CREDIT TRANSACTIONS

LOAN

1. BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS and ALS MANAGEMENT &
DEVELOPMENT CORPORATION, respondents. [G.R. No. 133632. February 15, 2002]

DECISION
QUISUMBING, J.:
This petition for certiorari assails the decision dated February 28, 1997, of the Court of Appeals and its resolution
dated April 21, 1998, in CA-G.R. CV No. 38887. The appellate court affirmed the judgment of the Regional Trial Court of Pasig
City, Branch 151, in (a) Civil Case No. 11831, for foreclosure of mortgage by petitioner BPI Investment Corporation (BPIIC for
brevity) against private respondents ALS Management and Development Corporation and Antonio K. Litonjua, [1] consolidated
with (b) Civil Case No. 52093, for damages with prayer for the issuance of a writ of preliminary injunction by the private
respondents against said petitioner.
The trial court had held that private respondents were not in default in the payment of their monthly amortization, hence,
the extrajudicial foreclosure conducted by BPIIC was premature and made in bad faith. It awarded private respondents the
amount of P300,000 for moral damages, P50,000 for exemplary damages, and P50,000 for attorneys fees and expenses for
litigation. It likewise dismissed the foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and Development Corporation
(AIDC), the predecessor of petitioner BPIIC, for the construction of a house on his lot in New Alabang Village, Muntinlupa. Said
house and lot were mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents
ALS and Antonio Litonjua for P850,000. They paid P350,000 in cash and assumed the P500,000 balance of Roas indebtedness
with AIDC. The latter, however, was not willing to extend the old interest rate to private respondents and proposed to grant
them a new loan of P500,000 to be applied to Roas debt and secured by the same property, at an interest rate of 20% per
annum and service fee of 1% per annum on the outstanding principal balance payable within ten years in equal monthly
amortization of P9,996.58 and penalty interest at the rate of 21% per annum per day from the date the amortization became
due and payable.
Consequently, in March 1981, private respondents executed a mortgage deed containing the above stipulations with the
provision that payment of the monthly amortization shall commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying BPIIC the sum of P190,601.35. This reduced
Roas principal balance to P457,204.90 which, in turn, was liquidated when BPIIC applied thereto the proceeds of private
respondents loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87, purporting to be what was left of their loan
after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that they failed to pay
the mortgage indebtedness which from May 1, 1981 to June 30, 1984, amounted to Four Hundred Seventy Five Thousand Five
Hundred Eighty Five and 31/100 Pesos (P475,585.31). A notice of sheriffs sale was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged, among others, that they
were not in arrears in their payment, but in fact made an overpayment as of June 30, 1984. They maintained that they should
not be made to pay amortization before the actual release of the P500,000 loan in August and September 1982. Further, out of
the P500,000 loan, only the total amount of P464,351.77 was released to private respondents. Hence, applying the effects of
legal compensation, the balance of P35,648.23 should be applied to the initial monthly amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093, thus:

WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development Corporation and Antonio K.
Litonjua and against BPI Investment Corporation, holding that the amount of loan granted by BPI to ALS and Litonjua was only
in the principal sum of P464,351.77, with interest at 20% plus service charge of 1% per annum, payable on equal monthly and
successive amortizations at P9,283.83 for ten (10) years or one hundred twenty (120) months. The amortization schedule
attached as Annex A to the Deed of Mortgage is correspondingly reformed as aforestated.

The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused their publication in a
newspaper of general circulation as defaulting debtors, and therefore orders BPI to pay ALS and Litonjua the following sums:
a) P300,000.00 for and as moral damages;

b) P50,000.00 as and for exemplary damages;

c) P50,000.00 as and for attorneys fees and expenses of litigation.

The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.

Costs against BPI.

SO ORDERED.[2]

Both parties appealed to the Court of Appeals. However, private respondents appeal was dismissed for non-payment of
docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion reads:

WHEREFORE, finding no error in the appealed decision the same is hereby AFFIRMED in toto.

SO ORDERED.[3]

In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the delivery of the object of the
contract. The contract of loan between BPIIC and ALS & Litonjua was perfected only on September 13, 1982, the date when
BPIIC released the purported balance of theP500,000 loan after deducting therefrom the value of Roas indebtedness. Thus,
payment of the monthly amortization should commence only a month after the said date, as can be inferred from the
stipulations in the contract. This, despite the express agreement of the parties that payment shall commence on May 1,
1981. From October 1982 to June 1984, the total amortization due was only P194,960.43. Evidence showed that private
respondents had an overpayment, because as of June 1984, they already paid a total amount of P201,791.96. Therefore, there
was no basis for BPIIC to extrajudicially foreclose the mortgage and cause the publication in newspapers concerning private
respondents delinquency in the payment of their loan. This fact constituted sufficient ground for moral damages in favor of
private respondents.
The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this petition, where BPIIC submits for
resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE LIGHT OF THE RULE LAID
DOWN IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS
FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE LAID DOWN
IN SOCIAL SECURITY SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a simple loan is perfected
upon the delivery of the object of the contract, the loan contract in this case was perfected only on September 13,
1982. Petitioner claims that a contract of loan is a consensual contract, and a loan contract is perfected at the time the contract
of mortgage is executed conformably with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In the present case, the
loan contract was perfected on March 31, 1981, the date when the mortgage deed was executed, hence, the amortization and
interests on the loan should be computed from said date.
Petitioner also argues that while the documents showed that the loan was released only on August 1982, the loan was
actually released on March 31, 1981, when BPIIC issued a cancellation of mortgage of Frank Roas loan. This finds support in
the registration on March 31, 1981 of the Deed of Absolute Sale executed by Roa in favor of ALS, transferring the title of the
property to ALS, and ALS executing the Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the delay in the release of
the loan should be attributed to private respondents. As BPIIC only agreed to extend a P500,000 loan, private respondents
were required to reduce Frank Roas loan below said amount. According to petitioner, private respondents were only able to do
so in August 1982.
In their comment, private respondents assert that based on Article 1934 of the Civil Code, [4] a simple loan is perfected
upon the delivery of the object of the contract, hence a real contract. In this case, even though the loan contract was signed
on March 31, 1981, it was perfected only on September 13, 1982, when the full loan was released to private respondents. They
submit that petitioner misread Bonnevie. To give meaning to Article 1934, according to private respondents, Bonnevie must be
construed to mean that the contract to extend the loan was perfected on March 31, 1981 but the contract of loan itself was only
perfected upon the delivery of the full loan to private respondents on September 13, 1982.
Private respondents further maintain that even granting, arguendo, that the loan contract was perfected on March 31,
1981, and their payment did not start a month thereafter, still no default took place. According to private respondents, a
perfected loan agreement imposes reciprocal obligations, where the obligation or promise of each party is the consideration of
the other party. In this case, the consideration for BPIIC in entering into the loan contract is the promise of private respondents
to pay the monthly amortization. For the latter, it is the promise of BPIIC to deliver the money. In reciprocal obligations, neither
party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon
him. Therefore, private respondents conclude, they did not incur in delay when they did not commence paying the monthly
amortization on May 1, 1981, as it was only on September 13, 1982 when petitioner fully complied with its obligation under
the loan contract.
We agree with private respondents. A loan contract is not a consensual contract but a real contract. It is perfected only
upon the delivery of the object of the contract. [5] Petitioner misapplied Bonnevie. The contract in Bonnevie declared by this
Court as a perfected consensual contract falls under the first clause of Article 1934, Civil Code. It is an accepted promise to
deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445, petitioner applied for a loan
of P500,000 with respondent bank. The latter approved the application through a board resolution. Thereafter, the
corresponding mortgage was executed and registered. However, because of acts attributable to petitioner, the loan was not
released. Later, petitioner instituted an action for damages. We recognized in this case, a perfected consensual contract which
under normal circumstances could have made the bank liable for not releasing the loan. However, since the fault was
attributable to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action for damages. However, said contract does not
constitute the real contract of loan which requires the delivery of the object of the contract for its perfection and which gives
rise to obligations only on the part of the borrower.[6]
In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was perfected
only on September 13, 1982, the date of the second release of the loan. Following the intentions of the parties on the
commencement of the monthly amortization, as found by the Court of Appeals, private respondents obligation to pay
commenced only on October 13, 1982, a month after the perfection of the contract. [7]
We also agree with private respondents that a contract of loan involves a reciprocal obligation, wherein the obligation or
promise of each party is the consideration for that of the other. [8] As averred by private respondents, the promise of BPIIC to
extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly amortization commencing
on May 1, 1981, one month after the supposed release of the loan. It is a basic principle in reciprocal obligations that neither
party incurs in delay, if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon
him.[9] Only when a party has performed his part of the contract can he demand that the other party also fulfills his own
obligation and if the latter fails, default sets in. Consequently, petitioner could only demand for the payment of the monthly
amortization after September 13, 1982 for it was only then when it complied with its obligation under the loan
contract. Therefore, in computing the amount due as of the date when BPIIC extrajudicially caused the foreclosure of the
mortgage, the starting date is October 13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as the date of actual release of the loan and
whether private respondents were the cause of the delay in the release of the loan, are factual. Since petitioner has not shown
that the instant case is one of the exceptions to the basic rule that only questions of law can be raised in a petition for review
under Rule 45 of the Rules of Court, [10] factual matters need not tarry us now. On these points we are bound by the findings of
the appellate and trial courts.
On the second issue, petitioner claims that it should not be held liable for moral and exemplary damages for it did not act
maliciously when it initiated the foreclosure proceedings. It merely exercised its right under the mortgage contract because
private respondents were irregular in their monthly amortization. It invoked our ruling in Social Security System vs. Court of
Appeals, 120 SCRA 707, where we said:

Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of Appeals the negligence of the
appellant is not so gross as to warrant moral and temperate damages, except that, said Court reduced those damages by only
P5,000.00 instead of eliminating them. Neither can we agree with the findings of both the Trial Court and respondent Court
that the SSS had acted maliciously or in bad faith. The SSS was of the belief that it was acting in the legitimate exercise of its
right under the mortgage contract in the face of irregular payments made by private respondents and placed reliance on the
automatic acceleration clause in the contract. The filing alone of the foreclosure application should not be a ground for an
award of moral damages in the same way that a clearly unfounded civil action is not among the grounds for moral damages.
 Private respondents counter that BPIIC was guilty of bad faith and should be liable for said damages because it insisted on
the payment of amortization on the loan even before it was released. Further, it did not make the corresponding deduction in
the monthly amortization to conform to the actual amount of loan released, and it immediately initiated foreclosure
proceedings when private respondents failed to make timely payment.
But as admitted by private respondents themselves, they were irregular in their payment of monthly
amortization. Conformably with our ruling inSSS, we can not properly declare BPIIC in bad faith. Consequently, we should rule
out the award of moral and exemplary damages.[11]
However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of mortgage, without
checking and correspondingly adjusting its records on the amount actually released to private respondents and the date when
it was released. Such negligence resulted in damage to private respondents, for which an award of nominal damages should be
given in recognition of their rights which were violated by BPIIC. [12] For this purpose, the amount of P25,000 is sufficient.
Lastly, as in SSS where we awarded attorneys fees because private respondents were compelled to litigate, we sustain the
award of P50,000 in favor of private respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its resolution dated April 21, 1998, are
AFFIRMED WITH MODIFICATION as to the award of damages. The award of moral and exemplary damages in favor of private
respondents is DELETED, but the award to them of attorneys fees in the amount of P50,000 is UPHELD. Additionally, petitioner
is ORDERED to pay private respondents P25,000 as nominal damages. Costs against petitioner.
SO ORDERED.
 2. POLO S. PANTALEON (petitioner) v AMERICAN EXPRESS INTERNATIONAL, INC., (respondent) G.R. No. 174269
BRION, J.:

We resolve the motion for reconsideration filed by respondent American Express International, Inc. (AMEX) dated June 8,
2009,[1] seeking to reverse our Decision dated May 8, 2009 where we ruled that AMEX was guilty of culpable delay in fulfilling
its obligation to its cardholder petitioner Polo Pantaleon. Based on this conclusion, we held AMEX liable for moral and
exemplary damages, as well as attorneys fees and costs of litigation. [2]

FACTUAL ANTECEDENTS

The established antecedents of the case are narrated below.

AMEX is a resident foreign corporation engaged in the business of providing credit services through the operation of a charge
card system. Pantaleon has been an AMEX cardholder since 1980. [3]

In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina), and son (Adrian Roberto), went on a
guided European tour. On October 25, 1991, the tour group arrived in Amsterdam. Due to their late arrival, they postponed the
tour of the city for the following day.[4]

The next day, the group began their sightseeing at around 8:50 a.m. with a trip to the Coster Diamond House
(Coster). To have enough time for take a guided city tour of Amsterdam before their departure scheduled on that day, the tour
group planned to leave Coster by 9:30 a.m. at the latest.

While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a total of US$13,826.00. Pantaleon
presented his American Express credit card to the sales clerk to pay for this purchase. He did this at around 9:15 a.m. The sales
clerk swiped the credit card and asked Pantaleon to sign the charge slip, which was then electronically referred to
AMEXs Amsterdam office at 9:20 a.m.[5]

At around 9:40 a.m., Coster had not received approval from AMEX for the purchase so Pantaleon asked the store clerk to cancel
the sale. The store manager, however, convinced Pantaleon to wait a few more minutes. Subsequently, the store manager
informed Pantaleon that AMEX was asking for bank references; Pantaleon responded by giving the names of his Philippine
depository banks.

At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had not approved the purchase. Since the
city tour could not begin until the Pantaleons were onboard the tour bus, Coster decided to release at around 10:05 a.m. the
purchased items to Pantaleon even without AMEXs approval.

When the Pantaleons finally returned to the tour bus, they found their travel companions visibly irritated. This
irritation intensified when the tour guide announced that they would have to cancel the tour because of lack of time as they all
had to be in Calais, Belgium by 3 p.m. to catch the ferry to London.[6]

From the records, it appears that after Pantaleons purchase was transmitted for approval to AMEXs Amsterdam office at 9:20
a.m.; was referred to AMEXs Manila office at 9:33 a.m.; and was approved by the Manila office at 10:19 a.m. At 10:38 a.m.,
AMEXs Manila office finally transmitted the Approval Code to AMEXs Amsterdam office. In all, it took AMEX a total of 78
minutes to approve Pantaleons purchase and to transmit the approval to the jewelry store. [7]
After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleon experienced delay in securing
approval for purchases using his American Express credit card on two separate occasions. He experienced the first delay when
he wanted to purchase golf equipment in the amount of US$1,475.00 at the Richard Metz Golf Studio in New York on October
30, 1991. Another delay occurred when he wanted to purchase childrens shoes worth US$87.00 at the Quiency Market
in Boston on November 3, 1991.

Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliation and inconvenience he and his
family experienced due to the delays in obtaining approval for his credit card purchases. AMEX responded by explaining that
the delay in Amsterdam was due to the amount involved the charged purchase of US$13,826.00 deviated from Pantaleons
established charge purchase pattern. Dissatisfied with this explanation, Pantaleon filed an action for damages against the
credit card company with the Makati City Regional Trial Court (RTC).
On August 5, 1996, the RTC found AMEX guilty of delay, and awarded Pantaleon P500,000.00 as moral
damages, P300,000.00 as exemplary damages, P100,000.00 as attorneys fees, and P85,233.01 as litigation expenses.

On appeal, the CA reversed the awards. [8] While the CA recognized that delay in the nature of mora accipiendi or
creditors default attended AMEXs approval of Pantaleons purchases, it disagreed with the RTCs finding that AMEX had
breached its contract, noting that the delay was not attended by bad faith, malice or gross negligence. The appellate court
found that AMEX exercised diligent efforts to effect the approval of Pantaleons purchases; the purchase at Coster posed
particularly a problem because it was at variance with Pantaleons established charge pattern. As there was no proof that AMEX
breached its contract, or that it acted in a wanton, fraudulent or malevolent manner, the appellate court ruled that AMEX could
not be held liable for any form of damages.

Pantaleon questioned this decision via a petition for review on certiorari with this Court.

In our May 8, 2009 decision, we reversed the appellate courts decision and held that AMEX was guilty of mora solvendi,
or debtors default. AMEX, as debtor, had an obligation as the credit provider to act on Pantaleons purchase requests, whether
to approve or disapprove them, with timely dispatch. Based on the evidence on record, we found that AMEX failed to timely act
on Pantaleons purchases.

Based on the testimony of AMEXs credit authorizer Edgardo Jaurique, the approval time for credit card charges would
be three to four seconds under regular circumstances. In Pantaleons case, it took AMEX 78 minutes to approve
the Amsterdam purchase. We attributed this delay to AMEXs Manila credit authorizer, Edgardo Jaurique, who had to go over
Pantaleons past credit history, his payment record and his credit and bank references before he approved the
purchase. Finding this delay unwarranted, we reinstated the RTC decision and awarded Pantaleon moral and exemplary
damages, as well as attorneys fees and costs of litigation.

THE MOTION FOR RECONSIDERATION

In its motion for reconsideration, AMEX argues that this Court erred when it found AMEX guilty of culpable delay in complying
with its obligation to act with timely dispatch on Pantaleons purchases. While AMEX admits that it normally takes seconds to
approve charge purchases, it emphasizes that Pantaleon experienced delay in Amsterdam because his transaction was not a
normal one. To recall, Pantaleon sought to charge in a single transaction jewelry items purchased from Coster in the total
amount of US$13,826.00 or P383,746.16. While the total amount of Pantaleons previous purchases using his AMEX credit card
did exceed US$13,826.00, AMEX points out that these purchases were made in a span of more than 10 years, not in a single
transaction.

Because this was the biggest single transaction that Pantaleon ever made using his AMEX credit card, AMEX argues
that the transaction necessarily required the credit authorizer to carefully review Pantaleons credit history and bank
references. AMEX maintains that it did this not only to ensure Pantaleons protection (to minimize the possibility that a third
party was fraudulently using his credit card), but also to protect itself from the risk that Pantaleon might not be able to pay for
his purchases on credit. This careful review, according to AMEX, is also in keeping with the extraordinary degree of diligence
required of banks in handling its transactions. AMEX concluded that in these lights, the thorough review of Pantaleons credit
record was motivated by legitimate concerns and could not be evidence of any ill will, fraud, or negligence by AMEX.

AMEX further points out that the proximate cause of Pantaleons humiliation and embarrassment was his own decision
to proceed with the purchase despite his awareness that the tour group was waiting for him and his wife. Pantaleon could have
prevented the humiliation had he cancelled the sale when he noticed that the credit approval for the Coster purchase was
unusually delayed.

In his Comment dated February 24, 2010, Pantaleon maintains that AMEX was guilty of mora solvendi, or delay on the
part of the debtor, in complying with its obligation to him. Based on jurisprudence, a just cause for delay does not relieve the
debtor in delay from the consequences of delay; thus, even if AMEX had a justifiable reason for the delay, this reason would not
relieve it from the liability arising from its failure to timely act on Pantaleons purchase.

In response to AMEXs assertion that the delay was in keeping with its duty to perform its obligation with
extraordinary diligence, Pantaleon claims that this duty includes the timely or prompt performance of its obligation.

As to AMEXs contention that moral or exemplary damages cannot be awarded absent a finding of malice, Pantaleon
argues that evil motive or design is not always necessary to support a finding of bad faith; gross negligence or wanton
disregard of contractual obligations is sufficient basis for the award of moral and exemplary damages.
 OUR RULING

We GRANT the motion for reconsideration.

Brief historical background

A credit card is defined as any card, plate, coupon book, or other credit device existing for the purpose of obtaining
money, goods, property, labor or services or anything of value on credit. [9] It traces its roots to the charge card first introduced
by the Diners Club in New York City in 1950.[10] American Express followed suit by introducing its own charge card to the
American market in 1958.[11]

In the Philippines, the now defunct Pacific Bank was responsible for bringing the first credit card into the country in
the 1970s.[12]However, it was only in the early 2000s that credit card use gained wide acceptance in the country, as evidenced
by the surge in the number of credit card holders then.[13]

Nature of Credit Card Transactions

To better understand the dynamics involved in credit card transactions, we turn to the United States case of Harris
Trust & Savings Bank v. McCray[14] which explains:

The bank credit card system involves a tripartite relationship between the issuer bank, the
cardholder, and merchants participating in the system. The issuer bank establishes an account on behalf of the
person to whom the card is issued, and the two parties enter into an agreement which governs their
relationship. This agreement provides that the bank will pay for cardholders account the amount of
merchandise or services purchased through the use of the credit card and will also make cash loans available
to the cardholder. It also states that the cardholder shall be liable to the bank for advances and payments
made by the bank and that the cardholders obligation to pay the bank shall not be affected or impaired by any
dispute, claim, or demand by the cardholder with respect to any merchandise or service purchased.

The merchants participating in the system agree to honor the banks credit cards. The bank
irrevocably agrees to honor and pay the sales slips presented by the merchant if the merchant performs his
undertakings such as checking the list of revoked cards before accepting the card. x x x.

These slips are forwarded to the member bank which originally issued the card. The cardholder
receives a statement from the bank periodically and may then decide whether to make payment to the bank in
full within a specified period, free of interest, or to defer payment and ultimately incur an interest charge.

We adopted a similar view in CIR v. American Express International, Inc. (Philippine branch),[15] where we also
recognized that credit card issuers are not limited to banks. We said:

Under RA 8484, the credit card that is issued by banks in general, or by non-banks in particular, refers
to any card x x x or other credit device existing for the purpose of obtaining x x x goods x x x or
services x x x on credit; and is being used usually on a revolving basis. This means that the consumer-credit
arrangement that exists between the issuer and the holder of the credit card enables the latter to procure
goods or services on a continuing basis as long as the outstanding balance does not exceed a specified limit.
The card holder is, therefore, given the power to obtain present control of goods or service on a promise to
pay for them in the future.

Business establishments may extend credit sales through the use of the credit card facilities of a non-bank
credit card company to avoid the risk of uncollectible accounts from their customers. Under this system, the
establishments do not deposit in their bank accounts the credit card drafts that arise from the credit sales.
Instead, they merely record their receivables from the credit card company and periodically send the drafts
evidencing those receivables to the latter.

The credit card company, in turn, sends checks as payment to these business establishments, but it does
not redeem the drafts at full price. The agreement between them usually provides for discounts to be taken
by the company upon its redemption of the drafts. At the end of each month, it then bills its credit card
holders for their respective drafts redeemed during the previous month. If the holders fail to pay the amounts
owed, the company sustains the loss.
 Simply put, every credit card transaction involves three contracts, namely: (a) the sales contract between the credit
card holder and the merchant or the business establishment which accepted the credit card; (b) the loan agreement between
the credit card issuer and the credit card holder; and lastly, (c) the promise to pay between the credit card issuer and the
merchant or business establishment.[16]
Credit card issuer cardholder relationship

When a credit card company gives the holder the privilege of charging items at establishments associated with the
issuer,[17] a necessary question in a legal analysis is when does this relationship begin? There are two diverging views on the
matter. In City Stores Co. v. Henderson,[18] another U.S. decision, held that:

The issuance of a credit card is but an offer to extend a line of open account credit. It is unilateral and
supported by no consideration. The offer may be withdrawn at any time, without prior notice, for any reason
or, indeed, for no reason at all, and its withdrawal breaches no duty for there is no duty to continue it and
violates no rights.

Thus, under this view, each credit card transaction is considered a separate offer and acceptance.

Novack v. Cities Service Oil Co.[19] echoed this view, with the court ruling that the mere issuance of a credit card did not
create a contractual relationship with the cardholder.

On the other end of the spectrum is Gray v. American Express Company [20] which recognized the card membership agreement
itself as a binding contract between the credit card issuer and the card holder. Unlike in the Novack and the City Stores cases,
however, the cardholder in Gray paid an annual fee for the privilege of being an American Express cardholder.

In our jurisdiction, we generally adhere to the Gray ruling, recognizing the relationship between the credit card issuer and the
credit card holder as a contractual one that is governed by the terms and conditions found in the card membership agreement.
[21]
This contract provides the rights and liabilities of a credit card company to its cardholders and vice versa.

We note that a card membership agreement is a contract of adhesion as its terms are prepared solely by the credit card
issuer, with the cardholder merely affixing his signature signifying his adhesion to these terms. [22] This circumstance, however,
does not render the agreement void; we have uniformly held that contracts of adhesion are as binding as ordinary contracts,
the reason being that the party who adheres to the contract is free to reject it entirely. [23] The only effect is that the terms of the
contract are construed strictly against the party who drafted it. [24]

On AMEXs obligations to Pantaleon

We begin by identifying the two privileges that Pantaleon assumes he is entitled to with the issuance of his AMEX credit card,
and on which he anchors his claims. First, Pantaleon presumes that since his credit card has no pre-set spending limit, AMEX
has the obligation to approve all his charge requests. Conversely, even if AMEX has no such obligation, at the very least it is
obliged to act on his charge requests within a specific period of time.

i. Use of credit card a mere offer to enter into loan agreements

Although we recognize the existence of a relationship between the credit card issuer and the credit card holder upon
the acceptance by the cardholder of the terms of the card membership agreement (customarily signified by the act of the
cardholder in signing the back of the credit card), we have to distinguish this contractual relationship from the creditor-
debtor relationship which only arises after the credit card issuer has approved the cardholders purchase request. The
first relates merely to an agreement providing for credit facility to the cardholder. The latter involves the actual credit on loan
agreement involving three contracts, namely: the sales contract between the credit card holder and the merchant or the
business establishment which accepted the credit card; the loan agreement between the credit card issuer and the credit card
holder; and the promise to pay between the credit card issuer and the merchant or business establishment.

From the loan agreement perspective, the contractual relationship begins to exist only upon the meeting of the
offer[25] and acceptance of the parties involved. In more concrete terms, when cardholders use their credit cards to pay for their
purchases, they merely offer to enter into loan agreements with the credit card company. Only after the latter approves the
purchase requests that the parties enter into binding loan contracts, in keeping with Article 1319 of the Civil Code, which
provides:

Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.

This view finds support in the reservation found in the card membership agreement itself, particularly paragraph 10, which
clearly states that AMEX reserve[s] the right to deny authorization for any requested Charge. By so providing, AMEX made
its position clear that it has no obligation to approve any and all charge requests made by its card holders.

ii. AMEX not guilty of culpable delay

Since AMEX has no obligation to approve the purchase requests of its credit cardholders, Pantaleon cannot claim that
AMEX defaulted in its obligation. Article 1169 of the Civil Code, which provides the requisites to hold a debtor guilty of
culpable delay, states:

Article 1169. 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. x x x.

The three requisites for a finding of default are: (a) that the obligation is demandable and liquidated; (b) the debtor
delays performance; and (c) the creditor judicially or extrajudicially requires the debtors performance. [26]

Based on the above, the first requisite is no longer met because AMEX, by the express terms of the credit card
agreement, is not obligated to approve Pantaleons purchase request. Without a demandable obligation, there can be no finding
of default.

Apart from the lack of any demandable obligation, we also find that Pantaleon failed to make the demand required by
Article 1169 of the Civil Code.

As previously established, the use of a credit card to pay for a purchase is only an offer to the credit card company to
enter a loan agreement with the credit card holder. Before the credit card issuer accepts this offer, no obligation relating
to the loan agreement exists between them. On the other hand, a demand is defined as the assertion of a legal right; xxx an
asking with authority, claiming or challenging as due. [27] A demand presupposes the existence of an obligation between the
parties.

Thus, every time that Pantaleon used his AMEX credit card to pay for his purchases, what the stores transmitted to
AMEX were his offers to execute loan contracts. These obviously could not be classified as the demand required by law to make
the debtor in default, given that no obligation could arise on the part of AMEX until after AMEX transmitted its acceptance of
Pantaleons offers. Pantaleons act of insisting on and waiting for the charge purchases to be approved by AMEX [28] is not the
demand contemplated by Article 1169 of the Civil Code.

For failing to comply with the requisites of Article 1169, Pantaleons charge that AMEX is guilty of culpable delay in
approving his purchase requests must fail.

iii. On AMEXs obligation to act on the offer within a specific period of time

Even assuming that AMEX had the right to review his credit card history before it approved his purchase requests,
Pantaleon insists that AMEX had an obligation to act on his purchase requests, either to approve or deny, in a matter of seconds
or in timely dispatch. Pantaleon impresses upon us the existence of this obligation by emphasizing two points: (a) his card has
no pre-set spending limit; and (b) in his twelve years of using his AMEX card, AMEX had always approved his charges in a
matter of seconds.

Pantaleons assertions fail to convince us.

We originally held that AMEX was in culpable delay when it acted on the Coster transaction, as well as the two other
transactions in the United States which took AMEX approximately 15 to 20 minutes to approve. This conclusion appears valid
and reasonable at first glance, comparing the time it took to finally get the Coster purchase approved (a total of 78 minutes), to
AMEXs normal approval time of three to four seconds (based on the testimony of Edgardo Jaurigue, as well as Pantaleons
previous experience). We come to a different result, however, after a closer look at the factual and legal circumstances of the
case.

AMEXs credit authorizer, Edgardo Jaurigue, explained that having no pre-set spending limit in a credit card simply
means that the charges made by the cardholder are approved based on his ability to pay, as demonstrated by his past spending,
payment patterns, and personal resources. [29] Nevertheless, every time Pantaleon charges a purchase on his credit card,
the credit card company still has to determine whether it will allow this charge, based on his past credit history . This
right to review a card holders credit history, although not specifically set out in the card membership agreement, is a necessary
implication of AMEXs right to deny authorization for any requested charge.

As for Pantaleons previous experiences with AMEX (i.e., that in the past 12 years, AMEX has always approved his
charge requests in three or four seconds), this record does not establish that Pantaleon had a legally enforceable obligation to
expect AMEX to act on his charge requests within a matter of seconds. For one, Pantaleon failed to present any evidence to
support his assertion that AMEX acted on purchase requests in a matter of three or four seconds as an established practice.
More importantly, even if Pantaleon did prove that AMEX, as a matter of practice or custom, acted on its customers purchase
requests in a matter of seconds, this would still not be enough to establish a legally demandable right; as a general rule, a
practice or custom is not a source of a legally demandable or enforceable right.[30]

We next examine the credit card membership agreement, the contract that primarily governs the relationship between
AMEX and Pantaleon. Significantly, there is no provision in this agreement that obligates AMEX to act on all cardholder
purchase requests within a specifically defined period of time. Thus, regardless of whether the obligation is worded was
to act in a matter of seconds or to act in timely dispatch, the fact remains that no obligation exists on the part of AMEX to act
within a specific period of time. Even Pantaleon admits in his testimony that he could not recall any provision in the Agreement
that guaranteed AMEXs approval of his charge requests within a matter of minutes. [31]

Nor can Pantaleon look to the law or government issuances as the source of AMEXs alleged obligation to act upon his
credit card purchases within a matter of seconds. As the following survey of Philippine law on credit card transactions
demonstrates, the State does not require credit card companies to act upon its cardholders purchase requests within a specific
period of time.

Republic Act No. 8484 (RA 8484), or the Access Devices Regulation Act of 1998, approved on February 11, 1998, is the
controlling legislation
that regulates the issuance and use of access devices, [32] including credit cards. The more salient portions of this law include the
imposition of the obligation on a credit card company to disclose certain important financial information [33] to credit card
applicants, as well as a definition of the acts that constitute access device fraud.

As financial institutions engaged in the business of providing credit, credit card companies fall under the supervisory
powers of the Bangko Sentral ng Pilipinas (BSP).[34] BSP Circular No. 398 dated August 21, 2003 embodies the BSPs policy
when it comes to credit cards
The Bangko Sentral ng Pilipinas (BSP) shall foster the development of consumer credit through
innovative products such as credit cards under conditions of fair and sound consumer credit practices. The
BSP likewise encourages competition and transparency to ensure more efficient delivery of services and fair
dealings with customers. (Emphasis supplied)

Based on this Circular, x x x [b]efore issuing credit cards, banks and/or their subsidiary credit card companies must
exercise proper diligence by ascertaining that applicants possess good credit standing and are financially capable of fulfilling
their credit commitments.[35]As the above-quoted policy expressly states, the general intent is to foster fair and sound
consumer credit practices.

Other than BSP Circular No. 398, a related circular is BSP Circular No. 454, issued on September 24, 2004, but this
circular merely enumerates the unfair collection practices of credit card companies a matter not relevant to the issue at hand.

In light of the foregoing, we find and so hold that AMEX is neither contractually bound nor legally obligated to act on
its cardholders purchase requests within any specific period of time, much less a period of a matter of seconds that Pantaleon
uses as his standard. The standard therefore is implicit and, as in all contracts, must be based on fairness and reasonableness,
read in relation to the Civil Code provisions on human relations, as will be discussed below.

AMEX acted with good faith

Thus far, we have already established that: (a) AMEX had neither a contractual nor a legal obligation to act upon
Pantaleons purchases within a specific period of time; and (b) AMEX has a right to review a cardholders credit card
history. Our recognition of these entitlements, however, does not give AMEX an unlimited right to put off action on
cardholders purchase requests for indefinite periods of time. In acting on cardholders purchase requests, AMEX must take
care not to abuse its rights and cause injury to its clients and/or third persons. We cite in this regard Article 19, in conjunction
with Article 21, of the Civil Code, which provide:

Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due and observe honesty and good faith.

Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.
Article 19 pervades the entire legal system and ensures that a person suffering damage in the course of anothers
exercise of right or performance of duty, should find himself without relief. [36] It sets the standard for the conduct of all persons,
whether artificial or natural, and requires that everyone, in the exercise of rights and the performance of obligations, must: (a)
act with justice, (b) give everyone his due, and (c) observe honesty and good faith. It is not because a person invokes his rights
that he can do anything, even to the prejudice and disadvantage of another. [37]

While Article 19 enumerates the standards of conduct, Article 21 provides the remedy for the person injured by the
willful act, an action for damages. We explained how these two provisions correlate with each other in GF Equity, Inc. v.
Valenzona:[38]

[Article 19], known to contain what is commonly referred to as the principle of abuse of rights, sets
certain standards which must be observed not only in the exercise of one's rights but also in the performance
of one's duties. These standards are the following: to act with justice; to give everyone his due; and to observe
honesty and good faith. The law, therefore, recognizes a primordial limitation on all rights; that in their
exercise, the norms of human conduct set forth in Article 19 must be observed. A right, though by itself legal
because recognized or granted by law as such, may nevertheless become the source of some illegality.
When a right is exercised in a manner which does not conform with the norms enshrined in Article 19
and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must
be held responsible. But while Article 19 lays down a rule of conduct for the government of human relations
and for the maintenance of social order, it does not provide a remedy for its violation. Generally, an action for
damages under either Article 20 or Article 21 would be proper.

In the context of a credit card relationship, although there is neither a contractual stipulation nor a specific law requiring the
credit card issuer to act on the credit card holders offer within a definite period of time, these principles provide the standard
by which to judge AMEXs actions.

According to Pantaleon, even if AMEX did have a right to review his charge purchases, it abused this right when it unreasonably
delayed the processing of the Coster charge purchase, as well as his purchase requests at the Richard Metz Golf Studio and Kids
Unlimited Store; AMEX should have known that its failure to act immediately on charge referrals would entail inconvenience
and result in humiliation, embarrassment, anxiety and distress to its cardholders who would be required to wait before closing
their transactions.[39]

It is an elementary rule in our jurisdiction that good faith is presumed and that the burden of proving bad faith rests
upon the party alleging it.[40] Although it took AMEX some time before it approved Pantaleons three charge requests, we find no
evidence to suggest that it acted with deliberate intent to cause Pantaleon any loss or injury, or acted in a manner that was
contrary to morals, good customs or public policy. We give credence to AMEXs claim that its review procedure was done to
ensure Pantaleons own protection as a cardholder and to prevent the possibility that the credit card was being fraudulently
used by a third person.

Pantaleon countered that this review procedure is primarily intended to protect AMEXs interests, to make sure that
the cardholder making the purchase has enough means to pay for the credit extended. Even if this were the case, however, we
do not find any taint of bad faith in such motive. It is but natural for AMEX to want to ensure that it will extend credit only to
people who will have sufficient means to pay for their purchases. AMEX, after all, is running a business, not a charity, and it
would simply be ludicrous to suggest that it would not want to earn profit for its services. Thus, so long as AMEX exercises its
rights, performs its obligations, and generally acts with good faith, with no intent to cause harm, even if it may occasionally
inconvenience others, it cannot be held liable for damages.

We also cannot turn a blind eye to the circumstances surrounding the Coster transaction which, in our opinion,
justified the wait. In Edgardo Jaurigues own words:
 Q 21: With reference to the transaction at the Coster Diamond House covered by Exhibit H, also Exhibit 4 for
the defendant, the approval came at 2:19 a.m. after the request was relayed at 1:33 a.m., can you explain why
the approval came after about 46 minutes, more or less?

A21: Because we have to make certain considerations and evaluations of [Pantaleons] past spending pattern
with [AMEX] at that time before approving plaintiffs request because [Pantaleon] was at that time
making his very first single charge purchase of US$13,826 [this is below the US$16,112.58 actually billed
and paid for by the plaintiff because the difference was already automatically approved by [AMEX] office in
Netherland[s] and the record of [Pantaleons] past spending with [AMEX] at that time does not favorably
support his ability to pay for such purchase. In fact, if the foregoing internal policy of [AMEX] had been
strictly followed, the transaction would not have been approved at all considering that the past spending
pattern of the plaintiff with [AMEX] at that time does not support his ability to pay for such purchase. [41]

xxxx

Q: Why did it take so long?

A: It took time to review the account on credit, so, if there is any delinquencies [sic] of the cardmember. There
are factors on deciding the charge itself which are standard measures in approving the authorization. Now in
the case of Mr. Pantaleon although his account is single charge purchase of US$13,826. [ sic] this is below the
US$16,000. plus actually billed x x x we would have already declined the charge outright and asked him his
bank account to support his charge. But due to the length of his membership as cardholder we had to make a
decision on hand.[42]

As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for AMEXs approval was because he had to go
over Pantaleons credit card history for the past twelve months. [43] It would certainly be unjust for us to penalize AMEX for
merely exercising its right to review Pantaleons credit history meticulously.

Finally, we said in Garciano v. Court of Appeals that the right to recover [moral damages] under Article 21 is based on
equity, and he who comes to court to demand equity, must come with clean hands. Article 21 should be construed as granting the
right to recover damages to injured persons who are not themselves at fault.[44] As will be discussed below, Pantaleon is not a
blameless party in all this.

Pantaleons action was the proximate cause for his injury

Pantaleon mainly anchors his claim for moral and exemplary damages on the embarrassment and humiliation that he
felt when the European tour group had to wait for him and his wife for approximately 35 minutes, and eventually had to cancel
the Amsterdam city tour. After thoroughly reviewing the records of this case, we have come to the conclusion that Pantaleon is
the proximate cause for this embarrassment and humiliation.

As borne by the records, Pantaleon knew even before entering Coster that the tour group would have to leave the store
by 9:30 a.m. to have enough time to take the city tour of Amsterdam before they left the country. After 9:30 a.m., Pantaleons
son, who had boarded the bus ahead of his family, returned to the store to inform his family that they were the only ones not on
the bus and that the entire tour group was waiting for them. Significantly, Pantaleon tried to cancel the sale at 9:40
a.m. because he did not want to cause any inconvenience to the tour group. However, when Costers sale manager asked
him to wait a few more minutes for the credit card approval, he agreed, despite the knowledge that he had already caused a 10-
minute delay and that the city tour could not start without him.

In Nikko Hotel Manila Garden v. Reyes,[45] we ruled that a person who knowingly and voluntarily exposes himself to
danger cannot claim damages for the resulting injury:

The doctrine of volenti non fit injuria (to which a person assents is not esteemed in law as injury) refers to
self-inflicted injury or to the consent to injury which precludes the recovery of damages by one who has
knowingly and voluntarily exposed himself to danger, even if he is not negligent in doing so.

This doctrine, in our view, is wholly applicable to this case. Pantaleon himself testified that the most basic rule when
travelling in a tour group is that you must never be a cause of any delay because the schedule is very strict.[46] When Pantaleon
made up his mind to push through with his purchase, he must have known that the group would become annoyed and irritated
with him. This was the natural, foreseeable consequence of his decision to make them all wait.
 We do not discount the fact that Pantaleon and his family did feel humiliated and embarrassed when they had to wait
for AMEX to approve the Coster purchase in Amsterdam. We have to acknowledge, however, that Pantaleon was not a helpless
victim in this scenario at any time, he could have cancelled the sale so that the group could go on with the city tour. But he did
not.

More importantly, AMEX did not violate any legal duty to Pantaleon under the circumstances under the principle
of damnum absque injuria, or damages without legal wrong, loss without injury.[47] As we held in BPI Express Card v. CA:[48]
We do not dispute the findings of the lower court that private respondent suffered damages as a
result of the cancellation of his credit card. However, there is a material distinction between damages and
injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or harm which results from the
injury; and damages are the recompense or compensation awarded for the damage suffered. Thus, there can
be damage without injury in those instances in which the loss or harm was not the result of a violation
of a legal duty. In such cases, the consequences must be borne by the injured person alone, the law
affords no remedy for damages resulting from an act which does not amount to a legal injury or wrong. These
situations are often called damnum absque injuria.
In other words, in order that a plaintiff may maintain an action for the injuries of which he complains,
he must establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff -
a concurrence of injury to the plaintiff and legal responsibility by the person causing it. The underlying basis
for the award of tort damages is the premise that an individual was injured in contemplation of
law.Thus, there must first be a breach of some duty and the imposition of liability for that breach before
damages may be awarded; and the breach of such duty should be the proximate cause of the injury.

Pantaleon is not entitled to damages

Because AMEX neither breached its contract with Pantaleon, nor acted with culpable delay or the willful intent to
cause harm, we find the award of moral damages to Pantaleon unwarranted.

Similarly, we find no basis to award exemplary damages. In contracts, exemplary damages can only be awarded if a
defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. [49] The plaintiff must also show that he is
entitled to moral, temperate, or compensatory damages before the court may consider the question of whether or not
exemplary damages should be awarded.[50]

As previously discussed, it took AMEX some time to approve Pantaleons purchase requests because it had legitimate
concerns on the amount being charged; no malicious intent was ever established here. In the absence of any other damages,
the award of exemplary damages clearly lacks legal basis.

Neither do we find any basis for the award of attorneys fees and costs of litigation. No premium should be placed on
the right to litigate and not every winning party is entitled to an automatic grant of attorney's fees. [51] To be entitled to
attorneys fees and litigation costs, a party must show that he falls under one of the instances enumerated in Article 2208 of the
Civil Code.[52] This, Pantaleon failed to do. Since we eliminated the award of moral and exemplary damages, so must we delete
the award for attorney's fees and litigation expenses.

Lastly, although we affirm the result of the CA decision, we do so for the reasons stated in this Resolution and not for those
found in the CA decision.

WHEREFORE, premises considered, we SET ASIDE our May 8, 2009 Decision and GRANT the present motion for
reconsideration. The Court of Appeals Decision dated August 18, 2006 is hereby AFFIRMED. No costs.

SO ORDERED.
III. COMMODATUM

OBJECT OF COMMODATUM

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner, vs. HON. COURT OF APPEALS
AND FRANKLIN VIVES, respondents.
G.R. No. 115324. February 19, 2003

DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals dated June 25, 1991 in CA-G.R. CV No.
11791 and of its Resolution [2] dated May 5, 1994, denying the motion for reconsideration of said decision filed by petitioner
Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles Sanchez to help her
friend and townmate, Col. Arturo Doronilla, in incorporating his business, the Sterela Marketing and Services (Sterela for
brevity). Specifically, Sanchez asked private respondent to deposit in a bank a certain amount of money in the bank account of
Sterela for purposes of its incorporation. She assured private respondent that he could withdraw his money from said account
within a months time. Private respondent asked Sanchez to bring Doronilla to their house so that they could discuss Sanchezs
request.[3]
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronillas private secretary, met
and discussed the matter. Thereafter, relying on the assurances and representations of Sanchez and Doronilla, private
respondent issued a check in the amount of Two Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private
respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in the
name of Sterela in the Buendia, Makati branch of Producers Bank of the Philippines.However, only Sanchez, Mrs. Vives and
Dumagpi went to the bank to deposit the check. They had with them an authorization letter from Doronilla authorizing
Sanchez and her companions, in coordination with Mr. Rufo Atienza, to open an account for Sterela Marketing Services in the
amount of P200,000.00. In opening the account, the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A
passbook for Savings Account No. 10-1567 was thereafter issued to Mrs. Vives. [4]
Subsequently, private respondent learned that Sterela was no longer holding office in the address previously given to
him. Alarmed, he and his wife went to the Bank to verify if their money was still intact. The bank manager referred them to Mr.
Rufo Atienza, the assistant manager, who informed them that part of the money in Savings Account No. 10-1567 had been
withdrawn by Doronilla, and that only P90,000.00 remained therein.He likewise told them that Mrs. Vives could not withdraw
said remaining amount because it had to answer for some postdated checks issued by Doronilla. According to Atienza, after
Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened Current Account No. 10-0320 for Sterela and
authorized the Bank to debit Savings Account No. 10-1567 for the amounts necessary to cover overdrawings in Current
Account No. 10-0320. In opening said current account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the
Bank. To cover payment thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza also said that
Doronilla could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole proprietor of Sterela. [5]
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he received a letter from
Doronilla, assuring him that his money was intact and would be returned to him. On August 13, 1979, Doronilla issued a
postdated check for Two Hundred Twelve Thousand Pesos (P212,000.00) in favor of private respondent. However, upon
presentment thereof by private respondent to the drawee bank, the check was dishonored. Doronilla requested private
respondent to present the same check on September 15, 1979 but when the latter presented the check, it was again
dishonored.[6]
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for the return of his
clients money. Doronilla issued another check for P212,000.00 in private respondents favor but the check was again
dishonored for insufficiency of funds.[7]
Private respondent instituted an action for recovery of sum of money in the Regional Trial Court (RTC) in Pasig, Metro
Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as Civil Case No. 44485. He also filed
criminal actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez passed away on March 16, 1985 while
the case was pending before the trial court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil
Case No. 44485, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J. Doronila, Estrella Dumagpi and
Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and severally

(a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate from the filing of the
complaint until the same is fully paid;

(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;

(c) the amount of P40,000.00 for attorneys fees; and

(d) the costs of the suit.

SO ORDERED.[8]

Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June 25, 1991, the appellate
court affirmed in toto the decision of the RTC.[9] It likewise denied with finality petitioners motion for reconsideration in its
Resolution dated May 5, 1994.[10]
On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE DEFENDANT
DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS BANK MANAGER, MR. RUFO ATIENZA,
CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A
CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE REGIONAL TRIAL COURT AND
AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL COURT WERE BASED ON A
MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN SALUDARES VS. MARTINEZ, 29
SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT THAT HEREIN
PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF P200,000.00
REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR EXEMPLARY
DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF SUIT. [11]

Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on September 25,
1995. The Court then required private respondent to submit a rejoinder to the reply. However, said rejoinder was filed only on
April 21, 1997, due to petitioners delay in furnishing private respondent with copy of the reply [12] and several substitutions of
counsel on the part of private respondent. [13] On January 17, 2001, the Court resolved to give due course to the petition and
required the parties to submit their respective memoranda. [14] Petitioner filed its memorandum on April 16, 2001 while private
respondent submitted his memorandum on March 22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a simple loan (mutuum) since all the
elements of a mutuumare present: first, what was delivered by private respondent to Doronilla was money, a consumable
thing; and second, the transaction was onerous as Doronilla was obliged to pay interest, as evidenced by the check issued by
Doronilla in the amount of P212,000.00, or P12,000 more than what private respondent deposited in Sterelas bank account.
[15]
Moreover, the fact that private respondent sued his good friend Sanchez for his failure to recover his money from Doronilla
shows that the transaction was not merely gratuitous but had a business angle to it. Hence, petitioner argues that it cannot be
held liable for the return of private respondents P200,000.00 because it is not privy to the transaction between the latter and
Doronilla.[16]
It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for allowing Doronilla to
withdraw from the savings account of Sterela since the latter was the sole proprietor of said company. Petitioner asserts that
Doronillas May 8, 1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a savings account for Sterela,
did not contain any authorization for these two to withdraw from said account. Hence, the authority to withdraw therefrom
remained exclusively with Doronilla, who was the sole proprietor of Sterela, and who alone had legal title to the savings
account.[17] Petitioner points out that no evidence other than the testimonies of private respondent and Mrs. Vives was
presented during trial to prove that private respondent deposited his P200,000.00 in Sterelas account for purposes of its
incorporation.[18] Hence, petitioner should not be held liable for allowing Doronilla to withdraw from Sterelas savings account.
Petitioner also asserts that the Court of Appeals erred in affirming the trial courts decision since the findings of fact
therein were not accord with the evidence presented by petitioner during trial to prove that the transaction between private
respondent and Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla to withdraw from Sterelas
savings account.[19]
Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable for the actual damages
suffered by private respondent, and neither may it be held liable for moral and exemplary damages as well as attorneys fees. [20]
Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a mutuum but an
accommodation,[21] since he did not actually part with the ownership of his P200,000.00 and in fact asked his wife to deposit
said amount in the account of Sterela so that a certification can be issued to the effect that Sterela had sufficient funds for
purposes of its incorporation but at the same time, he retained some degree of control over his money through his wife who
was made a signatory to the savings account and in whose possession the savings account passbook was given. [22]
He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer, is liable for the return of
his money. He insists that Atienza, petitioners assistant manager, connived with Doronilla in defrauding private respondent
since it was Atienza who facilitated the opening of Sterelas current account three days after Mrs. Vives and Sanchez opened a
savings account with petitioner for said company, as well as the approval of the authority to debit Sterelas savings account to
cover any overdrawings in its current account.[23]
There is no merit in the petition.
At the outset, it must be emphasized that only questions of law may be raised in a petition for review filed with this
Court. The Court has repeatedly held that it is not its function to analyze and weigh all over again the evidence presented by
the parties during trial.[24] The Courts jurisdiction is in principle limited to reviewing errors of law that might have been
committed by the Court of Appeals. [25] Moreover, factual findings of courts, when adopted and confirmed by the Court of
Appeals, are final and conclusive on this Court unless these findings are not supported by the evidence on record. [26] There is
no showing of any misapprehension of facts on the part of the Court of Appeals in the case at bar that would require this Court
to review and overturn the factual findings of that court, especially since the conclusions of fact of the Court of Appeals and the
trial court are not only consistent but are also amply supported by the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between private respondent and
Doronilla was a commodatum and not a mutuum. A circumspect examination of the records reveals that the transaction
between them was a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise:

By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the
same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called
a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.

The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as money, the
contract would be a mutuum. However, there are some instances where a commodatum may have for its object a consumable
thing. Article 1936 of the Civil Code provides:

Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as
when it is merely for exhibition.

Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend
consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan is
a commodatum and not a mutuum.
 The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the actual
character of a contract.[27]In case of doubt, the contemporaneous and subsequent acts of the parties shall be considered in such
determination.[28]
As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that private respondent
agreed to deposit his money in the savings account of Sterela specifically for the purpose of making it appear that said firm had
sufficient capitalization for incorporation, with the promise that the amount shall be returned within thirty (30) days.
[29]
Private respondent merely accommodated Doronilla by lending his money without consideration, as a favor to his good
friend Sanchez. It was however clear to the parties to the transaction that the money would not be removed from Sterelas
savings account and would be returned to private respondent after thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter deposited in Sterelas
account together with an additional P12,000.00, allegedly representing interest on the mutuum, did not convert the transaction
from a commodatum into a mutuum because such was not the intent of the parties and because the additional P12,000.00
corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly states that [t]he bailee
in commodatum acquires the use of the thing loaned but not its fruits. Hence, it was only proper for Doronilla to remit to
private respondent the interest accruing to the latters money deposited with petitioner.
Neither does the Court agree with petitioners contention that it is not solidarily liable for the return of private
respondents money because it was not privy to the transaction between Doronilla and private respondent. The nature of said
transaction, that is, whether it is a mutuum or a commodatum, has no bearing on the question of petitioners liability for the
return of private respondents money because the factual circumstances of the case clearly show that petitioner, through its
employee Mr. Atienza, was partly responsible for the loss of private respondents money and is liable for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of Sterela for Savings Account
No. 10-1567 expressly states that

2. Deposits and withdrawals must be made by the depositor personally or upon his written authority duly authenticated,
and neither a deposit nor a withdrawal will be permitted except upon the production of the depositor savings bank
book in which will be entered by the Bank the amount deposited or withdrawn. [30]

Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant Branch Manager for the
Buendia Branch of petitioner, to withdraw therefrom even without presenting the passbook (which Atienza very well knew
was in the possession of Mrs. Vives), not just once, but several times. Both the Court of Appeals and the trial court found that
Atienza allowed said withdrawals because he was party to Doronillas scheme of defrauding private respondent:

XXX

But the scheme could not have been executed successfully without the knowledge, help and cooperation of Rufo Atienza,
assistant manager and cashier of the Makati (Buendia) branch of the defendant bank. Indeed, the evidence indicates that
Atienza had not only facilitated the commission of the fraud but he likewise helped in devising the means by which it can be
done in such manner as to make it appear that the transaction was in accordance with banking procedure.

To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was a key officer therein. The
records show that plaintiff had suggested that the P200,000.00 be deposited in his bank, the Manila Banking Corporation, but
Doronilla and Dumagpi insisted that it must be in defendants branch in Makati for it will be easier for them to get a
certification. In fact before he was introduced to plaintiff, Doronilla had already prepared a letter addressed to the Buendia
branch manager authorizing Angeles B. Sanchez and company to open a savings account for Sterela in the amount
of P200,000.00, as per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank x x x (Exh. 1). This is a clear
manifestation that the other defendants had been in consultation with Atienza from the inception of the scheme. Significantly,
there were testimonies and admission that Atienza is the brother-in-law of a certain Romeo Mirasol, a friend and business
associate of Doronilla.

Then there is the matter of the ownership of the fund. Because of the coordination between Doronilla and Atienza, the latter
knew before hand that the money deposited did not belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was
explicitly told by Inocencia Vives that the money belonged to her and her husband and the deposit was merely to accommodate
Doronilla. Atienza even declared that the money came from Mrs. Vives.

