
delivery except at its own convenience thus preventing carrier from taking on other
shipments and from leaving port. Such unexplained and unbusiness-like delay
 smacks highly of bad faith on the part of [petitioner] rather than of the [respondent].
(Words in bracket, added).

Appealing to the CA, whereat its recourse was docketed as CA-G.R. CV No. 18349,
petitioner contended that the trial court erred in (1) holding it liable for demurrage, (2) dismissing
its counterclaim, and (3) awarding exemplary damages and attorneys fees to respondent.

As stated at the outset, however, the CA, in its assailed Decision dated January 8,
1998,328[5] affirmed in toto the judgment of the trial court.

Undaunted, petitioner is now with this Court via the present recourse, imputing to the CA
the following errors:

A. xxx in concluding that it [petitioner] was the one at fault in not

withdrawing its cargo from the container vans in which the goods were originally
shipped despite documentary evidence and written admissions of private
respondent to the contrary.

B. xxx in affirming the trial courts order for the recomputation of the
judgment award in accordance with Article 1250 of the Civil Code contrary to
existing jurisprudence and without any evidence at all to support it.329[6]

The petition is partly meritorious.

 It is undisputed that the goods subject of petitioners counterclaim and covered by seven (7)
B/Ls with Shippers Reference Nos. S-16844, S-16846, S-16848, S-17748, S-17750, S-17749 and
S-17751330[7] were loaded for shipment to Manila on respondents vessels in container vans on a
House/House Containers-Shippers Load, Stowage and Count basis. This shipping arrangement
means that the shipping companys container vans are to be brought to the shipper for loading of
its goods; that from the shippers warehouse, the goods in container vans are brought to the shipping
company for shipment; that the shipping company, upon arrival of its ship at the port of destination,
is to deliver the container vans to the consignees compound or warehouse; and that the shipper
(consignee) is supposed to load, stow and count the goods from the container van.331[8] Likewise
undisputed is the fact that the container vans containing the goods covered by three (3) of the
aforesaid B/Ls, particularly those with Shippers Reference Nos. S-17748, S-17750 and S-
17751,332[9] were delivered to a warehouse, stripped of their contents and the contents deposited
thereat.333[10]

On the argument that the respondent, upon the foregoing undisputed facts, violated its
contractual obligation to deliver when, instead of delivering the goods to the petitioner as
consignee thereof, it deposited the same in bonded warehouse/s, petitioner would now score the
CA for finding it at fault for non-withdrawal of its cargo from the container vans within the 10-
day free demurrage period. Pressing the point, petitioner argues that, since the CA drew an
erroneous conclusion from an undisputed set of facts, petitioner now asserts that the matter of who
is at fault - its first assigned error - could be treated as a legal issue and not a question of fact.

After careful consideration, the Court sustain the CAs stance faulting the petitioner for not
taking delivery of its cargo from the container vans within the 10-day free period, an inaction
which led respondent to deposit the same in warehouse/s.
 It may be that, when the relevant facts are undisputed, the question of whether or not the
conclusion deduced therefrom by the CA is correct is a question of law properly cognizable by
this Court.334[11] However, it has also been held that all doubts as to the correctness of such
conclusions will be resolved in favor of the disposing court.335[12] So it must be in this case.

At any rate, the Court finds that petitioners first contention raises a question of fact rather
than of law. And settled is the rule that factual findings of the CA, particularly those confirmatory
of that of the trial court, as here, are binding on this Court,336[13] save for the most compelling
of reasons, like when they are reached arbitrarily.337[14]

As it were, however, the conclusion of the CA on who contextually is the erring party was
not exactly drawn from a vacuum, supported as such conclusion is by the records of the case. What
the CA wrote with some measure of logic commends itself for concurrence:

However, ... We find that [petitioner] was the one at fault in not withdrawing
its cargo from the containers wherein the goods were shipped within the ten (10)-
day free period. Had it done so, then there would not have been any need of
depositing the cargo in a warehouse.
 It is incumbent upon the carrier to immediately advise the consignee of the
arrival of the goods for if it does not, it continues to be liable for the same until the
consignee has had reasonable opportunity to remove them.

Sound business practice dictates that the consignee, upon notification of the
arrival of the goods, should immediately get the cargo from the carrier especially
since it has need of it. xxx.

Appellant tries to shift the blame on the [respondent] by stating that it was
not informed beforehand of the latters intention to deliver the goods to a warehouse.
It likewise alleges that it does not know where to contact [respondent] for it argues
that the person manning the latters office would only hold office for a few hours, if
not always out. But had it taken the necessary steps of inquiring for the address of
[respondent] from the proper government offices, then it would have succeeded in
finding the latters address.

Judging from the [petitioners] way of conducting business in the past, We

come to the conclusion that it is used to paying demurrage charges. Exhibits H and
I are certainly proofs of appellants practice of not getting its cargo from the carrier
immediately upon notification of the goods arrival. 338[15] (Words in bracket
added.)

It cannot be over-emphasized that the container vans were stripped of their cargo with the
prior authorization of the Bureau of Customs. The trial court said as much, thus:

It is not disputed that [respondent] company did not [sic] in fact remove
these goods belonging to [petitioner] from its vans and deposited them in
warehouses. However, this was done by authority of the Bureau of Customs and
for that purpose, [respondent] addressed a letter-request to the Collector of
Customs, for permission to remove the goods of [petitioner] from its vans (Exhibit
L). The corresponding authority was granted by the Bureau of Customs to do so as
evidenced by a van permit (Exhibit M). In other words, while [respondent] admits
that it removed the goods of [petitioner] from its vans and deposited them in various
warehouses, there is no question that this was done by authority of the Bureau of
Customs which is the proper agency of the government charged with the
supervision and regulation of maritime commerce.
 Verily, the authority secured from the Bureau of Customs is indicative of the bona fides of
respondents intention. And as held below, the authority thus acquired relieved respondent of its
obligations under the B/Ls when it caused the containers to be stripped and the goods stored in
bonded warehouses.

Not lost on this Court is the fact that the B/Ls under which petitioner anchors its
counterclaim allow the goods carried to be delivered to bonded warehouses for the shippers and/or
consignees account if it does not take possession or delivery thereof as soon as they are at its
disposal for removal. Section 17 of the Regular Long Form Inward B/L of the respondent339[16]
which is incorporated by reference to the Short Form of B/L340[17] provides:

17. The carrier shall not be required to give any notification whatsoever
of arrival, discharge or any disposition of or action taken with respect to the goods,
even though the goods are consigned to order with provision for notice to a named
person.

The carrier or master may appoint a stevedore or any other persons to unload
and take delivery of the goods and such delivery from ship's tackle shall be
considered complete and all responsibility of the carrier shall then terminate.

It is agreed that when possession of the goods is received or taken by the

customs or other authorities or by any operator of any lighter, craft, or other
facilities whether selected by the carrier or master, shipper of consignee, whether
public or private, such authority or person shall be considered as having received
possession and delivery of the goods solely as agent of and on behalf of the shipper
and consignee, . Also if the consignee does not take possession or delivery of the
goods as soon as the goods are at the disposal of the consignee for removal, the
goods shall be at their own risk and expense, delivery shall be considered
complete and the carrier may, subject to carrier's liens, send the goods to store,
 warehouse, put them on lighters or other craft, put them in possession of
authorities, dump, permit to lie where landed or otherwise dispose of them,
always at the risk and expense of the goods, and the shipper and consignee shall
pay and indemnify the carrier for any loss, damage, fine, charge or expense
whatsoever suffered or incurred in so dealing with or disposing of the goods, or by
reason of the consignee's failure or delay in taking possession and delivery as
provided herein. (Emphasis Ours)

On the second issue raised, the Court finds as erroneous the trial courts decision, as
affirmed by the CA, for the recomputation of the judgment award as of the date of payment in
accordance with Article 1250 of the Civil Code.

In calling for the application of the aforementioned provision, respondent urged that
judicial notice be taken of the succeeding devaluations of the peso vis--vis the US dollar since the
time the proceedings began in 1981. According to respondent, the computation of the amount thus
due from the petitioner should factor in such peso devaluations.341[18]

Article 1250 of the Civil Code states:

In case an extraordinary inflation or deflation of the currency stipulated

should supervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an agreement to the
contrary.

Extraordinary inflation or deflation, as the case may be, exists when there is an unusual
increase or decrease in the purchasing power of the Philippine peso which is beyond the common
fluctuation in the value of said currency, and such increase or decrease could not have been
reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation.342[19] Extraordinary inflation can never be assumed; he who
alleges the existence of such phenomenon must prove the same.343[20]

The Court holds that there has been no extraordinary inflation within the meaning of Article
1250 of the Civil Code. Accordingly, there is no plausible reason for ordering the payment of an
obligation in an amount different from what has been agreed upon because of the purported
supervention of extraordinary inflation.

As it were, respondent was unable to prove the occurrence of extraordinary inflation since
it filed its complaint in 1981. Indeed, the record is bereft of any evidence, documentary or
testimonial, that inflation, nay, an extraordinary one, existed. Even if the price index of goods and
services may have risen during the intervening period,344[21] this increase, without more, cannot
be considered as resulting to extraordinary inflation as to justify the application of Article 1250.
The erosion of the value of the Philippine peso in the past three or four decades, starting in the
mid-sixties, is, as the Court observed in Singson vs. Caltex (Phil), Inc., 345[22] characteristics of
most currencies. And while the Court may take judicial notice of the decline in the purchasing
power of the Philippine currency in that span of time, such downward trend of the peso cannot be
considered as the extraordinary phenomenon contemplated by Article 1250 of the Civil Code.
Furthermore, absent an official pronouncement or declaration by competent authorities of the
existence of extraordinary inflation during a given period, as here, the effects of extraordinary
inflation, if that be the case, are not to be applied.

Lest it be overlooked, Article 1250 of the Code, as couched, clearly provides that the value
of the peso at the time of the establishment of the obligation shall control and be the basis of
payment of the contractual obligation, unless there is agreement to the contrary. It is only when
there is a contrary agreement that extraordinary inflation will make the value of the currency at the
time of payment, not at the time of the establishment of obligation, the basis for payment.346[23]
The Court, in Mobil Oil Philippines, Inc. vs. Court of Appeals and Fernando A. Pedrosa,347[24]
formulated the same rule in the following wise:

In other words, an agreement is needed for the effects of an extraordinary inflation

to be taken into account to alter the value of the currency at the time of the
establishment of the obligation which, as a rule, is always the determinative
element, to be varied by agreement that would find reason only in the supervention
of extraordinary inflation or deflation.

To be sure, neither the trial court, the CA nor respondent has pointed to any
provision of the covering B/Ls whence respondent sourced its contractual right under the premises
where the defining agreement to the contrary is set forth. Needless to stress, the Court sees no need
to speculate as to the existence of such agreement, the burden of proof on this regard being on
respondent.
 WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED with the
MODIFICATION that the order for recomputation as of the date of payment in accordance with
the provisions of Article 1250 of the Civil Code is deleted.

Costs against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

B.E. SAN DIEGO, INC., G.R. No. 169501

Petitioner,

Present:

QUISUMBING, J., Chairperson,

- versus - CARPIO,

CARPIO MORALES,
 TINGA, and

VELASCO, JR., JJ.

Promulgated:

ROSARIO T. ALZUL,

Respondent. June 8, 2007

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

DECISION

VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari348[1] under Rule 45 questions the February 18,
2005 Decision349[2] of the Court of Appeals (CA) in CA-G.R. SP No. 81341, which granted
respondent Alzul the right to pay the balance of the purchase price within five (5) days from receipt
of the CA Decision despite the lapse of the original period given to said party through the final
Resolution of this Court in an earlier case. The CA ruling reversed the September 18, 2003
Resolution350[3] and December 2, 2003 Order351[4] of the Office of the President (OP) in O.P.
Case No. 01-1-097, which upheld the dismissal of respondent Alzuls complaint for consignation
and specific performance before the Housing and Land Use Regulatory Board (HLURB) in
HLURB Case No. REM-A-99097-0167. Likewise challenged is the August 31, 2005 CA
Resolution352[5] rejecting petitioners Motion for Reconsideration.

The Facts

The facts culled by the CA are as follows:

On February 10, 1975, [respondent] Rosario T. Alzul purchased from

[petitioner] B.E. San Diego, Inc. four (4) subdivision lots with an aggregate
area of 1,275 square meters located at Aurora Subdivision, Maysilo,
Malabon. These lots, which are now subject of this petition, were bought
through installment under Contract to Sell No. 867 at One Hundred Pesos
(₧100.00) per square meter, with a downpayment [sic] of Twelve
Thousand Seven Hundred Fifty Pesos (₧12,750.00), and monthly
installments of One Thousand Two Hundred Forty-Nine Pesos
(₧1,249.50). The interest agreed upon was 12 percent (12%) per annum
until fully paid, thus, the total purchase price was Two Hundred Thirty
Seven Thousand Six Hundred Sixty Pesos (₧237,660.00).

[Respondent] took immediate possession of the subject property,

setting up a perimeter fence and constructing a house thereon.

On July 25, 1977, [respondent] signed a Conditional Deed of

Assignment and Transfer of Rights which assigned to a certain Wilson P.
Yu her rights under the Contract to Sell. [Petitioner] was notified of the
execution of such deed. Later on, the Contract to Sell in [respondents] name
was cancelled, and [petitioner] issued a new one in favor of Yu although it
was also denominated as Contract to Sell No. 867.

On July 4, 1979, [respondent] informed [petitioner] about Yus failure

and refusal to pay the amounts due under the conditional deed. She also
manifested that she would be the one to pay the installments due to
respondent on account of Yus default.

On August 25, 1980, [respondent] commenced an action for rescission

of the conditional deed of assignment against Yu before the Regional Trial
Court of Caloocan City. Subsequently, on September 30, 1985, [respondent]
caused the annotation of notices of lis pendens on the titles covering the
subject lots.

The trial court ruled in [respondents] favor in the rescission case. The
decision was even affirmed by this [appellate] Court. Yu brought his cause
before the Supreme Court in a Petition for Review, but this was likewise
denied.
On February 17, 1989, [petitioner] notified [respondent] that Contract
to Sell No. 867 was declared rescinded and cancelled. On April 28, 1989,
the subject lots were sold to spouses Carlos and Sandra Ventura who were
allegedly surprised to find the annotation of lis pendens in their owners
duplicate title.

On May 8, 1990, the Ventura spouses filed an action for Quieting of

Title with Prayer for Cancellation of Annotation and Damages before the
Regional Trial Court of Malabon. The trial court ruled in favor of the
Ventura spouses. On appeal before this [appellate] Court, however, the
decision was reversed on November 27, 1992, as follows:

WHEREFORE, the appealed decision is hereby REVERSED

and SET ASIDE, and the complaint therein is ordered dismissed.
Transfer Certificates of Title Nos. N-1922, N-1923, N-1924, and
N-1925, all of the Register of Deeds of Metro Manila, District III,
Malabon Branch, in the names of plaintiffs-appellees Carlos N.
Ventura and Sandra L. Ventura are hereby declared null and void,
and the titles of ownership reinstated in the name of B.E. San
Diego, Inc. with the corresponding notices of lis pendens therein
annotated in favor of defendant-appellant until such time that
ownership of the subject parcels of land is transferred to herein
 defendant-appellant Rosario Alzul. Costs against plaintiff-
appellees.

SO ORDERED.

Upon filing of an appeal to the Supreme Court docketed as GR No.

109078, the above decision was affirmed on December 26, 1995. A motion
for reconsideration was filed, but this was denied by the Highest Tribunal
on February 5, 1996.

On June 17, 1996, a resolution was issued by the Supreme Court,

ordering, as follows:

We, however, agree with the observation made by movants that

no time limit was set by the respondent Court of Appeals in its
assailed Decision for the private respondent herein, Rosario Alzul,
to pay B.E. San Diego, Inc. the original owner of the properties in
litigation. To rectify such oversight, private respondent Rosario
T. Alzul is hereby given a non-extendible period of thirty (30)
days from entry of judgment, within which to make full
payment for the properties in question. xxx (Emphasis
supplied.)

On July 12, 1996, an Entry of Judgment was issued. In an attempt to

comply with the Supreme Courts directive, herein [respondent] tried to
serve payment upon [petitioner] on August 29, 1996, August 30, 1996 and
September 28, 1996. On all these dates, however, [petitioner] allegedly
refused to accept payment from [respondent].

On November 11, 1996, [respondent] filed a Manifestation in GR No.

109078 informing the Supreme Court that [petitioner], on three (3)
occasions, refused to accept [her] payment of the balance in the amount of
₧187,380.00. On January 29, 1997, a Resolution was issued by the
Supreme Court referring the case to the court of origin for appropriate
action, on account of [respondents] manifestation.

On October 21, 1997, [respondents] counsel wrote a letter to

[petitioner] citing the latters refusal to accept her payment on several
occasions. It was also mentioned therein that due to its refusal, [respondent]
would just consign the balance due to [petitioner] before the proper judicial
authority.
 On January 14, 1998, a reply was sent by [petitioner] through a certain
Flora San Diego. [Respondents] request was rejected on account of the
following:

1. We have long legally rescinded the sale in her favor in view of her
failure to pay the monthly amortization as per contract.

2. She sold her rights to Mr. Wilson Yu who failed to pay his monthly
amortizations, too.

3. We are not and have never been a part of the case you are alluding to
hence we cannot be bound by the same.

4. The property in question is now under process to be reconveyed to us as

ordered by the court by virtue of a compromised (sic) agreement entered
into in Civil Case No. 2655 MN of the Malabon RTC Branch entitled
Spouses Carlos Ventura and Sandra Ventura vs. B.E. San Diego, Inc. xxx

Thinking that an action for consignation alone would not be sufficient

to allow for the execution of a final judgment in her favor, [respondent]
decided to file an action for consignation and specific performance against
[petitioner] before the Housing and Land Use Regulatory Board on March
12, 1998. The complaint, docketed as REM-031298-10039, prayed that a)
[respondent] be considered to have fully paid the total purchase price of the
subject properties; b) TCT Nos. N-155545 to 48 which were declared void
in CA GR No. L-109078 be cancelled; c) new certificates of title over the
subject properties be issued in the name of [respondent]; and d) [petitioner]
be ordered to reimburse [respondent] the sum of Fifty Thousand Pesos
(₧50,000.00) as attorneys fees and litigation expenses.

On July 12, 1999, a decision was rendered by the HLURB through

Housing and Land Use Arbiter Dunstan T. San Vicente. It was held, thus:

The purported consignation in this case is thus of no moment,

inasmuch as the amount allegedly due was not even deposited or
placed at the disposal of this Office by the complainant.

In any event, we agree with [petitioner] that even if the

complainant had actually made the consignation of the amount,
such consignation is still ineffective and void for having been done
long after the expiration of the non-extendible period set forth in
the 17 June 1996 Supreme Court Resolution that expired on 20
September 1996.
 WHEREFORE, Premises Considered, a judgment is hereby
rendered DISMISSING the complaint. Cost against complainant.

IT (sic) SO ORDERED.

Aggrieved by the above decision, [respondent] filed a Petition for

Review before the HLURBs First Division. On March 17, 2000, a decision
was rendered dismissing the petition for lack of merit, and affirming the
decision dated July 12, 1999. [Respondent] filed a Motion for
Reconsideration, but this was denied on July 31, 2001.

[Respondent] then filed an appeal to the Office of the President. This

was, however, dismissed on June 2, 2003 for having been filed out of time.
Again, [respondent] moved for its reconsideration. On September 18, 2003,
the Office of the President gave due course to [respondents] motion, and
resolved the motion according to its merits. The single question resolved
was whether or not [respondents] offer of consignation was correctly denied
by the HLURB. Said office ruled in the affirmative, and We quote:

From the foregoing, it is evident that there was no valid

consignation of the balance of the purchase price. The 30-day non-
extendible period set forth in the 17 June 1996 resolution had
already expired on 20 September 1996. The HLURB is therefore
justified in refusing the consignation, otherwise it would be
accused of extending the period beyond that provided by the
Supreme Court. A valid consignation is effected when there is an
actual consignation of the amount due within the prescribed period
(St. Dominic Corporation vs. Intermediate Appellate Court, 138
SCRA 242). x x x

WHEREFORE, premises considered, the appeal is hereby

DISMISSED for lack of merit. x x x

[Respondent] filed a Motion for Reconsideration [of] the above

Resolution, but this was denied with finality on December 2, 2003.353[6]
 The Ruling of the Court of Appeals

Respondent Alzul brought before the CA a petition for certiorari docketed as CA-G.R. SP
No. 67637, ascribing grave abuse of discretion to the OP in dismissing her appeal in O.P. Case
No. 01-1-097 and affirming the March 17, 2000 Decision354[7] and July 31, 2001
Resolution355[8] of the HLURB First Division in HLURB Case No. REM-A-990907-0167.

On February 18, 2005, the CA rendered its assailed Decision reversing the September 18,
2003 Resolution and December 2, 2003 Order of the OP, the fallo of which reads:

WHEREFORE, in the higher interest of justice, the assailed Decision,

Resolution and Order dated March 17, 2000, September 18, 2003 and
December 2, 2003, respectively, are hereby REVERSED and SET ASIDE.
Accordingly, [respondent Alzul] is hereby ordered to pay [petitioner B.E.
San Diego, Inc.] the balance due for the sale of the subject four parcels of
land within five (5) days from receipt of this decision. [Petitioner B.E. San
Diego, Inc.], on the other hand, is ordered to accept such payment from
[respondent Alzul], after which, the corresponding Deed of Sale must be
issued.

SO ORDERED.356[9]

The CA agreed with the HLURB that no valid consignation was made by respondent but
found that justice would be better served by allowing respondent Alzul to effect the
consignation, albeit belatedly. It cited the respondents right over the disputed lots as confirmed
by this Court in G.R. No. 109078, which, if taken away on account of the delay in completing
the payment, would amount to a grave injustice.

Moreover, the CA pointed out that respondents counsel concededly lacked the vigilance
and competence in defending his clients right when he failed to consign the balance on time;
nonetheless, such may be disregarded in the interest of justice. It considered the failure of
respondents counsel to avail of the remedy of consignation as a procedural lapse, citing the
principle that where a rigid application of the rules will result in a manifest failure or miscarriage
of justice, technicalities can be ignored.

A copy of the February 18, 2005 CA Decision was received by respondent Alzul through
her counsel on February 24, 2005.

On March 4, 2005, respondent filed a Compliance and Motion for Extension of Time to
Comply with the Decision of the [CA]357[10] praying that she be given an extension of ten (10)
days or from March 2 to 11, 2005 to comply with the CA Decision. On the other hand, on March
8, 2005, petitioner filed its Motion for Reconsideration with Opposition to Petitioners Motion for
Extension of Time to Comply with the Decision of the [CA].358[11]

Through its assailed August 31, 2005 Resolution, the CA denied petitioners Motion for
Reconsideration, and finding that respondent duly exerted efforts to comply with its Decision
and a valid consignation was made by respondent, it granted the requested 10-day extension of
time to comply with the February 18, 2005 Decision and her motion for consignation. The fallo
of said Resolution reads:

IN VIEW OF THE FOREGOING, the motion for extension to

comply with the Decision is hereby GRANTED, the motion for
reconsideration is DENIED and the motion for consignation is
GRANTED. [Petitioner] B.E. San Diego, Inc. is hereby ordered to receive
the payment of [respondent] Rosario T. Alzul and to issue, in her favor, the
corresponding Deed of Sale.359[12]

The Issues

Hence, before us is the instant petition with the following issues:

1. Whether or not the Court of Appeals, in issuing the assailed 18

February 2005 Decision and 31 August 2005 Resolution in CA-G.R. SP No.
81341, has decided questions of law in a way not in accord with law and with
the applicable decisions of the Honorable Court;

2. Whether or not the Court of Appeals committed patent grave abuse of

discretion and/or acted without or in excess of jurisdiction in granting
respondent Alzuls subsequent motion for extension of time to comply with
the 18 February 2005 decision and motion for consignation; and

3. Whether or not the 18 February 2005 Decision and 31 August 2005

Resolution of the Court of Appeals in CA-G.R. SP No. 81341 ought to be
annulled and set aside, for being contrary to law and jurisprudence.360[13]
 The Courts Ruling

On the procedural issue, petitioner B.E. San Diego, Inc. assails the sufficiency of
respondent Alzuls CA petition as the latter, in violation of the rules, allegedly lacked the
essential and relevant pleadings filed with the HLURB and the OP.

Section 6 of Rule 43, 1997 Rules of Civil Procedure pertinently provides:

SEC. 6. Contents of the petition.The petition for review shall x x x (c)

be accompanied by a clearly legible duplicate original or a certified true
copy of the award, judgment, final order or resolution appealed from,
together with certified true copies of such material portions of the
record referred to therein and other supporting papers; x x x (Emphasis
supplied.)

The above proviso explicitly requires the following to be appended to a petition: 1)

clearly legible duplicate original or a certified true copy of the award, judgment, final order, or
resolution appealed from; 2) certified true copies of such material portions of the record referred
to in the petition; and 3) other supporting papers.

Obviously, the main reason for the prescribed attachments is to facilitate the review and
evaluation of the petition by making readily available to the CA all the orders, resolutions,
decisions, pleadings, transcripts, documents, and pieces of evidence that are material and
relevant to the issues presented in the petition without relying on the case records of the lower
court. The rule is the reviewing court can determine the merits of the petition solely on the basis
of the submissions by the parties361[14] without the use of the records of the court a quo. It is a
fact that it takes several months before the records are elevated to the higher court, thus the
resulting delay in the review of the petition. The attachment of all essential and necessary papers
and documents is mandatory; otherwise, the petition can be rejected outright under Sec. 7 of
Rule 43 of the Rules of Court, which provides:

Effect of failure to comply with requirements.The failure of the

petitioner to comply with any of the foregoing requirements regarding the
payment of the docket and other lawful fees, the deposit for costs, proof of
service of the petition, and the contents of and the documents which should
accompany the petition shall be sufficient ground for the dismissal thereof.

To prevent premature dismissals, the requirements under Sec. 6 on the contents of the
petition have to be elucidated.

First, there can be no question that only the award, judgment, or final order or resolution
issued by the lower court or agency and appealed from has to be certified as true.

The second set of attachments refers to the certified true copies of such material portions
of the record referred to therein.

Material is defined as important; more or less necessary; having influence or effect; going
to the merits; having to do with matter, as distinguished from form.362[15] Thus, material portions
of the records are those parts of the records that are relevant and directly bear on the issues and
arguments raised and discussed in the petition. They may include any of the pleadings that are
subject of any issue, documentary evidence, transcripts of testimonial evidence, and parts of the
records pertinent and relevant to the grounds supporting the petition. The attachment of the
material portions is subject to the qualification that these are referred to or cited in the petition.
Thus, only the material parts specified in the petition have to be appended and that would be
sufficient compliance with the rule as to form.

It would be prudent however for the petitioner to attach all parts of the records which are
relevant, necessary, or important in whatever way to be able to reach the resolution of the issues
of the petition. The availability of such documents to the ponente and members of a Division can
easily provide the substance and support to the merits of the grounds put forward by the petitioner.
Moreover, the processing time for the review and resolution of the petition is greatly abbreviated,
thereby obviating intolerable delays.

Lastly, it has to be explained whether the material portions of the records have to be
certified as true by the clerk of court or his/her duly authorized representative as provided in Sec.
6 of Rule 43. If strictly required, the rule to require attachment of certified true copies of the
material portions will surely make the preparation of the petition more tedious, cumbersome, and
expensive. It should therefore be construed that merely clear and legible copies of the material
portions will suffice. The rules on the different modes of appeal from the lower courts or quasi-
judicial agencies to the CA reveal that it is only Rule 43 that specifically states that the material
portions to be appended to the petition should be certified true copies. Rule 41 of course does not
require attachment of the pertinent records since the entire records are elevated to the CA. Rule 42
on petition for review from the trial court in aid of its appellate jurisdiction to the CA speaks of
plain copies of the material portions of the record as would support the allegations of the
petition.363[16] Even Rule 45 on appeal by certiorari from the CA to this Court simply speaks of
material portions of the records without indicating that these should be certified true copies. Rule
46 on original cases to this Court only requires plain copies of the material portions of the records.
Finally, Rule 65 on special civil actions requires only copies of relevant and pertinent pleadings
and documents.

From the foregoing premises, the inescapable conclusion is that only plain and clear copies
of the material portions of the records are required under Sec. 3 of Rule 43. This finding is
buttressed by our ruling in Cadayona v. CA, where it was held that only judgments or final orders
of the lower courts are needed to be certified true copies or duplicate originals.364[17] There is no
plausible reason why a different treatment or stricter requirement should be applied to petitions
under Rule 43.

The last requirement is the attachment of other supporting papers. Again, it is only in Rule
43 that we encounter the requirement of annexing supporting papers to the petition. This can be
interpreted to mean other documents, pictures, and pieces of evidence not forming parts of the
records of the lower court or agency that can bolster and shore up the petition. While not so
specified in Sec. 3 of Rule 43, it is inarguable that said papers must also be relevant and material
to the petition; otherwise, the attachments would be mere surplusages and devoid of use and value.

Petitioner claims respondents petition in CA-G.R. SP No. 81341 failed to attach material
documents of the records of the HLURB and the OP. They cry foul that none of the pleadings filed
with the HLURB and the OP found their way into the CA petition. It prays that the CA petition
should have been dismissed under Sec. 7 of Rule 43 due to the lack of needed attachments.

Petitioners postulation must fail.

Sec. 7 of Rule 43 does not prescribe outright rejection of the petition if it is not
accompanied by the required documents but simply gives the discretion to the CA to determine
whether such breach constitutes a sufficient ground for dismissal. Apparently, petitioner was not
able to convince the CA that the alleged missing attachments deprived said court of the full
opportunity and facility in examining and resolving the petition. It has not been satisfactorily
shown that the pleadings filed by petitioner with the quasi-judicial agencies have material bearing
or importance to the CA petition. Such pleadings could have been attached to the comment of
respondent and hence, no prejudice would be suffered. Thus, the CA did not exercise its discretion
in an arbitrary or oppressive manner by giving due course to the petition.

In addition, it was noted in Cusi-Hernandez v. Diaz that the CA Revised Internal Rules
provide certain flexibility in the submission of additional documents:

When a petition does not have the complete annexes or the required
number of copies, the Chief of the Judicial Records Division shall require the
petitioner to complete the annexes or file the necessary number of copies of
the petition before docketing the case. Pleadings improperly filed in court
shall be returned to the sender by the Chief of the Judicial Records
Division.365[18]
 In Rosa Yap Paras, et al. v. Judge Ismael O. Baldado, et al., the Court preferred the
determination of cases on the merits over technicality or procedural imperfections so that the ends
of justice would be served better, thus:

At the same time, the Rules of Court encourage a reading of the

procedural requirements in a manner that will help secure and not defeat
justice. Thus:

Section 6. Construction.These Rules shall be liberally construed

in order to promote their objective of securing a just, speedy and
inexpensive disposition of every action and proceeding.

As expressed in Alberto vs. Court of Appeals, (w)hat should guide

judicial action is the principle that a party-litigant is to be given the fullest
opportunity to establish the merits of his complaint or defense rather than for
him to lose life, liberty, honor or property on technicalities. x x x (T)he rules
of procedure should be viewed as mere tools designed to facilitate the
attainment of justice. Their strict and rigid application, which would result in
technicalities that tend to frustrate rather than promote substantial justice,
must always be eschewed.366[19]

Now we will address the main issuewhether respondent Alzul is still entitled to
consignation despite the lapse of the period provided by the Court in G.R. No. 109078 entitled Yu
v. Court of Appeals.
 Petitioner stresses the fact that respondent Alzul did not comply with this Courts June 17,
1996 Resolution367[20] which gave a non-extendible period of thirty (30) days from entry of
judgment within which to make full payment for the subject properties. The entry of judgment
shows that the December 26, 1995 Resolution368[21] in G.R. No. 109078 became final and
executory on July 2, 1996. Respondent Alzul received through counsel a copy of the entry of
judgment on August 21, 1996. Thus, respondent had until September 20, 1996 within which to
make the full payment.

After three (3) unsuccessful tenders of payment, respondent Alzul made no consignation
of the amount to the court of origin. It was only on March 12, 1998 or about a year and a half later
that respondent offered to consign said amount in an action for consignment before the HLURB.
Relying on the case of St. Dominic Corporation v. Intermediate Appellate Court,369[22] petitioner
strongly asserts that upon its refusal to accept the tendered payment, respondent ought to have
consigned it with the court of origin also within the 30-day period or within a reasonable time
thereafter. Respondent failed to do this as she waited for a year and a half before instituting the
instant action for specific performance and consignment before the HLURB.