Although the savings account was in the name of Sterela, the bank records disclose that the only ones empowered to withdraw
the same were Inocencia Vives and Angeles B. Sanchez. In the signature card pertaining to this account (Exh. J), the authorized
signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the usual banking procedure that
withdrawals of savings deposits could only be made by persons whose authorized signatures are in the signature cards on file
with the bank. He, however, said that this procedure was not followed here because Sterela was owned by Doronilla. He
explained that Doronilla had the full authority to withdraw by virtue of such ownership. The Court is not inclined to agree with
Atienza. In the first place, he was all the time aware that the money came from Vives and did not belong to Sterela. He was also
told by Mrs. Vives that they were only accommodating Doronilla so that a certification can be issued to the effect that Sterela
had a deposit of so much amount to be sued in the incorporation of the firm. In the second place, the signature of Doronilla was
not authorized in so far as that account is concerned inasmuch as he had not signed the signature card provided by the bank
whenever a deposit is opened. In the third place, neither Mrs. Vives nor Sanchez had given Doronilla the authority to withdraw.

Moreover, the transfer of fund was done without the passbook having been presented. It is an accepted practice that whenever
a withdrawal is made in a savings deposit, the bank requires the presentation of the passbook. In this case, such recognized
practice was dispensed with. The transfer from the savings account to the current account was without the submission of the
passbook which Atienza had given to Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella Dumagpi
that a duplicate passbook was issued to Sterela because the original passbook had been surrendered to the Makati branch in
view of a loan accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly had a hand in the execution of
this certification, was aware that the contents of the same are not true. He knew that the passbook was in the hands of Mrs.
Vives for he was the one who gave it to her. Besides, as assistant manager of the branch and the bank official servicing the
savings and current accounts in question, he also was aware that the original passbook was never surrendered. He was also
cognizant that Estrella Dumagpi was not among those authorized to withdraw so her certification had no effect whatsoever.

The circumstance surrounding the opening of the current account also demonstrate that Atienzas active participation in the
perpetration of the fraud and deception that caused the loss. The records indicate that this account was opened three days
later after the P200,000.00 was deposited. In spite of his disclaimer, the Court believes that Atienza was mindful and posted
regarding the opening of the current account considering that Doronilla was all the while in coordination with him.That it was
he who facilitated the approval of the authority to debit the savings account to cover any overdrawings in the current account
(Exh. 2) is not hard to comprehend.

Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x x x.[31]

Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages caused by their
employees acting within the scope of their assigned tasks. To hold the employer liable under this provision, it must be shown
that an employer-employee relationship exists, and that the employee was acting within the scope of his assigned task when
the act complained of was committed. [32] Case law in the United States of America has it that a corporation that entrusts a
general duty to its employee is responsible to the injured party for damages flowing from the employees wrongful act done in
the course of his general authority, even though in doing such act, the employee may have failed in its duty to the employer and
disobeyed the latters instructions.[33]
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny that Atienza was
acting within the scope of his authority as Assistant Branch Manager when he assisted Doronilla in withdrawing funds from
Sterelas Savings Account No. 10-1567, in which account private respondents money was deposited, and in transferring the
money withdrawn to Sterelas Current Account with petitioner. Atienzas acts of helping Doronilla, a customer of the petitioner,
were obviously done in furtherance of petitioners interests [34] even though in the process, Atienza violated some of petitioners
rules such as those stipulated in its savings account passbook. [35] It was established that the transfer of funds from Sterelas
savings account to its current account could not have been accomplished by Doronilla without the invaluable assistance of
Atienza, and that it was their connivance which was the cause of private respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil Code, petitioner is liable
for private respondents loss and is solidarily liable with Doronilla and Dumagpi for the return of the P200,000.00 since it is
clear that petitioner failed to prove that it exercised due diligence to prevent the unauthorized withdrawals from Sterelas
savings account, and that it was not negligent in the selection and supervision of Atienza. Accordingly, no error was committed
by the appellate court in the award of actual, moral and exemplary damages, attorneys fees and costs of suit to private
respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals are
AFFIRMED.
SO ORDERED.
 PRECARIUM

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.
G.R. No. 146364. June 3, 2004

DECISION
CARPIO, J.:

The Case
Before us is a petition for review[1] of the 21 June 2000 Decision[2] and 14 December 2000 Resolution of the Court of
Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside the 11 November 1996 decision [3] of the Regional Trial Court
of Quezon City, Branch 81,[4] affirming the 15 December 1995 decision[5] of the Metropolitan Trial Court of Quezon City, Branch
31.[6]

The Antecedents
In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a certain Pedro Perez for the rights over a 250-square
meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of light materials on the lot. Pajuyo and his
family lived in the house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (Guevarra) executed a Kasunduan or agreement.
Pajuyo, as owner of the house, allowed Guevarra to live in the house for free provided Guevarra would maintain the cleanliness
and orderliness of the house. Guevarra promised that he would voluntarily vacate the premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate the
house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City, Branch 31 (MTC).
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where the house stands
because the lot is within the 150 hectares set aside by Proclamation No. 137 for socialized housing. Guevarra pointed out that
from December 1985 to September 1994, Pajuyo did not show up or communicate with him. Guevarra insisted that neither he
nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of the MTC decision
reads:
WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or persons claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable compensation for the use
of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.[7]
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 (RTC).
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, the Court finds no reversible error in the decision appealed from, being in accord with the
law and evidence presented, and the same is hereby affirmed en toto.
SO ORDERED.[8]
 Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December 1996 to file his appeal
with the Court of Appeals. Instead of filing his appeal with the Court of Appeals, Guevarra filed with the Supreme Court a
Motion for Extension of Time to File Appeal by Certiorari Based on Rule 42 (motion for extension). Guevarra theorized that his
appeal raised pure questions of law. The Receiving Clerk of the Supreme Court received the motion for extension on 13
December 1996 or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution [9] referring the motion for extension to the
Court of Appeals which has concurrent jurisdiction over the case. The case presented no special and important matter for the
Supreme Court to take cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution [10] granting the motion for
extension conditioned on the timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petition for review. On 11 April 1997,
Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No. Q-96-26943
is REVERSED and SET ASIDE; and it is hereby declared that the ejectment case filed against defendant-appellant is without
factual and legal basis.
SO ORDERED.[11]
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of Appeals should have
dismissed outright Guevarras petition for review because it was filed out of time. Moreover, it was Guevarras counsel and not
Guevarra who signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion for reconsideration. The
dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.
SO ORDERED.[12]

The Ruling of the MTC

The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house and not the lot. Pajuyo is the
owner of the house, and he allowed Guevarra to use the house only by tolerance. Thus, Guevarras refusal to vacate the house
on Pajuyos demand made Guevarras continued possession of the house illegal.

The Ruling of the RTC

The RTC upheld the Kasunduan, which established the landlord and tenant relationship between Pajuyo and Guevarra.
The terms of the Kasunduan bound Guevarra to return possession of the house on demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the Revised National Government Center
Housing Project Code of Policies and other pertinent laws. In an ejectment suit, the RTC has no power to decide Guevarras
rights under these laws. The RTC declared that in an ejectment case, the only issue for resolution is material or physical
possession, not ownership.

The Ruling of the Court of Appeals

The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra illegally occupied the
contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no right or title over the lot
because it is public land.The assignment of rights between Perez and Pajuyo, and the Kasunduan between Pajuyo and Guevarra,
did not have any legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The court will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo and Guevarra
created a legal tie akin to that of a landlord and tenant relationship. The Court of Appeals ruled that the Kasunduan is not a
lease contract but a commodatum because the agreement is not for a price certain.
 Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court held that Guevarra has a
better right over the property under Proclamation No. 137. President Corazon C. Aquino (President Aquino) issued
Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in physical possession of the property. Under Article VI
of the Code of Policies Beneficiary Selection and Disposition of Homelots and Structures in the National Housing Project (the
Code), the actual occupant or caretaker of the lot shall have first priority as beneficiary of the project. The Court of Appeals
concluded that Guevarra is first in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that Guevarra filed his motion
for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme Court was stamped 13
December 1996 at 4:09 PM by the Supreme Courts Receiving Clerk. The Court of Appeals concluded that the motion for
extension bore a date, contrary to Pajuyos claim that the motion for extension was undated. Guevarra filed the motion for
extension on time on 13 December 1996 since he filed the motion one day before the expiration of the reglementary period on
14 December 1996. Thus, the motion for extension properly complied with the condition imposed by the Court of Appeals in
its 28 January 1997 Resolution. The Court of Appeals explained that the thirty-day extension to file the petition for review was
deemed granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have dismissed the petition for review
because it was Guevarras counsel and not Guevarra who signed the certification against forum-shopping. The Court of Appeals
pointed out that Pajuyo did not raise this issue in his Comment. The Court of Appeals held that Pajuyo could not now seek the
dismissal of the case after he had extensively argued on the merits of the case. This technicality, the appellate court opined, was
clearly an afterthought.

The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND DISCRETION TANTAMOUNT TO LACK OF
JURISDICTION:
1) in GRANTING, instead of denying, Private Respondents Motion for an Extension of thirty days to file
petition for review at the time when there was no more period to extend as the decision of the
Regional Trial Court had already become final and executory.
2) in giving due course, instead of dismissing, private respondents Petition for Review even though the
certification against forum-shopping was signed only by counsel instead of by petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact a commodatum, instead
of a Contract of Lease as found by the Metropolitan Trial Court and in holding that the ejectment case
filed against defendant-appellant is without legal and factual basis.
4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case No. Q-96-26943 and
in holding that the parties are in pari delicto being both squatters, therefore, illegal occupants of the
contested parcel of land.
5) in deciding the unlawful detainer case based on the so-called Code of Policies of the National
Government Center Housing Project instead of deciding the same under the Kasunduan voluntarily
executed by the parties, the terms and conditions of which are the laws between themselves.[13]

The Ruling of the Court

The procedural issues Pajuyo is raising are baseless. However, we find merit in the substantive issues Pajuyo is submitting
for resolution.

Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition for review because the RTC
decision had already become final and executory when the appellate court acted on Guevarras motion for extension to file the
petition. Pajuyo points out that Guevarra had only one day before the expiry of his period to appeal the RTC decision. Instead of
filing the petition for review with the Court of Appeals, Guevarra filed with this Court an undated motion for extension of 30
days to file a petition for review. This Court merely referred the motion to the Court of Appeals. Pajuyo believes that the filing
of the motion for extension with this Court did not toll the running of the period to perfect the appeal.Hence, when the Court of
Appeals received the motion, the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are appealable to the Court of Appeals
by petition for review in cases involving questions of fact or mixed questions of fact and law. [14] Decisions of the regional trial
courts involving pure questions of law are appealable directly to this Court by petition for review. [15] These modes of appeal are
now embodied in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus filed his motion for
extension to file petition for review before this Court on 14 December 1996. On 3 January 1997, Guevarra then filed his
petition for review with this Court. A perusal of Guevarras petition for review gives the impression that the issues he raised
were pure questions of law. There is a question of law when the doubt or difference is on what the law is on a certain state of
facts.[16] There is a question of fact when the doubt or difference is on the truth or falsity of the facts alleged. [17]
In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition for review raised
these questions: (1) Do ejectment cases pertain only to possession of a structure, and not the lot on which the structure
stands? (2) Does a suit by a squatter against a fellow squatter constitute a valid case for ejectment? (3) Should a Presidential
Proclamation governing the lot on which a squatters structure stands be considered in an ejectment suit filed by the owner of
the structure?
These questions call for the evaluation of the rights of the parties under the law on ejectment and the Presidential
Proclamation. At first glance, the questions Guevarra raised appeared purely legal. However, some factual questions still have
to be resolved because they have a bearing on the legal questions raised in the petition for review. These factual matters refer
to the metes and bounds of the disputed property and the application of Guevarra as beneficiary of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for review. In Lacsamana v. Second
Special Cases Division of the Intermediate Appellate Court,[18] we declared that the Court of Appeals could grant extension of
time in appeals by petition for review. In Liboro v. Court of Appeals,[19] we clarified that the prohibition against granting an
extension of time applies only in a case where ordinary appeal is perfected by a mere notice of appeal. The prohibition does not
apply in a petition for review where the pleading needs verification. A petition for review, unlike an ordinary appeal, requires
preparation and research to present a persuasive position. [20] The drafting of the petition for review entails more time and
effort than filing a notice of appeal.[21] Hence, the Court of Appeals may allow an extension of time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,[22] we held that Liboros clarification
of Lacsamana is consistent with the Revised Internal Rules of the Court of Appeals and Supreme Court Circular No. 1-91. They
all allow an extension of time for filing petitions for review with the Court of Appeals. The extension, however, should be
limited to only fifteen days save in exceptionally meritorious cases where the Court of Appeals may grant a longer period.
A judgment becomes final and executory by operation of law. Finality of judgment becomes a fact on the lapse of the
reglementary period to appeal if no appeal is perfected. [23] The RTC decision could not have gained finality because the Court of
Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras motion for extension. The
Court of Appeals gave due course to the motion for extension because it complied with the condition set by the appellate court
in its resolution dated 28 January 1997. The resolution stated that the Court of Appeals would only give due course to the
motion for extension if filed on time. The motion for extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion for extension are (1) the date of
receipt of the judgment or final order or resolution subject of the petition, and (2) the date of filing of the motion for extension.
[24]
It is the date of the filing of the motion or pleading, and not the date of execution, that determines the timeliness of the filing
of that motion or pleading. Thus, even if the motion for extension bears no date, the date of filing stamped on it is the reckoning
point for determining the timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his motion for extension
before this Court on 13 December 1996, the date stamped by this Courts Receiving Clerk on the motion for extension. Clearly,
Guevarra filed the motion for extension exactly one day before the lapse of the reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical grounds, Pajuyo did not ask the
appellate court to deny the motion for extension and dismiss the petition for review at the earliest opportunity. Instead, Pajuyo
vigorously discussed the merits of the case. It was only when the Court of Appeals ruled in Guevarras favor that Pajuyo raised
the procedural issues against Guevarras petition for review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the merits, is estopped
from attacking the jurisdiction of the court. [25] Estoppel sets in not because the judgment of the court is a valid and conclusive
adjudication, but because the practice of attacking the courts jurisdiction after voluntarily submitting to it is against public
policy.[26]
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign the certification against
forum shopping.Instead, Pajuyo harped on Guevarras counsel signing the verification, claiming that the counsels verification is
insufficient since it is based only on mere information.
A partys failure to sign the certification against forum shopping is different from the partys failure to sign personally the
verification. The certificate of non-forum shopping must be signed by the party, and not by counsel. [27] The certification of
counsel renders the petition defective.[28]
On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional requisite. [29] It is
intended simply to secure an assurance that what are alleged in the pleading are true and correct and not the product of the
imagination or a matter of speculation, and that the pleading is filed in good faith. [30] The party need not sign the verification. A
partys representative, lawyer or any person who personally knows the truth of the facts alleged in the pleading may sign the
verification.[31]
We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely an afterthought.
Pajuyo did not call the Court of Appeals attention to this defect at the early stage of the proceedings. Pajuyo raised this
procedural issue too late in the proceedings.

Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the Issue of Possession
Settled is the rule that the defendants claim of ownership of the disputed property will not divest the inferior court of its
jurisdiction over the ejectment case. [32] Even if the pleadings raise the issue of ownership, the court may pass on such issue to
determine only the question of possession, especially if the ownership is inseparably linked with the possession. [33] The
adjudication on the issue of ownership is only provisional and will not bar an action between the same parties involving title to
the land.[34] This doctrine is a necessary consequence of the nature of the two summary actions of ejectment, forcible entry and
unlawful detainer, where the only issue for adjudication is the physical or material possession over the real property. [35]
In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the contested property
and that they are mere squatters. Will the defense that the parties to the ejectment case are not the owners of the disputed lot
allow the courts to renounce their jurisdiction over the case? The Court of Appeals believed so and held that it would just leave
the parties where they are since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for recovery of possession. The
parties cannot present evidence to prove ownership or right to legal possession except to prove the nature of the possession
when necessary to resolve the issue of physical possession. [36] The same is true when the defendant asserts the absence of title
over the property. The absence of title over the contested lot is not a ground for the courts to withhold relief from the parties in
an ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is entitled to the physical possession of
the premises, that is, to the possession de facto and not to the possession de jure.[37] It does not even matter if a partys title to
the property is questionable,[38] or when both parties intruded into public land and their applications to own the land have yet
to be approved by the proper government agency. [39] Regardless of the actual condition of the title to the property, the party in
peaceable quiet possession shall not be thrown out by a strong hand, violence or terror. [40]Neither is the unlawful withholding
of property allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even against the owner himself. [41] Whatever
may be the character of his possession, if he has in his favor prior possession in time, he has the security that entitles him to
remain on the property until a person with a better right lawfully ejects him. [42] To repeat, the only issue that the court has to
settle in an ejectment suit is the right to physical possession.
In Pitargue v. Sorilla,[43] the government owned the land in dispute. The government did not authorize either the plaintiff
or the defendant in the case of forcible entry case to occupy the land. The plaintiff had prior possession and had already
introduced improvements on the public land. The plaintiff had a pending application for the land with the Bureau of Lands
when the defendant ousted him from possession. The plaintiff filed the action of forcible entry against the defendant. The
government was not a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession because while the application of
the plaintiff was still pending, title remained with the government, and the Bureau of Public Lands had jurisdiction over the
case. We disagreed with the defendant. We ruled that courts have jurisdiction to entertain ejectment suits even before the
resolution of the application. The plaintiff, by priority of his application and of his entry, acquired prior physical possession
over the public land applied for as against other private claimants. That prior physical possession enjoys legal protection
against other private claimants because only a court can take away such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue[44] as squatters, strictly speaking, their entry
into the disputed land was illegal. Both the plaintiff and defendant entered the public land without the owners
permission. Title to the land remained with the government because it had not awarded to anyone ownership of the contested
public land. Both the plaintiff and the defendant were in effect squatting on government property. Yet, we upheld the courts
jurisdiction to resolve the issue of possession even if the plaintiff and the defendant in the ejectment case did not have any title
over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the public need to
preserve the basic policy behind the summary actions of forcible entry and unlawful detainer. The underlying philosophy
behind ejectment suits is to prevent breach of the peace and criminal disorder and to compel the party out of possession to
respect and resort to the law alone to obtain what he claims is his. [45] The party deprived of possession must not take the law
into his own hands.[46] Ejectment proceedings are summary in nature so the authorities can settle speedily actions to recover
possession because of the overriding need to quell social disturbances. [47]
We further explained in Pitargue the greater interest that is at stake in actions for recovery of possession. We made the
following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take cognizance of possessory actions involving
these public lands before final award is made by the Lands Department, and before title is given any of the conflicting
claimants? It is one of utmost importance, as there are public lands everywhere and there are thousands of settlers, especially
in newly opened regions. It also involves a matter of policy, as it requires the determination of the respective authorities and
functions of two coordinate branches of the Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which was in force in this country before the
American occupation, or in the new, we have a possessory action, the aim and purpose of which is the recovery of the physical
possession of real property, irrespective of the question as to who has the title thereto. Under the Spanish Civil Code we had
the accion interdictal, a summary proceeding which could be brought within one year from dispossession (Roman Catholic
Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901, upon the enactment of the Code of Civil
Procedure (Act No. 190 of the Philippine Commission) we implanted the common law action of forcible entry (section 80 of Act
No. 190), the object of which has been stated by this Court to be to prevent breaches of the peace and criminal disorder
which would ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would create that
some advantage must accrue to those persons who, believing themselves entitled to the possession of property, resort to
force to gain possession rather than to some appropriate action in the court to assert their claims. (Supia and Batioco vs.
Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first Public Land Act (Act No. 926) the action of forcible
entry was already available in the courts of the country. So the question to be resolved is, Did the Legislature intend, when it
vested the power and authority to alienate and dispose of the public lands in the Lands Department, to exclude the courts from
entertaining the possessory action of forcible entry between rival claimants or occupants of any land before award thereof to
any of the parties? Did Congress intend that the lands applied for, or all public lands for that matter, be removed from the
jurisdiction of the judicial Branch of the Government, so that any troubles arising therefrom, or any breaches of the peace or
disorders caused by rival claimants, could be inquired into only by the Lands Department to the exclusion of the courts? The
answer to this question seems to us evident. The Lands Department does not have the means to police public lands; neither
does it have the means to prevent disorders arising therefrom, or contain breaches of the peace among settlers; or to pass
promptly upon conflicts of possession. Then its power is clearly limited to disposition and alienation, and while it may
decide conflicts of possession in order to make proper award, the settlement of conflicts of possession which is
recognized in the court herein has another ultimate purpose, i.e., the protection of actual possessors and occupants with
a view to the prevention of breaches of the peace. The power to dispose and alienate could not have been intended to
include the power to prevent or settle disorders or breaches of the peace among rival settlers or claimants prior to the
final award. As to this, therefore, the corresponding branches of the Government must continue to exercise power and
jurisdiction within the limits of their respective functions. The vesting of the Lands Department with authority to
administer, dispose, and alienate public lands, therefore, must not be understood as depriving the other branches of the
Government of the exercise of the respective functions or powers thereon, such as the authority to stop disorders and
quell breaches of the peace by the police, the authority on the part of the courts to take jurisdiction over possessory
actions arising therefrom not involving, directly or indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect that courts have no jurisdiction to
determine the rights of claimants to public lands, and that until the disposition of the land has passed from the control of the
Federal Government, the courts will not interfere with the administration of matters concerning the same. (50 C. J. 1093-1094.)
We have no quarrel with this principle. The determination of the respective rights of rival claimants to public lands is different
from the determination of who has the actual physical possession or occupation with a view to protecting the same and
preventing disorder and breaches of the peace. A judgment of the court ordering restitution of the possession of a parcel of
land to the actual occupant, who has been deprived thereof by another through the use of force or in any other illegal manner,
can never be prejudicial interference with the disposition or alienation of public lands. On the other hand, if courts were
deprived of jurisdiction of cases involving conflicts of possession, that threat of judicial action against breaches of the
peace committed on public lands would be eliminated, and a state of lawlessness would probably be produced between
applicants, occupants or squatters, where force or might, not right or justice, would rule.
It must be borne in mind that the action that would be used to solve conflicts of possession between rivals or conflicting
applicants or claimants would be no other than that of forcible entry. This action, both in England and the United States and in
our jurisdiction, is a summary and expeditious remedy whereby one in peaceful and quiet possession may recover the
possession of which he has been deprived by a stronger hand, by violence or terror; its ultimate object being to prevent breach
of the peace and criminal disorder. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is
mere possession as a fact, of physical possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right
to possession is never in issue in an action of forcible entry; as a matter of fact, evidence thereof is expressly banned, except to
prove the nature of the possession. (Second 4, Rule 72, Rules of Court.) With this nature of the action in mind, by no stretch of
the imagination can conclusion be arrived at that the use of the remedy in the courts of justice would constitute an interference
with the alienation, disposition, and control of public lands. To limit ourselves to the case at bar can it be pretended at all that
its result would in any way interfere with the manner of the alienation or disposition of the land contested? On the contrary, it
would facilitate adjudication, for the question of priority of possession having been decided in a final manner by the courts,
said question need no longer waste the time of the land officers making the adjudication or award.(Emphasis ours)

The Principle of Pari Delicto is not Applicable to Ejectment Cases

The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code [48] embody the principle of pari delicto. We explained the principle of pari
delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari delicto potior est conditio defedentis.
The law will not aid either party to an illegal agreement. It leaves the parties where it finds them. [49]
The application of the pari delicto principle is not absolute, as there are exceptions to its application. One of these
exceptions is where the application of the pari delicto rule would violate well-established public policy.[50]
In Drilon v. Gaurana,[51] we reiterated the basic policy behind the summary actions of forcible entry and unlawful
detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the actual condition of the
title to the property, the party in peaceable quiet possession shall not be turned out by strong hand, violence or terror. In
affording this remedy of restitution the object of the statute is to prevent breaches of the peace and criminal disorder which
would ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage
must accrue to those persons who, believing themselves entitled to the possession of property, resort to force to gain
possession rather than to some appropriate action in the courts to assert their claims. This is the philosophy at the foundation
of all these actions of forcible entry and detainer which are designed to compel the party out of possession to respect and
resort to the law alone to obtain what he claims is his.[52]
Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is fraught with danger. To
shut out relief to squatters on the ground of pari delicto would openly invite mayhem and lawlessness. A squatter would oust
another squatter from possession of the lot that the latter had illegally occupied, emboldened by the knowledge that the courts
would leave them where they are. Nothing would then stand in the way of the ousted squatter from re-claiming his prior
possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery of possession seek to
prevent.[53] Even the owner who has title over the disputed property cannot take the law into his own hands to regain
possession of his property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters. The determination of
priority and superiority of possession is a serious and urgent matter that cannot be left to the squatters to decide. To do so
would make squatters receive better treatment under the law. The law restrains property owners from taking the law into
their own hands. However, the principle of pari delicto as applied by the Court of Appeals would give squatters free rein to
dispossess fellow squatters or violently retake possession of properties usurped from them. Courts should not leave squatters
to their own devices in cases involving recovery of possession.

Possession is the only Issue for Resolution in an Ejectment Case

 The case for review before the Court of Appeals was a simple case of ejectment. The Court of Appeals refused to rule on
the issue of physical possession. Nevertheless, the appellate court held that the pivotal issue in this case is who between Pajuyo
and Guevarra has the priority right as beneficiary of the contested land under Proclamation No. 137. [54] According to the Court
of Appeals, Guevarra enjoys preferential right under Proclamation No. 137 because Article VI of the Code declares that the
actual occupant or caretaker is the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a relocation site under Proclamation No.
137. Proclamation No. 137 laid down the metes and bounds of the land that it declared open for disposition to bona
fide residents.
The records do not show that the contested lot is within the land specified by Proclamation No. 137. Guevarra had the
burden to prove that the disputed lot is within the coverage of Proclamation No. 137. He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarras unsubstantiated claim that he is the
beneficiary of Proclamation No. 137. Guevarra merely alleged that in the survey the project administrator conducted, he and
not Pajuyo appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo allowed Guevarra to
occupy the disputed property in 1985. President Aquino signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made
his earliest demand for Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137 allegedly
segregated the disputed lot, Guevarra never applied as beneficiary of Proclamation No. 137. Even when Guevarra already knew
that Pajuyo was reclaiming possession of the property, Guevarra did not take any step to comply with the requirements of
Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and Guevarra has a pending
application over the lot, courts should still assume jurisdiction and resolve the issue of possession. However, the jurisdiction of
the courts would be limited to the issue of physical possession only.
In Pitargue,[55] we ruled that courts have jurisdiction over possessory actions involving public land to determine the issue
of physical possession. The determination of the respective rights of rival claimants to public land is, however, distinct from the
determination of who has the actual physical possession or who has a better right of physical possession. [56] The administrative
disposition and alienation of public lands should be threshed out in the proper government agency. [57]
The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No. 137 was premature. Pajuyo
and Guevarra were at most merely potential beneficiaries of the law. Courts should not preempt the decision of the
administrative agency mandated by law to determine the qualifications of applicants for the acquisition of public
lands. Instead, courts should expeditiously resolve the issue of physical possession in ejectment cases to prevent disorder and
breaches of peace.[58]

Pajuyo is Entitled to Physical Possession of the Disputed Property

Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built on it. Guevarra expressly
admitted the existence and due execution of the Kasunduan. The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra,
na pansamantalang manirahan sa nasabing bahay at lote ng walang bayad. Kaugnay nito, kailangang panatilihin nila ang
kalinisan at kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but Guevarra was under
obligation to maintain the premises in good condition. Guevarra promised to vacate the premises on Pajuyos demand but
Guevarra broke his promise and refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a person from another of
the possession of real property to which the latter is entitled after the expiration or termination of the formers right to hold
possession under a contract, express or implied.[59]
Where the plaintiff allows the defendant to use his property by tolerance without any contract, the defendant is
necessarily bound by an implied promise that he will vacate on demand, failing which, an action for unlawful detainer will lie.
[60]
The defendants refusal to comply with the demand makes his continued possession of the property unlawful. [61] The status
of the defendant in such a case is similar to that of a lessee or tenant whose term of lease has expired but whose occupancy
continues by tolerance of the owner.[62]
 This principle should apply with greater force in cases where a contract embodies the permission or tolerance to use the
property. The Kasunduan expressly articulated Pajuyos forbearance. Pajuyo did not require Guevarra to pay any rent but only to
maintain the house and lot in good condition. Guevarra expressly vowed in the Kasunduan that he would vacate the property
on demand. Guevarras refusal to comply with Pajuyos demand to vacate made Guevarras continued possession of the property
unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use
the same for a certain time and return it. [63] An essential feature of commodatum is that it is gratuitous. Another feature
of commodatum is that the use of the thing belonging to another is for a certain period. [64] Thus, the bailor cannot demand the
return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for which
the commodatum is constituted.[65] If the bailor should have urgent need of the thing, he may demand its return for temporary
use.[66] If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the
contractual relation is called a precarium.[67] Under the Civil Code, precarium is a kind of commodatum.[68]
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While
the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property in good condition. The
imposition of this obligation makes the Kasunduan a contract different from a commodatum. The effects of the Kasunduan are
also different from that of a commodatum. Case law on ejectment has treated relationship based on tolerance as one that is akin
to a landlord-tenant relationship where the withdrawal of permission would result in the termination of the lease. [69] The
tenants withholding of the property would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee would still
have the duty to turn over possession of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing
received attaches to contracts for safekeeping, or contracts of commission, administration and commodatum.[70] These
contracts certainly involve the obligation to deliver or return the thing received. [71]
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter. Squatters, Guevarra
pointed out, cannot enter into a contract involving the land they illegally occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely entered into
the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical
possession of the contested property. The Kasunduan is the undeniable evidence of Guevarras recognition of Pajuyos better
right of physical possession. Guevarra is clearly a possessor in bad faith. The absence of a contract would not yield a different
result, as there would still be an implied promise to vacate.
Guevarra contends that there is a pernicious evil that is sought to be avoided, and that is allowing an absentee squatter
who (sic) makes (sic) a profit out of his illegal act. [72] Guevarra bases his argument on the preferential right given to the actual
occupant or caretaker under Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property without paying any
rent. There is also no proof that Pajuyo is a professional squatter who rents out usurped properties to other
squatters. Moreover, it is for the proper government agency to decide who between Pajuyo and Guevarra qualifies for
socialized housing. The only issue that we are addressing is physical possession.
Prior possession is not always a condition sine qua non in ejectment.[73] This is one of the distinctions between forcible
entry and unlawful detainer.[74] In forcible entry, the plaintiff is deprived of physical possession of his land or building by means
of force, intimidation, threat, strategy or stealth. Thus, he must allege and prove prior possession. [75] But in unlawful detainer,
the defendant unlawfully withholds possession after the expiration or termination of his right to possess under any contract,
express or implied. In such a case, prior physical possession is not required. [76]
Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient right to possess the
property ended as well.Moreover, it was Pajuyo who was in actual possession of the property because Guevarra had to seek
Pajuyos permission to temporarily hold the property and Guevarra had to follow the conditions set by Pajuyo in
the Kasunduan. Control over the property still rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of the law does not
mean that a man has to have his feet on every square meter of the ground before he is deemed in possession. [77] One may
acquire possession not only by physical occupation, but also by the fact that a thing is subject to the action of ones will.
[78]
Actual or physical occupation is not always necessary.[79]
 Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that squatters and intruders who clandestinely enter
into titled government property cannot, by such act, acquire any legal right to said property. [80] We made this declaration
because the person who had title or who had the right to legal possession over the disputed property was a party in the
ejectment suit and that party instituted the case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the ejectment case. This case is between
squatters. Had the government participated in this case, the courts could have evicted the contending squatters, Pajuyo and
Guevarra.
Since the party that has title or a better right over the property is not impleaded in this case, we cannot evict on our own
the parties. Such a ruling would discourage squatters from seeking the aid of the courts in settling the issue of physical
possession. Stripping both the plaintiff and the defendant of possession just because they are squatters would have the same
dangerous implications as the application of the principle of pari delicto. Squatters would then rather settle the issue of
physical possession among themselves than seek relief from the courts if the plaintiff and defendant in the ejectment case
would both stand to lose possession of the disputed property. This would subvert the policy underlying actions for recovery of
possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on the property until a
person who has title or a better right lawfully ejects him. Guevarra is certainly not that person. The ruling in this case, however,
does not preclude Pajuyo and Guevarra from introducing evidence and presenting arguments before the proper administrative
agency to establish any right to which they may be entitled under the law. [81]
In no way should our ruling in this case be interpreted to condone squatting. The ruling on the issue of physical
possession does not affect title to the property nor constitute a binding and conclusive adjudication on the merits on the issue
of ownership.[82] The owner can still go to court to recover lawfully the property from the person who holds the property
without legal title. Our ruling here does not diminish the power of government agencies, including local governments, to
condemn, abate, remove or demolish illegal or unauthorized structures in accordance with existing laws.

Attorneys Fees and Rentals

The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees as part of damages are
awarded only in the instances enumerated in Article 2208 of the Civil Code. [83] Thus, the award of attorneys fees is the
exception rather than the rule.[84] Attorneys fees are not awarded every time a party prevails in a suit because of the policy that
no premium should be placed on the right to litigate.[85] We therefore delete the attorneys fees awarded to Pajuyo.
We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra. Guevarra did not dispute this factual
finding of the two courts. We find the amount reasonable compensation to Pajuyo. The P300 monthly rental is counted from
the last demand to vacate, which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14 December 2000 of the
Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated 11 November 1996 of the Regional Trial Court of
Quezon City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated 15 December 1995 of the Metropolitan Trial
Court of Quezon City, Branch 31 in Civil Case No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees is
deleted. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.
 OBLIGATIONS OF THE BAILEE

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE V. BAGTAS, defendant, FELICIDAD M. BAGTAS, Administratrix
of the Intestate Estate left by the late Jose V. Bagtas, petitioner-appellant.
G.R. No. L-17474 October 25, 1962

PADILLA, J.:

The Court of Appeals certified this case to this Court because only questions of law are raised.

On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three
bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one
year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government charge of breeding fee of 10% of the book
value of the bulls. Upon the expiration on 7 May 1949 of the contract, the borrower asked for a renewal for another period of
one year. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for another
year from 8 May 1949 to 7 May 1950 and requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to the
Director of Animal Industry that he would pay the value of the three bulls. On 17 October 1950 he reiterated his desire to buy
them at a value with a deduction of yearly depreciation to be approved by the Auditor General. On 19 October 1950 the
Director of Animal Industry advised him that the book value of the three bulls could not be reduced and that they either be
returned or their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of the three bulls
or to return them. So, on 20 December 1950 in the Court of First Instance of Manila the Republic of the Philippines commenced
an action against him praying that he be ordered to return the three bulls loaned to him or to pay their book value in the total
sum of P3,241.45 and the unpaid breeding fee in the sum of P199.62, both with interests, and costs; and that other just and
equitable relief be granted in (civil No. 12818).

On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace and order
situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had taken to the Secretary of
Agriculture and Natural Resources and the President of the Philippines from the refusal by the Director of Animal Industry to
deduct from the book value of the bulls corresponding yearly depreciation of 8% from the date of acquisition, to which
depreciation the Auditor General did not object, he could not return the animals nor pay their value and prayed for the
dismissal of the complaint.

After hearing, on 30 July 1956 the trial court render judgment —

. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls plus the breeding
fees in the amount of P626.17 with interest on both sums of (at) the legal rate from the filing of this complaint and
costs.

On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18 October and issued on 11
November 1958. On 2 December 1958 granted an ex-parte motion filed by the plaintiff on November 1958 for the appointment
of a special sheriff to serve the writ outside Manila. Of this order appointing a special sheriff, on 6 December 1958, Felicidad M.
Bagtas, the surviving spouse of the defendant Jose Bagtas who died on 23 October 1951 and as administratrix of his estate, was
notified. On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were returned to
the Bureau Animal of Industry and that sometime in November 1958 the third bull, the Sahiniwal, died from gunshot wound
inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that the writ of execution be quashed and that a writ of
preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply
thereto. On the same day, 6 February, the Court denied her motion. Hence, this appeal certified by the Court of Appeals to this
Court as stated at the beginning of this opinion.

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the Sindhi and Bhagnari
bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as
evidenced by a memorandum receipt signed by the latter (Exhibit 2). That is why in its objection of 31 January 1959 to the
appellant's motion to quash the writ of execution the appellee prays "that another writ of execution in the sum of P859.53 be
issued against the estate of defendant deceased Jose V. Bagtas." She cannot be held liable for the two bulls which already had
been returned to and received by the appellee.

The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November 1953 upon the
surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such death was due
to force majeure she is relieved from the duty of returning the bull or paying its value to the appellee. The contention is without
merit. The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one
year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was subject to the payment by the
borrower of breeding fee of 10% of the book value of the bulls. The appellant contends that the contract was commodatum and
that, for that reason, as the appellee retained ownership or title to the bull it should suffer its loss due to force majeure. A
contract of commodatum is essentially gratuitous.1 If the breeding fee be considered a compensation, then the contract would
be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in
bad faith, because she had continued possession of the bull after the expiry of the contract. And even if the contract
be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract
of commodatum —

. . . is liable for loss of the things, even if it should be through a fortuitous event:

(2) If he keeps it longer than the period stipulated . . .

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee
from responsibility in case of a fortuitous event;

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for another period of
one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it was
killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each an
appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not
stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from
liability.

The appellant's contention that the demand or prayer by the appellee for the return of the bull or the payment of its value
being a money claim should be presented or filed in the intestate proceedings of the defendant who died on 23 October 1951,
is not altogether without merit. However, the claim that his civil personality having ceased to exist the trial court lost
jurisdiction over the case against him, is untenable, because section 17 of Rule 3 of the Rules of Court provides that —

After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal
representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30) days, or
within such time as may be granted. . . .

and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3 which provides that
—

Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly of such
death . . . and to give the name and residence of the executory administrator, guardian, or other legal representative of
the deceased . . . .

The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been issue letters of
administration of the estate of the late Jose Bagtas and that "all persons having claims for monopoly against the deceased Jose
V. Bagtas, arising from contract express or implied, whether the same be due, not due, or contingent, for funeral expenses and
expenses of the last sickness of the said decedent, and judgment for monopoly against him, to file said claims with the Clerk of
this Court at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of the first publication of this
order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the
said deceased," is not a notice to the court and the appellee who were to be notified of the defendant's death in accordance
with the above-quoted rule, and there was no reason for such failure to notify, because the attorney who appeared for the
defendant was the same who represented the administratrix in the special proceedings instituted for the administration and
settlement of his estate. The appellee or its attorney or representative could not be expected to know of the death of the
defendant or of the administration proceedings of his estate instituted in another court that if the attorney for the deceased
defendant did not notify the plaintiff or its attorney of such death as required by the rule.

As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only liable for the sum of
P859.63, the value of the bull which has not been returned to the appellee, because it was killed while in the custody of the
administratrix of his estate. This is the amount prayed for by the appellee in its objection on 31 January 1959 to the motion
filed on 7 January 1959 by the appellant for the quashing of the writ of execution.

Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in
the Court of First Instance of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be enforced by
means of a writ of execution but must be presented to the probate court for payment by the appellant, the administratrix
appointed by the court.

ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.

Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur.
Barrera, J., concurs in the result.
 OBLIGATIONS OF THE BAILOR

MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants, vs. BECK, defendant-appellee.

G.R. No. L-46240 November 3, 1939

IMPERIAL, J.:

The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him for his use. She
appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant return to her the three
has heaters and the four electric lamps found in the possession of the Sheriff of said city, that she call for the other furniture
from the said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the deposit of the
furniture be paid pro rata by both parties, without pronouncement as to the costs.

The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No. 1175. On
January 14, 1936, upon the novation of the contract of lease between the plaintiff and the defendant, the former gratuitously
granted to the latter the use of the furniture described in the third paragraph of the stipulation of facts, subject to the condition
that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez
and Rosario Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving him sixty days to
vacate the premises under one of the clauses of the contract of lease. There after the plaintiff required the defendant to return
all the furniture transferred to him for them in the house where they were found. On November 5, 1936, the defendant,
through another person, wrote to the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On
the 7th of the same month, the defendant wrote another letter to the plaintiff informing her that he could not give up the three
gas heaters and the four electric lamps because he would use them until the 15th of the same month when the lease in due to
expire. The plaintiff refused to get the furniture in view of the fact that the defendant had declined to make delivery of all of
them. On November 15th, before vacating the house, the defendant deposited with the Sheriff all the furniture belonging
to the plaintiff and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said
sheriff.

In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding that they
violated the contract by not calling for all the furniture on November 5, 1936, when the defendant placed them at their
disposal; in not ordering the defendant to pay them the value of the furniture in case they are not delivered; in holding that
they should get all the furniture from the Sheriff at their expenses; in ordering them to pay-half of the expenses claimed by the
Sheriff for the deposit of the furniture; in ruling that both parties should pay their respective legal expenses or the costs; and in
denying pay their respective legal expenses or the costs; and in denying the motions for reconsideration and new trial. To
dispose of the case, it is only necessary to decide whether the defendant complied with his obligation to return the furniture
upon the plaintiff's demand; whether the latter is bound to bear the deposit fees thereof, and whether she is entitled to the
costs of litigation.lawphi1.net

The contract entered into between the parties is one of commadatum, because under it the plaintiff gratuitously granted the
use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the defendant bound himself
to return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1,
and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's
demand, means that he should return all of them to the plaintiff at the latter's residence or house. The defendant did not
comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the three gas
heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel for the parties are not
squarely applicable. The trial court, therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with
her obligation to get the furniture when they were offered to her.

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, the Court
could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's behest. The
latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to
return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.

As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by the defendant in case of
his inability to return some of the furniture because under paragraph 6 of the stipulation of facts, the defendant has neither
agreed to nor admitted the correctness of the said value. Should the defendant fail to deliver some of the furniture, the value
thereof should be latter determined by the trial Court through evidence which the parties may desire to present.

The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party (section 487 of the
Code of Civil Procedure). The defendant was the one who breached the contract of commodatum, and without any reason he
refused to return and deliver all the furniture upon the plaintiff's demand. In these circumstances, it is just and equitable that
he pay the legal expenses and other judicial costs which the plaintiff would not have otherwise defrayed.

The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in the residence to
return and deliver to the plaintiff, in the residence or house of the latter, all the furniture described in paragraph 3 of the
stipulation of facts Exhibit A. The expenses which may be occasioned by the delivery to and deposit of the furniture with the
Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both instances. So ordered.
III MUTUUM/SIMPLE LOAN

1. SPOUSES ALBERTO AND SUSAN CASTRO, Petitioners, v. AMPARO PALENZUELA, FOR HERSELF AND AS AUTHORIZED
REPRESENTATIVE OF VIRGINIA ABELLO, GERARDO ANTONIO ABELLO, ALBERTO DEL ROSARIO, INGEBORG REGINA DEL
ROSARIO, HANS DEL ROSARIO, MARGARET DEL ROSARIO ISLETA, ENRIQUE PALENZUELA AND CARLOS MIGUEL
PALENZUELA, Respondents.
G.R. No. 184698, January 21, 2013

DECISION

DEL CASTILLO, J.:

A demand letter presented in evidence by a lessee to prove a lesser liability for unpaid rentals than that awarded by the trial
court constitutes an admission of liability to the extent of such lesser amount.

This Petition for Review on Certiorari1 assails the January 29, 2008 Decision2 of the Court of Appeals (CA) which dismissed the
appeal in CA-G.R. CV No. 86925, and its September 15, 2008 Resolution 3 denying petitioners’ Motion for Reconsideration.

Factual Antecedents

Respondents Amparo Palenzuela, Virginia Abello, Gerardo Antonio Abello, Alberto Del Rosario, Ingeborg Regina Del Rosario,
Hans Del Rosario, Margaret Del Rosario Isleta, Enrique Palenzuela and Carlos Miguel Palenzuela own several fishponds in
Bulacan, Bulacan totaling 72 hectares.4 In March 1994, respondents, through their duly appointed attorney-in-fact and co-
respondent Amparo Palenzuela, leased out these fishponds to petitioners, spouses Alberto and Susan Castro. The lease was to
be for five years, or from March 1, 1994 up to June 30, 1999.5 The Contract of Lease6 of the parties provided for the following
salient provisions:

1. For the entire duration of the lease, the Castro spouses shall pay a total consideration of P14,126,600.00, 7 via postdated
checks8 and according to the following schedule:

a. Upon signing of the lease agreement, petitioners shall pay P842,300.00 for the lease period March 1, 1994 to June 30,
1994;9

b. On or before June 1, 1994, petitioners shall pay P2,520,000.00 for the one-year lease period July 1, 1994 to June 30,
1995;10

c. On or before June 1, 1995, petitioners shall pay P2,520,000.00 for the one-year lease period July 1, 1995 to June 30,
1996;11

d. On or before June 1, 1996, petitioners shall pay P2,520,000.00 for the one-year lease period July 1, 1996 to June 30,
1997;12

e. On or before June 1, 1997, petitioners shall pay P2,796,000.00 for the one-year lease period July 1, 1997 to June 30,
1998;13 and

f. On or before June 1, 1998, petitioners shall pay P2,928,300.00 for the one-year lease period July 1, 1998 to June 30,
1999.14

2. Petitioners committed to pay respondents the amount of P500,000.00 in five yearly installments from June 1, 1994. The
amount represents arrears of the previous lessee, which petitioners agreed to assume; 15

3. Petitioners shall exercise extraordinary care and diligence in the maintenance of the leased premises, with the obligation to
maintain in good order, repair and condition, among others, two warehouses found thereon; 16

4. Necessary repairs,17 licenses, permits, and other fees18 necessary and incidental to the operation of the fishpond shall be for
petitioners’ account;

5. Petitioners shall not sublease the premises to third parties; 19 and,

6. Should respondents be constrained to file suit against petitioners on account of the lease, the latter agrees to pay liquidated
damages in the amount of P1,000,000.00, 25% as attorney’s fees, and costs of the suit. 20

The lease expired on June 30, 1999, but petitioners did not vacate and continued to occupy and operate the fishponds until
August 11, 1999, or an additional 41 days beyond the contract expiration date.

Previously, or on July 22, 1999, respondents sent a letter 21 to petitioners declaring the latter as trespassers and demanding the
settlement of the latter’s outstanding obligations, including rent for petitioners’ continued stay within the premises, in the
amount of P378,451.00, broken down as follows:

Unpaid balance as of May 31, 1999 for the fifth year of the lease P111,082.00
Accrued interest from May 31, 1999 to July 31, 1999 at 16% 23,344.00
Trespassing fee for the whole month of July 1999 244,025.0022
P378,451.00
Total owed to the Lessors

Petitioners are in actual receipt of this letter.23

On June 8, 2000,24 respondents instituted Civil Case No. Q-00-41011 for collection of a sum of money with damages in the
Regional Trial Court (RTC) of Quezon City, Branch 215, claiming that petitioners committed violations of their lease agreement
– non-payment of rents as stipulated, subletting the fishponds, failure to maintain the warehouses, and refusal to vacate the
premises on expiration of the lease – which caused respondents to incur actual and liquidated damages and other expenses in
the respective amounts of P570,101.0025 for unpaid rent, P275,430.0026 for unpaid additional rent for petitioners’ one-month
extended stay beyond the contract date, and P2,000,000.0027 for expenses incurred in restoring and repairing their damaged
warehouses. In addition, respondents prayed to be awarded moral and exemplary damages, attorney’s fees, and costs of
litigation.28

For failure to file their Answer, petitioners were declared in default, 29 and on August 16, 2000, during the presentation of
evidence for the plaintiffs, respondent Amparo Palenzuela testified, detailing petitioners’ several violations of the lease
contract; petitioners’ failure to maintain the warehouses in good condition; their unauthorized subleasing of the premises to
one Cynthia Reyes; their failure to pay the license fees, permits and other fees; their extended stay for 41 days, or until August
11, 1999 despite expiration of the lease on June 30, 1999; and petitioners’ unpaid rents in the aggregate amount of
P863,796.00, interest included.30

During said proceedings, respondents presented in evidence a statement of account 31detailing petitioners’ outstanding
obligations as of July 31, 1999.

In a subsequent Order,32 the trial court, on petitioners’ motion, lifted its previous Order of default, and the latter were given the
opportunity to cross-examine respondents’ witnesses which they failed to do. Moreover, they also failed to attend subsequent
scheduled hearings. The trial court thus declared the forfeiture, on waiver, of petitioners’ rights to cross-examine and present
their evidence, and considered the case submitted for decision based solely on respondents’ evidence. 33 However, on
petitioners’ motion,34 the trial court again reconsidered, and scheduled the presentation of their evidence on October 5, 2001. 35

However, petitioners moved to reset the October 5, 2001 hearing. 36 After several postponements, the trial was reset to April 11,
2002.37 On said date, the testimony of the first witness for the defense, petitioner Alberto Castro, was taken and completed.
Cross-examination was scheduled on May 30, 2002,38 but was rescheduled to be taken on August 21, 2002.39

On August 21, 2002, petitioners once more failed to appear; the trial court, in an Order 40 of even date, decreed that petitioner
Alberto Castro’s testimony be stricken off the record and declared the case submitted for decision. Petitioners moved for
reconsideration;41respondents opposed,42 noting that for more than two years and in spite of several opportunities afforded
them, petitioners have been unable to participate in the proceedings and present their evidence. The trial court did not
reconsider.43

Petitioners took issue in the CA via Petition for Certiorari,44 but the appellate court, in a February 18, 2004
Decision,45 sustained the trial court and declared that no grave abuse of discretion was committed when it ordered the striking
out of petitioner Alberto Castro’s testimony and the termination of trial.

Petitioners next filed a Motion to Inhibit46 claiming that they could not obtain justice and a fair trial from the presiding judge.
In her April 21, 2003 Order,47 Judge Ma. Luisa Quijano-Padilla voluntarily inhibited herself from trying the case. She stressed,
however, that she was doing so only in order that the probity and objectivity of the court could be maintained, but not because
petitioners’ grounds for seeking inhibition are meritorious.

The case was then re-raffled to Branch 85 of the Quezon City RTC, which required the parties to submit memoranda. 48 While
respondents submitted theirs, petitioners did not.

Ruling of the Regional Trial Court

On January 31, 2005, the trial court issued its Decision, 49 decreeing as follows:

WHEREFORE, judgment is hereby rendered ordering the defendants, jointly and severally, to pay plaintiffs the following:

1. Eight Hundred Sixty-three Thousand Seven Hundred Ninety Six Pesos (P863,796.00), by way of actual or
compensatory damages;

2. Fifty Thousand Pesos (P50,000.00), by way of moral damages;

3. Fifty Thousand Pesos (P50,000.00), by way of exemplary damages;

4. The amount equivalent to twenty-five (25%) percent of the total amount recoverable herein by plaintiffs, by way of
attorney’s fees; and

5. Costs of suit.

SO ORDERED.50
The trial court held that petitioners violated the terms of the lease:51 petitioners failed to pay rent on time,52 the warehouses
were shown to be in damaged condition,53 and they overstayed beyond the contract period.54 However, respondents failed to
prove the actual amount of their pecuniary losses in regard to the damaged warehouses, which entitles them merely to
nominal damages.55 As to moral damages, the trial court held that because petitioners acted in gross and wanton disregard of
their contractual obligations, respondents are entitled to such damages, as well as attorneys fees as stipulated at 25% of the
total amount recoverable.56

With respect to petitioners, the trial court said that although they claim to have paid all their obligations in full, no evidence to
such effect has been presented,57 for the precise reason that they failed to participate in the proceedings on their own account.

Both parties moved for reconsideration. Respondents prayed that petitioners be made additionally liable for liquidated
damages and P2,000,000.00 as compensation for the restoration of the damaged warehouses. 58

Petitioners, in their Verified Motion for Reconsideration, 59 argued that the evidence is not sufficient to warrant a finding of
liability on their part, and the award is excessive. They claimed that they should not be made to pay additional rent for their
unauthorized stay beyond the lease expiration date, or from July 1 to August 11, 1999, because the lease agreement did not
provide for such. Likewise, they claimed that, as represented by respondents themselves in their July 22, 1999 demand
letter,60 which they annexed to their Verified Motion for Reconsideration and was presented to the court for the first time,
petitioners’ outstanding obligation, including back rentals, interest, and the supposed one-month additional rent, was pegged
at a mere P378,451.00; thus, the judgment award of P863,796.00 is excessive and illegal. Petitioners added that there is no
factual basis for the award of moral and exemplary damages. Thus, they prayed that the Decision be reconsidered and that the
Complaint be dismissed.

In a January 30, 2006 Omnibus Order,61 the trial court declined to reconsider. Only petitioners went up to the CA on appeal.

Ruling of the Court of Appeals

In the CA, petitioners maintained that the Decision is erroneous and the awards excessive, echoing their previous argument
below that the lease agreement did not authorize respondents to charge additional rents for their extended stay and interest
on delayed rental payments. They added that respondents are not entitled to moral and exemplary damages and attorney’s
fees. Finally, they bemoaned the trial court’s act of resolving their Verified Motion for Reconsideration of the Decision without
conducting oral arguments.