Moreover, petitioner argues that respondents delay of a year and a half to pursue full
payment must be regarded as a waiver on her part to claim whatever residual remedies she might
still have for the enforcement of the June 17, 1996 Resolution in G.R. No. 109078.
 Petitioner further contends that even if the action before the HLURB was made on time,
that is, within the 30-day period, still it is fatally defective as respondent did not deposit any
amount with the HLURB which violated the rules for consignment which require actual deposit
of the amount allegedly due with the proper judicial authority.

Premised upon these considerations, petitioner faults the appellate court for its grant of
respondents petition for review which nullified the denial by the HLURB Arbiter, HLURB First
Division, and the OP of respondents action.

On the other hand, respondent contends that the June 17, 1996 Resolution of this Court
should not be construed against her inability to effect payment due to the obstinate and unjust
refusal by petitionera supervening circumstance beyond her control. Respondent underscores that
within the 30-day period, she repeatedly attempted to effect the payment to no avail. Moreover,
the much delayed response of petitioner embodied in its January 14, 1998 letter370[23] confirming
its refusal was based on untenable, baseless, and contrived grounds.

Moreover, she argues that the December 26, 1995 Resolution in G.R. No. 109078 granting
her proprietary rights over the subject lots has long become final and executory.
 Anent the issue of laches and estoppel, respondent strongly contends that such do not apply
in the instant case as incontrovertible circumstances show that she has relentlessly pursued the
protection and enforcement of her rights over the disputed lots for over a quarter of a century.

After a careful study of the factual milieu, applicable laws, and jurisprudence, we find the
petition meritorious.

Respondent Alzul was accorded legal rights over subject properties

In G.R. No. 109078, finding no reversible error on the part of the CA, we denied Wilson
P. Yus petition and affirmed the appellate courts ruling that as between Wilson P. Yu, the Ventura
spouses, petitioner B.E. San Diego, Inc., and respondent Alzul, respondent has inchoate
proprietary rights over the disputed lots. We upheld the CA ruling declaring as null and void
the titles issued in the name of the Ventura spouses and reinstating them in the name of B.E.
San Diego, Inc., with the corresponding notices of lis pendens annotated on them in favor of
respondent until such time that ownership of the subject parcels of land is transferred to
respondent Rosario Alzul.
 It is thus clear that we accorded respondent Alzul expectant rights over the disputed
lots, but such is conditioned on the payment of the balance of the purchase price. Having been
conceded such rights, respondent had the obligation to pay the remaining balance to vest absolute
title and rights of ownership in his name over the subject properties.

In our June 17, 1996 Resolution, we clearly specified thirty (30) days from entry of
judgment for respondent to promptly effect the full payment of the balance of the purchase price
for the subject properties, thus:

We however agree with the observation made by movants that no time

limit was set by the respondent Court of Appeals in its assailed Decision
for the private respondent herein, Rosario Alzul, to pay B.E. San Diego, Inc.,
the original owner of the properties in litigation. To rectify such oversight,
private respondent Rosario T. Alzul is hereby given a non-extendible
period of thirty (30) days from entry of judgment, within which to make
full payment for the properties in question.371[24] (Emphasis supplied.)

The non-compliance with our June 17, 1996 Resolution is fatal to respondent Alzuls action
for consignation and specific performance
 Unfortunately, respondent failed to effect such full payment of the balance of the purchase
price for the subject properties.

No consignation within the 30-day period or at a reasonable time thereafter

It is clear as day that respondent did not attempt nor pursue consignation within the 30-day
period given to her in accordance with the prescribed legal procedure. She received a copy of the
entry of judgment on August 21, 1996 and had 30 days or until September 20, 1996 to pay the
balance of the purchase price to petitioner. She made a tender of payment on August 29, 1996,
August 30, 1996, and September 28, 1996, all of which were refused by petitioner possibly because
the latter is of the view that it is not bound by the November 27, 1992 Decision in CA-G.R. CV
No. 33619 nor the December 26, 1995 Resolution in G.R. No. 109078, and the fact that respondent
has forfeited her rights to the lots because of her failure to pay the monthly amortizations.

It must be borne in mind however that a mere tender of payment is not enough to extinguish
an obligation. In Meat Packing Corporation of the Philippines v. Sandiganbayan, we distinguished
consignation from tender of payment and reiterated the rule that both must be validly done in order
to effect the extinguishment of the obligation, thus:

Consignation is the act of depositing the thing due with the court or
judicial authorities whenever the creditor cannot accept or refuses to accept
payment, and it generally requires a prior tender of payment. It should be
distinguished from tender of payment. Tender is the antecedent of
consignation, that is, an act preparatory to the consignation, which is the
principal, and from which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be extrajudicial,
while consignation is necessarily judicial, and the priority of the first is the
 attempt to make a private settlement before proceeding to the solemnities of
consignation. Tender and consignation, where validly made, produces the
effect of payment and extinguishes the obligation.372[25] (Emphasis
supplied.)

There is no dispute that a valid tender of payment had been made by respondent. Absent
however a valid consignation, mere tender will not suffice to extinguish her obligation and
consummate the acquisition of the subject properties.

In St. Dominic Corporation involving the payment of the installment balance for the
purchase of a lot similar to the case at bar, where a period has been judicially directed to effect the
payment, the Court held that a valid consignation is made when the amount is consigned with the
court within the required period or within a reasonable time thereafter. We ruled as follows:

First of all, the decision of the then Court of Appeals which was
promulgated on October 21, 1981, is quite clear when it ordered the payment
of the balance of the purchase price for the disputed lot within 60 days from
receipt hereof meaning from the receipt of the decision by the respondents. It
is an admitted fact that the respondents received a copy of the decision on
October 30, 1981. Hence, they had up to December 29, 1981 to make the
payment. Upon refusal by the petitioner to receive such payment, the
proper procedure was for the respondent to consign the same with the
court also within the 60-day period or within a reasonable time
thereafter.373[26] (Emphasis supplied.)
 The records also reveal that respondent failed to effect consignation within a reasonable
time after the 30-day period which expired on September 20, 1996. Instead of consigning the
amount with the court of origin, respondent filed her November 11, 1996 Manifestation informing
this Court of petitioners unjust refusal of the tender of payment. We acted favorably to it by issuing
our January 28, 1997 Resolution which ordered, thus:

Considering the manifestation, dated November 11, 1996, filed by

counsel for private respondent Rosario T. Alzul, stating that private
respondent tendered to B.E. San Diego, Inc. the payment of the sum of
P187,380.00 representing the balance of the purchase price of the properties
which are the subject of this litigation, but B.E. San Diego, Inc., refused to
accept the same, the Court resolved to REFER the case to the court of
origin, for appropriate action.374[27]

Respondent still failed to take the cue by her inaction to consign the amount with the court
of origin. Undoubtedly, pursuing the action for consignation on March 12, 1998 or over a year
after the Court issued its January 28, 1997 Resolution is way beyond a reasonable time thereafter.
Indeed, we have accorded respondent, through said Resolution, all the opportunity to pursue
consignation with the court of origin and yet, respondent failed to make a valid consignation. This
is already inexcusable neglect on the part of respondent.
No valid consignation made

We agree with petitioners assertion that even granting arguendo that the instant case for
consignation was instituted within the 30-day period or within a reasonable time thereafter, it
would still not accord respondent relief as no valid consignation was made. Certainly, the records
show that there was no valid consignation made by respondent before the HLURB as she did not
deposit the amount with the quasi-judicial body as required by law and the rules.

Pertinently, the first paragraph of Article 1258 of the Civil Code provides that
[c]onsignation shall be made by depositing the things due at the disposal of judicial authority,
before whom the tender of payment shall be proved, in a proper case, and the announcement of
the consignation in other cases (emphasis supplied).

It is true enough that respondent tendered payment to petitioner three (3) times through a
Solidbank Managers Check No. 1146 in the amount of PhP 187,380375[28] on August 29 and 30,
1996 and September 28, 1996. It is true likewise that petitioner refused to accept it but not without
good reasons. Petitioner was not impleaded as a party by the Ventura spouses in the Malabon City
RTC case for quieting of title against Wilson Yu nor in the appealed case to the CA nor in G.R.
No. 109078.

Petitioner is of the view that there was no jurisdiction acquired over its person and hence,
it is not bound by the final judgment and June 17, 1996 Resolution in G.R. No. 109078. Secondly,
petitioner believed that respondent Alzul has lost her rights over the subject lot by the rescission
of the sale in her favor due to the latters failure to pay the installments and also as a result of her
transferees failure to pay the agreed amortizations. And even in the face of the refusal by petitioner
to accept tender of payment, respondent is not left without a remedy. It is basic that consignation
is an available remedy, and respondent, with the aid of her counsel, could have easily availed of
such course of action sanctioned under the Civil Code.

Considering the tenor of our June 17, 1996 Resolution, respondent ought to have consigned
the amount with the court of origin within the non-extendible period of 30 days that was accorded
her or within a reasonable time thereafter.

As cited earlier, consignation is the act of depositing the thing due with the court or
judicial authorities whenever the creditor cannot accept or refuses to accept payment and it
generally requires a prior tender of payment.376[29] It is of no moment if the refusal to accept
payment be reasonable or not. Indeed, consignation is the remedy for an unjust refusal to accept
payment. The first paragraph of Art. 1256 of the Civil Code precisely provides that [i]f the
creditor to whom tender of payment has been made refuses without just cause to accept it, the
debtor shall be released from responsibility by the consignation of the thing or sum due
(emphasis supplied).

The proper and valid consignation of the amount due with the court of origin, which shall
judicially pronounce the validity of the consignation and declare the debtor to be released from
his/her responsibility, shall extinguish the corresponding obligation.
 Moreover, in order that consignation may be effective, the debtor must show that: (1)
there was a debt due; (2) the consignation of the obligation had been made because the creditor
to whom tender of payment was made refused to accept it, or because s/he was absent or
incapacitated, or because several persons claimed to be entitled to receive the amount due or
because the title to the obligation had been lost; (3) previous notice of the consignation had been
given to the person interested in the performance of the obligation; (4) the amount due was
placed at the disposal of the court; and (5) after the consignation had been made, the person
interested was notified of the action.377[30]

Respondent did not comply with the provisions of law particularly with the fourth and
fifth requirements specified above for a valid consignation. In her complaint for consignation and
specific performance, respondent only prayed that she be allowed to make the consignation
without placing or depositing the amount due at the disposal of the court of origin. Verily,
respondent made no valid consignation.

The rights of petitioner and respondent over the 1,275 square meter lot subject of this
petition will be determined by the significance and effects of the December 26, 1995 Resolution
rendered in G.R. No. 109078 entitled Yu v. Court of Appeals.378[31]

The subject matter of G.R. No. 109078 is the November 27, 1992 Decision rendered in
CA-G.R. CV No. 33619 entitled Carlos N. Ventura and Sandra L. Ventura v. Rosario T. Alzul, et
al., the fallo of which reads:
 WHEREFORE, the appealed decision is hereby REVERSED AND SET
ASIDE, and the complaint therein is ordered dismissed. Transfer Certificates
of Title Nos. N-1922, N-1923, N-1924, and N-1925, all of the Register of
Deeds of Metro Manila, District III, Malabon Branch, in the names of
plaintiffs-appellees Carlos N. Ventura and Sandra L. Ventura are hereby
declared null and void, and the titles of ownership reinstated in the name of
B.E. San Diego, Inc., with the corresponding notices of lis pendens therein
annotated in favor of defendant-appellant until such time that ownership of
the subject parcels of land is transferred to herein defendant-appellant
Rosario Alzul. Costs against plaintiff-appellees.

SO ORDERED.379[32]

On December 26, 1995, this Court issued the Resolution in G.R. No. 109078 wherein it
found no reversible error in the actions of the CA in its aforequoted disposition in CA-G.R. CV
No. 33619, and resolved to deny the petition for lack of merit. On February 5, 1996, this Court
denied with finality the Motion for Reconsideration filed by petitioner Wilson Yu.

However, on June 17, 1996, this Court, in resolving the Motion for Reconsideration of
private respondents Spouses Carlos and Sandra Ventura, granted respondent Alzul a non-
extendible period of thirty (30) days from entry of judgment, within which to make full payment
for the properties in question.380[33]
 The question iscan the Court, the CA, or the Malabon City RTC order petitioner B.E. San
Diego, Inc. to accept the tender of payment made by respondent Alzul?

Definitely, they cannot. The reason is that petitioner was not impleaded as a party in the
Malabon City RTC civil case, CA-G.R. CV No. 33619, nor in G.R. No. 109078 and hence is not
under the jurisdiction of said courts. What were determined and decided in the CA Decision in
CA-G.R. CV No. 33619 were the annulment of the titles of spouses Carlos and Sandra Ventura,
the reinstatement of said titles to the name of petitioner, and the declaration that the ownership of
the lots subject of said titles will be transferred to respondent. There is no directive to respondent
granting her the right to pay the balance of the price to petitioner and, more importantly, there is
no order for petitioner to accept the payment. The dispositive or fallo of the decision is what
actually constitutes the judgment or resolution of the court that can be the subject of execution.
Where there is a conflict between the dispositive portion of the decision and its body, the
dispositive portion controls irrespective of what appears in the body of the decision.381[34] Such
being the case, petitioner is not duty bound to accept any tender of payment from respondent
precisely because such diktat is absent in the fallo of the CA Decision which was affirmed by this
Court in its December 26, 1995 Resolution in G.R. No. 109078.

The lacuna in the CA Decision was sought to be corrected in its June 17, 1996 Resolution
in G.R. No. 109078 where respondent was given a non-extendible period of thirty (30) days from
entry of judgment, within which to make full payment for the properties in question. Pursuant to
this Resolution, what was established was the right of respondent to pay the balance of the purchase
price within 30 days. Again, the query iscan this Court, the CA, or the trial court compel petitioner
to accept the tender of payment from respondent?

The answer is no. The reason is obvious as jurisdiction was never acquired over the person
of petitioner. The action for quieting of title is characterized as quasi in rem. In Realty Sales
Enterprise, Inc. v. Intermediate Appellate Court, it was held that:

Suits to quiet title are not technically suits in rem, nor are they, strictly
speaking, in personam, but being against the person in respect of the res,
these proceedings are characterized as quasi in rem. (McDaniel v. McElvy,
108 So. 820 [1926].) The judgment in such proceedings is conclusive only
between the parties. (Emphasis supplied.)382[35]

Not being impleaded as a necessary or indispensable party, petitioner is not bound by the
dispositions in the CA Decision in CA-G.R. CV No. 33619 and the Resolutions of this Court in
G.R. No. 109078. Moreover, there is no explicit and clear directive for petitioner to accept the
payment of the balance of the price.

It is for this reason that respondent cannot ask for a writ of execution from the trial court
where the complaint was originally instituted as said court has no jurisdiction over the person of
petitioner. Even if a writ is issued, it should conform to the judgment, and the fallo of the CA
Decision does not impose the duty or obligation on the part of petitioner to accept the payment
from respondent. It is the settled doctrine that a writ of execution must conform to the judgment
and if it is different from or exceeds the terms of the judgment, then it is a nullity.383[36]

In addition, Sec. 10, Rule 39 provides the procedure for execution of judgments for specific
acts, thus:

Sec. 10. Execution of judgments for specific act.(a) Conveyance, delivery

of deeds, or other specific acts; vesting title.If a judgment directs a party to
execute a conveyance of land or personal property, or to deliver deeds or
other documents, or to perform any other specific act in connection therewith,
and the party fails to comply within the time specified, the court may direct
the act to be done at the cost of the disobedient party by some other person
appointed by the court and the act when so done shall have like effect as if
done by the party. If real or personal property is situated within the
Philippines, the court in lieu of directing a conveyance thereof may by an
order divest the title of any party and vest it in others, which shall have the
force and effect of a conveyance executed in due form of law.

The rule mentions the directive to a party. It is therefore essential that the person tasked to
perform the specific act is impleaded as a party to the case. Otherwise, the judgment cannot be
executed. In the case at bar, petitioner should have been impleaded as a party so as to compel it to
accept payment and execute the deed of sale over the disputed lots in favor of respondent. As
petitioner was not impleaded as a party, then the CA Decision in CA-G.R. CV No. 33619 as
affirmed in G.R. No. 109078 cannot be enforced against it.
 The cause of action available to respondent is to file an action for consignation against
petitioner which she did by registering a complaint for consignation before the HLURB on March
12, 1998. Unfortunately, it was filed way beyond the 30-day period which lapsed on September
20, 1996 or immediately thereafter. Because of the failure of respondent to effect payment to
petitioner within the 30-day period or soon thereafter, her rights to buy the disputed lots have been
forfeited, lost, and extinguished.

In St. Dominic Corporation, which is substantially similar to the case at bar, we explained
the procedure when a party is directed to pay the balance of the purchase price based on a court
decision, thus:

First of all, the decision of the then Court of Appeals which was
promulgated on October 21, 1981, is quite clear when it ordered the payment
of the balance of the purchase price for the disputed lot within 60 days from
receipt hereof, meaning from the receipt of the decision by the respondents.
It is an admitted fact that the respondents received a copy of the decision on
October 30, 1981. Hence, they had up to December 29, 1981 to make the
payment. Upon refusal by the petitioner to receive such payment, the proper
procedure was for the respondent to consign the same with the court also
within the 60-day period or within a reasonable time thereafter. The fact that
efforts were made by the petitioner to reach an agreement with the
respondents after the promulgation of the decision did not in anyway affect
the finality of the judgment. This was clearly emphasized in the order of the
appellate court on May 6, 1982.

Secondly, even if we reckon the 60-day period from the date of the
finality of the decision as interpreted by the appellate court, such finality
should be counted from March 5, 1982, which was the date the decision
became final as indicated in the entry of judgment and not from August 26,
1982 which is the date the entry was made. The date of a finality of a decision
is entirely distinct from the date of its entry and the delay in the latter does
 not affect the effectivity of the former as such is counted from the expiration
of the period to appeal.384[37] x x x

In the aforecited case, the lot owner was made a party to the case and the judgment of the
court was for the plaintiff to pay to the lot owner the balance of the purchase price within 60 days
from receipt of the Decision. Even assuming arguendo that petitioner B.E. San Diego, Inc., though
not a party in the complaint for quieting of title, can be compelled to receive the purchase price,
still, the refusal to receive the money requires respondent Alzul to follow the procedure in St.
Dominic Corporation and consign the money with the court of origin. Having failed in this respect,
respondents rights to the property have been forfeited as a result of non-payment within the
prescribed time frame.

The CA relied on justice and equity in granting an additional period of five (5) days from
receipt of the February 18, 2005 Decision in CA-G.R. SP No. 81341 to pay the balance due for the
sale of the four lots.385[38] While we commiserate with the plight of respondent, the CA ruling
will not prevail over the established axiom that equity is applied only in the absence of and never
against statutory law or judicial rules of procedure.386[39] For all its conceded merits, equity is
available only in the absence of law and not as its replacement.387[40] Equity as an exceptional
extenuating circumstance does not favor, nor may it be used to reward, the indolent. This Court
will not allow a party, in guise of equity, to benefit from respondents own negligence.388[41]

In the light of the foregoing considerations, we find that the grant of respondents petition
in CA-G.R. SP No. 81341 and the recognition of the belated consignation of the amount find no
support nor basis in law, rule, or jurisprudence. The CAs holding that the non-consignation of the
amount due is merely a procedural lapse on the part of respondents counsel is misplaced and is
contrary to settled jurisprudence. Plainly, respondents rights over the subject property are now lost
and forfeited.

Having resolved the core issue on the validity of the consignation, the Court sees no further
need to discuss the remaining issues raised in the petition.

Petitioner to reimburse payments

However, respondent had made payments over the subject properties based on her
agreement with petitioner. So as not to enrich itself at the expense of respondent, petitioner is
obliged to reimburse respondent whatever amount was paid by her in form of monthly
amortizations. On the other hand, if respondent is in possession of the subject properties, she and
all persons claiming under her should surrender the possession to petitioner.
 WHEREFORE, the petition is GRANTED, the February 18, 2005 Decision and August
31, 2005 Resolution of the CA are REVERSED and SET ASIDE, and the September 18, 2003
Resolution and December 2, 2003 Order of the OP are hereby REINSTATED. Petitioner is
ORDERED to reimburse respondent whatever amount the latter has paid for the subject properties
per the Contract to Sell No. 867. Petitioner is DECLARED to be the true and legal owner of Lots
Nos. 5, 6, 7, and 8, Block 18, Aurora Subdivision, Maysilo, Malabon City. The Register of Deeds
of Manila, District III, Malabon City Branch is ORDERED to cancel Transfer Certificates of Title
Nos. N-1922, N-1923, N-1924, and N-1925 in the names of spouses Carlos N. Ventura and Sandra
L. Ventura and register the same in the name of petitioner. The lis pendens in favor of respondent
annotated on the Transfer Certificates of Title over the subject properties is hereby LIFTED, and
the Register of Deeds for Metro Manila, District III is DIRECTED to CANCEL said lis pendens.
Respondent and all persons claiming under her are ORDERED to vacate the subject properties
and surrender them to petitioner within sixty (60) days from finality of this judgment. No
pronouncement as to costs.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-2091 October 18, 1905

COMPAÑIA GENERAL DE TABACOS, plaintiff-appellant,

vs.
SEBASTIAN VICTOR MOLINA, ET AL., defendants-appellees.

Francisco Dominguez for appellant.

Alberto Barretto for appellees.

WILLARD, J.:
In the months of November and December, 1895, the defendant, Sebastian Victor Molina, was
the owner of a tobacco store in Binondo, in Manila. During these months the plaintiff, a
manufacturer, sold to the said defendant cigars and cigarettes, which the said defendant resold in
his store. After the month of December the parties, by mutual agreement, determined that the
amount due to the plaintiff from the said defendant by reason of the previous sales was 3,319.74
pesos. On January 23, 1896, the said defendant, Sebastian Victor Molina, executed and delivered
to the plaintiff a written instrument, of which the following is a copy:

For $3,319.74. Three months after date I promise to pay to the order of the Compañia
General de Tabacos de Filipinas three thousand three hundred and nineteen pesos and
seventy-four cents, value received in merchandise to my entire satisfaction. Manila,
January 23, '96. S. Molina. There is a rubric. Surety. J.V. Molina. There is a rubric. There
is a regulation stamp, cancelled, of the value of two pesos.

The other defendant signed the instrument as surety for its payment, as indicated thereon. When
the note became due it was duly protested. No part of it, or of the debt on account of which it
was given, has been paid, except the sum of 432.80 pesos. On the 17th day of July, 1903, the
plaintiff commenced this action against both of the defendants. Judgment in the court below was
entered in favor of the defendants on the ground that the note above described was a commercial
instrument, and that the cause of action thereon has prescribed by virtue of the limitation of three
years mentioned in article 950 of the Code of Commerce. The plaintiff has brought the case here
by bill of exceptions.lawphil.net

Two questions are presented by the record: First, is the instrument in question one of the
instruments mentioned in said article 950? Second, if it is, can the plaintiff maintain an action
against the defendant, Sebastian Victor Molina, based upon the original sale of merchandise to
him?

(1) It is claimed by the plaintiff that the document in question is not a commercial note, because
it does not comply with requirements of article 531 of the Code of Commerce. He relies upon the
fact that the sixth requisite of that article, which requires the promissory note to state the place
where it is to be paid, has been entirely omitted, and that the note in question does not fulfill the
requirements of the seventh paragraph, which says that the promissory note must state the source
and the kind of value which it represents. We think the contention as to the sixth requisite can
not be sustained. This article 531, at the end thereof, provides that bills which are to be paid in a
different place from that of the residence of the payor should indicate a domicile for their
payment. Blanco, in his Treatise on Commercial Law, makes the following statement:

Bills or notes must contain the same requisites as drafts already enumerated (3), with the
sole difference that in those bill in which the payment is to be effected in a different place
from that of the residence of the payor, the place of payment should be stated therein. (2
Derecho Mercantil, p. 274.)

Estasen, in his work on Commercial Law, makes the following statement:

 Messrs. La Serna and Reus invite attention, that although the supreme court of Spain (1)
has determined that promissory notes which do not contain the requisites prescribed in
article 563 of the old Code of Commerce are not commercial, it should not be understood
that said requisites are essential since the same code provides for cases in which they are
wanting. (4 Derecho Mercantil, p. 95.)

It will be observed that article 531 refers to drafts as well as to bills and notes, and this sixth
requisite was intended to be applied in any event to drafts, but the addition to the article indicates
that it was not always to be applied to bills or notes.

Neither do we think that the contention of the plaintiff in regard to the seventh requisite can be
sustained. The origin of the debt is sufficiently stated, for as the plaintiff itself says in its brief,
the receipt of merchandise in exchange for money necessarily supposes a contract of purchase
and sale. We think also the nature of the consideration is sufficiently stated. It was not necessary
to insert in the document an inventory of the different articles that had been sold by the plaintiff
to the said defendant, Sebastian. As the appellees say in their brief in this court, if this was
required, an ordinary commercial note would be more extensive than a government expediente.
In order to bring the document within the Code of Commerce it must appear that it had its origin
in commercial operations. It seems to be the contention of the appellant that this fact must appear
in the note itself. This, in our opinion, can not be sustained. If the requirements of article 531 are
complied with, and, nevertheless, it does not appear from the note itself that it had its origin in
commercial operations, this fact can be proved by other evidence. In other words, if the origin
and nature of the consideration is stated, and that statement does not show that the note
proceeded from commercial operations, the document, nevertheless, is a commercial document,
if it can be proved by other evidence that it did proceed from such operations. (Judgment of the
supreme court of Spain of the 7th of November, 1870.)

We therefore hold that the action upon the note was barred by the statute of limitations in the
Code of Commerce. As the only obligation which the defendant, Juan Victor Molina, assumed
was the obligation evidenced by this note the action against him is barred.

(2) It remains to be considered whether an action can be maintained against the defendant,
Sebastian, based upon the original contract of purchase and sale of the articles in question. This
purchase and sale was undoubtedly a commercial transaction. (Art. 2, Code of Commerce.) This
code says nothing concerning the way in which obligations shall be extinguished. It is therefore
necessary to apply the rules of the common law. (Art. 50, Code of Commerce.) Article 1170 of
the Civil Code provides in part as follows:

The delivery of promissory notes to order or bills of exchange or other commercial paper
shall only produce the effects of payment when collected or when, by the fault of the
creditor, their value has been prejudiced.

In the meantime the action arising from the original obligation shall be suspended.

We think that this article is applicable not only to those instruments, executed by third persons,
which the debtor delivers to the creditor, but also to a note executed by the debtor himself and
delivered to the creditor. The clause relating to prejudice caused to the instrument by the fault of
the creditor is applicable only to the first class of documents, and not to the second.

It is apparent also that there was no novation of the contract in accordance with the provisions of
article 1204 of the Civil Code. (Eigth Commentaries on the Civil Code, Manresa, 397, 2 Derecho
Mercantil, Blanco, 90.)

Our conclusion upon this branch of the case is that the plaintiff's cause of action against the
defendant, Sebastian Victor Molina, growing out of the sale of these articles, still exists and can
be enforced.

The facts stated in paragraphs 1 to 5 of the amended complaint (omitting the last seven lines of
the fifth paragraph) are a sufficient statement of this cause of action. In view of the fact that a
demurrer to the original complaint was sustained, on the ground that the complaint was based
upon the note alone, and that the note was outlawed, it is apparent that the plaintiff, when he
presented his amended complaint, which contained allegations in regard to the sale of the articles
in question, did not intend to rely solely upon the note for a cause of action, but, on the contrary,
did intend to rely upon the original contract of sale. Otherwise the allegations relating to this sale
would have been entirely useless. The quotation which the appellees make in the third page of
their brief in this court is taken from the original complaint, which was entirely superseded by
the amended complaint. The defendant, Sebastian, admitted in his answer that on January 23,
1896, he owed the plaintiff 3,319.74 pesos for the said merchandise.

The judgment of the court below is affirmed, in so far as it related to the defendant Juan Victor
Molina. It is reversed in so far as it relates to the defendant Sebastian Victor Molina, and the case
is remanded to the court below with instructions to enter a judgment in favor of the plaintiff and
against the defendant Sebastian, for the equivalent in Philippine pesos of 3,319.74 pesos,
Mexican currency, less 432.80 pesos, Mexican currency with interest from the commencement
of the action, and costs. No costs will be allowed to either party in this court, and after the
expiration of twenty days judgment shall be entered in accordance herewith. So ordered.

Arellano, C.J., Torres, Johnson, and Carson, JJ., concur.

THE UNITED STATES,Plaintiff-Appellee, vs. EMILIO BEDOYA,Defendant-Appellant.

J. Rodriguez Serra for appellant.

Attorney-General Villamor for appellee.

ARELLANO, C. J.: chanrobles virtual law library

The accused in this case is charged with the crime of estafa, in that on the 18th of May, 1908, he
received on commission from The Schweiger Import and Export Company, various articles to
the value of P1,312.40, to be accounted for within thirty days, at the expiration of which time he
neither returned nor paid for them, keeping said goods himself.chanroblesvirtualawlibrary
chanrobles virtual law library
As indirect evidence, in order to show the methods employed by the accused, and of which the
company became aware after it had entrusted him with goods to the above amount, the
prosecution introduced the testimony of two commercial firms.chanroblesvirtualawlibrary
chanrobles virtual law library

One of this is Guamis & Co., who stated that on a certain day the accused informed them that he
had received from the provinces an order for fifty dozen undershirts; samples were shown him,
and he took with him a case of undershirts and another of socks. On the following day one of the
firm's customers told them that a Chinaman was selling their own undershirts at far less than the
customary price, and on investigation, this turned out to be true. The accused insisted that the
undershirts were about to be shipped to the provinces, but was told that such was not the case,
and was then required to return the said goods, and the firm recovered the undershirts from a
Chinaman's store, and the socks from the house of a Señor Lara in Calle
Gastambide.chanroblesvirtualawlibrary chanrobles virtual law library

On the 25th of the said month of May, 1908, Sprungli & Co., also delivered to the accused goods
to the value of P5,625.30 for which he later, on the 26th, paid P4,000, taking over the balance for
sale on commission. The accused stated to the above-mentioned gentlemen that he intended to
open a store in San Pablo, Laguna Province, then that it was to be in Iloilo, and finally, when
Sprungli & Co. sent a clerk to inspect said goods in the house at 31 Calle Santa Rosa, Quiapo,
where they had delivered them, the person living in said house stated that he did not know
Bedoya. The clerk then went to No. 156 where the accused lived, but was denied admission, the
accused stating that the firm had nothing to do with him, and that he (the clerk) had better see his
lawyer.chanroblesvirtualawlibrary chanrobles virtual law library

The direct proofs of the case at bar are an invoice and a bill of
exchange.chanroblesvirtualawlibrary chanrobles virtual law library

The invoice is for goods received from the above-mentioned firm known as "The Schweiger
Import and Export Company" on May 18, 1908, by Emilio Bedoya, amounting less 5 per cent
discount, to P1,812.40, which, less P500 paid on account, left a balance of P1,312.40. Bedoya
himself wrote down: "Received on commission P1,312.40." chanrobles virtual law library

The last amount was the value of the merchandise for which the accused was indebted to the
company on the 18th of May, 1908, and is the subject of the present criminal
proceedings.chanroblesvirtualawlibrary chanrobles virtual law library

Hector Faini, an employee of said company, testified: "The invoice was for P1,812.40 and as
Bedoya paid in P500, the outstanding balance was P1,321.40." Upon being questioned as to who
had written the words "Received on commission," he answered that it was Bedoya, and when
asked about the conditions of the contract, said that Bedoya had been allowed thirty days within
which to accomplish their sale, and that if he was unable to dispose of the goods, he might return
such portion thereof as were not sold, deducting the amount from the bill. He subsequently
explained the matter of the thirty days time as meaning that Bedoya was instructed to account for
what he sold at the expiration of that period.chanroblesvirtualawlibrary chanrobles virtual law
library
The accused admits all of the foregoing except, that he received the goods on commission. He
claimed to have received them on credit, and attempted to prove it by means of previous
transactions which he need to be referred to here as they have no bearing on the decision in this
case.chanroblesvirtualawlibrary chanrobles virtual law library

The bill of exchange presented by the prosecution as belonging to the complaining firm in these
proceedings is of the following tenor:

No. 107. - San Pablo, 10th of June, 1908. - P1,807. - Twenty days after sight, please pay by this
sole bill of exchange, to the order of Don Emilio Bedoya, the sum of one thousand eight hundred
and seven pesos, value received from said gentleman, and charge same to your obedient servant
M. M. Gallegos - To Don Vicente Foz, 1 Plaza de Santa Cruz.

On the back of the document there appears:

I accept, and the amount will be paid at maturity. - Manila, 15th of June, 1908. - Vicente Foz. -
Pay to Messrs. Schweiger Import & Export Company or order, for value received in merchandise
from the said gentlemen. - Manila 22d of June, 1908. - E. Bedoya. - Pay to Sr. Emilio Bedoya -
p.p. The Schweiger Co. - A. Faini. - Pay to Messrs. Schweiger Import & Export Co. - E. Bedoya.

In connection with the above draft the said witness Faini stated:

On the 22d or 23 (we must suppose that it was of the month of June) I was looking for him to
come and settle the account, and he told me that he was expecting a draft from a certain Gallegos
. . . . After that, I went to his house once or twice and asked him for the draft that he said he was
expecting: first he said he did not have it, but later on he came to the office of Schweiger
bringing this same draft with him . . . . The person who signed the acceptance was D. Vicente
Foz . . . . I went personally with Bedoya on the 22d to see Attorney Foz who lives in Plaza de
Santa Cruz, in order to find out whether he admitted the acknowledgment and acceptance of this
draft, and see if this signature "Vicente Foz" was his own, and he answered me in the
affirmative, "this is my signature." This was all in the presence of the accused. Sr. Foz said that
the 5th of July was the day when this draft became due and that he had not refused to honor it,
but I had no confidence and asked him for the guarantee of some commercial firm in Manila; he
then asked if his guaranty was not sufficient. . . . Then, as Sr. Bedoya had indorsed the draft to
me, when he came I told him that I could not accept the draft, and I indorsed it to him in order
that he might collect the same. I gave Sr. Bedoya a receipt for this draft.

Said receipt reads as follows:

Received from Sr. Emilio Bedoya draft No. 107 for one thousand eight hundred and seven pesos
(P1,807) Philippine currency, dated San Pablo, Laguna, June 10th, 1908, drawn by Sr. M. M.
Gallegos on D. Vicente Foz, and in favor of the said Sr. Bedoya, accepted by Sr. V. Foz on June
15, 1908, for the payment of July 5, proximo, and indorsed by said Sr. Bedoya to the order of
"The Shweiger Import & Export Co." - On the 5th day of July next, after having collected from
Sr. Foz the said amount of P1,807.00, we will deliver to Sr. Emilio Bedoya the sum of four
hundred and ninety-four pesos and 60/100 (P494.60) and the invoices of the merchandise
received "on commission" by Sr. Bedoya; his account being thus balanced to date. - Manila 25th
of June, 1908.

The testimony of the accused was entirely in accord with that of the witness for the prosecution,
but he added the following. He said:

Sr. Faini kept the draft and I returned to my house. Afterwards on the following day, he indorsed
the draft to me with the statement that it was not a regular bill of exchange and that the signature
was not good because the person signing it was not a responsible one; but the date was omitted, a
fact which I did not notice till later on; I called Sr. Faini's attention to the fact that no date had
been put on the indorsement, and his reply was more or less as follows: "I know very well what I
have done by not dating this draft, and I have nothing more to say about it." I then went to see a
notary and arranged with him to add another indorsement in the same form and without date
which I willingly did, and handed him the draft.

Faini continued the history of the draft in his possession and said:

On the 5th of July, the day it became due, I called at the dwelling house or law office of Sr. Foz
in order to collect the draft and was there informed that Sr. Foz had never lived in that house, but
that he happened to be there the other day another person who was there told me: "he must live
in Calle Centeno, No. 174 or 184;" there I found Sr. Foz who was sick, and I told him: "I have
come to collect the draft that you accepted," and he answered "I won't pay except to Sr. Bedoya
because you have no confidence in my signature. Come with Sr. Bedoya and I will pay the
draft." Thereafter I went to look for Sr. Bedoya and called at the restaurant where he eats and left
word for him to come to the office, and when he came to the office I asked him to see if he could
find Sr. Foz in order to get him to cash the draft and I told him that I would not give him back his
receipt, nor sign it until after the draft had been cashed. After that I saw no more of Sr. Bedoya,
and have come to the conclusion that he did not want to pay, and since then have seen nobody
else.

Under cross-examination on this point the accused replied as follows:

Q. Have you not received the merchandise mentioned in the invoice marked "Exhibit A"? - A.
Yes, sir.chanroblesvirtualawlibrary chanrobles virtual law library

Q. Have you not paid for them yet? - A. Not in cash.chanroblesvirtualawlibrary chanrobles
virtual law library

Q. Have you paid for them in any way? - A. I have paid money for them, P500 in
cash.chanroblesvirtualawlibrary chanrobles virtual law library

Q. And have you paid the balance? - A. Yes, sir.chanroblesvirtualawlibrary chanrobles virtual
law library

Q. How? - A. With a draft for P1,807.chanroblesvirtualawlibrary chanrobles virtual law library

Q. Is this the draft [Exhibit B]? - A. Yes, sir.chanroblesvirtualawlibrary chanrobles virtual law
library

Q. Has it been paid? - A. I am unable to say whether it been paid or

not.chanroblesvirtualawlibrary chanrobles virtual law library

Q. You are now testifying under oath, and you know very well that this draft is still unpaid, and
that Sr. Foz does not intend to pay it. - A. I am not aware of that.chanroblesvirtualawlibrary
chanrobles virtual law library

Q. Don't you know that Sr. Foz has not even half money enough with which to pay this draft? -
A. I have no reasons to know it.chanroblesvirtualawlibrary chanrobles virtual law library

Q. Is it not true that Sr. Foz has no money to even pay for the house in which he is living, and
that he has to move from one house to another because he does not pay his rent? - A. I have no
knowledge of that.chanroblesvirtualawlibrary chanrobles virtual law library

Q. Is it not true that Sr. Faini asked you to go along with him to the house of Sr. Foz in order to
collect this draft? - A. No, not in order to collect.chanroblesvirtualawlibrary chanrobles virtual
law library

Q. Is it not true that what you wanted to do with this draft, which you knew very well was
worthless, a piece of waste paper, was to get Messrs. Schweiger to accept it as good so that you
might evade a charge of estafa? - A. No.

The Court of First Instance of the city of Manila that tried the case, rendered judgment
sentencing the accused to two years and three months of prision correccional in the public prison
of Bilibid, to restore to the Schweiger Import and Export Company, or indemnify it in the sum of
P1,312.40, Philippine currency, equivalent to 6,562 pesetas, and in case of insolvency to suffer
subsidiary imprisonment, and to pay the costs. From this judgment the accused has
appealed.chanroblesvirtualawlibrary chanrobles virtual law library

The appeal, together with what has been alleged by the appellant and the Attorney-General,
having been heard before this court it appears: chanrobles virtual law library

That the Attorney-General, in rebuttal of the allegations of the defense, wherein it is claimed that
the accused received the goods in question as sold to him and not on commission, maintains
conclusively that the contract between the appellant and the above-mentioned company was not
one of purchase and sale on credit, but, as shown by the invoice signed by the appellant (Exhibit
A), on commission. This point is unquestionable; the accused himself with his own hand wrote;
Received on commission. He can go back on his own act.chanroblesvirtualawlibrary chanrobles
virtual law library

That, such a contract existing, under the terms of which the appellant really appears to have
received goods which belonged to another; and the whole question consisting in whether or not
the commission agent had returned the goods or paid for them after thirty days from the time of
receiving them, the Attorney-General claims the contrary, that is to say, that no such payment
has been as pretended by the accused for the following reasons: chanrobles virtual law library

1. Because the delivery of a draft in payment of an obligation can only produce the effects of
such payment when collected. (Art. 1170, Civil Code.) chanrobles virtual law library

2. Because the draft was delivered to the company in interest on the 22d of June, 1908, a date
subsequent to the 18th, on which date the thirty days allowed the accused within which to return
the unsold goods, or to pay for those that were sold, expired.chanroblesvirtualawlibrary
chanrobles virtual law library

3. Because the accused knew the said draft to be valueless, and that it would never be paid at
maturity.chanroblesvirtualawlibrary chanrobles virtual law library

4. Because the goods were not sold to Gallegos, their value, in fact, having previously been
received from Andres Frois, and same was not delivered to the complaining
company.chanroblesvirtualawlibrary chanrobles virtual law library

5. Because the draft was not adversely affected through any fault of the company, as shown by
the efforts made by Mr. Faini after the 22d of June to collect the same.chanroblesvirtualawlibrary
chanrobles virtual law library

After a careful examination of the above claims it appears that the facts alleged in No. 4, that is
that Andres Frois, a witness for the defense, had delivered to the accused the value of the goods
which the accused kept for himself instead of turning the same over to the complaining company,
has not been proven; the only thing that said witness declared was, that the accused had leased
from him the entresuelo of the house in Calle Santa Rosa of which he occupied the upper part,
and that he kept the goods there, and that he had received goods in said house, on mortgage from
Bedoya in his capacity as a broker; that those goods on which the mortgage had been foreclosed
had been sold, and those on which there had been no foreclosure had been
removed.chanroblesvirtualawlibrary chanrobles virtual law library

But even though it were proven that Frois had delivered to the accused the value of the goods
which the latter received on commission from the interested firm, and that he kept the same,
inasmuch as the essence of the crime charged herein consists in the nonpayment of the value of
the goods sold or the nonreturn of such as were not sold, and as the accused maintains that he
had paid the value of said goods, and that the form of payment was accepted by the interest firm,
the fourth as well as the second contention of the Attorney-General has absolutely no bearing on
this point in the case; the last-mentioned, because whatever may have been the time when
payment was made, even after the lapse of thirty days, which are supposed, thought erroneously,
to be the time fixed for the payment or the return, once the creditor accepted the same, the
commission of a crime can not be alleged, but at most, the violation of some of the conditions of
the contract consisting of deliquency or some other liability of a civil
nature.chanroblesvirtualawlibrary chanrobles virtual law library
The accused states that his obligation to pay P1,312.40 has been fulfilled through delivering to
the creditor, by means of an indorsement, a bill of exchange for
P1,807.chanroblesvirtualawlibrary chanrobles virtual law library

The courts of justice can not go outside of the following limitations: either the commission agent
paid and the obligation was fulfilled, or he did not pay, and the obligation still stands to return
the goods received on commission, or otherwise clear himself of the responsibility for the crime
of estafa that is involved in appropriating to himself money or personal property received only
on commission, and pertaining to another.chanroblesvirtualawlibrary chanrobles virtual law
library

Nor is it for the least consequence, for the proper consideration of the only fact which the courts
are called upon to pass, whether the indorsement of the draft by the payee to a third party was in
collusion, or whether the drawer Gallegos, the payee Bedoya and Foz, who accepted the draft,
were in combination of collusion for the purpose of deceiving a creditor, the third party. The law
has clearly defined the effects of every judicial act, and the respective rights and obligation of
each of the persons who directly or indirectly take part in the execution of a contract; therefore,
this court must ignore the third contention.chanroblesvirtualawlibrary chanrobles virtual law
library

Only the first and fifth points in the above argument of the Attorney-General can be considered
in deciding the case.chanroblesvirtualawlibrary chanrobles virtual law library

As to the pretended payment on the part of the accused debtor, what took place and is fully
proven is: First, the delivery, by the accused to the complaining firm, of a bill of exchange drawn
by Gallegos in favor of Bedoya and accepted by Foz (for the amount already stated), delivery
being accomplished by means of an indorsement in proper form; second, the return of the bill of
exchange by the complaining firm to the debtor or payee, Bedoya, by means of an imperfect
indorsement in improper form, that is to say not dated; third, another imperfect indorsement
without date, made by Bedoya to the complaining firm; fourth, the presentation and demand for
payment made by the said complaining firm on the drawee, Foz, and the failure on the part of the
latter to pay; and fifth, the holding of the draft in the hands of the complaining firm until the
moment when the information was given and the complaint filed.chanroblesvirtualawlibrary
chanrobles virtual law library

No protest whatever was made against either the acceptor, the indorser, or the drawer, for said
failure to pay.

The ownership of a draft shall be transferred by indorsement. (Art. 461 Code of Commerce.)
chanrobles virtual law library

If the statement of the date is omitted in the indorsement, the ownership of the draft shall not be
transferred, and it shall be understood as simply a commission for collection. ( Ibid, 463.)
By the indorsement in proper form made by the payee, Bedoya, on the 22d of June, 1908, in
favor of the complaining firm, the latter became the owner of the
draft.chanroblesvirtualawlibrary chanrobles virtual law library

But, by the imperfect indorsement made in turn by the complaining firm to the payee, Bedoya,
the ownership of the draft was not returned to the latter; he was only commissioned to collect
it.chanroblesvirtualawlibrary chanrobles virtual law library

By the indorsement, also an imperfect one, made by the payee, Bedoya, to the complaining firm,
no alteration was made in the legal status of affairs beyond the material returned of the draft and
the maintenance thereby of the position of the complaining firm, which was that of holder or
bearer of the draft up to the moment when an action was brought before the
courts.chanroblesvirtualawlibrary chanrobles virtual law library

According to article 469 of the Code of Commerce -

Drafts which are not presented for the acceptance or payment within the period fixed shall be
affected thereby, as well as when they are not protested at the proper
time.chanroblesvirtualawlibrary chanrobles virtual law library

If the holder of a bill of exchange should not present it for collection on the day it falls due, or, in
the absence of payment, does not have it protested on the following day, he shall lose his right to
be reimbursed by the indorsers; and with the regard to the drawer, the provisions of articles 458
and 460 shall be observed. (Code of Commerce, 483.)

In accordance with article 1170 of the Civil Code - chanrobles virtual law library

The delivery of promissory notes to order or drafts or other commercial paper shall only produce
the effects of payment when collected or when, by the fault of the creditor, their value has been
affected.chanroblesvirtualawlibrary chanrobles virtual law library

Hence the delivery of a bill of exchange shall produce the effects of payment when, by the fault
of the creditor, its value has been affected.chanroblesvirtualawlibrary chanrobles virtual law
library

The value of the draft in question, received and held by the creditor, the complaining firm, was
adversely affected by reason of its not having been protested on the following day after the
drawee, Foz, refused to pay the bearer, the complaining firm, the value
thereof.chanroblesvirtualawlibrary chanrobles virtual law library

Protest should be made by the possessor of the draft, and the possessor of the draft in this case
was the complaining firm; therefore, the value of the draft was adversely affected through the
fault of the creditor.chanroblesvirtualawlibrary chanrobles virtual law library

All steps taken by said creditor did not go beyond a demand for payment; it failed to take the
very one whereby the draft while in his hands would not become adversely affected, and if
collusion was suspected, and persons of doubtful honesty and even of notorious insolvency were
concerned, one can not conceive - unless it was through ignorance of the law, which is no excuse
- why the draft was held and retained, being in the opinion of the holder or bearer, worthless, and
he failed to take a step the omission of which, besides probably affecting him adversely, might
engender another manifest injury, previously covered by a law which is of universal application
in all civilized nations.chanroblesvirtualawlibrary chanrobles virtual law library

As the courts must hold under the civil aspect of the case, that, as no protest was made the draft
was adversely affected; that the obligation to protest rested upon the holder of the draft, in this
case the creditor; and that from the fact that the draft was adversely affected through the fault of
the creditor, it produces the effects of a payment to him, the courts can not, under the criminal
law, decide or hold that the commission agent had not made payment, and that for the lack
thereof he committed the crime of estafa.chanroblesvirtualawlibrary chanrobles virtual law
library

All the incriminations contained in the questions put by the prosecution as to just how much the
indorser knew about the insolvency of the person who accepted the draft, inasmuch as he owned
no property, and did not meet his obligations, must perforce recoil upon the holder or bearer of
the same, who, suspecting that it would not be paid, nevertheless retained it, and in addition,
through his inactivity and procrastination destroyed the possibility of collection from the drawee
or from the indorser.chanroblesvirtualawlibrary chanrobles virtual law library

Had protest been made, the nonpayment of the draft would have become proven in the only
manner in which the law requires proof to be made; and then, apart from the civil action - and
probably a criminal one also, if it is true that collusion existed and can be proven or shown - the
delivery of the draft by the commission agent to the constituent firm would not have produced
the effects of a payment, because it was not adversely affected by the fault of the creditor; rather
on the contrary, it would have been clearly shown that payment had not been made, and that
consequently these proceedings for estafa could have been instituted.chanroblesvirtualawlibrary
chanrobles virtual law library

That a draft or document which one has accepted by the indorsement is worthless because it is
the result of collusion between the drawer, drawee, and the indorser, and the supposition that all
of them are insolvent, does not warrant a person, under the law, to remain absolutely inactive,
allowing fixed periods to elapse, and ignoring legal precepts which must necessarily be observed
when a juridical act is accomplished such as the transfer of a draft which is subject thereto; for
juridical acts involve not only rights, but also obligations.chanroblesvirtualawlibrary chanrobles
virtual law library

When the creditor firm in its turn indorsed the draft back to the party who indorsed it to them
they could have relieved themselves of the ownership and possession thereof by indorsing it in
proper form, and they would then have had nothing to do with a draft which, in their opinion,
was of the value, would have severed connection with people of doubtful solvency, and might at
once have taken action in connection with the commission; but instead of that they made an
imperfect indorsement, not dating it, thus continuing to be the owners of the draft; and when
questioned by the new indorsee as to why it was not dated, as if to find out whether the draft was
returned to him, or whether he was merely commissioned to collect it, the creditor replied "I
know what I have done," and demanded a fresh indorsement in their favor in identical form, as if
to recover the draft and ratify the ownership and possession thereof; that is, to maintain the
previous status of the draft.chanroblesvirtualawlibrary chanrobles virtual law library

Against a series of acts so well defined as the above, each of which has its corresponding
juridical effects, there is nothing to be gained by insisting upon the status of creditorship
(something that might have been done without them) in order to clearly set forth before the
courts of justice that the debtor has not paid, that he has embezzled the money of another, and
has committed estafa. Consequently the charge of estafa herein has no legal
foundation.chanroblesvirtualawlibrary chanrobles virtual law library

The judgment appealed from is hereby reversed with the costs of both instances declared de
oficio.chanroblesvirtualawlibrary chanrobles virtual law library

Torres, Mapa, Johnson, Carson, and Moreland, JJ., concur.

FIRST DIVISION

[G.R. No. 105188. January 23, 1998]

MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, petitioner, vs. A. U.
VALENCIA and CO. INC., FELIX PEARROYO, SPS. ARSENIO B. REYES & AMANDA
SANTOS, and DELFIN JAO, respondents.

DECISION

KAPUNAN, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Myron C.
Papa seeks to reverse and set aside 1) the Decision dated 27 January 1992 of the Court of
Appeals which affirmed with modification the decision of the trial court; and, 2) the Resolution
dated 22 April 1992 of the same court, which denied petitioners motion for reconsideration of the
above decision.

The antecedent facts of this case are as follows:

Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter
referred to as respondent Valencia, for brevity) and Felix Pearroyo (hereinafter called respondent
Pearroyo), filed with the Regional Trial Court of Pasig, Branch 151, a complaint for specific
performance against herein petitioner Myron C. Papa, in his capacity as administrator of the
Testate Estate of one Angela M. Butte.

The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact
of Angela M. Butte, sold to respondent Pearroyo, through respondent Valencia, a parcel of land,
consisting of 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon
City, and covered by Transfer Certificate of Title No. 28993 of the Register of Deeds of Quezon
City; that prior to the alleged sale, the said property, together with several other parcels of land
likewise owned by Angela M. Butte, had been mortgaged by her to the Associated Banking
Corporation (now Associated Citizens Bank); that after the alleged sale, but before the title to the
subject property had been released, Angela M. Butte passed away; that despite representations
made by herein respondents to the bank to release the title to the property sold to respondent
Pearroyo, the bank refused to release it unless and until all the mortgaged properties of the late
Angela M. Butte were also redeemed; that in order to protect his rights and interests over the
property, respondent Pearroyo caused the annotation on the title of an adverse claim as
evidenced by Entry No. P.E. - 6118/T-28993, inscribed on 18 January 1977.

The complaint further alleged that it was only upon the release of the title to the property,
sometime in April 1977, that respondents Valencia and Pearroyo discovered that the mortgage
rights of the bank had been assigned to one Tomas L. Parpana (now deceased), as special
administrator of the Estate of Ramon Papa, Jr., on 12 April 1977; that since then, herein
petitioner had been collecting monthly rentals in the amount of P800.00 from the tenants of the
property, knowing that said property had already been sold to private respondents on 15 June
1973; that despite repeated demands from said respondents, petitioner refused and failed to
deliver the title to the property. Thereupon, respondents Valencia and Pearroyo filed a complaint
for specific performance, praying that petitioner be ordered to deliver to respondent Pearroyo the
title to the subject property (TCT 28993); to turn over to the latter the sum of P72,000.00 as
accrued rentals as of April 1982, and the monthly rental of P800.00 until the property is
delivered to respondent Pearroyo; to pay respondents the sum of P20,000.00 as attorneys fees;
and to pay the costs of the suit.

In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking
Corporation (now Associated Citizens Bank). He contended, however, that the complaint did not
state a cause of action; that the real property in interest was the Testate Estate of Angela M.
Butte, which should have been joined as a party defendant; that the case amounted to a claim
against the Estate of Angela M. Butte and should have been filed in Special Proceedings No. A-
17910 before the Probate Court in Quezon City; and that, if as alleged in the complaint, the
property had been assigned to Tomas L. Parpana, as special administrator of the Estate of Ramon
Papa, Jr., said estate should be impleaded. Petitioner, likewise, claimed that he could not recall in
detail the transaction which allegedly occurred in 1973; that he did not have TCT No. 28993 in
his possession; that he could not be held personally liable as he signed the deed merely as
attorney-in-fact of said Angela M. Butte. Finally, petitioner asseverated that as a result of the
filing of the case, he was compelled to hire the services of counsel for a fee of P20,000.00, for
which respondents should be held liable.

Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case.
Making common cause with respondents Valencia and Pearroyo, respondent Jao alleged that the
subject lot which had been sold to respondent Pearroyo through respondent Valencia was in turn
sold to him on 20 August 1973 for the sum of P71,500.00, upon his paying earnest money in the
amount of P5,000.00. He, therefore, prayed that judgment be rendered in favor of respondents
Valencia and Pearroyo; and, that after the delivery of the title to said respondents, the latter in
turn be ordered to execute in his favor the appropriate deed of conveyance covering the property
in question and to turn over to him the rentals which aforesaid respondents sought to collect from
petitioner Myron C. Papa.

Respondent Jao, likewise, averred that as a result of petitioners refusal to deliver the title to the
property to respondents Valencia and Pearroyo, who in turn failed to deliver the said title to him,
he suffered mental anguish and serious anxiety for which he sought payment of moral damages;
and, additionally, the payment of attorneys fees and costs.

For his part, petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-
party complaint against herein private respondents, spouses Arsenio B. Reyes and Amanda
Santos (respondent Reyes spouses, for short). He averred, among others, that the late Angela M.
Butte was the owner of the subject property; that due to non-payment of real estate tax said
property was sold at public auction by the City Treasurer of Quezon City to the respondent
Reyes spouses on 21 January 1980 for the sum of P14,000.00; that the one-year period of
redemption had expired; that respondents Valencia and Pearroyo had sued petitioner Papa as
administrator of the estate of Angela M. Butte, for the delivery of the title to the property; that
the same aforenamed respondents had acknowledged that the price paid by them was
insufficient, and that they were willing to add a reasonable amount or a minimum of P55,000.00
to the price upon delivery of the property, considering that the same was estimated to be worth
P143,000.00; that petitioner was willing to reimburse respondent Reyes spouses whatever
amount they might have paid for taxes and other charges, since the subject property was still
registered in the name of the late Angela M. Butte; that it was inequitable to allow respondent
Reyes spouses to acquire property estimated to be worth P143,000.00, for a measly sum of
P14,000.00. Petitioner prayed that judgment be rendered cancelling the tax sale to respondent
Reyes spouses; restoring the subject property to him upon payment by him to said respondent
Reyes spouses of the amount of P14,000.00, plus legal interest; and, ordering respondents
Valencia and Pearroyo to pay him at least P55,000.00 plus everything they might have to pay the
Reyes spouses in recovering the property.

Respondent Reyes spouses in their Answer raised the defense of prescription of petitioners right
to redeem the property.

At the trial, only respondent Pearroyo testified. All the other parties only submitted documentary
proof.

On 29 June 1987, the trial court rendered a decision, the dispositive portion of which reads:

WHEREUPON, judgment is hereby rendered as follows:

1) Allowing defendant to redeem from third-party defendants and ordering the latter to allow the
former to redeem the property in question, by paying the sum of P14,000.00 plus legal interest of
12% thereon from January 21, 1980;

2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix Pearroyo
covering the property in question and to deliver peaceful possession and enjoyment of the said
property to the said plaintiff, free from any liens and encumbrances;
Should this not be possible, for any reason not attributable to defendant, said defendant is
ordered to pay to plaintiff Felix Pearroyo the sum of P45,000.00 plus legal interest of 12% from
June 15, 1973;

3) Ordering plaintiff Felix Pearroyo to execute and deliver to intervenor a deed of absolute sale
over the same property, upon the latters payment to the former of the balance of the purchase
price of P71,500.00;

Should this not be possible, plaintiff Felix Pearroyo is ordered to pay intervenor the sum of
P5,000.00 plus legal interest of 12% from August 23, 1973; and

4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as attorneys fees and
litigation expenses.

SO ORDERED.lxiii[1]

Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging
among others that the sale was never consummated as he did not encash the check (in the amount
of P40,000.00) given by respondents Valencia and Pearroyo in payment of the full purchase
price of the subject lot. He maintained that what said respondents had actually paid was only the
amount of P5,000.00 (in cash) as earnest money.

Respondent Reyes spouses, likewise, appealed the above decision. However, their appeal was
dismissed because of failure to file their appellants brief.

On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the
trial courts decision, thus:

WHEREFORE, the second paragraph of the dispositive portion of the appealed decision is
MODIFIED, by ordering the defendant-appellant to deliver to plaintiff-appellees the owners
duplicate of TCT No. 28993 of Angela M. Butte and the peaceful possession and enjoyment of
the lot in question or, if the owners duplicate certificate cannot be produced, to authorize the
Register of Deeds to cancel it and issue a certificate of title in the name of Felix Pearroyo. In all
other respects, the decision appealed from is AFFIRMED. Costs against defendant-appellant
Myron C. Papa.

SO ORDERED.lxiv[2]

In affirming the trial courts decision, respondent court held that contrary to petitioners claim that
he did not encash the aforesaid check, and therefore, the sale was not consummated, there was no
evidence at all that petitioner did not, in fact, encash said check. On the other hand, respondent
Pearroyo testified in court that petitioner Papa had received the amount of P45,000.00 and issued
receipts therefor. According to respondent court, the presumption is that the check was encashed,
especially since the payment by check was not denied by defendant-appellant (herein petitioner)
who, in his Answer, merely alleged that he can no longer recall the transaction which is supposed
to have happened 10 years ago.lxv[3]
On petitioners claim that he cannot be held personally liable as he had acted merely as attorney-
in-fact of the owner, Angela M. Butte, respondent court held that such contention is without
merit. This action was not brought against him in his personal capacity, but in his capacity as the
administrator of the Testate Estate of Angela M. Butte.lxvi[4]

On petitioners contention that the estate of Angela M. Butte should have been joined in the
action as the real party in interest, respondent court held that pursuant to Rule 3, Section 3 of the
Rules of Court, the estate of Angela M. Butte does not have to be joined in the action. Likewise,
the estate of Ramon Papa, Jr., is not an indispensable party under Rule 3, Section 7 of the same
Rules. For the fact is that Ramon Papa, Jr., or his estate, was not a party to the Deed of Absolute
Sale, and it is basic law that contracts bind only those who are parties thereto.lxvii[5]

Respondent court observed that the conditions under which the mortgage rights of the bank were
assigned are not clear. In any case, any obligation which the estate of Angela M. Butte might
have to the estate of Ramon Papa, Jr. is strictly between them. Respondents Valencia and
Pearroyo are not bound by any such obligation.

Petitioner filed a motion for reconsideration of the above decision, which motion was denied by
respondent Court of Appeals.

Hence, this petition wherein petitioner raises the following issues:

I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE SALE

IN QUESTION WAS CONSUMMATED IS GROUNDED ON SPECULATION OR
CONJECTURE, AND IS CONTRARY TO THE APPLICABLE LEGAL PRINCIPLE.

II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL

COURT, ERRED BECAUSE IT, IN EFFECT, CANCELLED OR NULLIFIED AN
ASSIGNMENT OF THE SUBJECT PROPERTY IN FAVOR OF THE ESTATE OF RAMON
PAPA, JR. WHICH IS NOT A PARTY IN THIS CASE.

III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF
ANGELA M. BUTTE AND THE ESTATE OF RAMON PAPA, JR. ARE INDISPENSABLE
PARTIES IN THIS CASE.lxviii[6]

Petitioner argues that respondent Court of Appeals erred in concluding that the alleged sale of
the subject property had been consummated. He contends that such a conclusion is based on the
erroneous presumption that the check (in the amount of P40,000.00) had been cashed, citing Art.
1249 of the Civil Code, which provides, in part, that payment by checks shall produce the effect
of payment only when they have been cashed or when through the fault of the creditor they have
been impaired.lxix[7] Petitioner insists that he never cashed said check; and, such being the case,
its delivery never produced the effect of payment. Petitioner, while admitting that he had issued
receipts for the payments, asserts that said receipts, particularly the receipt of PCIB Check No.
761025 in the amount of P40,000.00, do not prove payment. He avers that there must be a
showing that said check had been encashed. If, according to petitioner, the check had been
encashed, respondent Pearroyo should have presented PCIB Check No. 761025 duly stamped
received by the payee, or at least its microfilm copy.

Petitioner finally avers that, in fact, the consideration for the sale was still in the hands of
respondents Valencia and Pearroyo, as evidenced by a letter addressed to him in which said
respondents wrote, in part:

x x x. Please be informed that I had been authorized by Dr. Ramon Papa, Jr., heir of Mrs. Angela
M. Butte to pay you the aforementioned amount of P75,000.00 for the release and cancellation of
subject propertys mortgage. The money is with me and if it is alright with you, I would like to
tender the payment as soon as possible. x x x.lxx[8]

We find no merit in petitioners arguments.

It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C.
Papa the amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty
Thousand Pesos (P40,000.00) in check on 15 June 1973, in payment of the purchase price of the
subject lot. Petitioner himself admits having received said amounts,lxxi[9] and having issued
receipts therefor.lxxii[10] Petitioners assertion that he never encashed the aforesaid check is not
subtantiated and is at odds with his statement in his answer that he can no longer recall the
transaction which is supposed to have happened 10 years ago. After more than ten (10) years
from the payment in part by cash and in part by check, the presumption is that the check had
been encashed. As already stated, he even waived the presentation of oral evidence.

Granting that petitioner had never encashed the check, his failure to do so for more than ten (10)
years undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay.

While it is true that the delivery of a check produces the effect of payment only when it is
cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced
by the creditors unreasonable delay in presentment. The acceptance of a check implies an
undertaking of due diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or
obligation for which it was given.lxxiii[11] It has, likewise, been held that if no presentment is
made at all, the drawer cannot be held liable irrespective of loss or injurylxxiv[12] unless
presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under
which payment by way of check or other negotiable instrument is conditioned on its being
cashed, except when through the fault of the creditor, the instrument is impaired. The payee of a
check would be a creditor under this provision and if its non-payment is caused by his
negligence, payment will be deemed effected and the obligation for which the check was given
as conditional payment will be discharged.lxxv[13]

Considering that respondents Valencia and Pearroyo had fulfilled their part of the contract of sale
by delivering the payment of the purchase price, said respondents, therefore, had the right to
compel petitioner to deliver to them the owners duplicate of TCT No. 28993 of Angela M. Butte
and the peaceful possession and enjoyment of the lot in question.
With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has
found that the conditions under which said mortgage rights of the bank were assigned are not
clear. Indeed, a perusal of the original records of the case would show that there is nothing there
that could shed light on the transactions leading to the said assignment of rights; nor is there any
evidence on record of the conditions under which said mortgage rights were assigned. What is
certain is that despite the said assignment of mortgage rights, the title to the subject property has
remained in the name of the late Angela M. Butte.lxxvi[14] This much is admitted by petitioner
himself in his answer to respondents complaint as well as in the third-party complaint that
petitioner filed against respondent-spouses Arsenio B. Reyes and Amanda Santos.lxxvii[15]
Assuming arquendo that the mortgage rights of the Associated Citizens Bank had been assigned
to the estate of Ramon Papa, Jr., and granting that the assigned mortgage rights validly exist and
constitute a lien on the property, the estate may file the appropriate action to enforce such lien.
The cause of action for specific performance which respondents Valencia and Pearroyo have
against petitioner is different from the cause of action which the estate of Ramon Papa, Jr. may
have to enforce whatever rights or liens it has on the property by reason of its being an alleged
assignee of the banks rights of mortgage.

Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of
the Rules of Court, an executor or administrator may sue or be sued without joining the party for
whose benefit the action is presented or defended, thus:

Sec. 3. Representative parties. - A trustee of an express trust, a guardian, executor or

administrator, or a party authorized by statute, may sue or be sued without joining the party for
whose benefit the action is presented or defended; but the court may, at any stage of the
proceedings, order such beneficiary to be made a party. An agent acting in his own name and for
the benefit of an undisclosed principal may sue or be sued without joining the principal except
when the contract involves things belonging to the principal.lxxviii[16]

Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final
determination of the action can be had. Whatever prior and subsisting mortgage rights the estate
of Ramon Papa, Jr. has over the property may still be enforced regardless of the change in
ownership thereof.

WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of
Appeals, dated 27 January 1992 is AFFIRMED.

SO ORDERED.

Davide, Jr., Bellosillo, and Vitug, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC
G.R. No. L-49188 January 30, 1990

PHILIPPINE AIRLINES, INC., petitioner,

vs.
HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO, Court of First
Instance of Manila, Branch XIII, JAIME K. DEL ROSARIO, Deputy Sheriff, Court of
First Instance, Manila, and AMELIA TAN, respondents.

GUTIERREZ, JR., J.:

Behind the simple issue of validity of an alias writ of execution in this case is a more
fundamental question. Should the Court allow a too literal interpretation of the Rules with an
open invitation to knavery to prevail over a more discerning and just approach? Should we not
apply the ancient rule of statutory construction that laws are to be interpreted by the spirit which
vivifies and not by the letter which killeth?

This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No.
07695 entitled "Philippine Airlines, Inc. v. Hon. Judge Ricardo D. Galano, et al.", dismissing the
petition for certiorari against the order of the Court of First Instance of Manila which issued an
alias writ of execution against the petitioner.

The petition involving the alias writ of execution had its beginnings on November 8, 1967, when
respondent Amelia Tan, under the name and style of Able Printing Press commenced a
complaint for damages before the Court of First Instance of Manila. The case was docketed as
Civil Case No. 71307, entitled Amelia Tan, et al. v. Philippine Airlines, Inc.

After trial, the Court of First Instance of Manila, Branch 13, then presided over by the late Judge
Jesus P. Morfe rendered judgment on June 29, 1972, in favor of private respondent Amelia Tan
and against petitioner Philippine Airlines, Inc. (PAL) as follows:

WHEREFORE, judgment is hereby rendered, ordering the defendant Philippine

Air Lines:

1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00 as
actual damages, with legal interest thereon from plaintiffs extra-judicial demand
made by the letter of July 20, 1967;

2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00,
representing the unrealized profit of 10% included in the contract price of
P200,000.00 plus legal interest thereon from July 20,1967;

3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00
as and for moral damages, with legal interest thereon from July 20, 1 967;
 4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00
damages as and for attorney's fee.

Plaintiffs second and fifth causes of action, and defendant's counterclaim, are
dismissed.

With costs against the defendant. (CA Rollo, p. 18)

On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case was
docketed as CA-G.R. No. 51079-R.

On February 3, 1977, the appellate court rendered its decision, the dispositive portion of which
reads:

IN VIEW WHEREOF, with the modification that PAL is condemned to pay

plaintiff the sum of P25,000.00 as damages and P5,000.00 as attorney's fee,
judgment is affirmed, with costs. (CA Rollo, p. 29)

Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequent
thereto, a motion for reconsideration was filed by respondent Amelia Tan, duly opposed by
petitioner PAL.

On May 23,1977, the Court of Appeals rendered its resolution denying the respondent's motion
for reconsideration for lack of merit.

No further appeal having been taken by the parties, the judgment became final and executory and
on May 31, 1977, judgment was correspondingly entered in the case.

The case was remanded to the trial court for execution and on September 2,1977, respondent
Amelia Tan filed a motion praying for the issuance of a writ of execution of the judgment
rendered by the Court of Appeals. On October 11, 1977, the trial court, presided over by Judge
Galano, issued its order of execution with the corresponding writ in favor of the respondent. The
writ was duly referred to Deputy Sheriff Emilio Z. Reyes of Branch 13 of the Court of First
Instance of Manila for enforcement.

Four months later, on February 11, 1978, respondent Amelia Tan moved for the issuance of an
alias writ of execution stating that the judgment rendered by the lower court, and affirmed with
modification by the Court of Appeals, remained unsatisfied.

On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of an alias
writ of execution stating that it had already fully paid its obligation to plaintiff through the
deputy sheriff of the respondent court, Emilio Z. Reyes, as evidenced by cash vouchers properly
signed and receipted by said Emilio Z. Reyes.

On March 3,1978, the Court of Appeals denied the issuance of the alias writ for being premature,
ordering the executing sheriff Emilio Z. Reyes to appear with his return and explain the reason
for his failure to surrender the amounts paid to him by petitioner PAL. However, the order could
not be served upon Deputy Sheriff Reyes who had absconded or disappeared.

On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed by
respondent Amelia Tan.

On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for Partial Alias
Writ of Execution" with Substitute Motion for Alias Writ of Execution. On May 1, 1978, the
respondent Judge issued an order which reads:

As prayed for by counsel for the plaintiff, the Motion to Withdraw 'Motion for
Partial Alias Writ of Execution with Substitute Motion for Alias Writ of
Execution is hereby granted, and the motion for partial alias writ of execution is
considered withdrawn.

Let an Alias Writ of Execution issue against the defendant for the fall satisfaction
of the judgment rendered. Deputy Sheriff Jaime K. del Rosario is hereby
appointed Special Sheriff for the enforcement thereof. (CA Rollo, p. 34)

On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on the
same day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of
P25,000.00 with legal interest thereon from July 20,1967 when respondent Amelia Tan made an
extra-judicial demand through a letter. Levy was also ordered for the further sum of P5,000.00
awarded as attorney's fees.

On May 23, 1978, the petitioner filed an urgent motion to quash the alias writ of execution
stating that no return of the writ had as yet been made by Deputy Sheriff Emilio Z. Reyes and
that the judgment debt had already been fully satisfied by the petitioner as evidenced by the cash
vouchers signed and receipted by the server of the writ of execution, Deputy Sheriff Emilio Z.
Reyes.

On May 26,1978, the respondent Jaime K. del Rosario served a notice of garnishment on the
depository bank of petitioner, Far East Bank and Trust Company, Rosario Branch, Binondo,
Manila, through its manager and garnished the petitioner's deposit in the said bank in the total
amount of P64,408.00 as of May 16, 1978. Hence, this petition for certiorari filed by the
Philippine Airlines, Inc., on the grounds that:

AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIOR

RETURN OF THE ORIGINAL WRIT BY THE IMPLEMENTING OFFICER.

II
 PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS
DIRECTED IN THE WRIT OF EXECUTION CONSTITUTES
SATISFACTION OF JUDGMENT.

III

INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO

THE PAYMENT THEREOF.

IV

SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF PROPERTY

OF JUDGMENT DEBTOR AND DISPOSAL OR SALE THEREOF TO
SATISFY JUDGMENT.

Can an alias writ of execution be issued without a prior return of the original writ by the
implementing officer?

We rule in the affirmative and we quote the respondent court's decision with approval:

The issuance of the questioned alias writ of execution under the circumstances
here obtaining is justified because even with the absence of a Sheriffs return on
the original writ, the unalterable fact remains that such a return is incapable of
being obtained (sic) because the officer who is to make the said return has
absconded and cannot be brought to the Court despite the earlier order of the court
for him to appear for this purpose. (Order of Feb. 21, 1978, Annex C, Petition).
Obviously, taking cognizance of this circumstance, the order of May 11, 1978
directing the issuance of an alias writ was therefore issued. (Annex D. Petition).
The need for such a return as a condition precedent for the issuance of an alias
writ was justifiably dispensed with by the court below and its action in this regard
meets with our concurrence. A contrary view will produce an abhorent situation
whereby the mischief of an erring officer of the court could be utilized to impede
indefinitely the undisputed and awarded rights which a prevailing party rightfully
deserves to obtain and with dispatch. The final judgment in this case should not
indeed be permitted to become illusory or incapable of execution for an indefinite
and over extended period, as had already transpired. (Rollo, pp. 35-36)

Judicium non debet esse illusorium; suum effectum habere debet (A judgment ought not to be
illusory it ought to have its proper effect).

Indeed, technicality cannot be countenanced to defeat the execution of a judgment for execution
is the fruit and end of the suit and is very aptly called the life of the law (Ipekdjian
Merchandising Co. v. Court of Tax Appeals, 8 SCRA 59 [1963]; Commissioner of Internal
Revenue v. Visayan Electric Co., 19 SCRA 697, 698 [1967]). A judgment cannot be rendered
nugatory by the unreasonable application of a strict rule of procedure. Vested rights were never
intended to rest on the requirement of a return, the office of which is merely to inform the court
and the parties, of any and all actions taken under the writ of execution. Where such information
can be established in some other manner, the absence of an executing officer's return will not
preclude a judgment from being treated as discharged or being executed through an alias writ of
execution as the case may be. More so, as in the case at bar. Where the return cannot be expected
to be forthcoming, to require the same would be to compel the enforcement of rights under a
judgment to rest on an impossibility, thereby allowing the total avoidance of judgment debts. So
long as a judgment is not satisfied, a plaintiff is entitled to other writs of execution (Government
of the Philippines v. Echaus and Gonzales, 71 Phil. 318). It is a well known legal maxim that he
who cannot prosecute his judgment with effect, sues his case vainly.

More important in the determination of the propriety of the trial court's issuance of an alias writ
of execution is the issue of satisfaction of judgment.

Under the peculiar circumstances surrounding this case, did the payment made to the absconding
sheriff by check in his name operate to satisfy the judgment debt? The Court rules that the
plaintiff who has won her case should not be adjudged as having sued in vain. To decide
otherwise would not only give her an empty but a pyrrhic victory.

It should be emphasized that under the initial judgment, Amelia Tan was found to have been
wronged by PAL.

She filed her complaint in 1967.

After ten (10) years of protracted litigation in the Court of First Instance and the Court of
Appeals, Ms. Tan won her case.

It is now 1990.

Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what the courts have
solemnly declared as rightfully hers. Through absolutely no fault of her own, Ms. Tan has been
deprived of what, technically, she should have been paid from the start, before 1967, without
need of her going to court to enforce her rights. And all because PAL did not issue the checks
intended for her, in her name.

Under the peculiar circumstances of this case, the payment to the absconding sheriff by check in
his name did not operate as a satisfaction of the judgment debt.

In general, a payment, in order to be effective to discharge an obligation, must be made to the

proper person. Article 1240 of the Civil Code provides:

Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it.
(Emphasis supplied)

Thus, payment must be made to the obligee himself or to an agent having authority, express or
implied, to receive the particular payment (Ulen v. Knecttle 50 Wyo 94, 58 [2d] 446, 111 ALR
65). Payment made to one having apparent authority to receive the money will, as a rule, be
treated as though actual authority had been given for its receipt. Likewise, if payment is made to
one who by law is authorized to act for the creditor, it will work a discharge (Hendry v. Benlisa
37 Fla. 609, 20 SO 800,34 LRA 283). The receipt of money due on ajudgment by an officer
authorized by law to accept it will, therefore, satisfy the debt (See 40 Am Jm 729, 25; Hendry v.
Benlisa supra; Seattle v. Stirrat 55 Wash. 104 p. 834,24 LRA [NS] 1275).

The theory is where payment is made to a person authorized and recognized by the creditor, the
payment to such a person so authorized is deemed payment to the creditor. Under ordinary
circumstances, payment by the judgment debtor in the case at bar, to the sheriff should be valid
payment to extinguish the judgment debt.

There are circumstances in this case, however, which compel a different conclusion.

The payment made by the petitioner to the absconding sheriff was not in cash or legal tender but
in checks. The checks were not payable to Amelia Tan or Able Printing Press but to the
absconding sheriff.

Did such payments extinguish the judgment debt?

Article 1249 of the Civil Code provides:

The payment of debts in money shall be made in the currency stipulated, and if it
is not possible to deliver such currency, then in the currency which is legal tender
in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other

mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in
abeyance.

In the absence of an agreement, either express or implied, payment means the discharge of a debt
or obligation in money (US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the parties so
agree, a debtor has no rights, except at his own peril, to substitute something in lieu of cash as
medium of payment of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am.
St. Rep. 402). Consequently, unless authorized to do so by law or by consent of the obligee a
public officer has no authority to accept anything other than money in payment of an obligation
under a judgment being executed. Strictly speaking, the acceptance by the sheriff of the
petitioner's checks, in the case at bar, does not, per se, operate as a discharge of the judgment
debt.

Since a negotiable instrument is only a substitute for money and not money, the delivery of such
an instrument does not, by itself, operate as payment (See. 189, Act 2031 on Negs. Insts.; Art.
1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9
Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager's check or ordinary cheek, is not legal
tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the
obligation under a judgment. The obligation is not extinguished and remains suspended until the
payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3).

If bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's, there would
have been no payment. After dishonor of the checks, Ms. Tan could have run after other
properties of PAL. The theory is that she has received no value for what had been awarded her.
Because the checks were drawn in the name of Emilio Z. Reyes, neither has she received
anything. The same rule should apply.

It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full
legal contemplation. The reasoning is logical but is it valid and proper? Logic has its limits in
decision making. We should not follow rulings to their logical extremes if in doing so we arrive
at unjust or absurd results.

In the first place, PAL did not pay in cash. It paid in cheeks.

And second, payment in cash always carries with it certain cautions. Nobody hands over big
amounts of cash in a careless and inane manner. Mature thought is given to the possibility of the
cash being lost, of the bearer being waylaid or running off with what he is carrying for another.
Payment in checks is precisely intended to avoid the possibility of the money going to the wrong
party. The situation is entirely different where a Sheriff seizes a car, a tractor, or a piece of land.
Logic often has to give way to experience and to reality. Having paid with checks, PAL should
have done so properly.

Payment in money or cash to the implementing officer may be deemed absolute payment of the
judgment debt but the Court has never, in the least bit, suggested that judgment debtors should
settle their obligations by turning over huge amounts of cash or legal tender to sheriffs and other
executing officers. Payment in cash would result in damage or interminable litigations each time
a sheriff with huge amounts of cash in his hands decides to abscond.

As a protective measure, therefore, the courts encourage the practice of payments by cheek
provided adequate controls are instituted to prevent wrongful payment and illegal withdrawal or
disbursement of funds. If particularly big amounts are involved, escrow arrangements with a
bank and carefully supervised by the court would be the safer procedure. Actual transfer of funds
takes place within the safety of bank premises. These practices are perfectly legal. The object is
always the safe and incorrupt execution of the judgment.

It is, indeed, out of the ordinary that checks intended for a particular payee are made out in the
name of another. Making the checks payable to the judgment creditor would have prevented the
encashment or the taking of undue advantage by the sheriff, or any person into whose hands the
checks may have fallen, whether wrongfully or in behalf of the creditor. The issuance of the
checks in the name of the sheriff clearly made possible the misappropriation of the funds that
were withdrawn.
As explained and held by the respondent court:

... [K]nowing as it does that the intended payment was for the private party
respondent Amelia Tan, the petitioner corporation, utilizing the services of its
personnel who are or should be knowledgeable about the accepted procedures and
resulting consequences of the checks drawn, nevertheless, in this instance,
without prudence, departed from what is generally observed and done, and placed
as payee in the checks the name of the errant Sheriff and not the name of the
rightful payee. Petitioner thereby created a situation which permitted the said
Sheriff to personally encash said checks and misappropriate the proceeds thereof
to his exclusive personal benefit. For the prejudice that resulted, the petitioner
himself must bear the fault. The judicial guideline which we take note of states as
follows:

As between two innocent persons, one of whom must suffer the consequence of a
breach of trust, the one who made it possible by his act of confidence must bear
the loss. (Blondeau, et al. v. Nano, et al., L-41377, July 26, 1935, 61 Phil. 625)

Having failed to employ the proper safeguards to protect itself, the judgment debtor whose act
made possible the loss had but itself to blame.

The attention of this Court has been called to the bad practice of a number of executing officers,
of requiring checks in satisfaction of judgment debts to be made out in their own names. If a
sheriff directs a judgment debtor to issue the checks in the sheriff's name, claiming he must get
his commission or fees, the debtor must report the sheriff immediately to the court which ordered
the execution or to the Supreme Court for appropriate disciplinary action. Fees, commissions,
and salaries are paid through regular channels. This improper procedure also allows such
officers, who have sixty (60) days within which to make a return, to treat the moneys as their
personal finds and to deposit the same in their private accounts to earn sixty (60) days interest,
before said finds are turned over to the court or judgment creditor (See Balgos v. Velasco, 108
SCRA 525 [1981]). Quite as easily, such officers could put up the defense that said checks had
been issued to them in their private or personal capacity. Without a receipt evidencing payment
of the judgment debt, the misappropriation of finds by such officers becomes clean and
complete. The practice is ingenious but evil as it unjustly enriches court personnel at the expense
of litigants and the proper administration of justice. The temptation could be far greater, as
proved to be in this case of the absconding sheriff. The correct and prudent thing for the
petitioner was to have issued the checks in the intended payee's name.

The pernicious effects of issuing checks in the name of a person other than the intended payee,
without the latter's agreement or consent, are as many as the ways that an artful mind could
concoct to get around the safeguards provided by the law on negotiable instruments. An angry
litigant who loses a case, as a rule, would not want the winning party to get what he won in the
judgment. He would think of ways to delay the winning party's getting what has been adjudged
in his favor. We cannot condone that practice especially in cases where the courts and their
officers are involved. We rule against the petitioner.
Anent the applicability of Section 15, Rule 39, as follows:

Section 15. Execution of money judgments. — The officer must enforce an

execution of a money judgment by levying on all the property, real and personal
of every name and nature whatsoever, and which may be disposed of for value, of
the judgment debtor not exempt from execution, or on a sufficient amount of such
property, if they be sufficient, and selling the same, and paying to the judgment
creditor, or his attorney, so much of the proceeds as will satisfy the judgment. ...

the respondent court held:

We are obliged to rule that the judgment debt cannot be considered satisfied and
therefore the orders of the respondent judge granting the alias writ of execution
may not be pronounced as a nullity.

xxx xxx xxx

It is clear and manifest that after levy or garnishment, for a judgment to be

executed there is the requisite of payment by the officer to the judgment creditor,
or his attorney, so much of the proceeds as will satisfy the judgment and none
such payment had been concededly made yet by the absconding Sheriff to the
private respondent Amelia Tan. The ultimate and essential step to complete the
execution of the judgment not having been performed by the City Sheriff, the
judgment debt legally and factually remains unsatisfied.

Strictly speaking execution cannot be equated with satisfaction of a judgment. Under unusual
circumstances as those obtaining in this petition, the distinction comes out clearly.

Execution is the process which carries into effect a decree or judgment (Painter v. Berglund, 31
Cal. App. 2d. 63, 87 P 2d 360, 363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Black's
Law Dictionary), whereas the satisfaction of a judgment is the payment of the amount of the
writ, or a lawful tender thereof, or the conversion by sale of the debtor's property into an amount
equal to that due, and, it may be done otherwise than upon an execution (Section 47, Rule 39).
Levy and delivery by an execution officer are not prerequisites to the satisfaction of a judgment
when the same has already been realized in fact (Section 47, Rule 39). Execution is for the
sheriff to accomplish while satisfaction of the judgment is for the creditor to achieve. Section 15,
Rule 39 merely provides the sheriff with his duties as executing officer including delivery of the
proceeds of his levy on the debtor's property to satisfy the judgment debt. It is but to stress that
the implementing officer's duty should not stop at his receipt of payments but must continue until
payment is delivered to the obligor or creditor.

Finally, we find no error in the respondent court's pronouncement on the inclusion of interests to
be recovered under the alias writ of execution. This logically follows from our ruling that PAL is
liable for both the lost checks and interest. The respondent court's decision in CA-G.R. No.
51079-R does not totally supersede the trial court's judgment in Civil Case No. 71307. It merely
modified the same as to the principal amount awarded as actual damages.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED. The
judgment of the respondent Court of Appeals is AFFIRMED and the trial court's issuance of the
alias writ of execution against the petitioner is upheld without prejudice to any action it should
take against the errant sheriff Emilio Z. Reyes. The Court Administrator is ordered to follow up
the actions taken against Emilio Z. Reyes.

SO ORDERED.

Fernan, C.J., Cruz, Paras, Bidin, Griño-Aquino, Medialdea and Regalado, JJ., concur.

Separate Opinions

NARVASA, J., dissenting:

The execution of final judgments and orders is a function of the sheriff, an officer of the court
whose authority is by and large statutorily determined to meet the particular exigencies arising
from or connected with the performance of the multifarious duties of the office. It is the
acknowledgment of the many dimensions of this authority, defined by statute and chiselled by
practice, which compels me to disagree with the decision reached by the majority.

A consideration of the wide latitude of discretion allowed the sheriff as the officer of the court
most directly involved with the implementation and execution of final judgments and orders
persuades me that PAL's payment to the sheriff of its judgment debt to Amelia Tan, though made
by check issued in said officer's name, lawfully satisfied said obligation and foreclosed further
recourse therefor against PAL, notwithstanding the sheriffs failure to deliver to Tan the proceeds
of the check.

It is a matter of history that the judiciary .. is an inherit or of the Anglo-American

tradition. While the common law as such .. "is not in force" in this jurisdiction, "to
breathe the breath of life into many of the institutions, introduced [here] under
American sovereignty, recourse must be had to the rules, principles and doctrines
of the common law under whose protecting aegis the prototypes of these
institutions had their birth" A sheriff is "an officer of great antiquity," and was
also called the shire reeve. A shire in English law is a Saxon word signifying a
division later called a county. A reeve is an ancient English officer of justice
inferior in rank to an alderman .. appointed to process, keep the King's peace, and
put the laws in execution. From a very remote period in English constitutional
history .. the shire had another officer, namely the shire reeve or as we say, the
 sheriff. .. The Sheriff was the special representative of the legal or central
authority, and as such usually nominated by the King. .. Since the earliest times,
both in England and the United States, a sheriff has continued his status as an
adjunct of the court .. . As it was there, so it has been in the Philippines from the
time of the organization of the judiciary .. . (J. Fernando's concurring opinion in
Bagatsing v. Herrera, 65 SCRA 434)

One of a sheriff s principal functions is to execute final judgments and orders. The Rules of
Court require the writs of execution to issue to him, directing him to enforce such judgments and
orders in the manner therein provided (Rule 39). The mode of enforcement varies according to
the nature of the judgment to be carried out: whether it be against property of the judgment
debtor in his hands or in the hands of a third person i e. money judgment), or for the sale of
property, real or personal (i.e. foreclosure of mortgage) or the delivery thereof, etc. (sec. 8, Rule
39).

Under sec. 15 of the same Rule, the sheriff is empowered to levy on so much of the judgment
debtor's property as may be sufficient to enforce the money judgment and sell these properties at
public auction after due notice to satisfy the adjudged amount. It is the sheriff who, after the
auction sale, conveys to the purchaser the property thus sold (secs. 25, 26, 27, Rule 39), and pays
the judgment creditor so much of the proceeds as will satisfy the judgment. When the property
sold by him on execution is an immovable which consequently gives rise to a light of redemption
on the part of the judgment debtor and others (secs. 29, 30, Rule 39), it is to him (or to the
purchaser or redemptioner that the payments may be made by those declared by law as entitled to
redeem (sec. 31, Rule 39); and in this situation, it becomes his duty to accept payment and
execute the certificate of redemption (Enage v. Vda. y Hijos de Escano, 38 Phil. 657, cited in
Moran, Comments on the Rules of Court, 1979 ed., vol. 2, pp. 326-327). It is also to the sheriff
that "written notice of any redemption must be given and a duplicate filed with the registrar of
deeds of the province, and if any assessments or taxes are paid by the redemptioner or if he has
or acquires any lien other than that upon which the redemption was made, notice thereof must in
like manner be given to the officer and filed with the registrar of deeds," the effect of failure to
file such notice being that redemption may be made without paying such assessments, taxes, or
liens (sec. 30, Rule 39).

The sheriff may likewise be appointed a receiver of the property of the judgment debtor where
the appointment of the receiver is deemed necessary for the execution of the judgment (sec. 32,
Rule 39).

At any time before the sale of property on execution, the judgment debtor may prevent the sale
by paying the sheriff the amount required by the execution and the costs that have been incurred
therein (sec. 20, Rule 39).

The sheriff is also authorized to receive payments on account of the judgment debt tendered by
"a person indebted to the judgment debtor," and his "receipt shall be a sufficient discharge for the
amount so paid or directed to be credited by the judgment creditor on the execution" (sec. 41,
Rule 39).
Now, obviously, the sheriff s sale extinguishes the liability of the judgment debtor either in fun,
if the price paid by the highest bidder is equal to, or more than the amount of the judgment or pro
tanto if the price fetched at the sale be less. Such extinction is not in any way dependent upon the
judgment creditor's receiving the amount realized, so that the conversion or embezzlement of the
proceeds of the sale by the sheriff does not revive the judgment debt or render the judgment
creditor liable anew therefor.

So, also, the taking by the sheriff of, say, personal property from the judgment debtor for
delivery to the judgment creditor, in fulfillment of the verdict against him, extinguishes the
debtor's liability; and the conversion of said property by the sheriff, does not make said debtor
responsible for replacing the property or paying the value thereof.

In the instances where the Rules allow or direct payments to be made to the sheriff, the payments
may be made by check, but it goes without saying that if the sheriff so desires, he may require
payment to be made in lawful money. If he accepts the check, he places himself in a position
where he would be liable to the judgment creditor if any damages are suffered by the latter as a
result of the medium in which payment was made (Javellana v. Mirasol, et al., 40 Phil. 761). The
validity of the payment made by the judgment debtor, however, is in no wise affected and the
latter is discharged from his obligation to the judgment creditor as of the moment the check
issued to the sheriff is encashed and the proceeds are received by Id. office. The issuance of the
check to a person authorized to receive it (Art. 1240, Civil Code; See. 46 of the Code of Civil
Procedure; Enage v. Vda y Hijos de Escano, 38 Phil. 657, cited in Javellana v. Mirasol, 40 Phil.
761) operates to release the judgment debtor from any further obligations on the judgment.

The sheriff is an adjunct of the court; a court functionary whose competence involves both
discretion and personal liability (concurring opinion of J. Fernando, citing Uy Piaoco v. Osmena,
9 Phil. 299, in Bagatsing v. Herrera, 65 SCRA 434). Being an officer of the court and acting
within the scope of his authorized functions, the sheriff s receipt of the checks in payment of the
judgment execution, may be deemed, in legal contemplation, as received by the court itself (Lara
v. Bayona, 10 May 1955, No. L- 10919).

That the sheriff functions as a conduit of the court is further underscored by the fact that one of
the requisites for appointment to the office is the execution of a bond, "conditioned (upon) the
faithful performance of his (the appointee's) duties .. for the delivery or payment to Government,
or the person entitled thereto, of all properties or sums of money that shall officially come into
his hands" (sec. 330, Revised Administrative Code).

There is no question that the checks came into the sheriffs possession in his official capacity. The
court may require of the judgment debtor, in complying with the judgment, no further burden
than his vigilance in ensuring that the person he is paying money or delivering property to is a
person authorized by the court to receive it. Beyond this, further expectations become
unreasonable. To my mind, a proposal that would make the judgment debtor unqualifiedly the
insurer of the judgment creditor's entitlement to the judgment amount which is really what this
case is all about begs the question.
That the checks were made out in the sheriffs name (a practice, by the way, of long and common
acceptance) is of little consequence if juxtaposed with the extent of the authority explicitly
granted him by law as the officer entrusted with the power to execute and implement court
judgments. The sheriffs requirement that the checks in payment of the judgment debt be issued in
his name was simply an assertion of that authority; and PAL's compliance cannot in the premises
be faulted merely because of the sheriffs subsequent malfeasance in absconding with the
payment instead of turning it over to the judgment creditor.

If payment had been in cash, no question about its validity or of the authority and duty of the
sheriff to accept it in settlement of PAL's judgment obligation would even have arisen. Simply
because it was made by checks issued in the sheriff s name does not warrant reaching any
different conclusion.

As payment to the court discharges the judgment debtor from his responsibility on the judgment,
so too must payment to the person designated by such court and authorized to act in its behalf,
operate to produce the same effect.

It is unfortunate and deserving of commiseration that Amelia Tan was deprived of what was
adjudged to her when the sheriff misappropriated the payment made to him by PAL in
dereliction of his sworn duties. But I submit that her remedy lies, not here and in reviving
liability under a judgment already lawfully satisfied, but elsewhere.

ACCORDINGLY, I vote to grant the petition.

Melencio-Herrera, Gancayco, J., concurs.

FELICIANO, J., dissenting:

I concur in the able dissenting opinions of Narvasa and Padilla, JJ. and would merely wish to add
a few footnotes to their lucid opinions.

1. Narvasa, J. has demonstrated in detail that a sheriff is authorized by the Rules

of Court and our case law to receive either legal tender or checks from the
judgment debtor in satisfaction of the judgment debt. In addition, Padilla, J. has
underscored the obligation of the sheriff, imposed upon him by the nature of his
office and the law, to turn over such legal tender, checks and proceeds of
execution sales to the judgment creditor. The failure of a sheriff to effect such
turnover and his conversion of the funds (or goods) held by him to his own uses,
do not have the effect of frustrating payment by and consequent discharge of the
judgment debtor.

To hold otherwise would be to throw the risk of the sheriff faithfully performing
his duty as a public officer upon those members of the general public who are
compelled to deal with him. It seems to me that a judgment debtor who turns over
funds or property to the sheriff can not reasonably be made an insurer of the
honesty and integrity of the sheriff and that the risk of the sheriff carrying out his
duties honestly and faithfully is properly lodged in the State itself The sheriff, like
all other officers of the court, is appointed and paid and controlled and disciplined
by the Government, more specifically by this Court. The public surely has a duty
to report possible wrongdoing by a sheriff or similar officer to the proper
authorities and, if necessary, to testify in the appropriate judicial and
administrative disciplinary proceedings. But to make the individual members of
the general community insurers of the honest performance of duty of a sheriff, or
other officer of the court, over whom they have no control, is not only deeply
unfair to the former. It is also a confession of comprehensive failure and comes
too close to an abdication of duty on the part of the Court itself. This Court should
have no part in that.

2. I also feel compelled to comment on the majority opinion written by Gutierrez,

J. with all his customary and special way with words. My learned and eloquent
brother in the Court apparently accepts the proposition that payment by a
judgment debtor of cash to a sheriff produces the legal effects of payment, the
sheriff being authorized to accept such payment. Thus, in page 10 of his ponencia,
Gutierrez, J. writes:

The receipt of money due on a judgment by an officer authorized by law to accept

it will satisfy the debt. (Citations omitted)

The theory is where payment is made to a person authorized and recognized by

the creditor, the payment to such a person so authorized is deemed payment to the
creditor. Under ordinary circumstances, payment by the judgment debtor in the
case at bar, to the sheriff would be valid payment to extinguish the judgment debt.

Shortly thereafter, however, Gutierrez, J. backs off from the above position and
strongly implies that payment in cash to the sheriff is sheer imprudence on the
part of the judgment debtor and that therefore, should the sheriff abscond with the
cash, the judgment debtor has not validly discharged the judgment debt:

It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been
payment in full legal contemplation. The reasoning is logical but is it valid and
proper?

In the first place, PAL did not pay in cash. It paid in checks.