The CA, however, was unconvinced. It held that the preponderance of evidence,62 which remained uncontroverted by
petitioners, points to the fact that petitioners indeed failed to pay rent in full, considering that their postdated checks bounced
upon presentment,63 and their unauthorized extended stay from July 1 until August 11, 1999. 64 It added that petitioners were
undeniably guilty of violating several provisions of the lease agreement, as it has also been shown that they failed to pay rent
on time and illegally subleased the property to one Cynthia Reyes, who even made direct payments of rentals to respondents
on several occasions.65

On petitioners’ argument that respondents are not entitled to additional rent for petitioners’ extended stay beyond the lease
expiration date, the CA held that the respondents are in fact authorized to collect whatever damages they may have incurred by
reason of the lease,66citing Section 16 of the lease agreement which provides as follows:

SECTION 16. TERMINATION OR CANCELLATION OF THE LEASE. Any delay in or violation, failure or refusal of the LESSEE to
perform and comply with any of the obligations stipulated hereunder shall automatically give an absolute right to the LESSORS
to cancel, terminate or otherwise rescind this Contract of Lease. x x x.

xxxx

The above provisions shall, however, be without prejudice to any right of claim by the LESSORS against the LESSEE for
whatever damages which may be incurred or assessed under this Contract of Lease. 67 (Emphasis supplied)

The CA found no error in the award of moral and exemplary damages, noting that petitioners’ violations of the lease agreement
compelled respondents to litigate and endure unreasonable delays, sleepless nights, mental anguish, and serious anxiety. 68 As
for attorney’s fees, the CA sustained the trial court’s award of 25%, saying that such stipulation may be justified under Article
2208 of the Civil Code.69 Since respondents were compelled to incur expenses to protect their interests as a result of
petitioners’ acts and omissions, they should be allowed to collect the stipulated attorney’s fees. 70

Finally, the CA held that the matter of conducting further oral arguments on a party’s Motion for Reconsideration rests upon
the sound discretion of the court. Because petitioners’ Verified Motion for Reconsideration is a mere reiteration of their
defenses which they raised all throughout the proceedings below, conducting a hearing on the motion would have been a mere
superfluity.71

The CA thus dismissed the petitioners’ appeal and sustained in toto the January 31, 2005 decision of the trial court. 72 Their
Motion for Reconsideration73 was denied as well, through the questioned September 15, 2008 Resolution. 74

Issues

The instant Petition thus raises the following issues:

A

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT CALLING THE TRIAL COURT TO TASK FOR REFUSING TO
RECEIVE EVIDENCE IN SUPPORT OF THE VERIFIED MOTION FOR RECONSIDERATION OF PETITIONERS ON THE GROUND
THAT THE AWARD OF DAMAGES IS EXCESSIVE.
B

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT DISCERNING THE INTERNAL FACTUAL
INCONSISTENCIES OF THE FINDINGS OF THE TRIAL COURT AS WELL AS THE LACK OF LEGAL BASIS THEREOF, VIS-À-VIS THE
CLAIM OF UNPAID RENT AND INTEREST, IN CLEAR DISREGARD OF THE PRONOUNCEMENTS OF THIS HONORABLE COURT
IN MARTIN V. COURT OF APPEALS.
C

THERE IS SIMILARLY NO BASIS FOR THE AWARD OF MORAL AND EXEMPLARY DAMAGES, AND THE HONORABLE COURT OF
APPEALS WAS IN GRIEVOUS ERROR IN SUSTAINING THE TRIAL COURT IN CLEAR DISREGARD OF THIS HONORABLE COURT’S
PRONOUNCEMENTS IN ABS-CBN BROADCASTING CORPORATION V. COURT OF APPEALS.75

Petitioners’ Arguments

Petitioners pray for the setting aside of the questioned Decision and Resolution of the CA, as well as the dismissal of
respondents’ Complaint, claiming that they have in fact settled all their obligations to respondents.

Petitioners first claim that they should have been given the opportunity to present evidence during proceedings covering their
Verified Motion for Reconsideration of the trial court’s Decision, invoking Section 1, Rule 37 of the Rules of Court 76 which
allows them to question the trial court’s Decision on the ground that the damages awarded are excessive or that the evidence is
insufficient to justify the Decision.77

Petitioners direct the Court’s attention to respondents’ July 22, 1999 demand letter 78indicating that their outstanding
obligation was only P378,451.00, which thus renders excessive the award of P863,796.00.

Petitioners next insist that the lease agreement did not authorize respondents to charge additional rents for their July 1 to
August 11, 1999 extended stay,79 which thus renders without legal or factual basis and excessive the award of P863,796.00. 80 If
at all, the basis for computation thereof should be the immediately preceding monthly rental of P244,025.00. 81 Nor is the
imposition of interest allowed under the agreement. Petitioners concede that in the absence of stipulation as to interest,
respondents are entitled only to 6% annual interest as indemnity for damages, 82 pursuant to Article 2209 of the Civil Code.83

On the issue of petitioners’ contract violations, it is claimed that petitioners are not guilty of subleasing the property to one
Cynthia Reyes (Reyes). They argue that although Reyes paid a portion of the rentals, this may not be taken as sufficient proof
of the existence of a sublease agreement between them; and even assuming that a sublease agreement indeed existed between
them, such arrangement was condoned by respondents when they accepted payments of rents made directly to them by
Reyes.84

Regarding damages and attorney’s fees, petitioners maintain that there could not have been delay in the payment of rentals as
to warrant the award of moral damages, since they have paid the rents in full; their supposed liability was only for the
additional rent incurred for their extended stay. Petitioners proceed to argue that if only respondents had exercised their
option – allowed under the lease agreement – to forcibly evict petitioners from the premises, then they would not have
incurred the damages they claim to be entitled to. As for the award of exemplary damages and attorney’s fees, petitioners find
no factual and legal bases for the grant thereof. Since they did not act with malice or bad faith in all matters relative to the
lease, respondents should not be entitled thereto. 85

Respondents’ Arguments
In their Comment,86 respondents insist that petitioners committed several violations of the lease agreement, 87 specifically: for
their failure to pay the rents on time,88 for subleasing the property to Reyes,89 for neglecting to maintain the warehouses which
resulted in their damaged condition after the lease,90 for refusing to vacate the premises upon the expiration of the lease, 91 and
for their neglect and refusal to pay the required fishpond license and permit fees imposed by the municipality of Bulacan. 92
Respondents add that for these violations, they incurred actual damages and suffered moral damages, which further entitles
them to exemplary damages and attorney’s fees as stipulated in the lease agreement. 93

Respondents insist that far from being excessive, the trial court’s award is instead insufficient, considering the damages
suffered as a result of the petitioners’ neglect to maintain the premises, specifically the warehouses, as agreed.

Respondents maintain that in the event of expiration of the lease period and the lessee maintains himself within the premises,
the law authorizes the collection of rentals on a month-to-month or year-to-year basis, 94 citing Articles 1670 and 1687 of the
Civil Code.95 Thus, even if the lease agreement with petitioners failed to provide for a stipulation covering lease extension, the
obligation to pay rent is not extinguished by the expiration of the lease on June 30, 1999. 96

Respondents further claim that interest should be paid at 12% per annum, and not merely 6%, on the outstanding obligation.97
Our Ruling

While this Court is not a trier of facts, it appears that both the trial court and the CA have misappreciated the facts and the
evidence; rectification is thus in order, if justice is to be properly served.

But first, on the procedural issue raised, the Court cannot subscribe to petitioners’ argument that they had a right to a hearing
on their motion for reconsideration. The trial court may not be faulted for denying what it could have perceived was another of
petitioners’ delaying tactics, given how they acted throughout the proceedings. It may have been a baffling situation for the
trial court to find itself suddenly confronted with petitioners’ zeal in presenting their case, at such a late stage, when they have
repeatedly waived such right during the trial of the case. Indeed, it possessed sufficient discretion to grant or deny the hearing
sought for their motion for reconsideration; under the circumstances, the Court finds that such discretion was exercised
soundly. Besides, as will be seen, the evidence is ample and clear enough to warrant judgment outside of a hearing.

Both courts erred in finding that there are outstanding rents owing to the respondents in the amount of P863,796.00. Attention
must be called to respondents’ July 22, 1999 demand letter.98 The letter, which appears to have been handwritten and signed
by Amparo Palenzuela herself, makes a demand upon petitioners to pay the total amount of P378,451.00 which respondents
claim constitutes what is owing to them as of July 31, 1999 by way of unpaid rentals (P111,082.00); additional rent for the
whole duration of petitioners’ stay on the premises beyond the contract date, or for the whole of July 1999 (P244,025.00); and
interest from May 31, 1999 up to July 31, 1999 (P23,344.00). This letter belies the claim that petitioners owed respondents a
greater amount by way of unpaid rents. Even though it is not newly-discovered evidence, it is material; indeed, petitioners
could not have presented it during trial because they were declared in default.

Of this amount – P378,451.00 – petitioners admit to paying nothing. Thus, for petitioners, this is their admitted liability.

The Court notes further that respondents do not even dispute petitioners’ argument that the amount of P863,796.00 actually
represented rentals being claimed for their one-month extended stay on the premises, which to them is excessive. This
argument of the petitioners finds support in the direct testimony of respondents’ witness, Amparo Palenzuela, thus –

Q x x x Madam Witness, you mentioned x x x that the defendants have outstanding obligation to you. Can you tell the
Court how much is the outstanding obligation to you of the defendants with respect to their occupation of your
fishponds?
A Up to July 31, 2000,99 Mr. Castro’s obligation is P863,796.00.
Q Can you briefly explain to the Court how you came about this figure?
A Actually this is what he owes for back lease that he has not paid including interest. This one is supposedly for
overstaying of one month. We did not charge him 41 days, we are only charging him one month and that is the
total.100
Q With respect to this P863,796.00 this is the total as of July?
A July 31.
Q 2000?101
A That’s right.
Q And this pertains to unpaid rent and interest thereof?
A That’s right.
Q The stipulated interest thereof?
A That’s right.
Q And with respect to damages which you expect to incur is not yet included in this?
A Yes.
Q And the unpaid municipal fees are also not included in this?
A Not included but they have been paid.102 (Emphasis supplied)

Indeed, respondents do not deny that this amount of P863,796.00 is what they are actually charging petitioners for one
month’s extended use of their fishponds. If this is so, then it is truly excessive, considering that for the immediately preceding
month – the whole of June 1999 – it costs only P244,025.00103 for the petitioners to rent the same property. The trial court may
have been impelled to accept respondents’ own computation104 of what they believed was due from petitioners on account of
the fact that at that time, petitioners were declared in default and could not cross-examine the respondents’ witness. But the
fact remains that the July 22, 1999 demand letter105 clearly sets forth in detail what appears to be the true, accurate and
reasonable amount of petitioners’ outstanding obligation. If this document were a forgery, respondents would have
vehemently objected to its presentation at the very first opportunity. Yet they did not. Such document could thus be
considered and given weight. “[T]he omission x x x ‘to rebut that which would have naturally invited an immediate, pervasive
and stiff opposition x x x create[s] an adverse inference that either the controverting [evidence] x x x presented x x x will only
prejudice its case, or that the uncontroverted evidence indeed speaks of the truth’.” 106

As for petitioners’ submission that respondents were not authorized to charge additional rent for their extended stay, this
issue should be deemed settled by their very reliance on the July 22, 1999 demand letter, 107 where a charge for additional rent
for their extended stay in the amount of P244,025.00 is included. By adopting the letter as their own evidence in seeking a
reduction in the award of unpaid rent, petitioners are considered to have admitted liability for additional rent as stated therein,
in the amount of P244,025.00. Petitioners may not simultaneously accept and reject the demand letter; this would go against
the rules of fair play. Besides, respondents are correct in saying that when the lease expired on June 30, 1999 and petitioners
continued enjoying the premises without objection from the respondents, an implied new lease was created pursuant to
Article 1670 of the Civil Code, which placed upon petitioners the obligation to pay additional rent.

On the matter of interest, the proper rate is not 6% as petitioners argue, but 12% per annum, collected from the time of
extrajudicial demand on July 22, 1999. Back rentals in this case are equivalent to a loan or forbearance of money. 108

On the issue of moral and exemplary damages, the Court finds no reason to disturb the trial and appellate courts’ award in this
regard. Petitioners have not been exactly above-board in dealing with respondents. They have been found guilty of several
violations of the agreement, and not just one. They incurred delay in their payments, and their check payments bounced, for
one; for another, they subleased the premises to Reyes, in blatant disregard of the express prohibition in the lease agreement;
thirdly, they refused to honor their obligation, as stipulated under the lease agreement, to pay the fishpond license and other
permit fees and; finally, they refused to vacate the premises after the expiration of the lease.

Even though respondents received payments directly from the sublessee Reyes, this could not erase the fact that petitioners
are guilty of subleasing the fishponds to her. Respondents may have been compelled to accept payment from Reyes only
because petitioners have been remiss in honoring their obligation to pay rent.

Bad faith “means breach of a known duty through some motive or interest or ill will.” 109 By refusing to honor their solemn
obligations under the lease, and instead unduly profiting from these violations, petitioners are guilty of bad faith. Moral
damages may be awarded when the breach of contract is attended with bad faith. 110 “Exemplary damages may [also] be
awarded when a wrongful act is accompanied by bad faith or when the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner x x x. [And] since the award of exemplary damages is proper in this case, attorney’s fees and
costs of the suit may also be recovered,111 as stipulated in the lease agreement.

WHEREFORE, premises considered, the Petition is DENIED. The January 29, 2008 Decision of the Court of Appeals in CA-G.R.
CV No. 86925 which affirmed in toto the January 31, 2005 Decision of the Regional Trial Court of Quezon City, Branch 85 in
Civil Case No. Q-00-41011 is AFFIRMED with the MODIFICATION that the actual and compensatory damages are reduced to
P378,451.00, the same to earn legal interest at the rate of twelve percent (12%) per annum from July 22, 1999 until fully paid.

SO ORDERED.
2. THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner, vs. THE COURT OF APPEALS,
CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and SPOUSE, respondents.
G.R. No. 114286. April 19, 2001

DECISION
YNARES-SANTIAGO, J.:

The instant petition for review seeks to partially set aside the July 26, 1993 Decision [1] of respondent Court of Appeals in
CA-G.R. CV No. 29950, insofar as it orders petitioner to reimburse respondent Continental Cement Corporation the amount of
P490,228.90 with interest thereon at the legal rate from July 26, 1988 until fully paid. The petition also seeks to set aside the
March 8, 1994 Resolution[2] of respondent Court of Appeals denying its Motion for Reconsideration.
The facts are as follows:
On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent Corporation) and Gregory T. Lim
(hereinafter, respondent Lim) obtained from petitioner Consolidated Bank and Trust Corporation Letter of Credit No. DOM-
23277 in the amount of P1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of P320,445.00 to
petitioner. The letter of credit was used to purchase around five hundred thousand liters of bunker fuel oil from Petrophil
Corporation, which the latter delivered directly to respondent Corporation in its Bulacan plant. In relation to the same
transaction, a trust receipt for the amount of P1,001,520.93 was executed by respondent Corporation, with respondent Lim as
signatory.
 Claiming that respondents failed to turn over the goods covered by the trust receipt or the proceeds thereof, petitioner
filed a complaint for sum of money with application for preliminary attachment [3] before the Regional Trial Court of Manila. In
answer to the complaint, respondents averred that the transaction between them was a simple loan and not a trust receipt
transaction, and that the amount claimed by petitioner did not take into account payments already made by them.Respondent
Lim also denied any personal liability in the subject transactions. In a Supplemental Answer, respondents prayed for
reimbursement of alleged overpayment to petitioner of the amount of P490,228.90.
At the pre-trial conference, the parties agreed on the following issues:

1) Whether or not the transaction involved is a loan transaction or a trust receipt transaction;

2) Whether or not the interest rates charged against the defendants by the plaintiff are proper under the letter of credit, trust
receipt and under existing rules or regulations of the Central Bank;

3) Whether or not the plaintiff properly applied the previous payment of P300,456.27 by the defendant corporation on July 13,
1982 as payment for the latters account; and

4) Whether or not the defendants are personally liable under the transaction sued for in this case. [4]

On September 17, 1990, the trial court rendered its Decision, [5] dismissing the Complaint and ordering petitioner to pay
respondents the following amounts under their counterclaim: P490,228.90 representing overpayment of respondent
Corporation, with interest thereon at the legal rate from July 26, 1988 until fully paid; P10,000.00 as attorneys fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting the award of attorneys
fees in favor of respondents and, instead, ordering respondent Corporation to pay petitioner P37,469.22 as and for attorneys
fees and litigation expenses.
Hence, the instant petition raising the following issues:

1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN
HOLDING THAT THERE WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THE PETITIONER IN THE AMOUNT OF
P490,228.90 DESPITE THE ABSENCE OF ANY COMPUTATION MADE IN THE DECISION AND THE ERRONEOUS APPLICATION
OF PAYMENTS WHICH IS IN VIOLATION OF THE NEW CIVIL CODE.

2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL DEPOSIT BY THE RESPONDENT APPELLATE
COURT IS IN ACCORDANCE WITH BANKING PRACTICE.

3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE FLOATING OF INTEREST RATE IS VALID UNDER
APPLICABLE JURISPRUDENCE AND THE RULES AND REGULATIONS OF THE CENTRAL BANK.

4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT CONSIDERING THE TRANSACTION
AT BAR AS A TRUST RECEIPT TRANSACTION ON THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE RESPONDENTS
AND FOR WHICH RESPONDENTS ARE LIABLE THEREFOR.

5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT HOLDING PRIVATE RESPONDENT
SPOUSES LIABLE UNDER THE TRUST RECEIPT TRANSACTION.[6]

The petition must be denied.

On the first issue respecting the fact of overpayment found by both the lower court and respondent Court of Appeals, we
stress the time-honored rule that findings of fact by the Court of Appeals especially if they affirm factual findings of the trial
court will not be disturbed by this Court, unless these findings are not supported by evidence. [7]
Petitioner decries the lack of computation by the lower court as basis for its ruling that there was an overpayment
made. While such a computation may not have appeared in the Decision itself, we note that the trial courts finding of
overpayment is supported by evidence presented before it. At any rate, we painstakingly reviewed and computed the payments
together with the interest and penalty charges due thereon and found that the amount of overpayment made by respondent
Bank to petitioner, i.e., P563,070.13, was more than what was ordered reimbursed by the lower court. However, since
respondents did not file an appeal in this case, the amount ordered reimbursed by the lower court should stand.
 Moreover, petitioners contention that the marginal deposit made by respondent Corporation should not be deducted
outright from the amount of the letter of credit is untenable. Petitioner argues that the marginal deposit should be considered
only after computing the principal plus accrued interests and other charges.However, to sustain petitioner on this score would
be to countenance a clear case of unjust enrichment, for while a marginal deposit earns no interest in favor of the debtor-
depositor, the bank is not only able to use the same for its own purposes, interest-free, but is also able to earn interest on the
money loaned to respondent Corporation. Indeed, it would be onerous to compute interest and other charges on the face value
of the letter of credit which the petitioner issued, without first crediting or setting off the marginal deposit which the
respondent Corporation paid to it. Compensation is proper and should take effect by operation of law because the requisites in
Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount. [8]
Hence, the interests and other charges on the subject letter of credit should be computed only on the balance of
P681,075.93, which was the portion actually loaned by the bank to respondent Corporation.
Neither do we find error when the lower court and the Court of Appeals set aside as invalid the floating rate of interest
exhorted by petitioner to be applicable.The pertinent provision in the trust receipt agreement of the parties fixing the interest
rate states:

I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur after July 1, 1981, when the
Central Bank floated the interest rate, and to pay additionally the penalty of 1% per month until the amount/s or installment/s
due and unpaid under the trust receipt on the reverse side hereof is/are fully paid. [9]

We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there being no reference rate set
either by it or by the Central Bank, leaving the determination thereof at the sole will and control of petitioner.
While it may be acceptable, for practical reasons given the fluctuating economic conditions, for banks to stipulate that
interest rates on a loan not be fixed and instead be made dependent upon prevailing market conditions, there should always be
a reference rate upon which to peg such variable interest rates. An example of such a valid variable interest rate was found
in Polotan, Sr. v. Court of Appeals. [10] In that case, the contractual provision stating that if there occurs any change in the
prevailing market rates, the new interest rate shall be the guiding rate in computing the interest due on the outstanding
obligation without need of serving notice to the Cardholder other than the required posting on the monthly statement served
to the Cardholder[11] was considered valid. The aforequoted provision was upheld notwithstanding that it may partake of the
nature of an escalation clause, because at the same time it provides for the decrease in the interest rate in case the prevailing
market rates dictate its reduction. In other words, unlike the stipulation subject of the instant case, the interest rate involved in
the Polotan case is designed to be based on the prevailing market rate. On the other hand, a stipulation ostensibly signifying an
agreement to any increase or decrease in the interest rate, without more, cannot be accepted by this Court as valid for it leaves
solely to the creditor the determination of what interest rate to charge against an outstanding loan.
Petitioner has also failed to convince us that its transaction with respondent Corporation is really a trust receipt
transaction instead of merely a simple loan, as found by the lower court and the Court of Appeals.
The recent case of Colinares v. Court of Appeals[12] appears to be foursquare with the facts obtaining in the case at
bar. There, we found that inasmuch as the debtor received the goods subject of the trust receipt before the trust receipt itself
was entered into, the transaction in question was a simple loan and not a trust receipt agreement. Prior to the date of execution
of the trust receipt, ownership over the goods was already transferred to the debtor. This situation is inconsistent with what
normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the bank and are only released
to the importer in trust after the loan is granted.
In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of the trust receipt occurred
long before the trust receipt itself was executed. More specifically, delivery of the bunker fuel oil to respondent Corporations
Bulacan plant commenced on July 7, 1982 and was completed by July 19, 1982. [13] Further, the oil was used up by respondent
Corporation in its normal operations by August, 1982. [14] On the other hand, the subject trust receipt was only executed nearly
two months after full delivery of the oil was made to respondent Corporation, or on September 2, 1982.
The danger in characterizing a simple loan as a trust receipt transaction was explained in Colinares, to wit:

The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty and abuse of
confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner. Here, it
is crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to
the prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by several receipts issued by PBC
acknowledging payment of the loan.

The Information charges Petitioners with intent to defraud and misappropriating the money for their personal use. The mala
prohibita nature of the alleged offense notwithstanding, intent as a state of mind was not proved to be present in Petitioners
situation. Petitioners employed no artifice in dealing with PBC and never did they evade payment of their obligation nor
attempt to abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation.

Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to the express provision
embodied in the trust receipt. They are contractors who obtained the fungible goods for their construction project. At no time
did title over the construction materials pass to the bank, but directly to the Petitioners from CM Builders Centre. This
impresses upon the trust receipt in question vagueness and ambiguity, which should not be the basis for criminal prosecution
in the event of violation of its provisions.

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the threats
of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not reprehensible. Such agreements
are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme
leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as had happened in this
case. Eventually, PBC showed its true colors and admitted that it was only after collection of the money, as manifested by its
Affidavit of Desistance.

Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with petitioner. Neither has it
been shown that it has evaded payment of its obligations. Indeed, it continually endeavored to meet the same, as shown by the
various receipts issued by petitioner acknowledging payment on the loan.Certainly, the payment of the sum of P1,832,158.38
on a loan with a principal amount of only P681,075.93 negates any badge of dishonesty, abuse of confidence or mishandling of
funds on the part of respondent Corporation, which are the gravamen of a trust receipt violation. Furthermore, respondent
Corporation is not an importer which acquired the bunker fuel oil for re-sale; it needed the oil for its own operations. More
importantly, at no time did title over the oil pass to petitioner, but directly to respondent Corporation to which the oil was
directly delivered long before the trust receipt was executed. The fact that ownership of the oil belonged to respondent
Corporation, through its President, Gregory Lim, was acknowledged by petitioners own account officer on the witness stand, to
wit:
Q - After the bank opened a letter of credit in favor of Petrophil Corp. for the account of the defendants thereby paying the
value of the bunker fuel oil what transpired next after that?
A - Upon purchase of the bunker fuel oil and upon the requests of the defendant possession of the bunker fuel oil were
transferred to them.
Q - You mentioned them to whom are you referring to?
A - To the Continental Cement Corp. upon the execution of the trust receipt acknowledging the ownership of the bunker fuel
oil this should be acceptable for whatever disposition he may make.
Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom?
A - By the Continental Cement Corp.
Q - So by your statement who really owns the bunker fuel oil?
ATTY. RACHON:
Objection already answered.
COURT:
Give time to the other counsel to object.
ATTY. RACHON:
He has testified that ownership was acknowledged in favor of Continental Cement Corp. so that question has already been
answered.
ATTY. BAAGA:
That is why I made a follow up question asking ownership of the bunker fuel oil.
COURT:
Proceed.
ATTY. BAAGA:
Q - Who owns the bunker fuel oil after purchase from Petrophil Corp.?
 A - Gregory Lim.[15]
By all indications, then, it is apparent that there was really no trust receipt transaction that took place. Evidently,
respondent Corporation was required to sign the trust receipt simply to facilitate collection by petitioner of the loan it had
extended to the former.
Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be personally liable under the subject
trust receipt. Petitioners argument that respondent Corporation and respondent Lim and his spouse are one and the same
cannot be sustained. The transactions sued upon were clearly entered into by respondent Lim in his capacity as Executive Vice
President of respondent Corporation. We stress the hornbook law that corporate personality is a shield against personal
liability of its officers. Thus, we agree that respondents Gregory T. Lim and his spouse cannot be made personally liable since
respondent Lim entered into and signed the contract clearly in his official capacity as Executive Vice President. The personality
of the corporation is separate and distinct from the persons composing it. [16]
WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision of the Court of Appeals
dated July 26, 1993 in CA-G.R. CV No. 29950 is AFFIRMED.
SO ORDERED.

3. CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS FINANCE CORPORATION, doing business
under the name and style of FNCB Finance, Petitioners, v MODESTA R. SABENIANO,G.R. No. 156132

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari,[1] under Rule 45 of the Revised Rules of Court, of the
Decision[2] of the Court of Appeals in CA-G.R. CV No. 51930, dated 26 March 2002, and the Resolution, [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. [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 Complaint [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 Complaint [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 Answer[7] and Answer to Amended Complaint, [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, [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
Decision[10] was finally rendered in Civil Case No. 11336 on 24 August 1995 by the fourth Judge [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 Decision [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,[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. [14] Respondent failed to file any Petition for Review within
the prescribed period for appeal and, hence, this Court issued a Resolution, [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, [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
denied[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 resolved [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. [19]

This Court already explained the matter to respondent when it issued a Resolution [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. [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. [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.[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.[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, [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. [26] It was Judge Victorio, the fourth judge assigned to the case,
who wrote the RTC Decision, dated 24 August 1995. In his Decision,[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. [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. [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,[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

Maturity Date
Date
PN No. Cancels PN (mm/dd/yyyy) Amount Interest
(mm/dd/yyyy
No.
) (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. [31] In Hibberd v. Rohde and McMillian,[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.[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.[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,[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, [36] the former Assistant Vice-President of Citibank, who directly dealt with respondent with
regard to her deposits and loans.

The relevant portion[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. [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, [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, [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. 199253 [41] and 199251[42] for the amounts of P500,000.00 and P600,00.00,
respectively. Both MCs were payable to Citifinance (which, according to Mr. Pujeda,[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

Maturity Date
Date
PN No. Cancels PN (mm/dd/yyyy) Amount Interest
(mm/dd/yyyy)
No.
(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;[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. 8167[45] expressly canceled and superseded PN No. 5757, while PN No. 8169 [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, [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. [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. [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.[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.[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. [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.[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. [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). [55] The
aggregate principal amount of these loans was P1,920,000.00, which could be broken down as follows

Date of Issuance Date of Date of Release

PN No. (mm/dd/yyyy) Maturity Principal (mm/dd/yyyy) MC No.
(mm/dd/yyyy) 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 P1,920,000.00

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),[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 Assignment[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, [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,[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,[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. [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 letter[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 letter[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 letter [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, [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,[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 letter [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, [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, [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 Certification [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.[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.[72] To prove payment of these loans, respondent presented two provisional receipts of petitioner Citibank No.
19471,[73] dated 11 August 1978, and No. 12723, [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.[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). [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.[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.[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.[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. [80] The effect of crossing a check was described by this Court
in Philippine Commercial International Bank v. Court of Appeals[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,
[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, [83] and that the
ordinary course of business has been followed. [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.[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. [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. [87] The check also bore the
signature of respondent at the back. [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.
[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. [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,
[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.
[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. [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. [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 checks[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-
1[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.[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,[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. [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, [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.[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.[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.[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.[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. [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. [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. [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. [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. [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. [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. [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.)[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, [113] to the
exclusion of any secondary or substitutionary evidence.[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 [115]

In Estrada v. Desierto,[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. [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. [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 7 th 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 7 th 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. 15934were 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
Decision[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.[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.[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. [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, [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,[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 documents [125] or raised questions as to the verity of the notary publics
acknowledgment and certificate in the Deeds. [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.[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. [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.[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.[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. [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. [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. [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. [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.[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, [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. [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. [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.
V

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,[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. [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. [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. [142] The bank must record every single transaction accurately, down to the last centavo,
and as promptly as possible.[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 testimony[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. [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 2229[146] and
2234[147] of the Civil Code.

With the award of exemplary damages, then respondent shall also be entitled to an award of attorneys fees. [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.[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.[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.

IV- INTEREST

REPUBLIC OF THE PHILIPPINES, -versus SANDIGANBAYAN

April 12, 2011 G.R. No. 180702, G.R. No. 169203, G.R. No. 166859

DECISION

BERSAMIN, J.:

For over two decades, the issue of whether the sequestered sizable block of shares representing 20% of the outstanding capital
stock of San Miguel Corporation (SMC) at the time of acquisition belonged to their registered owners or to the coconut farmers
has remained unresolved. Through this decision, the Court aims to finally resolve the issue and terminate the uncertainty that
has plagued that sizable block of shares since then.
These consolidated cases were initiated on various dates by the Republic of the Philippines (Republic) via petitions
for certiorari in G.R. Nos. 166859[1] and 169023,[2]and via petition for review on certiorari in 180702,[3] the first two petitions
being brought to assail the following resolutions issued in Civil Case No. 0033-F by the Sandiganbayan, and the third being
brought to appeal the adverse decision promulgated on November 28, 2007 in Civil Case No. 0033-F by the Sandiganbayan.

Specifically, the petitions and their particular reliefs are as follows:

(a) G.R. No. 166859 (petition for certiorari), to assail the resolution promulgated on December 10,
2004[4] denying the Republics Motion For Partial Summary Judgment;
 (b) G.R. No. 169023 (petition for certiorari), to nullify and set aside, firstly, the resolution promulgated on
October 8, 2003,[5] and, secondly, the resolution promulgated on June 24, 2005 [6] modifying the resolution
of October 8, 2003; and

(c) G.R. No. 180702 (petition for review on certiorari), to appeal the decision promulgated on November 28,
2007.[7]

ANTECEDENTS

On July 31, 1987, the Republic commenced Civil Case No. 0033 in the Sandiganbayan by complaint, impleading as defendants
respondent Eduardo M. Cojuangco, Jr. (Cojuangco) and 59 individual defendants. On October 2, 1987, the Republic amended
the complaint in Civil Case No. 0033 to include two additional individual defendants. On December 8, 1987, the Republic
further amended the complaint through its Amended Complaint [Expanded per Court-Approved Plaintiffs Manifestation/Motion
Dated Dec. 8, 1987] albeit dated October 2, 1987.

More than three years later, on August 23, 1991, the Republic once more amended the complaint apparently to avert the
nullification of the writs of sequestration issued against properties of Cojuangco. The amended complaint dated August 19,
1991, designated as Third Amended Complaint [Expanded Per Court-Approved Plaintiffs Manifestation/Motion Dated Dec. 8,
1987],[8] impleaded in addition to Cojuangco, President Marcos, and First Lady Imelda R. Marcos nine other individuals,
namely: Edgardo J. Angara, Jose C. Concepcion, Avelino V. Cruz, Eduardo U. Escueta, Paraja G. Hayudini, Juan Ponce Enrile,
Teodoro D. Regala, and Rogelio Vinluan, collectively, the ACCRA lawyers, and Danilo Ursua, and 71 corporations.

On March 24, 1999, the Sandiganbayan allowed the subdivision of the complaint in Civil Case No. 0033 into eight
complaints, each pertaining to distinct transactions and properties and impleading as defendants only the parties alleged to
have participated in the relevant transactions or to have owned the specific properties involved. The subdivision resulted into
the following subdivided complaints, to wit:

Subdivided Complaint Subject Matter

1. Civil Case No. 0033-A Anomalous Purchase and Use of First United
Bank (now United Coconut Planters Bank)

2. Civil Case No. 0033-B Creation of Companies Out of Coco Levy Funds

3. Civil Case No. 0033-C Creation and Operation of Bugsuk Project and
Award of P998 Million Damages to Agricultural
Investors, Inc.

Civil Case No. 0033-D Disadvantageous Purchases and Settlement of the

Accounts of Oil Mills Out of Coco Levy Funds

4.

5. Civil Case No. 0033-E Unlawful Disbursement and Dissipation

of Coco Levy Funds

6. Civil Case No. 0033-F Acquisition of SMC shares of stock

7. Civil Case No. 0033-G Acquisition of Pepsi-Cola

8. Civil Case No. 0033-H Behest Loans and Contracts

In Civil Case No. 0033-F, the individual defendants were Cojuangco, President Marcos and First Lady Imelda R. Marcos,
the ACCRA lawyers, and Ursua. Impleaded as corporate defendants were Southern Luzon Oil Mills, Cagayan de Oro Oil
Company, Incorporated, Iligan Coconut Industries, Incorporated, San Pablo Manufacturing Corporation, Granexport
Manufacturing Corporation, Legaspi Oil Company, Incorporated, collectively referred to herein as the CIIF Oil Mills, and their
14 holding companies, namely: Soriano Shares, Incorporated, Roxas Shares, Incorporated, Arc Investments, Incorporated, Toda
Holdings, Incorporated, ASC Investments, Incorporated, Randy Allied Ventures, Incorporated, AP Holdings, Incorporated, San
Miguel Corporation Officers, Incorporated, Te Deum Resources, Incorporated, Anglo Ventures, Incorporated, Rock Steel
Resources, Incorporated, Valhalla Properties, Incorporated, and First Meridian Development, Incorporated.
 Allegedly, Cojuangco purchased a block of 33,000,000 shares of SMC stock through the 14 holding companies owned
by the CIIF Oil Mills. For this reason, the block of 33,133,266 shares of SMC stock shall be referred to as the CIIF block of shares.

Also impleaded as defendants in Civil Case No. 0033-F were several corporations [9] alleged to have been under
Cojuangcos control and used by him to acquire the block of shares of SMC stock totaling 16,276,879 at the time of acquisition
(representing approximately 20% percent of the capital stock of SMC). These corporations are referred to as Cojuangco
corporations or companies, to distinguish them from the CIIF Oil Mills. Reference hereafter to Cojuangco and the Cojuangco
corporations or companies shall be as Cojuangco, et al., unless the context requires individualization.

The material averments of the Republics Third Amended Complaint (Subdivided)[10] in Civil Case No. 0033-F included
the following:

12. Defendant Eduardo Cojuangco, Jr., served as a public officer during the Marcos administration. During the
period of his incumbency as a public officer, he acquired assets, funds, and other property grossly and
manifestly disproportionate to his salaries, lawful income and income from legitimately acquired property.

13. Having fully established himself as the undisputed coconut king with unlimited powers to deal with the
coconut levy funds, the stage was now set for Defendant Eduardo M. Cojuangco, Jr. to launch his predatory
forays into almost all aspects of Philippine economic activity namely: softdrinks, agribusiness, oil mills,
shipping, cement manufacturing, textile, as more fully described below.

14. Defendant Eduardo Cojuangco, Jr. taking undue advantage of his association, influence and connection,
acting in unlawful concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos, and the individual
defendants, embarked upon devices, schemes and stratagems, including the use of defendant corporations as
fronts, to unjustly enrich themselves at the expense of Plaintiff and the Filipino people, such as when he
misused coconut levy funds to buy out majority of the outstanding shares of stock of San Miguel Corporation
in order to control the largest agri-business, foods and beverage company in the Philippines, more
particularly described as follows:
(a) Having control over the coconut levy, Defendant Eduardo M. Cojuangco invested the funds in
diverse activities, such as the various businesses SMC was engaged in (e.g. large beer, food, packaging,
and livestock);

(b) He entered SMC in early 1983 when he bought most of the 20 million shares Enrique Zobel
owned in the Company. The shares, worth $49 million, represented 20% of SMC;

(c) Later that year, Cojuangco also acquired the Soriano stocks through a series of complicated
and secret agreements, a key feature of which was a voting trust agreement that stipulated that Andres,
Jr. or his heir would proxy over the vote of the shares owned by Soriano and Cojuangco. This agreement,
which accounted for 30% of the outstanding shares of SMC and which lasted for five (5) years, enabled
the Sorianos to retain management control of SMC for the same period;

(d) Furthermore, in exchange for an SMC investment of $45 million in non-voting preferred
shares in UCPB, Soriano served as the vice-chairman of the supposed bank of the coconut farmers,
UCPB, and in return, Cojuangco, for investing funds from the coconut levy, was named vice-chairman of
SMC;

(e) Consequently, Cojuangco enjoyed the privilege of appointing his nominees to the SMC Board,
to which he appointed key members of the ACCRA Law Firm (herein Defendants) instead of coconut
farmers whose money really funded the sale;

(f) The scheme of Cojuangco to use the lawyers of the said Firm was revealed in a document
which he signed on 19 February 1983 entitled Principles and Framework of Mutual Cooperation and
Assistance which governed the rules for the conduct of management of SMC and the disposition of the
shares which he bought.

(g) All together, Cojuangco purchased 33 million shares of the SMC through the following 14
holding companies:

a) Soriano Shares, Inc. 1,249,163

b) ASC Investors, Inc. 1,562,449
 c) Roxas Shares, Inc. 2,190,860
d) ARC Investors, Inc. 4,431,798
e) Toda Holdings, Inc. 3,424,618
f) AP Holdings, Inc. 1,580,997
g) Fernandez Holdings, Inc. 838,837
h) SMC Officers Corps., Inc. 2,385,987
i) Te Deum Resources, Inc. 2,674,899
j) Anglo Ventures Corp. 1,000.000
k) Randy Allied Ventures, Inc. 1,000,000
l) Rock Steel Resources, Inc. 2,432,625
m) Valhalla Properties Ltd., Inc. 1,361,033
n) First Meridian Development, Inc. 1,000,000
___________
33,133,266

3.1. The same fourteen companies were in turn owned by the following six (6) so-called CIIF
Companies which were:

a) San Pablo Manufacturing Corp. 19%

b) Southern Luzon Coconut Oil Mills, Inc. 11%
c) Granexport Manufacturing Corporation 19%
d) Legaspi Oil Company, Inc. 18%
e) Cagayan de Oro Oil Company, Inc. 18%
f) Iligan Coconut Industries, Inc. 15%
_____
100%

(h) Defendant Corporations are but shell corporations owned by interlocking shareholders who
have previously admitted that they are just nominee stockholders who do not have any proprietary
interest over the shares in their names. The respective affidavits of the following, namely: Jose C.
Concepcion, Florentino M. Herrera III, Teresita J. Herbosa, Teodoro D. Regala, Victoria C. de los Reyes,
Manuel R. Roxas, Rogelio A. Vinluan, Eduardo U. Escuete and Franklin M. Drilon, who were all, at the
time they became such stockholders, lawyers of the Angara Abello Concepcion Regala & Cruz (ACCRA)
Law Offices, the previous counsel who incorporated said corporations, prove that they were merely
nominee stockholders thereof.

(i) Mr. Eduardo M. Cojuangco, Jr., acquired a total of 16,276,879 shares of San Miguel Corporation
from the Ayala group: of said shares, a total of 8,138,440 (broken into 7,128,227 Class A and 1,010,213
Class B shares) were placed in the names of Meadowlark Plantations, Inc. (2,034,610) and Primavera
Farms, Inc. (4,069,220). The Articles of Incorporation of these three companies show that Atty. Jose C.
Concepcion of ACCRA owns 99.6% of the entire outstanding stock. The same shareholder executed
three (3) separate Declaration of Trust and Assignment of Subscription: in favor of a BLANK assignee
pertaining to his shareholdings in Primavera Farms, Inc., Silver Leaf Plantations, Inc. and Meadowlark
Plantations, Inc.

(k) The other respondent Corporations are owned by interlocking shareholders who are likewise
lawyers in the ACCRA Law Offices and had admitted their status as nominee stockholders only.

(k-1) The corporations: Agricultural Consultancy Services, Inc., Archipelago Realty

Corporation, Balete Ranch, Inc., Black Stallion Ranch, Inc., Discovery Realty Corporation,
First United Transport, Inc., Kaunlaran Agricultural Corporation, LandAir International
Marketing Corporation, Misty Mountains Agricultural Corporation, Pastoral Farms, Inc.,
Oro Verde Services, Inc. Radyo Filipino Corporation, Reddee Developers, Inc., Verdant
Plantations, Inc. and Vesta Agricultural Corporation, were incorporated by lawyers of
ACCRA Law Offices.

(k-2) With respect to PCY Oil Manufacturing Corporation and Metroplex

Commodities, Inc., they are controlled respectively by HYCO, Inc. and Ventures Securities,
Inc., both of which were incorporated likewise by lawyers of ACCRA Law Offices.
 (k-3) The stockholders who appear as incorporators in most of the other
Respondents corporations are also lawyers of the ACCRA Law Offices, who as early as
1987 had admitted under oath that they were acting only as nominee stockholders.

(l) These companies, which ACCRA Law Offices organized for Defendant Cojuangco to be able to
control more than 60% of SMC shares, were funded by institutions which depended upon the coconut
levy such as the UCPB, UNICOM, United Coconut Planters Assurance Corp. (COCOLIFE), among
others. Cojuangco and his ACCRA lawyers used the funds from 6 large coconut oil mills and 10 copra
trading companies to borrow money from the UCPB and purchase these holding companies and the
SMC stocks. Cojuangco used $150 million from the coconut levy, broken down as follows:

Amount Source Purpose

(in million)
$22.26 Oil Mills equity in holding
companies

$65.6 Oil Mills loan to holding

companies

$61.2 UCPB loan to holding

companies [164]

The entire amount, therefore, came from the coconut levy, some passing through the Unicom Oil mills,
others directly from the UCPB.

(m) With his entry into the said Company, it began to get favors from the Marcos government,
significantly the lowering of the excise taxes (sales and specific taxes) on beer, one of the main products
of SMC.

(n) Defendant Cojuangco controlled SMC from 1983 until his co-defendant Marcos was deposed
in 1986.

(o) Along with Cojuangco, Defendant Enrile and ACCRA also had interests in SMC, broken down
as follows:
% of SMC Owner
Cojuangco

31.3% coconut levy money

18% companies linked to Cojuangco

5.2% government

5.2% SMC employee retirement fund

Enrile & ACCRA

1.8% Enrile
1.8% Jaka Investment Corporation

1.8% ACCRA Investment Corporation

15. Defendants Eduardo Cojuangco, Jr., Edgardo J. Angara, Jose C. Concepcion, Teodoro Regala, Avelino Cruz,
Rogelio Vinluan, Eduardo U. Escueta and Paraja G. Hayudini of the Angara Concepcion Cruz Regala and Abello
law offices (ACCRA) plotted, devised, schemed, conspired and confederated with each other in setting up,
through the use of coconut levy funds, the financial and corporate framework and structures that led to the
establishment of UCPB, UNICOM, COCOLIFE, COCOMARK. CIC, and more than twenty other coconut levy-
funded corporations, including the acquisition of San Miguel Corporation shares and its institutionalization
through presidential directives of the coconut monopoly. Through insidious means and machinations, ACCRA,
 being the wholly-owned investment arm, ACCRA Investments Corporation, became the holder of
approximately fifteen million shares representing roughly 3.3% of the total outstanding capital stock of UCPB
as of 31 March 1987. This ranks ACCRA Investments Corporation number 44 among the top 100 biggest
stockholders of UCPB which has approximately 1,400,000 shareholders. On the other hand, the corporate
books show the name Edgardo J. Angara as holding approximately 3,744 shares as of February, 1984.

16. The acts of Defendants, singly or collectively, and/or in unlawful concert with one another, constitute gross
abuse of official position and authority, flagrant breach of public trust and fiduciary obligations, brazen abuse
of right and power, unjust enrichment, violation of the constitution and laws of the Republic of the
Philippines, to the grave and irreparable damage of Plaintiff and the Filipino people. [11]

On June 17, 1999, Ursua and Enrile each filed his separate Answer with Compulsory Counterclaims.

Before filing their answer, the ACCRA lawyers sought their exclusion as defendants in Civil Case No. 0033, averring that even as
they admitted having assisted in the organization and acquisition of the companies included in Civil Case No. 0033, they had
acted as mere nominees-stockholders of corporations involved in the sequestration proceedings pursuant to office
practice. After the Sandiganbayan denied their motion, they elevated their cause to this Court, which ultimately ruled in their
favor in the related cases of Regala, et al. v. Sandiganbayan, et al.[12] and Hayudini v. Sandiganbayan, et al.,[13] as follows:

WHEREFORE, IN VIEW OF THE FOREGOING, the Resolutions of respondent Sandiganbayan (First Division)
promulgated on March 18, 1992 and May 21, 1992 are hereby ANNULLED and SET ASIDE. Respondent
Sandiganbayan is further ordered to exclude petitioners Teodoro D. Regala, Edgardo J. Angara, Avelino V. Cruz,
Jose C. Concepcion, Victor P. Lazatin, Eduardo U. Escueta and Paraja G. Hayudini as parties-defendants in SB
Civil Case No. 0033 entitled Republic of the Philippines v. Eduardo Cojuangco, Jr., et al.

SO ORDERED.

Conformably with the ruling, the Sandiganbayan excluded the ACCRA lawyers from the case on May 24, 2000.[14]

On June 23, 1999, Cojuangco filed his Answer to the Third Amended Complaint,[15] averring the following affirmative
defenses, to wit:

7.00. The Presidential Commission on Good Government (PCGG) is without authority to act in the name and in
behalf of the Republic of the Philippines.

7.01. As constituted in E.O. No. 1, the PCGG was composed of Minister Jovito R. Salonga, as Chairman, Mr.
Ramon Diaz, Mr. Pedro L. Yap, Mr. Raul Daza and Ms. Mary Concepcion Bautista, as Commissioners. When the
complaint in the instant case was filed, Minister Salonga, Mr. Pedro L. Yap and Mr. Raul Daza had already left
the PCGG. By then the PCGG had become functus officio.

7.02. The Sandiganbayan has no jurisdiction over the complaint or over the transaction alleged in the
complaint.

7.03. The complaint does not allege any cause of action.

7.04. The complaint is not brought in the name of the real parties in interest, assuming any cause of action
exists.

7.05. Indispensable and necessary parties have not been impleaded.

7.06. There is improper joinder of causes of action (Sec. 6, Rule 2, Rules of Civil Procedure). The causes of
action alleged, if any, do not arise out of the same contract, transaction or relation between the parties, nor are
they simply for money, or are of the same nature and character.

7.07. There is improper joinder of parties defendants (Sec. 11, Rule 3, Rules of Civil Procedure).The causes of
action alleged as to defendants, if any, do not involve a single transaction or a related series of
transactions. Defendant is thus compelled to litigate in a suit regarding matters as to which he has no
involvement. The questions of fact and law involved are not common to all defendants.
 7.08. In so far as the complaint seeks the forfeiture of assets allegedly acquired by defendant manifestly out of
proportion to their salaries, to their other lawful income and income from legitimately acquired property,
under R.A. 1379, the previous inquiry similar to preliminary investigation in criminal cases required to be
conducted under Sec. 2 of that law before any suit for forfeiture may be instituted, was not conducted; as a
consequence, the Court may not acquire and exercise jurisdiction over such a suit.
7.09. The complaint in the instant suit was filed July 31, 1987, or within one year before the local election held
on January 18, 1988. If this suit involves an action under R.A. 1379, its institution was also in direct violation
of Sec. 2, R.A. No. 1379.

7.10. E.O. No. 1, E.O. No. 2, E.O. No. 14 and 14-A, are unconstitutional. They violate due process, equal
protection, ex post facto and bill of attainder provisions of the Constitution.

7.11. Acts imputed to defendant which he had committed were done pursuant to law and in good faith.

The Cojuangco corporations Answer[16] had the same tenor as the Answer of Cojuangco.

In his own Answer with Compulsory Counterclaims,[17] Ursua averred affirmative and special defenses.

In his own Answer with Compulsory Counterclaims,[18] Enrile specifically denied the material averments of the Third Amended
Complaint and asserted affirmative defenses.

The CIIF Oil Mills Answer[19] also contained affirmative defenses.

On December 20, 1999, the Sandiganbayan scheduled the pre-trial in Civil Case No. 0033-F on March 8, 2000, giving
the parties sufficient time to file their Pre-Trial Briefs prior to that date. Subsequently, the parties filed their respective Pre-
Trial Briefs, as follows: Cojuangco and the Cojuangco corporations, jointly on February 14, 2000; Enrile, on March 1, 2000; the
CIIF Oil Mills, on March 3, 2000; and Ursua, on March 6, 2000. However, the Republic sought several extensions to file its own
Pre-Trial Brief, and eventually did so on May 9, 2000.

In the meanwhile, some non-parties sought to intervene. On November 22, 1999, GABAY Foundation, Inc. (GABAY) filed its
complaint-in-intervention. On February 24, 2000, the Philippine Coconut Producers Federation, Inc., Maria Clara L. Lobregat,
Jose R. Eleazar, Jr., Domingo Espina, Jose Gomez, Celestino Sabate, Manuel del Rosario, Jose Martinez, Jr., and Eladio Chato
(collectively referred to as COCOFED, considering that the co-intervenors were its officers) also sought to intervene, citing the
October 2, 1989 ruling in G.R. No. 75713 entitled COCOFED v. PCGG whereby the Court recognized COCOFED as the private
national association of coconut producers certified in 1971 by the PHILCOA as having the largest membership among such
producers and as such entrusted it with the task of maintaining continuing liaison with the different sectors of the industry, the
government and its mass base. Pending resolution of its motion for intervention, COCOFED filed a Pre-Trial Brief on March 2,
2000.

On May 24, 2000, the Sandiganbayan denied GABAYs intervention without prejudice because it found that the allowance of
GABAY to enter under the special character in which it presents itself would be to open the doors to other groups of coconut
farmers whether of the same kind or of any other kind which could be considered a sub-class or a sub-classification of the
coconut planters or the coconut industry of this country.[20]

COCOFEDs intervention as defendant was allowed on May 24, 2000, however, because the position taken by the COCOFED is
relevant to the proceedings herein, if only to state that there is a special function which the COCOFED and the coconut planters
have in the matter of the coconut levy funds and the utilization of those funds, part of which is in dispute in the instant matter.
[21]

The pre-trial was actually held on May 24, 2000,[22] during which the Sandiganbayan sought clarification from the parties,
particularly the Republic, on their respective positions, but at the end it found the clarifications inadequately enlightening.
Nonetheless, the Sandiganbayan, not disposed to reset, terminated the pre-trial:

xxx primarily because the Court is given a very clear impression that the plaintiff does not know what
documents will be or whether they are even available to prove the causes of action in the complaint. The
Court has pursued and has exerted every form of inquiry to see if there is a way by which the plaintiff could
explain in any significant particularity the acts and the evidence which will support its claim of wrong-doing
by the defendants. The plaintiff has failed to do so.[23]

The following material portions of the pre-trial order[24] are quoted to provide a proper perspective of what transpired
during the pre-trial, to wit:
Upon oral inquiry from the Court, the issues which were being raised by plaintiff appear to have been made
on a very generic character. Considering that any claim for violation or breach of trust or deception cannot be
made on generic statements but rather by specific acts which would demonstrate fraud or breach of trust or
deception, together with the evidence in support thereof, the same was not acceptable to the Court.

The plaintiff through its designated counsel for this morning, Atty. Dennis Taningco, has represented to this
Court that the annexes to its pre-trial brief, more particularly the findings of the COA in its various
examinations, copies of which COA reports are attached to the pre-trial brief, would demonstrate the wrong,
the act or omission attributed to the defendants or to several of them and the basis, therefore, for the relief
that plaintiff seeks in its complaint. It would appear, however, that the plaintiff through its counsel at this time
is not prepared to go into the specifics of the identification of these wrongs or omissions attributed to
plaintiff.

The Court has reminded the plaintiff that a COA report proves itself only in proceedings where the issue arises
from a review of the accountability of particular officers and, therefore, to show the existence of shortages or
deficiencies in an examination conducted for that purpose, provided that such a report is accompanied by its
own working papers and other supporting documents.

In civil cases such as this, a COA report would not have the same independent probative value since it is not a
review of the accountability of public officers for public property in their custody as accountable officers. It
has been the stated view of this Court that a COA report, to be of significant evidence, may itself stand only on
the basis of the supporting documents that upon which it is based and upon an analysis made by those who
are competent to do so. The Court, therefore, sought a more specific statement from plaintiff as to what these
documents were and which of them would prove a particular act or omission or a series of acts or omissions
purportedly committed by any, by several or by all of the defendants in any particular stage of the chain of
alleged wrong-doing in this case.

The plaintiff was not in a position to do so.

The Court has remonstrated with the plaintiff, insofar as its inadequacy is concerned, primarily because this
case was set for pre-trial as far back as December and has been reset from its original setting, with the
undertaking by the plaintiff to prepare itself for these proceedings. It appears to this Court at this time that
the failure of the plaintiff to have available responses and specific data and documents at this stage is not
because the matter has been the product of oversight or notes and papers left elsewhere; rather, the agitation
of this Court arises from the fact that at this very stage, the plaintiff through its counsel does not know what
these documents are, where these documents will be and is still anticipating a submission or a delivery
thereof by COA at an undetermined time. The justification made by counsel for this stance is that this is only
pre-trial and this information and the documents are not needed yet.

The Court is not prepared to postpone the pre-trial anew primarily because the Court is given a very clear
impression that the plaintiff does not know what documents will be or whether they are even available to
prove the causes of action in the complaint. The Court has pursued and has exerted every form of inquiry to
see if there is a way by which the plaintiff could explain in any significant particularity the acts and the
evidence which will support its claim of wrong-doing by the defendants. The plaintiff has failed to do so.

Defendants Cojuangco have come back and reiterated their previous inquiry as to the statement of the cause
of action and the description thereof. While the Court acknowledges that logically, that statement along that
line would be primary, the Court also recognizes that sometimes the phrasing of the issue may be determined
or may arise after a statement of the evidence is determined by this Court because the Court can put itself in a
position of more clearly and perhaps more accurately stating what the issues are. The Pre-Trial Order, after all,
is not so much a reflection of merely separate submissions by all of the parties involved, witnesses by the
Court, as to what the subject matter of litigation will be, including the determination of what matters of fact
remain unresolved. At this time, the plaintiff has not taken the position on any factual statement or any piece
of evidence which can be subject of admission or denial, nor any specifics of any act which could be disputed
by the defendants; what plaintiff through counsel has stated are general conclusions, general statements of
abuse and misuse and opportunism.

After an extended break requested by some of the parties, the sessions were resumed and nothing anew arose
from the plaintiff. The plaintiff sought fifteen (15) days to file a reply to the comments and observations made
by defendant Cojuangco to the pre-trial brief of the plaintiff. This Court denied this Request since the
 submissions in preparation for pre-trial are not litigious or contentious matters. They are mere assertions or
positions which may or may not be meritorious depending upon the view of the Court of the entire case and if
useful at the pre-trial. At this stage, the plaintiff then reiterated its earlier request to consider the pre-trial
terminated. The Court sought the positions of the other parties, whether or not they too were prepared to
submit their respective positions on the basis of what was before the Court at pre-trial. All of the parties, in
the end, have come to an agreement that they were submitting their own respective positions for purpose of
pre-trial on the basis of the submissions made of record.

With all of the above, the pre-trial is now deemed terminated.

This Order has been overly extended simply because there has been a need to put on record all of the events
that have taken place leading to the conclusions which were drawn herein.

The parties have indicated a desire to make their submissions outside of trial as a consequence of this
terminated pre-trial, with the plea that the transcript of the proceedings this morning be made available to
them, so that they may have the basis for whatever assertions they will have to make either before this Court
or elsewhere. The Court deems the same reasonable and the Court now gives the parties fifteen (15) days
after notice to them that the transcript of stenographic notes of the proceedings herein are complete and
ready for them to be retrieved. Settings for trial or for any other proceeding hereafter will be fixed by this
Court either upon request of the parties or when the Court itself shall have determined that nothing else has
to be done.

The Court has sought confirmation from the parties present as to the accuracy of the recapitulation herein of
the proceedings this morning and the Court has gotten assent from all of the parties.

xxx

SO ORDERED.[25]
In the meanwhile, the Sandiganbayan, in order to conform with the ruling in Presidential Commission on Good
Government v. Cojuangco, et al.,[26] resolved COCOFEDs Omnibus Motion (with prayer for preliminary injunction) relative to who
should vote the UCPB shares under sequestration, holding as follows: [27]

In the light of all of the above, the Court submits itself to jurisprudence and with the statements of the
Supreme Court in G.R. No. 115352 entitled Enrique Cojuangco, Jr., et al. vs. Jaime Calpo, et al. dated January 27,
1997, as well as the resolution of the Supreme Court promulgated on January 27, 1999 in the case of PCGG vs.
Eduardo Cojuangco, Jr., et al., G.R. No. 13319 which included the Sandiganbayan as one of the respondents. In
these two cases, the Supreme Court ruled that the voting of sequestered shares of stock is governed by two
considerations, namely:

1. whether there is prima facie evidence showing that the said shares are ill-gotten and thus belong
to the State; and

2. whether there is an imminent danger of dissipation thus necessitating their continued

sequestration and voting by the PCGG while the main issue pends with the Sandiganbayan.

xxx xxx xxx.

In view hereof, the movants COCOFED, et al and Ballares, et al. as well as Eduardo Cojuangco, et al. who were
acknowledged to be registered stockholders of the UCPB are authorized, as are all other registered
stockholders of the United Coconut Planters Bank, until further orders from this Court, to exercise their rights
to vote their shares of stock and themselves to be voted upon in the United Coconut Planters Bank (UCPB) at
the scheduled Stockholders Meeting on March 6, 2001 or on any subsequent continuation or resetting thereof,
and to perform such acts as will normally follow in the exercise of these rights as registered stockholders.

xxx xxx xxx.

Consequently, on March 1, 2001, the Sandiganbayan issued a writ of preliminary injunction to enjoin the PCGG from
voting the sequestered shares of stock of the UCPB.

On July 25, 2002, before Civil Case No. 0033-F could be set for trial, the Republic filed a Motion for Judgment on the Pleadings
and/or for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.). [28]

Cojuangco, Enrile, and COCOFED separately opposed the motion. Ursua adopted COCOFEDs opposition.
Thereafter, the Republic likewise filed a Motion for Partial Summary Judgment [Re: Shares in San Miguel Corporation Registered
in the Respective Names of Defendant Eduardo M. Cojuangco, Jr. and the Defendant Cojuangco Companies].[29]

Cojuangco, et al. opposed the motion,[30] after which the Republic submitted its reply. [31]

On February 23, 2004, the Sandiganbayan issued an order, [32] in which it enumerated the admitted facts or facts that appeared
to be without substantial controversy in relation to the Republics Motion for Judgment on the Pleadings and/or for Partial
Summary Judgment [Re: Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.].

Commenting on the order of February 23, 2004, Cojuangco, et al. specified the items they considered as inaccurate, but
particularly interposed no objection to item no. 17 (to the extent that item no. 17 stated that Cojuangco had disclaimed any
interest in the CIIF block SMC shares of stock registered in the names of the 14 corporations listed in item no. 1 of the order). [33]

The Republic also filed its Comment,[34] but COCOFED denied the admitted facts summarized in the order of February
23, 2004.[35]

Earlier, on October 8, 2003,[36] the Sandiganbayan resolved the various pending motions and pleadings relative to the writs of
sequestration issued against the defendants, disposing:
IN VIEW OF THE FOREGOING, the Writs of Sequestration Nos. (a) 86-0042 issued on April 8, 1986, (b) 86-
0062 issued on April 21, 1986, (c) 86-0069 issued on April 22, 1986, (d) 86-0085 issued on May 9, 1986, (e)
86-0095 issued on May 16, 1986, (f) 86-0096 dated May 16, 1986, (g) 86-0097 issued on May 16, 1986, (h)
86-0098 issued on May 16, 1986 and (i) 87-0218 issued on May 27, 1987 are hereby declared automatically
lifted for being null and void.

Despite the lifting of the writs of sequestration, since the Republic continues to hold a claim on the shares
which is yet to be resolved, it is hereby ordered that the following shall be annotated in the relevant corporate
books of San Miguel Corporation:

(1) any sale, pledge, mortgage or other disposition of any of the shares of the Defendants
Eduardo Cojuangco, et al. shall be subject to the outcome of this case;

(2) the Republic through the PCGG shall be given twenty (20) days written notice by
Defendants Eduardo Cojuangco, et al. prior to any sale, pledge, mortgage or other disposition of the
shares;

(3) in the event of sale, mortgage or other disposition of the shares, by the Defendants
Cojuangco, et al., the consideration therefore, whether in cash or in kind, shall be placed in escrow
with Land Bank of the Philippines, subject to disposition only upon further orders of this Court;
and

(4) any cash dividends that are declared on the shares shall be placed in escrow with the Land
Bank of the Philippines, subject to disposition only upon further orders of this Court.If in case stock
dividends are declared, the conditions on the sale, pledge, mortgage and other disposition of any of
the shares as above-mentioned in conditions 1, 2 and 3, shall likewise apply.

In so far as the matters raised by Defendants Eduardo Cojuangco, et al. in their Omnibus Motion dated
September 23, 1996 and Reply to PCGGs Comment/Opposition with Motion to Order PCGG to Complete
Inventory, to Nullify Writs of Sequestration and to Enjoin PCGG from Voting Sequestered Shares of Stock dated
January 3, 1997, considering the above conclusion, this Court rules that it is no longer necessary to delve into
the matters raised in the said Motions.

SO ORDERED.[37]

Cojuangco, et al. moved for the modification of the resolution,[38] praying for the deletion of the conditions for allegedly
restricting their rights. The Republic also sought reconsideration of the resolution. [39]

Eventually, on June 24, 2005, the Sandiganbayan denied both motions, but reduced the restrictions thuswise:
 WHEREFORE, the Motion for Reconsideration (Re: Resolution dated September 17, 2003 Promulgated
on October 8, 2003) dated October 24, 2003 of Plaintiff Republic is hereby DENIED for lack of merit. As to the
Motion for Modification (Re: Resolution Promulgated on October 8, 2003) dated October 22, 2003, the same is
hereby DENIED for lack of merit. However, the restrictions imposed by this Court in its Resolution
dated September 17, 2003 and promulgated on October 8, 2003 shall now read as follows:
Despite the lifting of the writs of sequestration, since the Republic continues to hold a claim on
the shares which is yet to be resolved, it is hereby ordered that the following shall be annotated in
the relevant corporate books of San Miguel Corporation:

a) any sale, pledge, mortgage or other disposition of any of the shares of the Defendants
Eduardo Cojuangco, et al. shall be subject to the outcome of this case.

b) the Republic through the PCGG shall be given twenty (20) days written notice by Defendants
Eduardo Cojuangco, et al. prior to any sale, pledge, mortgage or other disposition of the shares.

SO ORDERED.[40]

Pending resolution of the motions relative to the lifting of the writs of sequestration, SMC filed a Motion for Intervention with
attached Complaint-in-Intervention,[41] alleging, among other things, that it had an interest in the matter in dispute between the
Republic and defendants CIIF Companies for being the owner by purchase of a portion ( i.e., 25,450,000 SMC shares covered by
Stock Certificate Nos. A0004129 and B0015556 of the so-called CIIF block of SMC shares of stock sought to be recovered as
alleged ill-gotten wealth).

Although Cojuangco, et al. interposed no objection to SMCs intervention, the Republic opposed, [42] averring that the
intervention would be improper and was a mere attempt to litigate anew issues already raised and passed upon by the
Supreme Court. COCOFED similarly opposed SMCs intervention, [43] and Ursua adopted its opposition.

On May 6, 2004, the Sandiganbayan denied SMCs motion to intervene. [44] SMC sought reconsideration,[45] and its motion to that
effect was opposed by COCOFED and the Republic.

On May 7, 2004, the Sandiganbyan granted the Republics Motion for Judgment on the Pleadings and/or Partial Summary
Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.) and rendered a Partial Summary
Judgment,[46] the dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing, we hold that:

The Motion for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and
Cocofed, et al.) filed by Plaintiff is hereby GRANTED. ACCORDINGLY, THE CIIF COMPANIES, NAMELY:

1. Southern Luzon Coconut Oil Mills (SOLCOM);

2. Cagayan de Oro Oil Co., Inc. (CAGOIL);
3. Iligan Coconut Industries, Inc. (ILICOCO);
4. San Pablo Manufacturing Corp. (SPMC);
5. Granexport Manufacturing Corp. (GRANEX); and
6. Legaspi Oil Co., Inc. (LEGOIL),

AS WELL AS THE 14 HOLDING COMPANIES, NAMELY:

1. Soriano Shares, Inc.;

2. ACS Investors, Inc.;
3. Roxas Shares, Inc.;
4. Arc Investors, Inc.;
5. Toda Holdings, Inc.;
6. AP. Holdings, Inc.;
7. Fernandez Holdings, Inc.;
8. SMC Officers Corps. Inc.;
9. Te Deum Resources, Inc.;
10. Anglo Ventures, Inc.;
11. Randy Allied Ventures, Inc.;
12. Rock Steel Resources, Inc.;
 13. Valhalla Properties Ltd., Inc.; and
14. First Meridian Development, Inc.

AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION (SMC) SHARES OF STOCK TOTALING 33,133,266
SHARES AS OF 1983 TOGETHER WITH ALL DIVIDENDS DECLARED, PAID AND ISSUED THEREON AS WELL
AS ANY INCREMENTS THERETO ARISING FROM, BUT NOT LIMITED TO, EXERCISE OF PRE-EMPTIVE RIGHTS
ARE DECLARED OWNED BY THE GOVERNMENT IN-TRUST FOR ALL THE COCONUT FARMERS AND ORDERED
RECONVEYED TO THE GOVERNMENT.

Let the trial of this Civil Case proceed with respect to the issues which have not been disposed of in this
partial Summary Judgment, including the determination of whether the CIIF Block of SMC Shares adjudged to
be owned by the Government represents 27% of the issued and outstanding capital stock of SMC according to
plaintiff or 31.3% of said capital stock according to COCOFED, et al. and Ballares, et al.

SO ORDERED.[47]

In the same resolution of May 7, 2004, the Sandiganbayan considered the Motions to Dismiss filed by Cojuangco, et al. on August
2, 2000 and by Enrile on September 4, 2000 as overtaken by the Republics Motion for Judgment on the Pleadings and/or Partial
Summary Judgment.[48]

On May 25, 2004, Cojuangco, et al. filed their Motion for Reconsideration.[49]

COCOFED filed its so-called Class Action Omnibus Motion: (a) Motion to Dismiss for Lack of Subject Matter Jurisdiction
and Alternatively, (b) Motion for Reconsideration dated May 26, 2004.[50]

The Republic submitted its Consolidated Comment.[51]

Relative to the resolution of May 7, 2004, the Sandiganbayan issued its resolution of December 10, 2004, [52] denying
the Republics Motion for Partial Summary Judgment (Re: Shares in San Miguel Corporation Registered in the Respective Names of
Defendants Eduardo M. Cojuangco, Jr. and the defendant Cojuangco Companies) upon the following reasons:

In the instant case, a circumspect review of the records show that while there are facts which appear
to be undisputed, there are also genuine factual issues raised by the defendants which need to be
threshed out in a full-blown trial. Foremost among these issues are the following:

1) What are the various sources of funds, which the defendant Cojuangco and his companies
claim they utilized to acquire the disputed SMC shares?

2) Whether or not such funds acquired from alleged various sources can be considered
coconut levy funds;

3) Whether or not defendant Cojuangco had indeed served in the governing bodies of PC,
UCPB and/or CIIF Oil Mills at the time the funds used to purchase the SMC shares were
obtained such that he owed a fiduciary duty to render an account to these entities as well as
to the coconut farmers;

4) Whether or not defendant Cojuangco took advantage of his position and/or close ties with
then President Marcos to obtain favorable concessions or exemptions from the usual
financial requirements from the lending banks and/or coco-levy funded companies, in order
to raise the funds to acquire the disputed SMC shares; and if so, what are these favorable
concessions or exemptions?

Answers to these issues are not evident from the submissions of the plaintiff and must therefore
be proven through the presentation of relevant and competent evidence during trial. A perusal of the
subject Motion shows that the plaintiff hastily derived conclusions from the defendants statements in
their previous pleadings although such conclusions were not supported by categorical facts but only
mere inferences. In the Reply dated October 2, 2003, the plaintiff construed the supposed meaning of
the phrase various sources (referring to the source of defendant Cojuangcos funds which were used to
acquire the subject SMC shares), which plaintiff said was quite obvious from the defendants admission
in his Pre-Trial Brief, which we quote:
 According to Cojuangcos own Pre-Trial Brief, these so-called various sources, i.e., the sources
from which he obtained the funds he claimed to have used in buying the 20% SMC shares are not in
fact various as he claims them to be. He says he obtained loans from UCPB and advances from the
CIIF Oil Mills. He even goes as far as to admit that his onlyevidence in this case would have been
records of UCPB and a representative of the CIIF Oil Mills obviously the records of UCPB relate to
the loans that Cojuangco claims to have obtained from UCPB of which he was President and CEO
while the representative of the CIIF Oil Mills will obviously testify on the advances Cojuangco
obtained from CIIF Oil Mills of which he was also the President and CEO.

From the foregoing premises, plaintiff went on to conclude that:

These admissions of defendant Cojuangco are outright admissions that he (1) took money from
the bank entrusted by law with the administration of coconut levy funds and (2) took more money
from the very corporations/oil mills in which part of those coconut levy funds (the CIIF) was placed
treating the funds of UCPB and the CIIF as his own personal capital to buy his SMC shares.

We cannot agree with the plaintiffs contention that the defendants statements in his Pre-Trial
Brief regarding the presentation of a possible CIIF witness as well as UCPB records, can already be
considered as admissions of the defendants exclusive use and misuse of coconut levy funds to acquire
the subject SMC shares and defendant Cojuangcos alleged taking advantage of his positions to acquire
the subject SMC shares. Moreover, in ruling on a motion for summary judgment, the court should take
that view of the evidence most favorable to the party against whom it is directed, giving such party the
benefit of all inferences. Inasmuch as this issue cannot be resolved merely from an interpretation of
the defendants statements in his brief, the UCPB records must be produced and the CIIF witness must
be heard to ensure that the conclusions that will be derived have factual basis and are thus, valid.

WHEREFORE, in view of the forgoing, the Motion for Partial Summary Judgment dated July 11, 2003 is
hereby DENIED for lack of merit.

SO ORDERED.

Thereafter, on December 28, 2004, the Sandiganbayan resolved the other pending motions, [53] viz:

WHEREFORE, in view of the foregoing, the Motion for Reconsideration dated May 25, 2004 filed by defendant
Eduardo M. Cojuangco, Jr., et al. and the Class Action Omnibus Motion: (a) Motion to Dismiss for Lack of
Subject Matter Jurisdiction and Alternatively, (b) Motion for Reconsideration dated May 26, 2004 filed by
COCOFED, et al. and Ballares, et al. are hereby DENIED for lack of merit.

SO ORDERED.[54]

COCOFED moved to set the case for trial,[55] but the Republic opposed the motion.[56] On their part, Cojuangco, et al. also moved
to set the trial,[57] with the Republic similarly opposing the motion.[58]

On March 23, 2006, the Sandiganbayan granted the motions to set for trial and set the trial on August 8, 10, and 11,
2006.[59]

In the meanwhile, on August 9, 2005, the Republic filed a Motion for Execution of Partial Summary Judgment (re: CIIF block of
SMC Shares of Stock),[60] contending that an execution pending appeal was justified because any appeal by the defendants of the
Partial Summary Judgment would be merely dilatory.

Cojuangco, et al. opposed the motion.[61]

The Sandiganbayan denied the Republics Motion for Execution of Partial Summary Judgment (re: CIIF block of SMC Shares of
Stock),[62] to wit:

WHEREFORE, the MOTION FOR EXECUTION OF PARTIAL SUMMARY JUDGMENT (RE: CIIF BLOCK OF SMC
SHARES OF STOCK) dated August 8, 2005 of the plaintiff is hereby denied for lack of merit. However, this
Court orders the severance of this particular claim of Plaintiff. The Partial Summary Judgment dated May 7,
2004 is now considered a separate final and appealable judgment with respect to the said CIIF Block of SMC
shares of stock.
 The Partial Summary Judgment rendered on May 7, 2004 is modified by deleting the last paragraph of the
dispositive portion which will now read, as follows:

WHEREFORE, in view of the foregoing, we hold that:

The Motion for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding
Companies and Cocofed, et al.) filed by Plaintiff is hereby GRANTED.ACCORDINGLY, THE CIIF
COMPANIES, NAMELY:

1. Southern Coconut Oil Mills (SOLCOM);

2. Cagayan de Oro Oil Co., Inc. (CAGOIL);
3. Iligan Coconut Industries, Inc. (ILICOCO);
4. San Pablo Manufacturing Corp. (SPMC);
5. Granexport Manufacturing Corp.
(GRANEX); and
6. Legaspi Oil Co., Inc. (LEGOIL),

AS WELL AS THE 14 HOLDING COMPANIES, NAMELY:

1. Soriano Shares, Inc.;

2. ACS Investors, Inc.;
3. Roxas Shares, Inc.;
4. Arc Investors, Inc.;
5. Toda Holdings, Inc.;
6. AP Holdings, Inc.;
7. Fernandez Holdings, Inc.;
8. SMC Officers Corps, Inc.;
9. Te Deum Resources, Inc.;
10. Anglo Ventures, Inc.;
11. Randy Allied Ventures, Inc.;
12. Rock Steel Resources, Inc.;
13. Valhalla Properties Ltd., Inc.; and
14. First Meridian Development, Inc.

AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION (SMC) SHARES OF STOCK TOTALING
33,133,266 SHARES AS OF 1983 TOGETHER WITH ALL DIVIDENDS DECLARED, PAID AND ISSUED
THEREON AS WELL AS ANY INCREMENTS THERETO ARISING FROM, BUT NOT LIMITED TO,
EXERCISE OF PRE-EMPTIVE RIGHTS ARE DECLARED OWNED BY THE GOVERNMENT IN TRUST
FOR ALL THE COCONUT FARMERS AND ORDERED RECONVEYED TO THE GOVERNMENT.

The aforementioned Partial Summary Judgment is now deemed a separate appealable judgment which
finally disposes of the ownership of the CIIF Block of SMC Shares, without prejudice to the continuation of
proceedings with respect to the remaining claims particularly those pertaining to the Cojuangco, et al. block of
SMC shares.

SO ORDERED.[63]

During the pendency of the Republics motion for execution, Cojuangco, et al. filed a Motion for Authority to Sell San Miguel
Corporation (SMC) shares, praying for leave to allow the sale of SMC shares to proceed, exempted from the conditions set forth
in the resolutions promulgated on October 3, 2003 and June 24, 2005. [64] The Republic opposed, contending that the requested
leave to sell would be tantamount to removing jurisdiction over the res or the subject of litigation.[65]

However, the Sandiganbayan eventually granted the Motion for Authority to Sell San Miguel Corporation (SMC) shares.[66]

Thereafter, Cojuangco, et al. manifested to the Sandiganbayan that the shares would be sold to the San Miguel
Corporation Retirement Plan. [67] Ruling on the manifestations of Cojuangco, et al., the Sandiganbayan issued its
resolution of July 30, 2007 allowing the sale of the shares, to wit:
This notwithstanding however, while the Court exempts the sale from the express condition that it shall
be subject to the outcome of the case, defendants Cojuangco, et al. may well be reminded that despite the
deletion of the said condition, they cannot transfer to any buyer any interest higher than what they have. No
one can transfer a right to another greater than what he himself has. Hence, in the event that the Republic
 prevails in the instant case, defendants Cojuangco, et al. hold themselves liable to their transferees-buyers,
especially if they are buyers in good faith and for value. In such eventuality, defendants Cojuangco, et al.
cannot be shielded by the cloak of principle of caveat emptor because case law has it that this rule only
requires the purchaser to exercise such care and attention as is usually exercised by ordinarily prudent men in
like business affairs, and only applies to defects which are open and patent to the service of one exercising
such care.

Moreover, said defendants Eduardo M. Cojuangco, et al. are hereby ordered to render their report on
the sale within ten (10) days from completion of the payment by the San Miguel Corporation Retirement Plan.

SO ORDERED.[68]

Cojuangco, et al. later rendered a complete accounting of the proceeds from the sale of the Cojuangco block of shares
of SMC stock, informing that a total amount of P4,786,107,428.34 had been paid to the UCPB as loan repayment. [69]

It appears that the trial concerning the disputed block of shares was not scheduled because the consideration and
resolution of the aforecited motions for summary judgment occupied much of the ensuing proceedings.

At the hearing of August 8, 2006, the Republic manifested [70] that it did not intend to present any testimonial evidence
and asked for the marking of certain exhibits that it would have the Sandiganbayan take judicial notice of. The Republic was
then allowed to mark certain documents as its Exhibits A to I, inclusive, following which it sought and was granted time within
which to formally offer the exhibits.

On August 31, 2006, the Republic filed its Manifestation of Purposes (Re: Matters Requested or Judicial Notice on the
20% Shares in San Miguel Corporation Registered in the Respective Names of defendant Eduardo M. Cojuangco, Jr. and the
defendant Cojuangco Companies).[71]

On September 18, 2006, the Sandiganbayan issued the following resolution, [72] to wit:

Acting on the Manifestation of Purposes (Re: Matters Requested or Judicial Notice on the 20% Shares in San
Miguel Corporation Registered in the Respective names of Defendant Eduardo M. Cojuangco, Jr. and the
Defendant Cojuangco Companies) dated 28 August 2006 filed by the plaintiff, which has been considered its
formal offer of evidence, and the Comment of Defendants Eduardo M. Cojuangco, Jr., et al. on Plaintiffs
Manifestation of Purposes Dated August 30, 2006 dated September 15, 2006, the court resolves to ADMIT all
the exhibits offered, i.e.:
Exhibit A the Answer of defendant Eduardo M. Cojuangco, Jr. to the Third Amended Complaint
(Subdivided) dated June 23, 1999, as well as the sub-markings (Exhibit A-1 to A-4;
Exhibit B the Pre-Trial Brief dated January 11, 2000 of defendant CIIF Oil Mills and fourteen (14) CIIF
Holding Companies, as well as the sub-markings Exhibits B-1 and B-2
Exhibit C the Pre-Trial Brief dated January 11, 2000 of defendant Eduardo M. Cojuangco, Jr. as well as
the sub-markings Exhibits C-1, C-1-a and C-1-b;
Exhibit D the Plaintiffs Motion for Summary Judgment [Re: Shares in San Miguel Corporation Registered
in the Respective Names of Defendant Eduardo M. Cojuangco, Jr. and the Defendant Cojuangco
Companies] dated July 11, 2003, as well as the sub-markings Exhibits D-1 to D-4

the said exhibits being part of the record of the case, as well as
Exhibit E Presidential Decree No. 961 dated July 11, 1976;
Exhibit F Presidential Decree No. 755 dated July 29, 1975;
Exhibit G Presidential Decree No. 1468 dated June 11, 1978;
Exhibit H Decision of the Supreme Court in Republic vs. COCOFED, et al., G.R. Nos. 147062-
64, December 14, 2001, 372 SCRA 462

the aforementioned exhibits being matters of public record.

The admission of these exhibits is being made over the objection of the defendants Cojuangco, et al. as
to the relevance thereof and as to the purposes for which they were offered in evidence, which matters shall
be taken into consideration by the Court in deciding the case on the merits.

The trial hereon shall proceed on November 21, 2006, at 8:30 in the morning as previously scheduled.
[73]
During the hearing on November 24, 2006, Cojuangco, et al. filed their Submission and Offer of Evidence of Defendants,
[74]
formally offering in evidence certain documents to substantiate their counterclaims, and informing that they found no need
to present countervailing evidence because the Republics evidence did not prove the allegations of the Complaint.
On December 5, 2006, after the Republic submitted its Comment,[75] the Sandiganbayan admitted the exhibits offered by
Cojuangco, et al., and granted the parties a non-extendible period within which to file their respective memoranda and reply-
memoranda.

Thereafter, on February 23, 2007, the Sandiganbayan considered the case submitted for decision. [76]

ISSUES

The various issues submitted for consideration by the Court are summarized hereunder.

G.R. No. 166859

The Republic came to the Court via petition for certiorari[77] to assail the denial of its Motion for Partial Summary
Judgment through the resolution promulgated on December 10, 2004, insisting that the Sandiganbayan thereby committed
grave abuse of discretion: (a) in holding that the various sources of funds used in acquiring the SMC shares of stock remained
disputed; (b) in holding that it was disputed whether or not Cojuangco had served in the governing bodies of PCA, UCPB,
and/or the CIIF Oil Mills; and (c) in not finding that Cojuangco had taken advantage of his position and had violated his
fiduciary obligations in acquiring the SMC shares of stock in issue.

The Court will consider and resolve the issues thereby raised alongside the issues presented in G.R. No. 180702.

G.R. No. 169203

In the resolution promulgated on October 8, 2003, the Sandiganbayan declared as automatically lifted for being null and void
nine writs of sequestration (WOS) issued against properties of Cojuangco and Cojuangco companies, considering that: ( a) eight
of them (i.e., WOS No. 86-0062 dated April 21, 1986; WOS No. 86-0069 dated April 22, 1986; WOS No. 86-0085 dated May 9,
1986; WOS No. 86-0095 dated May 16, 1986; WOS No. 86-0096 dated May 16, 1986; WOS No. 86-0097 dated May 16, 1986;
WOS No. 86-0098 dated May 16, 1986; and WOS No. 87-0218 dated May 27, 1987) had been issued by only one PCGG
Commissioner, contrary to the requirement of Section 3 of the Rules of the PCGG for at least two Commissioners to issue the
WOS; and (b) the ninth (i.e., WOS No. 86-0042 dated April 8, 1986), although issued prior to the promulgation of the Rules of
the PCGG requiring at least two Commissioners to issue the WOS, was void for being issued without prior determination by the
PCGG of a prima facie basis for sequestration.

Nonetheless, despite its lifting of the nine WOS, the Sandiganbayan prescribed four conditions to be still annotated in
the relevant corporate books of San Miguel Corporation considering that the Republic continues to hold a claim on the shares
which is yet to be resolved.[78]

In its resolution promulgated on June 24, 2005, the Sandiganbayan denied the Republics Motion for
Reconsideration filed vis-a-vis the resolution promulgated on October 8, 2003, but reduced the conditions earlier imposed to
only two.[79]

On September 1, 2005, the Republic filed a petition for certiorari[80] to annul the resolutions promulgated on October 8,
2003 and on June 24, 2005 on the ground that the Sandiganbayan had thereby committed grave abuse of discretion:

I.
XXX IN LIFTING WRIT OF SEQUESTRATION NOS. 86-0042 AND 87-0218 DESPITE EXISTENCE OF THE BASIC
REQUISITES FOR THE VALIDITY OF SEQUESTRATION.

II.
XXX WHEN IT DENIED PETITIONERS ALTERNATIVE PRAYER IN ITS MOTION FOR RECONSIDERATION FOR
THE ISSUANCE OF AN ORDER OF SEQUESTRATION AGAINST ALL THE SUBJECT SHARES OF STOCK IN
ACCORDNCE WITH THE RULING IN REPUBLIC VS. SANDIGANBAYAN, 258 SCRA 685 (1996).

III.
XXX IN SUBSEQUENTLY DELETING THE LAST TWO (2) CONDITIONS WHICH IT EARLIER IMPOSED ON THE
SUBJECT SHARES OF STOCK.[81]
G.R. No. 180702

On November 28, 2007, the Sandiganbayan promulgated its decision, [82] decreeing as follows:

WHEREFORE, in view of all the foregoing, the Court is constrained to DISMISS, as it hereby DISMISSES, the
Third Amended Complaint in subdivided Civil Case No. 0033-F for failure of plaintiff to prove by
preponderance of evidence its causes of action against defendants with respect to the twenty percent (20%)
outstanding shares of stock of San Miguel Corporation registered in defendants names, denominated herein
as the Cojuangco, et al. block of SMC shares. For lack of satisfactory warrant, the counterclaims in defendants
Answers are likewise ordered dismissed.

SO ORDERED.
Hence, the Republic appeals, positing:

I.
COCONUT LEVY FUNDS ARE PUBLIC FUNDS. THE SMC SHARES, WHICH WERE ACQUIRED BY RESPONDENTS
COJUANGCO, JR. AND THE COJUANGCO COMPANIES WITH THE USE OF COCONUT LEVY FUNDS IN
VIOLATION OF RESPONDENT COJUANGCO, JR.S FIDUCIARY OBLIGATION ARE, NECESSARILY, PUBLIC IN
CHARACTER AND SHOULD BE RECONVEYED TO THE GOVERNMENT.

II.
PETITIONER HAS CLEARLY DEMONSTRATED ITS ENTITLEMENT, AS A MATTER OF LAW, TO THE RELIEFS
PRAYED FOR.[83]

and urging the following issues to be resolved, to wit:

I.
WHETHER THE HONORABLE SANDIGANBAYAN COMMITTED A REVERSIBLE ERROR WHEN IT DISMISSED
CIVIL CASE NO. 0033-F; AND

II.
WHETHER OR NOT THE SUBJECT SHARES IN SMC, WHICH WERE ACQUIRED BY, AND ARE IN THE
RESPECTIVE NAMES OF RESPONDENTS COJUANGCO, JR. AND THE COJUANGCO COMPANIES, SHOULD BE
RECONVEYED TO THE REPUBLIC OF THE PHILIPPINES FOR HAVING BEEN ACQUIRED USING COCONUT
LEVY FUNDS.[84]

On their part, the petitioners-in-intervention[85] submit the following issues, to wit:

I
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND DECIDED THE CASE A QUO IN VIOLATION OF
LAW AND APPLICABLE RULINGS OF THE HONORABLE COURT IN RULING THAT, WHILE ADMITTEDLY THE
SUBJECT SMC SHARES WERE PURCHASED FROM LOAN PROCEEDS FROM UCPB AND ADVANCES FROM THE
CIIF OIL MILLS, SAID SUBJECT SMC SHARES ARE NOT PUBLIC PROPERTY

II
WHETHER OR NOT THE COURT A QUO GRAVELY ERRED AND DECIDED THE CASE A QUO IN VIOLATION OF
LAW AND APPLICABLE RULINGS OF THE HONORABLE COURT IN FAILING TO RULE THAT, EVEN ASSUMING
FOR THE SAKE OF ARGUMENT THAT LOAN PROCEEDS FROM UCPB ARE NOT PUBLIC FINDS, STILL, SINCE
RESPONDENT COJUANGCO, IN THE PURCHASE OF THE SUBJECT SMC SHARES FROM SUCH LOAN PROCEEDS,
VIOLATED HIS FIDUCIARY DUTIES AND TOOK A COMMERCIAL OPPORTUNITY THAT RIGHTFULLY
BELONGED TO UCPB (A PUBLIC CORPORATION), THE SUBJECT SMC SHARES SHOULD REVERT BACK TO THE
GOVERNMENT.

RULING

We deny all the petitions of the Republic.

I
Lifting of nine WOS for violation of PCGG Rules
did not constitute grave abuse of discretion

Through its resolution promulgated on June 24, 2005, assailed on certiorari in G.R. No. 169203, the Sandiganbayan
lifted the nine WOS for the following reasons, to wit:

Having studied the antecedent facts, this Court shall now resolve the pending incidents especially
defendants Motion to Affirm that the Writs or Orders of Sequestration Issued on Defendants Properties Were
Unauthorized, Invalid and Never Became Effective dated March 5, 1999.

Section 3 of the PCGG Rules and Regulations promulgated on April 11, 1986, provides:

Sec. 3. Who may issue. A writ of sequestration or a freeze or hold order may be issued by the
Commission upon the authority of at least two Commissioners, based on the affirmation or
complaint of an interested party or motu propio (sic) the issuance thereof is warranted.

In this present case, of all the questioned writs of sequestration issued after the effectivity of the PCGG Rules
and Regulations or after April 11, 1986, only writ no. 87-0218 issued on May 27, 1987 complied with the
requirement that it be issued by at least two Commissioners, the same having been issued by Commissioners
Ramon E. Rodrigo and Quintin S. Doromal. However, even if Writ of Sequestration No. 87-0218 complied with
the requirement that the same be issued by at least two Commissioners, the records fail to show that it was
issued with factual basis or with factual foundation as can be seen from the Certification of the Commission
Secretary of the PCGG of the excerpt of the minutes of the meeting of the PCGG held on May 26, 1987, stating
therein that:

The Commission approved the recommendation of Dir. Cruz to sequester all the shares of stock,
assets, records, and documents of Balete Ranch, Inc. and the appointment of the Fiscal Committee
with ECI Challenge, Inc./Pepsi-Cola for Balete Ranch, Inc. and the Aquacor Marketing Corp. vice
Atty. S. Occena. The objective is to consolidate the Fiscal Committee activities covering three
associated entities of Mr. Eduardo Cojuangco.Upon recommendation of Comm. Rodrigo, the
reconstitution of the Board of Directors of the three companies was deferred for further study.

Nothing in the above-quoted certificate shows that there was a prior determination of a factual basis or
factual foundation. It is the absence of a prima facie basis for the issuance of a writ of sequestration and not
the lack of authority of two (2) Commissioners which renders the said writ void ab initio. Thus, being the case,
Writ of Sequestration No. 87-0218 must be automatically lifted.

As declared by the Honorable Supreme Court in two cases it has decided,

The absence of a prior determination by the PCGG of a prima facie basis for the sequestration
order is, unavoidably, a fatal defect which rendered the sequestration of respondent corporation
and its properties void ab initio. And

The corporation or entity against which such writ is directed will not be able to visually
determine its validity, unless the required signatures of at least two commissioners authorizing its
issuance appear on the very document itself. The issuance of sequestration orders requires the
existence of a prima facie case. The two commissioner rule is obviously intended to assure a
collegial determination of such fact. In this light, a writ bearing only one signature is an obvious
transgression of the PCGG Rules.

Consequently, the writs of sequestration nos. 86-0062, 86-0069, 86-0085, 86-0095, 86-0096, 86-0097
and 86-0098 must be lifted for not having complied with the pertinent provisions of the PCGG Rules and
Regulations, all of which were issued by only one Commissioner and after April 11, 1986 when the PCGG
Rules and Regulations took effect, an utter disregard of the PCGGs Rules and Regulations. The Honorable
Supreme Court has stated that:

Obviously, Section 3 of the PCGG Rules was intended to protect the public from improvident,
reckless and needless sequestrations of private property. And since these Rules were issued by
Respondent Commission, it should be the first entity to observe them.
 Anent the writ of sequestration no. 86-0042 which was issued on April 8, 1986 or prior to the
promulgation of the PCGG Rules and Regulations on April 11, 1986, the same cannot be declared void on the
ground that it was signed by only one Commissioner because at the time it was issued, the Rules and
Regulations of the PCGG were not yet in effect. However, it again appears that there was no prior
determination of the existence of a prima facie basis or factual foundation for the issuance of the said
writ. The PCGG, despite sufficient time afforded by this Court to show that a prima facie basis existed prior to
the issuance of Writ No. 86-0042, failed to do so. Nothing in the records submitted by the PCGG in compliance
of the Resolutions and Order of this Court would reveal that a meeting was held by the Commission for the
purpose of determining the existence of a prima facie evidence prior to its issuance. In a case decided by the
Honorable Supreme Court, wherein it involved a writ of sequestration issued by the PCGG on March 19,
1986 against all assets, movable and immovable, of Provident International Resources Corporation and
Philippine Casino Operators Corporation, the Honorable Supreme Court enunciated:

The questioned sequestration order was, however issued on March 19, 1986, prior to the
promulgation of the PCGG Rules and Regulations. As a consequence, we cannot reasonably expect
the commission to abide by said rules, which were nonexistent at the time the subject writ was
issued by then Commissioner Mary Concepcion Bautista. Basic is the rule that no statute, decree,
ordinance, rule or regulation (and even policies) shall be given retrospective effect unless explicitly
stated so. We find no provision in said Rules which expressly gives them retroactive effect, or
implies the abrogation of previous writs issued not in accordance with the same Rules. Rather,
what said Rules provide is that they shall be effective immediately, which in legal parlance, is
understood as upon promulgation. Only penal laws are given retroactive effect insofar as they favor
the accused.

We distinguish this case from Republic vs. Sandiganbayan, Romualdez and Dio Island Resort, G.R. No.
88126, July 12, 1996 where the sequestration order against Dio Island Resort, dated April 14, 1986,
was prepared, issued and signed not by two commissioners of the PCGG, but by the head of its task
force in Region VIII. In holding that said order was not valid since it was not issued in accordance
with PCGG Rules and Regulations, we explained:

(Sec. 3 of the PCGG Rules and Regulations), couched in clear and simple language,
leaves no room for interpretation. On the basis thereof, it is indubitable that under no
circumstances can a sequestration or freeze order be validly issued by one not a
commissioner of the PCGG.

xxxxxxxxx

Even assuming arguendo that Atty. Ramirez had been given prior authority by the
PCGG to place Dio Island Resort under sequestration, nevertheless, the sequestration order
he issued is still void since PCGG may not delegate its authority to sequester to its
representatives and subordinates, and any such delegation is valid and ineffective.

We further said:

In the instant case, there was clearly no prior determination made by the PCGG of a prima facie
basis for the sequestration of Dio Island Resort, Inc. x x x

xxxxxxxxx

The absence of a prior determination by the PCGG of a prima facie basis for the sequestration order
is, unavoidably, a fatal defect which rendered the sequestration of respondent corporation and its
properties void ab initio. Being void ab initio, it is deemed nonexistent, as though it had never been
issued, and therefore is not subject to ratification by the PCGG.

What were obviously lacking in the above case were the basic requisites for the validity of a
sequestration order which we laid down in BASECO vs. PCGG, 150 SCRA 181, 216, May 27,
1987, thus:

Section (3) of the Commissions Rules and regulations provides that sequestration or freeze (and
takeover) orders issue upon the authority of at least two commissioners, based on the affirmation
 or complaint of an interested party, or motu propio (sic) when the Commission has reasonable
grounds to believe that the issuance thereof is warranted.

In the case at bar, there is no question as to the presence of prima facie evidence justifying the
issuance of the sequestration order against respondent corporations. But the said order cannot be
nullified for lack of the other requisite (authority of at least two commissioners) since, as explained
earlier, such requisite was nonexistent at the time the order was issued.

As to the argument of the Plaintiff Republic that Defendants Cojuangco, et al. have not shown any
contrary prima facie proof that the properties subject matter of the writs of sequestration were legitimate
acquisitions, the same is misplaced. It is a basic legal doctrine, as well as many times enunciated by the
Honorable Supreme Court that when a prima facie proof is required in the issuance of a writ, the party
seeking such extraordinary writ must establish that it is entitled to it by complying strictly with the
requirements for its issuance and not the party against whom the writ is being sought for to establish that the
writ should not be issued against it.

According to the Republic, the Sandiganbayan thereby gravely abused its discretion in: (a) in lifting WOS No. 86-0042
and No. 87-0218 despite the basic requisites for the validity of sequestration being existent; (b) in denying the Republics
alternative prayer for the issuance of an order of sequestration against all the subject shares of stock in accordance with the
ruling in Republic v. Sandiganbayan, 258 SCRA 685, as stated in its Motion For Reconsideration; and (c) in deleting the last two
conditions the Sandiganbayan had earlier imposed on the subject shares of stock.

We sustain the lifting of the nine WOS for the reasons made extant in the assailed resolution of October 8, 2003, supra.

Section 3 of the Rules of the PCGG, promulgated on April 11, 1986, provides:

Section 3. Who may issue. A writ of sequestration or a freeze or hold order may be issued by the Commission
upon the authority of at least two Commissioners, based on the affirmation or complaint of an interested
party or motu proprio when the Commission has reasonable grounds to believe that the issuance thereof is
warranted.

Conformably with Section 3, supra, WOS No. 86-0062 dated April 21, 1986; WOS No. 86-0069 dated April 22, 1986; WOS No.
86-0085 dated May 9, 1986; WOS No. 86-0095 dated May 16, 1986; WOS No. 86-0096 dated May 16, 1986; WOS No. 86-0097
dated May 16, 1986; and WOS No. 86-0098 dated May 16, 1986 were lawfully and correctly nullified considering that only one
PCGG Commissioner had issued them.

Similarly, WOS No. 86-0042 dated April 8, 1986 and WOS No. 87-0218 dated May 27, 1987 were lawfully and correctly
nullified ̶ notwithstanding that WOS No. 86-0042, albeit signed by only one Commissioner ( i.e., Commissioner Mary
Concepcion Bautista), was not at the time of its issuance subject to the two-Commissioners rule, and WOS No. 87-0218, albeit
already issued under the signatures of two Commissioners ̶ considering that both had been issued without a prior
determination by the PCGG of a prima facie basis for the sequestration.

Plainly enough, the irregularities infirming the issuance of the several WOS could not be ignored in favor of the
Republic and resolved against the persons whose properties were subject of the WOS. Where the Rules of the PCGG instituted
safeguards under Section 3, supra, by requiring the concurrent signatures of two Commissioners to every WOS issued and the
existence of a prima facie case of ill gotten wealth to support the issuance, the non-compliance with either of the safeguards
nullified the WOS thus issued. It is already settled that sequestration, due to its tendency to impede or limit the exercise of
proprietary rights by private citizens, is construed strictly against the State, conformably with the legal maxim that statutes in
derogation of common rights are generally strictly construed and rigidly confined to the cases clearly within their scope and
purpose.[86]

Consequently, the nullification of the nine WOS, being in implementation of the safeguards the PCGG itself had instituted, did
not constitute any abuse of its discretion, least of all grave, on the part of the Sandiganbayan.

Nor did the Sandiganbayan gravely abuse its discretion in reducing from four to only two the conditions imposed for the lifting
of the WOS. The Sandiganbayan thereby acted with the best of intentions, being all too aware that the claim of the Republic to
the sequestered assets and properties might be prejudiced or harmed pendente lite unless the protective conditions were
annotated in the corporate books of SMC. Moreover, the issue became academic following the Sandiganbayans promulgation of
its decision dismissing the Republics Amended Complaint, which thereby removed the stated reason the Republic continues to
hold a claim on the shares which is yet to be resolvedunderlying the need for the annotation of the conditions (whether four or
two).

II
The Concept and Genesis of
Ill-Gotten Wealth in the Philippine Setting

A brief review of the Philippine law and jurisprudence pertinent to ill-gotten wealth should furnish an illuminating backdrop
for further discussion.

In the immediate aftermath of the peaceful 1986 EDSA Revolution, the administration of President Corazon C. Aquino
saw to it, among others, that rules defining the authority of the government and its instrumentalities were promptly put in
place. It is significant to point out, however, that the administration likewise defined the limitations of the authority.

The first official issuance of President Aquino, which was made on February 28, 1986, or just two days after the EDSA
Revolution, was Executive Order (E.O.) No. 1, which created the Presidential Commission on Good Government (PCGG).
Ostensibly, E.O. No. 1 was the first issuance in light of the EDSA Revolution having come about mainly to address the pillage of
the nations wealth by President Marcos, his family, and cronies.

E.O. No. 1 contained only two WHEREAS Clauses, to wit:

WHEREAS, vast resources of the government have been amassed by former President Ferdinand E.
Marcos, his immediate family, relatives, and close associates both here and abroad;

WHEREAS, there is an urgent need to recover all ill-gotten wealth;[87]

Paragraph (4) of E.O. No. 2 [88] further required that the wealth, to be ill-gotten, must be acquired by them through or as a result
of improper or illegal use of or the conversion of funds belonging to the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their official position, authority,
relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage and prejudice of
the Filipino people and the Republic of the Philippines.

Although E.O. No. 1 and the other issuances dealing with ill-gotten wealth (i.e., E.O. No. 2, E.O. No. 14, and E.O. No. 14-
A) only identified the subject matter of ill-gotten wealth and the persons who could amass ill-gotten wealth and did not include
an explicit definition of ill-gotten wealth, we can still discern the meaning and concept of ill-gotten wealth from the WHEREAS
Clauses themselves of E.O. No. 1, in that ill-gotten wealth consisted of the vast resources of the government amassed by former
President Ferdinand E. Marcos, his immediate family, relatives and close associates both here and abroad. It is clear, therefore,
that ill-gotten wealth would not include all the properties of President Marcos, his immediate family, relatives, and close
associates but only the part that originated from the vast resources of the government.

In time and unavoidably, the Supreme Court elaborated on the meaning and concept of ill-gotten wealth. In Bataan Shipyard &
Engineering Co., Inc. v. Presidential Commission on Good Government,[89] or BASECO, for the sake of brevity, the Court held that:

xxx until it can be determined, through appropriate judicial proceedings, whether the property was in
truth ill-gotten, i.e., acquired through or as a result of improper or illegal use of or the conversion of funds
belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of official position, authority, relationship, connection or
influence, resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to the
State. And this, too, is the sense in which the term is commonly understood in other jurisdictions. [90]

The BASECO definition of ill-gotten wealth was reiterated in Presidential Commission on Good Government v. Lucio C.
Tan,[91] where the Court said:

On this point, we find it relevant to define ill-gotten wealth. In Bataan Shipyard and Engineering Co., Inc., this
Court described ill-gotten wealth as follows:

Ill-gotten wealth is that acquired through or as a result of improper or illegal use of or the
conversion of funds belonging to the Government or any of its branches, instrumentalities,
 enterprises, banks or financial institutions, or by taking undue advantage of official position,
authority, relationship, connection or influence, resulting in unjust enrichment of the ostensible
owner and grave damage and prejudice to the State. And this, too, is the sense in which the term is
commonly understood in other jurisdiction.

Concerning respondents shares of stock here, there is no evidence presented by petitioner that they
belong to the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or
financial institutions. Nor is there evidence that respondents, taking undue advantage of their connections or
relationship with former President Marcos or his family, relatives and close associates, were able to acquire
those shares of stock.

Incidentally, in its 1998 ruling in Chavez v. Presidential Commission on Good Government,[92] the Court rendered an identical
definition of ill-gotten wealth, viz:

xxx. We may also add that ill-gotten wealth, by its very nature, assumes a public character. Based on the
aforementioned Executive Orders, ill-gotten wealth refers to assets and properties purportedly acquired,
directly or indirectly, by former President Marcos, his immediate family, relatives and close associates
through or as a result of their improper or illegal use of government funds or properties; or their
having taken undue advantage of their public office; or their use of powers, influence or relationships ,
resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the
Republic of the Philippines. Clearly, the assets and properties referred to supposedly originated from
the government itself. To all intents and purposes, therefore, they belong to the people. As such, upon
reconveyance they will be returned to the public treasury, subject only to the satisfaction of positive
claims of certain persons as may be adjudged by competent courts. Another declared overriding
consideration for the expeditious recovery of ill-gotten wealth is that it may be used for national economic
recovery.

All these judicial pronouncements demand two concurring elements to be present before assets or properties were considered
as ill-gotten wealth, namely: (a) they must have originated from the government itself, and (b) they must have been taken by
former President Marcos, his immediate family, relatives, and close associates by illegal means.
But settling the sources and the kinds of assets and property covered by E.O. No. 1 and related issuances did not
complete the definition of ill-gotten wealth. The further requirement was that the assets and property should have been
amassed by former President Marcos, his immediate family, relatives, and close associates both here and abroad. In this regard,
identifying former President Marcos, his immediate family, and relatives was not difficult, but identifying other persons
who might be the close associates of former President Marcos presented an inherent difficulty, because it was not fair and just to
include within the term close associates everyone who had had any association with President Marcos, his immediate family,
and relatives.

Again, through several rulings, the Court became the arbiter to determine who were the close associates within the
coverage of E.O. No. 1.

In Republic v. Migrio,[93] the Court held that respondents Migrio, et al. were not necessarily among the persons covered
by the term close subordinate or close associate of former President Marcos by reason alone of their having served as
government officials or employees during the Marcos administration, viz:

It does not suffice, as in this case, that the respondent is or was a government official or employee
during the administration of former Pres. Marcos. There must be a prima facieshowing that the
respondent unlawfully accumulated wealth by virtue of his close association or relation with former
Pres. Marcos and/or his wife. This is so because otherwise the respondents case will fall under existing
general laws and procedures on the matter. xxx

In Cruz, Jr. v. Sandiganbayan,[94] the Court declared that the petitioner was not a close associate as the term was used in
E.O. No. 1 just because he had served as the President and General Manager of the GSIS during the Marcos administration.

In Republic v. Sandiganbayan,[95] the Court stated that respondent Maj. Gen. Josephus Q. Ramas having been a
Commanding General of the Philippine Army during the Marcos administration d[id] not automatically make him a
subordinate of former President Ferdinand Marcos as this term is used in Executive Order Nos. 1, 2, 14 and 14-A absent a
showing that he enjoyed close association with former President Marcos.
It is well to point out, consequently, that the distinction laid down by E.O. No. 1 and its related issuances, and expounded by
relevant judicial pronouncements unavoidably required competent evidentiary substantiation made in appropriate judicial
proceedings to determine: (a) whether the assets or properties involved had come from the vast resources of government, and
(b) whether the individuals owning or holding such assets or properties were close associates of President Marcos. The
requirement of competent evidentiary substantiation made in appropriate judicial proceedings was imposed because the factual
premises for the reconveyance of the assets or properties in favor of the government due to their being ill-gotten wealth could
not be simply assumed. Indeed, in BASECO,[96] the Court made this clear enough by emphatically observing:

6. Governments Right and Duty to Recover All Ill-gotten Wealth

There can be no debate about the validity and eminent propriety of the Governments plan to recover all ill-
gotten wealth.

Neither can there be any debate about the proposition that assuming the above described factual premises of
the Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the
recovery from Marcos, his family and his minions of the assets and properties involved, is not only a right but
a duty on the part of Government.

But however plain and valid that right and duty may be, still a balance must be sought with the equally
compelling necessity that a proper respect be accorded and adequate protection assured, the
fundamental rights of private property and free enterprise which are deemed pillars of a free society
such as ours, and to which all members of that society may without exception lay claim.

xxx Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom
of conscience, freedom of expression, and freedom in the pursuit of happiness. Along with these freedoms are
included economic freedom and freedom of enterprise within reasonable bounds and under proper control. xxx
Evincing much concern for the protection of property, the Constitution distinctly recognizes the preferred
position which real estate has occupied in law for ages. Property is bound up with every aspect of social life in a
democracy as democracy is conceived in the Constitution. The Constitution realizes the indispensable role
which property, owned in reasonable quantities and used legitimately, plays in the stimulation to economic
effort and the formation and growth of a solid social middle class that is said to be the bulwark of democracy
and the backbone of every progressive and happy country.

a. Need of Evidentiary Substantiation in Proper Suit

Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to
be duly established by adequate proof in each case, in a proper judicial proceeding, so that the
recovery of the ill-gotten wealth may be validly and properly adjudged and consummated; although
there are some who maintain that the fact that an immense fortune, and vast resources of the government
have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close
associates both here and abroad, and they have resorted to all sorts of clever schemes and manipulations to
disguise and hide their illicit acquisitions is within the realm of judicial notice, being of so extensive notoriety
as to dispense with proof thereof. Be this as it may, the requirement of evidentiary substantiation has
been expressly acknowledged, and the procedure to be followed explicitly laid down, in Executive
Order No. 14. [97]

Accordingly, the Republic should furnish to the Sandiganbayan in proper judicial proceedings the competent evidence
proving who were the close associates of President Marcos who had amassed assets and properties that would be rightly
considered as ill-gotten wealth.

III.
Summary Judgment was not warranted;
The Republic should have adduced evidence
to substantiate its allegations against the Respondents

We affirm the decision of November 28, 2007, because the Republic did not discharge its burden as the plaintiff to establish by
preponderance of evidence that the respondents SMC shares were illegally acquired with coconut-levy funds.

The decision of November 28, 2007 fully explained why the Sandiganbayan dismissed the Republics case against Cojuangco, et
al., viz:
Going over the evidence, especially the laws, i.e., P.D. No. 961, P.D. No. 755, and P.D. No. 1468, over which
plaintiff prayed that Court to take judicial notice of, it is worth noting that these same laws were cited by
plaintiff when it filed its motion for judgment on the pleadings and/or summary judgment regarding the CIIF
block of SMC shares of stock. Thus, the Court has already passed upon the same laws when it arrived at
judgment determining ownership of the CIIF block of SMC shares of stock. Pertinently, in the Partial Summary
Judgment promulgated on May 7, 2004, the Court gave the following rulings finding certain provisions of the
above-cited laws to be constitutionally infirmed, thus:

In this case, Section 2(d) and Section 9 and 10, Article III, of P.D. Nos. 961 and 1468 mandated the
UCPB to utilize the CIIF, an accumulation of a portion of the CCSF and the CIDF, for investment in
the form of shares of stock in corporations organized for the purpose of engaging in the
establishment and the operation of industries and commercial activities and other allied business
undertakings relating to coconut and other palm oils industry in all aspects. The investments made
by UCPB in CIIF companies are required by the said Decrees to be equitably distributed for free by
the said bank to the coconut farmers (Sec. 10, P.D. No. 961 and Sec. 10, P.D. No. 1468). The public
purpose sought to be served by the free distribution of the shares of stock acquired with the use of
public funds is not evident in the laws mentioned. More specifically, it is not clear how private
ownership of the shares of stock acquired with public funds can serve a public purpose. The mode
of distribution of the shares of stock also left much room for the diversion of assets acquired
through public funds into private uses or to serve directly private interests, contrary to the
Constitution. In the said distribution, defendants COCOFED, et al. and Ballares, et al. admitted that
UCPB followed the administrative issuances of PCA which we found to be constitutionally
objectionable in our Partial Summary Judgment in Civil Case No. 0033-A, the pertinent portions of
which are quoted hereunder:

xxx xx xxx.