And second, payment in cash always carries with it certain cautions. Nobody
hands over big amounts of cash in a careless and inane manner. Mature thought is
given to the possibility of the cash being lost, of the bearer being waylaid or
running off with what he is carrying for another. Payment in checks is precisely
intended to avoid the possibility of the money going to the wrong party....
 Payment in money or cash to the implementing officer may be deemed absolute
payment of the judgment debt but the court has never, in the least bit, suggested
that judgment debtors should settle their obligations by turning over huge
amounts of cash or legal tender to sheriffs and other executing officers. ...
(Emphasis in the original) (Majority opinion, pp. 12-13)

There is no dispute with the suggestion apparently made that maximum safety is secured where
the judgment debtor delivers to the sheriff not cash but a check made out, not in the name of the
sheriff, but in the judgment creditor's name. The fundamental point that must be made, however,
is that under our law only cash is legal tender and that the sheriff can be compelled to accept only
cash and not checks, even if made out to the name of the judgment creditor. 1 The sheriff could
have quite lawfully required PAL to deliver to him only cash, i.e., Philippine currency. If the
sheriff had done so, and if PAL had complied with such a requirement, as it would have had to,
one would have to agree that legal payment must be deemed to have been effected. It requires no
particularly acute mind to note that a dishonest sheriff could easily convert the money and
abscond. The fact that the sheriff in the instant case required, not cash to be delivered to him, but
rather a check made out in his name, does not change the legal situation. PAL did not thereby
become negligent; it did not make the loss anymore possible or probable than if it had instead
delivered plain cash to the sheriffs.

It seems to me that the majority opinion's real premise is the unspoken one that the judgment
debtor should bear the risk of the fragility of the sheriff s virtue until the money or property
parted with by the judgment debtor actually reaches the hands of the judgment creditor. This
brings me back to my earlier point that risk is most appropriately borne not by the judgment
debtor, nor indeed by the judgment creditor, but by the State itself. The Court requires all sheriffs
to post good and adequate fidelity bonds before entering upon the performance of their duties
and, presumably, to maintain such bonds in force and effect throughout their stay in office. 2 The
judgment creditor, in circumstances like those of the instant case, could be allowed to execute
upon the absconding sheriff s bond. 3

I believe the Petition should be granted and I vote accordingly.

PADILLA, J., Dissenting Opinion

From the facts that appear to be undisputed, I reach a conclusion different from that of the
majority. Sheriff Emilio Z. Reyes, the trial court's authorized sheriff, armed with a writ of
execution to enforce a final money judgment against the petitioner Philippine Airlines (PAL) in
favor of private respondent Amelia Tan, proceeded to petitioner PAL's office to implement the
writ.

There is no question that Sheriff Reyes, in enforcing the writ of execution, was acting with full
authority as an officer of the law and not in his personal capacity. Stated differently, PAL had
every right to assume that, as an officer of the law, Sheriff Reyes would perform his duties as
enjoined by law. It would be grossly unfair to now charge PAL with advanced or constructive
notice that Mr. Reyes would abscond and not deliver to the judgment creditor the proceeds of the
writ of execution. If a judgment debtor cannot rely on and trust an officer of the law, as the
Sheriff, whom else can he trust?

Pursued to its logical extreme, if PAL had delivered to Sheriff Reyes the amount of the judgment
in CASH, i.e. Philippine currency, with the corresponding receipt signed by Sheriff Reyes, this
would have been payment by PAL in full legal contemplation, because under Article 1240 of the
Civil Code, "payment shall be made to the person in whose favor the obligation has been
constituted or his successor in interest or any person authorized to receive it." And said payment
if made by PAL in cash, i.e., Philippine currency, to Sheriff Reyes would have satisfied PAL's
judgment obligation, as payment is a legally recognized mode for extinguishing one's obligation.
(Article 1231, Civil Code).

Under Sec. 15, Rule 39, Rules of Court which provides that-

Sec. 15. Execution of money judgments. — The officer must enforce an execution
of a money judgment by levying on all the property, real and personal of every
name and nature whatsoever, and which may be disposed of for value, of the
judgment debtor not exempt from execution, or on a sufficient amount of such
property, if there be sufficient, and selling the same, and paying to the judgment
creditor, or his attorney, so much of the proceeds as will satisfy the judgment. ...
.(emphasis supplied)

it would be the duty of Sheriff Reyes to pay to the judgment creditor the proceeds of the
execution i.e., the cash received from PAL (under the above assumption). But, the duty of the
sheriff to pay the cash to the judgment creditor would be a matter separate the distinct from the
fact that PAL would have satisfied its judgment obligation to Amelia Tan, the judgment creditor,
by delivering the cash amount due under the judgment to Sheriff Reyes.

Did the situation change by PAL's delivery of its two (2) checks totalling P30,000.00 drawn
against its bank account, payable to Sheriff Reyes, for account of the judgment rendered against
PAL? I do not think so, because when Sheriff Reyes encashed the checks, the encashment was in
fact a payment by PAL to Amelia Tan through Sheriff Reyes, an officer of the law authorized to
receive payment, and such payment discharged PAL'S obligation under the executed judgment.

If the PAL cheeks in question had not been encashed by Sheriff Reyes, there would be no
payment by PAL and, consequently no discharge or satisfaction of its judgment obligation. But
the checks had been encashed by Sheriff Reyes giving rise to a situation as if PAL had paid
Sheriff Reyes in cash, i.e., Philippine currency. This, we repeat, is payment, in legal
contemplation, on the part of PAL and this payment legally discharged PAL from its judgment
obligation to the judgment creditor. To be sure, the same encashment by Sheriff Reyes of PAL's
checks delivered to him in his official capacity as Sheriff, imposed an obligation on Sheriff
Reyes to pay and deliver the proceeds of the encashment to Amelia Tan who is deemed to have
acquired a cause of action against Sheriff Reyes for his failure to deliver to her the proceeds of
the encashment. As held:
 Payment of a judgment, to operate as a release or satisfaction, even pro tanto must
be made to the plaintiff or to some person authorized by him, or by law, to receive
it. The payment of money to the sheriff having an execution satisfies it, and, if the
plaintiff fails to receive it, his only remedy is against the officer (Henderson v.
Planters' and Merchants Bank, 59 SO 493, 178 Ala. 420).

Payment of an execution satisfies it without regard to whether the officer pays it

over to the creditor or misapplies it (340, 33 C.J.S. 644, citing Elliot v. Higgins,
83 N.C. 459). If defendant consents to the Sheriff s misapplication of the money,
however, defendant is estopped to claim that the debt is satisfied (340, 33 C.J.S.
644, citing Heptinstall v. Medlin 83 N.C. 16).

The above rulings find even more cogent application in the case at bar because, as contended by
petitioner PAL (not denied by private respondent), when Sheriff Reyes served the writ of
execution on PAL, he (Reyes) was accompanied by private respondent's counsel. Prudence
dictated that when PAL delivered to Sheriff Reyes the two (2) questioned checks (payable to
Sheriff Reyes), private respondent's counsel should have insisted on their immediate encashment
by the Sheriff with the drawee bank in order to promptly get hold of the amount belonging to his
client, the judgment creditor.

ACCORDINGLY, I vote to grant the petition and to quash the court a quo's alias writ of
execution.

Melencio-Herrera, Gancayco, Sarmiento, Cortes, JJ., concurs.

Separate Opinions

NARVASA, J., dissenting:

The execution of final judgments and orders is a function of the sheriff, an officer of the court
whose authority is by and large statutorily determined to meet the particular exigencies arising
from or connected with the performance of the multifarious duties of the office. It is the
acknowledgment of the many dimensions of this authority, defined by statute and chiselled by
practice, which compels me to disagree with the decision reached by the majority.

A consideration of the wide latitude of discretion allowed the sheriff as the officer of the court
most directly involved with the implementation and execution of final judgments and orders
persuades me that PAL's payment to the sheriff of its judgment debt to Amelia Tan, though made
by check issued in said officer's name, lawfully satisfied said obligation and foreclosed further
recourse therefor against PAL, notwithstanding the sheriffs failure to deliver to Tan the proceeds
of the check.

It is a matter of history that the judiciary .. is an inherit or of the Anglo-American

tradition. While the common law as such .. "is not in force" in this jurisdiction, "to
breathe the breath of life into many of the institutions, introduced [here] under
American sovereignty, recourse must be had to the rules, principles and doctrines
of the common law under whose protecting aegis the prototypes of these
institutions had their birth" A sheriff is "an officer of great antiquity," and was
also called the shire reeve. A shire in English law is a Saxon word signifying a
division later called a county. A reeve is an ancient English officer of justice
inferior in rank to an alderman .. appointed to process, keep the King's peace, and
put the laws in execution. From a very remote period in English constitutional
history .. the shire had another officer, namely the shire reeve or as we say, the
sheriff. .. The Sheriff was the special representative of the legal or central
authority, and as such usually nominated by the King. .. Since the earliest times,
both in England and the United States, a sheriff has continued his status as an
adjunct of the court .. . As it was there, so it has been in the Philippines from the
time of the organization of the judiciary .. . (J. Fernando's concurring opinion in
Bagatsing v. Herrera, 65 SCRA 434)

One of a sheriff s principal functions is to execute final judgments and orders. The Rules of
Court require the writs of execution to issue to him, directing him to enforce such judgments and
orders in the manner therein provided (Rule 39). The mode of enforcement varies according to
the nature of the judgment to be carried out: whether it be against property of the judgment
debtor in his hands or in the hands of a third person i e. money judgment), or for the sale of
property, real or personal (i.e. foreclosure of mortgage) or the delivery thereof, etc. (sec. 8, Rule
39).

Under sec. 15 of the same Rule, the sheriff is empowered to levy on so much of the judgment
debtor's property as may be sufficient to enforce the money judgment and sell these properties at
public auction after due notice to satisfy the adjudged amount. It is the sheriff who, after the
auction sale, conveys to the purchaser the property thus sold (secs. 25, 26, 27, Rule 39), and pays
the judgment creditor so much of the proceeds as will satisfy the judgment. When the property
sold by him on execution is an immovable which consequently gives rise to a light of redemption
on the part of the judgment debtor and others (secs. 29, 30, Rule 39), it is to him (or to the
purchaser or redemptioner that the payments may be made by those declared by law as entitled to
redeem (sec. 31, Rule 39); and in this situation, it becomes his duty to accept payment and
execute the certificate of redemption (Enage v. Vda. y Hijos de Escano, 38 Phil. 657, cited in
Moran, Comments on the Rules of Court, 1979 ed., vol. 2, pp. 326-327). It is also to the sheriff
that "written notice of any redemption must be given and a duplicate filed with the registrar of
deeds of the province, and if any assessments or taxes are paid by the redemptioner or if he has
or acquires any lien other than that upon which the redemption was made, notice thereof must in
like manner be given to the officer and filed with the registrar of deeds," the effect of failure to
file such notice being that redemption may be made without paying such assessments, taxes, or
liens (sec. 30, Rule 39).
The sheriff may likewise be appointed a receiver of the property of the judgment debtor where
the appointment of the receiver is deemed necessary for the execution of the judgment (sec. 32,
Rule 39).

At any time before the sale of property on execution, the judgment debtor may prevent the sale
by paying the sheriff the amount required by the execution and the costs that have been incurred
therein (sec. 20, Rule 39).

The sheriff is also authorized to receive payments on account of the judgment debt tendered by
"a person indebted to the judgment debtor," and his "receipt shall be a sufficient discharge for the
amount so paid or directed to be credited by the judgment creditor on the execution" (sec. 41,
Rule 39).

Now, obviously, the sheriff s sale extinguishes the liability of the judgment debtor either in fun,
if the price paid by the highest bidder is equal to, or more than the amount of the judgment or pro
tanto if the price fetched at the sale be less. Such extinction is not in any way dependent upon the
judgment creditor's receiving the amount realized, so that the conversion or embezzlement of the
proceeds of the sale by the sheriff does not revive the judgment debt or render the judgment
creditor liable anew therefor.

So, also, the taking by the sheriff of, say, personal property from the judgment debtor for
delivery to the judgment creditor, in fulfillment of the verdict against him, extinguishes the
debtor's liability; and the conversion of said property by the sheriff, does not make said debtor
responsible for replacing the property or paying the value thereof.

In the instances where the Rules allow or direct payments to be made to the sheriff, the payments
may be made by check, but it goes without saying that if the sheriff so desires, he may require
payment to be made in lawful money. If he accepts the check, he places himself in a position
where he would be liable to the judgment creditor if any damages are suffered by the latter as a
result of the medium in which payment was made (Javellana v. Mirasol, et al., 40 Phil. 761). The
validity of the payment made by the judgment debtor, however, is in no wise affected and the
latter is discharged from his obligation to the judgment creditor as of the moment the check
issued to the sheriff is encashed and the proceeds are received by Id. office. The issuance of the
check to a person authorized to receive it (Art. 1240, Civil Code; See. 46 of the Code of Civil
Procedure; Enage v. Vda y Hijos de Escano, 38 Phil. 657, cited in Javellana v. Mirasol, 40 Phil.
761) operates to release the judgment debtor from any further obligations on the judgment.

The sheriff is an adjunct of the court; a court functionary whose competence involves both
discretion and personal liability (concurring opinion of J. Fernando, citing Uy Piaoco v. Osmena,
9 Phil. 299, in Bagatsing v. Herrera, 65 SCRA 434). Being an officer of the court and acting
within the scope of his authorized functions, the sheriff s receipt of the checks in payment of the
judgment execution, may be deemed, in legal contemplation, as received by the court itself (Lara
v. Bayona, 10 May 1955, No. L- 10919).

That the sheriff functions as a conduit of the court is further underscored by the fact that one of
the requisites for appointment to the office is the execution of a bond, "conditioned (upon) the
faithful performance of his (the appointee's) duties .. for the delivery or payment to Government,
or the person entitled thereto, of all properties or sums of money that shall officially come into
his hands" (sec. 330, Revised Administrative Code).

There is no question that the checks came into the sheriffs possession in his official capacity. The
court may require of the judgment debtor, in complying with the judgment, no further burden
than his vigilance in ensuring that the person he is paying money or delivering property to is a
person authorized by the court to receive it. Beyond this, further expectations become
unreasonable. To my mind, a proposal that would make the judgment debtor unqualifiedly the
insurer of the judgment creditor's entitlement to the judgment amount which is really what this
case is all about-begs the question.

That the checks were made out in the sheriffs name (a practice, by the way, of long and common
acceptance) is of little consequence if juxtaposed with the extent of the authority explicitly
granted him by law as the officer entrusted with the power to execute and implement court
judgments. The sheriffs requirement that the checks in payment of the judgment debt be issued in
his name was simply an assertion of that authority; and PAL's compliance cannot in the premises
be faulted merely because of the sheriffs subsequent malfeasance in absconding with the
payment instead of turning it over to the judgment creditor.

If payment had been in cash, no question about its validity or of the authority and duty of the
sheriff to accept it in settlement of PAL's judgment obligation would even have arisen. Simply
because it was made by checks issued in the sheriff s name does not warrant reaching any
different conclusion.

As payment to the court discharges the judgment debtor from his responsibility on the judgment,
so too must payment to the person designated by such court and authorized to act in its behalf,
operate to produce the same effect.

It is unfortunate and deserving of commiseration that Amelia Tan was deprived of what was
adjudged to her when the sheriff misappropriated the payment made to him by PAL in
dereliction of his sworn duties. But I submit that her remedy lies, not here and in reviving
liability under a judgment already lawfully satisfied, but elsewhere.

ACCORDINGLY, I vote to grant the petition.

Melencio-Herrera, Gancayco, J., concurs.

FELICIANO, J., dissenting:

I concur in the able dissenting opinions of Narvasa and Padilla, JJ. and would merely wish to add
a few footnotes to their lucid opinions.
1. Narvasa, J. has demonstrated in detail that a sheriff is authorized by the Rules
of Court and our case law to receive either legal tender or checks from the
judgment debtor in satisfaction of the judgment debt. In addition, Padilla, J. has
underscored the obligation of the sheriff, imposed upon him by the nature of his
office and the law, to turn over such legal tender, checks and proceeds of
execution sales to the judgment creditor. The failure of a sheriff to effect such
turnover and his conversion of the funds (or goods) held by him to his own uses,
do not have the effect of frustrating payment by and consequent discharge of the
judgment debtor.

To hold otherwise would be to throw the risk of the sheriff faithfully performing
his duty as a public officer upon those members of the general public who are
compelled to deal with him. It seems to me that a judgment debtor who turns over
funds or property to the sheriff can not reasonably be made an insurer of the
honesty and integrity of the sheriff and that the risk of the sheriff carrying out his
duties honestly and faithfully is properly lodged in the State itself The sheriff, like
all other officers of the court, is appointed and paid and controlled and disciplined
by the Government, more specifically by this Court. The public surely has a duty
to report possible wrongdoing by a sheriff or similar officer to the proper
authorities and, if necessary, to testify in the appropriate judicial and
administrative disciplinary proceedings. But to make the individual members of
the general community insurers of the honest performance of duty of a sheriff, or
other officer of the court, over whom they have no control, is not only deeply
unfair to the former. It is also a confession of comprehensive failure and comes
too close to an abdication of duty on the part of the Court itself. This Court should
have no part in that.

2. I also feel compelled to comment on the majority opinion written by Gutierrez,

J. with all his customary and special way with words. My learned and eloquent
brother in the Court apparently accepts the proposition that payment by a
judgment debtor of cash to a sheriff produces the legal effects of payment, the
sheriff being authorized to accept such payment. Thus, in page 10 of his ponencia,
Gutierrez, J. writes:

The receipt of money due on a judgment by an officer authorized by law to accept

it will satisfy the debt. (Citations omitted)

The theory is where payment is made to a person authorized and recognized by

the creditor, the payment to such a person so authorized is deemed payment to the
creditor. Under ordinary circumstances, payment by the judgment debtor in the
case at bar, to the sheriff would be valid payment to extinguish the judgment debt.

Shortly thereafter, however, Gutierrez, J. backs off from the above position and
strongly implies that payment in cash to the sheriff is sheer imprudence on the
part of the judgment debtor and that therefore, should the sheriff abscond with the
cash, the judgment debtor has not validly discharged the judgment debt:
 It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been
payment in full legal contemplation. The reasoning is logical but is it valid and
proper?

In the first place, PAL did not pay in cash. It paid in checks.

And second, payment in cash always carries with it certain cautions. Nobody
hands over big amounts of cash in a careless and inane manner. Mature thought is
given to the possibility of the cash being lost, of the bearer being waylaid or
running off with what he is carrying for another. Payment in checks is precisely
intended to avoid the possibility of the money going to the wrong party....

Payment in money or cash to the implementing officer may be deemed absolute

payment of the judgment debt but the court has never, in the least bit, suggested
that judgment debtors should settle their obligations by turning over huge
amounts of cash or legal tender to sheriffs and other executing officers. ...
(Emphasis in the original) (Majority opinion, pp. 12-13)

There is no dispute with the suggestion apparently made that maximum safety is secured where
the judgment debtor delivers to the sheriff not cash but a check made out, not in the name of the
sheriff, but in the judgment creditor's name. The fundamental point that must be made, however,
is that under our law only cash is legal tender and that the sheriff can be compelled to accept only
cash and not checks, even if made out to the name of the judgment creditor. 1 The sheriff could
have quite lawfully required PAL to deliver to him only cash, i.e., Philippine currency. If the
sheriff had done so, and if PAL had complied with such a requirement, as it would have had to,
one would have to agree that legal payment must be deemed to have been effected. It requires no
particularly acute mind to note that a dishonest sheriff could easily convert the money and
abscond. The fact that the sheriff in the instant case required, not cash to be delivered to him, but
rather a check made out in his name, does not change the legal situation. PAL did not thereby
become negligent; it did not make the loss anymore possible or probable than if it had instead
delivered plain cash to the sheriffs.

It seems to me that the majority opinion's real premise is the unspoken one that the judgment
debtor should bear the risk of the fragility of the sheriff s virtue until the money or property
parted with by the judgment debtor actually reaches the hands of the judgment creditor. This
brings me back to my earlier point that risk is most appropriately borne not by the judgment
debtor, nor indeed by the judgment creditor, but by the State itself. The Court requires all sheriffs
to post good and adequate fidelity bonds before entering upon the performance of their duties
and, presumably, to maintain such bonds in force and effect throughout their stay in office. 2 The
judgment creditor, in circumstances like those of the instant case, could be allowed to execute
upon the absconding sheriff s bond. 3

I believe the Petition should be granted and I vote accordingly.

PADILLA, J., Dissenting Opinion

From the facts that appear to be undisputed, I reach a conclusion different from that of the
majority. Sheriff Emilio Z. Reyes, the trial court's authorized sheriff, armed with a writ of
execution to enforce a final money judgment against the petitioner Philippine Airlines (PAL) in
favor of private respondent Amelia Tan, proceeded to petitioner PAL's office to implement the
writ.

There is no question that Sheriff Reyes, in enforcing the writ of execution, was acting with full
authority as an officer of the law and not in his personal capacity. Stated differently, PAL had
every right to assume that, as an officer of the law, Sheriff Reyes would perform his duties as
enjoined by law. It would be grossly unfair to now charge PAL with advanced or constructive
notice that Mr. Reyes would abscond and not deliver to the judgment creditor the proceeds of the
writ of execution. If a judgment debtor cannot rely on and trust an officer of the law, as the
Sheriff, whom else can he trust?

Pursued to its logical extreme, if PAL had delivered to Sheriff Reyes the amount of the judgment
in CASH, i.e. Philippine currency, with the corresponding receipt signed by Sheriff Reyes, this
would have been payment by PAL in full legal contemplation, because under Article 1240 of the
Civil Code, "payment shall be made to the person in whose favor the obligation has been
constituted or his successor in interest or any person authorized to receive it." And said payment
if made by PAL in cash, i.e., Philippine currency, to Sheriff Reyes would have satisfied PAL's
judgment obligation, as payment is a legally recognized mode for extinguishing one's obligation.
(Article 1231, Civil Code).

Under Sec. 15, Rule 39, Rules of Court which provides that-

Sec. 15. Execution of money judgments.-The officer must enforce an execution of

a money judgment by levying on all the property, real and personal of every name
and nature whatsoever, and which may be disposed of for value, of the judgment
debtor not exempt from execution, or on a sufficient amount of such property, if
there be sufficient, and selling the same, and paying to the judgment creditor, or
his attorney, so much of the proceeds as will satisfy the judgment. ... .(emphasis
supplied)

it would be the duty of Sheriff Reyes to pay to the judgment creditor the proceeds of the
execution i.e., the cash received from PAL (under the above assumption). But, the duty of the
sheriff to pay the cash to the judgment creditor would be a matter separate the distinct from the
fact that PAL would have satisfied its judgment obligation to Amelia Tan, the judgment creditor,
by delivering the cash amount due under the judgment to Sheriff Reyes.

Did the situation change by PAL's delivery of its two (2) checks totalling P30,000.00 drawn
against its bank account, payable to Sheriff Reyes, for account of the judgment rendered against
PAL? I do not think so, because when Sheriff Reyes encashed the checks, the encashment was in
fact a payment by PAL to Amelia Tan through Sheriff Reyes, an officer of the law authorized to
receive payment, and such payment discharged PAL'S obligation under the executed judgment.
If the PAL cheeks in question had not been encashed by Sheriff Reyes, there would be no
payment by PAL and, consequently no discharge or satisfaction of its judgment obligation. But
the checks had been encashed by Sheriff Reyes giving rise to a situation as if PAL had paid
Sheriff Reyes in cash, i.e., Philippine currency. This, we repeat, is payment, in legal
contemplation, on the part of PAL and this payment legally discharged PAL from its judgment
obligation to the judgment creditor. To be sure, the same encashment by Sheriff Reyes of PAL's
checks delivered to him in his official capacity as Sheriff, imposed an obligation on Sheriff
Reyes to pay and deliver the proceeds of the encashment to Amelia Tan who is deemed to have
acquired a cause of action against Sheriff Reyes for his failure to deliver to her the proceeds of
the encashment. As held:

Payment of a judgment, to operate as a release or satisfaction, even pro tanto must

be made to the plaintiff or to some person authorized by him, or by law, to receive
it. The payment of money to the sheriff having an execution satisfies it, and, if the
plaintiff fails to receive it, his only remedy is against the officer (Henderson v.
Planters' and Merchants Bank, 59 SO 493, 178 Ala. 420).

Payment of an execution satisfies it without regard to whether the officer pays it

over to the creditor or misapplies it (340, 33 C.J.S. 644, citing Elliot v. Higgins,
83 N.C. 459). If defendant consents to the Sheriff s misapplication of the money,
however, defendant is estopped to claim that the debt is satisfied (340, 33 C.J.S.
644, citing Heptinstall v. Medlin 83 N.C. 16).

The above rulings find even more cogent application in the case at bar because, as contended by
petitioner PAL (not denied by private respondent), when Sheriff Reyes served the writ of
execution on PAL, he (Reyes) was accompanied by private respondent's counsel. Prudence
dictated that when PAL delivered to Sheriff Reyes the two (2) questioned checks (payable to
Sheriff Reyes), private respondent's counsel should have insisted on their immediate encashment
by the Sheriff with the drawee bank in order to promptly get hold of the amount belonging to his
client, the judgment creditor.

ACCORDINGLY, I vote to grant the petition and to quash the court a quo's alias writ of
execution.

Melencio-Herrera, Gancayco, Sarmiento, Cortes, JJ., concurs.

PAYMENT IN FOREIGN CURRENCY

FIRST DIVISION

[G.R. No. 160215. November 10, 2004]

HYDRO RESOURCES CONTRACTORS CORPORATION, petitioner, vs. NATIONAL

IRRIGATION ADMINISTRATION, respondent.
DECISION

YNARES-SANTIAGO, J.:

Challenged in this petition for review on certiorari under Rule 45 is the Decision of the Court of
Appeals[1] dated October 29, 2002 and its Resolution dated September 24, 2003[2] in CA-G.R.
SP No. 44527,[3] reversing the judgment of the Construction Industry Arbitration Commission
(CIAC) dated June 10, 1997[4] in CIAC Case No. 14-98 in favor of petitioner Hydro Resources
Contractors Corporation.

The facts are undisputed and are matters of record.

In a competitive bidding conducted by the National Irrigation Administration (NIA) sometime in

August 1978, Hydro Resources Contractors Corporation (Hydro) was awarded Contract MPI-C-
2[5] involving the main civil work of the Magat River Multi-Purpose Project. The contract price
for the work was pegged at P1,489,146,473.72 with the peso component thereof amounting to
P1,041,884,766.99 and the US$ component valued at $60,657,992.37 at the exchange rate of
P7.3735 to the dollar or P447,361,706.73.

On November 6, 1978, the parties signed Amendment No. 1[6] of the contract whereby NIA
agreed to increase the foreign currency allocation for equipment financing from
US$28,000,000.00 for the first and second years of the contract to US$38,000,000.00, to be
made available in full during the first year of the contract to enable the contractor to purchase the
needed equipment and spare parts, as approved by NIA, for the construction of the project. On
April 9, 1980, the parties entered into a Memorandum of Agreement[7] (MOA) whereby they
agreed that Hydro may directly avail of the foreign currency component of the contract for the
sole purpose of purchasing necessary spare parts and equipment for the project. This was made
in order for the contractor to avoid further delays in the procurement of the said spare parts and
equipment.

A few months after the MOA was signed, NIA and Hydro entered into a Supplemental
Memorandum of Agreement (Supplemental MOA) to include among the items to be financed out
of the foreign currency portion of the Contract construction materials, supplies and services as
well as equipment and materials for incorporation in the permanent works of the Project.[8]

Work on the project progressed steadily until Hydro substantially completed the project in 1982
and the final acceptance was made by NIA on February 14, 1984.[9]

During the period of the execution of the contract, the foreign exchange value of the peso against
the US dollar declined and steadily deteriorated. Whenever Hydros availment of the foreign
currency component exceeded the amount of the foreign currency payable to Hydro for a
particular period, NIA charged interest in dollars based on the prevailing exchange rate instead
of the fixed exchange rate of P7.3735 to the dollar. Yet when Hydro received payments from
NIA in Philippine Pesos, NIA made deductions from Hydros foreign currency component at the
fixed exchange rate of P7.3735 to US$1.00 instead of the prevailing exchange rate.
Upon completion of the project, a final reconciliation of the total entitlement of Hydro to the
foreign currency component of the contract was made. The result of this final reconciliation
showed that the total entitlement of Hydro to the foreign currency component of the contract
exceeded the amount of US dollars required by Hydro to repay the advances made by NIA for its
account in the importation of new equipment, spare parts and tools. Hydro then requested a full
and final payment due to the underpayment of the foreign exchange portion caused by price
escalations and extra work orders. In 1983, NIA and Hydro prepared a joint computation
denominated as the MPI-C-2 Dollar Rate Differential on Foreign Component of Escalation.[10]
Based on said joint computation, Hydro was still entitled to a foreign exchange differential of
US$1,353,771.79 equivalent to P10,898,391.17.

Hydro then presented its claim for said foreign exchange differential to NIA on August 12,
1983[11] but the latter refused to honor the same. Hydro made several[12] demands to recover
its claim until the same was turned down with finality by then NIA Administrator Federico N.
Alday, Jr. on January 6, 1987.[13]

On December 7, 1994, Hydro filed a request for arbitration with the Construction Industry
Arbitration Commission (CIAC).[14] In the said request, Hydro nominated six (6) arbitrators.
The case was docketed as CIAC Case No. 18-94.

NIA filed its Answer with Compulsory Counterclaim[15] raising laches, estoppel and lack of
jurisdiction by CIAC as its special defenses. NIA also submitted its six (6) nominees to the panel
of arbitrators. After appointment of the arbitrators, both parties agreed on the Terms of
Reference[16] as well as the issues submitted for arbitration.

On March 13, 1995, NIA filed a Motion to Dismiss[17] questioning CIACs jurisdiction to take
cognizance of the case. The latter, however, deferred resolution of the motion and set the case for
hearing for the reception of evidence.[18] NIA moved[19] for reconsideration but the same was
denied by CIAC in an Order dated April 25, 1995.[20]

Dissatisfied, NIA filed a petition for certiorari and prohibition with the Court of Appeals where
the same was docketed as CA-G.R. SP No. 37180,[21] which dismissed the petition in a
Resolution dated June 28, 1996.[22]

NIA challenged the resolution of the Court of Appeals before this Court in a special civil action
for certiorari, docketed as G.R. No. 129169.[23]

Meanwhile, on June 10, 1997, the CIAC promulgated a decision in favor of Hydro.[24] NIA
filed a Petition for Review on Appeal before the Court of Appeals, which was docketed as CA-
G.R. SP No. 44527.[25]

During the pendency of CA-G.R. SP No. 44527 before the Court of Appeals, this Court
dismissed special civil action for certiorari docketed as G.R. No. 129169 on the ground that
CIAC had jurisdiction over the dispute and directed the Court of Appeals to proceed with
reasonable dispatch in the disposition of CA-G.R. SP No. 44527. NIA did not move for
reconsideration of the said decision, hence, the same became final and executory on December
15, 1999.[26]

Thereafter, the Court of Appeals rendered the challenged decision in CA-G.R. SP No. 44527,
reversing the judgment of the CIAC on the grounds that: (1) Hydros claim has prescribed; (2)
assuming that Hydro was entitled to its claim, the rate of exchange should be based on a fixed
rate; (3) Hydros claim is contrary to R.A. No. 529;[27] (4) NIAs Certification of Non-Forum-
Shopping was proper even if the same was signed only by counsel and not by NIAs authorized
representative; and (5) NIA did not engage in forum-shopping.

Hydros Motion for Reconsideration was denied in Resolution of September 24, 2003.

Hence, this petition.

Addressing first the issue of prescription, the Court of Appeals, in ruling that Hydros claim had
prescribed, reasoned thus:

Nevertheless, We find good reason to apply the principle of prescription against HRCC. It is well
to note that Section 25 of the General Conditions of the subject contract provides (CIAC
Decision, p. 15, Rollo, p. 57):

Any controversy or dispute arising out of or relating to this Contract which cannot be resolved by
mutual agreement shall be decided by the Administrator within thirty (30) calendar days from
receipt of a written notice from Contractor and who shall furnish Contractor a written copy of
this decision. Such decision shall be final and conclusive unless within thirty (30) calendar days
from the date of receipt thereof, Contractor shall deliver to NIA a written notice addressed to the
Administrator that he desires that the dispute be submitted to arbitration. Pending decision from
arbitration, Contractor shall proceed diligently with the performance of the Contract and in
accordance with the decision of the Administrator. (Emphasis and Underscoring Ours)

Both parties admit the existence of this provision in the Contract (Petition, p. 4; Comment, p. 16;
Rollo, pp. 12 and 131). Apropos, the following matters are clear: (1) any controversy or dispute
between the parties arising from the subject contract shall be governed by the provisions of the
contract; (2) upon the failure to arrive at a mutual agreement, the contractor shall submit the
dispute to the Administrator of NIA for determination; and (3) the decision of the Administrator
shall become final and conclusive, unless within thirty (30) calendar days from the date of
receipt thereof, the Contractor shall deliver to NIA a written notice addressed to the
Administrator that he desires that the dispute be submitted for arbitration.