The distribution for free of the shares of stock of the CIIF Companies is tainted with the above-
mentioned constitutional infirmities of the PCA administrative issuances. In view of the foregoing,
we cannot consider the provision of P.D. No. 961 and P.D. No. 1468 and the implementing
regulations issued by the PCA as valid legal basis to hold that assets acquired with public funds
have legitimately become private properties.

The CIIF Companies having been acquired with public funds, the 14 CIIF-owned Holding
Companies and all their assets, including the CIIF Block of SMC Shares, being public in character,
belong to the government. Even granting that the 14 Holding Companies acquired the SMC Shares
through CIIF advances and UCPB loans, said advances and loans are still the obligations of the said
companies. The incorporating equity or capital of the 14 Holding Companies, which were allegedly
used also for the acquisition of the subject SMC shares, being wholly owned by the CIIF Companies,
likewise form part of the coconut levy funds, and thus belong to the government in trust for the
ultimate beneficiaries thereof, which are all the coconut farmers.

xxx xxx xxx.

And, with the above-findings of the Court, the CIIF block of SMC shares were subsequently declared to be of
public character and should be reconveyed to the government in trust for coconut farmers. The foregoing
findings notwithstanding, a question now arises on whether the same laws can likewise serve as ultimate
basis for a finding that the Cojuangco, et al. block of SMC shares are also imbued with public character and
should rightfully be reconveyed to the government.

On this point, the Court disagrees with plaintiff that reliance on said laws would suffice to prove that
defendants Cojuangco, et al.s acquisition of SMC shares of stock was illegal as public funds were
used. For one, plaintiffs reliance thereon has always had reference only to the CIIF block of shares, and
the Court has already settled the same by going over the laws and quoting related findings in the
Partial Summary judgment rendered in Civil Case No. 0033-A. For another, the allegations of plaintiff
pertaining to the Cojuangco block representing twenty percent (20%) of the outstanding capital stock
of SMC stress defendant Cojuangcos acquisition by virtue of his positions as Chief Executive Officer of
UCPB, a member-director of the Philippine Coconut Authority (PCA) Governing Board, and a director
of the CIIF Oil Mills. Thus, reference to the said laws would not settle whether there was abuse on the
part of defendants Cojuangco, et al. of their positions to acquire the SMC shares. [98]
Besides, in the Resolution of the Court on plaintiffs Motion for Parial Summary Judgment (Re: Shares
in San Miguel Corporation Registered in the Respective Names of Defendants Eduardo M. Cojuangco, Jr.
and the defendant Cojuangco Companies), the Court already rejected plaintiffs reference to said
laws. In fact, the Court declined to grant plaintiffs motion for partial summary judgment because it
simply contended that defendant Cojuangcos statements in his pleadings, which plaintiff again offered
in evidence herein, regarding the presentation of a possible CIIF witness as well as UCPB records can
already be considered admissions of defendants exclusive use and misuse of coconut levy funds. In the
said resolution, the Court already reminded plaintiff that the issues cannot be resolved by plaintiffs
interpretation of defendant Cojuangcos statements in his brief. Thus, the substantial portion of the
Resolution of the Court denying plaintiffs motion for partial summary judgment is again quoted for
emphasis: [99]

We cannot agree with the plaintiffs contention that the defendants statements in his Pre-Trial Brief
regarding the presentation of a possible CIIF witness as well as UCPB records, can already be
considered as admissions of the defendants exclusive use and misuse of coconut levy funds to
acquire the subject SMC shares and defendant Cojuangcos alleged taking advantage of his positions
to acquire the subject SMC shares. Moreover, in ruling on a motion for summary judgment, the
court should take that view of the evidence most favorable to the party against whom it is directed,
giving such party the benefit of all favorable inferences. Inasmuch as this issue cannot be
resolved merely from an interpretation of the defendants statements in his brief, the UCPB
records must be produced and the CIIF witness must be heard to ensure that the conclusions
that will be derived have factual basis and are thus, valid. [100]

WHEREFORE, in view of the foregoing, the Motion for Partial Summary Judgment dated July 11,
2003 is hereby DENIED for lack of merit.

SO ORDERED.

(Emphasis supplied)

Even assuming that, as plaintiff prayed for, the Court takes judicial notice of the evidence it offered
with respect to the Cojuangco block of SMC shares of stock, as contained in plaintiffs manifestation of
purposes, still its evidence do not suffice to prove the material allegations in the complaint that
Cojuangco took advantage of his positions in UCPB and PCA in order to acquire the said shares. As
above-quoted, the Court, itself, has already ruled, and hereby stress that UCPB records must be
produced and the CIIF witness must be heard to ensure that the conclusions that will be derived have
factual basis and are thus, valid. Besides, the Court found that there are genuine factual issues raised
by defendants that need to be threshed out in a full-blown trial, and which plaintiff had the burden to
substantially prove. Thus, the Court outlined these genuine factual issues as follows:

1) What are the various sources of funds, which defendant Cojuangco and his companies
claim they utilized to acquire the disputed SMC shares?

2) Whether or not such funds acquired from alleged various sources can be considered
coconut levy funds;

3) Whether or not defendant Cojuangco had indeed served in the governing bodies of PCA,
UCPB and/or CIIF Oil Mills at the time the funds used to purchase the SMC shares were
obtained such that he owed a fiduciary duty to render an account to these entities as
well as to the coconut farmers;

4) Whether or not defendant Cojuangco took advantage of his position and/or close ties
with then President Marcos to obtain favorable concessions or exemptions from the
usual financial requirements from the lending banks and/or coco-levy funded
companies, in order to raise the funds to acquire the disputed SMC shares; and if so,
what are these favorable concessions or exemptions?[101]

Answers to these issues are not evident from the submissions of plaintiff and must
therefore be proven through the presentation of relevant and competent evidence during
trial. A perusal of the subject Motion shows that the plaintiff hastily derived conclusions from
 the defendants statements in their previous pleadings although such conclusions were not
supported by categorical facts but only mere inferences. xxx xxx xxx. (Emphasis supplied) [102]

Despite the foregoing pronouncement of the Court, plaintiff did not present any other evidence during the
trial of this case but instead made its manifestation of purposes, that later served as its offer of evidence in the
instant case, that merely used the same evidence it had already relied upon when it moved for partial
summary judgment over the Cojuangco block of SMC shares.Altogether, the Court finds the same insufficient
to prove plaintiffs allegations in the complaint because more than judicial notices, the factual issues require
the presentation of admissible, competent and relevant evidence in accordance with Sections 3 and 4, Rule
128 of the Rules on Evidence.

Moreover, the propriety of taking judicial notice of plaintiffs exhibits is aptly questioned by defendants
Cojuangco, et al. Certainly, the Court can take judicial notice of laws pertaining to the coconut levy funds as
well as decisions of the Supreme Court relative thereto, but taking judicial notice does not mean that the Court
would accord full probative value to these exhibits. Judicial notice is based upon convenience and expediency
for it would certainly be superfluous, inconvenient, and expensive both to parties and the court to require
proof, in the ordinary way, of facts which are already known to courts. However, a court cannot take judicial
notice of a factual matter in controversy. Certainly, there are genuine factual matters in the instant
case, as above-cited, which plaintiff ought to have proven with relevant and competent evidence other
than the exhibits it offered.

Referring to plaintiffs causes of action against defendants Cojuangco, et al., the Court finds its evidence
insufficient to prove that the source of funds used to purchase SMC shares indeed came from coconut
levy funds. In fact, there is no direct link that the loans obtained by defendant Cojuangco, Jr. were the same
money used to pay for the SMC shares. The scheme alleged to have been taken by defendant Cojuangco, Jr. was
not even established by any paper trail or testimonial evidence that would have identified the same. On
account of his positions in the UCPB, PCA and the CIIF Oil Mills, the Court cannot conclude that he violated the
fiduciary obligations of the positions he held in the absence of proof that he was so actuated and that he
abused his positions.[103]

It was plain, indeed, that Cojuangco, et al. had tendered genuine issues through their responsive pleadings and did not
admit that the acquisition of the Cojuangco block of SMC shares had been illegal, or had been made with public funds. As a
result, the Republic needed to establish its allegations with preponderant competent evidence, because, as earlier stated, the
fact that property was ill gotten could not be presumed but must be substantiated with competent proof adduced in proper
judicial proceedings. That the Republic opted not to adduce competent evidence thereon despite stern reminders and
warnings from the Sandiganbayan to do so revealed that the Republic did not have the competent evidence to prove its
allegations against Cojuangco, et al.

Still, the Republic, relying on the 2001 holding in Republic v. COCOFED,[104] pleads in its petition for review (G.R. No.
180702) that:

With all due respect, the Honorable Sandiganbayan failed to consider legal precepts and procedural principles
vis--vis the records of the case showing that the funds or various loans or advances used in the acquisition of
the disputed SMC Shares ultimately came from the coconut levy funds.

As discussed hereunder, respondents own admissions in their Answers and Pre-Trial Briefs confirm that the
various sources of funds utilized in the acquisition of the disputed SMC shares came from borrowings and
advances from the UCPB and the CIIF Oil Mills.[105]

Thereby, the Republic would have the Sandiganbayan pronounce the block of SMC shares of stock acquired by Cojuangco, et
al. as ill-gotten wealth even without the Republic first presenting preponderant evidence establishing that such block had been
acquired illegally and with the use of coconut levy funds.

The Court cannot heed the Republics pleas for the following reasons:

To begin with, it is notable that the decision of November 28, 2007 did not rule on whether coconut levy funds were
public funds or not. The silence of the Sandiganbayan on the matter was probably due to its not seeing the need for such ruling
following its conclusion that the Republic had not preponderantly established the source of the funds used to pay the purchase
price of the concerned SMC shares, and whether the shares had been acquired with the use of coconut levy funds.
 Secondly, the ruling in Republic v. COCOFED[106] determined only whether certain stockholders of the UCPB could vote
in the stockholders meeting that had been called. The issue now before the Court could not be controlled by the ruling
in Republic v. COCOFED, however, for even as that ruling determined the issue of voting, the Court was forthright enough about
not thereby preempting the Sandiganbayans decisions on the merits on ill-gotten wealth in the several cases then pending,
including this one, viz:

In making this ruling, we are in no way preempting the proceedings the Sandiganbayan may conduct or the
final judgment it may promulgate in Civil Case No. 0033-A, 0033-B and 0033-F.Our determination here is
merely prima facie, and should not bar the anti-graft court from making a final ruling, after proper trial and
hearing, on the issues and prayers in the said civil cases, particularly in reference to the ownership of the
subject shares.

We also lay down the caveat that, in declaring the coco levy funds to be prima facie public in character,
we are not ruling in any final manner on their classification whether they are general or trust or
special funds since such classification is not at issue here. Suffice it to say that the public nature of the
coco levy funds is decreed by the Court only for the purpose of determining the right to vote the
shares, pending the final outcome of the said civil cases.

Neither are we resolving in the present case the question of whether the shares held by Respondent
Cojuangco are, as he claims, the result of private enterprise. This factual matter should also be taken
up in the final decision in the cited cases that are pending in the court a quo. Again, suffice it to say
that the only issue settled here is the right of PCGG to vote the sequestered shares, pending the final
outcome of said cases.

Thirdly, the Republics assertion that coconut levy funds had been used to source the payment for the Cojuangco block
of SMC shares was premised on its allegation that the UCPB and the CIIF Oil Mills were public corporations. But the premise
was grossly erroneous and overly presumptuous, because:

(a) The fact of the UCPB and the CIIF Oil Mills being public corporations or government-owned or
government-controlled corporations precisely remained controverted by Cojuangco, et al. in light of the
lack of any competent to that effect being in the records;

(b) Cojuangco explicitly averred in paragraph 2.01.(b) of his Answer that the UCPB was a private corporation;
and

(c) The Republic did not competently identify or establish which ones of the Cojuangco corporations had
supposedly received advances from the CIIF Oil Mills.

Fourthly, the Republic asserts that the contested block of shares had been paid for with borrowings from the UCPB and
advances from the CIIF Oil Mills, and that such borrowings and advances had been illegal because the shares had not been
purchased for the benefit of the Coconut Farmers. To buttress its assertion, the Republic relied on the admissions supposedly
made in paragraph 2.01 of Cojuangcos Answer in relation to paragraph 4 of the Republics Amended Complaint.

The best way to know what paragraph 2.01 of Cojuangcos Answer admitted is to refer to both paragraph 4 of
the Amended Complaint and paragraph 2.01 of his Answer, which are hereunder quoted:

Paragraph 4 of the Amended Complaint

4. Defendant EDUARDO M. COJUANGCO, JR., was Governor of Tarlac, Congressman of then First District of
Tarlac and Ambassador-at-Large in the Marcos Administration. He was commissioned Lieutenant Colonel in
the Philippine Air Force, Reserve. Defendant Eduardo M. Cojuangco, Jr., otherwise known as the Coconut King
was head of the coconut monopoly which was instituted by Defendant Ferdinand E. Marcos, by virtue of the
Presidential Decrees. Defendant Eduardo E. Cojuangco, Jr., who was also one of the closest associates of the
Defendant Ferdinand E. Marcos, held the positions of Director of the Philippine Coconut Authority, the United
Coconut Mills, Inc., President and Board Director of the United Coconut Planters Bank, United Coconut
Planters Life Assurance Corporation, and United Coconut Chemicals, Inc. He was also the Chairman of the
Board and Chief Executive Officer and the controlling stockholder of the San Miguel Corporation. He may be
served summons at 45 Balete Drive, Quezon City or at 136 East 9th Street, Quezon City.
Paragraph 2.01 of Respondent Cojuangcos Answer

2.01. Herein defendant admits paragraph 4 only insofar as it alleges the following:

(a) That herein defendant has held the following positions in government: Governor of Tarlac,
Congressman of the then First District of Tarlac, Ambassador-at-Large, Lieutenant Colonel in the
Philippine Air Force and Director of the Philippines Coconut Authority;

(b) That he held the following positions in private corporations: Member of the Board of Directors
of the United Coconut Oil Mills, Inc.; President and member of the Board of Directors of the United
Coconut Planters Bank, United Coconut Planters Life Assurance Corporation, and United Coconut
Chemicals, Inc.; Chairman of the Board and Chief Executive of San Miguel Corporation; and

(c) That he may be served with summons at 136 East 9th Street, Quezon City.

Herein defendant specifically denies the rest of the allegations of paragraph 4, including any insinuation that
whatever association he may have had with the late Ferdinand Marcos or Imelda Marcos has been in
connection with any of the acts or transactions alleged in the complaint or for any unlawful purpose.

It is basic in remedial law that a defendant in a civil case must apprise the trial court and the adverse party of the facts
alleged by the complaint that he admits and of the facts alleged by the complaint that he wishes to place into contention. The
defendant does the former either by stating in his answer that they are true or by failing to properly deny them. There are two
ways of denying alleged facts: one is by general denial, and the other, by specific denial. [107]

In this jurisdiction, only a specific denial shall be sufficient to place into contention an alleged fact. [108] Under Section
10, Rule 8 of the Rules of Court, a specific denial of an allegation of the complaint may be made in any of three ways, namely:
[109]

(a) a defendant specifies each material allegation of fact the truth of which he does not admit and, whenever practicable, sets
forth the substance of the matters upon which he relies to support his denial; (b) a defendant who desires to deny only a part
of an averment specifies so much of it as is true and material and denies only the remainder; and ( c) a defendant who is
without knowledge or information sufficient to form a belief as to the truth of a material averment made in the complaint
states so, which has the effect of a denial.

The express qualifications contained in paragraph 2.01 of Cojuangcos Answer constituted efficient specific denials of
the averments of paragraph 2 of the Republics Amended Complaint under the first method mentioned in Section 10 of Rule
8, supra. Indeed, the aforequoted paragraphs of the Amended Complaint and of Cojuangcos Answerindicate that Cojuangco
thereby expressly qualified his admission of having been the President and a Director of the UCPB with the averment that the
UCPB was a private corporation; that his Answers allegation of his being a member of the Board of Directors of the United
Coconut Oil Mills, Inc. did not admit that he was a member of the Board of Directors of the CIIF Oil Mills, because the United
Coconut Oil Mills, Inc. was not one of the CIIF Oil Mills; and that his Answer nowhere contained any admission or statement
that he had held the various positions in the government or in the private corporations at the same time and in 1983, the time
when the contested acquisition of the SMC shares of stock took place.

What the Court stated in Bitong v. Court of Appeals (Fifth Division)[110] as to admissions is illuminating:

When taken in its totality, the Amended Answer to the Amended Petition, or even the Answer to the
Amended Petition alone, clearly raises an issue as to the legal personality of petitioner to file the
complaint. Every alleged admission is taken as an entirety of the fact which makes for the one side with
the qualifications which limit, modify or destroy its effect on the other side. The reason for this is, where
part of a statement of a party is used against him as an admission, the court should weigh any other portion
connected with the statement, which tends to neutralize or explain the portion which is against interest.

In other words, while the admission is admissible in evidence, its probative value is to be
determined from the whole statement and others intimately related or connected therewith as an
integrated unit. Although acts or facts admitted do not require proof and cannot be contradicted, however,
evidence aliunde can be presented to show that the admission was made through palpable mistake. The rule
is always in favor of liberality in construction of pleadings so that the real matter in dispute may be
submitted to the judgment of the court.
And, lastly, the Republic cites the following portions of the joint Pre-Trial Brief of Cojuangco, et al.,[111] to wit:

IV.
PROPOSED EVIDENCE
xxx
4.01. xxx Assuming, however, that plaintiff presents evidence to support its principal contentions, defendants
evidence in rebuttal would include testimonial and documentary evidence showing: a) the ownership of the
shares of stock prior to their acquisition by respondents (listed in Annexes A and B); b) the consideration for
the acquisition of the shares of stock by the persons or companies in whose names the shares of stock are
now registered; and c) the source of the funds used to pay the purchase price.

4.02. Herein respondents intend to present the following evidence:

xxx
b. Proposed Exhibits ____, ____, ____

Records of the United Coconut Planters Bank which would show borrowings of the companies listed in
Annexes A and B, or companies affiliated or associated with them, which were used to source payment
of the shares of stock of the San Miguel Corporation subject of this case.

4.03. Witnesses.
xxx
(b) A representative of the United Coconut Planters Bank who will testify in regard the loans which
were used to source the payment of the price of SMC shares of stock.

(c) A representative from the CIIF Oil Mills who will testify in regard the loans or credit advances
which were used to source the payment of the purchase price of the SMC shares of stock.

The Republic insists that the aforequoted portions of the joint Pre-Trial Brief were Cojuangco, et al.s admission that:

(a) Cojuangco had received money from the UCPB, a bank entrusted by law with the administration of the
coconut levy funds; and

(b) Cojuangco had received more money from the CIIF Oil Mills in which part of the CIIF funds had been
placed, and thereby used the funds of the UCPB and the CIIF as capital to buy his SMC shares.[112]

We disagree with the Republics posture.

The statements found in the joint Pre-Trial Brief of Cojuangco, et al. were noticeably written beneath the heading
of Proposed Evidence. Such location indicated that the statements were only being proposed, that is, they were not yet intended
or offered as admission of any fact stated therein. In other words, the matters stated or set forth therein might or might not be
presented at all. Also, the text and tenor of the statements expressly conditioned the proposal on the Republic ultimately
presenting its evidence in the action. After the Republic opted not to present its evidence, the condition did not transpire;
hence, the proposed admissions, assuming that they were that, did not materialize.

Obviously, too, the statements found under the heading of Proposed Evidence in the joint Pre-Trial Brief were
incomplete and inadequate on the important details of the supposed transactions (i.e., alleged borrowings and advances). As
such, they could not constitute admissions that the funds had come from borrowings by Cojuangco, et al. from the UCPB or had
been credit advances from the CIIF Oil Companies. Moreover, the purpose for presenting the records of the UCPB and the
representatives of the UCPB and of the still unidentified or unnamed CIIF Oil Mills as declared in the joint Pre-Trial Brief did
not at all show whether the UCPB and/or the unidentified or unnamed CIIF Oil Mills were the only sources of funding, or that
such institutions, assuming them to be the sources of the funding, had been the only sources of funding. Such ambiguousness
disqualified the statements from being relied upon as admissions. It is fundamental that any statement, to be considered as an
admission for purposes of judicial proceedings, should be definite, certain and unequivocal;[113] otherwise, the disputed fact will
not get settled.

Another reason for rejecting the Republics posture is that the Sandiganbayan, as the trial court, was in no position
to second-guess what the non-presented records of the UCPB would show as the borrowings made by the corporations listed in
Annexes A and B, or by the companies affiliated or associated with them, that were used to source payment of the shares of
stock of the San Miguel Corporation subject of this case, or what the representative of the UCPB or the representative of the
CIIF Oil Mills would testify about loans or credit advances used to source the payment of the price of SMC shares of stock.
Lastly, the Rules of Court has no rule that treats the statements found under the heading Proposed Evidence as admissions
binding Cojuangco, et al. On the contrary, the Rules of Court has even distinguished between admitted facts and facts proposed
to be admitted during the stage of pre-trial. Section 6 (b), [114] Rule 18 of the Rules of Court, requires a Pre-Trial Brief to include
a summary of admitted facts and a proposed stipulation of facts. Complying with the requirement, the joint Pre-Trial Brief of
Cojuangco, et al. included the summary of admitted facts in its paragraph 3.00 of its Item III, separately and distinctly from
the Proposed Evidence, to wit:

III.
SUMMARY OF UNDISPUTED FACTS

3.00. Based on the complaint and the answer, the acquisition of the San Miguel shares by, and their
registration in the names of, the companies listed in Annexes A and B may be deemed undisputed.

3.01. All other allegations in the complaint are disputed.[115]

The burden of proof, according to Section 1, Rule 131 of the Rules of Court, is the duty of a party to present evidence on
the facts in issue necessary to establish his claim or defense by the amount of evidence required by law. Here, the Republic,
being the plaintiff, was the party that carried the burden of proof. That burden required it to demonstrate through competent
evidence that the respondents, as defendants, had purchased the SMC shares of stock with the use of public funds; and that the
affected shares of stock constituted ill-gotten wealth. The Republic was well apprised of its burden of proof, first through the
joinder of issues made by the responsive pleadings of the defendants, including Cojuangco, et al. The Republic was further
reminded through the pre-trial order and the Resolution denying its Motion for Summary Judgment, supra, of the duty to prove
the factual allegations on ill-gotten wealth against Cojuangco, et al., specifically the following disputed matters:

(a) When the loans or advances were incurred;

(b) The amount of the loans from the UCPB and of the credit advances from the CIIF Oil Mills, including the
specific CIIF Oil Mills involved;

(c) The identities of the borrowers, that is, all of the respondent corporations together, or separately; and the
amounts of the borrowings;

(d) The conditions attendant to the loans or advances, if any;

(e) The manner, form, and time of the payments made to Zobel or to the Ayala Group, whether by check, letter
of credit, or some other form; and

(f) Whether the loans were paid, and whether the advances were liquidated.

With the Republic nonetheless choosing not to adduce evidence proving the factual allegations, particularly the
aforementioned matters, and instead opting to pursue its claims by Motion for Summary Judgment, the Sandiganbayan became
completely deprived of the means to know the necessary but crucial details of the transactions on the acquisition of the
contested block of shares. The Republics failure to adduce evidence shifted no burden to the respondents to establish anything,
for it was basic that the partywho asserts, not the party who denies, must prove. [116] Indeed, in a civil action, the plaintiff has
the burden of pleading every essential fact and element of the cause of action and proving them by preponderance of evidence.
This means that if the defendant merely denies each of the plaintiffs allegations and neither side produces evidence on any
such element, the plaintiff must necessarily fail in the action. [117] Thus, the Sandiganbayan correctly dismissed Civil Case No.
0033-F for failure of the Republic to prove its case by preponderant evidence.

A summary judgment under Rule 35 of the Rules of Court is a procedural technique that is proper only when there is
no genuine issue as to the existence of a material fact and the moving party is entitled to a judgment as a matter of law. [118] It is
a method intended to expedite or promptly dispose of cases where the facts appear undisputed and certain from the pleadings,
depositions, admissions, and affidavits on record. [119] Upon a motion for summary judgment the courts sole function is to
determine whether there is an issue of fact to be tried, and all doubts as to the existence of an issue of fact must be
resolved against the moving party. In other words, a party who moves for summary judgment has the burden of demonstrating
clearly the absence of any genuine issue of fact, and any doubt as to the existence of such an issue is resolved against the
movant.Thus, in ruling on a motion for summary judgment, the court should take that view of the evidence most favorable to
the party against whom it is directed, giving that party the benefit of all favorable inferences. [120]
 The term genuine issue has been defined as an issue of fact that calls for the presentation of evidence as distinguished
from an issue that is sham, fictitious, contrived, set up in bad faith, and patently unsubstantial so as not to constitute a genuine
issue for trial. The court can determine this on the basis of the pleadings, admissions, documents, affidavits, and counter-
affidavits submitted by the parties to the court. Where the facts pleaded by the parties are disputed or contested, proceedings
for a summary judgment cannot take the place of a trial. [121] Well-settled is the rule that a party who moves for summary
judgment has the burden of demonstrating clearly the absence of any genuine issue of fact. [122] Upon that partys shoulders rests
the burden to prove the cause of action, and to show that the defense is interposed solely for the purpose of delay. After the
burden has been discharged, the defendant has the burden to show facts sufficient to entitle him to defend. [123] Any doubt as to
the propriety of a summary judgment shall be resolved against the moving party.

We need not stress that the trial courts have limited authority to render summary judgments and may do so only in
cases where no genuine issue as to any material fact clearly exists between the parties. The rule on summary judgment does
not invest the trial courts with jurisdiction to try summarily the factual issues upon affidavits, but authorizes summary
judgment only when it appears clear that there is no genuine issue as to any material fact. [124]

IV.
Republics burden to establish by preponderance of evidence that respondents SMC shares had been
illegally acquired with coconut-levy funds was not discharged

Madame Justice Carpio Morales argues in her dissent that although the contested SMC shares could be inescapably
treated as fruits of funds that are prima facie public in character, Cojuangco, et al. abstained from presenting countervailing
evidence; and that with the Republic having shown that the SMC shares came into fruition from coco levy funds that are prima
facie public funds, Cojuangco, et al. had to go forward with contradicting evidence, but did not.

The Court disagrees. We cannot reverse the decision of November 28, 2007 on the basis alone of judicial pronouncements to
the effect that the coconut levy funds were prima facie public funds,[125] but without any competent evidence linking the
acquisition of the block of SMC shares by Cojuangco, et al. to the coconut levy funds.

V.
No violation of the DOSRI and
Single Borrowers Limit restrictions

The Republics lack of proof on the source of the funds by which Cojuangco, et al. had acquired their block of SMC shares has
made it shift its position, that it now suggests that Cojuangco had been enabled to obtain the loans by the issuance of LOI 926
exempting the UCPB from the DOSRI and the Single Borrowers Limit restrictions.

We reject the Republics suggestion.

Firstly, as earlier pointed out, the Republic adduced no evidence on the significant particulars of the supposed loan,
like the amount, the actual borrower, the approving official, etc. It did not also establish whether or not the loans were
DOSRI[126] or issued in violation of the Single Borrowers Limit. Secondly, the Republic could not outrightly assume that
President Marcos had issued LOI 926 for the purpose of allowing the loans by the UCPB in favor of Cojuangco. There must be
competent evidence to that effect. And, finally, the loans, assuming that they were of a DOSRI nature or without the benefit of
the required approvals or in excess of the Single Borrowers Limit, would not be void for that reason. Instead, the bank or the
officers responsible for the approval and grant of the DOSRI loan would be subject only to sanctions under the law. [127]

VI.
Cojuangco violated no fiduciary duties

The Republic invokes the following pertinent statutory provisions of the Civil Code, to wit:

Article 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust
funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is
established by operation of law in favor of the person to whom the funds belong.

Article 1456. If property is acquired through mistake or fraud, the person obtaining it s by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes.

and the Corporation Code, as follows:

 Section 31. Liability of directors, trustees or officers.Directors or trustees who willfully and knowingly vote for
or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in
directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty
as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered
by the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest
adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which
equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the
corporation and must account for the profits which otherwise would have accrued to the corporation.

Did Cojuangco breach his fiduciary duties as an officer and member of the Board of Directors of the UCPB? Did his acquisition
and holding of the contested SMC shares come under a constructive trust in favor of the Republic?

The answers to these queries are in the negative.

The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the trustee using trust funds to
purchase, or a person acquiring property through mistake or fraud), and Section 31 of the Corporation Code (like a director or
trustee willfully and knowingly voting for or assenting to patently unlawful acts of the corporation, among others) require
factual foundations to be first laid out in appropriate judicial proceedings. Hence, concluding that Cojuangco breached
fiduciary duties as an officer and member of the Board of Directors of the UCPB without competent evidence thereon would be
unwarranted and unreasonable.

Thus, the Sandiganbayan could not fairly find that Cojuangco had committed breach of any fiduciary duties as an
officer and member of the Board of Directors of the UCPB. For one, the Amended Complaint contained no clear factual
allegation on which to predicate the application of Articles 1455 and 1456 of the Civil Code, and Section 31 of the Corporation
Code. Although the trust relationship supposedly arose from Cojuangcos being an officer and member of the Board of Directors
of the UCPB, the linkbetween this alleged fact and the borrowings or advances was not established. Nor was there evidence on
the loans or borrowings, their amounts, the approving authority, etc. As trial court, the Sandiganbayan could not presume his
breach of fiduciary duties without evidence showing so, for fraud or breach of trust is never presumed, but must be
alleged and proved.[128]

The thrust of the Republic that the funds were borrowed or lent might even preclude any consequent trust implication.
In a contract of loan, one of the parties (creditor) delivers money or other consumable thing to another (debtor) on the
condition that the same amount of the same kind and quality shall be paid. [129] Owing to the consumable nature of the thing
loaned, the resulting duty of the borrower in a contract of loan is to pay, not to return, to the creditor or lender the very thing
loaned. This explains why the ownership of the thing loaned is transferred to the debtor upon perfection of the contract.
[130]
Ownership of the thing loaned having transferred, the debtor enjoys all the rights conferred to an owner of property,
including the right to use and enjoy (jus utendi), to consume the thing by its use (jus abutendi), and to dispose (jus disponendi),
subject to such limitations as may be provided by law. [131] Evidently, the resulting relationship between a creditor and debtor in
a contract of loan cannot be characterized as fiduciary. [132]

To say that a relationship is fiduciary when existing laws do not provide for such requires evidence that confidence is
reposed by one party in another who exercises dominion and influence. Absent any special facts and circumstances proving a
higher degree of responsibility, any dealings between a lender and borrower are not fiduciary in nature. [133] This explains why,
for example, a trust receipt transaction is not classified as a simple loan and is characterized as fiduciary, because the Trust
Receipts Law (P.D. No. 115) punishes the dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner. [134]

Based on the foregoing, a debtor can appropriate the thing loaned without any responsibility or duty to his creditor to return
the very thing that was loaned or to report how the proceeds were used. Nor can he be compelled to return the proceeds and
fruits of the loan, for there is nothing under our laws that compel a debtor in a contract of loan to do so. As owner, the debtor
can dispose of the thing borrowed and his act will not be considered misappropriation of the thing. [135] The only liability on his
part is to pay the loan together with the interest that is either stipulated or provided under existing laws.

WHEREFORE, the Court dismisses the petitions for certiorari in G.R. Nos. 166859 and 169023; denies the petition for
review on certiorari in G.R. No. 180702; and, accordingly, affirms the decision promulgated by the Sandiganbayan on November
28, 2007 in Civil Case No. 0033-F.

The Court declares that the block of shares in San Miguel Corporation in the names of respondents Cojuangco, et
al. subject of Civil Case No. 0033-F is the exclusive property of Cojuangco, et al. as registered owners.
 Accordingly, the lifting and setting aside of the Writs of Sequestration affecting said block of shares (namely: Writ of
Sequestration No. 86-0062 dated April 21, 1986; Writ of Sequestration No. 86-0069 dated April 22, 1986; Writ of
Sequestration No. 86-0085 dated May 9, 1986; Writ of Sequestration No. 86-0095 dated May 16, 1986; Writ of Sequestration
No. 86-0096 dated May 16, 1986; Writ of Sequestration No. 86-0097 dated May 16, 1986; Writ of Sequestration No. 86-0098
dated May 16, 1986; Writ of Sequestration No. 86-0042 dated April 8, 1986; and Writ of Sequestration No. 87-0218 dated May
27, 1987) are affirmed; and the annotation of the conditions prescribed in the Resolutions promulgated on October 8, 2003
and June 24, 2005 is cancelled.

SO ORDERED.

G.R. No. 184698 January 21, 2013

SPOUSES ALBERTO AND SUSAN CASTRO, Petitioners,

vs.
AMPARO PALENZUELA, for herself and as authorized representative of VIRGINIA ABELLO, GERARDO ANTONIO
ABELLO, ALBERTO DEL ROSARIO, INGEBORG REGINA DEL ROSARIO, HANS DEL ROSARIO, MARGARET DEL ROSARIO
ISLETA, ENRIQUE ALENZUELA and CARLOS MIGUEL PALENZUELA,Respondents.

DECISION

DEL CASTILLO, J.:

A demand letter presented in evidence by a lessee to prove a lesser liability for unpaid rentals than that awarded by the trial
court constitutes an admission of liability to the extent of such lesser amount.

This Petition for Review on Certiorari 1 assails the January 29, 2008 Decision 2 of the Court of Appeals (CA) which dismissed the
appeal in CA-G.R. CV No. 86925, and its September 15, 2008 Resolution 3 denying petitioners' Motion for Reconsideration.

Factual Antecedents

Respondents Amparo Palenzuela, Virginia Abello, Gerardo Antonio Abello, Alberto Del Rosario, Ingeborg Regina Del Rosario,
Hans Del Rosario, Margaret Del Rosario Isleta, Enrique Palenzuela and Carlos Miguel Palenzuela own several fishponds in
Bulacan, Bulacan totaling 72 hectares. 4 In March 1994, respondents, through their duly appointed attorney-in-fact and co-
respondent Amparo Palenzuela, leased out these fishponds to petitioners, spouses Alberto and Susan Castro. The lease was to
be for five years, or from March 1, 1994 up to June 30, 1999. 5The Contract of Lease6 of the parties provided for the following
salient provisions:

1. For the entire duration of the lease, the Castro spouses shall pay a total consideration of ₱14,126,600.00, 7via
postdated checks8 and according to the following schedule:

a. Upon signing of the lease agreement, petitioners shall pay ₱842,300.00 for the lease period March 1, 1994
to June 30, 1994;9

b. On or before June 1, 1994, petitioners shall pay ₱2,520,000.00 for the one-year lease period July 1, 1994 to
June 30, 1995;10

c. On or before June 1, 1995, petitioners shall pay ₱2,520,000.00 for the one-year lease period July 1, 1995 to
June 30, 1996;11

d. On or before June 1, 1996, petitioners shall pay ₱2,520,000.00 for the one-year lease period July 1, 1996 to
June 30, 1997;12

e. On or before June 1, 1997, petitioners shall pay ₱2,796,000.00 for the one-year lease period July 1, 1997 to
June 30, 1998;13 and
 f. On or before June 1, 1998, petitioners shall pay ₱2,928,300.00 for the one-year lease period July 1, 1998 to
June 30, 1999.14

2. Petitioners committed to pay respondents the amount of ₱500,000.00 in five yearly installments from June 1, 1994.
The amount represents arrears of the previous lessee, which petitioners agreed to assume; 15

3. Petitioners shall exercise extraordinary care and diligence in the maintenance of the leased premises, with the
obligation to maintain in good order, repair and condition, among others, two warehouses found thereon; 16

4. Necessary repairs,17 licenses, permits, and other fees 18 necessary and incidental to the operation of the fishpond
shall be for petitioners’ account;

5. Petitioners shall not sublease the premises to third parties; 19 and,

6. Should respondents be constrained to file suit against petitioners on account of the lease, the latter agrees to pay
liquidated damages in the amount of ₱1,000,000.00, 25% as attorney’s fees, and costs of the suit. 20

The lease expired on June 30, 1999, but petitioners did not vacate and continued to occupy and operate the fishponds until
August 11, 1999, or an additional 41 days beyond the contract expiration date.

Previously, or on July 22, 1999, respondents sent a letter 21 to petitioners declaring the latter as trespassers and demanding the
settlement of the latter’s outstanding obligations, including rent for petitioners’ continued stay within the premises, in the
amount of ₱378,451.00, broken down as follows:

Unpaid balance as of May 31, 1999 for

the fifth year of the lease ₱111,082.00
Accrued interest from May 31, 1999 to
July 31, 1999 at 16% 23,344.00
Trespassing fee for the whole month of
July 1999 244,025.00 22

Total owed to the Lessors ₱378,451.00

Petitioners are in actual receipt of this letter.23

On June 8, 2000,24 respondents instituted Civil Case No. Q-00-41011 for collection of a sum of money with damages in the
Regional Trial Court (RTC) of Quezon City, Branch 215, claiming that petitioners committed violations of their lease agreement
– non-payment of rents as stipulated, subletting the fishponds, failure to maintain the warehouses, and refusal to vacate the
premises on expiration of the lease – which caused respondents to incur actual and liquidated damages and other expenses in
the respective amounts of ₱570,101.00 25 for unpaid rent, ₱275,430.00 26 for unpaid additional rent for petitioners’ one-month
extended stay beyond the contract date, and ₱2,000,000.00 27 for expenses incurred in restoring and repairing their damaged
warehouses. In addition, respondents prayed to be awarded moral and exemplary damages, attorney’s fees, and costs of
litigation.28

For failure to file their Answer, petitioners were declared in default, 29 and on August 16, 2000, during the presentation of
evidence for the plaintiffs, respondent Amparo Palenzuela testified, detailing petitioners’ several violations of the lease
contract; petitioners’ failure to maintain the warehouses in good condition; their unauthorized subleasing of the premises to
one Cynthia Reyes; their failure to pay the license fees, permits and other fees; their extended stay for 41 days, or until August
11, 1999 despite expiration of the lease on June 30, 1999; and petitioners’ unpaid rents in the aggregate amount of
₱863,796.00, interest included.30

During said proceedings, respondents presented in evidence a statement of account 31 detailing petitioners’ outstanding
obligations as of July 31, 1999.

In a subsequent Order,32 the trial court, on petitioners’ motion, lifted its previous Order of default, and the latter were given the
opportunity to cross-examine respondents’ witnesses which they failed to do. Moreover, they also failed to attend subsequent
scheduled hearings. The trial court thus declared the forfeiture, on waiver, of petitioners’ rights to cross-examine and present
their evidence, and considered the case submitted for decision based solely on respondents’ evidence. 33 However, on
petitioners’ motion,34 the trial court again reconsidered, and scheduled the presentation of their evidence on October 5, 2001. 35

However, petitioners moved to reset the October 5, 2001 hearing. 36 After several postponements, the trial was reset to April 11,
2002.37 On said date, the testimony of the first witness for the defense, petitioner Alberto Castro, was taken and completed.
Cross-examination was scheduled on May 30, 2002,38 but was rescheduled to be taken on August 21, 2002.39

On August 21, 2002, petitioners once more failed to appear; the trial court, in an Order 40 of even date, decreed that petitioner
Alberto Castro’s testimony be stricken off the record and declared the case submitted for decision. Petitioners moved for
reconsideration;41 respondents opposed,42 noting that for more than two years and in spite of several opportunities afforded
them, petitioners have been unable to participate in the proceedings and present their evidence. The trial court did not
reconsider.43

Petitioners took issue in the CA via Petition for Certiorari, 44 but the appellate court, in a February 18, 2004
Decision,45 sustained the trial court and declared that no grave abuse of discretion was committed when it ordered the striking
out of petitioner Alberto Castro’s testimony and the termination of trial.

Petitioners next filed a Motion to Inhibit46 claiming that they could not obtain justice and a fair trial from the presiding judge. In
her April 21, 2003 Order,47 Judge Ma. Luisa Quijano-Padilla voluntarily inhibited herself from trying the case. She stressed,
however, that she was doing so only in order that the probity and objectivity of the court could be maintained, but not because
petitioners’ grounds for seeking inhibition are meritorious.

The case was then re-raffled to Branch 85 of the Quezon City RTC, which required the parties to submit memoranda. 48 While
respondents submitted theirs, petitioners did not.

Ruling of the Regional Trial Court

On January 31, 2005, the trial court issued its Decision, 49 decreeing as follows:

WHEREFORE, judgment is hereby rendered ordering the defendants, jointly and severally, to pay plaintiffs the following:

1. Eight Hundred Sixty-three Thousand Seven Hundred Ninety Six Pesos (₱863,796.00), by way of actual or
compensatory damages;

2. Fifty Thousand Pesos (₱50,000.00), by way of moral damages;

3. Fifty Thousand Pesos (₱50,000.00), by way of exemplary damages;

4. The amount equivalent to twenty-five (25%) percent of the total amount recoverable herein by plaintiffs, by way of
attorney’s fees; and

5. Costs of suit.

SO ORDERED.50

The trial court held that petitioners violated the terms of the lease: 51 petitioners failed to pay rent on time, 52 the warehouses
were shown to be in damaged condition, 53 and they overstayed beyond the contract period. 54 However, respondents failed to
prove the actual amount of their pecuniary losses in regard to the damaged warehouses, which entitles them merely to
nominal damages.55 As to moral damages, the trial court held that because petitioners acted in gross and wanton disregard of
their contractual obligations, respondents are entitled to such damages, as well as attorneys fees as stipulated at 25% of the
total amount recoverable.56

With respect to petitioners, the trial court said that although they claim to have paid all their obligations in full, no evidence to
such effect has been presented,57 for the precise reason that they failed to participate in the proceedings on their own account.

Both parties moved for reconsideration. Respondents prayed that petitioners be made additionally liable for liquidated
damages and ₱2,000,000.00 as compensation for the restoration of the damaged warehouses. 58
Petitioners, in their Verified Motion for Reconsideration, 59 argued that the evidence is not sufficient to warrant a finding of
liability on their part, and the award is excessive. They claimed that they should not be made to pay additional rent for their
unauthorized stay beyond the lease expiration date, or from July 1 to August 11, 1999, because the lease agreement did not
provide for such. Likewise, they claimed that, as represented by respondents themselves in their July 22, 1999 demand
letter,60 which they annexed to their Verified Motion for Reconsideration and was presented to the court for the first time,
petitioners’ outstanding obligation, including back rentals, interest, and the supposed one-month additional rent, was pegged
at a mere ₱378,451.00; thus, the judgment award of ₱863,796.00 is excessive and illegal. Petitioners added that there is no
factual basis for the award of moral and exemplary damages. Thus, they prayed that the Decision be reconsidered and that the
Complaint be dismissed.

In a January 30, 2006 Omnibus Order,61 the trial court declined to reconsider. Only petitioners went up to the CA on appeal.

Ruling of the Court of Appeals

In the CA, petitioners maintained that the Decision is erroneous and the awards excessive, echoing their previous argument
below that the lease agreement did not authorize respondents to charge additional rents for their extended stay and interest
on delayed rental payments. They added that respondents are not entitled to moral and exemplary damages and attorney’s
fees. Finally, they bemoaned the trial court’s act of resolving their Verified Motion for Reconsideration of the Decision without
conducting oral arguments.

The CA, however, was unconvinced. It held that the preponderance of evidence, 62 which remained uncontroverted by
petitioners, points to the fact that petitioners indeed failed to pay rent in full, considering that their postdated checks bounced
upon presentment,63 and their unauthorized extended stay from July 1 until August 11, 1999. 64 It added that petitioners were
undeniably guilty of violating several provisions of the lease agreement, as it has also been shown that they failed to pay rent
on time and illegally subleased the property to one Cynthia Reyes, who even made direct payments of rentals to respondents
on several occasions.65

On petitioners’ argument that respondents are not entitled to additional rent for petitioners’ extended stay beyond the lease
expiration date, the CA held that the respondents are in fact authorized to collect whatever damages they may have incurred by
reason of the lease,66 citing Section 16 of the lease agreement which provides as follows:

SECTION 16. TERMINATION OR CANCELLATION OF THE LEASE. Any delay in or violation, failure or refusal of the LESSEE to
perform and comply with any of the obligations stipulated hereunder shall automatically give an absolute right to the LESSORS
to cancel, terminate or otherwise rescind this Contract of Lease. x x x.

xxxx

The above provisions shall, however, be without prejudice to any right of claim by the LESSORS against the LESSEE for
whatever damages which may be incurred or assessed under this Contract of Lease. 67 (Emphasis supplied)

The CA found no error in the award of moral and exemplary damages, noting that petitioners’ violations of the lease agreement
compelled respondents to litigate and endure unreasonable delays, sleepless nights, mental anguish, and serious anxiety. 68 As
for attorney’s fees, the CA sustained the trial court’s award of 25%, saying that such stipulation may be justified under Article
2208 of the Civil Code.69 Since respondents were compelled to incur expenses to protect their interests as a result of
petitioners’ acts and omissions, they should be allowed to collect the stipulated attorney’s fees. 70

Finally, the CA held that the matter of conducting further oral arguments on a party’s Motion for Reconsideration rests upon
the sound discretion of the court. Because petitioners’ Verified Motion for Reconsideration is a mere reiteration of their
defenses which they raised all throughout the proceedings below, conducting a hearing on the motion would have been a mere
superfluity.71

The CA thus dismissed the petitioners’ appeal and sustained in toto the January 31, 2005 decision of the trial court. 72 Their
Motion for Reconsideration73 was denied as well, through the questioned September 15, 2008 Resolution. 74

Issues

The instant Petition thus raises the following issues:

 A

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT CALLING THE TRIAL COURT TO TASK FOR
REFUSING TO RECEIVE EVIDENCE IN SUPPORT OF THE VERIFIED MOTION FOR RECONSIDERATION OF
PETITIONERS ON THE GROUND THAT THE AWARD OF DAMAGES IS EXCESSIVE.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT DISCERNING THE INTERNAL FACTUAL
INCONSISTENCIES OF THE FINDINGS OF THE TRIAL COURT AS WELL AS THE LACK OF LEGAL BASIS THEREOF, VIS-
AÀ -VIS THE CLAIM OF UNPAID RENT AND INTEREST, IN CLEAR DISREGARD OF THE PRONOUNCEMENTS OF THIS
HONORABLE COURT IN MARTIN V. COURT OF APPEALS.

THERE IS SIMILARLY NO BASIS FOR THE AWARD OF MORAL AND EXEMPLARY DAMAGES, AND THE HONORABLE
COURT OF APPEALS WAS IN GRIEVOUS ERROR IN SUSTAINING THE TRIAL COURT IN CLEAR DISREGARD OF THIS
HONORABLE COURT’S PRONOUNCEMENTS IN ABS-CBN BROADCASTING CORPORATION V. COURT OF APPEALS.75

Petitioners’ Arguments

Petitioners pray for the setting aside of the questioned Decision and Resolution of the CA, as well as the dismissal of
respondents’ Complaint, claiming that they have in fact settled all their obligations to respondents.

Petitioners first claim that they should have been given the opportunity to present evidence during proceedings covering their
Verified Motion for Reconsideration of the trial court’s Decision, invoking Section 1, Rule 37 of the Rules of Court 76 which
allows them to question the trial court’s Decision on the ground that the damages awarded are excessive or that the evidence is
insufficient to justify the Decision.77

Petitioners direct the Court’s attention to respondents’ July 22, 1999 demand letter 78 indicating that their outstanding
obligation was only ₱378,451.00, which thus renders excessive the award of ₱863,796.00.

Petitioners next insist that the lease agreement did not authorize respondents to charge additional rents for their July 1 to
August 11, 1999 extended stay,79 which thus renders without legal or factual basis and excessive the award of ₱863,796.00. 80 If
at all, the basis for computation thereof should be the immediately preceding monthly rental of ₱244,025.00. 81 Nor is the
imposition of interest allowed under the agreement. Petitioners concede that in the absence of stipulation as to interest,
respondents are entitled only to 6% annual interest as indemnity for damages, 82 pursuant to Article 2209 of the Civil Code.83

On the issue of petitioners’ contract violations, it is claimed that petitioners are not guilty of subleasing the property to one
Cynthia Reyes (Reyes). They argue that although Reyes paid a portion of the rentals, this may not be taken as sufficient proof of
the existence of a sublease agreement between them; and even assuming that a sublease agreement indeed existed between
them, such arrangement was condoned by respondents when they accepted payments of rents made directly to them by
Reyes.84

Regarding damages and attorney’s fees, petitioners maintain that there could not have been delay in the payment of rentals as
to warrant the award of moral damages, since they have paid the rents in full; their supposed liability was only for the
additional rent incurred for their extended stay. Petitioners proceed to argue that if only respondents had exercised their
option – allowed under the lease agreement – to forcibly evict petitioners from the premises, then they would not have
incurred the damages they claim to be entitled to. As for the award of exemplary damages and attorney’s fees, petitioners find
no factual and legal bases for the grant thereof. Since they did not act with malice or bad faith in all matters relative to the
lease, respondents should not be entitled thereto. 85

Respondents’ Arguments

In their Comment,86 respondents insist that petitioners committed several violations of the lease agreement, 87specifically: for
their failure to pay the rents on time, 88 for subleasing the property to Reyes, 89 for neglecting to maintain the warehouses which
resulted in their damaged condition after the lease, 90 for refusing to vacate the premises upon the expiration of the lease, 91 and
for their neglect and refusal to pay the required fishpond license and permit fees imposed by the municipality of
Bulacan.92 Respondents add that for these violations, they incurred actual damages and suffered moral damages, which further
entitles them to exemplary damages and attorney’s fees as stipulated in the lease agreement. 93

Respondents insist that far from being excessive, the trial court’s award is instead insufficient, considering the damages
suffered as a result of the petitioners’ neglect to maintain the premises, specifically the warehouses, as agreed.

Respondents maintain that in the event of expiration of the lease period and the lessee maintains himself within the premises,
the law authorizes the collection of rentals on a month-to-month or year-to-year basis, 94 citing Articles 1670 and 1687 of the
Civil Code.95 Thus, even if the lease agreement with petitioners failed to provide for a stipulation covering lease extension, the
obligation to pay rent is not extinguished by the expiration of the lease on June 30, 1999. 96

Respondents further claim that interest should be paid at 12% per annum, and not merely 6%, on the outstanding obligation. 97

Our Ruling

While this Court is not a trier of facts, it appears that both the trial court and the CA have misappreciated the facts and the
evidence; rectification is thus in order, if justice is to be properly served.

But first, on the procedural issue raised, the Court cannot subscribe to petitioners’ argument that they had a right to a hearing
on their motion for reconsideration. The trial court may not be faulted for denying what it could have perceived was another of
petitioners’ delaying tactics, given how they acted throughout the proceedings. It may have been a baffling situation for the
trial court to find itself suddenly confronted with petitioners’ zeal in presenting their case, at such a late stage, when they have
repeatedly waived such right during the trial of the case. Indeed, it possessed sufficient discretion to grant or deny the hearing
sought for their motion for reconsideration; under the circumstances, the Court finds that such discretion was exercised
soundly. Besides, as will be seen, the evidence is ample and clear enough to warrant judgment outside of a hearing.

Both courts erred in finding that there are outstanding rents owing to the respondents in the amount of ₱863,796.00. Attention
must be called to respondents’ July 22, 1999 demand letter. 98 The letter, which appears to have been handwritten and signed by
Amparo Palenzuela herself, makes a demand upon petitioners to pay the total amount of ₱378,451.00 which respondents claim
constitutes what is owing to them as of July 31, 1999 by way of unpaid rentals (₱111,082.00); additional rent for the whole
duration of petitioners’ stay on the premises beyond the contract date, or for the whole of July 1999 (₱244,025.00); and
interest from May 31, 1999 up to July 31, 1999 (₱23,344.00). This letter belies the claim that petitioners owed respondents a
greater amount by way of unpaid rents. Even though it is not newly-discovered evidence, it is material; indeed, petitioners
could not have presented it during trial because they were declared in default.

Of this amount – ₱378,451.00 – petitioners admit to paying nothing. Thus, for petitioners, this is their admitted liability.

The Court notes further that respondents do not even dispute petitioners’ argument that the amount of ₱863,796.00 actually
represented rentals being claimed for their one-month extended stay on the premises, which to them is excessive. This
argument of the petitioners finds support in the direct testimony of respondents’ witness, Amparo Palenzuela, thus –

Q x x x Madam Witness, you mentioned x x x that the defendants have outstanding obligation to you. Can you tell the Court how
much is the outstanding obligation to you of the defendants with respect to their occupation of your fishponds?

A Up to July 31, 2000,99 Mr. Castro’s obligation is ₱863,796.00.

Q Can you briefly explain to the Court how you came about this figure?

A Actually this is what he owes for back lease that he has not paid including interest. This one is supposedly for overstaying of
one month. We did not charge him 41 days, we are only charging him one month and that is the total. 100

Q With respect to this ₱863,796.00 this is the total as of July?

A July 31.

Q 2000?101

A That’s right.
Q And this pertains to unpaid rent and interest thereof?

A That’s right.

Q The stipulated interest thereof?

A That’s right.

Q And with respect to damages which you expect to incur is not yet included in this?

A Yes.

Q And the unpaid municipal fees are also not included in this?

A Not included but they have been paid.102 (Emphasis supplied)

Indeed, respondents do not deny that this amount of ₱863,796.00 is what they are actually charging petitioners for one
month’s extended use of their fishponds. If this is so, then it is truly excessive, considering that for the immediately preceding
month – the whole of June 1999 – it costs only ₱244,025.00 103 for the petitioners to rent the same property. The trial court may
have been impelled to accept respondents’ own computation 104 of what they believed was due from petitioners on account of
the fact that at that time, petitioners were declared in default and could not cross-examine the respondents’ witness. But the
fact remains that the July 22, 1999 demand letter105clearly sets forth in detail what appears to be the true, accurate and
reasonable amount of petitioners’ outstanding obligation. If this document were a forgery, respondents would have
vehemently objected to its presentation at the very first opportunity.