Prescinding from the foregoing matters, We find that the CIAC erred in granting HRCCs claim
considering that the latters right to make such demand had clearly prescribed. To begin with, on
January 7, 1986, Cesar L. Tech (NIAs Administrator at the time) informed HRCC in writing that
after a review of the additional points raised by the latter, NIA confirms its original
recommendation not to allow the said claim (Annex F; Rollo, p. 81; CIAC Decision, p. 11; Rollo,
p. 53). This should have propelled private respondent to notify and signify to NIA of intention to
submit the dispute to arbitration pursuant to the provision of the contract. Yet, it did not. Instead
it persisted to send several letters to NIA reiterating the reason for its rejected claim (CIAC
Decision, p. 11; Rollo, p. 53).[28]

We disagree for the following reasons:

First, the appellate court clearly overlooked the fact that NIA, through then Administrator
Fedrico N. Alday, Jr., denied with finality Hydros claim only on January 6, 1987 in a letter
bearing the same date[29] which reads:

This refers to your letter dated November 7, 1986 requesting reconsideration on your claim for
payment of the Dollar Rate Differential of Price Escalation in Contract No. MPI-C-2.

We have reviewed the relevant facts and issues as presented and the additional points raised in
the abovementioned letter in the context of the Contract Documents and we find no strong and
valid reason to reverse the earlier decision of NIAs previous management denying your claim.
Therefore, we regret that we have to reiterate the earlier official stand of NIA under its letter
dated January 7, 1986, that confirms the original recommendation which had earlier been
presented in our 4th Indorsement dated February 5, 1985 to your office.

In view hereof, we regret to say with finality that the claim cannot be given favorable
consideration. (Emphasis and italics supplied)

Hydro received the above-mentioned letter on January 27, 1987.[30] Pursuant to Section 25 of
the Contracts General Conditions (GC-25), Hydro had thirty (30) days from receipt of said
denial, or until February 26, 1987, within which to notify NIA of its desire to submit the dispute
to arbitration.

On February 18, 1987, Hydro sent a letter[31] to NIA, addressed to then NIA Administrator
Federico N. Alday, Jr., manifesting its desire to submit the dispute to arbitration. The letter was
received by NIA on February 19, 1987, which was within the thirty-day prescriptive period.

Moreover, a circumspect scrutiny of the wording of GC-25 with regard to the thirty-day
prescriptive period shows that said proviso is intended to apply to disputes which arose during
the actual construction of the project and not for controversies which occured after the project is
completed. The rationale for such a stipulation was aptly explained thus by the CIAC in its
Decision in CIAC Case No. 18-94:

In construction contracts, there is invariably a provision for interim settlement of disputes. The
right to settle disputes is given to the owner or his representative, either an architect or engineer,
designated as owners representative, only for the purpose of avoiding delay in the completion of
the project. In this particular contract, that right was reserved to the NIA Administrator. The
types of disputes contemplated were those which may have otherwise affected the progress of the
work. It is very clear that this is the purpose of the limiting periods in this clause that the dispute
shall be resolved by the Administrator within 30 days from receipt of a written notice from the
Contractor and that the Contractor may submit to arbitration this dispute if it does not agree with
the decision of the Administrator, and Pending decision from arbitration, Contractor shall
proceed diligently with the performance of the Contract and in accordance with the decision of
the Administrator.

In this case, the dispute had arisen after completion of the Project. The reason for the 30-day
limitation no longer applies, and we find no legal basis for applying it. Moreover, in Exhibit B,
NIA Administrator Cesar L. Tech had, instead of rendering an adverse decision, by signing the
document with HRCCs Onofre B. Banson, implicitly approved the payment of the foreign
exchange differential, but this payment could not be made because of the opinion of Auditor
Saldua and later of the Commission on Audit.[32]

Second, as early as April 1983, Hydro and NIA, through its Administrator Cesar L. Tech,
prepared the Joint Computation which shows that Hydro is entitled to the foreign currency
differential.[33] As correctly found by the CIAC, this computation constitutes a written
acknowledgment of the debt by the debtor under Article 1155 of the Civil Code, which states:

ART. 1155. The prescription of actions is interrupted when they are filed before the court, when
there is a written extrajudicial demand by the creditors, and when there is any written
acknowledgment of the debt by the debtor. (Emphasis and italics supplied)

Instead of upholding the CIACs findings on this point, the Court of Appeals ruled that Cesar L.
Techs act of signing the Joint Computation was an ultra vires act. This again is patent error. It
must be noted that the Administrator is the highest officer of the NIA. Furthermore, Hydro has
been dealing with NIA through its Administrator in all of its transactions with respect to the
contract and subsequently the foreign currency differential claim. The NIA Administrator is
empowered by the Contract to grant or deny foreign currency differential claims. It would be
preposterous for the NIA Administrator to have the power of granting claims without the
authority to verify the computation of such claims. Finally, the records of the case will show that
NIA itself never disputed its Administrators capacity to sign the Joint Computation because it
knew that the Administrator, in fact, had such capacity.

Even assuming for the sake of argument that the Administrator had no authority to bind NIA, the
latter is already estopped after repeatedly representing to Hydro that the Administrator had such
authority. A corporation may be held in estoppel from denying as against third persons the
authority of its officers or agents who have been clothed by it with ostensible or apparent
authority.[34] Indeed

. . . The rule is of course settled that [a]lthough an officer or agent acts without, or in excess of,
his actual authority if he acts within the scope of an apparent authority with which the
corporation has clothed him by holding him out or permitting him to appear as having such
authority, the corporation is bound thereby in favor of a person who deals with him in good faith
in reliance on such apparent authority, as where an officer is allowed to exercise a particular
authority with respect to the business, or a particular branch of it, continuously and publicly, for
a considerable time.. . .[35]
Third, NIA has clearly waived the prescriptive period when it continued to entertain Hydros
claim regarding new matters raised by the latter in its letters to NIA and then issuing rulings
thereon. In this regard, Article 1112 of the Civil Code provides that:

ART. 1112. Persons with capacity to alienate property may renounce prescription already
obtained, but not the right to prescribe in the future.

Prescription is deemed to have been tacitly renounced when the renunciation results from acts
which imply the abandonment of the right acquired. (Emphasis and italics supplied)

Certainly, when a party has renounced a right acquired by prescription through its actions, it can
no longer claim prescription as a defense.[36]

Fourth, even assuming that NIA did not waive the thirty-day prescriptive period, it clearly
waived the effects of such period when it actively participated in arbitration proceedings through
the following acts:

a) On January 6, 1995, NIA voluntarily filed its written appearance, readily submitted its Answer
and asserted its own Counterclaims;

b) In the Compliance which accompanied the Answer, NIA also submitted its six nominees to
the Arbitral Tribunal to be constituted, among of which one was eventually appointed to the
tribunal;

c) NIA also actively participated in the deliberations for and the formulation of the Terms of
Reference during the preliminary conference set by CIAC; and

d) For the purpose of obviating the introduction of testimonial evidence on the authenticity and
due execution of its documentary evidence, NIA even had examined, upon prior request to
Hydro, all of the documents which the latter intended to present as evidentiary exhibits for the
said arbitration case.

We now come to the issue of whether or not the provisions of R.A. No. 529, otherwise known as
an Act To Assure Uniform Value to Philippine Coin And Currency, is applicable to Hydros
claim.

The Contract between NIA and Hydro is an internationally tendered contract considering that it
was funded by the International Bank for Reconstruction and Development (IBRD). As a
contract funded by an international organization, particularly one recognized by the
Philippines,[37] the contract is exempt from the provisions of R.A. No. 529. R.A. No. 4100
amended the provisions of R.A. 529 thus:

SECTION 1. Section one of Republic Act Numbered Five hundred and twenty-nine, entitled An
Act to Assure Uniform Value of Philippine Coin and Currency, is hereby amended to read as
follows:
Sec. 1. Every provision contained in, or made with respect to, any domestic obligation to wit,
any obligation contracted in the Philippines which provisions purports to give the obligee the
right to require payment in gold or in a particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby, be as it is hereby
declared against public policy, and null, void, and of no effect, and no such provision shall be
contained in, or made with respect to, any obligation hereafter incurred. The above prohibition
shall not apply to (a) transactions where the funds involved are the proceeds of loans or
investments made directly or indirectly, through bona fide intermediaries or agents, by foreign
governments, their agencies and instrumentalities, and international financial and banking
institutions so long as the funds are identifiable, as having emanated from the sources
enumerated above; (b) transactions affecting high-priority economic projects for agricultural,
industrial and power development as may be determined by the National Economic Council
which are financed by or through foreign funds; (c) forward exchange transaction entered into
between banks or between banks and individuals or juridical persons; (d) import-export and
other international banking, financial investment and industrial transactions. With the exception
of the cases enumerated in items (a), (b), (c) and (d) in the foregoing provisions, in which bases
the terms of the parties agreement shall apply, every other domestic obligation heretofore or
hereafter incurred, whether or not any such provision as to payment is contained therein or made
with respect thereto, shall be discharged upon payment in any coin or currency which at the time
of payment is legal tender for public and private debts: Provided, That if the obligation was
incurred prior to the enactment of this Act and required payment in a particular kind of coin or
currency other than Philippine currency, it shall be discharged in Philippine currency measured
at the prevailing rates of exchange at the time the obligation was incurred, except in case of a
loan made in a foreign currency stipulated to be payable in the same currency in which case the
rate of exchange prevailing at the time of the stipulated date of payment shall prevail. All coin
and currency, including Central Bank notes, heretofore and hereafter issued and declared by the
Government of the Philippines shall be legal tender for all debts, public and private.

SECTION 2. This Act shall take effect upon its approval. (Emphasis and italics supplied)

Even assuming ex gratia argumenti that R.A. No. 529 is applicable, it is still erroneous for the
Court of Appeals to deny Hydros claim because Section 1 of R.A. No. 529 states that only the
stipulation requiring payment in foreign currency is void, but not the obligation to make
payment. This can be gleaned from the provision that every other domestic obligation heretofore
or hereafter incurred shall be discharged upon payment in any coin and currency which at the
time is legal tender for public and private debts. In Republic Resources and Development
Corporation v. Court of Appeals,[38] it was held:

. . . it is clear from Section 1 of R.A. No. 529 that what is declared null and void is the provision
contained in, or made with respect to, any domestic obligation to wit, any obligation contracted
in the Philippines which provision purports to give the obligee the right to require payment in
gold or in a particular kind of coin or currency other than Philippine currency or in an amount of
money of the Philippines measured thereby and not the contract or agreement which contains
such proscribed provision. (Emphasis supplied)

More succinctly, we held in San Buenaventura v. Court of Appeals[39] that

It is to be noted under the foregoing provision that while an agreement to pay an obligation in a
currency other than Philippine currency is null and void as contrary to public policy, what the
law specifically prohibits is payment in currency other than legal tender but does not defeat a
creditors claim for payment. A contrary rule would allow a person to profit or enrich himself
inequitably at anothers expense. (Emphasis supplied)

It is thus erroneous for the Court of Appeals to disallow petitioners claim for foreign currency
differential because NIAs obligation should be converted to Philippine Pesos which was legal
tender at the time.[40]

The next issue to be resolved is whether or not Hydros claim should be computed at the fixed
rate of exchange.

When the MOA[41] and the Supplemental MOA[42] were in effect, there were instances when
the foreign currency availed of by Hydro exceeded the foreign currency payable to it for that
particular Progress Payment. In instances like these, NIA actually charged Hydro interest in
foreign currency computed at the prevailing exchange rate and not at the fixed rate. NIA now
insists that the exchange rate should be computed according to the fixed rate and not the
escalating rate it actually charged Hydro.

Suffice it to state that this flip-flopping stance of NIA of adopting and discarding positions to suit
its convenience cannot be countenanced. A person who, by his deed or conduct has induced
another to act in a particular manner, is barred from adopting an inconsistent position, attitude or
course of conduct that thereby causes loss or injury to another.[43] Indeed, the application of the
principle of estoppel is proper and timely in heading off NIAs efforts at renouncing its previous
acts to the prejudice of Hydro which had dealt with it honestly and in good faith.

. . . A principle of equity and natural justice, this is expressly adopted under Article 1431 of the
Civil Code, and pronounced as one of the conclusive presumptions under Rule 131, Section 3(a)
of the Rules of Court, as follows:

Whenever a party has, by his own declaration, act or omission, intentionally and deliberately led
another to believe a particular thing to be true, and to act upon such a belief he cannot, in any
litigation arising out of such declaration, act or omission, be permitted to falsify it.

Petitioner, having performed affirmative acts upon which the respondents based their subsequent
actions, cannot thereafter refute his acts or renege on the effects of the same, to the prejudice of
the latter. To allow him to do so would be tantamount to conferring upon him the liberty to limit
his liability at his whim and caprice, which is against the very principles of equity and natural
justice[44]

NIA is, therefore, estopped from invoking the contractual stipulation providing for the fixed rate
to justify a lower computation than that claimed by Hydro. It cannot be allowed to hide behind
the very provision which it itself continuously violated.[45] An admission or representation is
rendered conclusive upon the person making it and cannot be denied or disproved as against the
person relying thereon.[46] A party may not go back on his own acts and representations to the
prejudice of the other party who relied upon them.[47]

NIA was guilty of forum-shopping. Forum-shopping refers to the act of availing oneself of
several judicial remedies in different courts, either simultaneously or successively, substantially
founded on the same transaction and identical material facts and circumstances, raising basically
the like issues either pending in, or already resolved by, some other court.[48]

It has been characterized as an act of malpractice that is prohibited and condemned as trifling
with the courts and abusing their processes. It constitutes improper conduct which tends to
degrade the administration of justice. It has also been described as deplorable because it adds to
the congestion of the heavily burdened dockets of the courts.[49] The test in determining the
presence of this pernicious practice is whether in the two or more cases pending, there is identity
of: (a) parties; (b) rights or causes of action; and (c) reliefs sought.[50]

Applying the foregoing yardstick to the instant case, it is clear that NIA violated the prohibition
against forum-shopping. Besides filing CA-G.R. SP No. 44527 wherein the Court of Appeals
decision is the subject of appeal in this proceeding, NIA previously filed CA-G.R. SP No. 37180
and G.R. No. 129169 which is a special civil action for certiorari. In all three cases, the parties
are invariably Hydro and NIA. In all three petitions, NIA raised practically the same issues[51]
and in all of them, NIAs prayer was the same: to nullify the proceedings commenced at the
CIAC.

It must be pointed out in this regard that the first two petitions namely, CA-G.R. SP No. 37180
and G.R. No. 129169 are both original actions. Since NIA failed to file a petition for review on
certiorari under Rule 45 of the Rules of Court challenging the decision of the appellate court in
CA-G.R. SP No. 37180 dismissing its petition, it opted to file an original action for certiorari
under Rule 65 with this Court where the same was docketed as G.R. No. 129169. For its failure
to appeal the judgments in CA-G.R. SP No. 37180 and G.R. No. 129169, NIA is necessarily
bound by the effects of those decisions. The filing of CA-G.R. SP No. 44527, which raises the
issues already passed upon in both cases is a clear case of forum-shopping which merits outright
dismissal.

The issue of whether or not the Certification of Non-Forum Shopping is valid despite that it was
signed by NIAs counsel must be answered in the negative. Applicable is the ruling in Mariveles
Shipyard Corp. v. Court of Appeals, et al.:[52]

It is settled that the requirement in the Rules that the certification of non-forum shopping should
be executed and signed by the plaintiff or the principal means that counsel cannot sign said
certification unless clothed with special authority to do so. The reason for this is that the plaintiff
or principal knows better than anyone else whether a petition has previously been filed involving
the same case or substantially the same issues. Hence, a certification signed by counsel alone
is defective and constitutes a valid cause for dismissal of the petition. In the case of natural
persons, the Rule requires the parties themselves to sign the certificate of non-forum shopping.
However, in the case of the corporations, the physical act of signing may be performed, on
behalf of the corporate entity, only by specifically authorized individuals for the simple reason
that corporations, as artificial persons, cannot personally do the task themselves. . . It cannot be
gainsaid that obedience to the requirements of procedural rule[s] is needed if we are to expect
fair results therefrom. Utter disregard of the rules cannot justly be rationalized by harking on
the policy of liberal construction. (Emphasis and italics supplied)

In this connection, the lawyer must be specifically authorized in order to validly sign the
certification.[53]

In closing, we restate the rule that the courts will not interfere in matters which are addressed to
the sound discretion of government agencies entrusted with the regulation of activities coming
under the special technical knowledge and training of such agencies.[54]

An action by an administrative agency may be set aside by the judicial department only if there
is an error of law, abuse of power, lack of jurisdiction or grave abuse of discretion clearly
conflicting with the letter and spirit of the law.[55] In the case at bar, there is no cogent reason to
depart from the general rule because the action of the CIAC conforms rather than conflicts with
the governing statutes and controlling case law on the matter.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R.
SP No. 44527 dated October 29, 2002 and the Resolution dated September 24, 2003 are
REVERSED and SET ASIDE. The Decision of the Construction Industry Arbitration
Commission dated June 10, 1997 in CIAC Case No. 18-94 is REINSTATED.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Quisumbing, Carpio, and Azcuna, JJ., concur.

EXTRAORDINARY INFLATION/DEFLATION

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 103338 January 4, 1994

FEDERICO SERRA, petitioner,

vs.
THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING
CORPORATION, respondents.

Andres R. Amante, Jr. for petitioner.

R.C. Domingo, Jr. & Associates for private respondent.

NOCON, J.:

A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An
accepted unilateral promise to buy and sell a determinate thing for a price certain is binding upon
the promisor if the promise is supported by a consideration distinct from the price. (Article 1479,
New Civil Code) The first is the mutual promise and each has the right to demand from the other
the fulfillment of the obligation. While the second is merely an offer of one to another, which if
accepted, would create an obligation to the offeror to make good his promise, provided the
acceptance is supported by a consideration distinct from the price.

Disputed in the present case is the efficacy of a "Contract of Lease with Option to Buy", entered
into between petitioner Federico Serra and private respondent Rizal Commercial Banking
Corporation. (RCBC).

Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate,
Masbate. Sometime in 1975, respondent bank, in its desire to put up a branch in Masbate,
Masbate, negotiated with petitioner for the purchase of the then unregistered property. On May
20, 1975, a contract of LEASE WITH OPTION TO BUY was instead forged by the parties, the
pertinent portion of which reads:

1. The LESSOR leases unto the LESSEE, an the LESSEE hereby accepts in lease,
the parcel of land described in the first WHEREAS clause, to have and to hold the
same for a period of twenty-five (25) years commencing from June 1, 1975 to
June 1, 2000. The LESSEE, however, shall have the option to purchase said
parcel of land within a period of ten (10) years from the date of the signing of this
Contract at a price not greater than TWO HUNDRED TEN PESOS (P210.00) per
square meter. For this purpose, the LESSOR undertakes, within such ten-year
period, to register said parcel of land under the TORRENS SYSTEM and all
expenses appurtenant thereto shall be for his sole account.

If, for any reason, said parcel of land is not registered under the TORRENS
SYSTEM within the aforementioned ten-year period, the LESSEE shall have the
right, upon termination of the lease to be paid by the LESSOR the market value of
the building and improvements constructed on said parcel of land.

The LESSEE is hereby appointed attorney-in-fact for the LESSOR to register said
parcel of land under the TORRENS SYSTEM in case the LESSOR, for any
 reason, fails to comply with his obligation to effect said registration within
reasonable time after the signing of this Agreement, and all expenses appurtenant
to such registration shall be charged by the LESSEE against the rentals due to the
LESSOR.

2. During the period of the lease, the LESSEE covenants to pay the LESSOR, at
the latter's residence, a monthly rental of SEVEN HUNDRED PESOS (P700.00),
Philippine Currency, payable in advance on or before the fifth (5th) day of every
calendar month, provided that the rentals for the first four (4) months shall be paid
by the LESSEE in advance upon the signing of this Contract.

3. The LESSEE is hereby authorized to construct as its sole expense a building

and such other improvements on said parcel of land, which it may need in
pursuance of its business and/or operations; provided, that if for any reason the
LESSEE shall fail to exercise its option mentioned in paragraph (1) above in case
the parcel of land is registered under the TORRENS SYSTEM within the ten-year
period mentioned therein, said building and/or improvements, shall become the
property of the LESSOR after the expiration of the 25-year lease period without
the right of reimbursement on the part of the LESSEE. The authority herein
granted does not, however, extend to the making or allowing any unlawful,
improper or offensive used of the leased premises, or any use thereof, other than
banking and office purposes. The maintenance and upkeep of such building,
structure and improvements shall likewise be for the sole account of the LESSEE.
1

The foregoing agreement was subscribed before Notary Public Romeo F. Natividad.

Pursuant to said contract, a building and other improvements were constructed on the land which
housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of
the contract, petitioner complied with his part of the agreement by having the property registered
and
placed under the TORRENS SYSTEM, for which Original Certificate of Title No. 0-232 was
issued by the Register of Deeds of the Province of Masbate.

Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager
of the branch to effect the sale of the lot as per their agreement. It was not until September 4,
1984, however, when the respondent bank decided to exercise its option and informed petitioner,
through a letter, 2 of its intention to buy the property at the agreed price of not greater than
P210.00 per square meter or a total of P78,430.00. But much to the surprise of the respondent,
petitioner replied that he is no longer selling the property. 3

Hence, on March 14, 1985, a complaint for specific performance and damages were filed by
respondent against petitioner. In the complaint, respondent alleged that during the negotiations it
made clear to petitioner that it intends to stay permanently on property once its branch office is
opened unless the exigencies of the business requires otherwise. Aside from its prayer for
specific performance, it likewise asked for an award of P50,000.00 for attorney's fees
P100,000.00 as exemplary damages and the cost of the suit. 4

A special and affirmative defenses, petitioner contended:

1. That the contract having been prepared and drawn by RCBC, it took undue
advantage on him when it set in lopsided terms.

2. That the option was not supported by any consideration distinct from the price
and hence not binding upon him.

3. That as a condition for the validity and/or efficacy of the option, it should have
been exercised within the reasonable time after the registration of the land under
the Torrens System; that its delayed action on the option have forfeited whatever
its claim to the same.

4. That extraordinary inflation supervened resulting in the unusual decrease in the

purchasing power of the currency that could not reasonably be forseen or was
manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation, thus, rendering the terms of the contract
unenforceable, inequitable and to the undue enrichment of RCBC. 5

and as counterclaim petitioner alleged that:

1. The rental of P700.00 has become unrealistic and unreasonable, that justice and
equity will require its adjustment.

2. By the institution of the complaint he suffered moral damages which may be

assessed at P100,000.00 and award of attorney's fee of P25,000.00 and exemplary
damages at P100,000.00. 6

Initially, after trial on the merits, the court dismissed the complaint. Although it found the
contract to be valid, the court nonetheless ruled that the option to buy in unenforceable because it
lacked a consideration distinct from the price and RCBC did not exercise its option within
reasonable time. The prayer for readjustment of rental was denied, as well as that for moral and
exemplary damages. 7

Nevertheless, upon motion for reconsideration of respondent, the court in the order of January 9,
1989, reversed itself, the dispositive portion reads:

WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and hereby
renders judgment as follows:

1. The defendant is hereby ordered to execute and deliver the proper deed of sale
in favor of plaintiff selling, transferring and
conveying the property covered by and described in the Original Certificate of
 Title 0-232 of the Registry of Deeds of Masbate for the sum of Seventy Eight
Thousand Five Hundred Forty Pesos (P78,540,00), Philippine Currency;

2. Defendant is ordered to pay plaintiff the sum of Five Thousand (P5,000.00)

Pesos as attorney's fees;

3. The counter claim of defendant is hereby dismissed; and

4. Defendants shall pay the costs of suit. 8

In a decision promulgated on September 19, 1991, 9 the Court of Appeals affirmed the findings
of the trial court that:

1. The contract is valid and that the parties perfectly understood the contents
thereof;

2. The option is supported by a distinct and separate consideration as embodied in

the agreement;

3. There is no basis in granting an adjustment in rental.

Assailing the judgment of the appellate court, petitioner would like us to consider mainly the
following:

1. The disputed contract is a contract of adhesion.

2. There was no consideration to support the option, distinct from the price, hence
the option cannot be exercised.

3. Respondent court gravely abused its discretion in not granting currency

adjustment on the already eroded value of the stipulated rentals for twenty-five
years.

The petition is devoid of merit.

There is no dispute that the contract is valid and existing between the parties, as found by both
the trial court and the appellate court. Neither do we find the terms of the contract unfairly
lopsided to have it ignored.

A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in
the contract, while the other party merely affixes his signature or his "adhesion" thereto. These
types of contracts are as binding as ordinary contracts. Because in reality, the party who adheres
to the contract is free to reject it entirely. Although, this Court will not hesitate to rule out blind
adherence to terms where facts and circumstances will show that it is basically one-sided. 10
We do not find the situation in the present case to be inequitable. Petitioner is a highly educated
man, who, at the time of the trial was already a CPA-Lawyer, and when he entered into the
contract, was already a CPA, holding a respectable position with the Metropolitan Manila
Commission. It is evident that a man of his stature should have been more cautious in
transactions he enters into, particularly where it concerns valuable properties. He is amply
equipped to drive a hard bargain if he would be so minded to.

Petitioner contends that the doctrines laid down in the cases of

Atkins Kroll v. Cua Hian Tek, 11 Sanchez v. Rigos, 12 and Vda. de Quirino v. Palarca 13 were
misapplied in the present case, because 1) the option given to the respondent bank was not
supported by a consideration distinct from the price; and 2) that the stipulated price of "not
greater than P210.00 per square meter" is not certain or definite.

Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain
period to accept, the offer maybe withdrawn at anytime before acceptance by communicating
such withdrawal, except when the option is founded upon consideration, as something paid or
promised. On the other hand, Article 1479 of the Code provides that an accepted unilateral
promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price.

In a unilateral promise to sell, where the debtor fails to withdraw the promise before the
acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy,
because upon acceptance by the creditor of the offer to sell by the debtor, there is already a
meeting of the minds of the parties as to the thing which is determinate and the price which is
certain. 14 In which case, the parties may then reciprocally demand performance.

Jurisprudence has taught us that an optional contract is a privilege existing only in one party —
the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a
certain merchandise or property, at any time within the agreed period, at a fixed price. This being
his prerogative, he may not be compelled to exercise the option to buy before the time
expires. 15

On the other hand, what may be regarded as a consideration separate from the price is discussed
in the case of Vda. de Quirino v. Palarca 16 wherein the facts are almost on all fours with the
case at bar. The said case also involved a lease contract with option to buy where we had
occasion to say that "the consideration for the lessor's obligation to sell the leased premises to the
lessee, should he choose to exercise his option to purchase the same, is the obligation of the
lessee to sell to the lessor the building and/or improvements constructed and/or made by the
former, if he fails to exercise his option to buy leased premises." 17

In the present case, the consideration is even more onerous on the part of the lessee since it
entails transferring of the building and/or improvements on the property to petitioner, should
respondent bank fail to exercise its option within the period stipulated. 18

The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is
certain or definite. A price is considered certain if it is so with reference to another thing certain
or when the determination thereof is left to the judgment of a specified person or persons. 19 And
generally, gross inadequacy of price does not affect a contract of sale. 20

Contracts are to be construed according to the sense and meaning of the terms which the parties
themselves have used. In the present dispute, there is evidence to show that the intention of the
parties is to peg the price at P210 per square meter. This was confirmed by petitioner himself in
his testimony, as follows:

Q. Will you please tell this Court what was the offer?

A. It was an offer to buy the property that I have in Quezon City

(sic).

Q. And did they give you a specific amount?

xxx xxx xxx

A. Well, there was an offer to buy the property at P210 per square
meters (sic).

Q. And that was in what year?

A . 1975, sir.

Q. And did you accept the offer?

A. Yes, sir. 21

Moreover, by his subsequent acts of having the land titled under the Torrens System, and in
pursuing the bank manager to effect the sale immediately, means that he understood perfectly the
terms of the contract. He even had the same property mortgaged to the respondent bank
sometime in 1979, without the slightest hint of wanting to abandon his offer to sell the property
at the agreed price of P210 per square meter. 22

Finally, we agree with the courts a quo that there is no basis, legal or factual, in adjusting the
amount of the rent. The contract is the law between the parties and if there is indeed reason to
adjust the rent, the parties could by themselves negotiate for the amendment of the contract.
Neither could we consider the decline of the purchasing power of the Philippine peso from 1983
to the time of the commencement of the present case in 1985, to be so great as to result in an
extraordinary inflation. Extraordinary inflation exists when there in an unimaginable increase or
decrease of the purchasing power of the Philippine currency, or fluctuation in the value of pesos
manifestly beyond the contemplation of the parties at the time of the establishment of the
obligation. 23
Premises considered, we find that the contract of "LEASE WITH OPTION TO BUY" between
petitioner and respondent bank is valid, effective and enforceable, the price being certain and that
there was consideration distinct from the price to support the option given to the lessee.

WHEREFORE, this petition is hereby DISMISSED, and the decision of the appellate court is
hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.

TENDER OF PAYMENT AND CONSIGNATION

THIRD DIVISION

[G.R. No. 149756. February 11, 2005]

MYRNA RAMOS, petitioner, vs. SUSANA S. SARAO and JONAS RAMOS, respondents.

DECISION

PANGANIBAN, J.:

Although the parties in the instant case denominated their contract as a DEED OF SALE UNDER
PACTO DE RETRO, the sellers have continued to possess and to reside at the subject house and
lot up to the present. This evident factual circumstance was plainly overlooked by the trial and
the appellate courts, thereby justifying a review of this case. This overlooked fact clearly shows
that the petitioner intended merely to secure a loan, not to sell the property. Thus, the contract
should be deemed an equitable mortgage.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the August
31, 2001 Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 50095, which disposed as
follows:

WHEREFORE, the instant appeal is DISMISSED for lack of merit. The decision dated January
19, 1995 of the Regional Trial Court, Branch 145, Makati City is AFFIRMED in toto.[3]

The Facts

On February 21, 1991, Spouses Jonas Ramos and Myrna Ramos executed a contract over their
conjugal house and lot in favor of Susana S. Sarao for and in consideration of P1,310,430.[4]
Entitled DEED OF SALE UNDER PACTO DE RETRO, the contract, inter alia, granted the
Ramos spouses the option to repurchase the property within six months from February 21, 1991,
for P1,310,430 plus an interest of 4.5 percent a month.[5] It was further agreed that should the
spouses fail to pay the monthly interest or to exercise the right to repurchase within the stipulated
period, the conveyance would be deemed an absolute sale.[6]

On July 30, 1991, Myrna Ramos tendered to Sarao the amount of P1,633,034.20 in the form of
two managers checks, which the latter refused to accept for being allegedly insufficient.[7] On
August 8, 1991, Myrna filed a Complaint for the redemption of the property and moral damages
plus attorneys fees.[8] The suit was docketed as Civil Case No. 91-2188 and raffled to Branch
145 of the Regional Trial Court (RTC) of Makati City. On August 13, 1991, she deposited with
the RTC two checks that Sarao refused to accept.[9]

On December 21, 1991, Sarao filed against the Ramos spouses a Petition for consolidation of
ownership in pacto de retro sale docketed as Civil Case No. 91-3434 and raffled to Branch 61 of
the RTC of Makati City.[10] Civil Case Nos. 91-2188 and 91-3434 were later consolidated and
jointly tried before Branch 145 of the said Makati RTC.[11]

The two lower courts narrated the trial in this manner:

x x x Myrna [Ramos] testified as follows: On February 21, 1991, she and her husband borrowed
from Sarao the amount of P1,234,000.00, payable within six (6) months, with an interest thereon
at 4.5% compounded monthly from said date until August 21, 1991, in order for them to pay
[the] mortgage on their house. For and in consideration of the said amount, they executed a deed
of sale under a [pacto de retro] in favor of Sarao over their conjugal house and lot registered
under TCT No. 151784 of the Registry of Deeds of Makati (Exhibit A). She further claimed that
Sarao will keep the torrens title until the lapse of the 6-month period, in which case she will
redeem [the] subject property and the torrens title covering it. When asked why it was the
amount of P1,310,430 instead of the aforestated amount which appeared in the deed, she
explained that upon signing of the deed in question, the sum of P20,000.00 representing
attorneys fees was added, and its total amount was multiplied with 4.5% interest rate, so that they
could pay in advance the compounded interest. She also stated that although the market value of
the subject property as of February 1991 [was] calculated to [be] more or less P10 million, it was
offered [for] only P1,310,430.00 for the reason that they intended nothing but to redeem the
same. In May 1991, she wrote a letter to Atty. Mario Aguinaldo requesting him to give a
computation of the loan obligation, and [expressed] her intention to redeem the subject property,
but she received no reply to her letter. Instead, she, through her husband, secured directly from
Sarao a handwritten computation of their loan obligation, the total of which amount[ed] to
P1,562,712.14. Later, she sent several letters to Sarao, [furnishing] Atty. Aguinaldo with copies,
asking them for the updated computation of their loan obligation as of July 1991, but [no reply
was again received]. During the hearing of February 17, 1992, she admitted receiving a letter
dated July 23, 1991 from Atty. Aguinaldo which show[ed] the computation of their loan
obligation [totaling] to P2,911,579.22 (Exhs. 6, 6-A). On July 30, 1991, she claimed that she
offered the redemption price in the form of two (2) managers checks amounting to
P1,633,034.20 (Exhs. H-1 & H-2) to Atty. Aguinaldo, but the latter refused to accept them
because they [were] not enough to pay the loan obligation. Having refused acceptance of the said
checks covering the redemption price, on August 13, 1991 she came to Court to consign the
checks (Exhs. L-4 and L-5). Subsequently, she proceeded to the Register of Deeds to cause the
annotation of lis pendens on TCT No. 151784 (Exh. B-1-A). Hence, she filed the x x x civil case
against Sarao.

On the other hand, Sarao testified as follows: On February 21, 1991, spouses Ramos together
with a certain Linda Tolentino and her husband, Nestor Tolentino approached her and offered
transaction involv[ing a] sale of property[. S]he consulted her lawyer, Atty. Aguinaldo, and on
the same date a corresponding deed of sale under pacto de retro was executed and signed (Exh. 1
). Later on, she sent, through her lawyer, a demand letter dated June 10, 1991 (Exh. 6) in view of
Myrnas failure to pay the monthly interest of 4.5% as agreed upon under the deed[. O]n June 14,
1991 Jonas replied to said demand letter (Exh. 8); in the reply Jonas admitted that he no longer
ha[d] the capacity to redeem the property and to pay the interest. In view of the said reply of
Jonas, [Sarao] filed the corresponding consolidation proceedings. She [further claimed] that
before filing said action she incurred expenses including payment of real estate taxes in arrears, x
x x transfer tax and capital [gains] tax, and [expenses] for [the] consolidated proceedings, for
which these expenses were accordingly receipted (Exhs. 6, 6-1 to 6-0). She also presented a
modified computation of the expenses she had incurred in connection with the execution of the
subject deed (Exh. 9). She also testified that Myrna did not tender payment of the correct and
sufficient price for said real property within the 6-month period as stipulated in the contract,
despite her having been shown the computation of the loan obligation, inclusive of capital gains
tax, real estate tax, transfer tax and other expenses. She admitted though that Myrna has tendered
payment amounting to P1,633,034.20 in the form of two managers checks, but these were
refused acceptance for being insufficient. She also claimed that several letters (Exhs. 2, 4 and 5)
were sent to Myrna and her lawyer, informing them of the computation of the loan obligation
inclusive of said expenses. Finally, she denied the allegations made in the complaint that she
allied herself with Jonas, and claimed that she ha[d] no knowledge about said allegation.[12]

After trial, the RTC dismissed the Complaint and granted the prayer of Sarao to consolidate the
title of the property in her favor.[13] Aggrieved, Myrna elevated the case to the CA.

Ruling of the Court of Appeals

The appellate court sustained the RTCs finding that the disputed contract was a bonafide pacto
de retro sale, not a mortgage to secure a loan.[14] It ruled that Myrna Ramos had failed to
exercise the right of repurchase, as the consignation of the two managers checks was deemed
invalid. She allegedly failed (1) to deposit the correct repurchase price and (2) to comply with
the required notice of consignation.[15]

Hence, this Petition.[16]

The Issues

Petitioner raises the following issues for our consideration:

1. Whether or not the honorable appellate court erred in ruling the subject Deed of Sale
under Pacto de Retro was, and is in reality and under the law an equitable mortgage;
 2. Whether or not the honorable appellate court erred in affirming the ruling of the court a
quo that there was no valid tender of payment of the redemption price neither [sic] a
valid consignation in the instant case; and

3. Whether or not [the] honorable appellate court erred in affirming the ruling of the court a
quo denying the claim of petitioner for damages and attorneys fees.[17]

The Courts Ruling

The Petition is meritorious in regard to Issues 1 and 2.

First Issue:
A Pacto de Retro Sale
or an Equitable Mortgage?

Respondent Sarao avers that the herein Petition should have been dismissed outright, because
petitioner (1) failed to show proof that she had served a copy of it to the Court of Appeals and (2)
raised questions of fact that were not proper issues in a petition under Rule 45 of the Rules of
Court.[18] This Court, however, disregarded the first ground; otherwise, substantial injustice
would have been inflicted on petitioner. Since the Court of Appeals is not a party here, failure to
serve it a copy of the Petition would not violate any right of respondent. Service to the CA is
indeed mentioned in the Rules, but only to inform it of the pendency of the appeal before this
Court.

As regards Item 2, there are exceptions to the general rule barring a review of questions of
fact.[19] The Court reviewed the factual findings in the present case, because the CA had
manifestly overlooked certain relevant and undisputed facts which, after being considered,
justified a different conclusion.[20]

Pacto de Retro Sale Distinguished

from Equitable Mortgage

The pivotal issue in the instant case is whether the parties intended the contract to be a bona fide
pacto de retro sale or an equitable mortgage.

In a pacto de retro, ownership of the property sold is immediately transferred to the vendee a
retro, subject only to the repurchase by the vendor a retro within the stipulated period.[21] The
vendor a retros failure to exercise the right of repurchase within the agreed time vests upon the
vendee a retro, by operation of law, absolute title to the property.[22] Such title is not impaired
even if the vendee a retro fails to consolidate title under Article 1607 of the Civil Code.[23]

On the other hand, an equitable mortgage is a contract that -- although lacking the formality, the
form or words, or other requisites demanded by a statute -- nevertheless reveals the intention of
the parties to burden a piece or pieces of real property as security for a debt.[24] The essential
requisites of such a contract are as follows: (1) the parties enter into what appears to be a contract
of sale, but (2) their intention is to secure an existing debt by way of a mortgage.[25] The
nonpayment of the debt when due gives the mortgagee the right to foreclose the mortgage, sell
the property, and apply the proceeds of the sale to the satisfaction of the loan obligation.[26]

This Court has consistently decreed that the nomenclature used by the contracting parties to
describe a contract does not determine its nature.[27] The decisive factor is their intention -- as
shown by their conduct, words, actions and deeds -- prior to, during, and after executing the
agreement.[28] This juristic principle is supported by the following provision of law:

Article 1371. In order to judge the intention of the contracting parties, their contemporaneous
and subsequent acts shall be principally considered.[29]

Even if a contract is denominated as a pacto de retro, the owner of the property may still
disprove it by means of parol evidence,[30] provided that the nature of the agreement is placed in
issue by the pleadings filed with the trial court.[31]

There is no single conclusive test to determine whether a deed absolute on its face is really a
simple loan accommodation secured by a mortgage.[32] However, the law enumerates several
instances that show when a contract is presumed to be an equitable mortgage, as follows:

Article 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:

(1) When the price of a sale with right to repurchase is unusually

inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention
of the parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as
rent or otherwise shall be considered as interest which shall be subject to the usury laws.[33]

Furthermore, a contract purporting to be a pacto de retro is construed as an equitable mortgage

when the terms of the document and the surrounding circumstances so require.[34] The law
discourages the use of a pacto de retro, because this scheme is frequently used to circumvent a
contract known as a pactum commissorium. The Court has frequently noted that a pacto de retro
is used to conceal a contract of loan secured by a mortgage.[35] Such construction is consistent
with the doctrine that the law favors the least transmission of rights.[36]
Equitable Mortgage Presumed
to be Favored by Law

Jurisprudence has consistently declared that the presence of even just one of the circumstances
set forth in the forgoing Civil Code provision suffices to convert a contract to an equitable
mortgage.[37] Article 1602 specifically states that the equitable presumption applies to any of
the cases therein enumerated.

In the present factual milieu, the vendor retained possession of the property allegedly sold.[38]
Petitioner and her children continued to use it as their residence, even after Jonas Ramos had
abandoned them.[39] In fact, it remained as her address for the service of court orders and copies
of Respondent Saraos pleadings.[40]

The presumption of equitable mortgage imposes a burden on Sarao to present clear evidence to
rebut it. Corollary to this principle, the favored party need not introduce proof to establish such
presumption; the party challenging it must overthrow it, lest it persist.[41] To overturn that prima
facie fact that operated against her, Sarao needed to adduce substantial and credible evidence to
prove that the contract was a bona fide pacto de retro. This evidentiary burden she miserably
failed to discharge.

Contrary to Saraos bare assertions, a meticulous review of the evidence reveals that the alleged
contract was executed merely as security for a loan.

The July 23, 1991 letter of Respondent Saraos lawyer had required petitioner to pay a computed
amount -- under the heading House and Lot Loan[42] -- to enable the latter to repurchase the
property. In effect, respondent would resell the property to petitioner, once the latters loan
obligation would have been paid. This explicit requirement was a clear indication that the
property was to be used as security for a loan.

The loan obligation was clear from Saraos evidence as found by the trial court, which we quote:

x x x [Sarao] also testified that Myrna did not tender payment of the correct and sufficient price
for said real property within the 6-month period as stipulated in the contract, despite her having
been shown the computation of the loan obligation, inclusive of capital gains tax, real estate tax,
transfer tax and other expenses. She admitted though that Myrna has tendered payment
amounting to P1,633,034.20 in the form of two managers checks, but these were refused
acceptance for being insufficient. She also claimed that several letters (Exhs. 2, 4 and 5) were
sent to Myrna and her lawyer, informing them of the computation of the loan obligation
inclusive of said expenses. x x x.[43]

Respondent herself stressed that the pacto de retro had been entered into on the very same day
that the property was to be foreclosed by a commercial bank.[44] Such circumstance proves that
the spouses direly needed funds to avert a foreclosure sale. Had they intended to sell the property
just to realize some profit, as Sarao suggests,[45] they would not have retained possession of the
house and continued to live there. Clearly, the spouses had entered into the alleged pacto de retro
sale to secure a loan obligation, not to transfer ownership of the property.
Sarao contends that Jonas Ramos admitted in his June 14, 1991 letter to her lawyer that the
contract was a pacto de retro.[46] That letter, however, cannot override the finding that the pacto
de retro was executed merely as security for a loan obligation. Moreover, on May 17, 1991, prior
to the transmittal of the letter, petitioner had already sent a letter to Saraos lawyer expressing the
formers desire to settle the mortgage on the property.[47] Considering that she had already
denominated the transaction with Sarao as a mortgage, petitioner cannot be prejudiced by her
husbands alleged admission, especially at a time when they were already estranged.[48]

Inasmuch as the contract between the parties was an equitable mortgage, Respondent Saraos
remedy was to recover the loan amount from petitioner by filing an action for the amount due or
by foreclosing the property.[49]

Second Issue:
Propriety of Tender of
Payment and Consignation

Tender of payment is the manifestation by debtors of their desire to comply with or to pay their
obligation.[50] If the creditor refuses the tender of payment without just cause, the debtors are
discharged from the obligation by the consignation of the sum due.[51] Consignation is made by
depositing the proper amount to the judicial authority, before whom the tender of payment and
the announcement of the consignation shall be proved.[52] All interested parties are to be
notified of the consignation.[53] Compliance with these requisites is mandatory.[54]

The trial and the appellate courts held that there was no valid consignation, because petitioner
had failed to offer the correct amount and to provide ample consignation notice to Sarao.[55]
This conclusion is incorrect.

Note that the principal loan was P1,310,430 plus 4.5 per cent monthly interest compounded for
six months. Expressing her desire to pay in the fifth month, petitioner averred that the total
amount due was P1,633,034.19, based on the computation of Sarao herself.[56] The amount of
P2,911,579.22 that the latter demanded from her to settle the loan obligation was plainly
exorbitant, since this sum included other items not covered by the agreement. The property had
been used solely as secure ty for the P1,310,430 loan; it was therefore improper to include in that
amount payments for gasoline and miscellaneous expenses, taxes, attorneys fees, and other
alleged loans. When Sarao unjustly refused the tender of payment in the amount of
P1,633,034.20, petitioner correctly filed suit and consigned the amount in order to be released
from the latters obligation.

The two lower courts cited Article 1257 of the Civil Code to justify their ruling that petitioner
had failed to notify Respondent Sarao of the consignation. This provision of law states that the
obligor may be released, provided the consignation is first announced to the parties interested in
the fulfillment of the obligation.

The facts show that the notice requirement was complied with. In her August 1, 1991 letter,
petitioner said that should the respondent fail to accept payment, the former would consign the
amount.[57] This statement was an unequivocal announcement of consignation. Concededly,
sending to the creditor a tender of payment and notice of consignation -- which was precisely
what petitioner did -- may be done in the same act.[58]

Because petitioners consignation of the amount of P1,633,034.20 was valid, it produced the
effect of payment.[59] The consignation, however, has a retroactive effect, and the payment is
deemed to have been made at the time of the deposit of the thing in court or when it was placed
at the disposal of the judicial authority.[60] The rationale for consignation is to avoid making the
performance of an obligation more onerous to the debtor by reason of causes not imputable to
him.[61]

Third Issue:
Moral Damages and Attorneys Fees

Petitioner seeks moral damages in the amount of P500,000 for alleged sleepless nights and
anxiety over being homeless.[62] Her bare assertions are insufficient to prove the legal basis for
granting any award under Article 2219 of the Civil Code.[63] Verily, an award of moral damages
is uncalled for, considering that it was Respondent Saraos accommodation that settled the earlier
obligation of the spouses with the commercial bank and allowed them to retain ownership of the
property.

Neither have attorneys fees been shown to be proper.[64] As a general rule, in the absence of a
contractual or statutory liability therefor, sound public policy frowns on penalizing the right to
litigate.[65] This policy applies especially to the present case, because there is a need to
determine whether the disputed contract was a pacto de retro sale or an equitable mortgage.

Other Matters

In a belated Manifestation filed on October 19, 2004, Sarao declared that she was the owner of
the one-half share of Jonas Ramos in the conjugal property, because of his alleged failure to file
a timely appeal with the CA.[66] Such declaration of ownership has no basis in law, considering
that the present suit being pursued by petitioner pertains to a mortgage covering the whole
property.

Besides, it is basic that defenses and issues not raised below cannot be considered on appeal.[67]

The Court, however, observes that Respondent Sarao paid real property taxes amounting to
P67,567.10 to halt the auction sale scheduled for October 8, 2004, by the City of
Muntinlupa.[68] Her payment was made in good faith and benefited petitioner. Accordingly,
Sarao should be reimbursed; otherwise, petitioner would be unjustly enriched,[69] under Article
2175 of the Civil Code which provides:

Art. 2175. Any person who is constrained to pay the taxes of another shall be entitled to
reimbursement from the latter.

WHEREFORE, the Petition is partly GRANTED and the assailed Decision SET ASIDE.
Judgment is hereby rendered:
(1) DECLARING (a) the disputed contract as an equitable mortgage, (b) petitioners loan to
Respondent Sarao to be in the amount of P1,633,034.19 as of July 30, 1991; and (c) the
mortgage on the property -- covered by TCT No. 151784 in the name of the Ramos spouses and
issued by the Register of Deeds of Makati City --as discharged

(2) ORDERING the RTC to release to Sarao the consigned amount of P1,633,034.19

(3) COMMANDING Respondent Sarao to return to petitioner the owners copy of TCT No.
151784 in the name of the Ramos spouses and issued by the Register of Deeds of Makati City

(4) DIRECTING the Register of Deeds of Makati City to cancel Entry No. 24057, the annotation
appearing on TCT No. 151784

(5) ORDERING petitioner to pay Sarao in the amount of P67,567.10 as reimbursement for real
property taxes

No pronouncement as to costs.

SO ORDERED.

Sandoval-Gutierrez, Corona, Carpio-Morales and Garcia, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 142882 May 2, 2006

SPS. RICARDO AND LYDIA LLOBRERA, SPS. BENJAMIN AND ESTHER

LLOBRERA, SPS. MIKE AND RESIDA MALA, SPS. OTOR AND DOLINANG
BAGONTE, SPS. EDUARDO AND DAMIANA ICO, SPS. ANTONIO AND MERLY
SOLOMON, SPS. ANSELMO AND VICKY SOLOMON, SPS. ALEX AND CARMELITA
CALLEJO, SPS. DEMETRIO AND JOSEFINA FERRER, SPS. BENJAMIN AND ANITA
MISLANG, SPS. DOMINGO AND FELICIDAD SANCHEZ, SPS. FERNANDO AND
CARMELITA QUEBRAL, SPS. BERNARDO AND PRISCILLA MOLINA, PRISCILLA
BAGA AND BELEN SEMBRANO, Petitioners,
vs.
JOSEFINA V. FERNANDEZ, Respondent.

DECISION
GARCIA, J.:

Under consideration is this petition for review on certiorari under Rule 45 of the Rules of Court
to nullify and set aside the following issuances of the Court of Appeals (CA) in CA-G.R. SP No.
48918, to wit:

1. Decision dated June 30, 1999,1 affirming the Decision dated August 7, 1998 of the
Regional Trial Court (RTC) of Dagupan City, Branch 41, in Civil Case No. 98-02353-D
which affirmed an earlier decision of the Municipal Trial Court in Cities (MTCC),
Dagupan City, Branch 2, in Civil Case No. 10848, entitled "Josefina F. De Venecia
Fernandez vs. Sps. Mariano and Lourdes Melecio, et al.," an action for ejectment.

2. Resolution dated March 27, 2000,2 denying petitioners’ motion for reconsideration.

Subject of the controversy is a 1,849 square-meter parcel of land, covered by Transfer Certificate
of Title No. 9042. Respondent Josefina V. Fernandez, as one of the registered co-owners of the
land, served a written demand letter upon petitioners Spouses Llobrera, et al., to vacate the
premises within fifteen (15) days from notice. Receipt of the demand letter notwithstanding,
petitioners refused to vacate, necessitating the filing by the respondent of a formal complaint
against them before the Barangay Captain of Barangay 11, Dagupan City. Upon failure of the
parties to reach any settlement, the Barangay Captain issued the necessary certification to file
action.

Respondent then filed a verified Complaint for ejectment and damages against the petitioners
before the MTCC of Dagupan City, which complaint was raffled to Branch 2 thereof.

By way of defense, petitioners alleged in their Answer that they had been occupying the property
in question beginning the year 1945 onwards, when their predecessors-in-interest, with the
permission of Gualberto de Venecia, one of the other co-owners of said land, developed and
occupied the same on condition that they will pay their monthly rental of P20.00 each. From then
on, they have continuously paid their monthly rentals to Gualberto de Venecia or Rosita de
Venecia or their representatives, such payments being duly acknowledged by receipts. Beginning
sometime June 1996, however, the representative of Gualberto de Venecia refused to accept their
rentals, prompting them to consign the same to Banco San Juan, which bank deposit they
continued to maintain and update with their monthly rental payments.

In a decision dated February 18, 1998, the MTCC rendered judgment for the respondent as
plaintiff, thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants as follows:

1. Ordering each of the defendants to vacate the portion of the land in question they
respectively occupy and to restore the possession thereof to the plaintiff and her co-
owners;
 2. Ordering each of the defendants to pay to the plaintiff the amount of P300.00 per
month from January 17, 1997 until they vacate the land in question as the reasonable
compensation for the use and occupation of the premises;

3. Ordering the defendants to pay proportionately the amount of P10,000.00 as attorney’s

fee and P2,000.00 as litigation expenses, and to pay the cost of suit.

SO ORDERED.

On petitioners’ appeal to the RTC of Dagupan City, Branch 41 thereof, in its decision of August
7, 1998, affirmed the foregoing judgment.

Therefrom, petitioners went to the CA whereat their recourse was docketed as CA-G.R. SP. No.
48918. As stated at the threshold hereof, the CA, in its Decision of June 30, 1999, affirmed that
of the RTC. With the CA’s denial of their motion for reconsideration, in its Resolution of March
27, 2000, petitioners are now before this Court with the following assignment of errors:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN:

A. HOLDING THAT THE OCCUPATION AND POSSESSION oF THE PROPERTY

in question is by mere tolerance of the respondent.

B. holding that the failure of the petitioners (defendants) to vacate the premises after
demands were made upon them is a valid ground for their ejectment.

C. holding that the consignation made by petitioners in contemplation of article 1256 of

the new civil code is not legally tenable.1avvphil.net

D. affirming the decision of the regional trial court dated August 7, 1998 which, likewise
affirmed the decision of the mtcc decision dated February 18, 1998 insofar as the order
for the petitioners (defendants) to pay rental and attorney’s fees and litigation expenses.

At the heart of the controversy is the issue of whether petitioners’ possession of the subject
property is founded on contract or not. This factual issue was resolved by the three (3) courts
below in favor of respondent. As tersely put by the CA in its assailed decision of June 30, 1999:

Petitioners failed to present any written memorandum of the alleged lease arrangements between
them and Gualberto De Venecia. The receipts claimed to have been issued by the owner were not
presented on the excuse that the March 19, 1996 fire burned the same. Simply put, there is a
dearth of evidence to substantiate the averred lessor-lessee relationship. x x x.3

Consistent with this Court’s long-standing policy, when the three courts below have consistently
and unanimously ruled on a factual issue, such ruling is deemed final and conclusive upon this
Court, especially in the absence of any cogent reason to depart therefrom.
From the absence of proof of any contractual basis for petitioners’ possession of the subject
premises, the only legal implication is that their possession thereof is by mere tolerance. In
Roxas vs. Court of Appeals,4 we ruled:

A person who occupies the land of another at the latter’s tolerance or permission, without any
contract between them, is necessarily bound by an implied promise that he will vacate upon
demand, failing which, a summary action for ejectment is the proper remedy against him.

The judgment favoring the ejectment of petitioners being consistent with law and jurisprudence
can only be affirmed. The alleged consignation of the P20.00 monthly rental to a bank account in
respondent’s name cannot save the day for the petitioners simply because of the absence of any
contractual basis for their claim to rightful possession of the subject property. Consignation
based on Article 1256 of the Civil Code indispensably requires a creditor-debtor relationship
between the parties, in the absence of which, the legal effects thereof cannot be availed of.

Article 1256 pertinently provides:

Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation of the thing or sum
due.

Unless there is an unjust refusal by a creditor to accept payment from a debtor, Article 1256
cannot apply. In the present case, the possession of the property by the petitioners being by mere
tolerance as they failed to establish through competent evidence the existence of any contractual
relations between them and the respondent, the latter has no obligation to receive any payment
from them. Since respondent is not a creditor to petitioners as far as the alleged P20.00 monthly
rental payment is concerned, respondent cannot be compelled to receive such payment even
through consignation under Article 1256. The bank deposit made by the petitioners intended as
consignation has no legal effect insofar as the respondent is concerned.

Finally, as regards the damages awarded by the MTCC in favor of the respondent, as affirmed by
both the RTC and the CA, petitioners failed to present any convincing argument for the Court to
modify the same. The facts of the case duly warrant payment by the petitioners to respondent of
actual and compensatory damages for depriving the latter of the beneficial use and possession of
the property. Also, the unjustified refusal to surrender possession of the property by the
petitioners who were fully aware that they cannot present any competent evidence before the
court to prove their claim to rightful possession as against the true owners is a valid legal basis to
award attorney’s fees as damages, as well as litigation expenses and cost of suit.

Rule 70 of the Rules of Court relevantly reads:

Sec. 17. Judgment. – If after trial the court finds that the allegations of the complaint are true, it
shall render judgment in favor of the plaintiff for the restitution of the premises, the sum justly
due as arrears of rent or as reasonable compensation for the use and occupation of the premises,
attorney’s fees and costs. If it finds that said allegations are not true, it shall render judgment for
the defendant to recover his costs. If a counterclaim is established, the court shall render
judgment for the sum found in arrears from either party and award costs as justice requires.
(Emphasis supplied).

There is no doubt whatsoever that it is within the MTCC’s competence and jurisdiction to award
attorney’s fees and costs in an ejectment case. After thoroughly considering petitioners’
arguments in this respect, the Court cannot find any strong and compelling reason to disturb the
unanimous ruling of the three (3) courts below on the matter of damages.

WHEREFORE, the petition is hereby DENIED for lack of merit, with costs against petitioners.

SO ORDERED.

FIRST DIVISION

BANCO FILIPINO SAVINGS G.R. No. 153134

AND MORTGAGE BANK,

Petitioner,

Present:

PANGANIBAN, C.J., Chairperson,

YNARES-SANTIAGO,*

- versus- AUSTRIA-MARTINEZ,

CALLEJO, SR., and

CHICO-NAZARIO, JJ.
ANTONIO G. DIAZ and Promulgated:

ELSIE B. DIAZ,

Respondents. June 27, 2006

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

DECISION

CALLEJO, SR., J.:

Before the Court is the Petition for Review on Certiorari filed by Banco Filipino Savings
and Mortgage Bank of the Decision389[1] dated November 12, 2001 of the Court of Appeals
(CA) in CA-G.R. SP No. 64475 allowing respondents spouses Antonio and Elsie Diaz to
withdraw their deposit on consignation in the amount of P1,034,600.00390[2] held by the
Regional Trial Court (RTC) of Makati City, Branch 61. The assailed decision reversed and set
aside the orders of the said lower court which had denied the respondents motion to withdraw
deposit. Likewise assailed is the Resolution of April 12, 2002 of the appellate court denying the
reconsideration of the assailed decision.

The present case is an offshoot of the CA Decision391[3] of October 31, 1990 in CA-
G.R. SP No. 21089 and Decision392[4] of November 14, 1997 in CA-G.R. CV No. 42899, both
of which had already become final and executory. As culled therefrom and from the pleadings
filed by the parties in the present case, the factual and procedural antecedents are as follows:

On March 8, 1979, spouses Antonio and Elsie Diaz (the respondents) secured a loan from
Banco Filipino Savings and Mortgage Bank (petitioner bank) in the amount of P400,000.00
bearing an interest rate of 16% per annum. In November 1982, the said loan was restructured or
consolidated in the increased amount of P3,163,000.00 payable within a period of 20 years at an
interest rate of 21% per annum. The obligation was to be paid in equal monthly amortization of
P56,227.00, and secured by a real estate mortgage over two commercial lots situated at Bolton
and Bonifacio Streets in Davao City. As additional collateral, the respondents assigned the
rentals on the mortgaged properties in favor of petitioner bank.

Despite repeated demands made on them, the respondents defaulted in the payment of
their obligation beginning October 1986. Before petitioner bank could institute the proceedings
to foreclose on the mortgaged properties, the respondents filed with the RTC of Davao City a
complaint for Declaration of Interest Rates and Penalty Charges as Unconscionable and Its
Reduction, Reformation of Contract, Annulment of Assignment of Rentals, Damages and
Attorneys Fees with Injunction, docketed as Civil Case No. 17840. The RTC of Davao City
(Branch 12) denied the application for the issuance of a writ of preliminary injunction. It held
that, by respondent Antonio Diaz own admission, the respondents had been remiss in paying the
amortization as agreed upon in the contract; hence, the conditions in the real estate mortgage
contract had been violated. As such, petitioner bank could rightfully foreclose the mortgaged
properties. On appeal by the respondent spouses, the CA, in its Decision of October 31, 1990 in
CA-G.R. SP No. 21089, affirmed the said Order of the RTC of Davao City.

Thereafter, the respondents filed another complaint with the RTC of Makati City for
Consignation and Declaration of Cancellation of Obligation, with Prayer for Issuance of a
Preliminary Injunction and Temporary Restraining Order. The case was docketed as Civil Case
No. 91-3090, and raffled to Branch 61 of the said RTC. For failure to file its answer, petitioner
bank was declared in default. In addition to the facts established in the previous case, the RTC of
Makati City, based on the ex parte evidence of the respondents, made the finding that during the
period of January 3, 1983 and January 25, 1985, when petitioner bank was ordered closed by the
Central Bank, the respondents paid a total amount of P1,311,308.48. Further, as of January 25,
1985, the respondents total obligation amounted to P3,391,501.99. The respondents made
additional payments from February 11, 1985 until September 1991 amounting to P2,356,910.00.
If these additional payments were to be applied to the principal, the remaining balance would
only be P1,034,600.00 as of September 16, 1991. The respondents tried to settle their account by
tendering the sum of P1,034,600.00 as full payment of their loan obligation. However, petitioner
bank, through its then Liquidator Ricardo P. Lirio, refused to accept the said amount. According
to petitioner bank, the respondents obligation at that time amounted to P10,160,649.13.

The respondents then deposited by way of consignation with the RTC of Makati City, a
managers check dated December 5, 1991, in the amount of P1,034,600.00 as full payment of
their loan obligation. Petitioner bank was duly informed of such consignation.

In its Decision dated March 6, 1992, the RTC of Makati City ruled that the respondents
total obligation to petitioner bank amounted only to P1,034,600.00 exclusive of interests, and the
latter could not charge and/or collect any interest during the time that it was closed by the
Central Bank as, in fact, banks that were ordered closed by the Central Bank ceased to be liable
for the payment of interests on deposits. It also considered the deposited check as consignation of
the respondents entire debt and that there was a valid consignation. Accordingly, the respondents
obligation to petitioner bank was declared as fully paid and/or cancelled.

On appeal by petitioner bank, the CA, in its Decision dated November 14, 1997 in CA-
G.R. CV No. 42899, reversed and set aside the decision of the RTC of Makati City. On the
procedural aspect, the CA found that the lower court erred in denying petitioner banks motion to
lift order of default. Regarding the substantive issue, the CA held that the lower court likewise
erroneously declared that petitioner bank, during the time that it was ordered closed by the
Central Bank, could not charge or collect interests on the respondents loan obligation. Citing the
principle of unjust enrichment, the CA posited that it was with more reason that distressed banks,
like petitioner bank, should be allowed to collect interests on the loans that they had extended to
their borrowers. According to the CA, the fact that distressed banks were freed from the
obligation to pay any interest due on deposits when they were closed and ordered to stop
operations did not mean that their borrowers were similarly freed from their contractual
obligation to pay interests. It distinguished the contracts between the banks and their depositors
from those between the banks and their borrowers.

The CA declared that the deposited amount of P1,034,600.00 failed to effect a valid
consignation in law because it did not include all interests due. It ratiocinated that for a valid
consignation to exist, the tender of the principal must be accompanied with the tender of interests
which had accrued; otherwise, the said tender would not be effective. The CA then reversed and
set aside the decision of the RTC of Makati City and entered a new one dismissing Civil Case
No. 91-3090.

The subsequent facts pertain to the case now before the Court:

Upon finality of the decision of the CA in CA-G.R. CV No. 42899, declaring that there
was no valid consignation and dismissing Civil Case No. 91-3090, the respondents filed with the
RTC of Makati City a motion to withdraw deposit. They averred therein that with the finality of
the CA decision dismissing their complaint, they are now withdrawing the amount of
P1,034,600.00 which they had deposited by way of consignation with the said lower court. In
addition, they alleged that their loan obligation was eventually settled with the payment of the
amount of P25,000,000.00 through negotiations made with petitioner bank by the brothers James
and Francisco Gaisano as attorneys-in-fact of the respondents. Upon such payment, Corazon L.
Costan, petitioner banks 2nd Assistant Vice-President and Davao Main Branch Manager, issued
on February 10, 1999 the Cancellation of the Real Estate Mortgage over the respondents
commercial lots. According to the respondents, there was no longer any obstacle to the
immediate release of their deposit. They prayed that they be allowed to withdraw the money
which they deposited on consignation with the said court (RTC of Makati City).
 Petitioner bank opposed the respondents motion. It alleged that as of December 31, 1998,
the respondents loan obligation stood at P28,810,330.51. Petitioner bank asserted that the deposit
in question should be released to it as part of the full payment of the respondents obligation. It
maintained that it accepted the said consignation; hence, the respondents could no longer
withdraw the said amount.