Yet they did not. Such document could thus be considered and given weight. "[T]he omission x x x ‘to rebut that which would
have naturally invited an immediate, pervasive and stiff opposition x x x create[s] an adverse inference that either the
controverting [evidence] x x x presented x x x will only prejudice its case, or that the uncontroverted evidence indeed speaks of
the truth’."106

As for petitioners’ submission that respondents were not authorized to charge additional rent for their extended stay, this
issue should be deemed settled by their very reliance on the July 22, 1999 demand letter, 107 where a charge for additional rent
for their extended stay in the amount of ₱244,025.00 is included. By adopting the letter as their own evidence in seeking a
reduction in the award of unpaid rent, petitioners are considered to have admitted liability for additional rent as stated therein,
in the amount of ₱244,025.00. Petitioners may not simultaneously accept and reject the demand letter; this would go against
the rules of fair play. Besides, respondents are correct in saying that when the lease expired on June 30, 1999 and petitioners
continued enjoying the premises without objection from the respondents, an implied new lease was created pursuant to
Article 1670 of the Civil Code, which placed upon petitioners the obligation to pay additional rent.

On the matter of interest, the proper rate is not 6% as petitioners argue, but 12% per annum, collected from the time of
extrajudicial demand on July 22, 1999. Back rentals in this case are equivalent to a loan or forbearance of money. 108

On the issue of moral and exemplary damages, the Court finds no reason to disturb the trial and appellate courts’ award in this
regard. Petitioners have not been exactly above-board in dealing with respondents. They have been found guilty of several
violations of the agreement, and not just one. They incurred delay in their payments, and their check payments bounced, for
one; for another, they subleased the premises to Reyes, in blatant disregard of the express prohibition in the lease agreement;
thirdly, they refused to honor their obligation, as stipulated under the lease agreement, to pay the fishpond license and other
permit fees and; finally, they refused to vacate the premises after the expiration of the lease.

Even though respondents received payments directly from the sublessee Reyes, this could not erase the fact that petitioners
are guilty of subleasing the fishponds to her. Respondents may have been compelled to accept payment from Reyes only
because petitioners have been remiss in honoring their obligation to pay rent.

Bad faith "means breach of a known duty through some motive or interest or ill will." 109 By refusing to honor their solemn
obligations under the lease, and instead unduly profiting from these violations, petitioners are guilty of bad faith. Moral
damages may be awarded when the breach of contract is attended with bad faith. 110 "Exemplary damages may [also] be
awarded when a wrongful act is accompanied by bad faith or when the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner x x x. [And] since the award of exemplary damages is proper in this case, attomey's fees and
costs of the suit may also be recovered,111 as stipulated in the lease agreement.

WHEREFORE, premises considered, the Petition is DENIED. The January 29, 2008 Decision of the Court of Appeals in CA-G.R.
CV No. 86925 which affirmed in toto the January 31, 2005 Decision of the Regional Trial Court of Quezon City, Branch 85 in
Civil Case No. Q-00-41011 is AFFIRMED with the MODIFICATION that the actual and compensatory damages are reduced to ₱3
78,451.00, the same to earn legal interest at the rate of twelve percent (12%) per annum from July 22, 1999 until fully paid.

SO ORDERED.

PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S. PANTALEON, versus

ARTHUR F. MENCHAVEZ
G.R. No. 160545, March 9, 2010

BRION, J.:

We resolve in this Decision the petition for review on certiorari[1] filed by petitioners Prisma Construction & Development
Corporation (PRISMA) and Rogelio S. Pantaleon (Pantaleon) (collectively, petitioners) who seek to reverse and set aside the
Decision[2] dated May 5, 2003 and the Resolution[3] dated October 22, 2003 of the Former Ninth Division of the Court of Appeals
(CA) in CA-G.R. CV No. 69627. The assailed CA Decision affirmed the Decision of the Regional Trial Court ( RTC), Branch 73,
Antipolo City in Civil Case No. 97-4552 that held the petitioners liable for payment of P3,526,117.00 to respondent Arthur F.
Menchavez (respondent), but modified the interest rate from 4% per month to 12% per annum, computed from the filing of the
complaint to full payment. The assailed CA Resolution denied the petitioners Motion for Reconsideration.

FACTUAL BACKGROUND

The facts of the case, gathered from the records, are briefly summarized below.

On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA, obtained
a P1,000,000.00[4] loan from the respondent, with a monthly interest of P40,000.00 payable for six months, or a total
obligation of P1,240,000.00 to be paid within six (6) months,[5] under the following schedule of payments:

January 8, 1994 . P40,000.00

February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00[6]
Total P1,240,000.00
To secure the payment of the loan, Pantaleon issued a promissory note [7] that states:

I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE MILLION TWO HUNDRED FORTY
THOUSAND PESOS (P1,240,000), Philippine Currency, from Mr. Arthur F. Menchavez, representing a six-
month loan payable according to the following schedule:

January 8, 1994 . P40,000.00

February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00

The checks corresponding to the above amounts are hereby acknowledged. [8]
and six (6) postdated checks corresponding to the schedule of payments. Pantaleon signed the promissory note in his personal
capacity,[9] and as duly authorized by the Board of Directors of PRISMA. [10] The petitioners failed to completely pay the loan
within the stipulated six (6)-month period.

From September 8, 1994 to January 4, 1997, the petitioners paid the following amounts to the respondent:

September 8, 1994 P320,000.00

October 8, 1995.P600,000.00
November 8, 1995.....P158,772.00
January 4, 1997 P30,000.00[11]

As of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However, the respondent found that the
petitioners still had an outstanding balance of P1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly
interest.[12] Thus, on August 28, 1997, the respondent filed a complaint for sum of money with the RTC to enforce the unpaid
balance, plus 4% monthly interest, P30,000.00 in attorneys fees, P1,000.00 per court appearance and costs of suit.[13]

In their Answer dated October 6, 1998, the petitioners admitted the loan of P1,240,000.00, but denied the stipulation on the
4% monthly interest, arguing that the interest was not provided in the promissory note. Pantaleon also denied that he made
himself personally liable and that he made representations that the loan would be repaid within six (6) months. [14]

THE RTC RULING

The RTC rendered a Decision on October 27, 2000 finding that the respondent issued a check for P1,000,000.00 in favor of the
petitioners for a loan that would earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-month
period. It noted that the petitioners made several payments amounting to P1,228,772.00, but they were still indebted to the
respondent for P3,526,117.00 as of February 11,[15] 1999 after considering the 4% monthly interest. The RTC observed that
PRISMA was a one-man corporation of Pantaleon and used this circumstance to justify the piercing of the veil of corporate
fiction. Thus, the RTC ordered the petitioners to jointly and severally pay the respondent the amount of P3,526,117.00 plus 4%
per month interest from February 11, 1999 until fully paid.[16]

The petitioners elevated the case to the CA via an ordinary appeal under Rule 41 of the Rules of Court, insisting that there was
no express stipulation on the 4% monthly interest.

THE CA RULING

The CA decided the appeal on May 5, 2003. The CA found that the parties agreed to a 4% monthly interest principally based on
the board resolution that authorized Pantaleon to transact a loan with an approved interest of not more than 4% per month.
The appellate court, however, noted that the interest of 4% per month, or 48% per annum, was unreasonable and should be
reduced to 12% per annum. The CA affirmed the RTCs finding that PRISMA was a mere instrumentality of Pantaleon that
justified the piercing of the veil of corporate fiction. Thus, the CA modified the RTC Decision by imposing a 12% per annum
interest, computed from the filing of the complaint until finality of judgment, and thereafter, 12% from finality until fully paid.
[17]

After the CA's denial[18] of their motion for reconsideration, [19] the petitioners filed the present petition for review
on certiorari under Rule 45 of the Rules of Court.

THE PETITION

The petitioners submit that the CA mistakenly relied on their board resolution to conclude that the parties agreed to a 4%
monthly interest because the board resolution was not an evidence of a loan or forbearance of money, but merely an
authorization for Pantaleon to perform certain acts, including the power to enter into a contract of loan. The expressed
mandate of Article 1956 of the Civil Code is that interest due should be stipulated in writing, and no such stipulation exists.
Even assuming that the loan is subject to 4% monthly interest, the interest covers the six (6)-month period only and cannot be
interpreted to apply beyond it. The petitioners also point out the glaring inconsistency in the CA Decision, which reduced the
interest from 4% per month or 48% per annum to 12% per annum, but failed to consider that the amount
of P3,526,117.00 that the RTC ordered them to pay includes the compounded 4% monthly interest.

THE CASE FOR THE RESPONDENT

The respondent counters that the CA correctly ruled that the loan is subject to a 4% monthly interest because the board
resolution is attached to, and an integral part of, the promissory note based on which the petitioners obtained the loan. The
respondent further contends that the petitioners are estopped from assailing the 4% monthly interest, since they agreed to pay
the 4% monthly interest on the principal amount under the promissory note and the board resolution.

THE ISSUE

The core issue boils down to whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of interest
apply to the 6-month payment period only or until full payment of the loan?

OUR RULING

We find the petition meritorious.

Interest due should be stipulated in writing; otherwise, 12% per

annum

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good
faith.[20] When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal
meaning of its stipulations governs. [21] In such cases, courts have no authority to alter the contract by construction or to make a
new contract for the parties; a court's duty is confined to the interpretation of the contract the parties made for themselves
without regard to its wisdom or folly, as the court cannot supply material stipulations or read into the contract words the
contract does not contain.[22] It is only when the contract is vague and ambiguous that courts are permitted to resort to the
interpretation of its terms to determine the parties intent.

In the present case, the respondent issued a check for P1,000,000.00.[23] In turn, Pantaleon, in his personal capacity and as
authorized by the Board, executed the promissory note quoted above. Thus, the P1,000,000.00 loan shall be payable within six
(6) months, or from January 8, 1994 up to June 8, 1994. During this period, the loan shall earn an interest of P40,000.00 per
month, for a total obligation of P1,240,000.00 for the six-month period. We note that this agreed sum can be computed at
4% interest per month, but no such rate of interest was stipulated in the promissory note; rather a fixed sum
equivalent to this rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that no interest shall be due unless it has been expressly stipulated in
writing. Under this provision, the payment of interest in loans or forbearance of money is allowed only if: (1) there was an
express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The
concurrence of the two conditions is required for the payment of interest at a stipulated rate. Thus, we held in Tan v.
Valdehueza[24] and Ching v. Nicdao[25] that collection of interest without any stipulation in writing is prohibited by law.

Applying this provision, we find that the interest of P40,000.00 per month corresponds only to the six (6)-month period of the
loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on
the loan should be at the legal interest rate of 12% per annum, consistent with our ruling in Eastern Shipping Lines, Inc. v. Court
of Appeals:[26]

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. (Emphasis
supplied)

We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br. 61,[27] Sulit v. Court of Appeals,[28] Crismina Garments,
Inc. v. Court of Appeals,[29] Eastern Assurance and Surety Corporation v. Court of Appeals,[30] Sps. Catungal v. Hao,[31] Yong v. Tiu,
[32]
and Sps. Barrera v. Sps. Lorenzo.[33] Thus, the RTC and the CA misappreciated the facts of the case; they erred in finding that
the parties agreed to a 4% interest, compounded by the application of this interest beyond the promissory notes six (6)-month
period. The facts show that the parties agreed to the payment of a specific sum of money of P40,000.00 per month for six
months, not to a 4% rate of interest payable within a six (6)-month period.

Medel v. Court of Appeals not applicable

The CA misapplied Medel v. Court of Appeals[34] in finding that a 4% interest per month was unconscionable.
 In Medel, the debtors in a P500,000.00 loan were required to pay an interest of 5.5% per month, a service charge of 2%
per annum, and a penalty charge of 1% per month, plus attorneys fee equivalent to 25% of the amount due, until the loan is
fully paid. Taken in conjunction with the stipulated service charge and penalty, we found the interest rate of 5.5% to be
excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby rendering the stipulation null and
void.

Applying Medel, we invalidated and reduced the stipulated interest in Spouses Solangon v. Salazar[35] of 6% per month
or 72% per annum interest on a P60,000.00 loan; in Ruiz v. Court of Appeals,[36] of 3% per month or 36% per annum interest on
a P3,000,000.00 loan; in Imperial v. Jaucian,[37] of 16% per month or 192% per annum interest on a P320,000.00 loan; in Arrofo
v. Quio,[38] of 7% interest per month or 84% per annum interest on a P15,000.00 loan; in Bulos, Jr. v. Yasuma,[39] of 4% per month
or 48% per annum interest on a P2,500,000.00 loan; and in Chua v. Timan,[40] of 7% and 5% per month for loans
totalling P964,000.00. We note that in all these cases, the terms of the loans were open-ended; the stipulated interest rates
were applied for an indefinite period.

Medel finds no application in the present case where no other stipulation exists for the payment of any extra amount
except a specific sum of P40,000.00 per month on the principal of a loan payable within six months. Additionally, no issue on
the excessiveness of the stipulated amount of P40,000.00 per month was ever put in issue by the petitioners; [41] they only
assailed the application of a 4% interest rate, since it was not agreed upon.

It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and
conditions they have agreed to, which is the law between them, the only limitation being that these stipulations, clauses, terms
and conditions are not contrary to law, morals, public order or public policy. [42] The payment of the specific sum of
money of P40,000.00 per month was voluntarily agreed upon by the petitioners and the respondent. There is nothing from the
records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement
with the respondent.
Therefore, as agreed by the parties, the loan of P1,000,000.00 shall earn P40,000.00 per month for a period of six (6)
months, or from December 8, 1993 to June 8, 1994, for a total principal and interest amount of P1,240,000.00. Thereafter,
interest at the rate of 12% per annum shall apply. The amounts already paid by the petitioners during the pendency of the suit,
amounting to P1,228,772.00 as of February 12, 1999,[43] should be deducted from the total amount due, computed as indicated
above. We remand the case to the trial court for the actual computation of the total amount due.

Doctrine of Estoppel not applicable

The respondent submits that the petitioners are estopped from disputing the 4% monthly interest beyond the six-month
stipulated period, since they agreed to pay this interest on the principal amount under the promissory note and the board
resolution.

We disagree with the respondents contention.

We cannot apply the doctrine of estoppel in the present case since the facts and circumstances, as established by the record,
negate its application. Under the promissory note, [44]what the petitioners agreed to was the payment of a specific sum
of P40,000.00 per month for six months not a 4% rate of interest per month for six (6) months on a loan whose
principal is P1,000,000.00, for the total amount of P1,240,000.00. Thus, no reason exists to place the petitioners in
estoppel, barring them from raising their present defenses against a 4% per month interest after the six-month period of the
agreement. The board resolution,[45] on the other hand, simply authorizes Pantaleon to contract for a loan with a monthly
interest of not more than 4%. This resolution merely embodies the extent of Pantaleons authority to contract and does not
create any right or obligation except as between Pantaleon and the board. Again, no cause exists to place the petitioners in
estoppel.

Piercing the corporate veil unfounded

We find it unfounded and unwarranted for the lower courts to pierce the corporate veil of PRISMA.

The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when the separate and distinct
corporate personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion of an
existing obligation; b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime;
or c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation. [46] In the absence of malice, bad faith, or a specific provision
of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities. [47]
In the present case, we see no competent and convincing evidence of any wrongful, fraudulent or unlawful act on the part of
PRISMA to justify piercing its corporate veil. While Pantaleon denied personal liability in his Answer, he made himself
accountable in the promissory note in his personal capacity and as authorized by the Board Resolution of PRISMA.[48] With this
statement of personal liability and in the absence of any representation on the part of PRISMA that the obligation is all its own
because of its separate corporate identity, we see no occasion to consider piercing the corporate veil as material to the case.

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the Decision dated May 5, 2003 of the Court of
Appeals in CA-G.R. CV No. 69627. The petitioners loan of P1,000,000.00 shall bear interest of P40,000.00 per month for six (6)
months from December 8, 1993 as indicated in the promissory note. Any portion of this loan, unpaid as of the end of the six-
month payment period, shall thereafter bear interest at 12% per annum. The total amount due and unpaid, including accrued
interests, shall bear interest at 12% per annum from the finality of this Decision. Let this case be REMANDED to the Regional
Trial Court, Branch 73, Antipolo City for the proper computation of the amount due as herein directed, with due regard to the
payments the petitioners have already remitted. Costs against the respondent.

SO ORDERED.

FIRST DIVISION

G.R. No. 183804, September 11, 2013

S.C. MEGAWORLD CONSTRUCTION AND DEVELOPMENT CORPORATION, Petitioner, v. ENGR. LUIS U. PARADA,
REPRESENTED BY ENGR. LEONARDO A. PARADA OF GENLITE INDUSTRIES,Respondent.

DECISION

REYES, J.:

Before us on appeal by certiorari1 is the Decision2 dated April 30, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 83811
which upheld the Decision3 dated May 28, 2004 of the Regional Trial Court (RTC) of Quezon City, Branch 100, in Civil Case No.
Q-01-45212.

Factual Antecedents

S.C. Megaworld Construction and Development Corporation (petitioner) bought electrical lighting materials from Genlite
Industries, a sole proprietorship owned by Engineer Luis U. Parada (respondent), for its Read-Rite project in Canlubang,
Laguna. The petitioner was unable to pay for the above purchase on due date, but blamed it on its failure to collect under its
sub-contract with the Enviro Kleen Technologies, Inc. (Enviro Kleen). It was however able to persuade Enviro Kleen to agree to
settle its above purchase, but after paying the respondent P250,000.00 on June 2, 1999, 4 Enviro Kleen stopped making further
payments, leaving an outstanding balance of P816,627.00. It also ignored the various demands of the respondent, who then
filed a suit in the RTC, docketed as Civil Case No. Q-01-45212, to collect from the petitioner the said balance, plus damages,
costs and expenses, as summarized in the RTC’s decision, as follows:chanrobles virtua1aw 1ibrary
According to the statement of account prepared by the [respondent], the total obligation due to the [petitioner] is
[P]816,627.00 as of 31 January 2001 (Exh[s]. E & E-1). Despite several demands made by the [respondent] (Exhs. F & G,
inclusive of their submarkings), the [petitioner’s] obligation remain[s] unpaid. [The respondent] was constrained to file the
instant action in which it is claiming the unpaid balance of [P]816,627.00, two (2) percent thereof as monthly interest, twenty-
five (25) percent of the amount due as attorney’s fees (Exhs. C-8 to C-15), [P]100,000.00 as litigation expenses and
[P]100,000.00 as exemplary damages.5
The petitioner in its answer denied liability, claiming that it was released from its indebtedness to the respondent by reason of
the novation of their contract, which, it reasoned, took place when the latter accepted the partial payment of Enviro Kleen in its
behalf, and thereby acquiesced to the substitution of Enviro Kleen as the new debtor in the petitioner’s place.

After trial, the RTC rendered judgment 6 on May 28, 2004 in favor of the respondent, the fallo of which reads, as
follows:chanrobles virtua1aw 1ibrary
WHEREFORE, judgment is hereby rendered for the [respondent].

[The petitioner] is hereby ordered to pay the [respondent] the following:

1. A. the sum of [P]816,627.00 representing the principal obligation due;

2. B. the sum equivalent to twenty percent (20%) per month of the principal obligation due from date of judicial
demand until fully paid as and for interest; and

3. C. the sum equivalent to twenty[-]five [percent] (25%) of the principal sum due as and for attorney’s fees and other
costs of suits.

The compulsory counterclaim interposed by the [petitioner] is hereby ordered dismissed for lack of merit.

SO ORDERED.7 (Emphasis supplied)

On appeal to the CA, the petitioner maintained that the trial court erred in ruling that no novation of the contract took place
through the substitution of Enviro Kleen as the new debtor. But for the first time, it further argued that the trial court should
have dismissed the complaint for failure of the respondent to implead Genlite Industries as “a proper party in interest”, as
provided in Section 2 of Rule 3 of the 1997 Rules of Civil Procedure. The said section provides:chanrobles virtua1aw 1ibrary
SEC. 2. Parties in interest. — A real party in interest is the party who stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest.
In Section 1(g) of Rule 16 of the Rules of Court, it is also provided that the defendant may move to dismiss the suit on the
ground that it was not brought in the name of or against the real party in interest, with the effect that the complaint is then
deemed to state no cause of action.

In dismissing the appeal, the CA noted that the petitioner in its answer below raised only the defense of novation, and that at
no stage in the proceedings did it raise the question of whether the suit was brought in the name of the real party in interest.
Moreover, the appellate court found from the sales invoices and receipts that the respondent is the sole proprietor of Genlite
Industries, and therefore the real party-plaintiff. Said the CA:chanrobles virtua1aw 1ibrary
Settled is the rule that litigants cannot raise an issue for the first time on appeal as this would contravene the basic rules of fair
play and justice.

In any event, there is no question that [respondent] Engr. Luis U. Parada is the proprietor of Genlite Industries, as shown on the
sales invoice and delivery receipts. There is also no question that a special power of attorney was executed by [respondent]
Engr. Luis U. Parada in favor of Engr. Leonardo A. Parada authorizing the latter to file a complaint against [the
petitioner].8 (Citations omitted)

The petitioner also contended that a binding novation of the purchase contract between the parties took place when the
respondent accepted the partial payment of Enviro Kleen of P250,000.00 in its behalf, and thus acquiesced to the substitution
by Enviro Kleen of the petitioner as the new debtor. But the CA noted that there is nothing in the two (2) letters of the
respondent to Enviro Kleen, dated April 14, 1999 and June 16, 1999, which would imply that he consented to the alleged
novation, and, particularly, that he intended to release the petitioner from its primary obligation to pay him for its purchase of
lighting materials. The appellate court cited the RTC’s finding 9 that the respondent informed Enviro Kleen in his first letter that
he had served notice to the petitioner that he would take legal action against it for its overdue account, and that he retained his
option to pull out the lighting materials and charge the petitioner for any damage they might sustain during the pull-out
[Respondent] x x x has served notice to the [petitioner] that unless the overdue account is paid, the matter will be referred to
its lawyers and there may be a pull-out of the delivered lighting fixtures. It was likewise stated therein that incidental damages
that may result to the structure in the course of the pull-out will be to the account of the [petitioner]. 10
The CA concurred with the RTC that by retaining his option to seek satisfaction from the petitioner, any acquiescence which the
respondent had made was limited to merely accepting Enviro Kleen as an additional debtor from whom he could demand
payment, but without releasing the petitioner as the principal debtor from its debt to him.

On motion for reconsideration, 11 the petitioner raised for the first time the issue of the validity of the verification and
certification of non-forum shopping attached to the complaint. On July 18, 2008, the CA denied the said motion for lack of
merit.12 virtualaw library

Petition for Review in the Supreme Court

In this petition, the petitioner insists, firstly, that the complaint should have been dismissed outright by the trial court for an
invalid non-forum shopping certification; and, secondly, that the appellate court erred in not declaring that there was a
novation of the contract between the parties through substitution of the debtor, which resulted in the release of the petitioner
from its obligation to pay the respondent the amount of its purchase. 13 virtualaw library

Our Ruling

The petition is devoid of merit.

The verification and certification of non-forum shopping in the complaint is not a jurisdictional but a formal
requirement, and any objection as to non-compliance therewith should be raised in the proceedings below and not for
the first time on appeal.

“It is well-settled that no question will be entertained on appeal unless it has been raised in the proceedings below. Points of
law, theories, issues and arguments not brought to the attention of the lower court, administrative agency or quasi-judicial
body, need not be considered by a reviewing court, as they cannot be raised for the first time at that late stage. Basic
considerations of fairness and due process impel this rule. Any issue raised for the first time on appeal is barred by estoppel.”14

Through a Special Power of Attorney (SPA), the respondent authorized Engr. Leonardo A. Parada (Leonardo), the eldest of his
three children, to perform the following acts in his behalf: a) to file a complaint against the petitioner for sum of money with
damages; and b) to testify in the trial thereof and sign all papers and documents related thereto, with full powers to enter into
stipulation and compromise.15 Incidentally, the respondent, a widower, died of cardio-pulmonary arrest on January 21,
2009,16 survived by his legitimate children, namely, Leonardo, Luis, Jr., and Lalaine, all surnamed Parada. They have since
substituted him in this petition, per the Resolution of the Supreme Court dated September 2, 2009. 17 Also, on July 23, 2009,
Luis, Jr. and Lalaine Parada executed an SPA authorizing their brother Leonardo to represent them in the instant petition. 18

In the verification and certification of non-forum shopping attached to the complaint in Civil Case No. Q01-45212, Leonardo as
attorney-in-fact of his father acknowledged as follows:
xxxx

That I/we am/are the Plaintiff in the above-captioned case;

That I/we have caused the preparation of this Complaint

That I/we have read the same and that all the allegations therein are true and correct to the best of my/our knowledge;

x x x x.19
In this petition, the petitioner reiterates its argument before the CA that the above verification is invalid, since the SPA executed
by the respondent did not specifically include an authority for Leonardo to sign the verification and certification of non-forum
shopping, thus rendering the complaint defective for violation of Sections 4 and 5 of Rule 7. The said sections provide, as
follows;

Sec. 4. Verification. — A pleading is verified by an affidavit that the affiant has read the pleading and that the allegations therein
are true and correct of his personal knowledge or based on authentic records.

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, [or] tribunal x x
x 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 x x x 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 petitioner’s argument is untenable. The petitioner failed to reckon that any objection as to compliance with the
requirement of verification in the complaint should have been raised in the proceedings below, and not in the appellate court
for the first time.20 In KILUSAN-OLALIA v. CA,21 it was held that verification is a formal, not a jurisdictional requisite.
We have emphasized, time and again, that verification is a formal, not a jurisdictional requisite, as it is mainly intended to
secure an assurance that the allegations therein made are done in good faith or are true and correct and not mere speculation.
The Court may order the correction of the pleading, if not verified, or act on the unverified pleading if the attending
circumstances are such that a strict compliance with the rule may be dispensed with in order that the ends of justice may be
served.

Further, in rendering justice, courts have always been, as they ought to be, conscientiously guided by the norm that on the
balance, technicalities take a backseat vis-à-vissubstantive rights, and not the other way around. x x x.22 (Citations omitted)
In Young v. John Keng Seng,23 it was also held that the question of forum shopping cannot be raised in the CA and in the
Supreme Court, since such an issue must be raised at the earliest opportunity in a motion to dismiss or a similar pleading. The
high court even warned that “[i]nvoking it in the later stages of the proceedings or on appeal may result in the dismissal of the
action x x x.”24

Moreover, granting that Leonardo has no personal knowledge of the transaction subject of the complaint below, Section 4 of
Rule 7 provides that the verification need not be based on the verifier’s personal knowledge but even only on authentic
records. Sales invoices, statements of accounts, receipts and collection letters for the balance of the amount still due to the
respondent from the petitioner are such records. There is clearly substantial compliance by the respondent’s attorney-in-fact
with the requirement of verification.

Lastly, it is well-settled that a strict compliance with the rules may be dispensed with in order that the ends of substantial
justice may be served.25 It is clear that the present controversy must be resolved on its merits, lest for a technical oversight the
respondent should be deprived of what is justly due him.

A sole proprietorship has no juridical personality separate and distinct from that of its owner, and need not be
impleaded as a party-plaintiff in a civil case.

On the question of whether Genlite Industries should have been impleaded as a party-plaintiff, Section 1 of Rule 3 of the Rules
of Court provides that only natural or juridical persons or entities authorized by law may be parties in a civil case. Article 44 of
the New Civil Code enumerates who are juridical persons
Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality begins as soon
as they have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality,
separate and distinct from that of each shareholder, partner or member.
Genlite Industries is merely the DTI-registered trade name or style of the respondent by which he conducted his business. As
such, it does not exist as a separate entity apart from its owner, and therefore it has no separate juridical personality to sue or
be sued.26 As the sole proprietor of Genlite Industries, there is no question that the respondent is the real party in interest who
stood to be directly benefited or injured by the judgment in the complaint below. There is then no necessity for Genlite
Industries to be impleaded as a party-plaintiff, since the complaint was already filed in the name of its proprietor, Engr. Luis U.
Parada. To heed the petitioner’s sophistic reasoning is to permit a dubious technicality to frustrate the ends of substantial
justice.

Novation is never presumed but must be clearly and unequivocally shown.

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor
in place of the old one, or by subrogating a third person to the rights of the creditor. 27 It is “the substitution of a new contract,
debt, or obligation for an existing one between the same or different parties.” 28 Article 1293 of the Civil Code defines novation
as follow:
Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him
rights mentioned in Articles 1236 and 1237.
Thus, in order to change the person of the debtor, the former debtor must be expressly released from the obligation, and the
third person or new debtor must assume the former’s place in the contractual relation. 29 Article 1293 speaks of substitution of
the debtor, which may either be in the form of expromision or delegacion, as seems to be the case here. In both cases, the old
debtor must be released from the obligation, otherwise, there is no valid novation. As explained in Garcia30:chanrobles
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In general, there are two modes of substituting the person of the debtor: (1) expromisionand (2) delegacion. In expromision, the
initiative for the change does not come from—and may even be made without the knowledge of—the debtor, since it consists
of a third person’s assumption of the obligation. As such, it logically requires the consent of the third person and the creditor.
In delegacion, the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the
obligation; thus, the consent of these three persons are necessary. Both modes of substitution by the debtor require the
consent of the creditor.31 (Citations omitted)
From the circumstances obtaining below, we can infer no clear and unequivocal consent by the respondent to the release of the
petitioner from the obligation to pay the cost of the lighting materials. In fact, from the letters of the respondent to Enviro
Kleen, it can be said that he retained his option to go after the petitioner if Enviro Kleen failed to settle the petitioner’s debt. As
the trial court held:chanrobles virtua1aw 1ibrary
The fact that Enviro Kleen Technologies, Inc. made payments to the [respondent] and the latter accepted it does not ipso
facto result in novation. Novation to be given its legal effect requires that the creditor should consent to the substitution of a
new debtor and the old debtor be released from its obligation (Art. 1293, New Civil Code). A reading of the letters dated 14
April 1999 (Exh. 1) and dated 16 June 1999 (Exh[s]. 4 & 4-a) sent by the [respondent] to Enviro Kleen Technologies, Inc. clearly
shows that there was nothing therein that would evince that the [respondent] has consented to the exchange of the person of
the debtor from the [petitioner] to Enviro Kleen Technologies, Inc.

xxxx

Notably in Exh. 1, albeit addressed to Enviro Kleen Technologies, Inc., the [respondent] expressly stated that it has served
notice to the [petitioner] that unless the overdue account is paid, the matter will be referred to its lawyers and there may be a
pull-out of the delivered lighting fixtures. It was likewise stated therein that incident damages that may result to the structure
in the course of the pull-out will be to the account of the [petitioner].

It is evident from the two (2) aforesaid letters that there is no indication of the [respondent’s] intention to release the
[petitioner] from its obligation to pay and to transfer it to Enviro Kleen Technologies, Inc. The acquiescence of Enviro Kleen
Technologies, Inc. to assume the obligation of the [petitioner] to pay the unpaid balance of [P]816,627.00 to the [respondent]
when there is clearly no agreement to release the [petitioner] will result merely to the addition of debtors and not novation.
Hence, the creditor can still enforce the obligation against the original debtor x x x. A fact which points strongly to the
conclusion that the [respondent] did not assent to the substitution of Enviro Kleen Technologies, Inc. as the new debtor is the
present action instituted by [the respondent] against the [petitioner] for the fulfilment of its obligation. A mere recital that the
[respondent] has agreed or consented to the substitution of the debtor is not sufficient to establish the fact that there was a
novation. x x x.32
The settled rule is that novation is never presumed, 33 but must be clearly and unequivocally shown. 34 In order for a new
agreement to supersede the old one, the parties to a contract must expressly agree that they are abrogating their old contract
in favor of a new one. 35 Thus, the mere substitution of debtors will not result in novation, 36 and the fact that the creditor
accepts payments from a third person, who has assumed the obligation, will result merely in the addition of debtors and not
novation, and the creditor may enforce the obligation against both debtors. 37 If there is no agreement as to solidarity, the first
and new debtors are considered obligated jointly.38 As explained in Reyes v. CA39:chanrobles virtua1aw 1ibrary
The consent of the creditor to a novation by change of debtor is as indispensable as the creditor’s consent in conventional
subrogation in order that a novation shall legally take place. The mere circumstance of AFP-MBAI receiving payments from
respondent Eleazar who acquiesced to assume the obligation of petitioner under the contract of sale of securities, when there
is clearly no agreement to release petitioner from her responsibility, does not constitute novation. At most, it only creates a
juridical relation of co-debtorship or suretyship on the part of respondent Eleazar to the contractual obligation of petitioner to
AFP-MBAI and the latter can still enforce the obligation against the petitioner. In Ajax Marketing and Development Corporation
vs. Court of Appeals which is relevant in the instant case, we stated that —
“In the same vein, to effect a subjective novation by a change in the person of the debtor, it is necessary that the old debtor be
released expressly from the obligation, and the third person or new debtor assumes his place in the relation. There is no
novation without such release as the third person who has assumed the debtor’s obligation becomes merely a co-debtor or
surety. xxx. Novation arising from a purported change in the person of the debtor must be clear and express xxx.”
In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the Roman Law jurisprudence, the
principle – novatio non praesumitur — that novation is never presumed. At bottom, for novation to be a jural reality,
its animus must be ever present, debitum pro debito — basically extinguishing the old obligation for the new one. 40(Citation
omitted)
The trial court found that the respondent never agreed to release the petitioner from its obligation, and this conclusion was
upheld by the CA. We generally accord utmost respect and great weight to factual findings of the trial court and the CA, unless
there appears in the record some fact or circumstance of weight and influence which has been overlooked, or the significance
of which has been misinterpreted, that if considered would have affected the result of the case. 41 We find no such oversight in
the appreciation of the facts below, nor such a misinterpretation thereof, as would otherwise provide a clear and unequivocal
showing that a novation has occurred in the contract between the parties resulting in the release of the petitioner.
Pursuant to Article 2209 of the Civil Code, except as provided under Central Bank Circular No. 905, and now under
Bangko Sentral ng Pilipinas Circular No. 799, which took effect on July 1, 2013, the respondent may be awarded
interest of six percent (6%) of the judgment amount by way of actual and compensatory damages.

It appears from the recital of facts in the trial court’s decision that the respondent demanded interest of two percent (2%) per
month upon the balance of the purchase price of P816,627.00, from judicial demand until full payment. There is then an
obvious clerical error committed in the fallo of the trial court’s decision, for it incorrectly ordered the defendant therein to pay
“the sum equivalent to twenty percent (20%) per month of the principal obligation due from date of judicial demand until
fully paid as and for interest.” 42 virtualaw library

A clerical mistake is one which is visible to the eyes or obvious to the understanding; an error made by a clerk or a transcriber;
a mistake in copying or writing. 43 The Latin maxims Error placitandi aequitatem non tollit (“A clerical error does not take away
equity”), and Error scribentis nocere non debit (“An error made by a clerk ought not to injure; a clerical error may be
corrected”) are apt in this case. 44 Viewed against the landmark case of Medel v. CA45, an award of interest of 20% per month on
the amount due is clearly excessive and iniquitous. It could not have been the intention of the trial court, not to mention that it
is way beyond what the plaintiff had prayed for below.

It is settled that other than in the case of judgments which are void ab initio for lack of jurisdiction, or which are null and
void per se, and thus may be questioned at any time, when a decision is final, even the court which issued it can no longer alter
or modify it, except to correct clerical errors or mistakes.46

The foregoing notwithstanding, of more important consideration in the case before us is the fact that it is nowhere stated in the
trial court’s decision that the parties had in fact stipulated an interest on the amount due to the respondent. Even granting that
there was such an agreement, there is no finding by the trial court that the parties stipulated that the outstanding debt of the
petitioner would be subject to two percent (2%) monthly interest. The most that the decision discloses is that the respondent
demanded a monthly interest of 2% on the amount outstanding.

Article 2209 of the Civil Code provides that “[i]f the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum.” Pursuant to the said
provision, then, since there is no finding of a stipulation by the parties as to the imposition of interest, only the amount of
12% per annum47 may be awarded by the court by way of damages in its discretion, not two percent (2%) per month, following
the guidelines laid down in the landmark case of Eastern Shipping Lines v. Court of Appeals,48 to wit:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as
well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the
Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit. 49 (Citations omitted)
As further clarified in the case of Sunga-Chan v. CA,50 a loan or forbearance of money, goods or credit describes a contractual
obligation whereby a lender or creditor has refrained during a given period from requiring the borrower or debtor to repay the
loan or debt then due and payable.51 Thus:chanrobles virtua1aw 1ibrary
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under Central Bank (CB) Circular No. 416
shall be adjudged only in cases involving the loan or forbearance of money. And for transactions involving payment of
indemnities in the concept of damages arising from default in the performance of obligations in general and/or for money
judgment not involving a loan or forbearance of money, goods, or credit, the governing provision is Art. 2209 of the Civil Code
prescribing a yearly 6% interest. Art. 2209 pertinently provides:chanrobles virtua1aw 1ibrary
“Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.”
The term “forbearance,” within the context of usury law, has been described as a contractual obligation of a lender or creditor
to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due and payable.

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable rate, as follows: The
12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as
to judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the
Civil Code applies “when the transaction involves the payment of indemnities in the concept of damage arising from the
breach or a delay in the performance of obligations in general,” with the application of both rates reckoned “from the time
the complaint was filed until the [adjudged] amount is fully paid.” In either instance, the reckoning period for the
commencement of the running of the legal interest shall be subject to the condition “that the courts are vested with discretion,
depending on the equities of each case, on the award of interest.” 52 (Citations omitted and emphasis ours)
Pursuant, then, to Central Bank Circular No. 416, issued on July 29, 1974, 53 in the absence of a written stipulation, the interest
rate to be imposed in judgments involving a forbearance of credit shall be 12% per annum, up from 6% under Article 2209 of
the Civil Code. This was reiterated in Central Bank Circular No. 905, which suspended the effectivity of the Usury Law from
January 1, 1983.54 But if the judgment refers to payment of interest as damages arising from a breach or delay in general, the
applicable interest rate is 6% per annum, following Article 2209 of the Civil Code.55 Both interest rates apply from judicial or
extrajudicial demand until finality of the judgment. But from the finality of the judgment awarding a sum of money until it is
satisfied, the award shall be considered a forbearance of credit, regardless of whether the award in fact pertained to one, and
therefore during this period, the interest rate of 12% per annum for forbearance of money shall apply. 56 virtualaw library

But notice must be taken that in Resolution No. 796 dated May 16, 2013, the Monetary Board of the Bangko Sentral ng Pilipinas
approved the revision of the interest rate to be imposed for the loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of an express contract as to such rate of interest. Thus, under BSP Circular No. 799, issued
on June 21, 2013 and effective on July 1, 2013, the said rate of interest is now back at six percent (6%), viz:chanrobles
virtua1aw 1ibrary

Bangko Sentral ng Pilipinas

OFFICE OF THE GOVERNOR

CIRCULAR NO. 799

Series of 2013

Subject: Rate of interest in the absence of stipulation

The monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of
interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in
the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and
4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.

This Circular shall take effect on 1 July 2013.

FOR THE MONETARY BOARD:

DIWA C. GUINIGUNDO
Officer-In-Charge
The award of attorney’s fees is not proper.

Other than to say that the petitioner “unjustifiably failed and refused to pay the respondent,” the trial court did not state in the
body of its decision the factual or legal basis for its award of attorney’s fees to the respondent, as required under Article 2208
of the New Civil Code, for which reason we have resolved to delete the same. The rule is settled that the trial court must state
the factual, legal or equitable justification for its award of attorney’s fees. 57 Indeed, the matter of attorney’s fees cannot be
stated only in the dispositive portion, but the reasons must be stated in the body of the court’s decision. 58 This failure or
oversight of the trial court cannot even be supplied by the CA. As concisely explained in Frias v. San Diego-Sison59:chanrobles
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Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must be
reasonable, just and equitable if the same were to be granted. Attorney’s fees as part of damages are not meant to enrich the
winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a suit because of the
policy that no premium should be placed on the right to litigate. The award of attorney’s fees is the exception rather than the
general rule. As such, it is necessary for the trial court to make findings of facts and law that would bring the case within the
exception and justify the grant of such award. The matter of attorney’s fees cannot be mentioned only in the dispositive portion
of the decision. They must be clearly explained and justified by the trial court in the body of its decision. On appeal, the CA is
precluded from supplementing the bases for awarding attorney’s fees when the trial court failed to discuss in its Decision the
reasons for awarding the same. Consequently, the award of attorney’s fees should be deleted. 60 (Citations omitted)
WHEREFORE, premises considered, the Decision dated April 30, 2008 of the Court of Appeals in CA-G.R. CV No. 83811
is AFFIRMED with MODIFICATION. Petitioner S.C. Megaworld Construction and Development Corporation is ordered to pay
respondent Engr. Luis A. Parada, represented by Engr. Leonardo A. Parada, the principal amount due of P816,627.00, plus
interest at twelve percent (12%) per annum, reckoned from judicial demand until June 30, 2013, and six percent (6%) per
annum from July 1, 2013 until finality hereof, by way of actual and compensatory damages. Thereafter, the principal amount
due as adjusted by interest shall likewise earn interest at six percent (6%) per annum until fully paid. The award of attorney’s
fees is DELETED.

SO ORDERED.

G.R. No. 183360 September 8, 2014

ROLANDO C. DE LA PAZ,* Petitioner,

vs.
L & J DEVELOPMENT COMPANY, Respondent.

DECISION

DEL CASTILLO, J.:

"No interest shall be due unless it has been expressly stipulated in writing." 1

This is a Petition for Review on Certiorari 2 assailing the February 27, 2008 Decision 3 of the Court of Appeals (CA) in CA-G.R. SP
No. 100094, which reversed and set aside the Decision 4 dated April 19, 2007 of the Regional Trial Court (RTC), Branch 192,
Marikina City in Civil Case No. 06-1145-MK. The said RTC Decision affirmed in all respects the Decision 5 dated June 30, 2006 of
the Metropolitan Trial Court (MeTC), Branch 75, Marikina City in Civil Case No. 05-7755, which ordered respondent L & J
Development Company (L&J) to pay petitioner Architect Rolando C. De La Paz (Rolando) its principal obligation of
₱350,000.00, plus 12% interest per annumreckoned from the filing of the Complaint until full payment of the obligation.

Likewise assailed is the CA’s June 6, 2008 Resolution6 which denied Rolando’s Motion for Reconsideration.

Factual Antecedents

On December 27, 2000, Rolando lent ₱350,000.00 without any security to L&J, a property developer with Atty. Esteban Salonga
(Atty. Salonga) as its President and General Manager. The loan, with no specified maturity date, carried a 6% monthly interest,
i.e., ₱21,000.00. From December 2000 to August 2003, L&J paid Rolando a total of ₱576,000.007 representing interest charges.

As L&J failed to pay despite repeated demands, Rolando filed a Complaint 8 for Collection of Sum of Money with Damages
against L&J and Atty. Salonga in his personal capacity before the MeTC, docketed as Civil Case No. 05-7755. Rolando alleged,
amongothers, that L&J’s debtas of January 2005, inclusive of the monthly interest, stood at ₱772,000.00; that the 6% monthly
interest was upon Atty. Salonga’s suggestion; and, that the latter tricked him into parting with his money without the loan
transaction being reduced into writing.
In their Answer,9 L&J and Atty. Salonga denied Rolando’s allegations. While they acknowledged the loan as a corporate debt,
they claimed that the failure to pay the same was due to a fortuitous event, that is, the financial difficulties brought about by
the economic crisis. They further argued that Rolando cannot enforce the 6% monthly interest for being unconscionable and
shocking to the morals. Hence, the payments already made should be applied to the ₱350,000.00 principal loan.

During trial, Rolando testified that he had no communication with Atty. Salonga prior to the loan transaction but knew him as a
lawyer, a son of a former Senator, and the owner of L&J which developed Brentwood Subdivision in Antipolo where his
associate Nilo Velasco (Nilo) lives. When Nilo told him that Atty. Salonga and L&J needed money to finish their projects,
heagreed to lend them money. He personally met withAtty. Salonga and their meeting was cordial.

He narrated that when L&J was in the process of borrowing the ₱350,000.00 from him, it was Arlene San Juan (Arlene), the
secretary/treasurer of L&J, who negotiated the terms and conditions thereof.She said that the money was to finance L&J’s
housing project. Rolando claimed that it was not he who demanded for the 6% monthly interest. It was L&J and Atty. Salonga,
through Arlene, who insisted on paying the said interest as they asserted that the loan was only a short-term one.

Ruling of the Metropolitan Trial Court

The MeTC, in its Decision10 of June 30, 2006, upheld the 6% monthly interest. In so ruling, it ratiocinated that since L&J agreed
thereto and voluntarily paid the interest at suchrate from 2000 to 2003, it isalready estopped from impugning the same.
Nonetheless, for reasons of equity, the saidcourt reduced the interest rate to 12% per annumon the remaining principal
obligation of ₱350,000.00. With regard to Rolando’s prayer for moral damages, the MeTC denied the same as it found no malice
or bad faith on the part ofL&J in not paying the obligation. It likewise relieved Atty. Salonga of any liability as it found that he
merely acted in his official capacity in obtaining the loan. The MeTC disposed of the case as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff, Arch. Rolando C. Dela Paz, and
against the defendant, L & J Development Co., Inc., as follows:

a) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Three Hundred Fifty Thousand
Pesos (₱350,000.00) representing the principal obligation, plus interest at the legal rate of 12% per annum to be
computed from January 20, 2005, the date of the filing of the complaint, until the whole obligation is fully paid;

b) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Five Thousand Pesos (₱5,000.00)
as and for attorney’s fees; and

c) to pay the costs of this suit.

SO ORDERED.11

Ruling of the Regional Trial Court

L&J appealed to the RTC. It asserted in its appeal memorandum 12 that from December 2000 to March 2003, it paid monthly
interest of ₱21,000.00 based on the agreed-upon interest rate of 6%monthly and from April 2003 to August 2003, interest
paymentsin various amounts.13 The total of interest payments made amounts to ₱576,000.00 – an amount which is even more
than the principal obligation of ₱350,000.00

L&J insisted that the 6% monthly interest rate is unconscionable and immoral. Hence, the 12% per annumlegal interest should
have been applied from the time of the constitution of the obligation. At 12% per annum interest rate, it asserted that the
amount of interestit ought to pay from December 2000 to March 2003 and from April 2003 to August 2003, only amounts to
₱105,000.00. If this amount is deducted from the total interest paymentsalready made, which is ₱576,000.00, the amount of
₱471,000.00 appears to have beenpaid over and above what is due. Applying the rule on compensation, the principal loan of
₱350,000.00 should be set-off against the ₱471,000.00, resulting in the complete payment of the principal loan.

Unconvinced, the RTC, inits April 19, 2007 Decision, 14 affirmed the MeTC Decision, viz: WHEREFORE, premises considered, the
Decision appealed from is hereby AFFIRMED in all respects, with costs against the appellant.

SO ORDERED.15

Ruling of the Court of Appeals

Undaunted, L&J went to the CA and echoed its arguments and proposed computation as proffered before the RTC.

In a Decision16 dated February 27, 2008, the CAreversed and set aside the RTC Decision. The CA stressed that the parties
failedto stipulate in writing the imposition of interest on the loan. Hence, no interest shall be due thereon pursuant to Article
1956 of the Civil Code. 17 And even if payment of interest has been stipulated in writing, the 6% monthly interest is still
outrightly illegal and unconscionable because it is contrary to morals, if not against the law. Being void, this cannot be ratified
and may be set up by the debtor as defense. For these reasons, Rolando cannot collect any interest even if L&J offered to pay
interest. Consequently, he has to return all the interest payments of ₱576,000.00 to L&J.

Considering further that Rolando and L&J thereby became creditor and debtor of each other, the CA applied the principle of
legal compensation under Article 1279 of the Civil Code. 18 Accordingly, it set off the principal loan of ₱350,000.00 against the
₱576,000.00 total interest payments made, leaving an excess of ₱226,000.00, which the CA ordered Rolando to pay L&J plus
interest. Thus:

WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and SET ASIDE.

CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz is ordered to pay to the petitioner the amount of
₱226,000.00,plus interest of 12% per annumfrom the finality of this decision.

Costs of suit to be paid by respondent Dela Paz.

SO ORDERED.19

In his Motion for Reconsideration, 20 Rolando argued thatthe circumstances exempt both the application of Article 1956 and of
jurisprudence holding that a 6% monthly interest is unconscionable, unreasonable, and exorbitant. He alleged that Atty.
Salonga, a lawyer, should have taken it upon himself to have the loan and the stipulated rate of interest documented but, by
way of legal maneuver, Atty. Salonga, whom he fully trusted and relied upon, tricked him into believing that the undocumented
and uncollateralized loan was withinlegal bounds. Had Atty. Salonga told him that the stipulated interest should be in writing,
he would have readily assented. Furthermore, Rolando insisted that the 6% monthly interest ratecould not be unconscionable
as in the first place, the interest was not imposed by the creditor but was in fact offered by the borrower, who also dictated all
the terms of the loan. He stressed that in cases where interest rates were declared unconscionable, those meant to be protected
by such declaration are helpless borrowers which is not the case here.

Still, the CA denied Rolando’s motion in its Resolution21 of June 6, 2008.

Hence, this Petition.

The Parties’ Arguments

Rolando argues that the 6%monthly interest rateshould not have been invalidated because Atty. Salonga took advantage of his
legal knowledge to hoodwink him into believing that no document was necessaryto reflect the interest rate. Moreover, the
cases anent unconscionable interest rates that the CA relied upon involve lenders who imposed the excessive rates,which are
totally different from the case at bench where it is the borrower who decided on the high interest rate. This case does not fall
under a scenariothat ‘enslaves the borrower or that leads to the hemorrhaging of his assets’ that the courts seek to prevent.

L&J, in controverting Rolando’s arguments, contends that the interest rate is subject of negotiation and is agreedupon by both
parties, not by the borrower alone. Furthermore, jurisprudence has nullified interestrates on loans of 3% per month and
higher as these rates are contrary to moralsand public interest. And while Rolando raises bad faithon Atty. Salonga’s part, L&J
avers thatsuch issue is a question of fact, a matter that cannot be raised under Rule 45.

Issue

The Court’s determination of whether to uphold the judgment of the CA that the principal loan is deemed paid isdependent on
the validity of the monthly interest rate imposed. And in determining such validity, the Court must necessarily delve into
matters regarding a) the form of the agreement of interest under the law and b) the alleged unconscionability of the interest
rate. Our Ruling

The Petition is devoid of merit.

The lack of a written stipulation to pay interest on the loaned amount disallows a creditor from charging monetary interest.

Under Article 1956 of the Civil Code, no interest shall bedue unless it has been expressly stipulated in writing. Jurisprudence
on the matter also holds that for interest to be due and payable, two conditions must concur: a) express stipulation for the
payment of interest; and b) the agreement to pay interest is reduced in writing.

Here, it is undisputed that the parties did not put down in writing their agreement. Thus, no interest is due. The collection of
interest without any stipulation in writing is prohibited by law. 22

But Rolando asserts that his situation deserves an exception to the application of Article 1956. He blames Atty. Salonga for the
lack of a written document, claiming that said lawyer used his legal knowledge to dupe him. Rolando thus imputes bad faith on
the part of L&J and Atty. Salonga. The Court, however, finds no deception on the partof L&J and Atty. Salonga. For one, despite
the lack of a document stipulating the payment of interest, L&J nevertheless devotedly paid interests on the loan. It only
stopped when it suffered from financial difficulties that prevented it from continuously paying the 6% monthly rate. For
another,regardless of Atty. Salonga’s profession, Rolando who is an architect and an educated man himself could have been a
more reasonably prudent person under the circumstances. To top it all, he admitted that he had no prior communication with
Atty. Salonga. Despite Atty. Salonga being a complete stranger, he immediately trusted him and lent his company ₱350,000.00, a
significant amount. Moreover, as the creditor,he could have requested or required that all the terms and conditions of the loan
agreement, which include the payment of interest, be put down in writing to ensure that he and L&J are on the same page.
Rolando had a choice of not acceding and to insist that their contract be put in written form as this will favor and safeguard
him as a lender. Unfortunately, he did not. It must be stressed that "[c]ourts cannot follow one every step of his life and
extricate him from bad bargains, protect him from unwise investments, relieve him from one-sided contracts,or annul the
effects of foolish acts. Courts cannotconstitute themselves guardians of persons who are not legally incompetent." 23

It may be raised that L&J is estopped from questioning the interest rate considering that it has been paying Rolando interest at
such ratefor more than two and a half years. In fact, in its pleadings before the MeTCand the RTC, L&J merely prayed for the
reduction of interest from 6% monthly to 1% monthly or 12% per annum. However, in Ching v. Nicdao, 24 the daily payments of
the debtor to the lender were considered as payment of the principal amount of the loan because Article 1956 was not
complied with. This was notwithstanding the debtor’s admission that the payments made were for the interests due. The Court
categorically stated therein that "[e]stoppel cannot give validity to an act that is prohibited by law or one thatis against public
policy."

Even if the payment of interest has been reduced in writing, a 6% monthly interest rate on a loan is unconscionable, regardless
of who between the parties proposed the rate.

Indeed at present, usury has been legally non-existent in view of the suspension of the Usury Law 25 by Central Bank Circular
No. 905 s. 1982.26 Even so, not all interest rates levied upon loans are permitted by the courts as they have the power to
equitably reduce unreasonable interest rates. In Trade & Investment Development Corporation of the Philippines v. Roblett
Industrial Construction Corporation,27 we said:

While the Court recognizes the right of the parties to enter into contracts and who are expectedto comply with their terms and
obligations, this rule is not absolute. Stipulated interest rates are illegal if they are unconscionable and the Court is allowed to
temper interest rates when necessary. In exercising this vested power to determine what is iniquitous and unconscionable, the
Court must consider the circumstances of each case. What may be iniquitous and unconscionable in onecase, may be just in
another. x x x28

Time and again, it has been ruled in a plethora of cases that stipulated interest rates of 3% per month and higher, are excessive,
iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law. 29 The
Court, however, stresses that these rates shall be invalidated and shall be reduced only in cases where the terms of the loans
are open-ended, and where the interest rates are applied for an indefinite period. Hence, the imposition of a specific sum of
₱40,000.00 a month for six months on a ₱1,000,000.00 loan is not considered unconscionable. 30

In the case at bench, there is no specified period as to the payment of the loan. Hence, levying 6% monthly or 72% interest per
annumis "definitely outrageous and inordinate." 31 The situation that it was the debtor who insisted on the interest rate will not
exempt Rolando from a ruling that the rate is void. As this Court cited in Asian Cathay Finance and Leasing Corporation v.
Gravador,32 "[t]he imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily
assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive
to the common sense of man."33 Indeed, "voluntariness does notmake the stipulation on [an unconscionable] interest valid." 34
As exhaustibly discussed,no monetary interest isdue Rolando pursuant to Article 1956. The CA thus correctly adjudged that
the excess interest payments made by L&J should be applied to its principal loan. As computed by the CA, Rolando is bound to
return the excess payment of ₱226,000.00 to L&J following the principle of solutio indebiti. 35

However, pursuant to Central Bank Circular No. 799 s. 2013 which took effect on July 1, 2013, 36 the interest imposed by the CA
must be accordingly modified. The ₱226,000.00 which Rolando is ordered to pay L&J shall earn an interest of 6% per
annumfrom the finality of this Decision.

WHEREFORE, the Decision dated February 27, 2008 of the Court of Appeals in CA-G.R. SP No. 100094 is hereby AFFIRMED
with modification that petitioner Rolando C. De La Paz is ordered to pay respondent L&J Development Company the amount
of ,₱226,000.00, plus interest of 6o/o per annum from the finality of this Decision until fully paid.

SO ORDERED.

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,

vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

VITUG, J.:

The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a
solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the
payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the
date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve
percent (12%) or six percent (6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the
controversy are hereunder reproduced:

This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages
sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee
the value of such losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel
"SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was
unknown to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port
Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D).

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the
consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the
contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses
totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants
who failed and refused to pay the same (Exhs. H, I, J, K, L).
 As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the
aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee
against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-
86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

Defendants filed their respective answers, traversing the material allegations of the complaint contending
that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the
vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was
incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport
averred that although subject shipment was discharged unto its custody, portion of the same was already in
bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having
negligent or at fault for the shipment was already in damage and bad order condition when received by it, but
nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to
consignee in the same condition shipment was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the custody of defendants
(in whose respective custody, if determinable);

3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's
pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).

As to the first issue, there can be no doubt that the shipment sustained losses/damages. The
two drums were shipped in good order and condition, as clearly shown by the Bill of Lading
and Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B
and C). But when on December 12, 1981 the shipment was delivered to defendant Metro Port
Service, Inc., it excepted to one drum in bad order.

Correspondingly, as to the second issue, it follows that the losses/damages were sustained
while in the respective and/or successive custody and possession of defendants carrier
(Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes
evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes",
are considered. In the latter notes, it is stated that when the shipment was "landed on vessel"
to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was observed that "one
(1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally
Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew
the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was
found opened without seal, cello bag partly torn but contents intact. Net unrecovered
spillages was
15 kgs. The report went on to state that when the drums reached the consignee, one drum
was found with adulterated/faked contents. It is obvious, therefore, that these
losses/damages occurred before the shipment reached the consignee while under the
successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common
carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full
force and effect even if the goods are temporarily unloaded and stored in transit in the
warehouse of the carrier at the place of destination, until the consignee has been advised and
has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC).
Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes"
(Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open".

and thus held:

 WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12% per annum from October
1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern
Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is
lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the
actual invoice value of each package, crate box or container in no case to exceed P5,000.00
each, pursuant to Section 6.01 of the Management Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and crossclaim of defendant/cross-

claimant Allied Brokerage Corporation.

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As
there is sufficient evidence that the shipment sustained damage while in the successive possession of
appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee.
(pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court
a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of
the appellate court when —

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND
CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED
DECISION;

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE
FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER
ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF
SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do
have a fairly good number of previous decisions this Court can merely tack to.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are
surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to,
or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code;
Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either
are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and
there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court
of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when
such presumption of fault is not observed but these cases, enumerated in Article 1734 1 of the Civil Code, are exclusive, not one
of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the
consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we
have explained, in holding the carrier and the arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee
and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v.
Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods
that are in its custody and to deliver them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation
to deliver the goods in good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves
always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the
rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able
to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a
quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the
successive possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern
Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.

Let us first see a chronological recitation of the major rulings of this Court:

The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of goods. In
this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount of its
claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither established in its
totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of
P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and
Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the
complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of legal
interest. In sustaining the appellants, this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such
interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for
judicial demand as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable certainty." And
as was held by this Court in Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit were for
damages, "unliquidated and not known until definitely ascertained, assessed and determined by the courts after
proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and Loss of
Property." After trial, the lower court decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against
the defendants and third party plaintiffs as follows:

Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the
following persons:

xxx xxx xxx

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the
boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is the
value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss
 suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already the total
sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until paid and to pay
attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs. (Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in
adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision became
final, the case was remanded to the lower court for execution, and this was when the trial court issued its assailed
resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for
review on certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus —

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of
any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such
rate of interest, shall be twelve (12%) percent per annum. This Circular shall take effect immediately.
(Emphasis found in the text) —

should have, instead, been applied. This Court6 ruled:

The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any
money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving
loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is
not within the ambit of the authority granted to the Central Bank.

xxx xxx xxx

Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages
for injury to persons and loss of property and does not involve any loan, much less forbearances of any money,
goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article
2209 of the New Civil Code which reads —

Art. 2209. — If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall
be the payment of interest agreed upon, and in the absence of stipulation, the legal interest
which is six percent per annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July 1986. The case was for
damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat
actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until
fully paid. Relying on the Reformina v. Tomol case, this Court8 modified the interest award from 12% to 6% interest per annum
but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.

In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages arising from the collapse of a
building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing
of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court of
Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was decided,
thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental
circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose,
upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art.
1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all
damages (with the exception to attorney's fees) occasioned by the loss of the building (including interest
charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for
attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such
finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality
 until paid. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis
supplied)

A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per
cent per annum imposed on the total amount of the monetary award was in contravention of law." The Court 10 ruled
out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it
explained:

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . .
is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any
money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v.
Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but
then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of
the judgment. It is delay in the payment of such final judgment, that will cause the imposition of the interest.

It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the
filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are not
applicable to the instant case. (Emphasis supplied.)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court11 was a petition for review
on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of
moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution,
dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and
P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a
decision of 09 November 1988, this Court, while recognizing the right of the private respondent to recover damages, held the
award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court 12 thus set
aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private respondent the sum of
One Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose from a breach of employment
contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary damages
without, however, providing any legal interest thereon. When the decision was appealed to the Court of Appeals, the latter
held:

WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31,
1972 is affirmed in all respects, with the modification that defendants-appellants, except defendant-appellant
Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the
decision, including the sum of P1,400.00 in concept of compensatory damages, with interest at the legal rate
from the date of the filing of the complaint until fully paid(Emphasis supplied.)

The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an
entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory damages
should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion
on the part of the trial judge, a petition for certiorari assailed the said order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the time
of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions based on
a breach of employment contract like the case at bar. (Emphasis supplied)

The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint
was filed until the amount is fully paid.

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas,14decided on 08 May
1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent
domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just compensation for
their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per
annum under the Civil Code, the Court15 declared:
 . . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation
regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages. The
legal interest required to be paid on the amount of just compensation for the properties expropriated is
manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the
kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest
by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply.

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups
according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would
consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.Manila Port
Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v.Intermediate Appellate
Court (1988).

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the
Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding that
the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance 16 of money, goods or
credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under
the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising from the
breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the
computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount
is fully paid.

The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum,17depending on
whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other
hand. Unlike, however, the "first group" which remained consistent in holding that the running of the legal interest should be
from the time of the filing of the complaint until fully paid, the "second group" varied on the commencement of the running of
the legal interest.

Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,explaining that
"if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts
after proof,' then, interest 'should be from the date of the decision.'" American Express International v. IAC, introduced a
different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid."
The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until the
judgment amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by
the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest.
Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future
guidance.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is breached, the
contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.20

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as
well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. 21 Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per annum to
be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the
Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court24 at the rate of 6% per annum.25 No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the demand can be established with reasonable
certainty.26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal
interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on
such amount upon finality of this decision until the payment thereof.

SO ORDERED.

G.R. No. 74269 November 27, 2006

SOLID HOMES, INC. and V.V. SOLIVEN REALTY CORPORATION, Petitioners,

vs.
HON. INTERMEDIATE APPELLATE COURT, BENJAMIN V. ZABAT and LUNINGNING ZABAT, Respondents.

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

G.R. No. 92137 November 27, 2006

SOLID HOMES, INC., and V.V. SOLIVEN REALTY CORPORATION, Petitioners,

vs.
HON. COURT OF APPEALS, BENJAMIN V. ZABAT and LUNINGNING ZABAT, Respondents.

DECISION

TINGA, J.:

These consolidated cases stemmed from a Decision1 of the then Court of First Instance (CFI) of Rizal, Branch 15, awarding
private respondents as plaintiffs in an action seeking rescission of contract with damages in the amount of ₱15,938.00, with
interest, as well as actual, moral and exemplary damages plus attorney’s fees. 2 The petition in G.R. No. 74269 seeks the review
of the interest rate of 12% per annum imposed by the then Intermediate Appellate Court (IAC) when it affirmed the CFI’s
decision; while the other petition, G.R. No. 92137, questions the propriety of an order allowing the partial execution pending
appeal of the CFI’s decision.

The undisputed or admitted facts follow.

Solid Homes, Inc. is the owner and developer of a subdivision project known as Greenheights Newton Subdivision
(Greenheights) located in Antipolo, Rizal. 3 V.V. Soliven Realty Corporation sold lots in this subdivision and Pedro B. de la Penñ a
was one of its brokers. In January 1976, De la Penñ a was introduced to Colonel Benjamin V. Zabat (Zabat) and his wife
Luningning (respondents) for the purpose of making them interested in buying lots in Greenheights. De la Penñ a offered Lot
Nos. 1, 2 and 3 of Block 8 of Greenheights representing to respondents Lot No. 1 as having 296 square meters, Lot No. 2 with
240 square meters and Lot No. 3 with 296 square meters. 4Respondents agreed to buy Lot No. 1 of Block 8 while expressing
their desire to purchase Lot Nos. 2 and 3 of the same block, which were adjacent to Lot No. 1, for the purpose of turning the
three lots into a family compound. 5 The purchase price for Lot No. 1 was ₱53,280.00 with down payment of 20% of the
purchase price or ₱10,656.00. The parties agreed to pay the down payment of ₱10,656.00 according to the following
arrangement—payment of ₱500.00 upon execution of the Reservation Application and the remainder to be offset by the value
of G.I. sheets which respondents undertook to deliver to petitioners. 6
On 29 January 1976, G.I. sheets worth ₱14,291.60 were delivered to Solid Homes, Inc. On the same date, Zabat signed and
delivered to De la Penñ a the reservation agreements for Lot Nos. 1, 2 and 3. 7 Zabat retained a personal copy of these reservation
agreements.8 As the value of the G.I. sheets was higher than the agreed down payment for Lot No. 1, V.V. Soliven applied the
excess of the value of the G.I. sheets as down payment for Lot Nos. 2 and 3. 9

However, Solid Homes, Inc. still sold Lot Nos. 2 and 3 to third parties on 2 March 1976, alleging failure of respondents to
submit the reservation application for Lot Nos. 2 and 3 on time. 10

Respondents were only informed of the sale of Lot Nos. 2 and 3 in May 1976. Thus, on 11 May 1976, Zabat sent a letter to
petitioners stating his intention to rescind the contract because of petitioners’ failure to reserve Lot Nos. 2 and 3; the purchase
of these lots being the principal consideration for the purchase of Lot No. 1. 11 Solid Homes, Inc. countered by saying that the
reservation applications for Lot Nos. 2 and 3 were submitted beyond the set deadline. 12

Respondents then filed an action for specific performance or rescission of contract with damages on 29 September 1976
before the CFI, praying that petitioners comply with the agreement for petitioners to sell to respondents Lot Nos. 1, 2 and 3 or,
in the alternative, that petitioners be required to return to respondents their payments, together with interest and damages.

Trial ensued. On 31 August 1979, the trial court rendered a Decision 13 in favor of respondents, ordering petitioners to return to
respondents the sum of ₱15,938.00 with interest thereon at the legal rate computed from 11 February 1976 until full
restoration. Petitioners were likewise declared liable to pay respondents ₱1,000.00 for actual damages, ₱20,000.00 as moral
damages, ₱1,000.00 as exemplary damages plus ₱5,000.00 as attorney’s fees. 14

Upon appeal by petitioners,15 the IAC affirmed16 the decision of the trial court with modification. Petitioners were ordered to
return to respondents the sum of ₱16,438.0017 with interest thereon at 12% per annum from date of first demand, 11 May
1976,18 until full payment. The award for moral damages was decreased to ₱10,000.00 while the award for actual damages was
withdrawn. No reference was made to the award of exemplary damages and attorney’s fees, 19 hence, it was deemed affirmed.

From the IAC’s decision, petitioners filed the petition in G.R. No. 74269, raising the correct rate of interest to be imposed on
petitioner’s obligation as declared by the lower courts as the sole issue. As earlier noted, petitioners no longer raised before
this Court the matter of their liability to pay for the principal obligation and moral damages.

After the filing of the instant petition in G.R. No. 74269, respondents filed a Motion for Partial Execution of Judgment before the
Regional Trial Court (RTC) of Makati, Branch 132, to which the original case was transferred. On 28 January 1988, the lower
court granted said motion on the ground that the sole issue still pending before this Court was merely the determination of the
applicable rate of interest for the principal obligation, all other matters having become final and executory. 20 Initially, the Court
of Appeals reversed the decision of the trial court. 21 However, upon motion for reconsideration, the appellate court
promulgated an amended decision granting the motion for partial execution of judgment. 22 This amended decision is now
challenged in G.R. No. 92137.

Back to the lone issue in G.R. No. 74269 on the applicable rate of interest on a money judgment. Strikingly, the IAC did not
provide an explanation why it imposed the interest rate of 12%.

This precise issue was subsequently addressed by this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals. 23Although the
filing of petition in G.R. No. 74269 preceded Eastern Shipping, the guidelines laid down therein are applicable to this case as
they implemented and clarified laws that were already in existence even before this instant petition was filed. 24

Respondents’ cause of action in this case arose from petitioner’s failure to reserve lots intended to be purchased by
respondents in accordance with their contract. This prompted respondents to rescind the contract. The trial court ordered
petitioners to return the sum of ₱15,938.00 with interest and to pay damages to respondents. The IAC affirmed the trial court’s
decision with modification by ordering petitioners to return to respondents ₱16,438.00 with interest at 12% per annum and to
pay moral damages.25

Eastern Shipping teaches that, with respect to an award of interest in the concept of actual and compensatory damages,
interest on the amount of damages awarded may be imposed at the discretion of the Court at the rate of 6% per annum for a
breach of an obligation not constituting a loan or forbearance of money. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Where the
demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially. But when such certainty cannot be reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made. 26
The ruling of the appellate court imposing the interest rate of 12% is incompatible with the consistently reiterated doctrine in
Eastern Shipping.27 In this case, an interest of only 6% should be imposed on the obligation of petitioners as such obligation
did not constitute a loan or forbearance of credit. The 6% interest imposed on the principal obligation of ₱16,438.00 shall
commence on the date of first demand as determined by the lower court which is 11 May 1976. 28

As aforestated, petitioners did not challenge their liability for the principal obligation, damages and attorney’s fees as found by
the trial court. Thus, petitioners’ liability for the judgment amount, save for the interest, has become final and executory. 29

In Eastern Shipping, the Court went on to state that when the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the obligation was in the form of a loan or forbearance of money or otherwise,
shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent
to a forbearance of credit.30

Accordingly, the principal obligation of ₱16,438.00 shall bear 6% interest from the date of first demand or from 11 May 1976.
From the date the liability for the principal obligation, moral and exemplary damages and attorney’s fees had become final and
executory, an annual interest of 12% shall be imposed on these obligations until their final satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.

Turning to the petition in G.R. No. 92137, what needs to be asked is whether it is proper to issue a partial writ of execution of a
decision ordering a return of a sum of money while the determination of the applicable rate of interest on said monetary
obligation is still subject for final determination.

In resolving the motion for partial execution of judgment filed by respondents, the appellate court referred to Section 9, Rule
41 of the 1964 Rules of Court, to wit:

Sec. 9. When appeal deemed perfected; effect thereof. —If the notice of appeal, the appeal bond and the record on appeal have
been filed in due time, the appeal is deemed perfected upon the approval of the record on appeal and of the appeal bond other
than a cash bond, and thereafter the trial court loses its jurisdiction over the case, except to issue orders for the protection and
preservation of the rights of the parties which do not involve any matter litigated by the appeal, to approve compromises
offered by the parties prior to the transmittal of the record on appeal to the appellate court, and to permit the prosecution of
pauper’s appeals.31

The appellate court then granted the motion for partial execution on the ground that the unappealed portion of the trial court’s
decision had become final and executory. The appellate court also followed the ruling in Baldisimo v. CFI of Capiz, et al., 32 that it
is within the power of the trial court to issue orders for the protection and preservation of the rights of the parties which do
not involve any matter litigated in the appeal.33

On the other hand, petitioners contend that the case of Alcober, et al. v. Hon. Garciano, et al., 34 should have been applied by the
appellate court instead of Baldisimo as Alcober was rendered on a later date. An examination of the two cases would show,
however, that it is Baldisimo and not Alcober that squarely addresses the issue in this instant case.

Alcober involved an action to establish title to a parcel of land and the Court therein applied the general rule set in Sec. 9, Rule
41 of the 1964 Rules that when an appeal is perfected, the trial court loses jurisdiction over the case. Even though Alcober
applied the general rule, it nevertheless acknowledged that there are exceptions to the same, namely: 1) when the issue orders
for the protection and preservation of the rights of the parties which do not involve any matter litigated by the appeal; 2) to
approve compromises offered by the parties prior to the transmittal of the record on appeal to the appellate court; and 3) to
permit the prosecution of a pauper’s appeal.35

The case of Baldisimo involved the application of the exception to the general rule. Petitioner in Baldisimo sought to recover
the ownership and possession of a parcel of land. The lower court awarded ownership of the whole property to petitioner and
declared him entitled to the possession thereof while respondent therein was declared entitled to the refund of expenses made
for the construction of improvements on the land. Respondent raised in his appeal the reasonableness of the amount fixed for
the value of the improvements but did not appeal the ruling adjudicating the ownership of the land and the right of possession
thereto. Consequently, this Court held that under Sec. 9, Rule 41 of the then Rules of Court, 36 it was within the power of the trial
court to issue orders for the protection and preservation of the rights of the parties which do not involve any matter litigated in
the appeal.37

The principle in Baldisimo applies to the instant case because save for the determination of the applicable rate of interest, the
decision of the appellate court awarding to respondents P16,438.00 plus ₱10,000.00 as moral damages had become final and
executory. No similar complexity attended the appeal raised in Alcober. These aspects of the decision are matters that are no
longer litigated in the appeal. Thus, the trial court can proceed with their execution. 38

WHEREFORE, the petition in G.R. No. 74259 is GRANTED IN PART. The decision of the Intermediate Appellate Court is
MODIFIED in that petitioners are ORDERED to pay interest at 6% per annum on the principal obligation in the amount of
₱16,438.00 from 11 May 1976, the date of first demand by respondent, until said decision on the principal obligation became
final and executory, and interest at 12% per annum on the principal obligation, moral and exemplary damages, as well as
attorney’s fees, from the time said decision became final and executory until full payment of said amounts.

The petition in G.R. No. 92137 is DENIED and the amended decision of the Court of Appeals is AFFIRMED.

No pronouncement as to costs.

SO ORDERED

G.R. No. 147791 September 8, 2006

CONSTRUCTION DEVELOPMENT CORPORATION OF THE PHILIPPINES, petitioner,

vs.
REBECCA G. ESTRELLA, RACHEL E. FLETCHER, PHILIPPINE PHOENIX SURETY & INSURANCE INC., BATANGAS LAGUNA
TAYABAS BUS CO., and WILFREDO DATINGUINOO, respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review assails the March 29, 2001 Decision 1 of the Court of Appeals in CA-G.R. CV No. 46896, which affirmed
with modification the February 9, 1993 Decision 2 of the Regional Trial Court of Manila, Branch 13, in Civil Case No. R-82-2137,
finding Batangas Laguna Tayabas Bus Co. (BLTB) and Construction Development Corporation of the Philippines (CDCP) liable
for damages.

The antecedent facts are as follows:

On December 29, 1978, respondents Rebecca G. Estrella and her granddaughter, Rachel E. Fletcher, boarded in San Pablo City, a
BLTB bus bound for Pasay City. However, they never reached their destination because their bus was rammed from behind by a
tractor-truck of CDCP in the South Expressway. The strong impact pushed forward their seats and pinned their knees to the
seats in front of them. They regained consciousness only when rescuers created a hole in the bus and extricated their legs from
under the seats. They were brought to the Makati Medical Center where the doctors diagnosed their injuries to be as follows:

Medical Certificate of Rebecca Estrella

Fracture, left tibia mid 3rd

Lacerated wound, chin
Contusions with abrasions, left lower leg
Fracture, 6th and 7th ribs, right3

Medical Certificate of Rachel Fletcher

Extensive lacerated wounds, right leg posterior aspect popliteal area

and antero-lateral aspect mid lower leg with severance of muscles.
Partial amputation BK left leg with severance of gastro-soleus and
antero-lateral compartment of lower leg.
Fracture, open comminuted, both tibial4

Thereafter, respondents filed a Complaint 5 for damages against CDCP, BLTB, Espiridion Payunan, Jr. and Wilfredo Datinguinoo
before the Regional Trial Court of Manila, Branch 13. They alleged (1) that Payunan, Jr. and Datinguinoo, who were the drivers
of CDCP and BLTB buses, respectively, were negligent and did not obey traffic laws; (2) that BLTB and CDCP did not exercise the
diligence of a good father of a family in the selection and supervision of their employees; (3) that BLTB allowed its bus to
operate knowing that it lacked proper maintenance thus exposing its passengers to grave danger; (4) that they suffered actual
damages amounting to P250,000.00 for Estrella and P300,000.00 for Fletcher; (5) that they suffered physical discomfort,
serious anxiety, fright and mental anguish, besmirched reputation and wounded feelings, moral shock, and lifelong social
humiliation; (6) that defendants failed to act with justice, give respondents their due, observe honesty and good faith which
entitles them to claim for exemplary damage; and (7) that they are entitled to a reasonable amount of attorney's fees and
litigation expenses.

CDCP filed its Answer6 which was later amended to include a third-party complaint against Philippine Phoenix Surety and
Insurance, Inc. (Phoenix).7

On February 9, 1993, the trial court rendered a decision finding CDCP and BLTB and their employees liable for damages, the
dispositive portion of which, states:

WHEREFORE, judgment is rendered:

In the Complaint –

1. In favor of the plaintiffs and against the defendants BLTB, Wilfredo Datinguinoo, Construction and Development
Corporation of the Philippines (now PNCC) and Espiridion Payunan, Jr., ordering said defendants, jointly and severally
to pay the plaintiffs the sum of P79,254.43 as actual damages and to pay the sum of P10,000.00 as attorney's fees or a
total of P89,254.43;

2. In addition, defendant Construction and Development Corporation of the Philippines and defendant Espiridion
Payunan, Jr., shall pay the plaintiffs the amount of Fifty Thousand (P50,000.00) Pesos to plaintiff Rachel Fletcher and
Twenty Five Thousand (P25,000.00) Pesos to plaintiff Rebecca Estrella;

3. On the counterclaim of BLTB Co. and Wilfredo Datinguinoo –

Dismissing the counterclaim;

4. On the crossclaim against Construction and Development Corporation of the Philippines (now PNCC) and Espiridion
Payunan, Jr. –

Dismissing the crossclaim;

5. On the counterclaim of Construction and Development Corporation of the Philippines (now PNCC) –

Dismissing the counterclaim;

6. On the crossclaim against BLTB –

Dismissing the crossclaim;

7. On the Third Party Complaint by Construction and Development Corporation of the Philippines against Philippine
Phoenix Surety and Insurance, Incorporated –

Dismissing the Third Party Complaint.

SO ORDERED.8

The trial court held that BLTB, as a common carrier, was bound to observe extraordinary diligence in the vigilance over the
safety of its passengers. It must carry the passengers safely as far as human care and foresight provide, using the utmost
diligence of very cautious persons, with a due regard for all the circumstances. Thus, where a passenger dies or is injured, the
carrier is presumed to have been at fault or has acted negligently. BLTB's inability to carry respondents to their destination
gave rise to an action for breach of contract of carriage while its failure to rebut the presumption of negligence made it liable to
respondents for the breach.9
Regarding CDCP, the trial court found that the tractor-truck it owned bumped the BLTB bus from behind. Evidence showed that
CDCP's driver was reckless and driving very fast at the time of the incident. The gross negligence of its driver raised the
presumption that CDCP was negligent either in the selection or in the supervision of its employees which it failed to rebut thus
making it and its driver liable to respondents.10

Unsatisfied with the award of damages and attorney's fees by the trial court, respondents moved that the decision be
reconsidered but was denied. Respondents elevated the case 11 to the Court of Appeals which affirmed the decision of the trial
court but modified the amount of damages, the dispositive portion of which provides:

WHEREFORE, the assailed decision dated October 7, 1993 of the Regional Trial Court, Branch 13, Manila is hereby
AFFIRMED with the following MODIFICATION:

1. The interest of six (6) percent per annum on the actual damages of P79,354.43 should commence to run from the
time the judicial demand was made or from the filing of the complaint on February 4, 1980;

2. Thirty (30) percent of the total amount recovered is hereby awarded as attorney's fees;

3. Defendants-appellants Construction and Development Corporation of the Philippines (now PNCC) and Espiridion
Payunan, Jr. are ordered to pay plaintiff-appellants Rebecca Estrella and Rachel Fletcher the amount of Twenty
Thousand (P20,000.00) each as exemplary damages and P80,000.00 by way of moral damages to Rachel Fletcher.

SO ORDERED.12

The Court of Appeals held that the actual or compensatory damage sought by respondents for the injuries they sustained in the
form of hospital bills were already liquidated and were ascertained. Accordingly, the 6% interest per annum should commence
to run from the time the judicial demand was made or from the filing of the complaint and not from the date of judgment. The
Court of Appeals also awarded attorney's fees equivalent to 30% of the total amount recovered based on the retainer
agreement of the parties. The appellate court also held that respondents are entitled to exemplary and moral damages. Finally,
it affirmed the ruling of the trial court that the claim of CDCP against Phoenix had already prescribed.

Hence, this petition raising the following issues:

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING RESPONDENTS BLTB AND/OR ITS
DRIVER WILFREDO DATINGUINOO SOLELY LIABLE FOR THE DAMAGES SUSTAINED BY HEREIN RESPONDENTS
FLETCHER AND ESTRELLA.

II

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN AWARDING EXCESSIVE OR UNFOUNDED DAMAGES,
ATTORNEY'S FEES AND LEGAL INTEREST TO RESPONDENTS FLETCHER AND ESTRELLA.

III

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING RESPONDENT PHOENIX LIABLE
UNDER ITS INSURANCE POLICY ON THE GROUND OF PRESCRIPTION.

The issues for resolution are as follows: (1) whether BLTB and its driver Wilfredo Datinguinoo are solely liable for the damages
sustained by respondents; (2) whether the damages, attorney's fees and legal interest awarded by the CA are excessive and
unfounded; (3) whether CDCP can recover under its insurance policy from Phoenix.

Petitioner contends that since it was made solidarily liable with BLTB for actual damages and attorney's fees in paragraph 1 of
the trial court's decision, then it should no longer be held liable to pay the amounts stated in paragraph 2 of the same decision.
Petitioner claims that the liability for actual damages and attorney's fees is based on culpa contractual, thus, only BLTB should
be held liable. As regards paragraph 2 of the trial court's decision, petitioner claims that it is ambiguous and arbitrary because
the dispositive portion did not state the basis and nature of such award.
Respondents, on the other hand, argue that petitioner is also at fault, hence, it was properly joined as a party. There may be an
action arising out of one incident where questions of fact are common to all. Thus, the cause of action based on culpa
aquiliana in the civil suit they filed against it was valid.

The petition lacks merit.

The case filed by respondents against petitioner is an action for culpa aquiliana or quasi-delict under Article 2176 of the Civil
Code.13 In this regard, Article 2180 provides that the obligation imposed by Article 2176 is demandable for the acts or
omissions of those persons for whom one is responsible. Consequently, an action based on quasi-delict may be instituted
against the employer for an employee's act or omission. The liability for the negligent conduct of the subordinate
is direct and primary, but is subject to the defense of due diligence in the selection and supervision of the employee. 14 In the
instant case, the trial court found that petitioner failed to prove that it exercised the diligence of a good father of a family in the
selection and supervision of Payunan, Jr.

The trial court and the Court of Appeals found petitioner solidarily liable with BLTB for the actual damages suffered by
respondents because of the injuries they sustained. It was established that Payunan, Jr. was driving recklessly because of the
skid marks as shown in the sketch of the police investigator.

It is well-settled in Fabre, Jr. v. Court of Appeals,15 that the owner of the other vehicle which collided with a common carrier is
solidarily liable to the injured passenger of the same. We held, thus:

The same rule of liability was applied in situations where the negligence of the driver of the bus on which plaintiff was
riding concurred with the negligence of a third party who was the driver of another vehicle, thus causing an accident.
In Anuran v. Buño, Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate Court, and Metro Manila Transit
Corporation v. Court of Appeals, the bus company, its driver, the operator of the other vehicle and the driver of the
vehicle were jointly and severally held liable to the injured passenger or the latter's heirs. The basis of this
allocation of liability was explained in Viluan v. Court of Appeals, thus:

Nor should it make any difference that the liability of petitioner [bus owner] springs from contract while that
of respondents [owner and driver of other vehicle] arises from quasi-delict. As early as 1913, we already ruled in
Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to the negligence of the driver of the bus
on which he was riding and of the driver of another vehicle, the drivers as well as the owners of the two vehicles are
jointly and severally liable for damages. x x x

xxxx

As in the case of BLTB, private respondents in this case and her co-plaintiffs did not stake out their claim against the
carrier and the driver exclusively on one theory, much less on that of breach of contract alone. After all, it was
permitted for them to allege alternative causes of action and join as many parties as may be liable on such
causes of action so long as private respondent and her co-plaintiffs do not recover twice for the same
injury. What is clear from the cases is the intent of the plaintiff there to recover from both the carrier and the driver,
thus justifying the holding that the carrier and the driver were jointly and severally liable because their separate and
distinct acts concurred to produce the same injury.16 (Emphasis supplied)

In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or "joint and several"
obligation, the relationship between the active and the passive subjects is so close that each of them must comply with or
demand the fulfillment of the whole obligation. In Lafarge Cement v. Continental Cement Corporation,17 we reiterated that joint
tort feasors are jointly and severally liable for the tort which they commit. Citing Worcester v. Ocampo,18 we held that:

x x x The difficulty in the contention of the appellants is that they fail to recognize that the basis of the present action is
tort. They fail to recognize the universal doctrine that each joint tort feasor is not only individually liable for the tort in
which he participates, but is also jointly liable with his tort feasors. x x x

It may be stated as a general rule that joint tort feasors are all the persons who command, instigate, promote,
encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done,
if done for their benefit. They are each liable as principals, to the same extent and in the same manner as if they had
performed the wrongful act themselves. x x x
 Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured may sue all of
them or any number less than all. Each is liable for the whole damages caused by all, and all together are jointly liable
for the whole damage. It is no defense for one sued alone, that the others who participated in the wrongful act are not
joined with him as defendants; nor is it any excuse for him that his participation in the tort was insignificant as
compared to that of the others. x x x

Joint tort feasors are not liable pro rata. The damages can not be apportioned among them, except among themselves.
They cannot insist upon an apportionment, for the purpose of each paying an aliquot part. They are jointly and
severally liable for the whole amount. x x x

A payment in full for the damage done, by one of the joint tort feasors, of course satisfies any claim which might exist
against the others. There can be but satisfaction. The release of one of the joint tort feasors by agreement generally
operates to discharge all. x x x

Of course the court during trial may find that some of the alleged tort feasors are liable and that others are not liable.
The courts may release some for lack of evidence while condemning others of the alleged tort feasors. And this is true
even though they are charged jointly and severally.19

Petitioner's claim that paragraph 2 of the dispositive portion of the trial court's decision is ambiguous and arbitrary and also
entitles respondents to recover twice is without basis. In the body of the trial court's decision, it was clearly stated that
petitioner and its driver Payunan, Jr., are jointly and solidarily liable for moral damages in the amount of P50,000.00 to
respondent Fletcher and P25,000.00 to respondent Estrella. 20 Moreover, there could be no double recovery because the award
in paragraph 2 is for moral damages while the award in paragraph 1 is for actual damages and attorney's fees.

Petitioner next claims that the damages, attorney's fees, and legal interest awarded by the Court of Appeals are excessive.

Moral damages may be recovered in quasi-delicts causing physical injuries. 21 The award of moral damages in favor of Fletcher
and Estrella in the amount of P80,000.00 must be reduced since prevailing jurisprudence fixed the same at P50,000.00. 22 While
moral damages are not intended to enrich the plaintiff at the expense of the defendant, the award should nonetheless be
commensurate to the suffering inflicted.23

The Court of Appeals correctly awarded respondents exemplary damages in the amount of P20,000.00 each. Exemplary
damages may be awarded in addition to moral and compensatory damages. 24 Article 2231 of the Civil Code also states that in
quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence. 25 In this case, petitioner's
driver was driving recklessly at the time its truck rammed the BLTB bus. Petitioner, who has direct and primary liability for the
negligent conduct of its subordinates, was also found negligent in the selection and supervision of its employees. In Del Rosario
v. Court of Appeals,26 we held, thus:

ART. 2229 of the Civil Code also provides that such damages may be imposed, by way of example or correction for the
public good. While exemplary damages cannot be recovered as a matter of right, they need not be proved, although
plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may consider
the question of whether or not exemplary damages should be awarded. Exemplary Damages are imposed not to enrich
one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially
deleterious actions.

Regarding attorney's fees, we held in Traders Royal Bank Employees Union-Independent v. National Labor Relations
Commission,27 that:

There are two commonly accepted concepts of attorney's fees, the so-called ordinary and extraordinary. In its ordinary
concept, an attorney's fee is the reasonable compensation paid to a lawyer by his client for the legal services he has
rendered to the latter. The basis of this compensation is the fact of his employment by and his agreement with the
client.

In its extraordinary concept, an attorney's fee is an indemnity for damages ordered by the court to be paid by
the losing party in a litigation. The basis of this is any of the cases provided by law where such award can be made,
such as those authorized in Article 2208, Civil Code, and is payable not to the lawyer but to the client, unless they
have agreed that the award shall pertain to the lawyer as additional compensation or as part
thereof.28 (Emphasis supplied)
In the instant case, the Court of Appeals correctly awarded attorney's fees and other expenses of litigation as they may be
recovered as actual or compensatory damages when exemplary damages are awarded; when the defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiff's valid, just and demandable claim; and in any other case where the court
deems it just and equitable that attorney's fees and expenses of litigation should be recovered. 29

Regarding the imposition of legal interest at the rate of 6% from the time of the filing of the complaint, we held in Eastern
Shipping Lines, Inc. v. Court of Appeals,30 that when an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for payment of interest in the concept of actual and
compensatory damages,31 subject to the following rules, to wit –

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.32 (Emphasis supplied)

Accordingly, the legal interest of 6% shall begin to run on February 9, 1993 when the trial court rendered judgment and not on
February 4, 1980 when the complaint was filed. This is because at the time of the filing of the complaint, the amount of the
damages to which plaintiffs may be entitled remains unliquidated and unknown, until it is definitely ascertained, assessed and
determined by the court and only upon presentation of proof thereon. 33 From the time the judgment becomes final and
executory, the interest rate shall be 12% until its satisfaction.

Anent the last issue of whether petitioner can recover under its insurance policy from Phoenix, we affirm the findings of both
the trial court and the Court of Appeals, thus:

As regards the liability of Phoenix, the court a quo correctly ruled that defendant-appellant CDCP's claim against
Phoenix already prescribed pursuant to Section 384 of P.D. 612, as amended, which provides:

Any person having any claim upon the policy issued pursuant to this chapter shall, without any unnecessary
delay, present to the insurance company concerned a written notice of claim setting forth the nature, extent
and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed
within six months from date of the accident, otherwise, the claim shall be deemed waived. Action or suit for
recovery of damage due to loss or injury must be brought in proper cases, with the Commissioner or Courts
within one year from denial of the claim, otherwise, the claimant's right of action shall prescribe. (As
amended by PD 1814, BP 874.)34

The law is clear and leaves no room for interpretation. A written notice of claim must be filed within six months from the date
of the accident. Since petitioner never made any claim within six months from the date of the accident, its claim has already
prescribed.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 46896 dated March 29,
2001, which modified the Decision of the Regional Trial Court of Manila, Branch 13, in Civil Case No. R-82-2137, is AFFIRMED
with the MODIFICATIONS that petitioner is held jointly and severally liable to pay (1) actual damages in the amount of
P79,354.43; (2) moral damages in the amount of P50,000.00 each for Rachel Fletcher and Rebecca Estrella; (3) exemplary
damages in the amount of P20,000.00 each for Rebecca Estrella and Rachel Fletcher; and (4) thirty percent (30%) of the total
amount recovered as attorney's fees. The total amount adjudged shall earn interest at the rate of 6% per annum from the date
of judgment of the trial court until finality of this judgment. From the time this Decision becomes final and executory and the
judgment amount remains unsatisfied, the same shall earn interest at the rate of 12% per annum until its satisfaction.

SO ORDERED.

G.R. No. 189871 August 13, 2013

DARIO NACAR, PETITIONER,

vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.

DECISION

PERALTA, J.:

This is a petition for review on certiorari assailing the Decision 1 dated September 23, 2008 of the Court of Appeals (CA) in CA-
G.R. SP No. 98591, and the Resolution2 dated October 9, 2009 denying petitioner’s motion for reconsideration.

The factual antecedents are undisputed.

Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the National Labor
Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC NCR Case
No. 01-00519-97.

On October 15, 1998, the Labor Arbiter rendered a Decision 3 in favor of petitioner and found that he was dismissed from
employment without a valid or just cause. Thus, petitioner was awarded backwages and separation pay in lieu of reinstatement
in the amount of ₱158,919.92. The dispositive portion of the decision, reads:

With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that complainant was
dismissed from employment for a just or valid cause. All the more, it is clear from the records that complainant was never
afforded due process before he was terminated. As such, we are perforce constrained to grant complainant’s prayer for the
payments of separation pay in lieu of reinstatement to his former position, considering the strained relationship between the
parties, and his apparent reluctance to be reinstated, computed only up to promulgation of this decision as follows:

SEPARATION PAY
Date Hired = August 1990
Rate = ₱198/day
Date of Decision = Aug. 18, 1998
Length of Service = 8 yrs. & 1 month
₱198.00 x 26 days x 8 months = ₱41,184.00
BACKWAGES
Date Dismissed = January 24, 1997
Rate per day = ₱196.00
Date of Decisions = Aug. 18, 1998
 a) 1/24/97 to 2/5/98 = 12.36 mos.
₱196.00/day x 12.36 mos. = ₱62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day = ₱62,986.00
₱198.00 x 26 days x 6.4 mos. = ₱32,947.20
TOTAL = ₱95.933.76

xxxx

WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive dismissal and are
therefore, ordered:

To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six pesos and 56/100
(₱62,986.56) Pesos representing his separation pay;

To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-three and 36/100
(₱95,933.36) representing his backwages; and

All other claims are hereby dismissed for lack of merit.

SO ORDERED.4

Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution 5 dated February 29, 2000.
Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents filed a motion for reconsideration, but it was
denied.6

Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the CA issued a
Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it was likewise denied in a Resolution
dated May 8, 2001.7

Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no reversible error on the part
of the CA, this Court denied the petition in the Resolution dated April 17, 2002. 8

An Entry of Judgment was later issued certifying that the resolution became final and executory on May 27, 2002. 9The case
was, thereafter, referred back to the Labor Arbiter. A pre-execution conference was consequently scheduled, but respondents
failed to appear.10

On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be computed from the
date of his dismissal on January 24, 1997 up to the finality of the Resolution of the Supreme Court on May 27, 2002. 11 Upon
recomputation, the Computation and Examination Unit of the NLRC arrived at an updated amount in the sum of ₱471,320.31. 12

On December 2, 2002, a Writ of Execution 13 was issued by the Labor Arbiter ordering the Sheriff to collect from respondents
the total amount of ₱471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing, among other things, that
since the Labor Arbiter awarded separation pay of ₱62,986.56 and limited backwages of ₱95,933.36, no more recomputation is
required to be made of the said awards. They claimed that after the decision becomes final and executory, the same cannot be
altered or amended anymore.14 On January 13, 2003, the Labor Arbiter issued an Order 15 denying the motion. Thus, an Alias
Writ of Execution16 was issued on January 14, 2003.

Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution 17 granting the appeal in favor of the
respondents and ordered the recomputation of the judgment award.

On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and executory.
Consequently, another pre-execution conference was held, but respondents failed to appear on time. Meanwhile, petitioner
moved that an Alias Writ of Execution be issued to enforce the earlier recomputed judgment award in the sum of
₱471,320.31.18

The records of the case were again forwarded to the Computation and Examination Unit for recomputation, where the
judgment award of petitioner was reassessed to be in the total amount of only ₱147,560.19.

Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as determined
by the Labor Arbiter in his Decision dated October 15, 1998, pending the final computation of his backwages and separation
pay.

On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that was due to
petitioner in the amount of ₱147,560.19, which petitioner eventually received.

Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to include the
appropriate interests.19

On May 10, 2005, the Labor Arbiter issued an Order 20 granting the motion, but only up to the amount of ₱11,459.73. The Labor
Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced considering that it was the one that became
final and executory. However, the Labor Arbiter reasoned that since the decision states that the separation pay and backwages
are computed only up to the promulgation of the said decision, it is the amount of ₱158,919.92 that should be executed. Thus,
since petitioner already received ₱147,560.19, he is only entitled to the balance of ₱11,459.73.

Petitioner then appealed before the NLRC, 21 which appeal was denied by the NLRC in its Resolution 22 dated September 27,
2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in the Resolution 23dated January 31, 2007.

Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.

On September 23, 2008, the CA rendered a Decision 24 denying the petition. The CA opined that since petitioner no longer
appealed the October 15, 1998 Decision of the Labor Arbiter, which already became final and executory, a belated correction
thereof is no longer allowed. The CA stated that there is nothing left to be done except to enforce the said judgment.
Consequently, it can no longer be modified in any respect, except to correct clerical errors or mistakes.

Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution 25 dated October 9, 2009.

Hence, the petition assigning the lone error:

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE ABUSE OF DISCRETION
AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN,
SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE OCTOBER
15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF THE SAME
DECISION.26

Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor Arbiter’s decision, the
same is not final until reinstatement is made or until finality of the decision, in case of an award of separation pay. Petitioner
maintains that considering that the October 15, 1998 decision of the Labor Arbiter did not become final and executory until the
April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of Entries on May 27, 2002, the
reckoning point for the computation of the backwages and separation pay should be on May 27, 2002 and not when the
decision of the Labor Arbiter was rendered on October 15, 1998. Further, petitioner posits that he is also entitled to the
payment of interest from the finality of the decision until full payment by the respondents.

On their part, respondents assert that since only separation pay and limited backwages were awarded to petitioner by the
October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to be made of said awards. Respondents
insist that since the decision clearly stated that the separation pay and backwages are "computed only up to [the]
promulgation of this decision," and considering that petitioner no longer appealed the decision, petitioner is only entitled to
the award as computed by the Labor Arbiter in the total amount of ₱158,919.92. Respondents added that it was only during
the execution proceedings that the petitioner questioned the award, long after the decision had become final and executory.
Respondents contend that to allow the further recomputation of the backwages to be awarded to petitioner at this point of the
proceedings would substantially vary the decision of the Labor Arbiter as it violates the rule on immutability of judgments.

The petition is meritorious.

The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth
Division),27 wherein the issue submitted to the Court for resolution was the propriety of the computation of the awards made,
and whether this violated the principle of immutability of judgment. Like in the present case, it was a distinct feature of the
judgment of the Labor Arbiter in the above-cited case that the decision already provided for the computation of the payable
separation pay and backwages due and did not further order the computation of the monetary awards up to the time of the
finality of the judgment. Also in Session Delights, the dismissed employee failed to appeal the decision of the labor arbiter. The
Court clarified, thus:

In concrete terms, the question is whether a re-computation in the course of execution of the labor arbiter's original
computation of the awards made, pegged as of the time the decision was rendered and confirmed with modification by a final
CA decision, is legally proper. The question is posed, given that the petitioner did not immediately pay the awards stated in the
original labor arbiter's decision; it delayed payment because it continued with the litigation until final judgment at the CA level.

A source of misunderstanding in implementing the final decision in this case proceeds from the way the original labor arbiter
framed his decision. The decision consists essentially of two parts.

The first is that part of the decision that cannot now be disputed because it has been confirmed with finality. This is the finding
of the illegality of the dismissal and the awards of separation pay in lieu of reinstatement, backwages, attorney's fees, and legal
interests.

The second part is the computation of the awards made. On its face, the computation the labor arbiter made shows that it was
time-bound as can be seen from the figures used in the computation. This part, being merely a computation of what the first
part of the decision established and declared, can, by its nature, be re-computed. This is the part, too, that the petitioner now
posits should no longer be re-computed because the computation is already in the labor arbiter's decision that the CA had
affirmed. The public and private respondents, on the other hand, posit that a re-computation is necessary because the relief in
an illegal dismissal decision goes all the way up to reinstatement if reinstatement is to be made, or up to the finality of the
decision, if separation pay is to be given in lieu reinstatement.

That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place, also made a
computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules of Procedure which requires
that a computation be made. This Section in part states:

[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable, shall embody in any
such decision or order the detailed and full amount awarded.

Clearly implied from this original computation is its currency up to the finality of the labor arbiter's decision. As we noted
above, this implication is apparent from the terms of the computation itself, and no question would have arisen had the parties
terminated the case and implemented the decision at that point.

However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of illegality as well as on all
the consequent awards made. Hence, the petitioner appealed the case to the NLRC which, in turn, affirmed the labor arbiter's
decision. By law, the NLRC decision is final, reviewable only by the CA on jurisdictional grounds.

The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely filed Rule 65
petition for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming the payment of 13th month pay
and indemnity, lapsed to finality and was subsequently returned to the labor arbiter of origin for execution.

It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original labor arbiter's
decision, the implementing labor arbiter ordered the award re-computed; he apparently read the figures originally ordered to
be paid to be the computation due had the case been terminated and implemented at the labor arbiter's level. Thus, the labor
arbiter re-computed the award to include the separation pay and the backwages due up to the finality of the CA decision that
fully terminated the case on the merits. Unfortunately, the labor arbiter's approved computation went beyond the finality of the
CA decision (July 29, 2003) and included as well the payment for awards the final CA decision had deleted - specifically, the
proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision now questioned in the present
petition.

We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered the labor arbiter's
original decision in accordance with its basic component parts as we discussed above. To reiterate, the first part contains the
finding of illegality and its monetary consequences; the second part is the computation of the awards or monetary
consequences of the illegal dismissal, computed as of the time of the labor arbiter's original decision. 28

Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed by the petitioner, no
essential change is made by a recomputation as this step is a necessary consequence that flows from the nature of the illegality
of dismissal declared by the Labor Arbiter in that decision. 29 A recomputation (or an original computation, if no previous
computation has been made) is a part of the law – specifically, Article 279 of the Labor Code and the established jurisprudence
on this provision – that is read into the decision. By the nature of an illegal dismissal case, the reliefs continue to add up until
full satisfaction, as expressed under Article 279 of the Labor Code. The recomputation of the consequences of illegal dismissal
upon execution of the decision does not constitute an alteration or amendment of the final decision being implemented. The
illegal dismissal ruling stands; only the computation of monetary consequences of this dismissal is affected, and this is not a
violation of the principle of immutability of final judgments. 30

That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the risk that it
ran when it continued to seek recourses against the Labor Arbiter's decision. Article 279 provides for the consequences of
illegal dismissal in no uncertain terms, qualified only by jurisprudence in its interpretation of when separation pay in lieu of
reinstatement is allowed. When that happens, the finality of the illegal dismissal decision becomes the reckoning point instead
of the reinstatement that the law decrees. In allowing separation pay, the final decision effectively declares that the
employment relationship ended so that separation pay and backwages are to be computed up to that point. 31

Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, 32 the Court
laid down the guidelines regarding the manner of computing legal interest, to wit:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as
well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. 33

Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013,
approved the amendment of Section 234 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, 35 Series of
2013, effective July 1, 2013, the pertinent portion of which reads:

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of
interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in
the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.1 36 of the Manual of Regulations for Banks and Sections
4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended
accordingly.

This Circular shall take effect on 1 July 2013.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the parties, the
rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer
be twelve percent (12%) per annum - as reflected in the case of Eastern Shipping Lines 40and Subsection X305.1 of the Manual
of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions, before its amendment by BSP-MB Circular No. 799 - but will now be six percent (6%) per annum effective July 1,
2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and not retroactively.
Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the
new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable.

Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral Monetary
Board,41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue and enforce Circulars when it ruled
that "the BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of
any money, goods or credits, including those for loans of low priority such as consumer loans, as well as such loans made by
pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum
rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of financial intermediaries."

Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said judgments shall
not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.1awp++i1

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines 42 are accordingly
modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code
govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the
Civil Code.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and
shall continue to be implemented applying the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-G.R. SP No. 98591,
and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are Ordered to Pay petitioner:

(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May 27, 2002,
when the Resolution of this Court in G.R. No. 151332 became final and executory;

(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per year of service;
and

(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002 to June
30, 2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction.

The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded and due to
petitioner in accordance with this Decision.

SO ORDERED.

G.R. No. 160544. February 21, 2005

TRIPLE-V vs. FILIPINO MERCHANTS
THIRD DIVISION

Gentlemen:

Quoted hereunder, for your information, is a resolution of this Court dated FEB 21 2005.

G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino Merchants Insurance Company, Inc.)

Assailed in this petition for review on certiorari is the decision dated October 21, 2003 of the Court of Appeals in CA-G.R. CV
No. 71223, affirming an earlier decision of the Regional Trial Court at Makati City, Branch 148, in its Civil Case No. 98-838, an
action for damages thereat filed by respondent Filipino Merchants Insurance, Company, Inc., against the herein petitioner,
Triple-V Food Services, Inc.

On March 2, 1997, at around 2:15 o'clock in the afternoon, a certain Mary Jo-Anne De Asis (De Asis) dined at
petitioner's Kamayan Restaurant at 15 West Avenue, Quezon City. De Asis was using a Mitsubishi Galant Super Saloon Model
1995 with plate number UBU 955, assigned to her by her employer Crispa Textile Inc. (Crispa). On said date, De Asis availed of
the valet parking service of petitioner and entrusted her car key to petitioner's valet counter. A corresponding parking ticket
was issued as receipt for the car. The car was then parked by petitioner's valet attendant, a certain Madridano, at the
designated parking area. Few minutes later, Madridano noticed that the car was not in its parking slot and its key no longer in
the box where valet attendants usually keep the keys of cars entrusted to them. The car was never recovered. Thereafter, Crispa
filed a claim against its insurer, herein respondent Filipino Merchants Insurance Company, Inc. (FMICI). Having indemnified
Crispa in the amount of P669.500 for the loss of the subject vehicle, FMICI, as subrogee to Crispa's rights, filed with the RTC at
Makati City an action for damages against petitioner Triple-V Food Services, Inc., thereat docketed as Civil Case No. 98-838
which was raffled to Branch 148.

In its answer, petitioner argued that the complaint failed to aver facts to support the allegations of recklessness and negligence
committed in the safekeeping and custody of the subject vehicle, claiming that it and its employees wasted no time in
ascertaining the loss of the car and in informing De Asis of the discovery of the loss. Petitioner further argued that in accepting
the complimentary valet parking service, De Asis received a parking ticket whereunder it is so provided that "[Management
and staff will not be responsible for any loss of or damage incurred on the vehicle nor of valuables contained therein", a
provision which, to petitioner's mind, is an explicit waiver of any right to claim indemnity for the loss of the car; and that De
Asis knowingly assumed the risk of loss when she allowed petitioner to park her vehicle, adding that its valet parking service
did not include extending a contract of insurance or warranty for the loss of the vehicle.

During trial, petitioner challenged FMICI's subrogation to Crispa's right to file a claim for the loss of the car, arguing that theft is
not a risk insured against under FMICI's Insurance Policy No. PC-5975 for the subject vehicle.
In a decision dated June 22, 2001, the trial court rendered judgment for respondent FMICI, thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff (FMICI) and against the defendant
Triple V (herein petitioner) and the latter is hereby ordered to pay plaintiff the following:

1. The amount of P669,500.00, representing actual damages plus compounded (sic);

2. The amount of P30,000.00 as acceptance fee plus the amount equal to 25% of the total amount due as attorney's fees;

3. The amount of P50,000.00 as exemplary damages;

4. Plus, cost of suit.

Defendant Triple V is not therefore precluded from taking appropriate action against defendant Armando Madridano.

SO ORDERED.

Obviously displeased, petitioner appealed to the Court of Appeals reiterating its argument that it was not a depositary of the
subject car and that it exercised due diligence and prudence in the safe keeping of the vehicle, in handling the car-napping
incident and in the supervision of its employees. It further argued that there was no valid subrogation of rights between Crispa
and respondent FMICI.

In a decision dated October 21, 2003, the Court of Appeals dismissed petitioner's appeal and affirmed the appealed decision of
the trial court, thus:

WHEREFORE, based on the foregoing premises, the instant appeal is hereby DISMISSED. Accordingly, the assailed June 22,
2001 Decision of the RTC of Makati City - Branch 148 in Civil Case No. 98-838 is AFFIRMED.