Petitioner bank refuted the respondents claim that there was already full payment of their
obligation with the payment by the Gaisanos of P25,000,000.00. Petitioner bank stated that it
negotiated with the Gaisanos on January 7, 1999 and the sum agreed thereon was allegedly for
the payment of the respondents obligation as of December 31, 1998 which amounted to
P28,810,330.51. Petitioner bank added that during this negotiation, it took into account and
deducted from the said total obligation the amounts of P1,462,901.00, representing the payments
made by the respondents in 1990 and 1991, and P1,034,600.00, representing the deposit made by
the respondents with the RTC of Makati City. The net obligation of the respondents after
deducting these amounts stood at P26,312,828.52 and it was this amount that petitioner bank
agreed to be settled with the payment by the Gaisanos of P25,100,000.00, not P25,000,000.00 as
alleged by the respondents.

Petitioner bank accused the respondents of being in bad faith in that while its negotiation
with the Gaisanos had not yet been finalized, the respondents sought to withdraw the deposit in
question which was part of the consideration that induced petitioner bank to agree to settle the
respondents obligation with the payment by the Gaisanos of P25,100,000.00 Petitioner bank
prayed that the deposit in question be released to it in order that it could be applied to the
respondents total loan obligation.

After consideration of the parties respective arguments, the RTC of Makati City issued
the Order dated July 31, 2000 stating as follows:

Acting on the Motion to Withdraw Deposit mailed by plaintiff[s], [the

respondents herein] on 26 January 1999 in Davao City with Opposition thereto
 filed by defendant Banco Filipino Savings and Mortgage Bank on 08 February
1999.

It appears on record that the Complaint for Consignation filed by the plaintiff[s]
before this Court, dated 13 December 1991 and was dismissed by the Court of
Appeals on 14 November 1997 which found that the deposited amount of
P1,034,600.00 did not include the interest due and was not in full satisfaction of
the defendants claim and there was no valid tender of payment and consignation.

The dismissal of the complaint for Consignation by the Appellate Court did not
absolve the obligation of plaintiff to apply the consignation to the outstanding
obligation to the defendant and thus, the deposited amount may still be applied for
payment of the obligation after due hearing on the deficiency claim of the
defendant against the plaintiff.

WHEREFORE, in view of the foregoing, the MOTION TO WITHDRAW

DEPOSIT is hereby DENIED for lack of merit.

SO ORDERED.393[5]

The respondents sought the reconsideration thereof but the RTC of Makati City denied
their motion in its Order dated December 14, 2000. They then filed with the CA a Petition for
Certiorari alleging grave abuse of discretion on the part of the presiding judge394[6] of the said
lower court in promulgating the orders denying their motion to withdraw deposit.

Acting on the said petition, the CA rendered the Decision dated November 12, 2001 in
CA-G.R. SP No. 64475 reversing and setting aside the Orders dated July 31, 2000 and December
14, 2000 of the RTC of Makati City. It declared that the respondents had the statutory unilateral
right to withdraw their deposit by way of consignation because there was no acceptance of the
same by petitioner bank. On this point, the CA relied on Article 1260 of the Civil Code which
provides, in part, that [b]efore the creditor has accepted the consignation, or before a judicial
declaration that the consignation has been properly made, the debtor may withdraw the thing or
sum deposited, allowing the obligation to remain in force.

The CA stressed that petitioner bank had not performed any prior unmistakable and
deliberate act denominating a preemptive acceptance of the deposit in partial settlement of the
loan obligation.395[7] The claim of acceptance was found to be an afterthought on the part of
petitioner bank and proffered for the sole purpose of opposing the respondents motion to
withdraw deposit.

Even assuming that there was acceptance by petitioner bank, the CA opined that such
acceptance must retroact to December 5, 1991 when the deposit was judicially made. In such a
case, petitioner banks computation of the respondents outstanding loan obligation would have to
be modified and reduced accordingly because the interest rate of 21% would then have to be
applied to the reduced loan balance as of December 5, 1991.

The CA strongly condemned the fact that the respondents original loan of P400,000.00 in
1972 ballooned to P28,810,330.51 as of December 31, 1998 based on petitioner banks statement
of account. The principal amount plus interests, surcharges, insurance premiums, sheriffs and
attorneys fees, notarization fees, etc., all added up to the respondents outstanding balance.
According to the CA, the surcharges for missed monthly payments that petitioner bank charged
the respondents amounted to twice as much as the 21% interest rate, resulting in an effective
interest rate of more than 60% per annum. Citing Medel v. Court of Appeals,396[8] this rate was
characterized by the CA as excessive, iniquitous, unconscionable and exorbitant and likened
petitioner bank to Shylock, the moneylender in William Shakespeares The Merchant of Venice,
who asked for a literal pound of flesh as payment for the money he lent.

The CA found as credible the respondents claim that, on their behalf, the Gaisanos had
secured a compromise agreement with petitioner bank with the payment of P25,100,000.00 and,
consequently, the mortgage over the respondents commercial lots was cancelled. Further, the
auction sale of these properties which was scheduled on January 27, 1999 was cancelled by
petitioner bank itself in its letter to the Sheriff.

The dispositive portion of the assailed decision of the CA reads:

WHEREFORE, the foregoing premises considered, the petitioners [the

respondents herein] petition for certiorari is GRANTED. The Orders dated July
31, 2000 and December 14, 2000 of the public court in Civil Case No. 91-3090
are REVERSED and SET ASIDE, and another one entered allowing the
withdrawal by the petitioners of their deposit of P1,034,600.00 held in custodia
legis with said court. No costs.

SO ORDERED.397[9]

Petitioner bank sought the reconsideration of the said decision but the CA, in its
Resolution dated April 12, 2002, denied its motion. Hence, petitioner banks recourse to the
Court.

The basic contention of petitioner bank is that the CA erred in reversing the Orders dated
July 31, 2000 and December 14, 2000 of the RTC
of Makati City which had denied the respondents motion to withdraw deposit. Petitioner bank
posits that the said lower court did not commit grave abuse of discretion in issuing the said
orders because, as stated in the CA Decision of November 14, 1997 in CA-G.R. CV No. 42899,
there was no valid consignation since the amount tendered (P1,034,600.00) by the respondents
did not include the interests that accrued on the principal and, therefore, was not in full
settlement of their outstanding obligation. Petitioner bank maintains that the dismissal of the
respondents complaint for consignation in Civil Case No. 91-3090 did not discharge their
obligation to petitioner bank. Hence, the deposited amount may still be applied to the payment of
such obligation.

Petitioner bank claims that it accepted the respondents deposit on consignation as partial
payment of their obligation after the CA had declared the same to have been improperly made
and ineffective to discharge the respondents of their obligation to petitioner bank. The RTC of
Makati City thus did not allegedly commit grave abuse of discretion in holding that the deposited
amount of P1,034,600.00 may still be applied to the payment of their outstanding obligation of
P28,810,330.51 as of December 31, 1998.

It is likewise petitioner banks view that respondents erroneously resorted to the remedy
of certiorari in assailing the orders of the RTC of Makati City. By filing their motion to
withdraw deposit with the said lower court, the respondents allegedly recognized its jurisdiction
and assuming arguendo that it committed an error in the exercise thereof, the appropriate remedy
to correct the same was by ordinary appeal, not certiorari.

Petitioner bank emphasizes that it already accepted the deposit of P1,034,600.00 such
that it could no longer be withdrawn by the respondents. It reiterated that as of December 31,
1998, the respondents total obligation was P28,810,330.51 and when it negotiated with the
Gaisanos in January 1999, it deducted therefrom the sums of P1,462,901.00, representing
previous payments of the respondents, and P1,034,600.00, representing the deposit in question.
After these deductions, the respondents net obligation stood at P26,312,828.52, and it was this
amount that petitioner bank agreed to be settled with the payment of P25,100,000.00 by the
Gaisanos. This allegedly showed its acceptance of the deposit in question as it was part of the
consideration for the settlement of the respondents obligation of P28,810,330.51.

Petitioner bank strongly takes exception to the portion of the assailed CA decision
comparing it to Shylock and characterizing the surcharges and interests as excessive, iniquitous,
unconscionable and exorbitant. It faults the respondents for being remiss in paying their
amortization. Had they been religious in paying the same, then their obligation would not have
reached the amount of over P28,000,000.00. Petitioner bank denies that it delayed the
foreclosure of the respondents mortgaged properties in order to allow the loan arrearages to
accumulate. Rather, the delay was allegedly the respondents doing as they filed with the RTC of
Davao City a complaint to enjoin the said foreclosure. Moreover, petitioner bank points out that
in several cases,398[10] the Court recognized that interests and surcharges are two entirely
different things that may be simultaneously collected in connection with loan agreements.

Petitioner bank, thus, prays for the reversal of the Decision dated November 12, 2001 and
Resolution dated April 12, 2002 of the appellate court allowing the respondents to withdraw their
deposit on consignation of P1,034,600.00 held by the RTC of Makati City.

The petition is denied.

The Court shall first address the procedural issue on the propriety of respondents filing
with the CA of a petition for certiorari in assailing the Orders of the RTC of Makati City
denying their motion to withdraw deposit. Petitioner bank submits that such tack was erroneous,
as they should have filed an appeal. Petitioner banks submission is not correct.
 A special civil action for certiorari may be instituted when any tribunal, board or officer,
exercising judicial or quasi-judicial functions, has acted without or in excess of jurisdiction, or
with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal,
nor any plain, speedy and adequate remedy in the ordinary course of law.399[11] To recall, in
the present case, the RTC of Makati City had already rendered its original judgment in Civil
Case No 91-3090 and the same was appealed to the CA. Acting on the appeal, the CA reversed
the judgment of the RTC of Makati City and dismissed the respondents complaint for
consignation. The CA decision became final and executory. Subsequently, the respondents filed
the motion to withdraw deposit with the RTC of Makati City and which the latter denied in the
Orders of July 31, 2000 and December 14, 2000. These orders, issued after the original judgment
had already been rendered, were interlocutory and, therefore, not appealable. Since no appeal
was available against such orders, the respondents properly availed of the remedy of certiorari
before the CA.

On the other hand, the only substantive issue for the Courts resolution is whether the
appellate court erred in reversing the Orders dated July 31, 2000 and December 14, 2000 of the
RTC of Makati City which denied the respondents motion to withdraw deposit and,
consequently, allowing them to withdraw their deposit of P1,034,600.00 held on consignation by
the said lower court.

Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment and it generally requires a prior
tender of payment.400[12] In order that consignation may be effective, the debtor must show
that: (1) there was a debt due; (2) the consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to accept it, or because he was absent or
incapacitated, or because several persons claimed to be entitled to receive the amount due or
because the title to the obligation has been lost; (3) previous notice of the consignation had been
given to the person interested in the performance of the obligation; (4) the amount due was
placed at the disposal of the court; and (5) after the consignation had been made, the person
interested was notified thereof.401[13] As earlier mentioned, the CA, in its Decision of
November 14, 1997 in CA-G.R. CV No. 42899, ruled that there was no valid consignation
because the amount tendered as payment was insufficient. In other words, the element of a valid
tender of payment was not satisfied. This decision became final and executory.

The issue that now confronts the Court relates to the right of the respondents to withdraw
the amount deposited with the RTC of Makati City. Article 1260 of the Civil Code of the
Philippines pertinently provides:

Art. 1260. Once the consignation has been duly made, the debtor may ask the
judge to order the cancellation of the obligation.

Before the creditor has accepted the consignation, or before a judicial

confirmation that the consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the obligation to remain in
force.

This provision has been explained in this wise:

x x x The right of the debtor to withdraw the thing or amount deposited in court,
depends upon whether or not the consignation has already been accepted or
judicially declared proper. Before that time, the debtor is still the owner, and he
may withdraw it; in this case, the obligation will remain in full force as before the
deposit. But once the consignation has been accepted by the creditor or judicially
declared as properly made, the debtor loses his right over the thing or amount
deposited, and he cannot withdraw the same without the consent of the creditor; if
the creditor consents to the withdrawal in such case, the obligation is revived as
against the debtor personally, but all rights of preference of the creditor over the
 thing and all his actions against co-debtors, guarantors and sureties are
extinguished.

xxxx

x x x We believe, however, that the contrary view is more acceptable. Before the
consignation has been accepted by the creditor or judicially declared as properly
made, the debtor is still the owner of the thing or amount deposited, and,
therefore, the other parties liable for the obligation have no right to oppose his
withdrawal of such thing or amount. The debtor merely uses his right, and unless
the law expressly limits that use of his right, it cannot be prevented by the
objections of anyone. Our law grants to the debtor the right to withdraw, without
any limitation, and we should not read a non-existing limitation into the law.
Although the other parties liable for the obligation would have been benefited if
the consignation had been allowed to become effective, before that moment they
have not acquired such an interest as would give them a right to oppose the
exercise of the right of the debtor to withdraw the consignation.

Before the consignation has been judicially declared proper, the creditor may
prevent the withdrawal by the debtor, by accepting the consignation, even with
reservations. Thus, when the amount consigned does not cover the entire
obligation, the creditor may accept it, reserving his right to the balance. x x
x402[14]

Thus, under Article 1260 of the Civil Code, the debtor may withdraw, as a matter of
right, the thing or amount deposited on consignation in the following instances:

(1) Before the creditor has accepted the consignation; or

(2) Before a judicial declaration that the consignation has been properly made.

Obviously, in this case, there was no judicial declaration that the consignation had been
properly made. On the contrary, the CA declared that there was no valid consignation. What
remains to be determined then is whether petitioner bank had already accepted the deposit in
question so as to prevent the respondents from exercising their right to withdraw the same.

Petitioner bank insists that it had already done so. In fact, petitioner bank avers, it took
into account and deducted the deposit in question from the respondents outstanding obligation of
P28,810,330.51 as of December 31, 1998 when it negotiated with the Gaisanos. Deducting the
deposit in question as well as the payments made by the respondents during the period of 1990
and 1991, their net obligation stood at P26,312,828.52. It was this
amount that petitioner bank allegedly agreed to be settled with the payment of P25,100,000.00
by the Gaisanos on behalf of the respondents.

To prove this claim, petitioner bank relies on the statement of account403[15] prepared
by its employees purportedly showing that the deposit in question was deducted from the
respondents outstanding obligation as of December 31, 1998. This statement of account,
however, is self-serving and has no probative value especially considering that the persons who
prepared the same were not presented in court. Thus, other than its bare allegation, petitioner
bank has failed to establish by convincing evidence that it had made such acceptance of the
deposit in question prior to the respondents filing of their motion to withdraw deposit as to
effectively prevent them from withdrawing the sum of P1,034,600.00 held by the RTC of Makati
City.

On the other hand, in the assailed decision, the CA categorically made the finding that
petitioner bank made no acceptance of the deposit in question, even if only as partial payment of
the respondents outstanding obligation:

Nor could it be successfully argued with any modicum of persuasion, x x x, that

the bank had performed any prior unmistakable and deliberate act denominating a
preemptive acceptance of the deposit in partial settlement of the loan obligation.
Otherwise, it would not have waited until the petitioners [the respondents herein]
filed their motion to withdraw more than a year after this Courts aforecited
decision. The claimed acceptance was obviously an afterthought, and proffered
for the sole purpose of opposing the deposit withdrawal.404[16]
 This finding of fact of the CA that petitioner bank had not accepted the deposit in
question, even with reservation, is accorded respect by this Court following the salutary rule that
findings of facts of the appellate court are generally conclusive on the Supreme Court.405[17] It
is significant to note that the RTC of Makati City never made any factual finding on whether or
not there had been acceptance of the deposit in question by petitioner bank.406[18] The said
lower court did not even apply Article 1260 of the Civil Code when it denied the respondents
motion to withdraw deposit.

With the finding that petitioner bank had not made any prior acceptance of the deposit in
question, the CA accordingly did not commit reversible error in setting aside the Orders of the
RTC of Makati City which had denied the respondents motion to withdraw deposit. Indeed,
absent this prior acceptance by petitioner bank or a judicial declaration that the consignation had
been properly made, the respondents remain the owners of the sum of P1,034,600.00 deposited
with the RTC of Makati City. When they filed their motion to withdraw the deposit, they did so
in the exercise of their right.

At this point, it bears mentioning that it is not disputed that the Gaisano brothers, as
attorneys-in-fact of the respondents, eventually paid to petitioner bank some time in January
1999 the sum of P25,100,000.00 as settlement of the respondents obligation. To the Courts mind,
the payment of the said sum already constituted substantial compliance by the respondents of
their obligation considering that their loan, as restructured or consolidated in November 1982,
amounted to only P3,163,000.00.
 As noted by the CA, the surcharges imposed by petitioner bank on the respondents as of
November 15, 1998 reached P16,569,534.62.407[19] Article 1229408[20] of the Civil Code
specifically empowers the judge to reduce the civil penalty equitably, when the principal
obligation has been partly or irregularly complied with. Upon this premise, the Court holds that
the said surcharges should be equitably reduced such that the payment of P25,100,000.00
constituted substantial compliance by the respondents of their obligation to petitioner bank.

The Court need not delve on the other issues raised, particularly relating to the interests
imposed by petitioner bank in connection with the respondents loan, as these were already
passed upon in the other cases (CA-G.R. SP No. 21089 and CA-G.R. CV No. 42899) involving
the same parties.

WHEREFORE, premises considered, the petition is DENIED. The Decision dated

November 12, 2001 and Resolution of April 12, 2002 of the Court of Appeals in CA-G.R. SP
No. 64475 are AFFIRMED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 172259 December 5, 2006

SPS. JAIME BENOS and MARINA BENOS, petitioners,
vs.
SPS. GREGORIO LAWILAO and JANICE GAIL LAWILAO, respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review under Rule 45 of the Rules of Court assails the December 5, 2005
Decision1 of the Court of Appeals in CA-G.R. SP No. 78845, affirming the Judgment2 dated July
1, 2003 of the Regional Trial Court of Bontoc, Mountain Province, Branch 35, in Civil Case No.
1091. The Regional Trial Court reversed the Decision3 dated November 14, 2002 of the
Municipal Circuit Trial Court of Bauko, Mountain Province in Civil Case No. 314, and ordered
the consolidation of ownership of subject property in the name of respondent-spouses Gregorio
and Janice Gail Lawilao. Also assailed is the March 17, 2006 Resolution4 denying petitioners’
motion for reconsideration.

The antecedent facts are as follows:

On February 11, 1999, petitioner-spouses Jaime and Marina Benos ("the Benos spouses") and
respondent-spouses Gregorio and Janice Gail Lawilao ("the Lawilao spouses") executed a Pacto
de Retro Sale5 where the Benos spouses sold their lot covered by Tax Declaration No. 25300 and
the building erected thereon for P300,000.00, one half of which was to be paid in cash to the
Benos spouses and the other half to be paid to the bank to pay off the loan of the Benos spouses
which was secured by the same lot and building. Under the contract, the Benos spouses could
redeem the property within 18 months from date of execution by returning the contract price,
otherwise, the sale would become irrevocable without necessity of a final deed to consolidate
ownership over the property in the name of the Lawilao spouses.

After paying the P150,000.00, the Lawilao spouses immediately took possession of the property
and leased out the building thereon. However, instead of paying the loan to the bank, Janice
Lawilao restructured it twice. Eventually, the loan became due and demandable.

On August 14, 2000, a son of the Benos spouses paid the bank P159,000.00 representing the
principal and interest. On the same day, the Lawilao spouses also went to the bank and offered to
pay the loan, but the bank refused to accept the payment. The Lawilao spouses then filed with
the Municipal Circuit Trial Court a petition6 docketed as Civil Case No. 310 for consignation
against the bank and simultaneously deposited the amount of P159,000.00. Upon the bank’s
motion, the court dismissed the petition for lack of cause of action.

Subsequently, the Lawilao spouses filed with the Municipal Circuit Trial Court a complaint
docketed as Civil Case No. 314, for consolidation of ownership. This complaint is the precursor
of the instant petition. The Benos spouses moved to dismiss on grounds of lack of jurisdiction
and lack of cause of action but it was denied and the parties went to trial.

On November 14, 2002, the Municipal Circuit Trial Court rendered judgment in favor of the
Benos spouses, the dispositive portion of which states:

IN THE LIGHT of all the foregoing considerations, for lack of legal and factual basis to
demand consolidation of ownership over the subject property, the above-entitled case is
hereby ordered dismissed.

No pronouncement as to damages on the ground that no premium should be assessed on

the right to litigate.

No costs.

SO ORDERED.7

The Lawilao spouses appealed before the Regional Trial Court which reversed the Municipal
Circuit Trial Court and declared the ownership of the subject property consolidated in favor of
the Lawilao spouses.8

The Benos spouses appealed to the Court of Appeals which affirmed the Regional Trial Court on
December 5, 2005. The dispositive portion of the Decision reads:

WHEREFORE, the petition for review is DISMISSED for lack of sufficient merit. The
decision rendered by the Regional Trial Court, Branch 35, Bontoc, Mountain Province in
Civil Case No. 1091 on 1 July 2003, reversing the decision of the Municipal Circuit Trial
Court of Bauko-Sabangan, Mountain Province in (Civil Case No.) 314, is AFFIRMED.

SO ORDERED.9

The appellate court denied petitioners’ motion for reconsideration, hence, the instant petition on
the following assignment of errors:

4.0. It was error for the Regional Trial Court and, subsequently, the Court of Appeals to
rule that respondents can consolidate ownership over the subject property.

4.1. It was likewise error for said lower courts not to have ruled that the contract between
the parties is actually an equitable mortgage.10

The Benos spouses argue that consolidation is not proper because the Lawilao spouses violated
the terms of the contract by not paying the bank loan; that having breached the terms of the
contract, the Lawilao spouses cannot insist on the performance thereof by the Benos spouses;
that the contract was actually an equitable mortgage as shown by the inadequacy of the
consideration for the subject property; and that respondent-spouses’ remedy should have been for
recovery of the loan or foreclosure of mortgage.
The Lawilao spouses, on the other hand, assert that the Pacto de Retro Sale reflected the parties’
true agreement; that the Benos spouses cannot vary its terms and conditions because they did not
put in issue in their pleadings its ambiguity, mistake or imperfection as well as its failure to
express the parties’ true intention; that the Benos spouses admitted its genuineness and due
execution; and that the delivery of the property to the Lawilao spouses after the execution of the
contract shows that the agreement was a sale with a right of repurchase and not an equitable
mortgage.

The Lawilao spouses also claim that they complied with their obligation when they offered to
pay the loan to the bank and filed a petition for consignation; and that because of the failure of
the Benos spouses to redeem the property, the title and ownership thereof immediately vested in
them (Lawilao spouses).

The issue for resolution is whether the Lawilao spouses can consolidate ownership over the
subject property.

The petition is impressed with merit.

In ruling for respondents, the Court of Appeals held that: (1) the pacto de retro sale was perfected
because the parties voluntarily agreed upon the object thereof and the price; (2) the Lawilao
spouses acquired possession over the property immediately after execution of the pacto de retro
sale; (3) the pacto de retro sale does not provide for automatic rescission in case the Lawilao
spouses fail to pay the full price; (4) the Benos spouses did not rescind the contract after the
Lawilao spouses failed to pay the P150,000.00 loan; (5) Janice Lawilao offered to pay the loan
and deposited P150,000.00 to the bank although the period for payment had expired thus,
complying with Article 1592 of the Civil Code allowing payment even after expiration of the
period as long as no demand for rescission of the contract had been made either judicially or by a
notarial act; (6) the title and ownership of the Lawilao spouses became absolute when the Benos
spouses failed to repurchase the lot within the redemption period; and (7) the payment by the
Benos spouses’ son of P159,000.00 to the bank does not amount to a repurchase as it violates
Article 1616 of the Civil Code requiring the vendor to return to the vendee the price of the sale,
the expenses of the contract and other necessary and useful expenses.11

Contrary to the aforesaid findings, the evidence shows that the Lawilao spouses did not make a
valid tender of payment and consignation of the balance of the contract price. As correctly found
by the Regional Trial Court:

As matters stand, no valid tender of payment and/or consignation of the P150,000.00

which the Appellant (Lawilaos) still owes the Appellee (Benos) has been effected by the
former. The amount of P159,000.00 deposited with the MCTC is in relation to Civil Case
No. 310 earlier dismissed by said court, and not to the instant action. Hence, this Court
cannot automatically apply such sum in satisfaction of the aforesaid debt of the Appellant
and order the Appellee creditor to accept the same.12 (Emphasis supplied)

The Lawilao spouses did not appeal said finding, and it has become final and binding on them.
Although they had repeatedly alleged in their pleadings that the amount of P159,000.00 was still
with the trial court which the Benos spouses could withdraw anytime, they never made any step
to withdraw the amount and thereafter consign it. Compliance with the requirements of tender
and consignation to have the effect of payment are mandatory. Thus –

Tender of payment is the manifestation by debtors of their desire to comply with or to

pay their obligation. If the creditor refuses the tender of payment without just cause, the
debtors are discharged from the obligation by the consignation of the sum due.
Consignation is made by depositing the proper amount to the judicial authority, before
whom the tender of payment and the announcement of the consignation shall be proved.
All interested parties are to be notified of the consignation. Compliance with these
requisites is mandatory.13 (Emphasis supplied)

In the instant case, records show that the Lawilao spouses filed the petition for consignation
against the bank in Civil Case No. 310 without notifying the Benos spouses. The petition was
dismissed for lack of cause of action against the bank. Hence, the Lawilao spouses failed to
prove their offer to pay the balance of the purchase price and consignation. In fact, even before
the filing of the consignation case, the Lawilao spouses never notified the Benos spouses of their
offer to pay.

Thus, as far as the Benos are concerned, there was no full and complete payment of the contract
price, which gives them the right to rescind the contract pursuant to Articles 1191 in relation to
Article 1592 of the Civil Code, which provide:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 of the Mortgage Law.

Art. 1592. In the sale of immovable property, even though it may have been stipulated
that upon failure to pay the price at the time agreed upon the rescission of the contract
shall of right take place, the vendee may pay, even after the expiration of the period, as
long as no demand for rescission of the contract has been made upon him either judicially
or by a notarial act. After the demand, the court may not grant him a new term.

In the instant case, while the Benos spouses did not rescind the Pacto de Retro Sale through a
notarial act, they nevertheless rescinded the same in their Answer with Counterclaim where they
stated that:
 14. Plaintiffs did not perform their obligation as spelled out in the Pacto de Retro Sale
(ANNEX "A"), particularly the assumption of the obligation of defendants to the Rural
Bank of Bontoc. Defendants were the ones who paid their loan through their son,
ZALDY BENOS. As a result, ANNEX "A" is rendered null and of no effect. Therefore,
the VENDEE a retro who is one of plaintiffs herein cannot consolidate her ownership
over the property subject of the null and ineffective instrument.

15. Since plaintiffs did not perform their corresponding obligation under ANNEX "A",
defendants have been all too willing to return the amount of ON[E] HUNDRED FIFTY
THOUSAND PESOS (P150,000.00) and reasonable interest thereon to plaintiffs. But
plaintiffs refused to accept the same.

With the filing of this answer, defendants pray that this serves as a notice of tender of
payment, and they shall consign the amount with the proper court as soon as it is legally
feasible.14

They also prayed that the Municipal Circuit Trial Court render judgment "[d]eclaring the Pacto
de Retro Sale rescinded or ineffective or void for lack of, or insufficient consideration."15

In Iringan v. Court of Appeals,16 we ruled that "even a crossclaim found in the Answer could
constitute a judicial demand for rescission that satisfies the requirement of the law." Similarly,
the counterclaim of the Benos spouses in their answer satisfied the requisites for the judicial
rescission of the subject Pacto de Retro Sale.

The Municipal Circuit Trial Court thus correctly dismissed the complaint for consolidation of
ownership filed by the Lawilao spouses for their failure to comply with the conditions of the
Pacto de Retro Sale. Nevertheless, it refused to declare the rescission of the Pacto de Retro Sale
as prayed for in the counterclaim of the Benos spouses, stating that:

How about the other obligations and/or rights owing to either party by virtue of the Pacto
de Retro Sale? This, the court opines that it can not delve into without overstepping the
limits of his functions there being appropriate remedies. It is hornbook in our
jurisprudence that a right in law may be enforced and a wrong way be remedied but
always through the appropriate action.17

The issue of rescission having been put in issue in the answer and the same having been litigated
upon without objections by the Lawilao spouses on grounds of jurisdiction, the Municipal Circuit
Trial Court should have ruled on the same and wrote finis to the controversy.

Thus, as a necessary consequence of its ruling that the Lawilao spouses breached the terms of the
Pacto de Retro Sale, the Municipal Circuit Trial Court should have rescinded the Pacto de Retro
Sale and directed the Benos spouses to return P150,000.00 to the Lawilao spouses, pursuant to
our ruling in Cannu v. Galang,18 to wit:

Petitioners maintain that inasmuch as respondents-spouses Galang were not granted the
right to unilaterally rescind the sale under the Deed of Sale with Assumption of
 Mortgage, they should have first asked the court for the rescission thereof before they
fully paid the outstanding balance of the mortgage loan with the NHMFC. They claim
that such payment is a unilateral act of rescission which violates existing jurisprudence.

In Tan v. Court of Appeals, this court said:

. . . [T]he power to rescind obligations is implied in reciprocal ones in case one of

the obligors should not comply with what is incumbent upon him is clear from a
reading of the Civil Code provisions. However, it is equally settled that, in the
absence of a stipulation to the contrary, this power must be invoked judicially; it
cannot be exercised solely on a party’s own judgment that the other has
committed a breach of the obligation. Where there is nothing in the contract
empowering the petitioner to rescind it without resort to the courts, the
petitioner’s action in unilaterally terminating the contract in this case is
unjustified.

It is evident that the contract under consideration does not contain a provision authorizing
its extrajudicial rescission in case one of the parties fails to comply with what is
incumbent upon him. This being the case, respondents-spouses should have asked for
judicial intervention to obtain a judicial declaration of rescission. Be that as it may, and
considering that respondents-spouses’ Answer (with affirmative defenses) with
Counterclaim seeks for the rescission of the Deed of Sale with Assumption of Mortgage,
it behooves the court to settle the matter once and for all than to have the case re-litigated
again on an issue already heard on the merits and which this court has already taken
cognizance of. Having found that petitioners seriously breached the contract, we,
therefore, declare the same is rescinded in favor of respondents-spouses.

As a consequence of the rescission or, more accurately, resolution of the Deed of Sale
with Assumption of Mortgage, it is the duty of the court to require the parties to surrender
whatever they may have received from the other. The parties should be restored to their
original situation.

The record shows petitioners paid respondents-spouses the amount of P75,000.00 out of
the P120,000.00 agreed upon. They also made payments to NHMFC amounting to
P55,312.47. As to the petitioners’ alleged payment to CERF Realty of P46,616.70, except
for petitioner Leticia Cannu’s bare allegation, we find the same not to be supported by
competent evidence. As a general rule, one who pleads payment has the burden of
proving it. However, since it has been admitted in respondents-spouses’ Answer that
petitioners shall assume the second mortgage with CERF Realty in the amount of
P35,000.00, and that Adelina Timbang, respondents-spouses’ very own witness, testified
that same has been paid, it is but proper to return this amount to petitioners. The three
amounts total P165,312.47 -- the sum to be returned to petitioners.

WHEREFORE, the petition is GRANTED. The Decision dated December 5, 2005 and
Resolution dated March 17, 2006 of the Court of Appeals in CA-G.R. SP No. 78845, affirming
the Judgment dated July 1, 2003 of the Regional Trial Court of Bontoc, Mountain Province,
Branch 35, in Civil Case No. 1091, are REVERSED and SET ASIDE. The Decision dated
November 14, 2002 of the Municipal Circuit Trial Court of Bauko, Mountain Province in Civil
Case No. No. 314 dismissing respondents’ complaint for consolidation of ownership and
damages is REINSTATED WITH THE MODIFICATION that the Pacto de Retro Sale dated
February 11, 1999 is declared rescinded and petitioners are ordered to return the amount of
P150,000.00 to respondents. No costs.

SO ORDERED.

Panganiban, C.J. (Chairperson), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.