SO ORDERED.

In so dismissing the appeal and affirming the appealed decision, the appellate court agreed with the findings and conclusions
of the trial court that: (a) petitioner was a depositary of the subject vehicle; (b) petitioner was negligent in its duties as a
depositary thereof and as an employer of the valet attendant; and (c) there was a valid subrogation of rights between Crispa
and respondent FMICI.

Hence, petitioner's present recourse.

We agree with the two (2) courts below.

When De Asis entrusted the car in question to petitioners valet attendant while eating at petitioner's Kamayan Restaurant, the
former expected the car's safe return at the end of her meal. Thus, petitioner was constituted as a depositary of the same car.
Petitioner cannot evade liability by arguing that neither a contract of deposit nor that of insurance, guaranty or surety for the
loss of the car was constituted when De Asis availed of its free valet parking service.

In a contract of deposit, a person receives an object belonging to another with the obligation of safely keeping it and returning
the same.[3] A deposit may be constituted even without any consideration. It is not necessary that the depositary receives a fee
before it becomes obligated to keep the item entrusted for safekeeping and to return it later to the depositor.

Specious is petitioner's insistence that the valet parking claim stub it issued to De Asis contains a clear exclusion of its liability
and operates as an explicit waiver by the customer of any right to claim indemnity for any loss of or damage to the vehicle.

The parking claim stub embodying the terms and conditions of the parking, including that of relieving petitioner from any loss
or damage to the car, is essentially a contract of adhesion, drafted and prepared as it is by the petitioner alone with no
participation whatsoever on the part of the customers, like De Asis, who merely adheres to the printed stipulations therein
appearing. While contracts of adhesion are not void in themselves, yet this Court will not hesitate to rule out blind adherence
thereto if they prove to be one-sided under the attendant facts and circumstances. [4]
Hence, and as aptly pointed out by the Court of Appeals, petitioner must not be allowed to use its parking claim stub's
exclusionary stipulation as a shield from any responsibility for any loss or damage to vehicles or to the valuables contained
therein. Here, it is evident that De Asis deposited the car in question with the petitioner as part of the latter's enticement for
customers by providing them a safe parking space within the vicinity of its restaurant. In a very real sense, a safe parking space
is an added attraction to petitioner's restaurant business because customers are thereby somehow assured that their vehicle
are safely kept, rather than parking them elsewhere at their own risk. Having entrusted the subject car to petitioner's valet
attendant, customer De Asis, like all of petitioner's customers, fully expects the security of her car while at petitioner's
premises/designated parking areas and its safe return at the end of her visit at petitioner's restaurant.

Petitioner's argument that there was no valid subrogation of rights between Crispa and FMICI because theft was not a risk
insured against under FMICI's Insurance Policy No. PC-5975 holds no water.

Insurance Policy No. PC-5975 which respondent FMICI issued to Crispa contains, among others things, the following item:
"Insured's Estimate of Value of Scheduled Vehicle- P800.000".[5] On the basis of such item, the trial court concluded that the
coverage includes a full comprehensive insurance of the vehicle in case of damage or loss. Besides, Crispa paid a premium
of P10,304 to cover theft. This is clearly shown in the breakdown of premiums in the same policy. [6] Thus, having indemnified
CRISPA for the stolen car, FMICI, as correctly ruled by the trial court and the Court of Appeals, was properly subrogated to
Crispa's rights against petitioner, pursuant to Article 2207 of the New Civil Code[7].

Anent the trial court's findings of negligence on the part of the petitioner, which findings were affirmed by the appellate court,
we have consistently ruled that findings of facts of trial courts, more so when affirmed, as here, by the Court of Appeals, are
conclusive on this Court unless the trial court itself ignored, overlooked or misconstrued facts and circumstances which, if
considered, warrant a reversal of the outcome of the case. [8] This is not so in the case at bar. For, we have ourselves reviewed
the records and find no justification to deviate from the trial court's findings.

WHEREFORE, petition is hereby DENIED DUE COURSE.

G.R. No. 189998 : August 29, 2012

MAKATI SHANGRI-LA HOTEL AND RESORT, INC., Petitioner, v. ELLEN JOHANNE HARPER, JONATHAN CHRISTOPHER
HARPER, and RIGOBERTO GILLERA, Respondents.

BERSAMIN, J.:

FACTS:

In the first week of November 1999, Christian Harper (Harper) came to Manila on a business trip. He checked in at the Makati
Shangri-La Hotel and was billeted at Room 1428. He was due to check out on November 6, 1999. In the early morning of that
date, however, he was murdered inside his hotel room by still unidentified malefactors.

Thus, the heirs of Christian Harper sued the hotel for damages. Col. Rodrigo de Guzman, the hotels Security Manager, testified
that the management practice prior to the murder of Harper had been to deploy only one security or roving guard for every
three or four floors of the building; that such ratio had not been enough considering the L-shape configuration of the hotel that
rendered the hallways not visible from one or the other end; and that he had recommended to management to post a guard for
each floor, but his recommendation had been disapproved because the hotel "was not doing well" at that particular time.

And to prove heirship of the plaintiffs-appellees, they presented several documents which were all kept in Norway. The
documents had been authenticated by the Royal Norwegian Ministry of Foreign Affairs and also bore the official seal of the
Ministry and signature of one, Tanja Sorlie. The documents were also accompanied by an Authentication by the Consul,
Embassy of the Republic of the Philippines in Stockholm, Sweden to the effect that, Tanja Sorlie was duly authorized to legalize
official documents for the Ministry.

The RTC ruled in favor of Christian Harpers heirs and found the hotel negligent. On appeal, the CA affirmed the RTC.

ISSUES:
I. Whether or not the heirs substantially complied with the rules on the authentication and proof of documents set by Section 24
and Section 25 of Rule 132 of the Rules of Court?
II. Whether or not Makati Shangri-La Hotel is liable to pay damages?
HELD:

SECOND ISSUE: Petitioner was liable due to its own negligence.

CIVIL LAW:

The CA resolved petitioners arguments thuswise: "negligence is defined as 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. It is a relative or comparative, not an absolute, term and its
application depends upon the situation of the parties and the degree of care and vigilance which the circumstances reasonably
require. In determining whether or not there is negligence on the part of the parties in a given situation, jurisprudence has laid
down the following test:Did defendant, in doing the alleged negligent act, use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, the person is guilty of negligence. The law, in effect,
adopts the standard supposed to be supplied by the imaginary conduct of the discreet pater familias of the Roman law. Liability
on the part of the defendant is based upon the fact that he was in a better situation than the injured person to foresee and
prevent the happening of the injurious occurrence. Moreover, in applying the premises liability rule in the instant case as it is
applied in some jurisdiction in the United States, it is enough that guests are injured while inside the hotel premises to make
the hotelkeeper liable."

Proximate cause is defined as that cause, which, in natural and continuous sequence, unbroken by any efficient intervening
cause, produces, the injury, and without which the result would not have occurred. More comprehensively, proximate cause is
that cause acting first and producing the injury, either immediately or by setting other events in motion, all constituting a
natural and continuous chain of events, each having a close causal connection with its immediate predecessor, the final event in
the chain immediately effecting the injury as natural and probable result of the cause which first acted, under such
circumstances that the person responsible for the first event should, as an ordinarily prudent and intelligent person, have
reasonable ground to expect at the moment of his act or default that an injury to some person might probably result therefrom.
To reiterate, defendant-appellant is engaged in a business imbued with public interest, ergo, it is bound to provide adequate
security to its guests.

CA AFFIRMED.

G.R. No. 183204 January 13, 2014

THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs. ANA GRACE ROSALES AND YO YUK TO, Respondents.

DECISION

DEL CASTILLO, J.:

Bank deposits, which are in the nature of a simple loan or mutuum, 1 must be paid upon demand by the depositor.2

This Petition for Review on Certiorari 3 under Rule 45 of the Rules of Court assails the April 2, 2008 Decision 4 and the May 30,
2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV No. 89086.

Factual Antecedents

Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly organized and existing under the
laws of the Philippines.6 Respondent Ana Grace Rosales (Rosales) is the owner of China Golden Bridge Travel Services, 7 a travel
agency.8 Respondent Yo Yuk To is the mother of respondent Rosales.9

In 2000, respondents opened a Joint Peso Account 10 with petitioner’s Pritil-Tondo Branch. 11 As of August 4, 2004, respondents’
Joint Peso Account showed a balance of ₱2,515,693.52.12
In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National applying for a retiree’s visa from
the Philippine Leisure and Retirement Authority (PLRA), to petitioner’s branch in Escolta to open a savings account, as
required by the PLRA.13 Since Liu Chiu Fang could speak only in Mandarin, respondent Rosales acted as an interpreter for her. 14

On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar Account 15 with an initial deposit of
US$14,000.00.16

On July 31, 2003, petitioner issued a "Hold Out" order against respondents’ accounts. 17

On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan Aguirre, filed before the Office of
the Prosecutor of Manila a criminal case for Estafa through False Pretences, Misrepresentation, Deceit, and Use of Falsified
Documents, docketed as I.S. No. 03I-25014, 18 against respondent Rosales. 19 Petitioner accused respondent Rosales and an
unidentified woman as the ones responsible for the unauthorized and fraudulent withdrawal of US$75,000.00 from Liu Chiu
Fang’s dollar account with petitioner’s Escolta Branch. 20Petitioner alleged that on February 5, 2003, its branch in Escolta
received from the PLRA a Withdrawal Clearance for the dollar account of Liu Chiu Fang; 21 that in the afternoon of the same day,
respondent Rosales went to petitioner’s Escolta Branch to inform its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu
Fang was going to withdraw her dollar deposits in cash; 22 that Gutierrez told respondent Rosales to come back the following
day because the bank did not have enough dollars; 23 that on February 6, 2003, respondent Rosales accompanied an
unidentified impostor of Liu Chiu Fang to the bank; 24 that the impostor was able to withdraw Liu Chiu Fang’s dollar deposit in
the amount of US$75,000.00;25 that on March 3, 2003, respondents opened a dollar account with petitioner; and that the bank
later discovered that the serial numbers of the dollar notes deposited by respondents in the amount of US$11,800.00 were the
same as those withdrawn by the impostor.26

Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal from the dollar account of Liu
Chiu Fang.27 Respondent Rosales claimed that she did not go to the bank on February 5, 2003. 28Neither did she inform
Gutierrez that Liu Chiu Fang was going to close her account. 29 Respondent Rosales further claimed that after Liu Chiu Fang
opened an account with petitioner, she lost track of her. 30 Respondent Rosales’ version of the events that transpired thereafter
is as follows:

On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu Fang was at the bank to close her
account.31 At noon of the same day, respondent Rosales went to the bank to make a transaction. 32 While she was transacting
with the teller, she caught a glimpse of a woman seated at the desk of the Branch Operating Officer, Melinda Perez
(Perez).33 After completing her transaction, respondent Rosales approached Perez who informed her that Liu Chiu Fang had
closed her account and had already left. 34 Perez then gave a copy of the Withdrawal Clearance issued by the PLRA to
respondent Rosales.35 On June 16, 2003, respondent Rosales received a call from Liu Chiu Fang inquiring about the extension of
her PLRA Visa and her dollar account. 36 It was only then that Liu Chiu Fang found out that her account had been closed without
her knowledge.37 Respondent Rosales then went to the bank to inform Gutierrez and Perez of the unauthorized
withdrawal.38 On June 23, 2003, respondent Rosales and Liu Chiu Fang went to the PLRA Office, where they were informed that
the Withdrawal Clearance was issued on the basis of a Special Power of Attorney (SPA) executed by Liu Chiu Fang in favor of a
certain Richard So.39 Liu Chiu Fang, however, denied executing the SPA. 40 The following day, respondent Rosales, Liu Chiu Fang,
Gutierrez, and Perez met at the PLRA Office to discuss the unauthorized withdrawal. 41 During the conference, the bank officers
assured Liu Chiu Fang that the money would be returned to her. 42

On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing the criminal case for lack of
probable cause.43 Unfazed, petitioner moved for reconsideration.

On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a Complaint 44 for Breach of
Obligation and Contract with Damages, docketed as Civil Case No. 04110895 and raffled to Branch 21, against petitioner.
Respondents alleged that they attempted several times to withdraw their deposits but were unable to because petitioner had
placed their accounts under "Hold Out" status. 45 No explanation, however, was given by petitioner as to why it issued the "Hold
Out" order.46 Thus, they prayed that the "Hold Out" order be lifted and that they be allowed to withdraw their deposits. 47 They
likewise prayed for actual, moral, and exemplary damages, as well as attorney’s fees. 48

Petitioner alleged that respondents have no cause of action because it has a valid reason for issuing the "Hold Out" order. 49 It
averred that due to the fraudulent scheme of respondent Rosales, it was compelled to reimburse Liu Chiu Fang the amount of
US$75,000.0050 and to file a criminal complaint for Estafa against respondent Rosales. 51
While the case for breach of contract was being tried, the City Prosecutor of Manila issued a Resolution dated February 18,
2005, reversing the dismissal of the criminal complaint. 52 An Information, docketed as Criminal Case No. 05-236103, 53 was
then filed charging respondent Rosales with Estafa before Branch 14 of the RTC of Manila. 54

Ruling of the Regional Trial Court

On January 15, 2007, the RTC rendered a Decision55 finding petitioner liable for damages for breach of contract. 56The RTC ruled
that it is the duty of petitioner to release the deposit to respondents as the act of withdrawal of a bank deposit is an act of
demand by the creditor.57 The RTC also said that the recourse of petitioner is against its negligent employees and not against
respondents.58 The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering [petitioner] METROPOLITAN BANK & TRUST
COMPANY to allow [respondents] ANA GRACE ROSALES and YO YUK TO to withdraw their Savings and Time Deposits with the
agreed interest, actual damages of ₱50,000.00, moral damages of ₱50,000.00, exemplary damages of ₱30,000.00 and 10% of
the amount due [respondents] as and for attorney’s fees plus the cost of suit.

The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.

SO ORDERED.59

Ruling of the Court of Appeals

Aggrieved, petitioner appealed to the CA.

On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of actual damages because "the basis for
[respondents’] claim for such damages is the professional fee that they paid to their legal counsel for [respondent] Rosales’
defense against the criminal complaint of [petitioner] for estafa before the Office of the City Prosecutor of Manila and not this
case."60 Thus, the CA disposed of the case in this wise:

WHEREFORE, premises considered, the Decision dated January 15, 2007 of the RTC, Branch 21, Manila in Civil Case No. 04-
110895 is AFFIRMED with MODIFICATION that the award of actual damages to [respondents] Rosales and Yo Yuk To is hereby
DELETED.

SO ORDERED.61

Petitioner sought reconsideration but the same was denied by the CA in its May 30, 2008 Resolution. 62

Issues

Hence, this recourse by petitioner raising the following issues:

A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION IN THE APPLICATION AND AGREEMENT FOR
DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.

B. THE [CA] ERRED WHEN IT RULED THAT PETITIONER’S EMPLOYEES WERE NEGLIGENT IN RELEASING LIU CHIU
FANG’S FUNDS.

C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY DAMAGES, AND ATTORNEY’S
FEES.63

Petitioner’s Arguments

Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the Application and Agreement for
Deposit Account.64 It posits that the said clause applies to any and all kinds of obligation as it does not distinguish between
obligations arising ex contractu or ex delictu. 65 Petitioner also contends that the fraud committed by respondent Rosales was
clearly established by evidence;66 thus, it was justified in issuing the "Hold-Out" order. 67 Petitioner likewise denies that its
employees were negligent in releasing the dollars. 68 It claims that it was the deception employed by respondent Rosales that
caused petitioner’s employees to release Liu Chiu Fang’s funds to the impostor. 69
Lastly, petitioner puts in issue the award of moral and exemplary damages and attorney’s fees. It insists that respondents failed
to prove that it acted in bad faith or in a wanton, fraudulent, oppressive or malevolent manner. 70

Respondents’ Arguments

Respondents, on the other hand, argue that there is no legal basis for petitioner to withhold their deposits because they have
no monetary obligation to petitioner. 71 They insist that petitioner miserably failed to prove its accusations against respondent
Rosales.72 In fact, no documentary evidence was presented to show that respondent Rosales participated in the unauthorized
withdrawal.73 They also question the fact that the list of the serial numbers of the dollar notes fraudulently withdrawn on
February 6, 2003, was not signed or acknowledged by the alleged impostor. 74Respondents likewise maintain that what was
established during the trial was the negligence of petitioner’s employees as they allowed the withdrawal of the funds without
properly verifying the identity of the depositor. 75Furthermore, respondents contend that their deposits are in the nature of a
loan; thus, petitioner had the obligation to return the deposits to them upon demand. 76 Failing to do so makes petitioner liable
to pay respondents moral and exemplary damages, as well as attorney’s fees. 77

Our Ruling

The Petition is bereft of merit.

At the outset, the relevant issues in this case are (1) whether petitioner breached its contract with respondents, and (2) if so,
whether it is liable for damages. The issue of whether petitioner’s employees were negligent in allowing the withdrawal of Liu
Chiu Fang’s dollar deposits has no bearing in the resolution of this case. Thus, we find no need to discuss the same.

The "Hold Out" clause does not apply

to the instant case.

Petitioner claims that it did not breach its contract with respondents because it has a valid reason for issuing the "Hold Out"
order. Petitioner anchors its right to withhold respondents’ deposits on the Application and Agreement for Deposit Account,
which reads:

Authority to Withhold, Sell and/or Set Off:

The Bank is hereby authorized to withhold as security for any and all obligations with the Bank, all monies, properties or
securities of the Depositor now in or which may hereafter come into the possession or under the control of the Bank, whether
left with the Bank for safekeeping or otherwise, or coming into the hands of the Bank in any way, for so much thereof as will be
sufficient to pay any or all obligations incurred by Depositor under the Account or by reason of any other transactions between
the same parties now existing or hereafter contracted, to sell in any public or private sale any of such properties or securities of
Depositor, and to apply the proceeds to the payment of any Depositor’s obligations heretofore mentioned.

xxxx

JOINT ACCOUNT

xxxx

The Bank may, at any time in its discretion and with or without notice to all of the Depositors, assert a lien on any balance of
the Account and apply all or any part thereof against any indebtedness, matured or unmatured, that may then be owing to the
Bank by any or all of the Depositors. It is understood that if said indebtedness is only owing from any of the Depositors, then
this provision constitutes the consent by all of the depositors to have the Account answer for the said indebtedness to the
extent of the equal share of the debtor in the amount credited to the Account. 78

Petitioner’s reliance on the "Hold Out" clause in the Application and Agreement for Deposit Account is misplaced.

The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the sources of obligation
enumerated in Article 115779 of the Civil Code, to wit: law, contracts, quasi-contracts, delict, and quasi-delict. In this case,
petitioner failed to show that respondents have an obligation to it under any law, contract, quasi-contract, delict, or quasi-
delict. And although a criminal case was filed by petitioner against respondent Rosales, this is not enough reason for petitioner
to issue a "Hold Out" order as the case is still pending and no final judgment of conviction has been rendered against
respondent Rosales. In fact, it is significant to note that at the time petitioner issued the "Hold Out" order, the criminal
complaint had not yet been filed. Thus, considering that respondent Rosales is not liable under any of the five sources of
obligation, there was no legal basis for petitioner to issue the "Hold Out" order. Accordingly, we agree with the findings of the
RTC and the CA that the "Hold Out" clause does not apply in the instant case.

In view of the foregoing, we find that petitioner is guilty of breach of contract when it unjustifiably refused to release
respondents’ deposit despite demand. Having breached its contract with respondents, petitioner is liable for damages.

Respondents are entitled to moral and exemplary damages and attorney’s fees.

In cases of breach of contract, moral damages may be recovered only if the defendant acted fraudulently or in bad faith, 80 or is
"guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations." 81

In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order reveals that petitioner issued the
"Hold Out" order in bad faith. First of all, the order was issued without any legal basis. Second, petitioner did not inform
respondents of the reason for the "Hold Out." 82 Third, the order was issued prior to the filing of the criminal complaint. Records
show that the "Hold Out" order was issued on July 31, 2003, 83 while the criminal complaint was filed only on September 3,
2003.84 All these taken together lead us to conclude that petitioner acted in bad faith when it breached its contract with
respondents. As we see it then, respondents are entitled to moral damages.

As to the award of exemplary damages, Article 2229 85 of the Civil Code provides that exemplary damages may be imposed "by
way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages."
They are awarded only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 86

In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or malevolent manner when it
refused to release the deposits of respondents without any legal basis. We need not belabor the fact that the banking industry
is impressed with public interest.87 As such, "the highest degree of diligence is expected, and high standards of integrity and
performance are even required of it."88 It must therefore "treat the accounts of its depositors with meticulous care and always
to have in mind the fiduciary nature of its relationship with them." 89 For failing to do this, an award of exemplary damages is
justified to set an example.

The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 2208 90 of the Civil Code.

In closing, it must be stressed that while we recognize that petitioner has the right to protect itself from fraud or suspicions of
fraud, the exercise of his right should be done within the bounds of the law and in accordance with due process, and not in bad
faith or in a wanton disregard of its contractual obligation to respondents.

WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision and the May 30, 2008 Resolution of the Court
of Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO ORDERED.

G.R. No. 176697 September 10, 2014

CESAR V. AREZA and LOLITA B. AREZA, Petitioners, vs. EXPRESS SAVINGS BANK, INC. and MICHAEL
POTENCIANO, Respondnets.

DECISION

PEREZ, J.:

Before this Court is a Petition for Review on Certiorari under Ruic 45 of the Rules of Court, which seeks to reverse the
Decision1 and Resolution2 dated 29 June 2006 and 12 February 2007 of the Court of Appeals in CAG.R. CV No. 83192. The Court
of Appeals affirmed with modification the 22 April 2004 Resolution 3 of the Regional Trial Court (RTC) of Calamba, Laguna,
Branch 92, in Civil Case No. B-5886.

The factual antecedents follow.

Petitioners Cesar V. Areza and LolitaB. Areza maintained two bank deposits with respondent Express Savings Bank’s Binñ an
branch: 1) Savings Account No. 004-01-000185-5 and 2) Special Savings Account No. 004-02-000092-3.

They were engaged in the business of "buy and sell" of brand new and second-hand motor vehicles. On 2 May 2000, they
received an order from a certain Gerry Mambuay (Mambuay) for the purchase of a second-hand Mitsubishi Pajero and a brand-
new Honda CRV.

The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to different
payees and drawn against the Philippine Veterans Bank (drawee), each valued at Two Hundred Thousand Pesos (₱200,000.00)
for a total of One Million Eight Hundred Thousand Pesos (₱1,800,000.00).

About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the branch manager of respondent Express
Savings Bank (the Bank) was present during the transaction and immediately offered the services of the Bank for the
processing and eventual crediting of the said checks to petitioners’ account. 4 On the other hand,Potenciano countered that he
was prevailed upon to accept the checks by way of accommodation of petitioners who were valued clients of the Bank. 5

On 3 May 2000, petitioners deposited the said checks in their savings account with the Bank. The Bank, inturn, deposited the
checks with its depositary bank, Equitable-PCI Bank, in Binñ an,Laguna. Equitable-PCI Bank presented the checks to the drawee,
the Philippine Veterans Bank, which honored the checks.

On 6 May 2000, Potenciano informedpetitioners that the checks they deposited with the Bank werehonored. He allegedly
warned petitioners that the clearing of the checks pertained only to the availability of funds and did not mean that the checks
were not infirmed.6 Thus, the entire amount of ₱1,800,000.00 was credited to petitioners’ savings account. Based on this
information, petitioners released the two cars to the buyer.

Sometime in July 2000, the subjectchecks were returned by PVAO to the drawee on the ground that the amount on the face of
the checks was altered from the original amount of ₱4,000.00 to ₱200,000.00. The drawee returned the checks to Equitable-
PCI Bank by way of Special Clearing Receipts. In August 2000, the Bank was informed by Equitable-PCI Bank that the drawee
dishonored the checks onthe ground of material alterations. Equitable-PCI Bank initially filed a protest with the Philippine
Clearing House. In February 2001, the latter ruled in favor of the drawee Philippine Veterans Bank. Equitable-PCI Bank, in turn,
debited the deposit account of the Bank in the amount of ₱1,800,000.00.

The Bank insisted that they informed petitioners of said development in August 2000 by furnishing them copies of the
documents given by its depositary bank. 7 On the other hand, petitioners maintained that the Bank never informed them of
these developments.

On 9 March 2001, petitioners issued a check in the amount of ₱500,000.00. Said check was dishonored by the Bank for the
reason "Deposit Under Hold." According topetitioners, the Bank unilaterally and unlawfully put their account with the Bank on
hold. On 22 March 2001, petitioners’ counsel sent a demand letter asking the Bank to honor their check. The Bank refused to
heed their request and instead, closed the Special Savings Account of the petitioners with a balance of ₱1,179,659.69 and
transferred said amount to their savings account. The Bank then withdrew the amount of ₱1,800,000.00representing the
returned checks from petitioners’ savings account.

Acting on the alleged arbitrary and groundless dishonoring of their checks and the unlawful and unilateral withdrawal from
their savings account, petitioners filed a Complaint for Sum of Money with Damages against the Bank and Potenciano with the
RTC of Calamba.

On 15 January 2004, the RTC, through Judge Antonio S. Pozas, ruled in favor of petitioners. The dispositive portion of the
Decision reads:

WHEREFORE, the foregoing considered, the Court orders that judgment be rendered in favor of plaintiffs and against the
defendants jointly and severally to pay plaintiffs as follows, to wit:

1. ₱1,800,000.00 representing the amount unlawfully withdrawn by the defendants from the account of plaintiffs;

2. ₱500,000.00 as moral damages; and

3. ₱300,000.00 as attorney’s fees.8

The trial court reduced the issue to whether or not the rights of petitioners were violated by respondents when the deposits of
the former were debited by respondents without any court order and without their knowledge and consent. According to the
trial court, it is the depositary bank which should safeguard the right ofthe depositors over their money. Invoking Article 1977
of the Civil Code, the trial court stated that the depositary cannot make use of the thing deposited without the express
permission of the depositor. The trial court also held that respondents should have observed the 24-hour clearing house rule
that checks should be returned within 24-hours after discovery of the forgery but in no event beyond the period fixed by law
for filing a legal action. In this case, petitioners deposited the checks in May 2000, and respondents notified them of the
problems on the check three months later or in August 2000. In sum, the trial court characterized said acts of respondents as
attended with bad faith when they debited the amount of ₱1,800,000.00 from the account of petitioners.

Respondents filed a motion for reconsideration while petitioners filed a motion for execution from the Decision of the RTC on
the ground that respondents’ motion for reconsideration did not conform with Section 5, Rule 16 of the Rules of Court; hence,
it was a mere scrap of paper that did not toll the running of the period to appeal.

On 22 April 2004, the RTC, through Pairing Judge Romeo C. De Leon granted the motion for reconsideration, set aside the Pozas
Decision, and dismissed the complaint. The trial court awarded respondents their counterclaim of moral and exemplary
damages of ₱100,000.00 each. The trial court first applied the principle of liberality when it disregarded the alleged absence of
a notice of hearing in respondents’ motion for reconsideration. On the merits, the trial court considered the relationship of the
Bank and petitioners with respect to their savings account deposits as a contract of loan with the bank as the debtor and
petitioners as creditors. As such, Article 1977 of the Civil Code prohibiting the depository from making use of the thing
deposited without the express permission of the depositor is not applicable. Instead, the trial court applied Article 1980 which
provides that fixed, savings and current deposits ofmoney in banks and similar institutions shall be governed by the provisions
governing simple loan. The trial court then opined thatthe Bank had all the right to set-off against petitioners’ savings deposits
the value of their nine checks that were returned.

On appeal, the Court of Appeals affirmed the ruling of the trial court but deleted the award of damages. The appellate court
made the following ratiocination:

Any argument as to the notice of hearing has been resolved when the pairing judge issued the order on February 24, 2004
setting the hearing on March 26, 2004. A perusal of the notice of hearing shows that request was addressed to the Clerk of
Court and plaintiffs’ counsel for hearing to be set on March 26, 2004.

The core issues in this case revolve on whether the appellee bank had the right to debit the amount of ₱1,800,000.00 from the
appellants’ accounts and whether the bank’s act of debiting was done "without the plaintiffs’ knowledge."

We find that the elements of legal compensation are all present in the case at bar. Hence, applying the case of the Bank of the
Philippine Islands v. Court of Appeals, the obligors bound principally are at the same time creditors of each other. Appellee
bank stands as a debtor of appellant, a depositor. At the same time, said bank is the creditor of the appellant with respect to the
dishonored treasury warrant checks which amount were already credited to the account of appellants. When the appellants
had withdrawn the amount of the checks they deposited and later on said checks were returned, they became indebted to the
appellee bank for the corresponding amount.

It should be noted that [G]erry Mambuay was the appellants’ walkin buyer. As sellers, appellants oughtto have exercised due
diligence in assessing his credit or personal background. The 24-hour clearing house rule is not the one that governs in this
case since the nine checks were discovered by the drawee bank to contain material alterations.

Appellants merely allege that they were not informed of any development on the checks returned. However, this Court believes
that the bank and appellants had opportunities to communicate about the checks considering that several transactions
occurred from the time of alleged return of the checks to the date of the debit.

However, this Court agrees withappellants that they should not pay moral and exemplary damages to each of the appellees for
lack of basis. The appellants were not shown to have acted in bad faith. 9

Petitioners filed the present petition for review on certiorariraising both procedural and substantive issues, to wit:

1. Whether or not the Honorable Court of Appeals committed a reversible error of law and grave abuse of discretion in
upholding the legality and/or propriety of the Motion for Reconsideration filed in violation of Section 5, Rule 15 ofthe
Rules on Civil Procedure;
 2. Whether or not the Honorable Court of Appeals committed a grave abuse of discretion in declaring that the private
respondents "had the right to debit the amount of ₱1,800,000.00 from the appellants’ accounts" and the bank’s act of
debiting was done with the plaintiff’s knowledge.10

Before proceeding to the substantive issue, we first resolve the procedural issue raised by petitioners.

Sections 5, Rule 15 of the Rules of Court states:

Section 5. Notice of hearing. – The notice of hearing shall be addressed to all parties concerned, and shall specify the time and
date of the hearing which must not be later than ten (10) days after the filing of the motion.

Petitioners claim that the notice of hearing was addressed to the Clerk of Court and not to the adverse party as the rules
require. Petitioners add that the hearing on the motion for reconsideration was scheduled beyond 10 days from the date of
filing.

As held in Maturan v. Araula, 11 the rule requiring that the notice be addressed to the adverse party has beensubstantially
complied with when a copy of the motion for reconsideration was furnished to the counsel of the adverse party, coupled with
the fact that the trial court acted on said notice of hearing and, as prayed for, issued an order 12 setting the hearing of the motion
on 26 March 2004.

We would reiterate later that there is substantial compliance with the foregoing Rule if a copy of the said motion for
reconsideration was furnished to the counsel of the adverse party. 13

Now to the substantive issues to which procedural imperfection must, in this case, give way.

The central issue is whether the Bank had the right to debit ₱1,800,000.00 from petitioners’ accounts.

On 6 May 2000, the Bank informed petitioners that the subject checks had been honored. Thus, the amountof ₱1,800,000.00
was accordingly credited to petitioners’ accounts, prompting them to release the purchased cars to the buyer.

Unknown to petitioners, the Bank deposited the checks in its depositary bank, Equitable-PCI Bank. Three months had passed
when the Bank was informed by its depositary bank that the drawee had dishonored the checks on the ground of material
alterations.

The return of the checks created a chain of debiting of accounts, the last loss eventually falling upon the savings account of
petitioners with respondent bank. The trial court inits reconsidered decision and the appellate court were one in declaring
that petitioners should bear the loss.

We reverse.

The fact that material alteration caused the eventual dishonor of the checks issued by PVAO is undisputed. In this case, before
the alteration was discovered, the checks were already cleared by the drawee bank, the Philippine Veterans Bank. Three
months had lapsed before the drawee dishonored the checks and returned them to Equitable-PCI Bank, the respondents’
depositary bank. And itwas not until 10 months later when petitioners’ accounts were debited. A question thus arises: What
are the liabilities of the drawee, the intermediary banks, and the petitioners for the altered checks?

LIABILITY OF THE DRAWEE

Section 63 of Act No. 2031 orthe Negotiable Instruments Law provides that the acceptor, by accepting the instrument, engages
that he will pay it according to the tenor of his acceptance. The acceptor is a drawee who accepts the bill. In Philippine National
Bank v. Court of Appeals,14 the payment of the amount of a check implies not only acceptance but also compliance with the
drawee’s obligation.

In case the negotiable instrument isaltered before acceptance, is the drawee liable for the original or the altered tenor of
acceptance? There are two divergent intepretations proffered by legal analysts. 15 The first view is supported by the leading
case of National City Bank ofChicago v. Bank of the Republic. 16 In said case, a certain Andrew Manning stole a draft and
substituted his name for that of the original payee. He offered it as payment to a jeweler in exchange for certain jewelry. The
jeweler deposited the draft to the defendant bank which collectedthe equivalent amount from the drawee. Upon learning of the
alteration, the drawee sought to recover from the defendant bank the amount of the draft, as money paid by mistake. The court
denied recovery on the ground that the drawee by accepting admitted the existence of the payee and his capacity to
endorse.17 Still, in Wells Fargo Bank & Union Trust Co. v. Bank of Italy, 18 the court echoed the court’s interpretation in National
City Bank of Chicago, in this wise:

We think the construction placed upon the section by the Illinois court is correct and that it was not the legislative intent that
the obligation of the acceptor should be limited to the tenorof the instrument as drawn by the maker, as was the rule at
common law,but that it should be enforceable in favor of a holder in due course against the acceptor according to its tenor at
the time of its acceptance or certification.

The foregoing opinion and the Illinois decision which it follows give effect to the literal words of the Negotiable Instruments
Law. As stated in the Illinois case: "The court must take the act as it is written and should give to the words their natural and
common meaning . . . ifthe language of the act conflicts with statutes or decisions in force before its enactment the courts
should not give the act a strained construction in order to make it harmonize with earlier statutes or decisions." The wording
of the act suggests that a change in the common law was intended. A careful reading thereof, independent of any common-law
influence, requires that the words "according to the tenor of his acceptance" be construed as referring to the instrument as it
was at the time it came into the hands of the acceptor for acceptance, for he accepts no other instrument than the one
presented to him — the altered form — and it alone he engages to pay. This conclusion is in harmony with the law of England
and the continental countries. It makes for the usefulness and currency of negotiable paper without seriously endangering
accepted banking practices, for banking institutions can readily protect themselves against liability on altered instruments
either by qualifying their acceptance or certification or by relying on forgery insurance and specialpaper which will make
alterations obvious. All of the arguments advanced against the conclusion herein announced seem highly technical in the face
of the practical facts that the drawee bank has authenticated an instrument in a certain form, and that commercial policy favors
the protection of anyone who, in due course, changes his position on the faith of that authentication. 19

The second view is that the acceptor/drawee despite the tenor of his acceptance is liable only to the extent of the bill prior to
alteration.20 This view appears to be in consonance with Section 124 of the Negotiable Instruments Law which statesthat a
material alteration avoids an instrument except as against an assenting party and subsequent indorsers, but a holder in due
course may enforce payment according to its original tenor. Thus, when the drawee bank pays a materially altered check, it
violates the terms of the check, as well as its duty tocharge its client’s account only for bona fide disbursements he had made. If
the drawee did not pay according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim
reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the drawer’s account
which it was expected to treat with utmost fidelity. 21 The drawee, however, still has recourse to recover its loss. It may pass the
liability back to the collecting bank which is what the drawee bank exactly did in this case. It debited the account of Equitable-
PCI Bank for the altered amount of the checks.

LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK

A depositary bank is the first bank to take an item even though it is also the payor bank, unless the item is presented for
immediate payment over the counter.22 It is also the bank to which a check is transferred for deposit in an account at such bank,
evenif the check is physically received and indorsed first by another bank. 23 A collecting bank is defined as any bank handling
an item for collection except the bank on which the check is drawn. 24

When petitioners deposited the check with the Bank, they were designating the latter as the collecting bank. This is in
consonance with the rule that a negotiable instrument, such as a check, whether a manager's check or ordinary check, is not
legal tender. As such, after receiving the deposit, under its own rules, the Bank shall credit the amount in petitioners’ account
or infuse value thereon only after the drawee bank shall have paid the amount of the check or the check has been cleared for
deposit.25

The Bank and Equitable-PCI Bank are both depositary and collecting banks.

A depositary/collecting bank where a check is deposited, and which endorses the check upon presentment with the drawee
bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants "that the instrument is
genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and
that the instrument is at the time of his endorsement valid and subsisting." It has been repeatedly held that in check
transactions, the depositary/collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an
assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. 26 If any
of the warranties made by the depositary/collecting bank turns out to be false, then the drawee bank may recover from it up to
the amount of the check.27

The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of
determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the
public as the expert and the law holds it to a high standard of conduct. 28

As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount of the materially altered checks. Since
Equitable-PCI Bank is not a party to this case and the Bank allowed its account with EquitablePCI Bank to be debited, it has the
option toseek recourse against the latter in another forum.

24-HOUR CLEARING RULE

Petitioners faulted the drawee bank for not following the 24-hour clearing period because it was only in August 2000 that the
drawee bank notified Equitable-PCI that there were material alterations in the checks.

We do not subscribe to the position taken by petitioners that the drawee bank was at fault because it did not follow the 24-
hour clearing period which provides that when a drawee bank fails to return a forged or altered check to the collecting bank
within the 24-hour clearing period, the collecting bank is absolved from liability.

Section 21 of the Philippine Clearing House Rules and Regulations provides: Sec. 21. Special Return Items Beyond The
Reglementary Clearing Period.- Items which have been the subject of material alteration or items bearing forged endorsement
when such endorsement is necessary for negotiation shall be returned by direct presentation or demand to the Presenting
Bank and not through the regular clearing house facilities within the period prescribed by law for the filing of a legal action by
the returning bank/branch, institution or entity sending the same.

Antonio Viray, in his book Handbook on Bank Deposits, elucidated:

It is clear that the so-called "24-hour" rule has been modified. In the case of Hongkong & Shanghai vs. People’s Bank reiterated
in Metropolitan Bank and Trust Co. vs. FNCB, the Supreme Court strictly enforced the 24-hour rule under which the drawee
bank forever loses the right to claim against presenting/collecting bank if the check is not returned at the next clearing day
orwithin 24 hours. Apparently, the commercial banks felt strict enforcement of the 24-hour rule is too harsh and therefore
made representations and obtained modification of the rule, which modification is now incorporated in the Manual of
Regulations. Since the same commercial banks controlled the Philippine Clearing House Corporation, incorporating the
amended rule in the PCHC Rules naturally followed.

As the rule now stands, the 24-hour rule is still in force, that is, any check which should be refused by the drawee bank in
accordance with long standing and accepted banking practices shall be returned through the PCHC/local clearing office, as the
case may be, not later than the next regular clearing (24-hour). The modification, however, is that items which have been the
subject of material alteration or bearing forged endorsement may be returned even beyond 24 hours so long that the same is
returned within the prescriptive period fixed by law. The consensus among lawyers is that the prescriptiveperiod is ten
(10)years because a check or the endorsement thereon is a written contract. Moreover, the item need not be returned through
the clearing house but by direct presentation to the presenting bank. 29

In short, the 24-hour clearing ruledoes not apply to altered checks.

LIABILITY OF PETITIONERS

The 2008 case of Far East Bank & Trust Company v. Gold Palace Jewellery Co. 30 is in point. A foreigner purchased several pieces
of jewelry from Gold Palace Jewellery using a United Overseas Bank (Malaysia) issued draft addressed to the Land Bank of the
Philippines (LBP). Gold Palace Jewellery deposited the draft in the company’s account with Far East Bank. Far East Bank
presented the draft for clearing to LBP. The latter cleared the same and Gold Palace Jewellery’s account was credited with the
amount stated in the draft. Consequently, Gold Palace Jewellery released the pieces of jewelries to the foreigner. Three weeks
later, LBP informed Far East Bank that the amount in the foreign draft had been materially altered from ₱300,000.00 to
₱380,000.00. LBP returnedthe check to Far East Bank. Far East Bank refunded LBP the ₱380,000.00 paid by LBP. Far East Bank
initially debited ₱168,053.36 from Gold Palace Jewellery’s account and demanded the payment of the difference between the
amount in the altered draft and the amount debited from Gold Palace Jewellery.
However, for the reasons already discussed above, our pronouncement in the Far East Bank and Trust Companycase that "the
drawee is liable on its payment of the check according to the tenor of the check at the time of payment, which was the raised
amount"31 is inapplicable to the factual milieu obtaining herein.

We only adopt said decision in so far as it adjudged liability on the part of the collecting bank, thus:

Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far East, should not
have debited the money paid by the drawee bank from respondent company's account. When Gold Palace deposited the check
with Far East, the latter, under the terms of the deposit and the provisions of the NIL, became an agent of the former for the
collection of the amount in the draft. The subsequent payment by the drawee bank and the collection of the amount by the
collecting bank closed the transaction insofar as the drawee and the holder of the check or his agent are concerned, converted
the check into a mere voucher, and, as already discussed, foreclosed the recovery by the drawee of the amount paid. This
closure of the transaction is a matter of course; otherwise, uncertainty in commercial transactions, delay and annoyance will
arise if a bank at some future time will call on the payee for the return of the money paid to him on the check.

As the transaction in this case had been closed and the principalagent relationship between the payee and the collecting bank
had already ceased, the latter in returning the amount to the drawee bank was already acting on its own and should now be
responsible for its own actions. x x x Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the
instrument for collection to shift the burden it brought upon itself. This is precisely because the said indorsement is only for
purposes of collection which, under Section 36 of the NIL, is a restrictive indorsement. It did not in any way transfer the title of
the instrument to the collecting bank. Far East did not own the draft, it merely presented it for payment. Considering that the
warranties of a general indorser as provided in Section 66 of the NIL are based upon a transfer of title and are available only to
holders in due course, these warranties did not attach to the indorsement for deposit and collection made by Gold Palace to Far
East. Without any legal right to do so, the collecting bank, therefore, could not debit respondent's account for the amount it
refunded to the drawee bank.

The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East could not debit the account of
Gold Palace, and for doing so, it must return what it had erroneously taken. 32

Applying the foregoing ratiocination, the Bank cannot debit the savings account of petitioners. A depositary/collecting bank
may resist or defend against a claim for breach of warranty if the drawer, the payee, or either the drawee bank or depositary
bank was negligent and such negligence substantially contributed tothe loss from alteration. In the instant case, no negligence
can be attributed to petitioners. We lend credence to their claim that at the time of the sales transaction, the Bank’s branch
manager was present and even offered the Bank’s services for the processing and eventual crediting of the checks. True to the
branch manager’s words, the checks were cleared three days later when deposited by petitioners and the entire amount ofthe
checks was credited to their savings account.

ON LEGAL COMPENSATION

Petitioners insist that the Bank cannotbe considered a creditor of the petitioners because it should have made a claim of the
amount of ₱1,800,000.00 from Equitable-PCI Bank, its own depositary bank and the collecting bank in this case and not from
them.

The Bank cannot set-off the amount it paid to Equitable-PCI Bank with petitioners’ savings account. Under Art. 1278 of the
New Civil Code, compensation shall take place when two persons, in their own right, are creditors and debtors of each other.
And the requisites for legal compensation are:

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.

It is well-settled that the relationship of the depositors and the Bank or similar institution is that of creditor-debtor. Article
1980 of the New Civil Code provides that fixed, savings and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loans. The bank is the debtorand the depositor is the creditor. The depositor
lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement between the bank
and the depositor is the contract that determines the rights and obligations of the parties. 33

But as previously discussed, petitioners are not liable for the deposit of the altered checks. The Bank, asthe depositary and
collecting bank ultimately bears the loss. Thus, there being no indebtedness to the Bank on the part of petitioners, legal
compensation cannot take place. DAMAGES

The Bank incurred a delay in informing petitioners of the checks’ dishonor. The Bank was informed of the dishonor by
Equitable-PCI Bank as early as August 2000 but it was only on 7 March 2001 when the Bank informed petitioners that it will
debit from their account the altered amount. This delay is tantamount to negligence on the part of the collecting bank which
would entitle petitioners to an award for damages under Article 1170 of the New Civil Code which reads:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.

The damages in the form of actual or compensatory damages represent the amount debited by the Bank from petitioners’
account.

We delete the award of moral damages. Contrary to the lower court’s finding, there was no showing that the Bank acted
fraudulently or in bad faith. It may have been remiss in its duty to diligently protect the account of its depositors but its honest
but mistaken belief that petitioners’ account should be debited is not tantamount to bad faith. We also delete the award of
attorney’s fees for it is not a sound public policy to place a premium on the right to litigate. No damages can becharged to those
who exercise such precious right in good faith, even if done erroneously. 34

To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable to the extent of the check prior to alteration.
Since Philippine Veterans Bank paid the altered amount of the check, it may pass the liability back as it did, to Equitable-PCI
Bank,the collecting bank. The collecting banks, Equitable-PCI Bank and the Bank, are ultimately liable for the amount of the
materially altered check. It cannot further pass the liability back to the petitioners absent any showing in the negligence on the
part of the petitioners which substantially contributed to the loss from alteration.

Based on the foregoing, we affirm the Pozasdecision only insofar as it ordered respondents to jointly and severally pay
petitioners ₱1,800,000.00, representing the amount withdrawn from the latter’s account. We do not conform with said ruling
regarding the finding of bad faith on the part of respondents, as well as its failure toobserve the 24-hour clearing rule.

WHEREFORE, the petition is GRANTED. The Decision and Resolution dated 29 June 2006 and 12 February 2007 respectively of
the Court of Appeals in CA-G.R. CV No. 83192 are REVERSED and SET ASIDE. The 15 January 2004 Decision of the Regional
Trial Court of Calamba City, Branch 92 in Civil Case No. B-5886 rendered by Judge Antonio S. Pozas is REINSTATEDonly insofar
as it ordered respondents to jointly and severally pay petitioners ₱1,800,000.00 representing the amount withdrawn from the
latter’s account. The award of moral damages and attorney’s fees are DELETED.

SO ORDERED.

G.R. No. 167346 April 2, 2007

SOLIDBANK CORPORATION/ METROPOLITAN BANK AND TRUST COMPANY,* Petitioner, vs. SPOUSES PETER and SUSAN
TAN, Respondents.

DECISION

CORONA, J.:
Assailed in this petition for review by certiorari under Rule 45 of the Rules of Court are the decision 1 and resolution2of the
Court of Appeals (CA) dated November 26, 2004 and March 1, 2005, respectively, in CA-G.R. CV No. 58618, 3 affirming the
decision of the Regional Trial Court (RTC) of Manila, Branch 31.4

On December 2, 1991, respondents’ representative, Remigia Frias, deposited with petitioner ten checks worth ₱455,962. Grace
Neri, petitioner’s teller no. 8 in its Juan Luna, Manila Branch, received two deposit slips for the checks, an original and a
duplicate. Neri verified the checks and their amounts in the deposit slips then returned the duplicate copy to Frias and kept the
original copy for petitioner.

In accordance with the usual practice between petitioner and respondents, the latter’s passbook was left with petitioner for
the recording of the deposits on the bank’s ledger. Later, respondents retrieved the passbook and discovered that one of the
checks, Metropolitan Bank and Trust Company (Metrobank) check no. 403954, payable to cash in the sum of ₱250,000 was not
posted therein.

Immediately, respondents notified petitioner of the problem. Petitioner showed respondent Peter Tan a duplicate

copy of a deposit slip indicating the list of checks deposited by Frias. But it did not include the missing check. The deposit slip
bore the stamp mark "teller no. 7" instead of "teller no. 8" who previously received the checks.

Still later, respondent Peter Tan learned from Metrobank (where he maintained an account) that Metrobank check no. 403954
had cleared after it was inexplicably deposited by a certain Dolores Lagsac in Premier Bank in San Pedro, Laguna. Respondents
demanded that petitioner pay the amount of the check but it refused, hence, they filed a case for collection of a sum of money
in the RTC of Manila, Branch 31.

In its answer, petitioner averred that the deposit slips Frias used when she deposited the checks were spurious. Petitioner
accused respondents of engaging in a scheme to illegally exact money from it. It added that, contrary to the claim of
respondents, it was "teller no. 7" who received the deposit slips and, although respondents insisted that Frias deposited ten
checks, only nine checks were actually received by said teller. By way of counterclaim, it sought payment of ₱1,000,000 as
actual and moral damages and ₱500,000 as exemplary damages.

After trial, the RTC found petitioner liable to respondents:

Upon examination of the oral, as well as of the documentary evidence which the parties presented at the trial in support of
their respective contentions, and after taking into consideration all the circumstances of the case, this Court believes that the
loss of Metrobank Check No. 403954 in the sum of ₱250,000.00 was due to the fault of [petitioner]…[It] retained the original
copy of the [deposit slip marked by "Teller No. 7"]. There is a presumption in law that evidence willfully suppressed would be
adverse if produced.

Art. 1173 of the Civil Code states that "the fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the person of the time and of the place";
and that "if the law or contract does not state the diligence which is to be observed in the performance, the same as expected of
a good father of a family shall be required."

…For failure to comply with its obligation, [petitioner] is presumed to have been at fault or to have acted negligently unless
they prove that they observe extraordinary diligence as prescribed in Arts. 1733 and 1735 of the Civil Code (Art. 1756)…

xxx xxx xxx

WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondents], ordering [petitioner] to pay the
sum of ₱250,000, with legal interest from the time the complaint [for collection of a sum of money] was filed until satisfied;
₱25,000.00 moral damages; ₱25,000.00 exemplary damages plus 20% of the amount due [respondents] as and for attorney’s
fees. With costs.

SO ORDERED.5

Petitioner appealed to the CA which affirmed in toto the RTC’s assailed decision:
Serious doubt [was] engendered by the fact that [petitioner] did not present the original of the deposit slip marked with "Teller
No. 7" and on which the entry as to Metrobank Check No. 403954 did not appear. Even the most cursory look at the
handwriting thereon reveal[ed] a very marked difference with that in the other deposit slips filled up [by Frias] on December 2,
1991. Said circumstances spawn[ed] the belief thus, the said deposit slip was prepared by [petitioner] itself to cover up for the
lost check.6

Petitioner filed a motion for reconsideration but the CA dismissed it. Hence, this appeal.1a\^/phi1.net

Before us, petitioner faults the CA for upholding the RTC decision. Petitioner argues that: (1) the findings of the RTC and the CA
were not supported by the evidence and records of the case; (2) the award of damages in favor of respondents was
unwarranted and (3) the application by the RTC, as affirmed by the CA, of the provisions of the Civil Code on common carriers
to the instant case was erroneous.7

The petition must fail.

On the first issue, petitioner contends that the lower courts erred in finding it negligent for the loss of the subject check.
According to petitioner, the fact that the check was deposited in Premier Bank affirmed its claim that it did not receive the
check.

At the outset, the Court stresses that it accords respect to the factual findings of the trial court and, unless it overlooked
substantial matters that would alter the outcome of the case, this Court will not disturb such findings. 8We meticulously
reviewed the records of the case and found no reason to deviate from the rule. Moreover, since the CA affirmed these findings
on appeal, they are final and conclusive on us. 9 We therefore sustain the RTC’s and CA’s findings that petitioner was indeed
negligent and responsible for respondents’ lost check.

On the issue of damages, petitioner argues that the moral and exemplary damages awarded by the lower courts had no legal
basis. For the award of moral damages to stand, petitioner avers that respondents should have proven the existence of bad
faith by clear and convincing evidence. According to petitioner, simple negligence cannot be a basis for its award. It insists that
the award of exemplary damages is justified only when the act complained of was done in a wanton, fraudulent and oppressive
manner.10

We disagree.

While petitioner may argue that simple negligence does not warrant the award of moral damages, it nonetheless cannot insist
that that was all it was guilty of. It refused to produce the original copy of the deposit slip which could have proven its claim
that it did not receive respondents’ missing check. Thus, in suppressing the best evidence that could have bolstered its claim
and confirmed its innocence, the presumption now arises that it withheld the same for fraudulent purposes. 11

Moreover, in presenting a false deposit slip in its attempt to feign innocence, petitioner’s bad faith was apparent and
unmistakable. Bad faith imports a dishonest purpose or some moral obliquity or conscious doing of a wrong that partakes of
the nature of fraud.12

As to the award of exemplary damages, the law allows it by way of example for the public good. The business of banking is
impressed with public interest and great reliance is made on the bank’s sworn profession of diligence and meticulousness in
giving irreproachable service.13 For petitioner’s failure to carry out its responsibility and to account for respondents’ lost check,
we hold that the lower courts did not err in awarding exemplary damages to the latter.

On the last issue, we hold that the trial court did not commit any error.1awphi1.nét A cursory reading of its decision reveals
that it anchored its conclusion that petitioner was negligent on Article 1173 of the Civil Code. 14

In citing the different provisions of the Civil Code on common carriers, 15 the trial court merely made reference to the kind of
diligence that petitioner should have performed under the circumstances. In other words, like a common carrier whose
business is also imbued with public interest, petitioner should have exercised extraordinary diligence to negate its liability to
respondents.

Assuming arguendo that the trial court indeed used the provisions on common carriers to pin down liability on petitioner, still
we see no reason to strike down the RTC and CA rulings on this ground alone.
In one case,16 the Court did not hesitate to apply the doctrine of last clear chance (commonly used in transportation laws
involving common carriers) to a banking transaction where it adjudged the bank responsible for the encashment of a forged
check. There, we enunciated that the degree of diligence required of banks is more than that of a good father of a family in
keeping with their responsibility to exercise the necessary care and prudence in handling their clients’ money.

We find no compelling reason to disallow the application of the provisions on common carriers to this case if only to
emphasize the fact that banking institutions (like petitioner) have the duty to exercise the highest degree of diligence when
transacting with the public. By the nature of their business, they are required to observe the highest standards of integrity and
performance, and utmost assiduousness as well.17

WHEREFORE, the assailed decision and resolution of the Court of Appeals dated November 26, 2004 and March 1, 2005,
respectively, in CA-G.R. CV No. 58618 are hereby AFFIRMED. Accordingly, the petition is DENIED.

Costs against petitioner.

SO ORDERED.